BARRIE COURT FILE NO.: CV-12-1240
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
MARY PALMIERI and ANTONIO PALMIERI a.k.a. TONY PALMIERI
Applicants
– and –
GIUSEPPE ALAIMO
Respondent
Eric Gionet, for the Applicants
Igor Ellyn, for the Respondent
HEARD: February 25 and April 9, 2015
AND:
ONTARIO
SUPERIOR COURT OF JUSTICE
BARRIE COURT FILE NO.: CV-13-0263
BETWEEN:
GIUSEPPE ALAIMO
Applicant
– and –
MARY PALMIERI and TONY PALMIERI
Respondents
Igor Ellyn, for the Applicant
Eric Gionet, for the Respondents
HEARD: February 25 and April 9, 2015
VALLEE, J.
Introduction
1Mary and Tony Palmieri agreed with Guiseppe Alaimo that they would build a house on his property. Mrs. Palmieri is Mr. Alaimo’s daughter. The Palmieris and Mr. Alaimo were to reside in the house. The house was built to a certain stage when the Palmieris and Mr. Alaimo had a falling out. The Palmieris left the property and asked Mr. Alaimo to pay their cost of designing and constructing the house. Unfortunately, the parties could not agree on an amount. They did agree to submit the issue to arbitration. Both parties were represented. They signed an arbitration agreement prepared by counsel and agreed on the appointment of an arbitrator. The arbitration agreement stated that the arbitrator would attend at the house to view and record the construction of the house. He was not to communicate with the parties. His decision was to be based upon collection and review of the evidence gathered from his site visits and as presented by the parties.
2Prior to his attendance at the site, the arbitrator asked whether either party had plans or photographs of the house that he might review. The Palmieris sent a considerable volume of documents to the arbitrator. Mr. Alaimo sent nothing. He told his counsel that the Palmieris had all of the documents.
3The arbitrator determined the fair and reasonable cost to design and construct the house and provided a report entitled Reproduction Estimate. Counsel agreed on a timeline for making submissions regarding the report. Three days before the date that Mr. Alaimo’s submissions were due, he terminated his lawyer’s services and retained new counsel. He took the position that the arbitration was at an end. He stated that the arbitrator ought not to have received documents from the Palmieris. He exceeded his jurisdiction by doing so. Mr. Alaimo alleged that he was not provided with an opportunity to be heard. This resulted in a denial of natural justice to him, among other things.
4Mr. Alaimo did not participate any further in the arbitration process. Subsequently, the arbitrator issued an award.
5The Palmieris bring their application for an order to enforce the award. Mr. Alaimo brings his application for an order declaring that he is not bound by the arbitration agreement, the Reproduction Estimate and the Award.
Chronology
6The chronology of events in this matter is central to the dispute. Accordingly, I will set it out in detail.
72009 – 2010: The Palmieris built a house on property owned by Mr. Alaimo. The plan was that the Palmieris and Mr. Alaimo would live in the house together.
82011: Their relationship deteriorated. The Palmieris moved out of the house to other accommodation. The Palmieris requested that Mr. Alaimo pay them the amount that they had spent to build the house on his property. Mr. Alaimo believed that the Palmieris had overpaid for the construction. The parties could not agree on the amount that should be paid. They retained counsel. The Palmieris retained Mr. Marco Drudi. Mr. Alaimo retained Mr. Massimo Rovazzi.
9November 24, 2011: The parties and counsel attended a meeting at Mr. Rovazzi’s office. Mr. Alaimo agreed in principle to pay the Palmieris a fair and reasonable cost to build the house. The parties agreed to submit their dispute to arbitration. This would not be a typical arbitration, with a hearing. Rather, the parties would choose a quantity surveyor as arbitrator to determine the fair and reasonable cost to build the house. The number that he determined would resolve the dispute between the parties.
10The parties agreed that Mr. Drudi would draft the arbitration agreement, which he did. Mr. Rovazzi reviewed it and translated it for Mr. Alaimo who does not read English nor speak it well. The Agreement described the Palmieris as the claimant and Mr. Alaimo as the respondent.
11The recitals in the Agreement stated that the Palmieris had built a house on land owned by Mr. Alaimo. It set out the following:
The Claimant had a claim against the Respondent for, inter alia, an express or resulting trust, unjust enrichment and damages. Notwithstanding the claim of the Claimant, the Parties have agreed to resolve their differences as follows:
The parties shall jointly retain a Quantity Surveyor to act as Arbitrator as hereinafter set out;
The Arbitrator shall value the fair cost of designing and constructing the Dwelling;
The principal amount as of September 1, 2011 of the Mortgage registered as Instrument Number SC905372 (the “Mortgage”) shall be deducted from the fair value of construction of the Dwelling and the Respondent will pay to the Claimant the difference between the two within 30 days from the Arbitral Award;
The Respondent will exercise his best efforts to have the Mortgage discharged or, in the alternative, have the Claimants released as Guarantors, failing which, the Respondent agrees to indemnify the Claimants with respect to their Guarantees of the Mortgage.
