ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: 12-CV-00450962
DATE: 20120726
BETWEEN:
Complete Innovations Inc. Appellant – and – Pinpoint GPS Solutions Inc. Respondent
James Jagtoo, for the Appellant
Timothy J. Hill, for the Respondent
HEARD: July 11, 2012
goldstein j.
[ 1 ] This is an appeal pursuant ss. 45(2) and (3) of the Arbitration Act, 1991 , S.O. 1991, c.17 (“ the Act ”) from the order of Arbitrator Larry Banack dated March 14, 2012. This appeal turns on whether the Arbitrator’s ruling is interlocutory or final. In my view, the appeal is interlocutory and for the reasons that follow, the appeal is dismissed.
BACKGROUND
[ 2 ] On July 7, 2006, Complete Innovations Inc. (“ CI ”), the Appellant, signed a Distribution Agreement (“ the Agreement ”) with Pinpoint GPS Solutions Inc. (“ Pinpoint ”). CI provides fleet and mobile resource operations management and tracking solutions to the transportation industry. CI authorized and appointed Pinpoint to promote, market, and distribute its products on a worldwide basis. There was a subsequent amendment to the Agreement on April 1, 2007 (“ the Amendment ”) and a Memorandum of Understanding on April 3, 2007 (“ the MOU ”).
[ 3 ] The Agreement contained a dispute-settlement mechanism providing for the appointment of an arbitrator if the parties were unable to resolve controversies or claims. On April 11, 2011, Pinpoint issued a Notice of Arbitration to CI. In October 2011, shortly after Pinpoint delivered a statement of claim, the parties signed an arbitration agreement setting out the mechanism for the arbitration and appointing Larry Banack as the Arbitrator. The arbitration agreement also provided that the parties may appeal an award on a question of law or mixed fact and law pursuant to ss. 45(2) and (3) of the Act .
[ 4 ] After the exchange of pleadings, CI filed a motion with the Arbitrator pursuant to Rule 20.01(1)(a) and (b) of the Rules of Civil Procedure. At the heart of the motion was the application of paragraph 8(3) of the Agreement. The Arbitrator summarized the motion this way:
“Complete brings a motion seeking:
(a) A Declaration that the Pinpoint claim set out in paragraph 2(a) of the Statement of Claim is barred as it does not fall within the ambit of paragraph 8(3) of the Distribution Agreement dated July 6, 2006;
(b) An Order striking the Pinpoint claim or in the alternative requiring Pinpoint to particularize and quantify its claim;
(c) A Declaration that the second part of section 8(3) of the Distribution Agreement bars recovery for indirect damages claimed;
(d) A Declaration that Pinpoint’s claim for damages is deficient and should be dismissed;
(e) An Order striking Pinpoint’s claims for damages for breach of confidence;
(f) An Order striking Pinpoint’s claim for intentional interference with economic interest.”
[ 5 ] The purpose of the motion was to resolve the whole of the dispute in CI’s favour.
[ 6 ] Paragraph 8(3) of the Distribution Agreement provides as follows:
NEITHER PARTY’S LIABILITY FOR DIRECT DAMAGES (OTHER THAN IN RESPECT OF CHARGES PROPERLY OWED) SHALL EXCEED AN AMOUNT EQUAL TO THE CUMULATIVE AGGREGATE PURCHASE PRICE PAID BY PINPOINT TO CI UNDER THIS AGREEMENT AS OF THE DATE ON WHICH THE EVENT GIVING RISE TO SUCH LIABILITY OCCURRED, NOR SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR ANY INDIRECT, CONSEQUENTIAL, SPECIAL, EXEMPLARY OR INCIDENTAL DAMAGES (INCLUDING, WIHTOUT LIMITATION, DAMAGES RELATING TO LOST PROFITS AND DATA LOSS) WHETHER IN CONTRACT, TORT, OR OTHERWISE, ARISING FROM OR RELATING TO THIS AGREEMENT PROVIDED HOWEVER THAT THE FOREGOING LIMITATIONS SHALL NOT APPLY WITH RESPECT TO DAMAGES ARISING UNDER THE INDEMNITIES IN SECTION 8(1).
[ 7 ] Mr. Jagtoo, for CI argues that Paragraph 8(3) precludes the type of relief that has been sought by Pinpoint. Pinpoint, of course, disagrees. The Arbitrator, in dismissing the motion by CI, stated:
“16. The principles of contract interpretation propounded on behalf of Complete require an understanding of the factual matrix underlying the negotiation and possible consideration of parole evidence. The availability, relevance, and consequence of any evidence can only be determined during the course of a hearing.
Justice as between the parties cannot be achieved through a circumscribed analysis of the language used in the parties’ contract even in circumstances where they have included an “entire agreement” clause.
