ONTARIO
SUPERIOR COURT OF JUSTICE – ONTARIO
COURT FILE NO.: 4346/14
DATE: 2015/08/06
BETWEEN:
Highbury Estates Inc.
Wade Sarasin, for the applicant
Applicant
- and -
Bre-Ex Limited
Thomas J. Corbett, for the respondent
Respondent
HEARD: May 25, 2015
HEARD: May 25, 2015
APPLICATION UNDER THE ARBITRATION ACT, 1991
REASONS FOR DECISION
I. Introduction
[1] This is an Application under s. 46 of the Arbitration Act, SO 1991, c.17 (‘Arbitration Act’) for an order to set aside the decision of an arbitrator and, in the alternative, under s. 45 to grant leave to appeal the decision of the arbitrator on a question of law. It follows an arbitration of a construction dispute between Highbury Estates Inc. (‘Highbury’) and Bre-Ex Limited (‘Bre-Ex’).
[2] Highbury was the owner and developer of a proposed residential subdivision in London, Ontario. Bre-Ex is a construction contractor. Highbury contracted with Bre-Ex to provide labour and materials for site preparation, including earthworks, site servicing, internal road bed construction, and construction of storm water management facilities.
[3] For the reasons set out below, the Application to set aside the decision is refused, as is the Application for leave to appeal.
II. Background of the arbitration
[4] Bre-Ex provided services to Highbury further to an agreement dated July 28, 2006 (the ‘Agreement’), which incorporates and prioritizes a number of other contract documents (the ‘Contract Documents’). The Agreement, the Contract Documents, and various change orders made over the course of the work constitute the whole of the construction contract between the parties (the ‘Construction Contract’).
[5] Highbury disputed a number of claims for payment that Bre-Ex made under the Construction Contract. In response, Bre-Ex registered a claim of lien against the subdivision on May 25, 2007.
[6] As part of their attempts to resolve the claims, the parties agreed that Highbury would pay $250,000, a portion of the amounts claimed, into trust as security for the claim and Bre-Ex would agree to the discharge of the lien.
[7] The parties agreed to submit the dispute to arbitration, and set the terms for the arbitration through an arbitration agreement executed April 1, 2013 (the ‘Arbitration Agreement’).
[8] The Arbitrator, Ken Selby (‘Arbitrator Selby), made an award in favour of Bre-Ex in the amount of $519,354 plus HST (the ‘Arbitration Award’).
[9] The Arbitration Agreement specifically incorporated some of the National Arbitration Rules (October 1, 2008), including Rule 47, which states in part that ‘[u]nless otherwise agreed, the award of the Tribunal shall be final and binding and there shall be no appeal’.
III. The Arbitration Hearing
[10] The parties appointed Ken Selby (‘Arbitrator Selby’) as arbitrator. Arbitrator Selby is a professional engineer and experienced arbitrator of construction disputes.
[11] The hearing took place before Arbitrator Selby on November 11-13, 2013. Three witnesses testified:
a. John Brekelmans, Vice President of Bre-Ex, on behalf of Bre-Ex;
b. Edward Wszol, of Development Engineering London Inc., contract administrator, on behalf of Highbury;
c. Doug McGill from Ryerson Polytechnical Institute, an engineering expert retained by Highbury.
[12] Mr. McGill’s examination-in-chief was not completed. Several of Highbury’s allegations about the fairness of the arbitration stem from the examination-in-chief and the arbitrator’s treatment of Mr. McGill’s evidence.
[13] On the evidence before me, the examination-in-chief was curtailed on the agreement of the parties when it became apparent that there would be insufficient time to complete it. This agreement, and the process that the Arbitrator would follow in lieu of the continued examination-in-chief (and cross-examination) is documented in the transcript of the Arbitration at pp. 1080-81:
MR. SARASIN: So just after a break just for the record the parties have agreed and Arbitrator Selby has determined that the evidence-in-chief with respect to Mr. McGill will terminate at this point. His expert reports will go in as they are with the parties to argue about weight and relevance and so forth in the written closing submissions. If Arbitrator Selby has questions after further review of Mr. McGill’s evidence and his reports that can be arranged and the question is to be put to Mr. McGill in the presence of counsel at some point in time and the Claimant on this basis will forgo their right of cross-examination and will argue and make their legal submissions in written closing. Am I forgetting anything?
