CITATION: Popack v. Lipszyc, 2015 ONSC 3460
COURT FILE NO.: CV-13-00492423-0000
DATE: 20150601
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
JOSEPH POPACK, UNITED BURLINGTON RETAIL PORTFOLIO INC., and UNITED NORTHEASTERN RETAIL PORTFOLIO INC.
Applicants
– and –
MOSHE LIPSZYC and SARA LIPSZYC
Respondents
Daniel Sheppard and Marlys Edwardh,
for the Applicants
Colin P. Stevenson and Neil Wilson,
for the Respondents
HEARD: November 25, 2014
REASONS FOR DECISION
JUSTICE w. MATHESON
[1] This application seeks to set aside the arbitral award of the Rabbinical Court of Mechon L’Hoyroa (the Arbitral Tribunal) made on August 15, 2013 (the Award). The dispute submitted to the Arbitral Tribunal arose from the breakdown of a commercial relationship between the parties.
[2] The core issue arises because before releasing its decision, the Arbitral Tribunal met with a prior adjudicator – Rabbi Schwei – without the parties present. Although one of the parties had asked the Arbitral Tribunal to hear from Rabbi Schwei, and the other side indicated that they did not object, notice of the actual meeting was not given to the parties. This meeting is the ground for relief under certain provisions of the International Commercial Arbitration Act, R.S.O. 1990, c. I.9 (the ICAA).
Events giving rise to application
[3] Joseph Popack and Moshe Lipszyc are former business partners. They embarked on a partnership in about 2000 to acquire commercial properties. Mr. Popack is from New York and the two corporate applicants are Ontario corporations owned solely by him. For the purposes of the issues on this application, there is no meaningful distinction between them. Mr. Lipszyc is from Ontario, and the second respondent is his spouse.
[4] Two shopping malls were acquired. Each agreement contained an arbitration clause in favour of the Jewish Beth Din in Crown Heights (Brooklyn, New York).
[5] Over time, the business relationship between Mr. Popack and Mr. Lipszyc deteriorated. In late 2005, the parties agreed to have Rabbis Schwei and Bagomilski of the Crown Heights Beth Din, acting as Rabbinical judges, arbitrate the dispute between them and assist them in winding up their business relationship.
[6] As a result, in January 2006, the Rabbinical judges made an order that one party should sell his interest to the other. Shortly afterward, the parties hand-wrote a note saying that they would go to Rabbi Schwei if any further disputes arose between them.
[7] In keeping with the January 2006 order, the parties entered into an agreement dated April 11, 2006, under which Mr. Lipszyc agreed to sell his interest to Mr. Popack. That agreement also included an arbitration clause, again designating the Crown Heights Beth Din as the forum for resolving disputes arising out of the agreement.
[8] Mr. Popack then discovered what he believed to be misrepresentations and fraud by Mr. Lipszyc. He raised his concerns with the Beth Din on July 25, 2006. In response, Rabbi Schwei directed the parties to transfer their matter to another Rabbinical court because he did not have time to deal with it. Rabbi Schwei had previously devoted considerable time to dealing with the parties. He had met with them, discussed issues and positions, received submissions and made rulings. However, at this time he indicated that he was busy with congregation matters of Crown Heights. In a letter in November of 2006, Rabbi Schwei confirmed his direction that the parties should transfer the matter to another Beth Din.
[9] Attempts were made to move forward. In March of 2007, the Rabbinical court released a decision indicating that Mr. Lipszyc had failed to appear in response to three summonses and failed to name a third presiding Rabbinical judge. The Rabbinical court found that, in the circumstances, Mr. Popack could go before the secular courts.
[10] In August of 2007, the applicants commenced an action in the Ontario Superior Court. Mr. Lipszyc then moved for a stay of the court proceedings in favour of arbitration before the Beth Din. Mr. Popack took the position that the arbitration clause was incapable of performance given the above history.
