Jessica Crow, the president of YCAP, introduced the panel, which looked at Canadian arbitration caselaw and brought together two arbitral organizations: YCAP and Arbitration Matters. It was also a novel moment at CanArbWeek, as YCAP ran their first ever multilingual panel, complete with live translation. Lisa Munro (Lerners), the moderator for this panel, was joined by panelists Laura Cundari (Blakes; Arbitration Place), Eric Bédard (Woods; Arbitration Place), and Marie-Claude Martel (Forseti).
The panel came about as a result of the joint efforts of Cundari, Bédard, Martel, and Munro on the Arbitration Matters website, which summarizes key cases from across the country as they are released. Through their work, they have identified various trends in arbitration over the last two years, which they described throughout the panel. Bédard spoke about arbitral appointments, challenges, and resignations. Cundari spoke about challenges to the preliminary jurisdiction and stays. And finally, Martel spoke about binding non-signatories to arbitration agreements.
Munro began by asking Bédard to give his thoughts on recent cases regarding challenges to arbitral appointments and resignations. Bédard began (in French) by signalling his pleasure at seeing so many audience members who did not need to rely on translation. He began with the topic of decisions that deal with the makeup of the tribunal. First, what happens when a member resigns? Second, what are the challenges arising from tribunal members who appear to be partial? In Quebec, the Civil Code regulates the tribunal, and there are provisions that forbid parties from being in a privileged position when choosing an arbitrator. In the rest of Canada, there are equivalent provisions in the various Arbitration Acts, both nationally and internationally.
When dealing with the issue of resignation of an arbitrator, Bédard addressed two decisions: SZ v JZ (ABQB) and Kubecka v Novakovic. Both cases involved the resignation of an arbitrator after the arbitrator had been named, but there were different ultimate outcomes. In SZ, no arbitrator was named in replacement and the arbitration was terminated. In Kubecka, a replacement arbitrator was named, and the arbitration was able to continue. Why these different results?
Bédard contends it was largely a matter of differences in the arbitration clauses. In SZ, the Court concluded that the parties had chosen a specific arbitrator because the clause required the parties to agree on an arbitrator; Bédard also contends that this conclusion is debatable, since, by definition, an arbitrator must be chosen by agreement of both parties. The Judge in this case then relied on Alberta statutory law that said that if a specific arbitrator was chosen and there was a resignation, the arbitration would therefore be terminated. In Kubecka, the parties had specifically written into the arbitration clause that neither party could unilaterally withdraw from the proceedings, but that the appointed arbitrator could resign and that the proceedings would continue with alternate arbitrator. The Judge in this case concluded that while arbitrator resignation would not have led to a termination of proceedings anyway, this was made even more clear by the parties’ stipulation.
Munro jumped in at this point with some comments. She agreed that the outcomes were determined by the language in the arbitration agreements. She also agreed that the distinction was that in SZ, the settlement agreement stipulated that arbitration take place in front of a specific arbitrator. She then noted that the Court in SZ also pointed out that whether an arbitrator has met their duty to the parties is decisive in determining whether their resignation is a good faith exercise of their jurisdiction (here, the arbitrator resigned due to scheduling issues and the fact that the proceedings were likely to be protracted). She further commented that this was an interesting example of how the Court applied the Wastech analysis to this specific context. This case also raises the question: what kind of duty does an arbitrator owe to the parties? She then asked Bédard whether he believed the outcome of either of these cases would have been different had it taken place in Quebec.
Bédard noted that family matters are not arbitrable in Quebec, but despite this, he believes the results would likely have been the same due to the contractual interpretations. Bédard did add, however, that there is a possibility that courts in Quebec would have allowed the arbitration to continue in SZ. This is because the Civil Code provisions in Quebec do not provide for termination of proceedings upon resignation of the arbitrator (which is consistent with language of the Model Law).
Munro further queried whether, since the difference in outcomes between the two cases hinged upon the language of the arbitration clauses, Bédard could give his thoughts on what provisions might be wise to include in order to reduce the risk of an arbitration terminating upon resignation of the arbitrator. She began with an example, stating that it may unwise to identify a specific arbitrator in the agreement.