12Two other important terms of the Agreement are as follows:
2.2 Basis of Decision – The Arbitrator shall make its decision based upon his collection and review of the evidence obtained by him through one or more attendances at the dwelling and as presented by the parties.
2.3 Binding Decision – The decision(s) of the Arbitrator shall be binding upon the Parties and the Parties agree to comply with them.
4.1 Conduct of the Proceedings –
(i) The Arbitrator shall attend at the property on one or more occasions to view and record the construction of the dwelling. On each occasion, the Arbitrator shall not attend with the parties present and shall not communicate with the parties or their families;
(ii) The Arbitrator shall receive from counsel for the parties written submissions as follows:
(a) Counsel for the Claimants shall deliver written submissions;
(b) Counsel for the Respondent may respond with written submissions within 14 days; and,
(c) If the Respondent has provided written submissions, Counsel for the Claimants may reply within 7 days.
13November 30, 2011: Both parties signed the Agreement which contains this date.
14Mr. Drudi proposed Mr. Mel Yungblut, of A.W. Hooker Associates Ltd. as the arbitrator.
15December 6, 2011: Mr. Yungblut sent to Mr. Drudi a proposal to provide quantity surveying services for the arbitration. The scope of his services was listed as follows:
Two site visits to the subject residence…
The review of documentation from Rovazzi on behalf of Alaimo.
The review of documentation from Drudi on behalf of Palmieri.
The preparation of an independent reproduction cost estimate for the subject residence including supporting documentation.
The preparation of an arbitration report including the decision.
16Mr. Yungblut estimated the cost of his services to be $15,000. He required a 50% retainer upon engagement and the balance on completion. The proposal contained an Acceptance of Proposal term and a signing line.
17December 6, 2011: Mr. Drudi sent to Mr. Rovazzi Mr. Yungblut’s CV and proposal.
18January 19, 2012: Mr. Rovazzi sent the proposal to Mr. Alaimo.
19February 1, 2012: Mr Drudi advised Mr. Yungblut that the parties agreed to use him as their quantity surveyor and that they would share equally in the cost.
20March 30, 2012: Counsel had a conference call with Mr. Yungblut. Mr. Drudi confirmed in writing that Mr. Alaimo had not yet delivered his share of the retainer and that the Palmieris would pay that amount as well to advance the arbitration. Mr. Alaimo was to deliver a $5,000 retainer before April 20, 2012.
21April 19, 2012: Mr. Alaimo sent a $5,000 retainer.
22April 23, 2012: Mr. Yungblut sent an email to both counsel asking, “Does anyone have drawings for the house in question? Can we receive a copy of the drawings, photographs, etc, prior to the site visit?”
23April 23, 2012: Mr. Rovazzi sent an email to Peter Alaimo, Mr. Alaimo’s son who was assisting him with the matter, asking whether he could provide the items that Mr. Yungblut requested. He responded and stated that the Palmieris had all of the documents relating to the house. Neither Mr. Rovazzi nor Mr. Alaimo objected to the arbitrator’s request.
24April 24, 2012: Mr. Drudi sent a letter to Mr. Yungblut enclosing the following:
(a) Photographs taken during the construction;
(b) Handwritten summary of payments made together with invoices and back up documentation;
(c) Building permit and approved drawings with the Town of Innisfil; and
(d) The original plans.
Mr. Drudi did not send a copy of this letter to Mr. Rovazzi.
25May 9, 2012: Mr. Yungblut attended at the property to review the construction.
26May 29, 2012: Mr. Drudi sent an email to Mr. Yungblut, with a copy to Mr. Rovazzi, that stated:
In regards to the Conduct of the Proceedings in para 4.1(ii), you are required to receive written submission from Counsel. I suggest the following:
You can deliver a draft Report to both counsel; and
Counsel can then determine if they wish/need to make submission on any points in the Report. If so, we will follow the sequence set out in 4.1(ii)
Please advise if the above is acceptable. If so, we look forward to receiving the draft Report.
27July 10, 2012: Mr. Drudi sent an email to Mr. Yungblut, with a copy to Mr. Rovazzi, asking when he could expect to receive the draft report.
