Court File and Parties

COURT FILE NOS.: CV-15-10916-00CL, CV-15-1091400CL, CV-15-11083CL DATE: 2015-11-06

ONTARIO SUPERIOR COURT OF JUSTICE COMMERCIAL LIST

B E T W E E N:

CV-15-10916-00CL

NASJJEC INVESTMENTS LIMITED Applicant

– and –

NUYORK INVESTMENTS LIMITED, NUYORK TRUST and 20 KING WEST INVESTMENTS Respondents

A N D B E T W E E N:

CV-15-10914-00CL

NUYORK INVESTMENTS LIMITED NUYORK TRUST Applicants

– and –

NASJJEC INVESTMENTS LIMITED, NASJJEC TRUST, 20 KING WEST INVESTMENTS and 1597180 ONTARIO INC. Respondents

A N D B E T W E E N:

CV-15-11083-00CL

NASJEC INVESTMENTS LIMITED and 1597180 ONTARIO INC. Applicants

– and –

NUYORK INVESTMENTS LIMITED, NUYORK TRUST and 20 KING WEST INVESTMENTS Respondents

Counsel: Gregory M. Sidlofsky, for the Applicant Aaron Blumenfeld, Robert Wood and Ewa Krajewska, for the Respondents

HEARD: March 25, August 6, 2015 and October 19, 2015

REASONS FOR JUDGMENT

L. A. PATTILLO J.:

Introduction

[1] The Applicant, Nasjjec Investments Limited (“Nasjjec”) has commenced two applications seeking, pursuant to s. 46 of the Arbitration Act, 1991, S.O. 1991, c. 17 (the “Act”) to set aside various awards issued by the Honourable Coulter Osborne, sitting as an arbitrator (the “Arbitrator”) and in the alternative, leave to appeal on a question of law pursuant to s. 45 of the Act.

[2] In turn, the Respondent Nuyork Investments Limited (“Nuyork”) has commenced a cross-application for an order enforcing the Arbitrator’s awards pursuant to s. 50 of the Act and sealing portions of the record.

[3] For the reasons that follow, Nasjjec’s applications are dismissed in their entirety and Nuyork’s application seeking enforcement of the awards and sealing of part of the record is allowed.

[4] Nasjjec has failed to establish that there was any breach by the Arbitrator of the obligations contained in ss. 19 and 46 of the Act concerning fairness, equality and jurisdiction. Further, having regard to the wording of the arbitration clause, the awards in issue are all final and binding and no appeal lies pursuant to s. 45 of the Act.

Overview

[5] The arbitration took place pursuant to an arbitration clause in a Partnership Agreement dated October 30, 2001 between Nasjjec and Nuyork (the “Partnership Agreement”).

[6] The Partnership Agreement provides, among other things, that Nasjjec and Nuyork are equal partners in the respondent 20 King Street West Investments, (the “Partnership”) which operates a commercial office building located at 20 King Street West, in Toronto (the “Property”).

[7] In 2012, Nasjjec and Nuyork agreed that the Partnership could no longer continue. Pursuant to the arbitration clause in the Partnership Agreement, the parties agreed to retain the Arbitrator in the fall of 2012 to determine the terms upon which the Partnership should be dissolved.

[8] Following his appointment, the Arbitrator held a number of hearings dealing with the central issue as to how the Partnership should be dissolved along with a number of “miscellaneous” interlocutory and procedural issues raised by the parties. The result has been the issuance of a number of awards. At issue in the applications before the court are nine awards, briefly outlined as follows:

1. The award dated March 22, 2013 dealing with confidentiality issues (the “March 2013 Interlocutory Award”);

2. The award dated September 11, 2013, in which the Arbitrator determined that Nasjjec’s 50% interest in the Property should be sold to Nuyork for $44.22 million (the “September 2013 Award”);

3. The award dated December 2, 2014 in which the Arbitrator concluded that Nasjjec reneged on an agreement with Nuyork that any transfer of its interest in the Property to Nuyork would occur under s. 98(3) of the Income Tax Act (“ITA”). Because the sale transaction would now close under s. 98(5) of the ITA, which was not as favorable to Nuyork from a tax point of view, the Arbitrator determined that there should be a $1.5 million purchase price adjustment in favour of Nuyork (the “December 2014 Award”);

4. The reference procedural order dated March 24, 2015 addressing the steps to be taken in respect of Nuyork’s purchase of Nasjjec’s 50% interest in the Property as previously ordered (the “March 2015 Procedural Award”);

5. The supplementary award dated July 16, 2015 awarding costs of the arbitration proceedings to date to Nuyork fixed at $1,007,026 (the “Costs Award”);

6. The supplementary award (miscellaneous issues) dated July 16, 2015 addressing Nuyork’s motion for an order authorizing it to appoint counsel for the 20 King Partnership to defend a third party claim commenced by 159 and for a declaration the Arbitrator has jurisdiction over the third party claim and Nasjjec’s motion to vary the amount of the purchase price for its 50% interest in the Property (the July 2015 Miscellaneous Issues Award”);

7. The supplementary award dated July 22, 2015 vacating that part of the July 16, 2015 miscellaneous issues award that dealt with Nuyork’s jurisdiction motion (the July 2015 Supplementary Award”);

8. The supplementary award (miscellaneous) dated July 28, 2015 dealing with closing adjustments and clarification of the costs award; and

9. The supplementary award (recusal and jurisdiction) dated August 5, 2015 dismissing Nasjjec’s recusal motion and granting Nuyork’s jurisdiction motion (the August 2015 Recusal and Jurisdiction Award”).

The Applications

[9] On December 30, 2014, Nasjjec commenced application CV-14-518982 seeking an order setting aside both the September 2013 Award and the December 2014 Award or in the alternative, leave to appeal. That application was subsequently transferred to the Commercial List and is now file number CV-15-10916-00CL.

[10] On March 20, 2015, Nuyork commenced application CV-15-10914-00CL seeking, among other things, an order recognizing and enforcing the Arbitrator’s awards of March 22, 2013, the September 2013 Award and the December 2014 Award.

[11] Finally, Nasjjec along with 1597180 Ontario Inc. (“159”) commenced application CV-15-11083-00CL on August 20, 2015 seeking a review of the August 2015 Recusal and Jurisdiction Award, an order setting it aside and, in the alternative, a declaration that there was a reasonable apprehension of bias on the part of the Arbitrator.

[12] Nasjjec and Nuyork’s initial application (CV-15-10916-00CL) came before me for hearing on March 26, 2015. At the conclusion of the argument, given that the parties had just received the March 24, 2015 procedural award and were awaiting the Arbitrator’s cost award, I adjourned the hearing to be resumed on a date to be set once the Arbitrator had released all of his decisions in order that all of the issues arising from the arbitration could be dealt with in effectively one proceeding rather than in multiple appeals before different judges.

[13] Following the release by the Arbitrator of the Cost Award and the July 2015 Miscellaneous Issues Award, the hearing resumed on August 6, 2015. At that time, Nasjjec sought to set aside those Awards. As the August 2015 Recusal and Jurisdiction Award had just been issued the previous day, it was not addressed at that time. Nuyork also brought a motion to amend application CV-15-10914-00CL to include the subsequent awards issued by the Arbitrator.

