ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: CV-12-461369
DATE: 20130617
BETWEEN:
Ontario First Nations Limited Partnership
Plaintiff
– and –
Ontario Lottery and Gaming Corporation and Her Majesty the Queen in Right of Ontario, as represented by the Minister of Aboriginal Affairs, the Minister of Finance and the Attorney General of Ontario
Defendants
James D. Virtue and James R. Caskey, for the Plaintiff
William J. Manuel and Chantelle Blom, for the Defendant, Her Majesty the Queen in Right of Ontario
Awanish Sinha and Byron Shaw, for the Defendant, Ontario Lottery and Gaming Corporation
HEARD: April 9, 2013
MORGAN J.
[1] The Defendants are responsible under contract for distributing to the Plaintiff net revenues from Casino Rama. This dispute is over the holding of two reserve funds worth $35,000,000 in the aggregate by the Defendant, Ontario Lottery and Gaming Corporation (“OLG”), instead of distributing those monies to the Plaintiff. It relates to a transitional period between the parties’ previous contractual arrangement and a new contractual arrangement.
[2] A reserve fund dispute under the old contractual arrangement would go to arbitration, while breach of the reserve fund provision in the new contractual arrangement would go to court. The Defendants move for a stay of proceedings, contending that arbitration is the correct forum, while the Plaintiff submits that the matter is properly within the jurisdiction of this court.
[3] For the reasons that follow, the action must be stayed. The dispute is, at least arguably, properly characterized as arising out of the old contract.
I. The Reserve funds
[4] On February 18, 2008, the parties entered into the Gaming Revenue Sharing and Financial Agreement (“GRSFA”), which effectively replaced the contract that had previously governed their financial relationship, the Casino Rama Revenue Agreement dated June 9, 2000 (“CRRA”). Under the GRSFA, the formula for distribution of profits from Casino Rama was changed in a substantial way. Accordingly, the GRSFA put in place a transitional regime for the period up to March 31, 2011, when the new regime came into force.
[5] To put a complex arrangement in as summary a form as possible, the CRRA provided that First Nations in Ontario, who make up the Plaintiff partnership, would receive the ongoing net revenues of Casino Rama. The ongoing net revenues were defined in a separate operating agreement between the Ontario Casino Corporation (a predecessor to the OLG), the Rama First Nation (on whose land the casino is built) and related entities, and the original operator of Casino Rama: the Restated Development and Operating Agreement (“DOA”).
[6] Section 3.8 of the DOA allows the operator to create and maintain a Capital Renewals Reserve, and section 6.3 of the DOA allows the operator to create and maintain an Operating Reserve, out of the gross receipts of Casino Rama.
[7] The GRSFA uncoupled distributions to the Plaintiff from the net revenues generated by Casino Rama. In place of that arrangement it entitled the Plaintiff to a share of the gross revenues of all gaming activities in the Province, including casinos, lotteries, etc. The new arrangement under the GRSFA commenced operating on April 1, 2011. Until that time, the formula for distributing the ongoing net revenues under the CRRA and the DOA remained in force.
[8] Section 6.1 of the GRSFA authorizes the OLG to continue to maintain the reserve funds, within certain limits. Section 6.1(a) restricts the Capital Renewals Reserve to a maximum of $5,000,000 and the Operating Reserve to a maximum of $30,000,000. Section 6.1(b) clarifies that OLG “commits to manage the Capital Renewals Reserve and the Operating Reserve in a manner that is consistent with the purposes for which the reserves were established under the DOA and the reasonable business requirements of Casino Rama.”
[9] During the entire transition period and up to the present time, the OLG continued to maintain the two reserve funds to the maximum amounts allowed under section 6.1(a) of the GRSFA. The gist of the Plaintiff’s claim is that this is unnecessary and improper.
[10] The Plaintiff argues that the financial success of Casino Rama was still an unknown in 2000 when the CRRA and DOA commenced, and so at the time the maintenance of capital and operating reserves was a prudent business step. The Plaintiff goes on to contend that over time Casino Rama has proven itself to be so profitable, and has achieved such a substantial cash flow, that there is no reasonable business reason to maintain either of the reserve funds. The Plaintiff claims that, as a consequence of this business reality, the maintenance of the reserves is no longer consistent with the purposes for which they were established under the DOA, as required by section 6.1(b) of the GRSFA.