28July 20, 2012: Mr. Yungblut sent his Reproduction Estimate to Mr. Drudi. Mr. Drudi advised him that it had to be sent to Mr. Rovazzi as well. The amount of the estimate was $656,000.
29July 23, 2012: Mr. Yungblut sent an email to Mr. Rovazzi, with a copy to Mr. Drudi, attaching the Reproduction Estimate and asking both counsel how many hard copies they would like to have.
30July 24, 2012: Mr. Drudi sent an email to Mr. Yungblut, with a copy to Mr. Rovazzi, stating:
Before you send copies, as per the Arbitration Agreement, Mr. Rovazzi and I are to have an opportunity to provide submissions on draft before it is finalized. I will review with my client and advise if we wish to make submissions.
31August 2, 2012, 12:09 p.m.: Mr. Rovazzi sent an email to Mr. Yungblut and Mr. Drudi stating, “I wish to make submission prior to the issuance of the final draft of your report. I expect to have them to you within two weeks.”
32August 2, 2012, 12:31 p.m.: Mr. Drudi sent an email to Mr. Yungblut and Mr. Rovazzi suggesting the following schedule:
Any and all written submissions by Alaimo be made on or before August 20, 2012;
Any and all written submissions, if any, by Palmieri be made on or before August 27, 2012; and
If you need to conduct a conference call, it will be held before September 10, 2012;
If you are content to issue a final report, it be issued on or before September 15, 2012.
33August 2, 2012, 12:48 p.m.: Mr. Yungblut sent an email to Mr. Drudi and Mr. Rovazzi stating, “The proposed schedule appears to work with my own plans to be away the last week of August from August 27 to Sept 4, 2012. Look forward to receiving the submissions.”
34August 17, 2012: Mr. Alaimo terminated Mr. Rovazzi’s services and retained Mr. Igor Ellyn. Mr. Ellyn sent an email to Mr. Drudi stating the following:
- he was now retained;
- if the report is the arbitrator’s award, it was in excess of his jurisdiction because the arbitrator relied on materials from the Palmieris in violation of clause 4.1 of the Arbitration Agreement;
- The arbitrator was not acting judiciously;
- There was a denial of natural justice;
- The tenor of the report was consistent with bias. It was sent to Mr. Drudi on a first name basis;
- If Mr. Yungblut was ever an arbitrator, he had ceased to be one;
- There was no such body as the Arbitration and Mediation Tribunal of Ontario as referred to in clause 3.2;
- The Agreement is void for uncertainty;
- The arbitration had ended. Neither the Agreement nor the conclusions in Mr. Yungblut’s report were binding on Mr. Alaimo.
35August 17, 2012: Mr. Ellyn also sent a letter to Mr. Yungblut repeating some of the points noted above and stating that he could no longer act as an arbitrator in the matter.
36August 28, 2012: Mr. Drudi sent a letter to Mr. Yungblut, with copies to Mr. Ellyn and Mr. Rovazzi, stating that the only remaining item to complete in the Arbitration was to fix costs. He commented on an offer that the Palmieris had made dated May 31, 2012 and stated that it was more favourable to Mr. Alaimo than the amount of Mr. Yungblut’s Reproduction Estimate. He asked Mr. Yungblut to make a costs award requiring that Mr. Alaimo pay to the Palmieris the amount they had paid to Mr. Yungblut for his fees. Mr. Drudi requested that Mr. Alaimo provide any submissions on costs within five business days.
37August 29, 2012: Mr. Ellyn sent a lengthy email to Mr. Yungblut and Mr. Drudi containing 13 points, some of which were set out in his email dated August 17, 2012.
38August 29 2012: Mr. Ellyn sent an email to Mr. Drudi requesting copies of documents sent to Mr. Yungblut.
39August 30, 2012: Mr. Drudi sent a letter to Mr. Yungblut stating that until he terminated the arbitration, he continued to be the arbitrator. Mr. Drudi requested that Mr. Yungblut deal with the issue of costs to finalize his involvement in the matter after which Mr. Alaimo could bring whatever judicial application he considered appropriate.
40September 12, 2012: Mr. Ellyn sent an email to Mr. Yungblut and Mr. Drudi stating that he had made a challenge under s. 13(1) and 13(3) of the Arbitration Act, 1991, S.O. 1991, c.17 (based on a reasonable apprehension of bias) and requested that Mr. Yungblut resign in accordance with s. 13(4) or decide the challenge.