[14] Finally, Nasjjec and 159’s application CV-15-11083-00CL which seeks to set aside the August 2015 Recusal and Jurisdiction Award was argued before me on October 19, 2015.

[15] These reasons address the issues raised by the parties in each of the applications.

Background

[16] In order to provide context for the issues raised in these applications, I begin by setting out the background facts which are not in dispute.

[17] Chaim Neuberger came to Canada in the 1940’s after surviving the Holocaust. He became a very successful property developer, builder and owner of real estate. Mr. Neuberger had two daughters, Edie Neuberger and Myra York, both of whom are married and have children.

[18] Mr. Neuberger acquired the Property on October 30, 2001. At the time of purchase, title to the Property was divided evenly between Nasjjec and Nuyork, both Ontario companies.

[19] In 2002, as a result of a corporate reorganization, Nasjjec became beneficially owned by the Nasjjec Trust. Ms. Neuberger is the trustee of the trust and her five children are the beneficiaries. At the same time Nuyork became beneficially owned by the Nuyork Trust. Ms. York and her husband Joel York are the trustees and the beneficiaries are their three adult children.

[20] Ms. Neuberger, who is a lawyer, acted on the purchase of the Property and, as part of her retainer, prepared the Partnership Agreement. From the outset, the Property has been managed by Mr. York through his company RW Management. Mr. York worked with Mr. Neuberger for years.

[21] In 2004, Mr. Neuberger divided his holdings, which were substantial, between two companies, Nuberg & Dale Construction Limited (“Nuberg & Dale”) and 159.

[22] Mr. Neuberger died on September 25, 2012.

[23] In his wills, Mr. Neuberger provided, among other things, for Ms. Neuberger to have voting control of 159 and Ms. York to have voting control of Neuberg & Dale.

[24] A number of disputes arose between Nasjjec and Nuyork concerning the partnership and the Property. The Arbitrator dealt with a few of them in the September 2013 Award to the extent necessary to deal with his decision but noted he did not consider it necessary to itemize all of the disputes given that the parties had agreed that the Partnership “is irreparably damaged and cannot be repaired.”

Application CV-15-10916-00CL

[25] As noted, initially Nasjjec sought in this application to set aside the Arbitrator’s awards of September 11, 2013 and December 2, 2014. The application was subsequently expanded to include the Arbitrator’s supplementary awards up to July 16, 2015.

[26] In addition, on August 6, 2015, Nasjjec brought a motion in the application for an order that funds be released to the parties from the Partnership or alternatively be distributed to the partners or used to pay inter-company loans.

[27] Nasjjec submits that the awards in issue should be set aside on the grounds that the Arbitrator made errors of jurisdiction (the Act, s. 46(1) 3); did not treat Nasjjec equally or fairly (the Act, s. 19 and s. 46(1) 6). In the alternative, Nasjjec seeks leave to appeal the awards on a question of law (the Act, s. 45(1)).

Preliminary Objection

[28] Nuyork raises a preliminary objection to Nasjjec’s alternate relief sought, leave to appeal on a question of law. It submits that an appeal on a question of law is not available to Nasjjec given the wording of the arbitration clause in the Partnership Agreement.

[29] Section 45(1) of the Act provides:

45(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.

[30] The arbitration clause is set out in paragraph 15 of the Partnership Agreement and provides as follows:

If, at any time during the continuance of the partnership, any dispute, difference or question shall arise between any of the partners or any of their representatives, touching any transaction of the partnership, or if a dispute difference or question shall arise as to anything contained in this Agreement, or as to the rights or liabilities under this Agreement or otherwise, then every such dispute, difference or question shall be referred to a single arbitrator, if the said partners agree on one, otherwise to three arbitrators, one to be appointed by each party in writing and the third to be chosen by the first two named arbitrators before they enter upon the business of the arbitration. The award or determination shall be made by the said arbitrator or arbitrators, which award or determination shall be final and binding upon the parties hereto, their successors and assigns. The parties hereto agree that they shall resort to this arbitration provision as a condition precedent to commencing an action or application or other proceeding in a court of competent jurisdiction. [Emphasis added.]

[31] Section 3 of the Act permits parties to an arbitration agreement to vary or exclude any provision in the Act except for certain specific sections. Section 45(1) of the Act is not one of the enumerated sections. Accordingly, the parties can agree to exclude an appeal from an arbitrator’s decision on a question of law.

[32] In L.I.U.N.A., Local 183 v. Carpenters & Allied Workers, Local 27 (1997), 1997 1429 (ON CA), 34 O.R. (3d) 472 (C.A.), the Court held that the parties use of the words “final and binding” in an arbitration clause, indicates an intention that there would be no right of appeal.

[33] Similarly in Weisz v. Four Seasons Holdings Inc. (2010), 2010 ONSC 4456, 103 O.R. (3d) 783 (S.C.J.), Morawetz J., following L.I.U.N.A., held that the words “final and binding” in an arbitration clause implicitly excluded a right to appeal the arbitrator’s decision on a question of law pursuant to s. 45 of the Act. See too: Kucyi v. Kucyi, 2005 48539 (ON SCDC), [2005] O.J. No. 5626 (Div. Ct.) at paras. 12 to 14.

[34] Nasjjec submits that the last sentence of paragraph 15 which requires arbitration before resort to the court reflects the parties intent to proceed to arbitration first and then to the court thereby supporting that there was no intention to exclude an appeal. As Nuyork points out, however, the last sentence of paragraph 15 is what is referred to as a Scott v. Avery clause and pursuant to s. 5(4) of the Act; such a clause is deemed to be an arbitration agreement. In my view, it does not support Nasjjec’s submission.

[35] Having regard to the provisions of the Partnership Agreement as a whole therefore and particularly the arbitration provision at paragraph 15, I conclude that the parties intended to exclude the right of appeal pursuant to s. 45 of the Act. Accordingly, Nasjjec’s alternative relief seeking leave to appeal the awards is dismissed.

[36] As noted by Finlayson J.A. in L.I.U.N.A. at para. 22, the use of the words “final and binding” does not necessarily preclude judicial review. In that regard, given ss. 3 and 19 of the Act, an application for judicial review may be brought pursuant to s. 46 of the Act.

Equality and Fairness

[37] In the absence of an appeal, Nasjjec’s applications are restricted to setting aside the various awards of the Arbitrator it complains of pursuant to s. 46 of the Act. Specifically, Nasjjec relies on s. 46(1) 3 and 6 as well as s. 19(1) and (2). Those sections provide:

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’ case.

46(1) On a party’s application, the court may set aside an award on any of the following grounds:

3. The award deals with a dispute that the arbitration agreement does not cover or contains a decision on a matter that is beyond the scope of the agreement.

4. 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.

a) Equally and Fairly

[38] The obligation to treat the parties “equally and fairly” in both s. 19(1) and s. 46(1) 6 of the Act incorporates the requirements of natural justice and procedural fairness into arbitrations. See: National Ballet of Canada v. Glasco (2000), 2000 22385 (ON SC), 49 O.R. (3d) 230 (S.C.J.). At a minimum, as provided by those sections, it includes the opportunity to present a case and respond to the other party’s case as well as the right to have notice of the arbitration and the appointment of the arbitrator (s. 19(2) and s. 46(1) 6).