In light of the factual disputes raised by the pleadings, the substantive interpretation of section 8(3) of the Distribution Agreement should only be made following a full understanding of the factual background as developed during a hearing rather than on an interlocutory motion.
It is trite to say, that a court should not rewrite an agreement of the parties. The relief sought by Complete on this motion may constitute a rewriting of the parties agreement in the absence of a full evidentiary record.
I am of the view that in order to properly interpret the parties’ contract, findings of fact must be made on relevant evidence, properly adduced and subject to cross-examination.”
[ 8 ] The Arbitrator was not satisfied that it was “plain and obvious” that Pinpoint could not succeed, and therefore dismissed the motion.
[ 9 ] The Arbitrator did order that Pinpoint’s claims for damages for breach of confidence and intentional interference with economic relations be struck. Although there is some disagreement as to whether that order was made on consent or was merely unopposed, there is no doubt that CI sought and obtained that order.
[ 10 ] CI appeals the ruling to this Court. Pinpoint argues that The Arbitrator’s ruling was interlocutory, and, therefore, that the appeal should be dismissed as there are no interlocutory appeals available from the arbitration process. CI argues that since the Arbitrator erred in law by failing to find that it was “plain and obvious” that Pinpoint could not succeed, he effectively determined that there was no defence to the Pinpoint claim and, therefore, “finally determined” the issue.
ANALYSIS
[ 11 ] I start with the general principle that interlocutory appeals are not available from arbitration awards, as set out in the Act . There are both policy and practical reasons to restrict appeals from arbitration awards. As a matter of policy, if courts were to permit interlocutory rulings it would undermine the purpose of the arbitration process and make it considerably less useful to disputants. As a practical matter, access to arbitration can be faster and cheaper to the parties, and save valuable judicial resources. As Sharpe J.A. in Inforica Inc. v. CGI Information Systems and Management Consultants Inc. (2009), 2009 ONCA 642 , 97 O.R. (3d) 161 (C.A.) observed:
14 It is clear from the structure and purpose of the Act in general, and from the wording of s. 6 in particular, that judicial intervention in the arbitral process is to be strictly limited to those situations contemplated by the Act. This is in keeping with the modern approach that sees arbitration as an autonomous, self-contained, self-sufficient process pursuant to which the parties agree to have their disputes resolved by an arbitrator, not by the courts. As Inforica states in its factum, "arbitral proceedings are presumptively immune from judicial review and oversight." The Act encourages parties to resort to arbitration, "require[s] them to hold to that course once they have agreed to do so", and "entrenches the primacy of arbitration over judicial proceedings ... by directing the court, generally, not to intervene": Ontario Hydro v. Denison Mines Ltd ., [1992] O.J. No. 2948 (Gen. Div.) , Blair J.
18 A significant feature of the modern approach limiting access to the courts to review decisions of arbitrators is that there are no appeals from procedural or interlocutory orders. In Environmental Export International of Canada Inc. v. Success International Inc ., [1995] O.J. No. 453 (Gen. Div.), at para. 14 , MacPherson J. held: "There is nothing in the Arbitration Act providing for appeals from, or applications to set aside, decisions of arbitrators on procedural points. It would be wrong ... for the courts to invent such a remedy and inject it into the arbitration process". This principle is reiterated in Tescor Energy Services Inc. v. Toronto District School Board , [2002] O.J. No. 74 (S.C.), at para. 30 , where Lane J. held: "there is nothing in the Act to permit appeals from or the setting aside of decisions of arbitrators on procedural points". This is a deliberate policy, "not a lacuna in our law", to protect the autonomy of the arbitral process. The creation of a power by the courts to intervene on interlocutory rulings by arbitrators "would constitute a most serious reproach to the ability of our system of arbitration to serve the needs of users of the arbitral process": K/S A/S Biakh v. Hyundai Corp. , [1988] 1 Lloyd's Rep. 187 (Q.B. Com. Ct.) at p. 189, Steyn J.
[ 12 ] Sub- sections 45(2) and (3) of the Act state:
- (2) If the arbitration agreement so provides, a party may appeal an award to the court on a question of law.
(3) If the arbitration agreement so provides, a party may appeal an award to the court on a question of fact or on a question of mixed fact and law.
[ 13 ] Is the Arbitrator’s decision an “award”, such that it can be appealed? Sharpe J.A. dealt with this question in Inforica , supra :
29 In my view, the arbitrator's order for security for costs was not an "award" within the meaning of s. 46(1). The arbitrator aptly labelled his order as a "Procedural Order” and not as an "award". The Act does not define the term "award", but the term has been held to connote the judgment or order of an arbitral tribunal that "disposes of part or all of the dispute between the parties": Environmental Export International of Canada Inc. v. Success International Inc ., supr a , at para. 13. J. Kenneth McEwan & Ludmila B. Herbst, Commercial Arbitration in Canada , (Aurora, Ont.: Canada Law Book, 2008) state at 9:30.10: "Only decisions determining the substantive issues should be termed 'awards'. Matters relating to the conduct of the arbitration are not awards but, rather, are procedural orders and directions".