41September 13, 2012: Mr. Drudi sent a letter to Mr. Yungblut and Mr. Ellyn enclosing 2 drafts of a final arbitration award for Mr. Yungblut to sign. Regarding costs, one stated that the amount was $5,232.15 being the fees that the Palmieris paid to Mr. Yungblut. The other contained a blank for costs for Mr. Yungblut to complete if he believed another amount was proper. Mr. Drudi asked Mr. Yungblut to complete one of the drafts to conclude the arbitration. He suggested that Mr. Ellyn could then take whatever steps he thought were appropriate.
42October 16, 2012: Mr. Yungblut forwarded by email his signed Award, allowing $5,232.15 in costs to the Palmieris.
43November 15, 2012: the Palmieris issued application CV 12 1240 in Barrie requesting an order enforcing the arbitral Award dated September 12, 2012, requiring Mr. Alaimo to pay $662,232.15 less the proper deductions, and to discharge the mortgage and indemnify the Palmieris regarding their guarantees of the mortgage.
44March 7, 2013: Mr. Alaimo issued application CV 12 467894 in Toronto requesting an order declaring that the Arbitration Act does not apply to the arbitration Agreement, the Reproduction Estimate and the arbitration Award, and that Mr. Alaimo is not bound by them. Alternatively, if they are arbitration awards, they are not binding because:
i) The arbitration was terminated before the awards were delivered;
ii) The arbitrator exceeded his jurisdiction;
iii) The awards were not delivered within the time permitted by the agreement;
iv) The arbitrator was biased in favour of the Palmieris;
v) The arbitrator failed to respond to Mr. Alaimo’s challenge to his jurisdiction under s. 17(3) of the Act; and,
vi) The arbitrator ceased to act an arbitrator by considering materials which were expressly excluded by the arbitration agreement.
45At some point during this chronology, Mr. Alaimo transferred title to the property to some of his children. He did not disclose this to the Palmieris.
The Issues
Does the Arbitration Act apply to the Agreement?
Did Mr. Yungblut exceed his jurisdiction as an arbitrator by considering the material that the Palmieris sent to him in response to his request?
Was Mr. Alaimo denied an opportunity to respond? If so, was there a denial of natural justice?
Was Mr. Yungblut biased toward the Palmieris? Is there a reasonable apprehension of bias?
Is Mr. Alaimo bound by the Arbitration Agreement, the Reproduction Estimate and the Arbitration Award?
Does the Arbitration Act apply to the Agreement?
Mr. Alaimo’s Position
46Mr. Alaimo states that the Arbitration Act does not apply to the agreement. Just because something is called an arbitration does not make it so. There is a difference between valuing and arbitrating. In Sport Maska Inc. v. Zittrer, 1988 68 (SCC), [1988] 1 S.C.R. 564 at par 67, the court stated, “The fact that a third party makes a decision based on his personal expertise rather than on an adversarial procedure requiring the admission of evidence and argument by the parties suggests the existence of an expert opinion.” In par 62, it went on to quote Arenson v. Casson Beckman Rutley & Co.., [1975] All E.R. 901 at p. 916 regarding the conditions required for the existence of arbitration, as follows:
The indicia are as follows: (a) there is a dispute or a difference between the parties which has been formulated in some way or another; (b) the dispute or difference has been remitted by the parties to the person to resolve in such a manner that he is called on to exercise a judicial function; (c) where appropriate, the parties must have been provided with an opportunity to present evidence and/or submissions in support of their respective claims in the dispute; and (d) the parties have agreed to accept his decision.
47Mr. Alaimo states that the notion that the parties would make submissions after the report was provided is an attempt by the Palmieris to address the fact that a decision had been made first. It was not for counsel to do this. If a procedural step changes the underlying basis of the agreement, counsel cannot agree to another process after the fact. It was not appropriate for counsel to agree to make submissions after Mr. Yungblut had already made a decision. Mr. Alaimo did not retain Mr. Rovazzi to amend the agreement. He was terminated the day after he agreed to make submissions.
48Furthermore, Mr. Yungblut was not called upon to exercise a judicial function. He only carried out a quantity survey. The parties simply agreed to rely on the opinion of a third party to determine one of the essential components of the contract. In essence, Mr. Yungblut carried out an appraisal. He did not arbitrate the matter. Accordingly, the Arbitration Act does not apply.
49The Arbitration Act defines the term “arbitration agreement.” In section 1, it states, “arbitration agreement means an agreement by which two or more persons agree to submit to arbitration a dispute that has arisen or may arise between them.” An agreement to have a third party carry out a valuation is not an arbitration agreement.