[11] By order of this Court dated September 2, 2008, the Ontario action was stayed. That decision was upheld by the Court of Appeal: 2009 ONCA 365. By endorsement released in April of 2009, the Court of Appeal found that it was “anything but clear” that the arbitration agreement was incapable of performance. The Court of Appeal concluded that the “matter should return to the Crown Heights Beth Din under the auspices of Rabbi Schwei to proceed with the arbitration” or to “clearly indicate” the Beth Din’s refusal to further deal with the matter.
[12] In the fullness of time, and with the knowledge of Rabbi Schwei, the parties entered into a new arbitration agreement. It is dated November 10, 2010, and is the subject of an addendum in 2011. The parties agreed that their dispute would be heard by a different Beth Din ˗ the Beth Din of Mechon L’Hoyroa.
[13] The Arbitration Agreement gave the Arbitral Tribunal wide decision-making and procedural flexibility. Its terms included the following:
(i) that the arbitrators “may make their award based on Din Torah, compromise, settlement, or any other way they wish to reach a decision”;
(ii) that “no transcript of the proceeding need be made” unless the arbitrators decided to arrange for one (which did not occur);
(iii) that the arbitrators could “follow any procedure as they decide”;
(iv) that the parties waived “formal notice of the time and place of the arbitration proceeding”;
(v) that the arbitrators had “the right to hear testimony and evidence without the presence of a party if the party doesn’t attend a scheduled hearing”;
(vi) that the arbitrators did not need to explain to anyone the reasons for their decision;
(vii) that the decision of the Arbitral Tribunal was not open for appeal either in any religious court or any secular court; and,
(viii) that in certain circumstances the arbitrators had jurisdiction regarding disputes after the award including motions due to “judicial error, new evidence, etc., … to the extent permitted by law.”
[14] The further agreement entered into in 2011 was entitled “Arbitration Agreement Addendum”. It reaffirmed and “clarified” the Arbitration Agreement. It confirmed that the November 10, 2010 agreement was intended to “substitute the jurisdiction of the Crown Heights Beth Din under the auspices of Rabbi Schwei, and to give exclusive jurisdiction to the [Arbitral Tribunal]”. It confirmed that Crown Heights Beth Din under the auspices of Rabbi Schwei maintained “no jurisdiction whatsoever” regarding the matters in dispute. However, the Arbitral Tribunal had the jurisdiction to apply “any earlier decision of the Crown Heights Beth Din under the auspices of Rabbi Schwei” if they chose to.
[15] Significantly, the Addendum provided that the parties had the “right to appear before the Beth Din at the scheduled hearing(s)” but “if they [chose] not to appear at a scheduled hearing(s)” they would be held accountable as if they were in attendance. It further provided that it would be considered that they received “notice of a scheduled date of hearing(s)” if Messrs. Popack and Lipszyc were “informed by the arbitrators of the scheduled hearing(s).”
[16] It is undisputed that some of the issues that the Beth Din was dealing with in the arbitration related to matters that Rabbi Schwei had information about and had discussed with Messrs. Popack and Lipszyc in the course of his earlier involvement in the dispute between them.
Arbitration hearing
[17] The arbitration hearing commenced in January 2011 and continued intermittently. There were about eight weeks of hearings in total. The last hearing day was in March of 2013, more than two years after the hearing commenced. Both sides were represented by Rabbis who were their Rabbinical lawyers. Mr. Popack was mainly represented by Rabbi Fried, although Rabbi Epstein was also helping, and he also had an Ontario lawyer present. Mr. Lipszyc was mainly represented by Rabbi Speigel.
[18] The proceedings were not recorded or otherwise preserved in a form from which a transcript could be prepared. As a result, there are disputes about what actually transpired during the hearing.
[19] The evidence before me is that Mr. Lipszyc asked that the hearing be recorded in some fashion, over Mr. Popack’s objection, but did not pursue a formal ruling from the Arbitral Tribunal. He asked again in connection with the evidence of one particular witness, Mr. Popack’s father. Again, he did not pursue a formal ruling. The evidence was not preserved.
