ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: CV-14-497227

DATE: 20140626

BETWEEN:

ADVANCED EXPLORATIONS INC.
Applicant

– and –

STORM CAPITAL CORPORATION
Respondent

Paul Fruitman and Lauren Epstein, for the Applicant

P. James Zibarras and John Philpott, for the Respondent

HEARD: 16 April 2014

MEW J.:

reasons for decision

(Application to set aside arbitration award and cross-application to enforce)

[1] The respondent, Storm Capital Corporation (“Storm”), contracted with the applicant, Advanced Explorations Inc. (“AEI”), to seek out investors on AEI’s behalf. One of the potential investors Storm introduced to AEI made three investments in the company after prolonged negotiations, much of them without Storm’s involvement. AEI refused to pay Storm a finder’s fee for the investments. The parties went to arbitration and the arbitrator ruled in Storm’s favour. AEI now asks the court to set aside the arbitration award and Storm has filed a cross-application to enforce it. These are my reasons for judgment on both applications.

Background

[2] AEI is an Ontario corporation focused on mining and resource development. Its shares are listed on the Toronto Venture Exchange (TSX-V). In the summer of 2007, Nancy Elliot, a Toronto lawyer with contacts in China, and John Gingerich, the president of AEI, met to discuss the possibility of Ms. Elliot using her connections to raise funds for AEI in China.

[3] Following this meeting, Ms. Elliot incorporated a company called First China Capital Group Limited (“FCC”). Ms. Elliot then travelled to China, where she met Eric Guo, a businessman with ties to potential mining investors. He introduced her to at least two Chinese companies that expressed an interest in investing in AEI.

[4] Ms. Elliot’s initial forays into fundraising were promising enough that FCC and AEI entered into an agreement (“the AEI-FCC agreement”) on 18 September 2007. The contract entitled FCC to compensation for any investments that “result” from FCC introducing to AEI an “Interested Party” so long as the introduction was made and the Interested Party entered into discussions with AEI by 30 November 2007.

[5] That autumn, Mr. Guo’s company made an investment in AEI, for which FCC received a finder’s fee under the contract.

[6] After the AEI-FCC agreement expired, Ms. Elliot and Mr. Guo continued to search for potential AEI investors. Mr. Guo identified a Chinese company called XingXing Ductile Iron Pipes Group Co. Ltd. (“XXP”) as one such prospect, and Ms. Elliot engaged the company in discussions about investing in AEI. XXP expressed a commitment to doing a deal with AEI, who did not yet know XXP’s identity.

[7] In March 2008, FCC and AEI entered into a letter agreement to the effect that, if the prospective introduction of AEI to XXP (unnamed in the letter) resulted in a qualifying investment, FCC would be due a fee of an amount to be determined. The agreement qualified FCC’s right to payment of a fee on compliance with certain securities laws:

[A]ny fee payable under this Agreement shall be subject to … 4. dealer registration by any party designated by FCC to receive compensation hereunder, under the Securities Act (Ontario), where applicable, it being understood as a fundamental term of this Agreement that no fee shall be payable to FCC or its designated party in connection with the distribution of any securities by AEI unless said party is registered as a limited market dealer under the Securities Act (Ontario)….

[8] Ms. Elliot then introduced AEI to XXP and facilitated discussions between them for several months. She also pursued a more comprehensive fee arrangement with AEI.

The Finder’s Fee Agreement

[9] Ms. Elliot’s pursuit of a fee agreement was successful. On 4 July 2008, AEI entered into a Finder’s Fee Agreement with the respondent Storm. Ms. Elliot incorporated Storm in November 2007 but, for reasons that are not apparent from the record, had not utilised the company until now. It has the same founder, shareholders, and directors as FCC.

[10] The Finder’s Fee Agreement is at the heart of the present dispute. It contemplated that Storm would be compensated, under certain conditions, for introducing AEI to “Interested Parties”. The contract defined “Interested Parties” as “persons and businesses … that might be interested in” a “Transaction” with AEI. A “Transaction” was defined as any of the following: “equity or debt financing for AEI, a purchase of all or a portion of the shares of AEI, a purchase of all or some of the assets of AEI or partner in the development of the Roche Bay project with the objective to maximize AEI shareholder value.”

