Can a Hearing Proceed by Summary Judgment? Optiva Inc v Tbaytel

Can a Hearing Proceed by Summary Judgment? Optiva Inc v Tbaytel

Andy Hur

Introduction:

When is an arbitral proceeding a hearing under the Ontario Arbitration Act[1] (the “Act”)? This question was answered in Optiva Inc v Tbaytel by Justice Newton of the Ontario Superior Court of Justice (the “Court”), where it was held that a motion for summary judgment in arbitration constitutes a “hearing” in the context of section 26(1) of the Act.[2]  

Background:

Optiva and Tbaytel entered into a Software Supply, License, Hardware and Services Agreement (the “Agreement”). Under the Agreement, Optiva made a series of covenants that, if materially breached, would entitle Tbaytel to terminate the Agreement. In March 2008, after an alleged material breach, Tbaytel terminated the Agreement.

In November 2018, the parties appointed a sole arbitrator and entered into an arbitration agreement. Unusually, the arbitration agreement included an express stipulation that the arbitrator’s jurisdiction included the “jurisdiction to consider and rule upon all motions during the Arbitration including, without limitation, the power to … [make] rulings, directions and generally deal with any and all interlocutory matters and procedural questions relating to the issues within the Arbitration”[3]

In advance of a scheduled merits hearing before the arbitrator, Tbaytel moved for summary judgment. The arbitrator set out a timeline of various procedural steps. Some of which included services of motion record for summary judgment, supporting affidavits, and completion of cross-examination on opposing affidavits. Although Tbaytel cross-examined the deponents of Optiva, Optiva did not cross-examine the deponents of Tbaytel.

At a preliminary hearing on the arbitrator’s jurisdiction to grant summary judgment, Optiva objected, arguing that the arbitrator could not grant summary judgment without their express consent. Although the arbitrator acknowledged that the law was unsettled at the time, he concluded that he had jurisdiction to do so on two grounds. First, subject to the limitation in section 26 (1), section 20 of the Act states that an arbitrator may “determine the procedure to be followed in the arbitration, in accordance with this Act”.[4] Second, the express stipulation in the arbitration agreement lacked any exceptions or exclusions. Ultimately, the arbitrator proceeded by way of summary judgement and issued an award in favour of Tbaytel. Optiva brought an application to the Court to set aside the award.

Issue:

The central issue before the Court was whether a summary judgment constitutes a hearing. Optiva based its argument on section 26(1) of the Act, which requires the party to hold a hearing if the party requests it. Optiva argued that a hearing requires oral evidence, which is not available to the parties at a summary judgement proceeding. Further, by proceeding by summary judgment, Optiva argued that it was not given an opportunity to present its case or to respond to another party’s case, contrary to section 46(1) of the Act.

Decision:

Newton J of the Ontario Superior Court dismissed Optiva’s application to set aside the arbitral award, holding that a decision on a motion for summary judgment constitutes a “hearing” in the context of section 26(1) of the Act.[5]

Section 20 of the Act provides that the arbitrator may “determine the procedure to be followed in the arbitration, in accordance with this Act.”[6] This is, however, subject to the limitation set out in section 26(1):

The arbitral tribunal may conduct the arbitration on the basis of documents or may hold hearing for the presentation of evidence and oral argument; however, the tribunal shall hold a hearing if a party requests it.[7] 

Newton J emphasized that section 26(1) of the Act described a hearing as being held for the presentation of evidence and for oral argument, but not necessarily for the presentation of oral evidence. That is, under the Act, hearings do not require oral evidence. In this case, an oral proceeding was held on the summary judgment motion, which featured both the presentation of evidence via affidavits supplemented by cross-examination, and oral argument.[8]

He also stressed that “summary judgement motions proceed with the requirement that the responding party puts its best foot forward.”[9] Newton J reiterated the Supreme Court of Canada’s decision in Hryniak v Mauldin,[10] where the court held that summary judgement should be available to the parties in an arbitration, subject to the requirement that the process:

(1) allows the arbitrator to make the necessary finding of fact;

(2) allows the arbitrator to apply the law to the facts; and

(3) is a proportionate, more expeditious and less expensive means to achieve a just result.[11]

He further concluded that Optiva failed to provide any convincing argument that, by proceeding by summary judgment, on notice, it was deprived of the opportunity to present its case or respond to the other party’s case.[12] In other words, there was no need for the Court to set aside the award on the ground of unequal or unfair treatment of the applicant, as per section 46(1).[13] Accordingly, Optiva’s application to set aside the award and its appeal from the award were both dismissed.

Conclusion/Opinion

The Ontario Court of Appeal granted leave to appeal this decision. As this case proceeds, there are still some lingering questions. First, what are the consequences of allowing a hearing to proceed by summary judgment over the objection of a party? One foreseeable consequence is that this will expedite arbitrations, which is meant to be a more efficient alternative to court litigation. However, can it result in inequitable outcomes for parties that rely on oral evidence to contest evidentiary claims by the other party? Second, how much should the answer to the first question depend on the particular wording of the arbitration agreement? That is, is the statutory grant of power to determine procedures in an arbitration sufficient for an arbitrator to decide by way of summary judgment, or is some additional language in the agreement required? Third, is this decision compatible with international arbitration legislation? This case was resolved under Ontario’s domestic Arbitration Act. The International Commercial Arbitration Act, which is based on the UNCITRAL Model Law on International Commercial Arbitration,  confers similar powers upon arbitrators to determine the appropriate procedure, within the boundaries of the parties’ agreement[14] However, summary judgment is less accepted in international arbitration, and it is worth considering how compatible this decision is with international arbitration legislation, including with the interpretations of courts in other Model Law jurisdictions.  Hopefully, these questions will be answered by the Ontario Court of Appeal.