[39] In Hercus v. Hercus, [2001] O.J. No. 534 (S.C.J.), which involved an application to set aside an award of a mediator/arbitrator in a family matter, the court addressed what the Act’s requirement of treating the parties equally and fairly consists of. At para. 75 of the decision, the learned judge stated:

It is settled law that the right to a fair hearing is an independent and unqualified right. Arbitrators must listen fairly to both sides, give parties a fair opportunity to contradict or correct prejudicial statements, not receive evidence from one party behind the back of the other and ensure that the parties know the case they have to meet. An unbiased appearance is, in itself an essential component of procedural fairness.

[40] While the requirements of natural justice extend beyond the basic principles set out in the Act, it is important to remember that an arbitration is a more informal process than a court proceeding. Furthermore, it is usually final. In such circumstances, the issue of fairness and equality must be considered having regard to the context of the proceeding. Furthermore, it is important to ensure that the integrity of the arbitration process is maintained.

[41] The Divisional Court in Senjule v. Law Society of Upper Canada, 2013 ONSC 2817 (Div. Ct.) at para 20 noted that where there is an allegation of a denial of natural justice or procedural fairness, the standard of review does not apply in the usual sense. Rather the court must determine whether the applicant has been denied procedural fairness or natural justice. If the court determines that has occurred then any resulting award must be set aside. Accordingly, the standard of review is akin to one of reasonableness.

b) Jurisdiction

[42] Section 46(1) 3 of the Act concerns the jurisdiction of the arbitrator. That subsection deals with the authority of the arbitrator as provided by the arbitration agreement.

[43] Nasjjec submits that a breach of the rules of natural justice amounts to an excess of jurisdiction by the Arbitrator. In support of its submission, it relies on National Ballet at para. 21 which was followed in Webster v. Wendt, [2001] O.J. No. 622 (S.C.J.) at para. 61.

[44] In New Brunswick (Board of Management) v. Dunsmuir, 2008 SCC 9, [2008] 1 S.C.R. 190 (S.C.C.) at para. 59, the Court stated that the issue of “jurisdiction” is intended in the narrow sense of whether or not the tribunal had the authority to make the inquiry.

[45] In the subsequent case of Volochay v. College of Massage Therapists of Ontario (2012), 111 O.R. (3rd) 561 (C.A.), Laskin J.A. on behalf of the Court, pointed out at para. 58, that a question of procedural fairness or natural justice is not a true question of jurisdiction in the narrow sense used in Dunsmuir.

[46] In my view, based on its plain wording, s. 46(1) 3 of the Act deals with jurisdiction in its narrow sense.

[47] I turn next to consider each of the Arbitrator’s awards Nasjjec seeks to set aside in application CV-15-10916-00CL and its submissions in that regard.

The September 2013 Award

[48] The September 2013 Award addresses the issue of how the Partnership is to be dissolved.

[49] As a preliminary matter, the Arbitrator held that the Partnership Act and not the Partition Act govern the remedy related to the issues arising from the dissolution of the Partnership.

[50] The Arbitrator then went on to consider the most “just and equitable” way to dissolve the Partnership pursuant to s. 35(1)(f) of the Partnership Act. At the hearing the following options were submitted by the parties:

1. Nuyork would purchase Nasjjec’s 50% interest in a private sale, at a price to be determined based on the appraised value of 50% or based on Nuyork’s offer at $44.22 million.

2. Nasjjec’s 50% interest would be put on the market for a public sale with Nuyork being able to bid on Nasjjec’s 50% interest.

3. Both Nasjjec’s 50% interest and 100% of the Property would be put on the market for public sale. If the bid price for the 50% of the Property is lower than half the bid price for 100% of the Property then Nuyork would have the option of buying Nasjjec’s 50% by paying Nasjjec the difference between the two values.

4. Nasjjec would purchase Nuyork’s interest in the Property for $50 million.

5. An auction between the parties.

[51] The Arbitrator considered the background behind each of the above proposals. He also considered the reasonable expectations of the parties, assessed in the context of the history of the purchase of the Property, the provisions of the Partnership Agreement and the reasons for the dissolution of the Partnership. In the end, the Arbitrator concluded that Nuyork should not be required to sell its 50% interest in the Property and that Nuyork can maintain its ownership position in the Property without compromising Nasjjec’s right to receive fair market value for its interest in the Property.

[52] The Arbitrator then proceeded to determine the fair market value of Nasjjec’s 50% interest in the Property. At the hearing, Nuyork called the evidence of Mr. Bruce Andrews, an expert appraiser, that in his opinion, based on an income approach, the fair market value of the Property for a 100% interest was $80.4 million and $40.2 million for a 50% interest. Mr. Andrews was further of the opinion that a minority discount was not warranted. Nuyork also called the evidence of Mr. Peter Senst, a real estate broker with experience in investment properties, who also stated that a minority discount was not warranted. In response, Nasjjec filed a report from Mr. Vincente Gamboa, also an expert appraiser, valuing the Property at $104,400,000, also on an income appraoch. Mr. Gamboa did not testify at the hearing.

[53] In addressing the issue of how to value of Nasjjec’s 50% interest, the Arbitrator stated at paras. 45 to 48 as follows:

45. What remains to be considered is how to determine the value of Nasjjec’s 50% interest. One obvious option is to expose Nasjjec’s interest to the market through a reputable broker such as Mr. Senst. Another is an auction. Nasjjec’s clear preference relates to its relatively late blooming buy/sell proposal, based on a $100 million fair market value for all of the property. In brief, under that proposal, Nasjjec is prepared to buy or sell its interest in 20 King for $50 million. Mr. Teplitsky described his proposed buy/sell solution to the remedy issue as the ‘gold standard’ which passes the test of fairness overall. In the alternative, Nasjjec proposes that the property be exposed to the open market to be sold in the ordinary course, or by auction.

46. In his submissions Mr. Teplitsky contended that a buy/sell resolution (based on a 100% $100 million valuation) or a sale in the open market are both preferable to a sale based on the opinions of valuators, i.e. appraisers. This may or may not be true in the abstract. However, this is an arbitration in which the fair market value of 100% and 50% of 20 King were put in issue. Both sides retained duly accredited appraisers, Mr. Andrews for Nuyork and Mr. Gamboa for Nasjjec. Both appraisers opined on 20 King’s fair market value through their reports. As noted Mr. Andrews testified at the hearing and was cross-examined. Mr. Gamboa did not testify.

47. In my opinion, both Nuyork and Nasjjec tendered expert appraisal evidence as evidence from which I could determine the fair market value of 20 King. Indeed, that is why Mr. Andrews and Mr. Gamboa were retained.

48. I think I can take judicial notice of the fact that appraisers are frequently engaged to determine the fair market value of land. That comes within the ambit of their specialized experience and expertise. There cannot be anything unfair in resort to appraisal evidence. As is the case with any appraisal evidence, it is open to me to accept all, part or none of the evidence of Mr. Andrews and Mr. Gamboa. It is also open to me to attach what weight that I think appropriate to the Andrews/Gamboa evidence. What is not open to me is to pretend that the appraisal evidence does not exist.

[54] The Arbitrator then briefly reviewed Mr. Andrews’ evidence. He found Mr. Andrew’s review of his appraisal reports and Mr. Gamboa’s report to be fair and thorough. The Arbitrator concluded by stating that he agreed with Mr. Andrews’ central conclusions and preferred his fair market value analysis to that of Mr. Gamboa (para. 52).