Bédard agreed it was very risky to name a specific arbitrator. He noted it would be best to address this issue in terms of reference, instead of the arbitration agreement. If parties do insist on naming an arbitrator in the agreement, it is important to specify that resignation of the arbitrator does not terminate the proceedings, and to include a mechanism for appointing a new arbitrator. (This was met with hearty agreement from Munro.) He went further and posed the question of whether it would be wise to include a provision stating that the arbitrator may not resign, as the Judge in SZ seemed inclined to accept the principle that you can have such a provision. He did note, however, that it may not be a good idea to trap an arbitrator in proceedings in which they don’t want to stay.
Munro switched gears and asked Bédard to take the audience through recent cases regarding alleged bias in arbitrators.
Bédard introduced three cases decided in the last year: Dufferin v Morrison Hershfield, Aquanta Group Inc. v Lightbox Enterprises Ltd., and Crédit Transit inc. c Chartrand (not arbitral—a case about judge bias). Although the contexts of the cases differed, the arbitrator was perceived to be partial in all of them. However, in all three of these cases the allegations were rejected, and so they have had very little impact on the proceedings. What is striking about these cases is the question of the standard evidence required—regarding bias—in order to remove an arbitrator.
In Dufferin, arbitration was well underway when one party alleged that the arbitrator was interfering with the party’s ability to present its case. The rule with these allegations is that the complaint must be made within seven days of discovery of the perceived bias, but here the challenge came after the statutory deadline by the complainant party. The Judge decided that the standard of evidence was not met to be sufficient to remove the arbitrator and allowed the proceedings to continue.
In Aquanta Group, the parties had four contracts between them with essentially identical arbitration clauses. The second proceeding between the same parties was beginning, and the party that had been successful in the first proceeding wanted to have the same arbitrator preside again—citing efficiency. The other party disagreed, alleging reasonable fear of bias. The Court decided to name another arbitrator.
In Crédit Transit, one of the parties challenged the judge on the basis that when the judge had been a practising lawyer, the circumstances of their practice gave rise to a fear of partiality. They wished to introduce some of his prior testimonies into evidence. The Court in this case said the judge was protected by judicial immunity, and his prior statements were not admissible.
The common thread in these three cases is the standard of proof. Bédard contends that it is very difficult to introduce extrinsic evidence from arbitral proceedings into judicial proceedings. In Duffrin, transcripts from arbitral proceedings were read to see if the arbitrator did indeed demonstrate any evidence of bias, and the Court found that the arbitrator was simply very well prepared and not at all biased. In Aquanta Group, the proceedings were not transcribed, so the arbitrator would have had to testify based on his notes. Bédard noted that this was ironic, since the party which requested the original arbitrator had consented to the absence of a transcript to save money, and therefore, such extrinsic evidence was not available for judicial proceedings.
Munro made one last comment to Bédard about Duffrin. She noted that the Court in this case said that the behaviour and conduct of the arbitrator was a model of good case management, and that the losing party was simply complaining about vigorous interventions in the name of efficiency. The allegation that the arbitrator was “entering the fray” actually demonstrated that the arbitrator was well-prepared and moved the case forward efficiently.
Munro then called on Cundari, asking her about challenges to preliminary jurisdictional rulings and related stays. She referred to the “reverberations” from Russian Federation v Luxtona Limited, which shows that the role and process of the courts in making these preliminary jurisdiction rulings is unclear.
Cundari began by speaking about a group of Ontario cases that consider jurisdiction and analyze the provisions of the Ontario domestic and international arbitration Acts that empower courts to “decide the matter of an arbitral tribunal’s jurisdiction following a preliminary determination by the tribunal”. In Luxtona, the Court heard an appeal from Russia of a single Justice’s decision that refused to allow fresh evidence to be led on an application brought under Article 16(3) of the Model Law to set aside an interim award on jurisdiction. That provision provides that if an arbitral tribunal rules as a preliminary question that it has jurisdiction, any party may request within 30 days of notice of that ruling that a court decide the matter, and that decision is not subject to appeal. The other decisions relate to applications brought under section 17(8) of Ontario’s domestic Arbitration Act, which similarly provides that parties may apply to have a court decide a jurisdiction matter, but permits such applications after any preliminary jurisdictional ruling, whether the tribunal finds that it does or does not have jurisdiction.
Cundari contended that the Court’s interpretation in Luxtona is clear: the legislative phrase “decide the matter” confers original jurisdiction upon courts, so that there is a hearing de novo without any reference to the tribunal’s ruling. She noted that not everyone agrees with that interpretation. In domestic cases, however, the courts have found no reason to divert from this interpretation. In Hornepayne First Nation v Alberta First Nations (2008) Ltd., the conclusion was the same as that in Luxtona. However, the court in that case did make extensive reference to the tribunal’s decision. In Ong v Fedoruk, the Alberta Court of King’s Bench confirmed that this interpretation is correct under section 17(9) of Alberta’s Arbitration Act.