[11] Section 2(a) of the agreement provided:

Subject to and in accordance with the provisions of this Agreement, AEI hereby appoints and retains Storm as AEI’s non-exclusive advisor and consultant within the People’s Republic of China, including Hong Kong and Macau … for a period of twelve months commencing on the date hereof, renewable for a further successive periods of twelve months, upon the mutual written agreement of the Parties at least 14 days prior to the end of the initial or any renewal twelve month period (the “Term”). In the event that written mutual agreement is not obtained before such 14 day period, this Agreement shall automatically terminate and have no further force or effect with the result that AEI shall have no obligations to Storm whatsoever under this Agreement except for an[y] compensation already earned (but not paid) by Storm and the provisions of Sections 4 and 5 of this Agreement. The parties agree that notwithstanding the non-exclusive nature of Storm’s retainer, AEI agrees that it will not utilize any party (or do so itself) other than Storm in negotiating and concluding any transaction with the up to 6 companies listed on Schedule “A” attached hereto.

[12] XXP was one of the companies listed on Schedule A.

[13] Storm’s compensation was addressed in ss. 2(d), 3(a), and 16. Section 2(d) stated, “Any agreements that result from the introduction of such Interested Parties to AEI, will result in compensation to Storm, on the terms set out herein….” Section 3(a) stated, “AEI agrees to pay Storm a fee concurrent with the closing of any debt or equity financing that Storm facilitates”, and then specified how the fee would be calculated.

[14] Section 16 imposed an additional condition on Storm’s right to compensation:

Where applicable, this Agreement shall be subject to securities regulatory acceptance and compliance related to the TSX Venture Exchange, the Toronto Stock Exchange and applicable securities legislation (collectively, “Canadian Securities laws”). It is the obligation of Storm to ensure any payment contemplated herein is within the applicable Canadian Securities laws. If a payment is not allowed under Canadian securities laws or cannot be structured through an authorized person so as to comply with Canadian Securities laws, then such payment shall not be payable and AEI shall be deemed to have been forever discharged from any obligation, payment or claim whatsoever with respect to said payment under this Agreement.

[15] The Finder’s Fee Agreement also contained a “non-circumvention clause”, at s. 5(a):

AEI will not engage in any negotiation or discussion, nor will it enter into any agreement or relationship, for any purpose, including, but not limited to, obtaining financing … with any Interested Parties with whom Storm has corresponded by way of letter, email or fax, regarding the Transaction(s) and introduced to AEI by Storm, without the prior written approval of Storm, for the term of this Agreement, and for a period of 48 months from the execution of this Agreement by all parties.

[16] The contract also contained the common language, in s. 17(e), that “[t]his Agreement constitutes the entire agreement of the parties hereto with regard to finder’s fees and supersedes all prior representations, proposals, discussions, and communications, whether oral or in writing.” This will be referred to at the “Entire Agreement” clause.

[17] In the Finder’s Fee Agreement, the parties agreed to resolve “any dispute, difference of opinion or question … touching on this Agreement or any part thereof” by arbitration. The arbitrator’s decision “shall be binding and conclusive on all parties in interest and no appeal shall lie there from.”

[18] Storm registered as a limited market dealer with the Ontario Securities Commission (OSC) in November 2008. It converted to an exempt market dealer in September 2009. Both statuses will be referred to in this judgment as “LMD/EMD”.

[19] AEI and XXP continued their negotiations via Storm through the autumn of 2008, but AEI became increasingly frustrated with what it viewed as Storm’s delay in closing the deal. It began to communicate with XXP without Storm’s involvement, in violation of the protocols set forth in the Finder’s Fee Agreement. It also terminated a marketing agreement it had with FCC.

[20] The relationship between AEI and Storm deteriorated further over the winter of 2008-2009. On 8 May 2009, AEI terminated the Finder’s Fee Agreement with Storm. After November 2009, AEI and Storm had little or no communication and Storm was not a conduit for negotiations between XXP and AEI.

The Transactions at Issue

[21] XXP made three investments in AEI that are the subject of the present dispute: in December 2010, March 2012, and November 2012, respectively.

[22] Before the December 2010 transaction was completed, AEI informed Storm that it had made progress with XXP. It also paid a finder’s fee to a third party, who had been told (falsely) that Storm had agreed to reduce its own fee. AEI sought Storm’s confirmation of this claim, but Ms. Elliot denied any such arrangement.

[23] It appears that AEI did not discuss the matter of compensation with Storm for the March 2012 and November 2012 transactions.

[24] Storm’s LMD/EMD designation lapsed on 13 December 2010, after the first transaction but before the second and third transactions took place.

The Arbitration

[25] AEI rejected Storm’s demands for compensation under the Finder’s Fee Agreement for XXP’s investments. The parties submitted their dispute to arbitration before Gary Caplan sitting as sole arbitrator.