[55] Having concluded that the value of Nasjjec’s 50% interest in the Property was $40.2 million, the Arbitrator ordered that it would be “just and equitable” for Nuyork to pay Nasjjec $44.8 million for its 50% interest in the Property given that was what it had offered Nasjjec to purchase its interest in the Property.

[56] Having concluded that Nuyork should purchase Nasjjec’s 50% interest in the Property for $44.8 million, the Arbitrator directed that a reference be held within 30 days from release of the Award to deal with issues pertaining to the most efficient way to complete the sale to Nuyork.

Nasjjec’s Position

[57] Nasjjec submits that the Arbitrator failed to treat it equally and fairly in respect of the September 2013 Award as follows:

1. In permitting Nuyork to privately buy Nasjjec’s interest in the Property for $42,750,000 rather than ordering a public sale;

2. By disregarding Nasjjec’s offer to purchase Nuyork’s interest in the Partnership for $50,000,000;

3. By prohibiting Nasjjec from freely soliciting arm’s length purchasers for the Property;

4. By determining, in the absence of any evidence, that Nasjjec could not finance the purchase of Nuyork’s interest in the Property for $50 million.

Discussion

[58] Nasjjec submits that the Arbitrator disregarded its submission that the fair way to determine the fair market value of the Property should be determined by public sale.

[59] As can be seen from the above quoted excerpt from the September 2013 Award, however, the Arbitrator did not disregard Nasjjec’s submission in that regard. To the contrary, he considered it, along with Nasjjec’s other submissions concerning how best to determine fair market value and rejected it in favour of determining the fair market value based on the appraisal evidence from both Nuyork and Nasjjec. He was clearly entitled to take such an approach.

[60] Nasjjec’s submission of utilizing a public sale is based on the case law under the Partition Act and Nasjjec’s submission that the Partition Act applies to the dissolution remedy. That point was argued by it at the hearing and rejected by the Arbitrator who held that the provisions of the Partnership Act governed the dissolution.

[61] Similarly, the Arbitrator did not “disregard” Nasjjec’s offer to purchase Nuyork’s interest for $50 million. Rather, he considered it “as part of the factual matrix” and rejected it for a number of reasons which he listed. After setting out the reasons, he stated “it seems to me that Nasjjec’s $50 million offer was an offer that was made for tactical reasons…”. In my view, there was more than enough evidence to support that finding.

[62] One of the reasons the Arbitrator relied on in not accepting Nasjjec’s offer to purchase was his “serious reservations as to Nasjjec’s capacity to finance the proposed transaction.” In reaching that conclusion, the Arbitrator referred to evidence of other financial obligations not met by Ms. Neuberger and her failure to provide sufficient evidence of her ability to finance Nasjjec’s proposed purchase and discharge other financial obligations.

[63] Once again, there was evidence before the Arbitrator to support his finding concerning Nasjjec’s capacity to finance its offer including Ms. Neuberger’s evidence. It was not a finding based on no evidence.

[64] Nuyork’s purchase of Nasjjec’s interest was one of a number of options the parties put before the Arbitrator. In accepting that option, the Arbitrator reviewed each of the options proposed by Nasjjec and rejected them for the reasons given. In the end, based on the evidence before him, he considered that the most just and equitable way to dissolve the Partnership was by having Nuyork purchase Nasjjec’s interest. In my view, that decision was reasonable.

[65] Nasjjec’s complaint regarding not being permitted by the Arbitrator to freely soliciting arm’s length purchasers arises from the March 2013 Interlocutory Award ordering, among other things, that, except as agreed by the parties in respect of one third party, Nasjjec was prohibited from disclosing confidential information about the Property to third parties for the purpose of soliciting offers on the Property. Nasjjec has not sought to set aside that award. Apart from that, the issue was argued before the Arbitrator and his decision was based on the Partnership Agreement which contains a confidentiality provision prohibiting the use or disclosure of confidential information about the Property to third parties.

[66] The Arbitrator considered the evidence before him and rejected Nasjjec’s submission that the partners had agreed to disclose confidential information about the Property to third parties generally. Contrary to Nasjjec’s submission that it was the Arbitrator that prohibited Nasjjec from freely soliciting arm’s length purchasers, it was the parties that did so by their agreement.

[67] Based on the above therefore, Nasjjec has failed to establish that the Arbitrator breached his obligation to treat Nasjjec equally and fairly as provided by the Act. Properly characterized, Nasjjec’s submissions amount to no more than it saying the Arbitrator did not treat it equally or fairly because he found against it on the issues before him. Losing, by itself, does not equate to unfair or unequal treatment.

[68] Nasjjec had notice of the issues and was given a full opportunity to present its case and make submissions. Further, there is nothing in the September 2013 Award that raises the slightest concern the Arbitrator treated Nasjjec unfairly or unequally within the meaning of those terms in ss. 19 and 46 of the Act in any way whatsoever.

[69] Nor has Nasjjec established there are any jurisdictional errors arising from the September 2013 Award. The dissolution of the Partnership and the issues arising out of it were all issues encompassed by the arbitration clause in the Partnership Agreement. The Act provides that issues of jurisdiction must be raised with the arbitrator as soon as the matter is alleged to be beyond his or her jurisdiction (s. 17(5)). There is no evidence that Nasjjec raised any jurisdictional issues before the Arbitrator.

The December 2, 2014 Award

[70] The December 2014 Award addressed a number of issues arising out of the September 2013 Award ordering the sale to Nuyork of Nasjjec’s 50% interest in the Property, including the most efficient way to complete the sale under the Income Tax Act (ITA).

[71] Nuyork’s position was that while Nasjjec had agreed at the outset to effect the sale using s. 98(3) of the ITA, after release of the September 2013 Award, Nasjjec reneged on the agreement.

[72] Nasjjec’s position was that the transaction must be effected using s. 98(5)(g) of the ITA. It submitted there was no agreement to use s. 98(3) and that if there was, it could not and should not be enforced either because s. 98(3) does not apply or access to it is foreclosed by s. 98(4) of the ITA. Nasjjec also relied on s. 245 of the ITA which deals with the General Anti-Avoidance Rule (GAAR).

[73] Section 98(2) of the ITA provides in part that, subject to ss. 98(3) and 98(5), where a partnership disposes of property to a taxpayer who was a partner, the partnership is deemed to have disposed of the property and the partner to have acquired it at fair market value. Sections 98(3) and 98(5) are tax deferral sections that provide a measure of tax relief from s. 98(2). Utilizing s. 98(3) is more advantageous on a tax consequence basis to purchasers than to vendors.

[74] As s. 98(3) requires a joint election by the partners, Nuyork initially sought a remedy for Nasjjec’s breach of agreement that Nasjjec provide the election required by s. 98(3) or an order authorizing Nuyork to file the election on behalf of both itself and Nasjjec. Later, Nuyork changed its position and agreed with Nasjjec that the transaction should be done through s. 98(5)(g) of the ITA. Because s. 98(5) (g) gives rise to a greater tax liability for Nuyork, it sought damages from Nasjjec’s breach of agreement of $3.25 million representing the increased tax liability, payable as a reduction in the purchase price determined in the September 2013 Award.