[20] Mr. Lipszyc pursued Mr. Popack’s father as a witness. In his evidence on this application, Mr. Lipszyc attested that Mr. Popack’s father was central to the issues in dispute because he was the person with whom Mr. Lipszyc negotiated the agreements in dispute and was a signatory to one of those agreements. The Arbitral Tribunal decided to hear from this witness, and went to his home to do so along with the parties. Mr. Popack’s father was ill at the time and passed away shortly thereafter.
[21] Mr. Lipszyc also wanted the Arbitral Tribunal to hear from Rabbi Schwei. There is no issue that this came up at the hearing. In his evidence on this application, Mr. Lipszyc attested that one of Mr. Popack’s lawyers – Rabbi Fried – was repeatedly calling him a crook and a liar. Mr. Lipszyc’s lawyer told him that the Rabbi was doing his job and he should not get upset. But Mr. Lipszyc responded to Rabbi Fried by saying words to the effect of: Why don’t you just ask Rabbi Schwei? Mr. Lipszyc says that Rabbi Fried replied to the effect: “Don’t worry, the Rabbis are going to go to Rabbi Schwei” or the “Beth Din is going to go and speak to him.”
[22] Mr. Popack’s account differs to some extent. He agrees that Mr. Lipszyc said he would like Rabbi Schwei to be asked questions. And Mr. Popack says that one of his legal advisors, Rabbi Epstein, indicated that Mr. Popack’s side did not have a problem with anyone testifying at the hearing including Rabbi Schwei. Mr. Popack does not agree, however, that Rabbi Fried said that the Beth Din would go to speak with Rabbi Schwei.
[23] Mr. Popack’s recollection is that the Arbitral Tribunal said nothing about the request that they hear from Rabbi Schwei. Although Mr. Lipszyc originally attested in his affidavit that all parties were aware that a meeting with Rabbi Schwei was to be held, in cross-examination he admitted that he had no idea that the Arbitral Tribunal was going to have the meeting.
[24] Thus, the request was made and there was no objection. However, neither Mr. Popack nor Mr. Lipszyc recalls the Arbitral Tribunal making an express ruling about the request in the presence of the parties.
[25] The parties were not notified that the Arbitral Tribunal was going to, and did, meet with Rabbi Schwei on July 8, 2013. The Arbitral Tribunal met with Rabbi Schwei without the parties. The length of the meeting is unclear, but estimated by each side. The range is between 1.3 and 4 hours based upon invoices received at a later stage.
[26] The Award, dated August 15, 2013, was received by the parties in early September 2013. It ordered that $400,000 be paid to the applicants by the respondents. In keeping with the Arbitration Agreement, there were no reasons for decision.
Discovery of private meeting with Rabbi Schwei
[27] After release of the Award, in the course of follow-on inquiries about the invoice for the services rendered by the Arbitral Tribunal, Mr. Popack was told that the Arbitral Tribunal met with Rabbi Schwei on July 8, 2013 regarding the dispute. This was further confirmed on the invoice detail he received. Mr. Popack initially attested that it was through these events that he first learned of the meeting with Rabbi Schwei. However, he later acknowledged that he had heard a rumour about the meeting shortly after it took place in July, before the Award was released. He indicated in cross-examination that he did not know if the rumour was true. However, if there was any truth to it, he wanted to object. He therefore asked his Rabbinical lawyer, Rabbi Fried, to reach out to the Arbitral Tribunal at the time. He heard back that Rabbi Fried had done so and was waiting for a response.
[28] Rabbi Fried did reach out to the Arbitral Tribunal. On July 15, 2013, about a week after the meeting with Rabbi Schwei, Rabbi Fried wrote to the Arbitral Tribunal on behalf of Mr. Popack. His letter has been criticized in this application for a number of reasons. He did raise the rumour. However, the letter went on to discuss the potential subject matter of Rabbi Schwei’s testimony at the private meeting and make submissions and provide factual information about that subject matter. It further commented on Rabbi Schwei, saying, among other things, that his evidence was worthless. The letter also provided suggested language for the hoped-for result of the arbitration and other commentary. No one was shown as copied on this letter. Mr. Lipszyc and his advisors certainly did not receive a copy. It is possible that Mr. Popack also did not receive a copy, although he is now not certain whether or not he did.