Cundari added that another important question to consider is: what about the record? Can the court consider evidence outside of the record that was before the tribunal? She contended that if the court hearing is de novo, as a matter of principle the parties should not be restricted to the record that was before the tribunal. She mentioned that the courts seemed to have struggled with this issue but have mostly come to the same conclusion, which is best articulated in Luxtona.
She then discussed Iris Technologies Inc. v Rogers Communications Canada Inc., where the court held that if a tribunal rules on jurisdiction as a preliminary matter, and the party applies to the court to decide the matter, there is no appeal from this decision. This does raise an interesting debate about whether this outcome is problematic or confusing, considering there is no available appeal in this scenario, but there is an appeal if jurisdiction is reviewed by a court after the tribunal issues an award. She notes there may be justifications for this double standard, but that it remains an interesting debate.
Munro interjected that an interesting aspect of Luxtona is the fact that the tribunal called its preliminary ruling on jurisdiction an award. So, the appeal that was made was based both on the statutory provision that empowers a court to decide the matter of a tribunal’s jurisdiction, but also as an application to set aside the award. The language that used has tripped up the courts in the past; Munro mentioned that it will be interesting to see (if Luxtona is appealed further) how the Supreme Court of Canada deals with this issue. She also mentioned another case, Brazeau (County) v Drayton Valley (Town), where the court heard an application to appeal the preliminary ruling of the tribunal, and the Court said this did not sound like an appeal, but an application for judicial review, and considered it as such.
Munro mentioned that the Toronto Commercial Arbitration Society’s Arbitration Act Reform Committee change to this legislation in Ontario, and that we use the Model Law for both domestic and international arbitrations.
Munro then turned it over to J. Brian Casey to add his thoughts. Casey mentioned that the general consensus within the Arbitration Act Reform Committee was to not change the language of the Ontario legislation. He explained that this decision was made in accordance with the logical framework that where there are problems regarding court decisions, it is not up to the legislature to fix—it is up to the court.
Cundari agreed with Casey, saying that at the end of the day, you either have jurisdiction or you don’t.
Munro then asked Cundari to briefly speak about issues regarding stays of litigation. Cundari discussed the pending Peace River Hydro Partners, et al. v Petrowest Corporation, et al. decision, and Mundo Media Ltd. (Re), where there was an issue involving an application to stay an insolvency proceeding because there was a contractual agreement to arbitrate in New York. In Mundo Media, the court referred to the “single proceeding model” in Canadian insolvency law, and to Article 8 of the UNCITRAL Model Law, which provides that arbitration will be stayed if the arbitration agreement is inoperative. This, combined with the discretion conferred on courts by the Bankruptcy and Insolvency Act, allows the court to rule that arbitrations involving an insolvency may be stayed so that all disputes regarding the insolvent debtor may be resolved in a single court proceeding.
Binding non-signatories to arbitration
Munro turned to Martel to speak about binding non-signatories to arbitration, and particularly the apparent trend in Quebec law in which courts are more likely to bring non-signatories into an arbitration.
Martel began by noting that it is perhaps premature to declare the existence of a “trend”, since the issue has only emerged in the last 12 months, but that there have been four recent rulings on this topic: Césario c Régnoux, 10053686 Canada inc. c Tang, Tessier c 2428-8516 Québec inc., and Newtech Waste Solutions inc. c Asselin. These cases seem to be similar in that shareholders and board members bound by arbitration clauses were called into proceedings even though they were not signatories to the agreement. Martel noted that all of these cases are exceptional, in that the general rule remains that only signatories to an arbitration agreement are bound by it.
In Tang, the court held that all the connected proceedings should be under one arbitrator’s jurisdiction, since they were interrelated. Martel mentioned that she believes the judge seemed to have been motivated by the sense that the claimants were deploying a strategy to avoid arbitral jurisdiction by naming non-signatories as respondents.