MS. OLIVER: No. I don’t think we need to put in there the timing for submissions.
MR. SARASIN: And so that will end the evidence of Mr. McGill in the proceedings for today.
[14] This revised procedure – the early termination of the examination-in-chief, the forgoing of cross-examination, the submission of Mr. McGill’s reports, and the optional questioning of Mr. McGill – was the joint proposal of both parties, and was adopted by Arbitrator Selby.
[15] Counsel for both parties then had a telephone conference with Arbitrator Selby on December 20, 2013, in which Arbitrator Selby was reminded to review the reports of Mr. McGill and to advise as to whether he had any questions to put to Mr. McGill.
[16] Arbitrator Selby advised all counsel by email dated January 9, 2014 that ‘I have now reviewed the two volumes …The text was easy to follow so I doubt that a conference call with Doug McGill would prove to be of value.’ Accordingly, Arbitrator Selby had no questions to put to Mr. McGill and elected not to question him.
[17] The parties proceeded to deliver their written closing submissions on April 3, 2014 and June 3, 2014.
[18] At the hearing of the arbitration, Bre-Ex advanced eight claims, totalling $796,204.00.
[19] Arbitrator Selby released his written decision on September 25, 2014. He allowed some but not all of Bre-Ex’s claims, totalling $519,354. Highbury takes no issue with some of the amounts awarded. Of the amounts awarded, Highbury seeks to set aside or appeal the following:
No.
Description
Award
Cost sharing (storm water treatment facility)
$6,094.00
5.(a)
Earthwork (removal of unsuitable material from site)
$163,709.00
5.(b)
Asphalt pathway
$3,808.00
Delay claim: additional costs dues to abnormal weather conditions
$280,000.00
TOTAL (not including HST)
$453,611.00
IV. Issues
[20] The following issues are raised on the Application:
a. Should the Arbitration award be set aside under s. 46 of the Arbitration Act?
b. Does the Court have jurisdiction to grant leave to appeal the Arbitration Award?
c. If the Court does have jurisdiction, should leave to appeal be granted?
V. Legal Analysis
1. Application to set aside arbitrator’s decision
[21] Highbury, in the first instance, is seeking to set aside the decision. The court’s statutory jurisdiction to set aside a decision of an arbitrator is narrow. The court has a supervisory responsibility to ensure that all parties receive the benefit of a fair procedure, and the source of that authority is the Arbitration Act. In determining whether to set aside a decision under s. 19 or s. 46 of the Arbitration Act, a reviewing court is in much the same position as it is when engaging in a review of procedural fairness in administrative law: ‘the duty of fairness is concerned with ensuring that public authorities act fairly in the course of making decisions, not with the fairness of the actual decisions they make.’ (Grant Huscroft, ‘From Natural Justice to Fairness: Thresholds, Content, and the Role of Judicial Review’ in Flood and Sossin (eds), Administrative Law in Context (2013), pp. 147-84 at 150). Procedural fairness here includes, at a most general level, (1) the right to be heard, and (2) the right to an independent and impartial hearing. These two longstanding common law principles are incorporated and further specified in various sections of the Arbitration Act governing procedure, and particularly in s. 19 and s. 46(1)(6)-(9).
[22] Section 19 of the Arbitration Act provides:
Equality and fairness
- (1) In an arbitration, the parties shall be treated equally and fairly. 1991, c. 17, s. 19 (1).
Idem
(2) Each party shall be given an opportunity to present a case and to respond to the other parties’ cases. 1991, c. 17, s. 19 (2).
[23] Section 46 provides, in part:
Setting aside award
(1) On a party’s application, the court may set aside an award on any of the following grounds:
The applicant was not treated equally and fairly, was not given an opportunity to present a case or to respond to another party’s case, or was not given proper notice of the arbitration or of the appointment of an arbitrator.
The procedures followed in the arbitration did not comply with this Act.
An arbitrator has committed a corrupt or fraudulent act or there is a reasonable apprehension of bias.
The award was obtained by fraud.
[24] Section 19 and s. 46 essentially provide that the parties must be able to know the case that they must meet, and must have an opportunity to present their case before an unbiased adjudicator (National Ballet of Canada v. Glasco (2000), 2000 22385 (ON SC), 49 O.R. (3d) 230 (Ont S.C.J.) para. 21 (Swinton J.)).
