Arbitration

Ontario: when the court can determine the timeliness of an arbitral proceeding

The Superior Court decision in Maisonneuve v. Clark makes two findings about the limitation of arbitral proceedings.

First, when a party applies for an order referring a dispute to arbitration, the court has the jurisdiction to determine the timeliness of the arbitration pursuant to s. 7(2) of the Arbitration Act.

Second, where an arbitration clause requires the parties attempt to resolve a dispute prior to requesting arbitration, arbitration won’t become an appropriate remedy (and the claim pursued in the arbitration will not be discoverable) until the satisfaction of that requirement:

[46]           In at least two cases, Ontario courts have held that, where the parties have agreed to exchange information, negotiate or mediate prior to arbitration, the limitations clock does not begin to run until they have done so.

[47]           In L-3 Communication SPAR Aerospace Limited v. CAE Inc., 2010 ONSC 7133 (CanLII), Kershman J. considered the limitations applicable to a notice of arbitration by CAE issued pursuant to a contract with L-3 that specified that the “price and other adjustments that are not agreed between the parties may be referred to arbitration … by either party”.  He held that CAE’s request to arbitrate would have been premature if attempts to negotiate a price adjustment had not yet taken place.  As a result, until the failure of negotiations, an arbitration would not be an appropriate proceeding and limitations did not begin to run. Since the notice to arbitrate was served within two years of L-3’s refusal to engage in further negotiations, the arbitration was not time-barred.

[48]           In PQ Licensing S.A. v. LPQ Central Canada Inc., 2018 ONCA 331 (CanLII), the Court of Appeal dismissed an appeal of an arbitrator’s ruling rejecting a limitations defence.  The parties entered into a franchise agreement whereby they had to engage in mediation of any dispute before initiating arbitration. The arbitrator concluded that arbitration was not appropriate within the meaning of s. 5(1) of the Limitations Act until after the parties had mediated or one of the parties had refused to do so.  Although the franchisee served a notice to arbitrate almost four years after the parties’ contract was rescinded, it was within two years from the franchisor’s refusal to respond to a notice to mediate. The Court of Appeal upheld the arbitrator’s decision that, in the circumstances, the arbitration proceeding was not time-barred.

[49]           Applying these decisions to this case, if I find that Arbitration Clause required the parties to attempt to resolve the Excluded Issue prior to requesting arbitration, then arbitration did not become appropriate until this occurred.  As a result, the two-year limitation period would not have begun to run until Maisonneuve realized, or ought to have realized, that Clark refused to engage in any discussions on the issue.

Ontario: appealing from an arbitrator’s limitations decision

The decision in Tall Ships Landing Devt. Inc. v. City of Brockville is a rare example of an appeal to the court from an arbitrator’s limitations decision pursuant to ss. 45(2) and 46(1) of the Arbitation Act, 1991.  The arbitrator found the claim statute-barred without determining when the claims became discoverable or considering the claimant’s appropriateness argument. The application judge held that that the arbitrator’s reasons were inadequate, and asked for further submissions on the appropriate remedy:

[51]           In addition to finding that Tall Ships had waived its right to dispute the City’s determination of its remediation claims the Arbitrator also concluded that its claims were time-barred.  For Tall Ships to successfully challenge the dismissal of the claims, it must also show that he erred on the limitations issue.

[52]           In rejecting Tall Ships’ submissions on limitations, the Arbitrator stated summarily that the remediation claims “were certainly well beyond the two-year limitation period”.  He did not address Tall Ships’ argument that it would not have been legally appropriate for it to sue the City at the time. He did not make any finding about when the claims became discoverable.
[53]           The City contends that the Arbitrator’s failure to provide more detailed reasons is not an error of law.  It says that the Arbitrator did not need to elaborate on the limitations issue, because his conclusions on that issue were self-evident.  I disagree.
[54]           The Supreme Court has cautioned that adequacy (or rather inadequacy) of reasons is not, in of itself, a basis for quashing an arbitral award; Newfoundland and Labrador Nurses’ Union v. Newfoundland and Labrador (Treasury Board), 2011 SCC 62, [2011] 3 S.C.R. 708, at para. 14.
[55]           Tall Ships’ counsel points out that the decision in Newfoundland Nurses was not made in the context of an appeal from an arbitral award governed by the Arbitration Act, and that s. 38(1) of the Act explicitly requires that an arbitral award must state the reasons on which it is based.  It also relies on cases (Kalatzis v. Daniels, 2002 CarswellOnt 8527 (ONSC); Peters v. D’Antonio, 2016 ONSC 7141) where arbitrators provided no reasons at all.
[56]           In my view, s. 38(1) must be read in light of the principles articulated in Newfoundland Nurses, because the reasoning in that case is not at odds with the obligation to provide reasons.  The question explored by Justice Abella in that case was rather: when are the stated reasons sufficient?  The key passage in Newfoundland Nurses at para. 16 on this point applies equally in the context of a review under the Arbitration Act:
Reasons may not include all the arguments, statutory provisions, jurisprudence or other details the reviewing judge would have preferred, but that does not impugn the validity of either the reasons or the result under a reasonableness analysis.   A decision-maker is not required to make an explicit finding on each constituent element, however subordinate, leading to its final conclusion… .  [I]f the reasons allow the reviewing court to understand why the tribunal made its decision and permit it to determine whether the conclusion is within the range of acceptable outcomes, the Dunsmuir criteria are met.  [Internal citations omitted, emphasis added.]