[26] Following six days of hearings, the arbitrator released a 43-page award that reviewed the evidence and the parties’ submissions in detail. The arbitrator found that Storm was entitled to compensation for all three transactions. He concluded that, as required by the contract, Storm had introduced an Interested Party (XXP) to AEI and the two companies had engaged in discussions and negotiations about a deal within the first year of the Finder’s Fee Agreement. Further, he found that there was a sufficient nexus between Storm’s introduction and XXP’s investments to conclude that the transactions “resulted” from the introduction. This was sufficient for AEI to owe a finder’s fee to Storm for each investment.

[27] The arbitrator rejected AEI’s defences. These included the argument that AEI owed nothing to Storm because, under s. 16 of the Finder’s Fee Agreement, Storm was required to be registered as an LMD/EMD so as to ensure that it commissions would be compliant with the applicable securities laws. This will be discussed in more detail below.

Positions of the Parties

[28] In support of its application to set aside the award, AEI submits that the arbitrator made three unreasonable errors of law and thus decided a matter beyond the scope of the arbitration agreement such that the award may be set aside pursuant to s. 46(1)3 of the Arbitration Act, 1991 (“the Act”), S.O. 1991, c. 17. These alleged errors are that (1) the arbitrator incorporated the AEI-FCC agreement into the Finder’s Fee Agreement in violation of the Entire Agreement clause; (2) if the arbitrator was otherwise allowed to do this, he erred by providing Storm with FCC’s contractual benefits but not its burden of being a registered LMD/EMD; and (3) the arbitrator failed to give effect to the 48-month cap in the non-circumvention clause by finding AEI liable for transactions that took place outside of this period.

[29] In addition, AEI submits that the award should be set aside under s. 46(1)5 of the Act because the arbitrator rendered a decision on a matter that is not capable of arbitration under Ontario law. Specifically, AEI alleges that the arbitrator lacked jurisdiction to rule on the issue of whether Storm was required to be registered as a LMD/EMD at the time it was due payments (“the Securities Issue”), which is a matter of securities law within the exclusive jurisdiction of the OSC and/or the TSX-V.

[30] Storm responds by submitting that the award is enforceable under s. 50(3) of the Act and AEI has no justifiable reason to refuse to pay. The Finder’s Fee Agreement is clear that there is no right of appeal from the arbitration award, and Storm should not be permitted to use s. 46 to obtain a “backdoor” appeal. Further, Storm argues that the arbitrator had jurisdiction to decide the Securities Issue. AEI agreed to having an arbitrator decide the issues of the case, including the Securities Issue, and the legislature has not removed securities law from the scope of private arbitration.

Issues

[31] The application and cross-application present the following questions:

a. Whether the award should be set aside because it contains unreasonable errors of law;

b. Whether the award should be set aside because questions of securities law are beyond the scope of an arbitrator’s jurisdiction; and

c. Whether, assuming the award has not been set aside on either of the above grounds, the court should enforce the award under s. 50(3) of the Arbitration Act, 1991.

Law and Analysis

Issue 1: Whether the award may be set aside because it contains unreasonable errors of law

[32] Section 46(1)3 of the Arbitration Act, 1991 states: “On a party’s application, the court may set aside an award on any of the following grounds: … 3. The award deals with a dispute that the arbitration agreement does not cover or contains a decision on a matter that is beyond the scope of the agreement.”

[33] AEI submits that it is an implied term in every arbitration agreement that the arbitration award will not contain “unreasonable” errors of law. Thus, under s. 46(1)3, a court must set aside an unreasonable award, including one based on unreasonable errors of law if it contains a decision on a matter that is beyond the scope of the agreement. Storm argues that the court should respect the parties’ election of a procedure in which there is no right of appeal from the arbitrator’s decision and the court has no authority under s. 46(1)3 to review an arbitration award for reasonableness.

[34] Both parties cite VAV Holdings Ltd. v. 720153 Ontario Ltd., [1996] O.J. No. 1027 (Gen. Div.), rev’d [1996] O.J. No. 4008 (C.A.), on the question of whether a court may review an arbitration award for reasonableness. In that case, a tenant applied under s. 46(1)3 to set aside an award establishing the rent on a commercial lease on the basis that the arbitrator used the wrong legal standard to reach the result. The application judge rejected this argument as lacking “an air of reality. Section 46 focuses on the nature of the dispute dealt with and not the legal analysis used by the tribunal in resolving the dispute”: VAV, at paras. 15-16. But the judge went on to look at the arbitrator’s decision and set aside the award, at para. 22, because the arbitrator applied the wrong legal standard, which resulted in a rental rate that was “patently unreasonable”. The Court of Appeal, in a brief endorsement, reversed the application judge because it could not say that the legal standard chosen by the arbitrator was wrong or that the result was patently unreasonable: VAV Holdings Ltd. v. 720153 Ontario Ltd., [1996] O.J. No. 4008 (C.A.), at para. 3.