[75] After reviewing the evidence of the parties and emails exchanged between counsel, the Arbitrator stated at para. 46:

46. I am satisfied beyond a reasonable balance of probability that Nasjjec did agree with Nuyork to use s. 98(3). I am also satisfied that Nuyork relied upon Nasjjec’s agreement in relation to the use of s. 98(3) in framing its $44.22 million offer to purchase 50% of the principal partnership asset, 20 King. This is consistent with Mr. York’s evidence which I accept.

[76] The Arbitrator then went on to consider Nuyork’s claim for a reduced purchase price given Nasjjec’s breach of agreement. He noted that access to s. 98(3) to effect the transaction, even with Nasjjec’s cooperation, was problematic such that s. 98(3) may not have worked even if Nasjjec consented. Because the benefits which would have accrued to Nuyork if s. 98(3) was used were “far from certain”, the Arbitrator concluded that a lost chance approach to the determination of damages was appropriate.

[77] Because the lost chance approach had not been raised by the parties during the hearing, the Arbitrator raised the issue with counsel and asked for further submissions.

[78] Nuyork submitted that because there was no chance that the CRA would reject the use of s. 98(3), it is entitled to 100% of the financial impact it will suffer because Nasjjec failed to honour its commitment to use s. 98(3).

[79] Nasjjec submitted that the chance of s. 98(3) surviving CRA’s scrutiny was zero.

[80] The Arbitrator rejected the positions of both parties. He concluded that what Nuyork lost as a result of Nasjjec’s breach of agreement was the chance or opportunity to engage s. 98(3) for its purchase of Nasjjec’s 50% interest. While the chance was real, it was not certain. The Arbitrator then determined that the constituent elements of lost chance as set out by Doherty JA in Folland v. Reardon (2005), 2005 1403 (ON CA), 74 O.R. (3d) 688 (C.A.) had been met.

[81] At para. 64 of the December 2014 Award, the Arbitrator stated:

In quantifying a lost chance, triers of fact must make the best estimate that they can. Taking all of the circumstances into account, including counsel’s comprehensive written submissions, I would quantify the chance of a s. 98(3) survival at 50%. There remains to be considered 50% of what. On that subject Nuyork submits that the base calculation should involve the difference between the tax implications to Nuyork of a s. 98(3) transaction and one through s. 98(5)(g). Nasjjec has a different view on that subject. In my view Nuyork’s position should prevail.

[82] The Arbitrator then went on to consider the evidence as to the tax differential based on a comparison of the tax implications accruing from the use of either s. 98(3) or s. 98(5)(g). Despite what the Arbitrator characterized as a “broadly based attack” on the evidence and credibility of Nuyork’s forensic accounting expert by counsel for Nasjjec, the Arbitrator found the expert to be credible, his evidence reliable and his tax differential opinion sound. Based on that opinion, he further found that the operative tax differential between the use of s. 98(3) and s. 98(5)(g) was $3 million, rounded down. Finally, applying the 50% lost chance determination to the operative tax differential, the Arbitrator held that the purchase price to be paid by Nuyork to Nasjjec should be reduced by $1.5 million to reflect the value to Nuyork of not being able to use s.98(3) to effect the purchase due to Nasjjec’s breach of agreement.

[83] The Arbitrator then went on to determine “other issues” raised by Nasjjec in its written submissions. In particular, Nasjjec sought an adjournment to permit it to secure an expert witness to counter the evidence of Nuyork’s forensic accounting expert on the tax differential. The Arbitrator denied the request, noting that as it had been apparent for months that Nuyork’s expert would be giving evidence on the tax differential, it was too late to embark on another round of expert reports and perhaps a further hearing.

[84] The Arbitrator also rejected Nasjjec’s request to reopen the hearing to permit it (and Nuyork) to lead further evidence as to the current fair market value of the Property. At para. 80 he stated, in part: “I see no need to repeat the history of this matter or to ascribe blame for the lengthy delay in bringing this matter to a conclusion. It will suffice to say that any untoward delay in this matter was not Nuyork’s fault. In my view it is too late now to reopen a hearing, that for all practical purposes closed, at this late stage. The purchase price has been determined.”

[85] The Arbitrator also addressed the date of dissolution of the Partnership (not the date of the September 2013 Award); the date of closing (as soon as practicable); interim distribution of cash (partnership debts to both 159 and Neuberg and Dale to be paid before dissolution); and dismissed Nasjjec’s motion to permit it to buy Nuyork’s interest in the Property (already decided).

[86] Finally the Arbitrator addressed the issue of whether the parties are related for tax purposes. Nasjjec says they are, Nuyork says they are not. The Arbitrator found that the evidence of who were the owners of Nasjjec’s shares was not clear and that Nasjjec was not forthcoming in making productions relevant to that issue. He further noted that the related party issue was not “late blooming” in that Nuyork’s forensic tax expert had prepared his report on the basis that Nuyork and Nasjjec were dealing at arms length with each other. As a result, the Arbitrator stated that for the purpose of quantifying Nuyork’s lost chance, he proceeded on the basis that the parties were not related for tax purposes.

Nasjjec’s Position

a) Equally and Fairly

[87] Nasjjec submits that the Arbitrator failed to treat it equally and fairly in respect of the December 2014 Award as follows:

1. By failing to determine whether the sale transaction was required by law to be carried out utilizing s. 98(5)(g) of the ITA rather than s. 98(3) but ordering that the purchase price for Nasjjec’s 50% interest be reduced by $1,500,000 for lost opportunity damages suffered by Nuyork;

2. By refusing to permit Nasjjec to lead accounting evidence concerning the tax impact of utilizing s. 98(5)(g) of the ITA rather than s. 98(3) after the Arbitrator put the quantum of the tax impact in issue by raising lost chance;

3. By deciding the tax impact of using s.98(5)(g) based on the assumption Nasjjec and Nuyork were not related for tax purposes unsupported by any evidence and contrary to evidence that they were related;

4. By refusing to permit Nasjjec to lead evidence of the increase in market value of the Property from January 2013 to August 2014; and

5. By disregarding Nasjjec’s request to purchase Nuyork’s interest in the Property for the same purchase price as previously determined by the Arbitrator.

Discussion

[88] Nasjjec submits that the Arbitrator failed to determine which section of the ITA was required by law to be implemented to govern the transaction between the parties – s. 98(3) or s. 98(5)(g).

[89] In my view, given the evidence and the issues before him, it was neither necessary nor appropriate for the Arbitrator to decide which section of the ITA was required. As pointed out by Nuyork, the issue of what section applied depended on factors in the transaction which had not yet crystallized. Further Nasjjec’s tax law expert gave evidence as to the various risks that might arise if the transaction was done utilizing s. 98(3). Given that the final determination of which section governs will be determined by a third party (CRA), I am satisfied that the Arbitrator approached the issue in the appropriate manner.

[90] Nor do I accept Nasjjec’s submission that raising the lost opportunity issue without the request of either party exceeded the Arbitrator’s jurisdiction. The Arbitrator’s mandate was to determine the disputes between the parties. Nuyork alleged that Nasjjec had breached its agreement to use s. 98(3) of the ITA to close the sale. It further alleged that it had suffered damages as a result of Nasjjec’s breach. In dealing with the latter issue, based on the evidence and the issue before him, the Arbitrator was correct to raise the issue of lost chance and to give the parties an opportunity to make submissions in respect of that issue. I am at a loss to understand how his actions in that regard have anything to do with jurisdiction.