[29] Significantly, Rabbi Fried’s letter did not make an unqualified request for a hearing if the rumour was true. Instead, his request was that “if the Rabbinical Court considers Rabbi Schwei’s testimony (which was without our knowledge)” there should be a tribunal hearing about it. There was no response to the letter at that time.
[30] This application was commenced in November 2013, seeking relief as a result of the meeting with Rabbi Schwei. Shortly after receiving the court materials, Mr. Lipszyc contacted Rabbi Blum, secretary to the Arbitral Tribunal. He told him about the court proceedings and asked him to tell the Rabbis. He was upset. Rabbi Blum asked for the court materials, which were provided to him. Mr. Lipszyc asked him to write a letter.
[31] On March 13, 2014, the Arbitral Tribunal issued a letter. Unlike all the other written communications from the Arbitral Tribunal, which were in Hebrew, this letter was in English. The applicants therefore submit that its intended audience is the court hearing this application.
[32] The letter is about the meeting with Rabbi Schwei. It says, in part, the following:
During the [hearing], in the presence of all parties and counsel, [Mr. Lipszyc] requested from us to meet with [Rabbi Schwei]. We granted his request and no party objected to our decision, or requested the opportunity to be present at the meeting that the Beth Din will schedule with [Rabbi Schwei]. Had any party requested to be present at the meeting with [Rabbi Schwei], we would have granted the parties request.
Although we met with [Rabbi Schwei], we confirm that the ruling and final order we issued would have been the same, even if the Beth Din meeting with [Rabbi Schwei] had not occurred.
…we received a fax from Rabbi S. Fried (Popacks Rabbinical advisor) requesting, that if Bais Din will take into consideration any evidence they heard from [Rabbi Schwei], his party (Popack) is requesting a hearing with Bais Din. Accordingly since the meeting with [Rabbi Schwei] didn’t make any change in our ruling, a hearing was unnecessary. The Bais Din proceeded to issue the Final Order.
[33] The Arbitral Tribunal’s account of events in its 2014 letter has been called into question. Mr. Lipszyc and Mr. Popack do not recall the Tribunal making a ruling about Mr. Lipszyc’s request in their presence. In the circumstances, neither side would have had the opportunity to object to that decision, nor ask to be present, as suggested in this letter.
[34] It was this letter that brought Rabbi Fried’s letter to the attention of Mr. Lipszyc, if not both parties. After receipt of the letter from the Arbitral Tribunal, Mr. Popack contacted Rabbi Fried to obtain a copy of the letter. It could not be found. Ultimately, he obtained a copy from the Arbitral Tribunal.
[35] Apart from the qualified request for a hearing made by Rabbi Fried in his letter, neither side has taken steps to go back before the Arbitral Tribunal to address the question of the meeting with Rabbi Schwei. The applicants’ position before me was that even if that route was available (which they submitted it was not), the problem could not be fixed by the Arbitral Tribunal given its March 13, 2014 letter and given that its Award was released without reasons.
Discussion
[36] There is no issue that the Arbitral Tribunal is an international tribunal seated in Ontario under the ICAA. The ICAA incorporates into domestic law the UNCITRAL Model Law on International Commercial Arbitration.
[37] The ICAA and Model Law recognize the autonomy of parties to craft an adjudicative process of their own choosing, subject to limited exceptions. Broad deference and respect must be accorded to decisions made by arbitral tribunals pursuant to the Model Law: Corporacion Transnacional de. Inversiones S.A. de C.V. v. Stet International S.p.A., 1999 CanLII 14819 (ON SC), [1999] O.J. No. 3573 at para. 22, aff’d 2000 CanLII 16840 (ON CA), [2000] O.J. No. 3408 (C.A.).