[35] The appellate panel in VAV did not address s. 46(1)3, and at least one court has found that, VAV notwithstanding, a court lacks the power to review an award for reasonableness under s. 46(1)3 when the parties have agreed that there is no right of appeal: see NRI Manufacturing Inc. v. Gross, [2000] O.J. No. 2724 (S.C.), at paras. 7, 12.

[36] In Smyth v. Perth & Smiths Falls District Hospital, 2008 ONCA 794, 92 O.R. (3d) 656, a doctor applied under s. 46(1)3 to set aside an arbitration award concerning his reapplication for privileges at a hospital on the basis that an arbitrator decided an issue that was beyond the scope of the arbitration agreement. The Court of Appeal found that the issue to which the applicant objected was properly before the arbitrator: Smyth, at paras. 18-20. It then considered whether the result was “reasonable” as that term has been defined in Dunsmuir v.New Brunswick, 2008 SCC 9, [2008] 1 S.C.R. 190 (notwithstanding the parties’ agreement that the arbitration would be the full and final determination of the doctor’s reapplication and that there would be no appeal): Smyth, at paras. 21-25. The court did not identify the source of its authority to review for reasonableness.

[37] Smyth has been relied on as authority for the proposition that even when the parties have agreed that an arbitration decision will be final and binding and there will be no right of appeal, and the arbitrator limited his decision to those issues referred to him by the arbitration agreement, an application judge still has the authority to review the arbitration award for reasonableness: see e.g. Ford Motor Co. of Canada v. Lachapelle, 2011 ONSC 2217, at paras. 20-21.

[38] I agree with the view that Smyth is “at best ambiguous” as authority for such a proposition: see J. Kenneth McEwan and Ludmila B. Herbst, Commercial Arbitration in Canada: A Guide to Domestic and International Arbitrations, loose-leaf, (Toronto: Canada Law Book Inc., 2013), at s. 10:60:30:10. However, even if Smyth is authority for the position that an arbitrator’s award can be reviewed for reasonableness, I find that the arbitrator’s award was “reasonable” for the reasons that follow.

Reliance on the AEI-FCC agreement

[39] In AEI’s view (as presented before the arbitrator), the Finder’s Fee Agreement only entitled Storm to compensation if Storm introduced an Interested Party to AEI and that investor entered into a Transaction within the one-year term of the contract. The arbitrator disagreed and found that Storm was due compensation if it introduced an Interested Party to AEI and they began to discuss and negotiate the terms of an investment within the one-year term, and the Interested Party’s investment in AEI (whenever it occurred, including outside the one-year term) was the “result” of Storm’s introduction.

[40] AEI submits that the arbitrator reached this conclusion by importing terms from the AEI-FCC agreement into the Finder’s Fee Agreement, in violations of the Entire Agreement clause. In support it points out that the arbitrator’s discussion of the Finder’s Fee Agreement often compared the contract’s language to the language in the AEI-FCC agreement even though the arbitrator found that the Finder’s Fee Agreement was “clear and unambiguous”.

[41] Reliance on the context in which a contract was formed can be appropriate even when the terms of the contract are clear and unambiguous: Dumbrell v. The Regional Group of Companies Inc. (2007), 2007 ONCA 59, 85 O.R. (3d) 616 (C.A.). In Dumbrell, the plaintiff contracted with the defendant to identify potential real estate investment properties. If the defendant invested in a property and it was successful, the plaintiff would receive a share of the profits. One such deal – identified and developed by the plaintiff during the contract’s term – closed after the plaintiff’s contract expired. The issue arose as to whether the plaintiff had a claim on the profits.

[42] Doherty J.A. discussed the applicable principles of contract interpretation at length. In relevant part, he stated, at paras. 54-56:

A consideration of the context in which the written agreement was made is an integral part of the interpretative process and is not something that is resorted to only where the words viewed in isolation suggest some ambiguity. To find ambiguity, one must come to certain conclusions as to the meaning of the words used. A conclusion as to the meaning of words used in a written contract can only be properly reached if the contract is considered in the context in which it was made: see McCamus, The Law of Contracts (Toronto: Irwin Law, 2005) at 710-11.

