Court of Appeal for Ontario

Date: 2017-06-13 Docket: C63101 Judges: LaForme, van Rensburg and Huscroft JJ.A.

In the Matter of the Arbitration Act, 1991, S.O. 1991, c. 17

And In the Matter of an Arbitration Award dated September 8, 2015

And In the Matter of an Arbitration between the City of Toronto and 652443 Canada Inc.

And In the Matter of Clause 7(c) of a Ground Lease from the Municipality of Metropolitan Toronto to Upper Canada Place Limited dated as of the 1st day of December, 1971 – Bloor and Yonge Streets, Toronto.

Between

652443 Canada Inc. Appellant

and

City of Toronto Respondent

Counsel: Ronald G. Slaght Q.C. and Scott Rollwagen, for the appellant Cynthia B. Kuehl and Christopher T. Shorey, for the respondent

Heard: May 17, 2017

On appeal from the order of Justice Barbara Conway of the Superior Court of Justice, dated November 23, 2016, with reasons reported at 2016 ONSC 7147.

Reasons for Decision

Introduction

[1] The respondent landlord, City of Toronto (the "City") and the appellant tenant, 652443 Canada Inc. ("Brookfield") are parties to a 99-year ground lease dated December 1, 1971, for the Hudson's Bay Centre at Yonge and Bloor Streets in Toronto (the "Lease").

[2] The Lease provided for the annual rent for the initial rental period of 40 years. The "Fair Market Rental" for the second rental period (December 1, 2011 to November 30, 2037) was to be agreed between the parties, failing which either party could submit the issue to arbitration. Article 7 of the Lease sets out the procedure for the arbitration and provides at Sub-Article 7(c):

The 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.

[3] The City provided notice of arbitration to Brookfield on November 30, 2011. The parties negotiated and entered into an agreement, the Terms of Appointment of Arbitral Tribunal and Arbitration Agreement dated July 13, 2013 (the "Arbitration Agreement"). The Arbitration Agreement named the three arbitrators and set out a detailed procedure for the arbitration. Section 10 of the Arbitration Agreement provides for an appeal as follows:

The 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.

[4] The arbitration proceeded over 68 days between June 2014 and July 2015. The arbitration award (the "Award") was rendered September 8, 2015.

[5] Brookfield served and filed a notice of appeal in the Superior Court, alleging numerous errors in the Award's determination of the Fair Market Rental for the property, and a denial of natural justice. The City responded with a motion to quash, asserting that, as s. 10 of the Arbitration Agreement provided for an appeal of the Award in accordance with the Arbitration Act, 1991, S.O. 1991, c. 17, there was no right of appeal, except on a question of law, with leave. Brookfield relied on the Lease and affidavit evidence to argue that broader rights of appeal had been agreed between the parties.

[6] The motion judge refused to consider the affidavit evidence, and held: (i) the Arbitration Agreement was a stand-alone agreement that provided only for appeals on questions of law, with leave; (ii) even if the Lease were considered, it did not provide for broader rights of appeal; and (iii) Brookfield's notice of appeal raised only questions of fact or mixed fact and law. She therefore quashed the appeal.

[7] Brookfield appeals the order. For the reasons that follow, we dismiss the appeal.

Issues on Appeal

[8] The central issue on appeal is whether the motion judge erred in concluding that the only right of appeal from the Award is on a question of law, with leave.

[9] The appellant submits the motion judge erred in refusing to admit affidavit evidence as part of the factual matrix in interpreting the parties' agreement. The appellant also asserts that the motion judge erred in concluding that the parties' rights of appeal were governed by the Arbitration Agreement as a stand-alone agreement, and in failing to give effect to article 7(c) of the Lease, which the appellant says affords the right to appeal the Award on questions of fact and mixed fact and law.

[10] At the hearing of the appeal, the appellant abandoned its further argument that the motion judge erred in concluding its notice of appeal did not raise any question of law.

Analysis

(1) Standard of Review

[11] The interpretation of the Arbitration Agreement involved questions of mixed fact and law. The motion judge's interpretation of the Agreement is, therefore, reviewable on a standard of reasonableness: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 SCR 633, at paras. 50 and 106. Her interpretation involved, as an integral part of the interpretation process, consideration of the meaning of the provisions of the relevant arbitration statutes. This was not however an "extricable" legal issue, that would be reviewable on a standard of correctness. As the appellant asserted in argument, the issue before the motion judge was two competing interpretations of s. 10 of the Arbitration Agreement. In any event, the disposition of this appeal does not turn on the standard of review. As we explain, we see no error in the motion judge's analysis.

(2) Did the Motion Judge Err in Refusing to Consider the Affidavit Evidence?

[12] First, we address the appellant's argument that the motion judge erred in refusing to admit, as part of the "factual matrix", the affidavit evidence of counsel for the parties. That evidence described the chronology and manner in which the Arbitration Agreement was prepared, and their competing views as to what was intended in relation to appeal rights.

[13] The motion judge correctly observed that evidence with respect to the factual matrix includes objective evidence of the background facts known to the parties at the time of execution of the contract, but does not include evidence of negotiations and of a party's subjective intentions: Sattva, at paras. 47, 58 and 59; The Canada Trust Company v. Browne, 2012 ONCA 862, 115 O.R. (3d) 287, at para. 71. The motion judge characterized the affidavits in this case as evidence of the parties' negotiations and of their subjective intentions with respect to the scope of their appeal rights, and she struck the affidavits.