[38] The applicants seek to set aside the Award under Article 34 of the Model Law. They submit that the meeting with Rabbi Schwei gives rise to the jurisdiction to set aside the award under three heads:
(i) that the meeting violated applicable notice requirements, relying on Article 34(2)(a)(iv);
(ii) that the meeting violated the right of the Applicants to present their case, relying on Article 34(2)(a)(ii); and,
(iii) that unauthorized ex parte meetings between arbitrators and material witnesses are contrary to Ontario public policy, relying on Article 34(2)(b)(ii).
[39] In support of the above heads, the applicants submit that the meeting with Rabbi Schwei violated the mandatory rules laid down in Articles 18 and 24 of the Model Law, which provide as follows:
Article 18. Equal treatment of parties
The parties shall be treated with equality and each party shall be given a full opportunity of presenting his case.
Article 24. Hearings and written proceedings
(1) Subject to any contrary agreement by the parties, the arbitral tribunal shall decide whether to hold oral hearings for the presentation of evidence or for oral argument, or whether the proceedings shall be conducted on the basis of documents and other materials. However, unless the parties have agreed that no hearings shall be held, the arbitral tribunal shall hold such hearings at an appropriate stage of the proceedings, if so requested by a party.
(2) The parties shall be given sufficient advance notice of any hearing and of any meeting of the arbitral tribunal for the purposes of inspection of goods, other property or documents.
(3) All statements, documents or other information supplied to the arbitral tribunal by one party shall be communicated to the other party. Also any expert report or evidentiary document on which the arbitral tribunal may rely in making its decision shall be communicated to the parties. [Emphasis added.]
[40] The respondents agree that the parties cannot contract out of Articles 18 and 24, but argue that the parties can, and did, contract out of Article 34. They therefore submit that the applicants are foreclosed from seeking relief in the courts under Article 34 regardless of the alleged breaches of Articles 18 and 24, which are denied in any event.
[41] There are therefore two main issues on this application:
(1) whether the parties have effectively contracted out of Article 34 of the ICAA, precluding all access to the courts; and,
(2) if not, whether the “secret meeting” justifies setting aside the award on one or more of the three grounds put forward by the applicants.
(1) Access to the courts
[42] The respondents submit, as a threshold issue, that Article 34 of the Model Law is not a mandatory provision and the parties have effectively contracted out of it.
[43] Given Article 5, Article 34 is the only provision of the ICAA that allows for a court to set aside an award:
Article 5. Extent of court intervention
In matters governed by this Law, no court shall intervene except where so provided in this Law.
Article 34. Application for setting aside as exclusive recourse against arbitral award
(1) Recourse to a court against an arbitral award may be made only by an application for setting aside in accordance with paragraphs (2) and (3) of this article.
(2) An arbitral award may be set aside by the court specified in article 6 only if:
(a) the party making the application furnishes proof that:
(i) a party to the arbitration agreement referred to in article 7 was under some incapacity; or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of this State, or
(ii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case, or
(iii) the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the award which contains decisions on matters not submitted to arbitration may be set aside, or
(iv) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Law from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Law; or
(b) the court finds that:
(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law of this State, or
(ii) the award is in conflict with the public policy of this State [Ontario].
(4) The court, when asked to set aside an award, may, where appropriate and so requested by a party, suspend the setting aside proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the arbitral tribunal’s opinion will eliminate the grounds for setting aside.
[Emphasis added.]
[44] The respondents rely on the decision in Noble China Inc. v. Cheong (1998), 1998 CanLII 14708 (ON SC), 42 O.R. (3d) 69 (Gen. Div.) in support of their position that Article 34 is not a mandatory provision of the Model Law and therefore can be excluded by agreement. In that case, in self-described obiter, the Court did say that Article 34 is not mandatory. However, to focus on that statement in isolation mis-describes the Court’s findings. The Court identified a number of circumstances in which an attempt to exclude Article 34 by agreement would be ineffective. The Court found that Article 34(2)(a)(i)(ii) and (iii) are “independent grounds” to bring an application to set aside an award “without regard to the effect of any agreement.” Next, the Court found that if the parties purported to agree in a manner that derogated from a mandatory provision of the ICAA such as Article 18, that agreement would be “ineffective” and not stand in the way of an application under Article 34. Similarly, with respect to the second part of Article 34, the Court concluded that an arbitration agreement may not confer powers on a tribunal to conduct an arbitration in a manner contrary to public policy. These findings are all different ways of showing that parties cannot effectively contract out of Article 34 for all purposes.