Analysis
50I do not agree with Mr. Alaimo’s position on this issue. The facts do not support it. All of the requirements as set out in Arenson for the existence of arbitration are present in this matter.
a) The parties formulated a dispute. This is set out in the recitals to the Agreement. While Mr. Alaimo suggested that the recitals do not form part of the Agreement, in this case, they clearly set out the parties’ intentions which are relevant.
b) They remitted it to Mr. Yungblut to resolve. He was called upon to determine the fair cost of designing and constructing the dwelling, being amount that Mr. Alaimo agreed to pay to the Palmieris. Essentially, Mr. Yungblut was called upon to determine an amount, a process which is similar to calculating liquidated damages. Accordingly, he exercised a judicial function.
c) The parties had an opportunity to present submissions in support of their respective claims in the dispute. This is set out in paragraph 2.2 of the agreement. It stated that Mr. Yungblut was to make his decision based on the evidence that he obtained by attending the dwelling and as presented by the parties. The Agreement does not contemplate a hearing; however, in my view, paragraph 4.1(ii) is clear that the parties were to make submissions. Both counsel understood and agreed that the submissions were to be made after Mr. Yungblut made a preliminary determination.
d) Paragraph 2.3 of the Agreement states, “The decision(s) of the Arbitrator shall be binding upon the Parties, and the Parties agree to comply with them.” It is also clear that the parties agreed to accept Mr. Yungblut’s decision regarding the value of the fair cost of designing and constructing the dwelling.
51Accordingly, I find that the Arbitration Act applied to the agreement between the parties.
Did Mr. Yungblut exceed his jurisdiction as an arbitrator by considering the material that the Palmieris sent to him in response to his request?
Mr. Alaimo’s Position
52Mr. Alaimo states that the arbitrator should not have requested, received and considered the materials that the Palmieris sent to him prior to preparing his Reproduction Estimate. He relies on s. 4.1 of the Agreement which is set out above. It states that on each occasion that the Arbitrator attended the premises, he was not to attend with the parties or communicate with them or their families. Furthermore, although the agreement contemplated that the arbitrator would receive materials from the parties, these were to be written submissions. The arbitrator requested drawings, photographs etc. prior to his site visit. The Palmieris provided drawings and photographs as well as a number of other documents. The arbitrator described them in his report as, “a hand written summary prepared by Palmieris that reported actual costs of the construction of the residence. This summary of costs was supported by invoices from various consultants, contractors, suppliers and vendors, as well as cancelled cheques.”
53Mr. Alaimo states that the arbitrator’s receipt and consideration of these materials resulted in unfairness to him. The arbitrator was to determine the issue set out in Schedule A to the agreement, being “What is the fair and reasonable cost of construction of the dwelling including all costs for design, plans, permits, insurance, materials, supplies labour, services, utilities and subcontracts?” The arbitrator was to make this determination based on his own expertise.
54Section 19 of the Arbitration Act states as follows:
19.(1) In an arbitration, the parties shall be treated equally and fairly.
(2) Each party shall be given an opportunity to present a case and to respond to the other parties’ cases.
55Mr. Alaimo states that the arbitrator should have asked whether he could receive the documents under the terms of the agreement. Mr. Alaimo did not know which documents the Palmieris had provided to the arbitrator. He was denied an opportunity to respond to them. This resulted in procedural unfairness and a denial of natural justice.
Analysis
56Mr. Alaimo did not swear the affidavits in support of his application. Rather, his son Peter swore them. Peter stated in his original affidavit that he did not know that Mr. Yungblut had made the request for drawings and photographs. He denied that he had seen Mr. Yungblut’s email requesting them. This proved to be false. In fact, Mr. Rovazzi forwarded Mr. Yungblut’s email to Peter. Peter was aware of the request when it was made and discussed it with Mr. Rovazzi. This information came to light after Mr. Rovazzi’s cross-examination on his affidavit when he answered an undertaking. Peter sent an email dated April 23, 2012 to Mr. Rovazzi stating, “The Palmierii’s [sic] have all of the documents pertaining to the house.” Neither Peter nor Mr. Rovazzi objected to Mr. Yungblut’s request. They never said that Mr. Yungblut should not receive any documents or review them. Mr. Rovazzi acknowledged on his cross-examination that providing documents was consistent with his understanding of the provisions of the arbitration agreement.
57The Palmieris acknowledge that Mr. Drudi did not send copies of the documents to Mr. Rovazzi. In my view, he should have sent them or at least an index setting out what was provided to Mr. Yungblut. Nevertheless, I find that no unfairness resulted to Mr. Alaimo as a result of this. Peter knew that the Palmieri’s had provided documents. He did not raise any objection to this. Mr. Rovazzi was not concerned about it. It is interesting that Mr. Alaimo raises this as a central issue in this dispute after the draft Reproduction Estimate was provided when he had the opportunity to do so before it was prepared.