There is some controversy as to how expansively context should be examined for the purposes of contractual interpretation: see Geoff R. Hall, “A Curious Incident in the Law of Contract: The Impact of 22 Words from the House of Lords” (2004) 40 Can. Bus. L.J. 20. Insofar as written agreements are concerned, the context, or as it is sometimes called the “factual matrix”, clearly extends to the genesis of the agreement, its purpose, and the commercial context in which the agreement was made: Kentucky Fried Chicken Canada, a Division of Pepsi-Cola Canada Ltd. v. Scott's Food Services Inc., 1998 4427 (ON CA), [1998] O.J. No. 4368, 114 O.A.C. 357 (C.A.), at p. 363 O.A.C.

I would adopt the description of the interpretative process provided by Lord Justice Steyn, “The Intracticable Problem of the Interpretation of Legal Texts”, supra, at 8:

In sharp contrast with civil legal systems the common law adopts a largely objective theory to the interpretation of contracts. The purpose of the interpretation of a contract is not to discover how the parties understood the language of the text, which they adopted. The aim is to determine the meaning of the contract against its objective contextual scene. By and large the objective approach to the question of construction serves the needs of commerce. [Emphasis added by Doherty J.A.]

[43] Doherty J.A. went on to consider the context of the agreement, including the parties’ sophistication and relationship and the nature of the business deals that the plaintiff was sourcing for the defendant. He concluded that, in this context, the language of the contract could not be read to limit the plaintiff’s commissions to deals closed within the contract’s term: Dumbrell, at paras. 57-69.

[44] Turning to AEI’s alleged error of contract interpretation, I cannot conclude that the arbitrator’s use of the AEI-FCC agreement in his analysis was unreasonable. The arbitrator correctly identified the applicable principles of contractual interpretation. He found that “the context and factual matrix into which the [Finder’s Fee Agreement] was born” was important to understanding the terms of the contract, and looked to the AEI-FCC agreement for that reason. However, he anchored AEI’s liability to Storm in the language of the Finder’s Fee Agreement, and at no point did he incorporate a term or condition from a prior contract. Thus, AEI’s reliance on SeaWorld Parks & Entertainment LLC v. Marineland of Canada Inc., 2011 ONCA 616, 282 O.A.C. 339, which concerned whether a prior agreement and the disputed contract should be read as one document, is unavailing.

[45] When ascribing meaning to the various terms of the contract, the arbitrator was entitled to take note of the parties’ sophistication and prior dealings with each other (including the AEI-FCC agreement and its circumstances), as well as the progress Storm had made with XXP at the time the contract was formed. One reasonable interpretation in this context – though by no means the only reasonable interpretation – was that under the plain language of the Finder’s Fee Agreement, Storm was due compensation for any Transaction that resulted from its introduction of an Interested Party to AEI so long as, within the one-year term of the contract, the introduction and some AEI-Interested Party talks took place.

Failure to require Storm to be a registered LMD/EMD

[46] AEI next submits that, if the arbitrator was permitted to construe the parties’ prior contracts together with the Finder’s Fee Agreement, the arbitrator erred by not incorporating the burden on Storm from the March 2008 agreement that “no fee shall be payable to FCC or its designated party in connection with the distribution of any securities by AEI unless said party is registered as a limited market dealer under the Securities Act (Ontario)”.

[47] Because I have concluded that the arbitrator did not incorporate terms from any prior agreement into the Finder’s Fee Agreement, I need not address this submission.

Alleged failure to give effect to the 48-month term of the non-circumvention clause

[48] AEI’s third alleged error is that the arbitrator awarded Storm compensation for a transaction (the November 2012 transaction) that materialized after the 48-month non-circumvention period expired, in contravention of his own interpretation of the contract. This argument is founded on a misunderstanding of the arbitrator’s analysis.

[49] The arbitrator found that AEI violated the non-circumvention clause for the final three years of the non-circumvention period because it was negotiating with XXP without Storm’s help. But nothing in the arbitrator’s award (or in the contract) suggests that, as an additional condition on Storm’s right to compensation, the deal must close during the 48-month non-circumvention period. Quite to the contrary, the arbitrator declined to set a time limit for when a deal must “result” from a Storm introduction for Storm to be entitled to compensation.

[50] The arbitrator’s analysis with respect to the non-circumvention period was reasonable. I would not set aside the arbitration award on this basis.