[25] These sections do not provide for a substantive review of the decision reached.
[26] Highbury argues that it was denied procedural fairness by Arbitrator Selby. In its factum, it alleges nine specific breaches of the duty of fairness:
a. Failing to review the expert reports of Mr. McGill prior to the arbitration hearing;
b. Drawing an adverse inference against Highbury for not calling certain witnesses;
c. Failing to draw an adverse inference against Bre-Ex for not calling all relevant witnesses, including an expert witness;
d. Preferring personal expert opinion over the expert opinion of Mr. McGill;
e. ‘Input[ing] his own opinions in favour of the expert evidence of Highbury for the benefit of Bre-Ex without providing Highbury with any opportunity to cross-examine or respond to the Arbitrator’s opinions’;
f. Not calling Mr. McGill for clarification of his reports;
g. Not requiring closing submissions until several months after the hearing was concluded;
h. Not releasing the Arbitration Award until nearly a year after the hearing;
i. Using “guesswork” to assess damages.
[27] Not all of these grounds were pursued in oral argument, and some can be dismissed summarily:
a. Procedural fairness, as codified in the Arbitration Act, did not require Arbitrator Selby to review the expert reports prior to the hearing. The evidence is that he did review them prior to making his decision.
b. Arbitrator Selby was entitled to comment on the absence of witnesses that he believed could have been helpful to him in making his decision. There is no evidence that Arbitrator Selby limited the number of witnesses that Highbury could call, or that there were any additional witnesses that Highbury had wanted to call but was prevented from calling by Arbitrator Selby.
c. There was no obligation on Bre-Ex to call expert witnesses. That Arbitrator Selby did not comment unfavourably on Bre-Ex’s choice of witnesses, or on its decision not to call an expert, is not a failure of procedural fairness.
d. Arbitrator Selby is an engineer, and was selected by the parties precisely because of his expertise in construction engineering. There is no procedural unfairness in him preferring his own conclusions to those of an expert witness with similar expertise (Re Macaulay Point Severage System Lost Sharing Arbitration Report, 1973 CarswellBC 679, para. 21 (BCSC); Zaleschuk Pubs Ltd. v. Barop Construction Ltd., (1992) 1992 564 (BC SC), 68 B.C.L.R. (2d) 340 (BCSC)).
Highbury has characterized Arbitrator Selby’s rejection of Mr. McGill’s evidence as a refusal to admit relevant evidence, which would be improper (Université du Québec a Trois-Riveres v. Laroque, 1993 162 (SCC), [1993] 1 S.C.R. 471). Arbitrator Selby did not, however, refuse to admit any relevant evidence, or prohibit the calling of any evidence. He accepted the reports of Mr. McGill into evidence, but found them to be unhelpful. There is no procedural unfairness in this.
Additionally, the proposition advanced by Highbury, that Arbitrator Selby was required, in the absence of a contrary expert report, to accept the evidence of Mr. McGill was unsupported and is incorrect (Bruell Contracting Ltd. v. J. & P. Leveque Bros. Haulage Ltd., 2015 ONCA 273, para. 34). Furthermore, Mr. McGill did not offer an opinion on the quantification of damages for the most significant award made by Arbitrator Selby, the delay claim. In any event, a rejection of Mr. McGill’s reasoning and conclusions is a substantive matter and not a matter of the fairness of the procedure followed.
e. There was no expectation on the parties that they would be able to cross-examine Arbitrator Selby on an engineering arbitration. There was no authority before me to suggest that it is impermissible for an arbitrator in an engineering arbitration to rely on his own expertise. Neither was there any authority presented to establish a procedural right to ‘cross-examine or respond’ to an arbitrator’s conclusions. Neither did Highbury request such a procedure. In any event, in his email of January 9, 2014, Arbitrator Selby provided counsel with an outline of his understanding of the matters in dispute, to which the parties were able to respond in the written submissions. There was no procedural unfairness here.
f. It was not a failure of procedural fairness for Arbitrator Selby to choose not to examine Mr. McGill, if he was content that he understood Mr. McGill’s reports. This flows from the agreement reached between the parties as to the procedure that was to govern upon the truncation of Mr. McGill’s examination.
g. The timing of closing submissions does not raise a procedural fairness issue.
h. The timing of the release of the decision does not raise a procedural fairness issue.
i. The objection to Arbitrator Selby’s methodology in assessing damages is a substantive matter and not a question of process governed by s. 19 or s. 46.