58The provisions in the arbitration agreement show that the process was to be relatively causal. No hearing was to be held. Even before it was prepared, if the arbitration agreement prohibited Mr. Yungblut’s receiving the documents, I find that the parties waived compliance with the agreement by their mutual conduct. No unfairness resulted to Mr. Alaimo. I find that Mr. Yungblut did not exceed his jurisdiction as an arbitrator by considering the materials that the Palmieris sent to him pursuant to his request.
Was Mr. Alaimo denied an opportunity to respond? If so, was there a denial of natural justice?
Mr. Alaimo’s position
59Mr. Alaimo acknowledges that Mr. Rovazzi and Mr. Drudi agreed to a timetable for providing submissions to Mr. Yungblut. This was a procedural management issue which they were entitled to address. Nevertheless, both parties signed the Agreement. The court must consider the process set out in the Agreement and the parties’ intentions. Paragraph 1.3 of the Agreement is a typical entire agreement clause and states that, “This Agreement together with the agreements and other documents to be delivered pursuant to this Agreement, constitute the entire agreement between the Parties…and supercedes all prior agreements…”
60Mr. Alaimo states that he could not make submissions on the Reproduction Estimate regarding the documents that the Palmieris provided because this was an evidentiary issue. Furthermore, Mr. Yungblut had already seen the documents and considered them in making his estimate. He could not disabuse himself of what he had seen.
Analysis
61As noted above, Mr. Alaimo and Peter knew that Mr. Yungblut had made a request for documents. They knew that the Palmieris had responded and sent documents. They never objected to this. They never requested an itemized list of the documents that were sent. They never asked to view the documents that were sent. They never suggested that they might want to make submissions on whether Mr. Yungblut could receive the documents or consider them when he was preparing the Reproduction Estimate. Mr. Yungblut made the request for documents on April 23, 2012. The Palmieris provided the documents along with a letter dated April 24, 2012. Mr. Alaimo received Mr. Yungblut’s Reproduction Estimate on July 23, 2012. Three months passed between the time that the Palmieris sent the documents and Mr. Yungblut sent the Reproduction Estimate.
62I find that Mr. Alaimo had two opportunities to respond. He could have reviewed the documents and taken the position that they should not have been provided to Mr. Yungblut any time between April 24 and July 23. He also could have provided submissions regarding the Reproduction Estimate and the propriety of Mr. Yungblut’s receiving the documents between July 23 and August 20, as counsel had agreed to that date in the timetable for providing submissions. Instead, he terminated Mr. Rovazzi’s services and retained new counsel.
63According to Ryan v. Cacioppo, 2008 62145 (ON SC), par 16,
The jurisprudence on arbitration emphasizes that parties are motivated to arbitrate because they want to proceed privately with a more flexible and timely process than that available through the courts. Parties are also motivated to arbitrate because of cost efficiencies, a factor which is a very large consideration in these times of lengthy delays and extremely high legal fees. These are some of the reasons why there is a high degree of deference to arbitrators. The courts should intervene only in cases of the most egregious procedural breaches.
64I do not accept Mr. Alaimo’s position that Mr. Yungblut could not disabuse himself of the information in the documents. In his covering letter for the Reproduction Estimate, he stated,
Based on our review of the costs included in the summary, we confirm that the summary received is not a complete reporting of all of the costs incurred to build the residence. Despite this limitation, the costs reported in the summary were used as a reference in the preparation of the reproduction estimate.”
65If Mr. Alaimo had chosen to make submissions in accordance with the timetable, Mr. Yungblut likely could have identified the specific findings in his Reproduction Estimate for which the summary was used as a reference. He could have revised his report in that regard. His duty as arbitrator was to value the fair cost of designing and constructing the dwelling. This matter involved numbers. Mr Yungblut would not have been irreversibly swayed by the information in the summary. He likely could have reconsidered his valuation from a perspective that did not include the documents provided by the Palmieris if he had determined that he ought to do so. The request was never made. There was ample time to make it.
66This is not a case involving an egregious procedural breach. Intervention by this court is not merited. I find that Mr. Alaimo was not denied an opportunity to respond. He simply did not avail himself of it. There was no denial of natural justice.
Was Mr. Yungblut biased toward the Palmieris?