[ 14 ] CI is correct that if the Arbitrator had ruled in its favour, the motion would have been a final determination. It would have been Pinpoint that would have had the right of appeal. As D. Brown J. stated in Atlas Holdings, [2012] O.J. No. 877 (Sup.Ct.) :
12 The consequences of an unsuccessful motion under Rule 21.01(1)(a) - question of law - differ from those of an unsuccessful motion under Rule 21.01(1)(b) - no reasonable cause of action. If a defendant moves for the determination of a question of law raised by the pleadings and loses, then the defendant cannot raise that question later as a defence at trial because the order "did...finally dispose of the issue raised by the defence and thereby deprived the defendant of a substantive right which could be determinative of the entire action" : Ball v. Donais (1993), 13 O.R. (3d) 322 (C.A.), para. 3 . By contrast, where a defendant loses a motion to strike out a statement of claim as disclosing no reasonable cause of action, no final determination of an issue in dispute has occurred. As explained by Morden J.A. in R.S. v. R. H. (2000), 52 O.R. (3d) 152 (C.A.) at para. 14 :
In this context, it is understandable why an order dismissing a motion to strike out a pleading is interlocutory. The matter in issue remains to be decided, one way or the other, at trial.
13 The difference between an interlocutory result stemming from a failed "no reasonable cause of action" motion and a final result from a failed "determination of a question of law" motion was made clear by Morden J.A. in the R.S. case at para. 18 :
In my view Ball v. Donais is distinguishable from the present case. Both the terms of rule 21.01(1)(a), under which the order had been made, and the terms of the order itself, which were in accord with the purpose of rule 21.01(1)(a), indicate that the order was a final one. The order finally determined, subject to appeal, that the defendant's limitation period defence was not open to him. In the case before us, although Benotto J. gave very clear reasons for her conclusion that the defendant had not met the burden of establishing that the plaintiff did not have a cause of action, she did not finally resolve the question. As I have said, the purpose of rule 21.01(1)(b) is to enable claims and defences that do not, in law, have a chance of succeeding, to be stricken from the pleadings.
[ 15 ] In this case, CI brought the motion under both Rule 21.01(1)(a) – a question of law – and Rule 21.01(1)(b) – no reasonable cause of action. Even if the Arbitrator was not correct, CI might well still win the arbitration, which neatly illustrates the point as to why interlocutory appeals from arbitral rulings are not entertained by this Court; at the same time, if the Arbitrator was correct in dismissing CI’s motion, the appeal is interlocutory and must be dismissed in any event.
[ 16 ] Notwithstanding my observation that CI might well win the arbitration, I am still not persuaded that the Arbitrator committed an error of law. The test for a motion under either Rule 20.01(1)(a) or Rule 20.01(1)(b) is whether it is “plain and obvious” that the statement of claim discloses no reasonable cause of action: McDonald v. Ontario Hydro (1994), 19 O.R. (3d) 529 (Sup.Ct.) at paras. 9-12 , appeal dismissed (1995), 26 O.R. (3d) 401 (Div.Ct.); Law Society of Upper Canada v. Ernst & Young (2003), 65 O.R. (3d) 577 (C.A.) at para. 49 .
[ 17 ] The heart of the Arbitrator’s ruling was that there were factual disputes that needed to be fleshed out in order for him to determine the rights and liabilities of the parties under the Agreement and subsequent amending documents. Without that factual record, he was of the view that it was not “plain and obvious” that Pinpoint could not succeed.
[ 18 ] Mr. Jagtoo argues that since the parties were sophisticated and that s. 8(3) is not ambiguous, the Arbitrator should have found in CI’s favour since the relief claimed was clearly excluded. He argues that reference to the terms of the contract itself are sufficient to interpret it and that the Arbitrator should have given effect to the intentions of the parties: Canadian Premier Life Insurance Co. v. Sears Canada Inc. , [2010] O.J. No. 3987, 2010 ONSC 3834 (Sup.Ct.) . He further argues that exclusion clauses should be interpreted according to their natural and true construction: Tercon Contractors Ltd. v. British Columbia , 2010 SCC 4 , [2010] 1 S.C.R. 69, [2010] S.C.J. No. 4. By refusing to apply these principles, the Arbitrator erred in law.
[ 19 ] Despite Mr. Jagtoo’s compelling and well-presented argument, I am not persuaded that the Arbitrator erred by finding that it was not plain and obvious that Pinpoint’s claim could not succeed, and that an evidentiary record was required.