[11] Section 9 of the CRRA contains a dispute resolution mechanism applicable for claims arising under that agreement. Section 9.1 provides for the initiation of the process by an aggrieved party issuing a Notice of Concern, and section 9.2 provides that the parties must engage in good faith discussions within 60 days of the Notice of Concern. Finally, section 9.3 provides that if an agreed-upon resolution is not reached the concern shall be referred to an arbitrator appointed pursuant to the Arbitration Act, 1991, SO 1991, c 17 (the “Act”).
[12] Section 1.1(aaf) of the CRRA incorporates the relevant terms of the DOA. A dispute over the reserve funds that are authorized under the DOA would ordinarily follow the process set out in section 9 of the CRRA. Accordingly, if that dispute were not resolved through good faith discussions it would proceed to arbitration.
[13] Like the CRRA, the GRSFA contains detailed dispute resolution provisions. Section 9.1 identifies certain specific types of disputes arising under particular provisions of the GRSFA to which the dispute resolution provisions are applicable. Those disputes which cannot be resolved by agreement of the parties are referred to arbitration under section 9.2, which then sets out procedures for the conduct of the arbitration.
[14] The sections of the GRSFA to which the section 9.2 process is applicable are enumerated in section 9.1. Section 6.1 is not among them. Accordingly, a dispute over breach of the limitations on reserve funds provided for in the GRSFA would not be covered by the dispute resolution process. It would go to court as the proper procedural route.
II. Arbitration or litigation?
[15] The Plaintiff claims, in effect, that the GRSFA limits on reserve funds have been breached because the purposes and business requirements of the CRRA/DOA have been breached. Is that a dispute under the former agreement or the latter?
[16] Under the circumstances, if the dispute is under the GRSFA, the claim is outside of any applicable arbitration clause and is properly within the jurisdiction of this court. If it is under the CRRA, the claim is within the terms of an applicable arbitration clause and would therefore be outside of the jurisdiction of this court and must be stayed under section 7.1 of the Act. Ontario Hydro v Denison Mines Ltd., [1992] OJ No 2948 (Ont Gen Div).
[17] In Mantini v Smith Lyons LLP (2003), 2003 20875 (ON CA), 64 OR (3d) 505, at para 17, the Court of Appeal provided a road map for a court working its way through this type of jurisdictional dispute:
In order to determine whether a claim should be stayed under s. 7(1) of the Arbitration Act, the court first interprets the arbitration provision, then analyzes the claims to determine whether they must be decided by an arbitrator under the terms of the agreement, as interpreted by the court. If so, then under s. 7(1), the court is required to stay the action and refer the claims to arbitration…
[18] As the first step in the process, the court must therefore interpret the relevant arbitration provision – in this case section 9 of the CRRA which the Defendants submit applies to the present dispute. Having said that, the courts have also issued a caution when it comes to interpreting an arbitration agreement: “[w]hen interpreting an arbitration clause, the court should not make a final determination about its scope.” Seganfreddo v. Seganfreddo, 2010 ONSC 6609, at para 17 (SCJ).
[19] The reason for this is that under section 17(1) of the Act, it is the arbitration panel that rules on its own jurisdiction to conduct the arbitration. The Supreme Court of Canada explained this with respect to British Columbia’s similar legislation in Seidel v TELUS Communications, 2011 SCC 15, [2011] 1 SCR 531, at para 28:
British Columbia has adopted the competence-competence principle through the combined operation of s. 22 of the CAA and s. 20(2) of the BCICAC Rules which in turn reflect the provisions of the New York Convention and Model law. As such, ‘[t]he jurisdiction to determine jurisdiction is given to the arbitral tribunal by statute, as well as by the rules of arbitration used by most institutions’ [citation omitted].
[20] The Defendants here submit that this reasoning leads to a deferential approach to arbitrators’ authority under a commercial arbitration clause such as the one found in section 9 of the CRRA. To this effect, they refer to Dancap Productions Inc. v Key Brand Entertainment, Inc., 2009 ONCA 135, at para 33, where the Court of Appeal expressed its preference for “allowing the arbitrator to decide whether the dispute is arbitrable, absent a clear case to the contrary”.
[21] The British Columbia Court of Appeal said much the same thing in Gulf Canada Resources Ltd. v Arochem International Ltd. (1992), 1992 4033 (BC CA), 43 CPR (3d) 390, at 397, where it opined that, “[o]nly where it is clear that the dispute is outside the terms of the arbitration agreement, or that a party is not a party to the arbitration agreement, or that the application is out of time should the court reach any final determination in respect of such matters on an application for a stay of proceedings.” This idea of deference was further embellished in Onex Corporation v Ball Corporation, [2004] OJ No 98 (Ont Gen Div). The court indicated (at para 24) that, “[a]t the very least, where the language of an arbitration clause is capable of bearing two interpretations, and on one of those interpretations fairly provides for arbitration, the courts should lean towards honouring that option”.