[45] In Noble China, the Court considered the above in the context of the specific terms of the arbitration agreement. The Court concluded that the parties could agree to exclude any rights they may otherwise have to set aside the award “as long as their agreement does not conflict with a mandatory provision of the Model Law” or Ontario public policy.
[46] The respondents properly concede that there are mandatory provisions in the ICAA, two of which are relied upon here. If parties can contract out of Article 34 for all purposes, there would be no jurisdiction for a court to set aside an award as a remedy for breach of these admittedly mandatory provisions. Noble China illustrates that this is not the case.
[47] I conclude that the proper approach is to consider to what extent the Arbitration Agreement seeks to exclude Article 34, and if it does, to what extent it is effective in doing so given the specific matters at issue.
[48] In support of its position that the parties have excluded Article 34, the respondents rely on the provision in the Arbitration Agreement that the award is not open for appeal in any religious or secular court. However, the setting aside of an award is different from an appeal. Rather than attacking the award on its merits, an application to set aside is a challenge to the tribunal’s process: Brian Casey, Arbitration Law of Canada (Huntington, NY: Juris Pub., 2005), at p. 414.
[49] The respondents further rely on a provision in the Arbitration Agreement that refers to judicial error or new evidence. That provision states as follows:
In the event that after an award is made a dispute between the parties arises as to the interpretation of the award, compliance of the parties, or if a party motions for reargument due to their claim of a judicial error or new evidence etc. the parties agree that the arbitrators shall have jurisdiction on the matters to the extent permitted by law.
[50] In this case, the three pre-conditions to this grant of jurisdiction to the arbitrators do not arise. There is no dispute about the interpretation of the award or the compliance of the parties, nor is there a motion for re-argument. Therefore, this provision does not apply.
[51] The respondents further rely on a provision in the Arbitration Agreement that there is no right to make a “claim” in court without the express written permission of the Beth Din (which was not obtained). However, read in the context of the ICAA, a “claim” is a substantive claim rather than the type of challenge made in this application.
[52] I therefore conclude that the Arbitration Agreement does not exclude the provisions in Article 34 that the applicants seek to invoke. However, even if it purported to do so, it would not be effective in regard to either the mandatory provisions of the ICAA or any conflict with public policy. The application must therefore be considered on its merits.
(2) Specific grounds and relief sought
Article 34(2)(a)(iv) - Notice
[53] The applicants point to the failure to give notice of the meeting with Rabbi Schwei as their first ground for relief. Both the Arbitration Agreement and the Model Law contain notice obligations. Article 34(2)(a)(iv) of the Model Law permits relief where the “arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of the [Model Law] from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Law.”
[54] Article 24(2) of the Model Law requires that “parties shall be given sufficient advance notice of any hearing.” This is mandatory. If, as the respondent submits, the Agreement was meant to be a waiver of all notice, this would be a contravention of Article 24 of the Model Law and ineffective. However, here the Arbitration Agreement does contain notice provisions. The applicable notice requirements are set out in some detail in the Addendum.
[55] The Arbitration Agreement begins by indicating that the Arbitral Tribunal may follow any procedure it decides and also indicates that the parties waive formal notice of the time and place of the “arbitration proceeding.” The respondents rely on these provisions. However, read in the context of the entire Arbitration Agreement and Addendum, these provisions do not oust the more specific provisions regarding “scheduled hearings” that involve testimony and evidence.
[56] The Arbitration Agreement provides that “the parties agree that the arbitrators shall have the right to hear testimony and evidence without the presence of a party if the party doesn’t attend a scheduled hearing” [emphasis added]. The Addendum underscores this provision, saying that the parties have the right to appear before the Beth Din at the scheduled hearings and will be held accountable if they “choose” not to appear. The Addendum to the Agreement then expressly provides for the notice that is required, as follows:
The parties further agree that it will be considered as if they received notice of a scheduled date of hearing(s) if Joseph Popack and Moshe Lipszyc are informed by the arbitrators of the scheduled hearing(s). … [Emphasis added.]