[57]           Applying this test, I must consider whether the Arbitrator’s reasons permit me to understand why he concluded that Tall Ships’ remediation claims were time-barred.

[58]           Section 4 of the Limitations Act, 2002, SO 2002, c 24, Sch B. (the “Limitations Act”) provides that the applicable limitation period begins to run only when a claim is discoverable.  In its written submissions to the Arbitrator, Tall Ships argued that discoverability did not begin to run when it received the City’s responses to its claims, because it did not suffer any immediate loss.   It further argued that it would have been inappropriate for it to initiate a legal proceeding against the City at the time.
[59]           The Ontario Court of Appeal has consistently held that consideration of when a proceeding was an appropriate means to remedy a claim is an essential element in the discoverability analysis.  Failure to consider s. 5(1)(a)(iv) of the Limitations Act is an error of law: Presley v. Van Dusen, 2019 ONCA 66, at para. 15, and the decisions cited therein.
[60]           I infer, based on the Arbitrator’s summary handling of this issue, that he agreed with the City’s submission that the starting point for the two-year limitation period was Tall Ships’ receipt of the City’s responses to the claims.   There is nothing in the reasons, however, that allows me to understand, or even speculate, as to why the Arbitrator concluded that the claims were discoverable at that time.  He does not indicate any basis for finding that Tall Ships sustained a loss, as required under s. 5(1)(a)(i) of the Limitations Act, or that it was appropriate for it to begin legal proceedings at the time, as required under s. 5(1)(a)(iv).  As aptly noted by counsel for Tall Ships, a judge may be required to connect the dots but there must be dots to connect, and there are none here.
[61]           I conclude that the Arbitrator failed to provide any meaningful reasons for the rejection of Tall Ships’ limitation argument, and that there is nothing to indicate that he turned his mind to the discoverability issue.  His failure to comply with s. 38(1) of the Arbitration Act permits the court to set the award aside under s. 46(1)(7).  This was not a mere technical noncompliance with the Act, but an error which undermines the fairness of the arbitral process and the ability of the court to ascertain whether the Arbitrator’s award falls within the range of reasonable outcomes.

[187]      The Arbitrator’s errors were not trivial. They had a clear impact on the outcome of the arbitration. The Awards therefore cannot stand. I am not however in a position to vary the Awards.

[188]      Recognizing this, counsel for both parties at the hearing before me agreed that, if I concluded that the Arbitrator had made serious, reversible errors, I should solicit further submissions from them on the appropriate remedy. This would give the parties the opportunity to assess the best course of action in light of my reasons.  I expect that the parties will also wish to make submissions on costs.
[189]      I accordingly direct the parties, through counsel, to contact the trial management office in Ottawa to schedule a case management conference before me as soon as reasonably possible, so that a timetable for submissions on remedy and costs may be ordered. I encourage counsel to communicate with each other in advance of the case conference to see if they are able to agree on a timetable and cost order for my review and endorsement.

Ontario: Court of Appeal reminds us that arbitration doesn’t suspend the limitation period

 

In Gravelle (CodePro Manufacturing) v. Denis Grigoras Law Office, the Court of Appeal held that a party who writes a letter with the subject line “Notice of Pending Legal Malpractice Action”, and advises that “a statement of claim is currently being drafted against yourself […] such as to avoid the expiration of the applicable statute of limitation periods”, has discovered his claim.

If the party subsequently pursues arbitration in lieu of an action, that will not have the effect of suspending the commencement of the limitation period:

[6]         This is not a case in which the appellant was pursuing alternative means of resolving his negligence allegations against his former solicitors, the respondents. The appellant decided for tactical reasons not to bring his action against the respondents until the arbitration proceedings were completed. He was entitled to make this choice, but he must live with the consequences of it. The motion judge made no error in concluding that the appellant discovered his claim by November 23, 2009. The fact that a notice of possible claim has been delivered “may be considered by a court in determining when the limitation period in respect of the person’s claim began to run”: Limitations Act, 2002, s. 14(3).

This is a useful s. 5(1)(a)(iv) decision because it provides an example of the kind of tactical consideration that does not prevent a proceeding from being an appropriate remedy.

It’s also an interesting counterpoint to this decision.