[22] It is therefore firmly established that the courts are required to analyze this issue in a way that is “consistent with the legislative policy enunciated in the Act, which favours arbitration over litigation where the parties so provide by agreement.” Woolcock v Bushert (2004), 2004 35081 (ON CA), 246 DLR (4th) 139, at para 25 (Ont CA). To this end, the Court of Appeal has been very specific as to what a court on a stay of proceedings motion should do in the event of an ambiguity in the contract: a stay should be refused, and the matter retained within the court’s jurisdiction, “only where it is clear that the dispute is outside the terms of the arbitration agreement”. Damiplex Ltd. v Janicki (2003), 2003 34234 (ON CA), 64 OR (3d) 737, at para 21, citing Gulf Canada, supra, at 397.
[23] The present claim, as indicated, alleges that the limits newly placed on the reserve funds by the GRSFA have been breached by virtue of the Defendants’ maintaining of reserves contrary to their purpose under the DOA. Since the relevant section of the GRSFA specifically refers to the DOA, the two contracts must be read together to understand the alleged wrong.
[24] Given the nature of the dispute, it is arguable that, as the Plaintiff submits, this case rises and falls with section 6.1 of the GRSFA, in which case it is outside the terms of section 9 of the CRRA. On the other hand, it is equally arguable that, as the Defendants submit, the dispute is over the interpretation and application of section 6.1(b) of the DOA, in which case it is within the terms of section 9 of the CRRA.
[25] The Court of Appeal has specifically directed that, “[w]here it is arguable that the dispute falls within the terms of the arbitration agreement…the stay should be granted and those matters left to be determined by the arbitral tribunal.” Damiplex, supra, at para 21. In my view, that direction provides an answer to the jurisdictional question raised in this motion.
[26] There is a fundamental ambiguity in the way the contractual provisions on which the Plaintiff’s claim rests fit together. The restriction on the two reserve funds that is at issue in the claim is imposed by the GRSFA but refers, for its substantive content, to the DOA (and, by reference, the CRRA). The dispute therefore could potentially engage the CRRA’s dispute resolution provisions, in which case it would belong in arbitration, or it could potentially engage the GRSFA, in which case it would belong in court. While I would be hesitant to say that the Plaintiff’s claim falls clearly within the terms of the CRRA’s arbitration clause, I can certainly say that it is at least arguable that it does.
[27] Sharpe J.A. emphasized the Damiplex point about ambiguous arbitration clauses in Dancap, supra, at para 32, where he said, “[i]t is now well-established in Ontario that the court should grant a stay under art. 8(1) of the Model Law [i.e. section 7(1) of the Act] where it is ‘arguable’ that the dispute falls within the terms of an arbitration agreement.” Given that the present dispute straddles two agreements, one of which would put it into arbitration and the other of which would put it into litigation, and either of those agreements arguably governs the process, the action must be stayed. It is for an arbitrator to determine whether the matters raised by this dispute are subject to arbitration.
III. Disposition
[28] The action is hereby stayed pending a determination by an arbitrator appointed under section 9 of the CRRA and under the Act as to whether the matters raised therein are subject to arbitration. I leave it to the parties and their counsel to determine where, when, and before whom the arbitration will take place.
[29] The Defendants shall have their costs of this motion on a partial indemnity basis. Each set of counsel has submitted a Costs Outline. The Crown’s costs appear to be proportionally a good deal higher than OLG’s, but that may reflect the division of labour between the two Defendants. In any case, both are in my view reasonable given the amount at stake in this action and the significant amount of legal argument that went into the motion.
[30] The Plaintiff shall pay costs to The Queen in Right of Ontario in the amount of $18,400 and to OLG in the amount of $8,210, both inclusive of disbursements and HST.
Morgan J.
Released: June 17, 2013
COURT FILE NO.: CV-12-461369
DATE: 20130617
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Ontario First Nations Limited Partnership
Plaintiff
– and –
Ontario Lottery and Gaming Corporation and Her Majesty the Queen in Right of Ontario, as represented by the Minister of Aboriginal Affairs, the Minister of Finance and the Attorney General of Ontario
Defendants
REASONS FOR JUDGMENT
E.M. Morgan J.
Released: June 17, 2013