[91] The Arbitrator raised the issue of lost chance with the parties and requested submissions from them on it. He then reviewed those submissions, determined, based on the authorities, that lost chance applied and then quantified the lost chance and determined the tax differential based on the evidence. Finally, he applied the lost chance amount to reduce the purchase price Nuyork is required to pay Nasjjec. In my view, the Arbitrator’s conclusions were reasonable and did not give rise to any issue of lack of fairness or equality.

[92] Nasjjec submits that the Arbitrator was not fair in preventing it from leading evidence concerning the tax impact of utilizing s. 98(5)(g) as opposed to s. 98(3). In support of that submission, Nasjjec further submits that the issues of the quantum of taxes payable and the tax differential between using s. 98(3) and s. 98(5)(g) only became relevant after the Arbitrator raised the lost chance issue. The record does not support that submission. The issue of the tax implications was addressed by both parties long before the hearing. Nuyork provided an expert’s report in advance of the hearing dealing with those issues. Nasjjec had the opportunity to respond with its own expert but chose not to. Further, Nasjjec cross-examined Nuyork’s expert at the hearing at length on the tax differential issue.

[93] In my view, Nasjjec had more than sufficient opportunity to call evidence in response to Nuyork’s evidence concerning the tax differential. The Arbitrator was correct in observing that to permit such evidence in the circumstances was not appropriate and would only serve to further delay the arbitration. In my view, the Arbitrator’s refusal to adjourn the hearing to permit Nasjjec to call such evidence was not only reasonable in the circumstances, it was correct.

[94] Nasjjec takes issue with the Arbitrators quantification of Nuyork’s lost chance on the assumption that the parties are not related. It submits that that decision is based on no evidence and constitutes an error in jurisdiction.

[95] Once again, I do not consider that the issue gives rise to an error of jurisdiction as provided in s. 45 (1) 3 of the Act. The Arbitrator clearly had jurisdiction to determine the tax differential issue. The “related party” issue affected both the quantum of the tax impact, as well as Nuyork’s future tax filing position. It turned on who were the owners of Nasjjec and Nuyork. Nuyork filed evidence that the parties were not related. Further, Nuyork’s forensic tax expert based his opinion on the assumption the parties were not related. Although Nasjjec produced trust deeds (after directed to by the Arbitrator), they were not conclusive on the issue of beneficial ownership.

[96] In accepting that the parties were not related for tax purposes, the Arbitrator referred to the lack of clarity as to who owned Nasjjec’s shares. In my view, he was entitled to take that position based on the evidence and the lack of evidence before him. Nasjjec had more than sufficient notice of the issue and ample opportunity to put proper evidence before the Arbitrator. It failed to do so.

[97] Nasjjec takes issue with the Arbitrator’s refusal to permit it to lead evidence of the increase in value of the Property since his determination in the September 2013 Award.

[98] The Arbitrator determined the market value of the Property in the September 2013 Award in connection with deciding how the Partnership was to be dissolved. Nasjjec’s request to re-open the issue came more than one year after the September 2013 Award and 20 months after the effective dates of the appraisals. Further, it was raised by Nasjjec in a subsequent hearing addressing issues as to the most efficient way to close the sale of Nasjjec’s interest. The Arbitrator noted that the delay was not Nuyork’s fault.

[99] The jurisdiction to permit a party to reopen the hearing on an issue that has already been decided is discretionary. In my view, the Arbitrator considered the relevant factors in exercising his discretion to not permit Nasjjec to reopen the issue of the fair market value of the Property. That issue had been decided between the parties by the September 2013 Award.

[100] Finally, I do not consider that the Arbitrator disregarded Nasjjec’s motion for an order that it be permitted to buy Nuyork’s interest in the Property. In dismissing the motion the Arbitrator noted that the issue had already been decided.

[101] For the above reasons, therefore, and as with the September 2013 Award, Nasjjec has failed to satisfy me that the Arbitrator breached his obligations of fairness and equality as set out in s. 46 of the Act in respect of the December 2014 Award.

[102] Nor in my view, is there any issue concerning jurisdiction. The Arbitrator had jurisdiction under the arbitration clause in the Partnership Agreement to deal with the issues determined in the December 2014 Award.

The Costs Award

[103] The Costs Award addressed costs to its date, July 16, 2015. It was further clarified in the July 28, 2015 award. The Arbitrator held that Nuyork, as the successful party in the arbitration, was entitled to its costs fixed on a partial indemnity basis to April 15, 2013 (the date of Nuyork’s offer to settle) and on a substantial indemnity basis thereafter. After deducting amounts of $20,000 to reduce an expert’s fee for corrective work and $18,703 in respect of time spent on matters outside the scope of the arbitration, the Arbitrator awarded Nuyork a total of $1,007,026 in costs. The award included disbursements of $206,840.

[104] In reaching his decision, the Arbitrator considered the positions advanced on behalf of both Nuyork and Nasjjec. He outlined the principles involved in determining costs awards and the factors to be considered, including those set out in Rule 57.01(1); considering the fairness and reasonableness of costs in respect of both their constituent elements and their total; and proportionality. He also considered and determined that a distributive costs order was not appropriate in the circumstances.

[105] In reaching his costs determination, the Arbitrator specifically addressed Nasjjec’s submissions which took issue with the overall quantum claimed as well as costs claimed for certain aspects of the proceedings. Nasjjec also sought costs in respect of several interlocutory proceedings. While the Arbitrator rejected most of Nasjjec’s submissions for reduction (for reasons stated), the Arbitrator did allow reductions of the expert’s fee and for time spent on other matters as noted above.

Nasjjec’s Position

[106] Nasjjec submits that in the Costs Award exceeded the Arbitrator’s jurisdiction or failed to treat it equally and fairly in that:

1. It awarded Nuyork substantial indemnity costs based on an offer to settle which contained a term that had nothing to do with the issues in the arbitration and involved a party who was not part of the arbitration;

2. It awarded costs for various steps in the arbitration where there was divided success;

3. The Arbitrator made statements in respect of Nasjjec’s conduct which were “incredibly unfair and unjustified.”

Discussion

[107] Nuyork submits that Nasjjec requires leave to appeal the Costs Award which is granted sparingly and only in obvious cases due to the fact costs decisions are discretionary and are accorded a very high degree of deference: Credifinance Securities Limited v. DSLC Capital Corp, 2011 ONCA 160 (C.A.) at para. 47.

[108] Nasjjec submits that it is not appealing the Costs Award but rather seeking to set it aside pursuant to s. 46 of the Act and therefore leave is not necessary. On that basis, I agree that leave is not required.

[109] Nasjjec submits that the Arbitrator exceeded his jurisdiction and was not fair in considering Nuyork’s offers of April 15, 2013 and July 31, 2014 because the offers contained a term which required repayment of a loan to a third party, not party to the arbitration.

[110] The Arbitrator clearly had jurisdiction to deal with the issue of costs (the Act, s. 54). Further, he reviewed the principles involved and the factors to be considered as set out in Rule 57.01. In response to Nasjjec’s submission that the offers “cannot be considered”, the Arbitrator stated that fact that the offers contained terms outside the scope of the arbitration did not foreclose him from taking the offers into account.