[28] In oral argument, Highbury focussed on two other claims: (1) that Arbitrator Selby was biased against Highbury, particularly through his treatment of Mr. McGill, and (2) that Arbitrator Selby’s reasons with respect to quantifying the delay claim were inadequate, particularly the failure to articulate his methodology in coming to the result that he did.
Bias
[29] The allegation of bias rests primarily on (1) a brief exchange between Arbitrator Selby and Mr. McGill at the end of Mr. McGill’s examination-in-chief, and (2) the following statement attributed by counsel for Highbury to Arbitrator Selby: ‘(r)espectfully, this arbitrator is capable of resolving the issue before him, without reliance on McGill’s evidence.’
[30] With respect to the exchange between Mr. McGill and Arbitrator Selby at questions 4442 to 4445 of the examination transcript, Arbitrator Selby questions Mr. McGill’s calculations with respect to bulking of soil when it is cut from the topsoil and put in a truck. Arbitrator Selby suggests that Mr. McGill is incorrect and should consult the Caterpillar Performance Handbook for the correct figures.
[31] Although Arbitrator Selby clearly doubted Mr. McGill’s evidence, there is no incivility towards Mr. McGill, or any other manifestation of hostility or bias. The claim of bias fails.
[32] Whether the statement attributed to Arbitrator Selby is capable of supporting a claim of bias, the statement was not made by Arbitrator Selby. It appears to have been cut and pasted by counsel for Highbury from Bre-Ex’s closing submissions in the arbitration, and mistakenly attributed to Arbitrator Selby himself.
[33] But even if the statement had been made by Arbitrator Selby, a belief that Mr. McGill’s evidence would be of no use to Arbitrator Selby is not evidence of bias in these circumstances.
Reasons
[34] Highbury argues that the reasons of Arbitrator Selby, particularly with respect to the delay claim, are so deficient as to constitute a denial of procedural fairness.
[35] The obligation to provide written reasons is generated both by Rule 44 of the Arbitration Rules, which was incorporated into the Arbitration Agreement, and s. 38(1) of the Arbitration Act.
[36] The thrust of Highbury’s submissions under this heading is that Arbitrator Selby used an inadequate methodology in arriving at his assessment of damages for the delay claim. Highbury focuses on Arbitrator Selby’s characterization of his damages assessment as “a best guess”: ‘The following award is a best guess given the testimony and documents provided in this matter.’
[37] When the reasons are read in conjunction with the written submissions made by the parties, it is evident that the assessment of damages was in response to the arguments and evidence presented, and thus was reasoned. As Bre-Ex points out, Highbury did not make any submissions or provide any evidence on the quantification of the delay claim, restricting itself to the conceptual argument that no delay claim was payable.
[38] It is important to note that this statement of ‘best guess’ is in the context of a conclusion of an argument; it is not the whole of an argument. “Best guess” is an unfortunate phrase, and one that can give the impression of an absence of reasoning. In this case, however, it indicates little more than a lack of mathematical precision in the quantification of damages. In this case, as in many others, ‘(m)athematical exactitude in the calculation of damages is not necessary nor realistic’ (TMS Lighting Ltd. v. KJS Transport Inc., 2014 ONCA 1, para. 61). Arbitrator Selby can be faulted for not better ‘showing his work’, but he is an engineer and not a lawyer, and some allowance needs to be given for inexactitude in expression (Kerr v. King’s Lending Co-Tenancy Committee, 2015 ONSC 84, paras. 25-27).
[39] Highbury’s real complaint is with the methodology that Arbitrator Selby used to quantify the delay claim. This is not a claim about procedural fairness, but a disagreement with the substantive reasoning and the result. This is not a ground that is within the court’s jurisdiction under s. 46 of the Arbitration Act.
2. Application for leave to appeal
[40] Highbury argues in the alternative for leave to appeal the decision of Arbitrator Selby.