Mr. Alaimo’s position
67Mr. Alaimo relies on Murphy v. Wise, 2008 54972 (ON SC). The court quoted from Committee for Justice and Liberty v. Canada (National Energy Board), 1976 2 (SCC), 1976 CarswellNat 434 (S.C.C.) at par 36 as follows:
The presence or absence of an apprehension of bias is evaluated through the eyes of the reasonable, informed, practical and realistic person who considers the matter in some detail (Committee for Justice and Liberty, supra.) The person postulated is not a “very sensitive or scrupulous” person, but rather a right-minded person familiar with the circumstances of the case.
68Mr. Alaimo acknowledged that in a situation where the parties have agreed on the decision maker, the situation must be extreme for a reasonable apprehension of bias to exist. In A.T. Kearney Ltd. v. Harrision, 2003 32908 (ON SC) at par 7, the court stated,
The threshold for a finding of real or perceived bias is a high one since it calls into question both the personal integrity of the adjudicator and the integrity of the administration of justice. The grounds must be substantial and the onus is on the party seeking to disqualify to bring forward evidence to satisfy the test.
69Mr. Alaimo points to several incidents that show Mr. Yungblut was biased in favour of the Palmieris. He received documents from the Palmieris and should have known that he had to send copies of them to Mr. Alaimo. Initially, Mr. Yungblut sent the Reproduction Estimate to only Mr. Drudi and in the covering letter stated, “Dear Marco.” Mr. Drudi then told him that he had to send it to both counsel which he did. He did not respond to a section 13 challenge regarding bias.
Analysis
70Mr. Yungblut was not trained in procedural matters. Holding him to a judicial standard would be inappropriate. He did receive documents from the Palmieris but only after asking both parties whether they had any that he could review. He could have fairly assumed that Mr. Alaimo would request copies of the documents if he wanted them. Mr. Alaimo was represented by counsel. No issue was raised about Mr. Yungblut’s receiving the documents or considering them until after Mr. Alaimo received the Reproduction Estimate. This was not a coincidence.
71Mr. Yungblut did initially send the Reproduction Estimate to only Mr. Drudi and stated, “Dear Marco” in the covering letter. Mr. Drudi drafted the agreement. He advised Mr. Yungblut that the parties had agreed to use him as arbitrator. Mr. Drudi sent a letter to Mr. Yungblut regarding the requirement for written submissions. He followed up with Mr. Yungblut regarding a date on which counsel might expect to receive the Reproduction Estimate. Clearly, Mr. Drudi was in contact with Mr. Yungblut more often in contrast to Mr. Rovazzi. The fact that Mr. Yungblut initially sent the Reproduction Estimate to Mr. Drudi and addressed him by his first name does not suggest that Mr. Yungblut was biased in favour of the Palmieris. He was simply dealing with counsel who had followed up with him. The report should have been sent to both counsel at the same time; however, this omission does not constitute substantial grounds sufficient to support a reasonable apprehension of bias. It does not meet the high threshold test set out in A.T. Kearney. It does not even come close.
72Regarding the s. 13 challenge, an allegation of bias is a serious matter. Section 13(3) of the Act requires a party to send the arbitrator a statement of the grounds for the challenge within fifteen days of becoming aware of them. The evidence is unclear as to when Mr. Alaimo made this challenge, if he did at all. In the September 12, 2012 email from Mr. Ellyn to Mr. Yungblut and Mr. Drudi, Mr. Ellyn refers to his earlier email of August 28, 2012 and requests a reply. He stated, “our email contesting the process you used are [sic] a challenge under ss. 13(1) and (3) of the Act.” The August 28, 2012 email does not mention a section 13 challenge. It does not include a statement of the grounds for the challenge. Mr. Alaimo knew that Mr. Yungblut had received and considered documents from the Palmieris on July 23, at the latest, the date that he received the Reproduction Estimate. Even if the August 28, 2012 email could be considered to be a section 13 challenge, it was made outside of the 15 day requirement.
73An allegation of bias strikes at the character and morals of the arbitrator. It should not be initiated lightly. In 151383 Ontario Inc. v. Pelts, 2010 ONSC 4863, the court considered a matter with some similarities to the steps that Mr. Alaimo took. The court commented on a section 13 challenge which it found to be improper. It stated in par 45,
My sense is that the Respondents were so distressed by the draft report of the Arbitrator that they decided not to participate further, and instead decided to do everything they could to bring the arbitration to an end. I find that the challenge was not made in good faith and in accordance with the Arbitration Act. It was intended to drop a bomb on the arbitration process in the hope of ending it because the Respondents did not like the results that were signalled by the draft report. This kind of opportunistic tactic by a party to an arbitration is to be discouraged by the court.
74No right minded person familiar with the circumstances of this matter would conclude that the presence of an apprehension of bias existed. Mr. Alaimo’s suggestion of it was an opportunistic tactic.