[111] While the offers did not comply with Rule 49, Rule 49.13 provides that in exercising its discretion with respect to costs, a court may take into account any offer to settle made in writing.

[112] In LSUC v. Mazzuco (2009), 50 ETRE (3d) 203 (Ont. S.C.J.) at para. 20, D.M. Brown J. (as he then was) stated:

As to quantum of the award of costs, in my view it is appropriate to give considerable weight to the Offer to Settle, even if it does not qualify as a formal Rule 49 offer. The offer was a very reasonable one, made by one commercial party to another. In fixing costs courts should give due recognition to reasonable efforts by parties to settle a dispute.

[113] In my view, the Arbitrator clearly had jurisdiction to consider Nuyork’s offers in determining costs. Nor do I consider it was unfair of him to do so in the circumstances. Nasjjec submitted that he shouldn’t consider them. The Arbitrator rejected that submission, based on Nuyork’s Reply Submissions. Nasjjec was able to make submissions on the issue and was aware of the reasons why the Arbitrator rejected them.

[114] Nuyork’s April 15, 2013 offer was for approximately $3 million more than Nasjjec was awarded to receive by the Arbitrator. In the July 2014 offer, which was after the September 2013 Award, Nuyork proposed to forego $500,000 in costs claims if the parties proceeded to close the real estate transaction. While the offers contained a term requiring repayment of a loan to a third party, it was a company controlled by Ms. Neuberger. In my view, the offers were very reasonable and coupled with the Arbitrator’s findings regarding Nasjjec’s conduct during the arbitration, supported an award of substantial indemnity costs from the date of the first offer.

[115] Nasjjec further submits that in dealing with costs, the Arbitrator failed to consider its offer to settle of $50,000,000. Given that the Arbitrator had earlier concluded that Nasjjec’s offer was made for tactical reasons, in my view there was no reason for the Arbitrator to consider it in assessing Nuyork’s costs.

[116] Nasjjec complains that the Arbitrator awarded Nuyork costs for various steps in the arbitration where there was divided success. In particular, it cites the s.98 (3) tax issue, the costs in respect of the APS and certain procedural motions where Nuyork was unsuccessful.

[117] The Arbitrator considered whether a distributive costs order should be made and determined that such an order was not appropriate in the circumstances of the arbitration. Further, all of Nasjjec’s complaints which it now raises concerning the Arbitrator’s failure to not award costs to Nuyork for various steps in the arbitration were argued before the Arbitrator and, except for some excess costs of one of Nuyork’s experts and for some time spent on matters outside the arbitration, were rejected by him for reasons given.

[118] In my view, Nasjjec has failed to establish that there was some procedural unfairness or breach of natural justice by the Arbitrator in determining costs. Rather, Nasjjec seeks to reargue its costs submissions which it is not permitted to do.

[119] Nasjjec’s final submission in respect of the Costs Award is that the Arbitrator made statements in respect of Nasjjec’s conduct which were “incredibly unfair and unjustified.”

[120] In the Costs Award and in response to submissions by Nuyork concerning Nasjjec’s conduct during the arbitration, the Arbitrator noted that he had no doubt that Nasjjec’s post-September 2013 Award strategy “had the effect of delaying the proceedings” relating to the actual transfer of title of the Property (para. 24). He also referred to Nasjjec’s “lack of cooperation (para. 32) and the parties inability to be reasonable in dealings with each other which was “particularly a deficiency displayed by Nasjjec.”

[121] The conduct of the parties which “tended to shorten or to lengthen unnecessarily the duration of the proceeding” is one of the factors to be considered in assessing costs (Rule 57.01(e)). The Arbitrator’s comments were specific to the allegations raised by Nuyork and were not gratuitous. Further, they were not, in my view, without substance. The Arbitrator had been dealing with the parties and issue of the dissolution of the Partnership for more than two and a half years at that point. Based on the numerous matters that had come before him, there is no question that he was in a position to make assessments of the parties conduct during the arbitration. Accordingly, I do not consider the Arbitrator’s comments concerning Nasjjec’s conduct to be unreasonable.

[122] For the above reasons, therefore I do not consider that the Arbitrator exceeded his jurisdiction. Further, and as noted in Credifinance, costs are highly discretionary. In my view, in determining costs, the Arbitrator took into account the relevant factors in balancing the competing interests of both Nuyork and Nasjjec. I do not consider that he exercised his discretion in an unreasonable or non-judicious fashion.

The July 2015 Miscellaneous Award

[123] In the July 2015 Miscellaneous Award, the Arbitrator, among other things, dismissed Nasjjec’s motion to vary the fair market value determination of its 50% interest in the Property.

[124] In the September 2013 Award, the Arbitrator determined the fair market value of the Property based on the evidence of Bruce Andrews, an expert appraiser. The Arbitrator rejected the opinion of Vincente Gamboa, Nasjjec’s expert appraiser. Both Mr. Andrews and Mr. Gamboa determined value utilizing an income approach. At the time, the renewal of the lease with the major tenant of the Property was being negotiated which required certain assumptions to be made with respect to future income. The Arbitrator recognized that establishing fair market value given the lease negotiations was “complicated” (September 2013 Award, para. 40).

[125] On May 4, 2015, Nasjjec was advised by Nuyork that a new lease had been negotiated with the tenant in respect of a portion of the Property and provided the terms of the lease.

[126] As a result, Nasjjec brought a motion before the Arbitrator seeking to increase the purchase price of Nasjjec’s interest in the Property from the September 2013 Award amount of $44.22 million to $52.85 million. The increase was based on the increase in the amount of the square foot rents in the new lease compared to the assumptions in Mr. Andrews’ valuation and a change in the capitalization rate. By agreement of the parties and the Arbitrator, Nasjjec’s motion was done in writing.

[127] In support of its motion, Nasjjec submitted that the assumptions for the valuation originally done by Mr. Gamboa more closely reflected the actual rental rate agreed upon than Mr. Andrews. Further, Nasjjec filed a letter from Mr. Gamboa which updated his original report utilizing the actual rental numbers. Mr. Gamboa’s opinion was that the value of the Property had increased to $105,700,000. Finally, Mr. Gamboa also revised Mr. Andrew’s model using the actual rental numbers and arrived at a value of $87,650,000 for the Property.

[128] The Arbitrator dismissed Nasjjec’s motion to vary the price at which Nuyork should purchase its interest in the Property for two reasons:

1. The law values both certainty and finality. The fair market value of the Property was determined in the September 2013 Award after both sides had a full opportunity to lead fair market value appraisal and other evidence. Further, Nasjjec had already brought two other motions to vary the price for the Property which were dismissed;

2. Nasjjec did not meet the test to admit fresh evidence. The Arbitrator reviewed the fresh evidence and concluded that there was no evidence of a sudden or substantial change in the fair market value of the Property that would justify re-opening the hearing on the matter.

[129] Nasjjec submits that the Arbitrator’s decision to dismiss its motion was unfair and treats the parties unequally. It submits its new evidence demonstrates that Nuyork’s evidence of value relied on by the Arbitrator was wrong and that Nasjjec’s valuation as determined by Mr. Gamboa was fair.