[57] The Agreement goes on to provide for the rights of the other parties if they do not receive notice from Messrs. Popack and Lipszyc or if there is an issue regarding the validity of notice.
[58] These provisions show how notice is to be dealt with within the specific context of “scheduled hearings” that involve testimony and evidence.
[59] I recognize that the letter from the Arbitral Tribunal that was sent after this application was commenced states that at the hearing the Tribunal made a “decision” to grant the request that they meet with Rabbi Schwei and no one “objected.” This suggests that the Tribunal believes that their decision to hear from Rabbi Schwei was communicated to the parties at the time. Perhaps it was, even if only implicitly. There is no transcript to consult, which was the choice of the parties when they entered into the Arbitration Agreement. However, even if this inference is drawn from the letter (i.e., that the request was granted in the presence of the parties), it falls short of notice of the “scheduled hearing”, which was required under the Arbitration Agreement.
[60] The respondents rely on the provision in the Addendum that gives the Arbitral Tribunal sole jurisdiction to determine whether valid notice was given to Messrs. Popack and Lipszyc. But this is not a matter of validity. In this case, there was no notice at all of the “scheduled hearing” in July at which the Arbitral Tribunal heard from Rabbi Schwei.
[61] In the circumstances, this private meeting was a breach of the Arbitration Agreement and satisfies the prerequisites for potential relief under Article 34(2)(a)(iv).
Other grounds
[62] The applicants have also submitted that the private meeting was a denial of their right to a full opportunity to present their case, as required by Article 18 of the Model Law, and contrary to Ontario public policy. Given the above conclusion regarding notice, I need not consider these other grounds for relief. The gravamen is the same – the applicants base their request to set aside the Award on the potential unfairness arising from the private meeting with Rabbi Schwei.
Remedy
[63] The relief sought in this application – to set aside the Award – is not automatically mandated by Article 34. It is discretionary. In exercising my discretion, I have considered a number of factors as summarized below.
[64] The seriousness of the breach is one factor to consider in the exercise of my discretion: Mexico v. Metalclad Corp. 2001 BCSC 664 at para. 129; Zaleschuk Pubs. Ltd. v. Barop Construction Ltd., [1992] B.C.J. No. 919 (S.C.).
[65] Albeit in a different context, Kane v. Board of Governors of U.B.C., 1980 CanLII 10 (SCC), [1980] 1 S.C.R. 1105, at p. 1113 (per Dickson J., as he then was, for the majority), makes it clear that private interviews with witnesses are improper except where the decision-maker is expressly or by necessary implication empowered to act ex parte.
[66] This is not a case where the Arbitral Tribunal went off on its own initiative to meet with a witness, which would certainly be more serious. In this case, one of the parties requested that the Arbitral Tribunal hear from Rabbi Schwei and the other side said that they did not object to the Tribunal doing so. While there is some dispute about what transpired at the hearing, those facts are not in dispute.
[67] It may be, as recounted by Mr. Lipszyc, that Mr. Popack’s Rabbinical lawyer actually said: “Don’t worry, the Rabbis are going to go to Rabbi Schwei.” This would explain why no express ruling may have been seen as necessary. This is disputed and there is no doubt that a transcript would have been of assistance in considering this issue. But it was the parties’ choice to enter into an Arbitration Agreement that provided that there would be no transcript. While this does not excuse the failure to comply with the notice obligations, the circumstances of the request could have left the Arbitral Tribunal with the impression that they were empowered to proceed as they did.