Is Mr. Alaimo bound by the arbitration agreement, the Reproduction Estimate and the arbitration award?
75Mr. Alaimo states that he is not bound by the agreement for several reasons. He argues that the agreement is not an arbitration agreement. Therefore, the Award cannot flow from it. There was a denial of natural justice within the process; therefore, section 19 of the Arbitration Act was breached. I have already made findings on these issues. Mr. Alaimo is bound by the arbitration agreement.
76The Award is problematic. The Reproduction Estimate was a draft. It was sent to the parties. They agreed on a timetable to make submissions. Mr. Yungblut could have made revisions to the draft after hearing submissions. In Mr. Rovazzi’s email to Mr. Yungblut dated August 2, 2012, he stated, “I wish to make submissions prior to the issuance of the final draft of your report.” Clearly, Mr. Alaimo understood that the Reproduction Estimate was only a draft on that date.
77As noted above, three days prior to the date when which Mr. Alaimo was to make his submissions, he terminated Mr. Rovazzi’s services and retained new counsel, Mr. Ellyn. He terminated the process in his email dated August 17, 2012 stated, “The arbitration has ended.” Accordingly, Mr. Alaimo made no submissions regarding the Reproduction Estimate. The Palmieris did not agree that the arbitration had ended. They took the position that the final step in the process was for Mr. Yungblut to make a costs award. Mr. Drudi and Mr. Ellyn then exchanged several letters and emails as noted above. Mr. Alaimo did not make any submissions on costs. Ultimately, Mr. Drudi prepared two draft awards and sent them to Mr. Yungblut. He signed the version that allowed the legal fees that Mr. Drudi had requested. The Award is short and states the following:
ARBITRAL AWARD
This Arbitration was conducted by me in accordance with the Arbitration Agreement signed by the parties and dated November 30, 2011, without a hearing,
Upon attending 2765 20th Street, Innisfil, Ontario, (the “Dwelling”) and upon reading the letters and emails from counsel for the parties on the issue of costs,
I HEREBY FIND that the fair cost of designing and constructing the Dwelling to be $656,000.00.
I HEREBY ORDER that the Respondent pay to the Claimant costs fixed in the amount of $5,232.15.
“signed”
Mel Yungblut PQS(F)
78Section 38 of the Arbitration Act sets out several mandatory requirements for an arbitration award. It states that the award shall be in writing and, unless made on consent, it shall state the reasons on which it is based. It shall include the place where it was made and the date. Mr. Alaimo states that the Award is not enforceable primarily because it does not state the reasons on which it is based.
The Palmieris’ position
79The Palmieris state that the Reproduction Estimate was never intended to be a final report. It was a draft subject to submissions from the parties. The Reproduction Estimate represented the reasons for Mr. Yungblut’s determination that $656,000.00 was the fair and reasonable cost of construction of the dwelling. The final document is the Award. It is similar to a court order and should be enforced.
Analysis
80There is no doubt that the Award does not state the reasons on which it is based. This mandatory requirement ensures that the parties to an arbitration understand how the arbitrator came to the decision. There is also no doubt that the reasons for the finding of $656,000 in the Award are set out in writing in the Reproduction Estimate. This is obvious from a review of the document. It contains a detailed analysis and calculation which results in the amount of $656,000. The Award would have met the requirement if paragraph 1 contained a second sentence to the effect that reasons for the finding are set out in the Reproduction Estimate dated July 20, 2012, attached as Schedule A.
Conclusion
81In the circumstances, Mr. Yungblut’s omission in failing to refer to the Reproduction Estimate as his reasons does not justify setting aside the Award as requested by Mr. Alaimo. Section 46(8) of the Act permits me to remit the Award to the arbitral tribunal and give directions about the conduct of the arbitration. Accordingly, the Award shall be remitted to the arbitrator, Mr. Yungblut. I direct him to prepare and issue an award which states in writing the reasons on which it is based. He shall also state the place where it is made. His retainer included preparation of a proper award. If the parties have any concerns as to whether this award is enforceable, they may arrange through the trial co-ordinator to attend before me.
Costs
If the parties cannot agree on costs, I will receive written submissions, limited to three pages using 1.5 line spacing, together with costs outlines and any relevant offers. The plaintiffs shall serve and file submissions within 15 days of the release date of this endorsement. The defendant shall serve and file responding submissions within a further 10 days following which the plaintiffs may serve and file reply submissions within a further 10 days. These submissions shall be filed with my assistant, Nicole Anderson, at Barrie. If this timeline conflicts with counsels’ holidays, they may request an extension.
VALLEE J.
Released: July 3, 2015