Issue 2: Whether questions of securities law are beyond the scope of an arbitrator’s jurisdiction

[51] AEI contends that the arbitrator usurped the oversight role of the OSC and TSX-V by deciding the Securities Issue, that is, whether Storm was required under law to be registered as a LMD/EMD. This ruling was relevant to whether Storm was eligible to receive compensation under s. 16 of the Finder’s Fee Agreement. AEI submits that the Securities Issue is “not capable of being the subject of arbitration under Ontario law” and thus the award should be set aside under s. 46(1)5 of the Arbitration Act, 1991.

[52] Storm responds that a matter is capable of arbitration unless the legislature has exempted it through clear language. The legislature has not done so with respect to securities laws and therefore s. 46(1)5 does not apply. Further, AEI waived its right to object to the arbitrator’s jurisdiction because it consented to having the Securities Issue decided by the arbitrator and never objected until after the award was issued.

Waiver

[53] Storm’s argument that AEI has waived the right to raise its s. 46(1)5 objection has merit. AEI not only knew that the arbitrator would need to decide the Securities Issue to resolve Storm’s claim to compensation, AEI affirmatively asked the arbitrator to decide the matter. Specifically, s. 16 of the Finder’s Fee Agreement conditioned AEI’s obligation to pay Storm’s fees on Storm’s compliance with applicable securities laws. AEI put the Securities Issue squarely before the arbitrator when it raised s. 16 as a defence. It (and Storm) even proffered experts in securities law to assist the arbitrator. When the arbitrator raised the question of whether he had jurisdiction to decide the Securities Issue, AEI’s counsel stated that he shared the concern but did not take a more definitive position.

[54] This would seem to be precisely the situation to which s. 17(3) of the Arbitration Act, 1991 applies. That section states: “A party who has an objection to the arbitral tribunal’s jurisdiction to conduct the arbitration shall make the objection no later than the beginning of the hearing or, if there is no hearing, no later than the first occasion on which the party submits a statement to the tribunal.” The goal of s. 17(3) is “to prevent parties from seeking the benefit of arbitration and proceeding without objection and then attempting to contest the jurisdiction of the arbitrator once the result is known”: Piazza Family Trust v. Veillette, 2011 ONSC 2820, 279 O.A.C. 175 (Div. Ct.), at para. 71. AEI did exactly that.

[55] I hesitate to end the analysis there, however, given the argument that the legislative scheme rendered AEI’s consent to the arbitrator’s jurisdiction null and void.

Jurisdiction to decide the Securities Issue

[56] An arbitrator has jurisdiction to decide in the first instance what matters are within his jurisdiction: Ontario Medical Assn. v. Willis Canada Inc., 2013 ONCA 745, 118 O.R. (3d) 241, at paras. 19-20, 37. In this case, the arbitrator raised the question of his jurisdiction on the Securities Issue with the parties’ counsel near the end of the hearing, and implicitly found that he had jurisdiction when he ruled on the substance of the matter in the award. This decision is reviewable on a standard of correctness: see Smyth, at para. 17.

[57] A privately-appointed arbitrator has no inherent jurisdiction. His or her jurisdiction comes only from the parties’ agreement: see Piazza Family Trust, at para. 63. “The parties to an arbitration agreement have virtually unfettered autonomy in identifying the disputes that may be the subject of the arbitration proceeding”: Desputeaux v. Éditions Chouette (1987) Inc., 2003 SCC 17, [2003] 1 S.C.R. 178, at para. 22. An arbitrator has the authority to decide not just the disputes that the parties submit to it, but also those matters that are closely or intrinsically related to the disputes: Desputeaux, at para. 35.

[58] Public policy in Ontario favours respect for the parties’ decision to arbitrate. The Arbitration Act, 1991 is “designed … to encourage parties to resort to arbitration as a method of resolving their disputes in commercial and other matters, and to require them to hold to that course once they have agreed to do so”: Ontario Hydro v. Denison Mines Ltd., [1992] O.J. No. 2948 (Gen. Div.), cited with approval in Inforica Inc. v. CGI Information Systems & Management Consultants Inc., 2009 ONCA 642, 97 O.R. (3d) 161, at para. 14. As a result, the Act restricts the power of a court to interfere with the arbitration process or result: see e.g. Arbitration Act, 1991, ss. 6 (limiting the power of the court to intervene), 50(3) (requiring enforcement of an arbitration award unless a specific exception is met).

[59] Section 46(1)5 of the Act contemplates that, notwithstanding the policy of respecting the parties’ decision to arbitrate a dispute, some matters should not be decided by arbitration. It authorizes a court to set aside an arbitration award if “the subject-matter of the dispute is not capable of being the subject of arbitration under Ontario law.” This raises the question of whether, under Ontario law, the Securities Issue is not capable of arbitration.

