Case Commentary – Arbitration Agreements

Many commercial contracts include an arbitration clause, which provides alternative means of resolving disputes without resorting to the courts. Recently, the Ontario Court of Appeal determined the application of an arbitration agreement, and whether the terms of a prior lease between the parties that mentioned arbitration should be considered part of their arbitration agreement.

History of the case and arbitration decision

This case arose from a 99-year lease between the City of Toronto and 6524443 Canada Inc. (“Brookfield”) which provided that a new “Fair Market Rental” would be agreed for the period beginning December 1, 2011. If no agreement was reached, the lease allowed either party to submit the matter to arbitration. The arbitration clause in the lease provided that, “[t]he decision of the arbitrators shall be subject to appeal in accordance with the provisions of the Arbitrations Act, R.S.O. 1970, as amended, or any successor Act.”

The City sought arbitration, and the parties signed an arbitration agreement (the “Agreement”) which provided that, “[t]he decision of the arbitrators shall be subject to appeal in accordance with the provisions of the Arbitration Act, 1991, S.O. 1991, c. 17 as amended, or any successor Act.” The arbitration concluded in September 2015.

Unlike the 1970 Act, which applied to all appeals regardless of their basis, the 1991 Act distinguishes between appeals on questions of fact versus appeals on questions of mixed fact and law.

6524443 Canada Inc. v. Toronto (City)

Brookfield sought to appeal the arbitrator’s decision, claiming errors in the determination of the “Fair Market Rental” for the property and a denial of natural justice. The City then brought a motion to quash that appeal, arguing that there was no right to appeal, as the Arbitration Act, 1991 does not permit appeals except on questions of pure law with leave of the court.

The motions judge found in favour of the City, holding that the Agreement constituted the entirety of the parties’ mutual understanding with respect to arbitration. Accordingly, Brookfield could not rely on the 1970 Act as referenced in the lease to seek broader grounds for appeal. Since Brookfield had raised questions of mixed fact and law, the appeal was quashed. Brookfield then appealed this decision to the Ontario Court of Appeal.

The Court of Appeal agreed with the motions judge, and concluded that the lease did not form part of the Agreement. As the parties had entered into a detailed Arbitration Agreement, setting out the procedure for arbitration (including an appeal from the arbitration award), the Court found no reason to conclude that the parties assumed that any provision of the lease regarding arbitration would continue to apply, especially where inconsistent with the Arbitration Agreement. Additionally, the Court noted that the lease itself stated that the decision of the arbitrators would be “subject to appeal in accordance with the provisions of [the 1970 Act], or any successor Act. This language in the lease was found to indicate the parties’ anticipation that an appeal would be governed by the arbitration legislation in force at the time of the arbitration. Finally, the Court reasoned that if the parties intended to have broader rights of appeal, they would have outlined this explicitly in their Arbitration Agreement.

Legal assistance for arbitration agreements and commercial disputes

This case illustrates that businesses must carefully consider the terms in any contract that deal with arbitration, and not proceed to arbitration without confirming that any arbitration agreement accurately sets out the parties’ understanding of their respective rights and obligations.

The business law team at Duncan Linton LLP is experienced at drafting and reviewing commercial contracts, including agreements relating to arbitration. We can assist at any stage to ensure that your contracts address and mitigate any potential risks to your business. Call 519-886-3340 to schedule an appointment with one of our skilled lawyers, or contact us online.