[14] The affidavits did not, as the appellant submits, offer evidence of the parties' mutual objectives, in the sense referred to in Langley Lo-Cost Builders Ltd. v. 474835 Ltd., 2000 BCCA 365, 76 B.C.L.R. (3d) 278. In that case, the B.C. Court of Appeal emphasized that negotiations between the parties are not relevant in determining the meaning of the language they used. Instead, the fact that the parties were in negotiations, and the reasons for the negotiations, including the "commercial objectives of the parties", may be part of the factual matrix: at para. 29. "Commercial objectives of the parties" must be understood to mean what the parties together were seeking to achieve in their negotiations (such as, here, the conclusion of an Arbitration Agreement). It is not simply another way of referring to one party's subjective intentions, evidence of which is clearly inadmissible.

[15] Further, we reject the appellant's assertion that the affidavit evidence was admissible as "objective evidence as to what the parties were talking about." This characterization does not assist the appellant or make such evidence relevant or admissible. The motion judge's characterization of the affidavit evidence of counsel for the parties as evidence of the parties' subjective intentions, and her decision to strike the affidavits, were reasonable and based on the correct legal principles. We therefore do not give effect to this ground of appeal.

(3) Interpreting the Parties' Agreement about Appeal Rights

[16] We turn to the appellant's argument respecting the interpretation of the Arbitration Agreement, the Lease, and the parties' rights of appeal from the Award.

[17] The motion judge concluded at para. 26 of her reasons:

Whether the Arbitration Agreement is interpreted as a stand-alone agreement or with reference to the terms of the Lease, the result is the same – the parties are entitled to appeal the Award in accordance with the 1991 Act, and may appeal only on questions of law with leave of the court.

[18] Under the Arbitration Act, 1991, if the arbitration agreement does not deal with appeals on questions of law, a party may appeal on a question of law with leave: s. 45(1). Section 45(3) provides for an appeal on a question of fact or on a question of mixed fact and law "if the arbitration agreement so provides". Brookfield contends that the motion judge erred in rejecting its argument that article 7(c) of the Lease, in referring to the Arbitrations Act, R.S.O. 1970, c. 25, conferred broad rights of appeal from an arbitration award (including on questions of fact and mixed fact and law). It argues these rights were carried through to, or informed the interpretation of, the Arbitration Agreement.

[19] We reject this argument.

[20] First, the motion judge reasonably concluded that the Arbitration Agreement was intended to be a stand-alone agreement governing the arbitration and any rights of appeal from the Award. As such, she did not have to consider the provisions of the Lease or the 1970 Act.

[21] The Lease provisions concerning arbitration are very brief, consisting of four clauses. The parties chose to enter into a detailed Arbitration Agreement, which included a comprehensive procedure for the arbitration, that in certain respects differs from what was provided for under the Lease (for example, in the manner of appointment of the arbitrators). There is no reason to conclude that, having set out in some detail the procedure for the arbitration, including addressing an appeal from the Award, the parties assumed that any provision of the Lease respecting the arbitration would continue to apply, especially where inconsistent with the Arbitration Agreement. And there is no merit to the appellant's argument that, because the Arbitration Agreement referred to article 1(d) of the Lease, it must have intended the arbitration to be governed by the terms of the Lease. This is simply a recital of the circumstances in which the arbitration is taking place – "for the determination of Fair Market Rental for the Second Rental Period as those terms are defined in the Lease". We agree with the motion judge that "there is no need to refer back to the Lease in order to interpret any of the terms of the Arbitration Agreement".

[22] Second, even if the arbitration provisions of the Lease were considered, the motion judge reasonably concluded the result would be the same. Article 7(c) refers to the decision of the arbitrators being "subject to appeal in accordance with the provisions of [the 1970 Act], or any successor Act" (emphasis added). By its terms the Lease anticipated an appeal would be governed by the arbitration legislation in force at the time of the arbitration. We see no merit in the appellant's argument that the reference to the 1970 Act addressed substantive rights to appeal an arbitrator's award, while "any successor Act" would only apply to the arbitration procedure. Both the Lease and the Arbitration Agreement provide for the parties' appeal rights to be governed by the Arbitration Act, 1991.

[23] Finally, we agree with the motion judge that, if the parties intended to have broader rights of appeal, they would have so provided explicitly in the Arbitration Agreement. The parties were represented by experienced counsel who, as the motion judge noted "are presumed to know that the Arbitration Act, 1991 requires the agreement to specify whether the parties have the right to appeal questions of law, fact or mixed fact and law, failing which they are entitled to appeal only on questions of law, with leave". The parties chose to enter into the Arbitration Agreement which included a specific appeal provision that referenced the 1991 Act, without saying anything more.

Disposition

[24] For these reasons, the appeal is dismissed. Costs to the City in the amount agreed between the parties, $12,000, inclusive of disbursements and HST.

"H.S. LaForme J.A."

"K. van Rensburg J.A."

"Grant Huscroft J.A."