[68] Kane also makes it clear that the court will not inquire whether the evidence did work to the prejudice of one of the parties. It is sufficient if it might have done so: Kane, at p. 1116. For this and other reasons, the applicants ask that I ignore the letter from the Arbitral Tribunal issued after this application was commenced, which essentially says that there was no prejudice. The applicants invite me to conclude that the letter was an after-the-fact justification and breach of the Arbitral Tribunal’s obligation to maintain deliberative secrecy. However, it could also be viewed as answering the inquiry posed by Mr. Lipszyc after this application was commenced and answering, albeit late, the inquiry from Rabbi Fried as well. Nonetheless, I have taken the potential frailties of this communication into account in exercising my discretion. The Arbitral Tribunal’s letter also forecloses any practical benefit to the parties going back to the Arbitral Tribunal, as submitted by the applicants.
[69] Unlike the witness in Kane, Rabbi Schwei was not aligned with one side or the other. He was a former adjudicator. As well, when considering whether the evidence of Rabbi Schwei might have caused some prejudice to the applicants, I must observe that these parties agreed to arbitration without either a transcript or reasons for decision. While they were free to do so, both sides must accept the consequence that I have little information upon which to conclude that Rabbi Schwei’s evidence might have prejudiced either side. I accept the possibility of prejudice for both sides, but cannot practically go further.
[70] Quite apart from the meeting with Rabbi Schwei, there is actual prejudice that would result if the Award is set aside. The respondents submit that the hearing, totalling eight weeks of hearing days, was very expensive. I accept that it was but do not conclude that this type of prejudice should be especially significant. What is significant is the death of a material witness – Mr. Popack’s father. And there is no record of his evidence. If the Award is set aside, this prejudice cannot be cured.
[71] There is then the question of Rabbi Fried’s letter of July 8, 2013, following up on the rumoured meeting with Rabbi Schwei. He was Mr. Popack’s Rabbinical lawyer and on Mr. Popack’s behalf he made only a qualified request for a hearing. He requested a hearing “if” the Arbitral Tribunal was going to consider the evidence they had received from Rabbi Fried. Because of this letter, the respondents submit that the applicants have waived the right to now advance an unqualified objection to the meeting. As well, Rabbi Fried’s letter made ex parte submissions to the Arbitral Tribunal about matters relating to Rabbi Schwei and the arbitration, which also raises fairness issues. While I do not agree that this letter alone disentitles the applicants to the relief they now seek, as submitted by the respondents, I conclude that it augurs against granting the application.
[72] The respondents have also raised the question of inadequate notice of this application as a basis to deny relief. The parties to this application include all but one of the signatories to the Arbitration Agreement and Addendum. The signatory that is not named as a party to the application is a company for which Mr. Popack has apparent signing authority. There therefore does not appear to be a failure of notice to that company, even though it was not named as a party. However, there are also a number of individuals who are described as parties to the Addendum but are not parties to this application. These people did not sign either the Arbitration Agreement or the Addendum. There is no law before me regarding their rights in connection with the arbitration in the circumstances, which the respondents emphasize is an issue of Torah law. Although this uncertainty is problematic and I would have preferred a better record on this issue, I do not find it determinative.
[73] The breach by the Arbitral Tribunal, although significant, must be weighed against the other relevant factors discussed above including the actual prejudice that will result if the Award is set aside. Taking everything into consideration in the exercise of my discretion, I conclude that this is not an appropriate case to set aside the Award.
Order
[74] This application is therefore dismissed. If the parties are unable to agree on costs, they shall make their costs submissions by brief written submissions together with any costs outlines to be delivered by June 15, 2015. Any brief written response shall be delivered by June 26, 2015. This timetable may be modified on agreement between the parties provided that I am notified of the new timetable by June 15, 2015.
Justice W. Matheson
Released: June 1, 2015
CITATION: Popack v. Lipszyc, 2015 ONSC 3460
COURT FILE NO.: CV-13-00492423-0000
DATE: 20150601
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
JOSEPH POPACK, UNITED BURLINGTON RETAIL PORTFOLIO INC., and UNITED NORTHEASTERN RETAIL PORTFOLIO INC.
Applicants
– and –
MOSHE LIPSZYC and SARA LIPSZYC
Respondents
REASONS FOR DECISION
Justice W. Matheson
Released: June 1, 2015