[60] As the parties point out, there is no authority directly addressing what matters are beyond the scope of an arbitrator’s jurisdiction under Ontario law for the purpose of the Arbitration Act, 1991. However, guidance is available on how to determine whether s. 46(1)5 applies.

[61] If the legislature wishes to preclude an issue from being the subject of arbitration, it must expressly state this intention: see Desputeaux, at para. 42. It is not enough that the subject matter over which arbitration is sought be subject to regulation or concern the public order. In Condominiums Mont Saint-Sauveur Inc. c. Constructions Serge Sauvé Ltée, 1990 2867 (QC CA), [1990] R.J.Q. 2783 (Q.C.C.A.), Rothman J.A. observed that arbitrators must often decide issues of regulatory compliance and should be permitted to do so in most areas:

Some rules of public order are, by their nature, only susceptible of application or enforcement by the ordinary courts. It is difficult to imagine, for example, questions of criminal responsibility or the granting of a divorce, or a question of paternity, being decided by arbitration. The public order component goes directly to the jurisdiction of the body that is to decide the dispute.

On the other hand, there are rules of public order that can be applied in arbitrations as easily and as appropriately as they are by courts. Building codes, zoning by-laws, decrees in labour matters and other similar regulatory rules are all rules of public order. In a construction dispute, for example, arbitrators might well be obliged to apply the regulations under a building code when making their award. Or in the arbitration of a labour grievance, an arbitrator might well have to apply the regulations under a decree affecting a particular industry. The fact that these regulations are of public order does not deprive the arbitrators of their jurisdiction to hear the disputes or require that they be heard by the ordinary courts.

[62] In Desputeaux, at para. 52, LeBel J. cautioned that courts must be careful not to broadly construe areas as exempt from arbitration simply because they concern the public order, as this would undermine the legislative policy of encouraging arbitration:

In interpreting and applying this concept [of public order] in the realm of consensual arbitration, we must therefore have regard to the legislative policy that accepts this form of dispute resolution and even seeks to promote its expansion. For that reason, in order to preserve decision-making autonomy within the arbitration system, it is important that we avoid extensive application of the concept by the courts. Such wide reliance on public order in the realm of arbitration would jeopardize that autonomy, contrary to the clear legislative approach and the judicial policy based on it.

[63] The Ontario Court of Appeal was careful to respect the public policy in support of arbitration in Jean Estate v. Wires Jolley LLP, 2009 ONCA 339, 265 O.A.C. 1. That case concerned the Solicitors Act, R.S.O. 1990, c. S.15, and in particular the provision designating the Superior Court of Justice as the court with jurisdiction to hear contingency fee disputes between solicitors and clients. The respondent argued that the arbitration clause in one such fee agreement was unenforceable as contrary to public policy because the parties cannot contract out of the provisions of the Solicitors Act. The court agreed that the substantive provisions of the Act cannot be abrogated by contract. However, the court narrowly construed the statute “[g]iven the strong policy of deference afforded to arbitration agreements” and found that the Superior Court had concurrent – not exclusive – jurisdiction to hear such matters. It was equally appropriate for the parties to resolve their disputes through arbitration: Jean Estate, at para. 73.

[64] Applying these principles, I conclude that the Securities Issue was within the arbitrator’s jurisdiction.

[65] AEI is correct that Ontario law establishes a comprehensive regime for the regulation of securities within the province, and that the OSC and the TSX-V are given wide-ranging powers of supervision: see the Ontario Securities Act (“OSA”), R.S.O. c. S.5; Smith v. The Queen, 1960 12 (SCC), [1960] S.C.R. 776, at p. 779.

[66] However, no provision in the OSA or other statute was referred to that expressly precludes arbitration on matters of securities law. I also do not read the jurisprudence to evince a public policy that an arbitrator is unable to rule on securities matters.

[67] On the contrary, the securities regulators are not given exclusive jurisdiction to decide questions of compliance with Ontario securities law. For example, under s. 128(1), the Superior Court of Justice may issue declarations on whether a person or company has complied with the OSA and the regulations promulgated thereunder. In addition, certain decisions of the OSC may be appealed to the Divisional Court, and the court on appeal has the power to “direct the Commission to make such decision or to do such other act as the Commission is authorized and empowered to do under this Act or the regulations and as the court considers proper”: OSA, ss. 9(1), 9(5). Private parties may also bring actions to redress injuries suffered from improper securities practices (even though the OSC could bring an enforcement action for the same misconduct): see OSA, ss. 130‑138.14; Fischer v. IG Investment Management Ltd., 2013 SCC 69, [2013] 2 S.C.R. 949.