In Césario, the court similarly stressed that various disputes were closely interconnected. In addition, the court found there were not enough facts before it to decide whether the dispute fell within arbitral jurisdiction and that, based on the competence-competence principle, it should be sent to arbitration for the tribunal to rule on its own jurisdiction. In Tessier, both parties claimed to be the only shareholders of two separate companies, where only one of the companies had an agreement to arbitrate. The court sent both companies to arbitration as a result, with the idea that the arbitration tribunal could decide who was the actual shareholder. This was based mostly on the Civil Code procedure which requires parties to consider litigation-prevention measures, including arbitration. The underlying feature of these cases is a trend toward allowing the arbitrator to decide when there is a question of binding non-signatories. Martel also referred back to Cundari’s remarks, stating that in Quebec, there does not seem to be a debate on whether an application to a court to decide the matter of a tribunal’s jurisdiction involves a de novo hearing.
She turned to Newtech next. There, the arbitral tribunal had already made a decision that it had jurisdiction over Newtech, which was not a signatory to the agreement. Newtech challenged this ruling, but the court sent the back to arbitration, on the basis that the facts and arguments involving Newtech and the agreement signatories were also closely interrelated. The court prioritised having a comprehensive resolution to the dispute, which necessarily required Newtech to be involved in the proceedings. Otherwise, there would be a risk of a contradictory outcomes. The policy objective of promoting access to justice within a reasonable period was also an important factor motivating these four cases.
Munro interjected with some comments of her own. In Tang and Tessier, non-signatories were brought in because of closely intertwined facts or issues. Munro stated that what she found interesting in both these cases was that the court in Tessier noted it would not have been appropriate for parties who did agree to arbitrate to be hampered by the fact that other related parties would not be required to participate in the arbitration. In both these decisions, the courts wanted to avoid an inefficient multiplicity of proceedings as well as the risk of inconsistent outcomes, and so did not want to let technicalities preclude a consolidated arbitral process. Munro then asked Martel what, if anything, was unique to Quebec law that was driving this trend toward binding non-signatories.
Martel began by noting that it is difficult to read into judges’ intentions, but she indicated that one thing that seems to be different between Quebec and the rest of Canada is the difference in civil procedure, which makes it mandatory for parties to consider arbitration in terms of litigation-prevention. This seems to have motivated judges to consider arbitration even for non-signatories. Another difference she indicated was that while almost every matter of arbitral procedure is flexible, , the Quebec legislature has made the principle of proportionality is mandatory. This seems to make a difference in deciding whether to send a party to arbitration or not. The legislature also considers proportionality to be an important aspect of access to justice. Martel stated that she believes that efficient arbitration must necessarily be proportional.
A member of the audience was prompted to ask Martel a question. The commenter said that it is important to stop treating arbitration as a second-class system of dispute resolution and asked whether Quebec courts already treat arbitration as on par with the judicial system. Martel agreed, but stated that change does not come quickly, as this concept was espoused at least as far back as 2003 but, “better late than never!”.
Martel then discussed the CC/Devas (Mauritius) Ltd. c. Republic of India. This case involved two seizures before a judgement by garnishment at the request of plaintiffs seeking monetary enforcement of an outstanding arbitral award against the Republic of India. The company in question is alleged to be an alter ego of the Republic of India, and their assets were frozen. An order had been made against the assets of Air India on the basis that the Republic controlled Air India’s assets to such an extent that they could be seized to satisfy the Republic’s debt. The Court of Appeal overturned this decision. Article 317 of the Civil Code of Quebec requires that a court make a finding of abuse of law, or some infraction against public order, before the corporate veil may be pierced. Martel noted that this case will likely have broader repercussions in Quebec, regarding whether sanctions against India will be enforced—as a response to their outstanding debt. The interrelationship between parties and different claims is an essential aspect of bringing in third parties to arbitration proceedings.
Munro noted that in contrast to the previous cases, where the courts held that it would be a “technicality” not to bind the non-signatories to arbitration, here the Court raised the alter ego theory of liability, and the case was ultimately reversed because the requirements of the alter ego theory were met. While the party to the arbitration agreement was the Republic of India, its wholly-owned corporation, Air India, was the target of the efforts to seize assets to enforce the award. Piercing the corporate veil would have required Air India to be incorporated for the purpose of participating in some kind of wrongdoing or to have been directly involved in wrongdoing. Martel noted Ontario seems to be stricter than Quebec when extending an arbitration agreement to non-signatories, even though Ontario has the legislative avenue to avoid multiplicity of proceedings that Quebec courts have used.
* JD Student, Queen’s University Faculty of Law; MBA Student, J.R. Smith School of Business; Managing Editor of Blogs, Canadian Journal of Commercial Arbitration.