[41] There is no inherent right to appeal the award of an arbitrator. Any right to an appeal must come either from statute, such as the Arbitration Act, or from a contract such as an arbitration agreement.
[42] Section 45 of the Arbitration Act provides:
Appeal on question of law
- (1) If the arbitration agreement does not deal with appeals on questions of law, a party may appeal an award to the court on a question of law with leave, which the court shall grant only if it is satisfied that,
(a) the importance to the parties of the matters at stake in the arbitration justifies an appeal; and
(b) determination of the question of law at issue will significantly affect the rights of the parties. 1991, c. 17, s. 45 (1).
Idem
(2) If the arbitration agreement so provides, a party may appeal an award to the court on a question of law. 1991, c. 17, s. 45 (2).
Appeal on question of fact or mixed fact and law
(3) If the arbitration agreement so provides, a party may appeal an award to the court on a question of fact or on a question of mixed fact and law. 1991, c. 17, s. 45 (3).
[43] Section 45 is a power-conferring rule, such that the parties are enabled to elect a power of appeal on questions of law, fact, and mixed fact and law.
[44] The default position is that there will not be a right to appeal on questions of law, but there will be a right to apply for leave to appeal on questions of law. Additionally, there will be no right to appeal on a question of fact or mixed question of fact and law.
[45] What did the parties elect?
[46] In this case, the arbitration agreement dealt with appeals by expressly adopting Rule 47 of the National Arbitration Rules. The relevant part of that rule provides: ‘[u]nless otherwise agreed, the award of the Tribunal shall be final and binding and there shall be no appeal.’
[47] Highbury argued that there is a conflict between Rule 47 and s. 45 of the Arbitration Act, and that pursuant to clause 1 of the Arbitration Agreement, s. 45 of the Arbitration Act must prevail. The nature of the conflict is said to be that s. 45 permits appeals on questions of law, while Rule 47 prohibits them. The flaw in this argument is that s. 45 is power-conferring rather than mandatory and, with respect to appeals on questions of law, depends on parties opting in. (On the distinction between power-conferring and mandatory rules, see HLA Hart, The Concept of Law (Clarendon Press 1961) pp. 27-28). Here, by adopting Rule 47, the parties expressly ruled out all appeals on questions of law, fact, and mixed fact and law. There is no conflict.
[48] Highbury argues that in order to opt out of the right to apply for leave to appeal on questions of law, parties must use clearer language than that contained in Rule 47. This proposition is contrary to the case law interpreting section 45 of the Arbitration Act. That body of law was recently surveyed in detail by Leitch J. in Orgaworld Canada Ltd. v. Ottawa (City) 2015 ONSC 318, paras. 48-72. It does not support Highbury’s argument.
[49] In Inforica Inc. v. C.G.I Information Systems and Management Consultants Inc., (2009) 2009 ONCA 642, 97 O.R. (3d) 161 (C.A.), Sharpe J.A., at paragraph 14, articulated the rationale for limiting court intervention in matters governed by the Arbitration Act:
It is clear from the structure and purpose of the Act in general, and from the wording of section 6 in particular, that judicial intervention in the arbitral process is to be strictly limited to those situations contemplated by the Act. This is in keeping with the modern approach that sees arbitration as an autonomous, self-contained, self-sufficient process pursuant to which the parties agree to have their disputes resolved by an arbitrator, not by the courts. As Inforica states in its fact them, “arbitral proceedings are presumptively immune from judicial review and oversight.” The Act encourages parties to resort to arbitration, “require[s] them to hold to that course once they have agreed to do so”, and “entrenches the primacy of arbitration over judicial proceedings… By directing the court, generally, not to intervene”: Ontario Hydro v. Dennison Mines Ltd., [1992] O.J. No.2948 (Ont. Gen. Div.), Blair J.
[50] Where parties have turned their minds to the question and have decided that a decision of the arbitrator will be final and binding, and not subject to appeal on a question of law, s. 45 of the Act operates to exclude recourse to an appeal.
[51] Similarly, in Piazza Family Trust v. Veillette 2011 ONSC 2820 (Div. Crt.), R.J. Smith J. concluded in circumstances where an arbitration agreement stated, in language similar to the provision under consideration here, that the decision of the arbitrator was final and binding and was not to be appealed, any appeal under s. 45 of the Arbitration Act was prohibited.