[68] AEI cited Manning v. Ontario (Securities Commission) (1996), 94 O.A.C. 15 (Div. Ct.), for the proposition that the OSC has exclusive jurisdiction in some matters. In that case, it was the authority to remove a person’s exemption under s. 127(1)3 of the OSA. The problem with AEI’s reliance on Manning is that the arbitrator in this case neither purported to exercise the OSC’s powers of enforcement nor bound the OSC in any way. The AEI-Storm arbitration involved a private dispute, and the arbitration award is not binding on third parties, including the OSC. Edmonton Police Assn. v. Edmonton (City), 2007 ABCA 147, 404 A.R. 262, on which AEI also relied, is distinguishable for the same reasons.

[69] AEI also submits that the arbitrator could not have had jurisdiction over the Securities Issue because AEI is forced to choose between complying with the arbitration award (by making payment) and complying with its obligations to the OSC and the TSX-V (which allegedly forbid payment). This does not deprive the arbitrator of jurisdiction.

[70] As a preliminary matter, I note that AEI submitted correspondence with the TSX-V and OSC concerning AEI’s ability to make the ordered payment. The reply correspondence consisted of informal and non-binding opinions indicating that a variety of rules should be consulted and would need to be complied with. The correspondence does not demonstrate that if AEI complies with the award, it inevitably will violate its regulatory obligations. It is apparent as well that AEI did not disclose the full details of the arbitrator’s decision when making its requests for information.

[71] In any event, the fact that AEI might have to choose between compliance with the arbitration award and compliance with its regulatory obligations goes to the question, not before the court at the present time, of whether AEI would be held in contempt of court if it refuses to pay. That is a separate matter from the question of whether the arbitrator lacked the jurisdiction, as a matter of Ontario law, to rule on the Securities Issue in the first place.

[72] In Adamas Management & Services Inc. v. Aurado Energy Inc., 2004 NBQB 342, 288 N.B.R. (2d) 136, a similar argument was made and rejected. The applicant sought to enforce an international arbitration award entitling it to receive commission shares from the respondent. The respondent opposed enforcement because, among other reasons, it could not issue the shares until it received approval from the Toronto Stock Exchange and, possibly, its shareholders. It claimed that enforcement would be contrary to public policy because the respondent might be held in contempt through no fault of its own. The application judge rejected the submission, stating, at para. 36, “the fact that [the respondent] may have to obtain regulatory approval to issue the shares and as a consequence may possibly be in contempt of a court order to enforce the Award is not contrary to public policy.” “[H]ow [the respondent] satisfies the judgment of this Court with respect to the issuance of the shares is up to it”, and its concerns about compliance were not relevant at that time: Adamas, at para. 48.

Issue 3: Enforcement of the arbitration award

[73] Section 50(3) of the Arbitration Act, 1991 states:

The court shall give a judgment enforcing an award made in Ontario unless,

(a) the thirty-day period for commencing an appeal or an application to set the award aside has not yet elapsed;

(b) there is a pending appeal, application to set the award aside or application for a declaration of invalidity;

(c) the award has been set aside or the arbitration is the subject of a declaration of invalidity; or

(d) the award is a family arbitration award.

[74] In other words, the court has no discretion to refuse enforcement of a valid and final non-family arbitration award.

[75] Having declined to accept AEI’s invitation to set aside the arbitration award, none of the exceptions listed under s. 50(3) apply. The arbitration award shall be enforced.

Conclusion

[76] AEI’s application to set aside the award is dismissed, and Storm’s cross-application to enforce the award is granted. The arbitrator’s award will not be set aside pursuant to s. 46(1)3 of the Arbitration Act, 1991 and was, in any event, reasonable. The arbitrator had the jurisdiction to decide the relevant questions of securities law, and so s. 46(1)5 is not applicable. Pursuant to s. 50(3), judgment shall issue to enforce the arbitrator’s award dated 30 December 2013 and costs award dated 13 January 2014.

[77] If the parties are unable to agree on the scale and quantum of costs on the application, Storm is to serve and file its bill of costs and each party is to deliver a written submission of not more than three pages as follows: Storm by three weeks from the date of this judgment, and AEI by five weeks from the date of this judgment.

Mew J.

Released: 26 June 2014

ONTARIO
SUPERIOR COURT OF JUSTICE

BETWEEN:

ADVANCED EXPLORATIONS INC.
Applicant

– and –

STORM CAPITAL CORPORATION
Respondent

REASONS FOR DECISION

Mew J.

Released: 26 June 2014