[ 20 ] There is support in the cases for the Arbitrator’s position that he required an evidentiary record to interpret the Agreement. In Hi-Tech Group Inc. v. Sears Canada Inc. (2001), 52 O.R. (3d) 97, [2001] O.J. No. 33 (C.A.), Morden J.A. noted:
[23] What is said in Eli Lilly respecting the admissibility of extrinsic evidence has no application in this case if I am right that s. 4.1 is ambiguous. Indeed, because words always take their meaning from their context, evidence of the circumstances surrounding the making of a contract has been regarded as admissible in every case: Prenn v. Simmonds, [1971] 3 All E.R. 237, [1971] 1 W.L.R. 1381 (H.L.) at pp. 1383-84 ; Reardon Smith Line Ltd. v. Hansen-Tangen, [1976] 3 All E.R. 570, [1976] 1 W.L.R. 989 (H.L.) at pp. 995-96 ; Hill v. Nova Scotia (Attorney General), [1997] 1 S.C.R. 69 ; Waddams, The Law of Contracts, 4th ed. (Aurora: Canada Law Book, 1999), at p. 232.
[24] A frequently quoted and useful statement respecting surrounding circumstances is that of Lord Wilberforce in Reardon Smith Line Ltd. v. Hansen-Tangen, supra, at pp. 995-96. After indicating that particular evidence in that case "would exceed what is permissible" in construing the contract in question, he went on to say:
But it does not follow that, renouncing this evidence, one must be confined within the four corners of the document. No contracts are made in a vacuum: there is always a setting in which they have to be placed. The nature of what is legitimate to have regard to is usually described as "the surrounding circumstances" but this phrase is imprecise: it can be illustrated but hardly defined. In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating.
[25] The contract in this case must be interpreted in the context of properly admissible evidence. This process cannot be fully carried out until findings of fact have been made on the evidence. From at least the first part of the 19th century it was the function of the jury to find the surrounding circumstances as part of the process of interpreting documents: 13 Halsbury's, supra, at para. 166.
[ 21 ] Even where there is no ambiguity in the language of the contract, it may still be necessary for a court to examine the surrounding circumstances or “factual matrix”. In Ajax v. St. Paul Fire & Marine Insurance Co. , [2008] O.J. No. 3660 (Sup.Ct.) the issue on a Rule 20 motion was the interpretation of an insurance contract. The insurance company moved for summary judgment on the grounds that a particular premium adjustment clause was unambiguous (as here). The respondent municipalities took the opposite position, arguing that there was ambiguity in the clause. In that case, D.A. Wilson J. found that the clause was ambiguous, and commented:
22 While counsel for St. Paul argued that because the language of the policy was clear on its face there was no need to look beyond it, in my opinion that is not a correct statement of the law. In the recent text by Geoff Hall, "Canadian Contractual Interpretation Law", 2008 LexisNexis the author notes that individual words and phrases must be read in the context of the entire contract. Mr. Hall writes,
Contractual interpretation is all about giving meaning to words in their proper context, including the surrounding circumstances in which a contract has arisen-usually referred to as the "factual matrix". Because language always draws meaning from context, the factual matrix constitutes an essential element of contractual interpretation in all cases, even when there is no ambiguity in the language." (emphasis added)
23 This is consistent with the reasoning of Justice Morden in Hi-Tech, supra, where he notes that contracts must be placed in the setting in which they were created and goes on to state,
... In a commercial contract it is certainly right that the court should know the commercials purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the back ground, the context, the market in which the parties are operating ...
[ 22 ] Thus, I am not persuaded that the Arbitrator erred in law. Given the approach to be taken to arbitrations set out in the Inforica case, supra , this Court should adopt a “hands-off” approach at this stage. Furthermore, as I noted earlier, CI still has an opportunity to win this arbitration. The Arbitrator might very well be persuaded, after hearing the evidence, that the exclusion clause operates to preclude the relief sought by Pinpoint. I do not see how, under those circumstances, the Arbitrator’s ruling can be anything other than interlocutory.
THE ARBITRATOR’S COST AWARD
[ 23 ] Mr. Jagtoo argues that since the Arbitrator erred, he also erred in awarding costs to Pinpoint on the motion. I respectfully disagree. I see no error in the costs award. Costs were awarded on the usual basis.
DISPOSITION
[ 24 ] The appeal is dismissed with costs. If the parties are unable to agree on costs, I would be pleased to receive a brief costs submission from Pinpoint within 14 days, and a brief responding costs submission from CI within 10 days thereafter.
[ 25 ] I am grateful to both counsel for their assistance and their professional approach to this matter .
Goldstein J.
Released: July 26, 2012
COURT FILE NO.: 12-CV-00450962
DATE: 20120726
ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
Complete Innovations Inc. Appellant – and – Pinpoint GPS Solutions Inc. Respondent
REASONS FOR JUDGMENT
Goldstein J.