[52] I agree with the conclusion of Leitch J. in Orgaworld, para. 70 that “the jurisprudence in Ontario is clear that an agreement that there shall be no appeal from a final and binding decision of an arbitrator includes agreement that there will be no application for leave to appeal.”
[53] Highbury argues that the waiver of a substantive right such as a right of appeal must be made clearly, and that Highbury did not clearly waive its right to appeal in this case. I cannot agree that the parties did not clearly waive the right to appeal in this instance. The jurisprudence in Ontario, as canvassed by Leitch J in Orgaworld, has been unequivocal that language such as was used in Rule 47 and incorporated into the Arbitration Agreement expresses the necessary intention by the parties to forgo a right to appeal, or to seek leave to appeal, on questions of law.
[54] I am satisfied, for the foregoing reasons, that the court has no jurisdiction to grant leave to appeal the decision of Arbitrator Selby.
3. Leave to Appeal
[55] It is not, therefore, strictly necessary that I address the question of whether, had I jurisdiction to grant leave to appeal, I would do so.
[56] For the sake of completeness, however, I will address the argument made by Bre-Ex that even if the court had the jurisdiction, leave should not be granted in these circumstances as there is no extricable question of law that can be the subject of the appeal.
[57] For leave to be granted, it would be incumbent on Highbury to demonstrate that:
a. the appeal is of a question of law, and not a question of mixed fact and law; and
b. the appeal involves matters of importance that will significantly affect the rights of the parties.
[58] The purported errors of law enumerated in the Notice of Application are not errors of law. What is at issue are questions of contractual interpretation. The Supreme Court of Canada in Sattva Capital Corporation v. Creston Molly Corp., 2014 SCC 53 noted at paragraph 54 that “courts should be cautious in identifying extricable questions of law in disputes over contractual interpretation”. The court noted the standing incentive that counsel have to mischaracterize alleged errors of the adjudicator as questions of law:
… given the statutory requirement to identify a question of law in the leave application … The applicant for leave and its counsel will seek to frame any alleged errors has questions of law. The legislature has sought to restrict such appeals, however, and courts must be careful to ensure that the proposed ground of appeal has been properly characterized.
[59] The court carried on at paragraph 55:
… the goal of contractual interpretation to ascertain the objective intentions of the parties, is inherently fact specific. The close relationship between the selection and application of principles of contractual interpretation and the construction ultimately given to the instrument means the circumstances in which a question of law can be extricated from the interpretation will be rare.
[60] I conclude that the application does not articulate a question of law for the court’s consideration on an application for leave to appeal. It is not necessary to proceed to the question of whether the appeal involves matters of importance that could justify an appeal.
VI. Disposition
[61] Question 1: the application to set aside the Arbitration Award is dismissed.
[62] Question 2: the Court has no jurisdiction to grant leave to appeal the Arbitration Award, and the application for leave to appeal is dismissed.
[63] Question 3: it is not necessary to answer question 3, but even if the court had jurisdiction to grant leave to appeal, leave to appeal would not be granted.
[64] On April 29, 2015 I heard a motion brought by Bre-Ex for an order enforcing the Arbitration Award, together with a motion brought by Highbury to stay the award. On May 19, 2015 I released my endorsement, which provided that certain funds that Highbury agreed were properly payable to Bre-Ex (in the amount of $101,581.18) were to be paid forthwith from funds held in trust by Highbury’s solicitors. The remainder of the funds held in trust would continue to be held pending the outcome of this application. Those funds are now to be released to Bre-Ex’s solicitors in partial payment of the award of damages made by Arbitrator Selby in the Arbitration Award.
VII. Costs
[65] Bre-Ex is entitled to its costs of this Application. If the parties cannot agree on costs, I will receive brief written submissions (not longer than 3 pages). Bre-Ex shall provide its submissions within 2 weeks of the date of these reasons, and Highbury shall provide its responding submissions 1 week thereafter.
“Justice B.W. Miller”
Justice B.W. Miller
Date: August 6, 2015
COURT FILE NO.: 4346/14
DATE: 2015/08/06
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Highbury Estates Inc.
Applicant
- and -
Bre-Ex Limited
Respondent
REASONS FOR DECISION
MILLER, J.
Released: August 6, 2015