[130] In my view, the Arbitrator’s decision not to admit the fresh evidence is a procedural decision. As such, it is immune from review under the Act.

[131] In Inforica Inc. v. CGI Information Systems & Management Consultants Inc., 2009 ONCA 642 (C.A.) at para. 18, the Court stated:

A significant feature of the modern approach limiting access to the courts to review decisions of arbitrators is that there are no appeals from procedural or interlocutory orders. In Environment Export International of Canada Inc. v. Success International Inc. [1995] O.J. No. 453 (Gen. Div.), at para. 14, MacPherson J. held: ‘There is nothing in the Arbitration Act providing for appeals from, or applications to set aside, decisions of arbitrators on procedural points. It would be wrong … for the courts to invent such a remedy and inject it into the arbitration process’. This principle is reiterated in Tescor Energy Services Inc. v. Toronto District School Board, [2002] O.J. No. 74 (S.C.J.), at para. 30, where Lane J. held: ‘there is nothing in the Act to permit appeals from or the setting aside of decisions of arbitrators on procedural points’. This is a deliberate policy, ‘not a lacuna in our law’, to protect the autonomy of the arbitral process. The creation of a power by the courts to intervene on interlocutory rulings by arbitrators ‘would constitute a most serious reproach to the ability of our system of arbitration to serve the needs of users of the arbitral process’: [page 171] K/S A/S Biakh v. Hyundai Corp., [1988] 1 Lloyd’s Rep. 187 (Q.B. Comm. Ct.) at p. 189, Steyn J.

[132] Even if I am wrong in my assessment that the Arbitrator’s decision was procedural, I consider that it involved an exercise of his discretion. In that regard, I am satisfied that he took into account the proper factors in exercising that discretion. There was no denial of procedural fairness or natural justice.

Motion for Distribution of Funds

[133] As part of its submissions on August 6, 2015, Nasjjec brought a motion in application CV-15-10916-00CL for an order that the Partnership distribute funds to itself and Nuyork to pay taxes on income allocated to them from the Partnership and that the balance of the cash held by the Partnership be distributed to the partners or alternatively be used to pay down inter-company loans.

[134] The motion has, in my view, subsequently become moot in that the parties have since agreed to distribute funds held by the Partnership to re-pay intercompany loans.

[135] That said, and even if the issue Nasjjec seeks to resolve remains, I do not consider that the court has any jurisdiction to deal with it. It is a matter concerning the Partnership and, in accordance with the arbitration clause in the Partnership Agreement, must be dealt with by the Arbitrator.

[136] The issue of the distribution by the Partnership of available cash prior to dissolution of the Partnership has already been raised by Nasjjec in the arbitration and dealt with by the Arbitrator (see: para. 93 of the December 2014 Award and para. 9 of the March 2015 Procedural Award).

[137] Nasjjec’s concerns, if they still exist, will be resolved by closing the real estate transaction and finalizing the dissolution of the Partnership. Its motion is therefore dismissed.

Application CV-15-11083-00CL

[138] As noted, in Application CV-15-11083-00CL, Nasjjec and 159 seek a review of the Arbitrator’s August 2015 Recusal and Jurisdiction Award, an order setting the Award aside and, in the alternative, a declaration that there was a reasonable apprehension of bias on the part of the Arbitrator.

[139] The Arbitrator dealt with two issues in the August 2015 Recusal and Jurisdiction Award:

1. Nuyork’s motion to determine whether the Arbitrator had jurisdiction to deal with a third party claim that had been commenced by 159 against, among others, the Partnership and to authorize Nuyork to appoint and instruct counsel for the Partnership to respond to the third party claim (the “Jurisdiction Motion”) and

2. Nasjjec’s motion that the Arbitrator recuse himself from hearing Nuyork’s motion on the ground that he had demonstrated a reasonable apprehension of bias (the “Recusal Motion”).

Jurisdiction Motion

[140] Nasjjec submits that in assuming jurisdiction over a third party action commenced by 159 against the Partnership in a separate proceeding, the Arbitrator exceeded his jurisdiction and the August 2015 Recusal and Jurisdiction Award should be set aside.

[141] Shortly after Nasjjec and Nuyork agreed to arbitrate their disputes before the Arbitrator in October 2012, 159 demanded that the Partnership repay a debt of over $24 million to 159.

[142] As a result, Nuyork added 159 as a party to the arbitration and sought an order prohibiting 159 from taking any steps in furtherance of its demand pending the final disposition of the arbitration and an order that the intercompany debts including the one to 159 be paid on the closing of the sale of either party’s 50% interest in the Property.

[143] In its statement of defence and counterclaim in the arbitration, Nasjjec sought, at paragraph 25(c) “An Order compelling the Partnership to repay all debts upon the sale of the Property including the 159…demand loan…of $24 million.”

[144] During the course of the arbitration, the Partnership paid off a significant portion of the $24 million loan owing to 159. As of November 15, 2013, the amount owing on the loan was $4,134,721.

[145] In the March 2015 Procedural Award dealing with finalizing the MOU and APS, the Arbitrator, in addressing the disputed portions of the APS, directed, among other things, that the balance of 159’s loan to the Partnership as at September 15, 2013 plus applicable interest at the loan rate of 7.53% per annum should be repaid on closing with a reduction of $410,000 in the loan amount as of September 19, 2010.

[146] On November 12, 2014, Nuspor Investments Partnership (“Nuspor”), a partnership between Nuberg & Dale and Anspor Construction Limited commenced an action against 159 for repayment of a loan. 159 filed a defence to the claim and admitted the loan. As part of its defence, it pleaded that it was owed more from companies related to Nuspor than it owed to Nuspor and sought to have all the intercompany loans dealt with together. As a result, on June 18, 2015, 159 commenced a third party claim against Nurit Construction Partnership (“Nurit”) and the Partnership claiming repayment of the amounts outstanding on loans from both Nurit and the Partnership and contribution and indemnity of any amounts found to be owing by 159 to Nuspor (the “Third Party Claim”).

[147] By notice of motion in the arbitration dated June 23, 2015, Nuyork sought, among other things, an order from the Arbitrator authorizing it to appoint and instruct counsel for the Partnership to defend the Third Party Claim.

[148] In the August 2015 Recusal and Jurisdiction Award, the Arbitrator found that there was ample evidence on which to conclude that he had jurisdiction over the claims made by 159 against the Partnership in the Third Party Claim. After reviewing the pleadings in the arbitration in some detail, the Arbitrator made the following findings: 159 is named as a defendant; 159 and its $24 million loan to the Partnership were extensively referred to in the pleadings of both parties; 159 was not a party to the Partnership Agreement requiring arbitration; no steps were taken by or on behalf of 159 to get it out of the arbitration; 159 issues, including its $24 million loan to the Partnership, were manifestly part of the arbitration issues; the Third Party Claim against the Partnership mirrored in substance Nasjjec’s claim in the arbitration and was duplicative.

[149] At para. 27 of the August 2015 Recusal and Jurisdiction Award, the Arbitrator stated:

It seems to me that in accepting 159’s presence in the arbitration as a party, Nasjjec cannot credibly assert that 159 was a mere bystander or placeholder. Manifestly, the repayment of 159’s loan was an issue in the arbitration. In the end, the parties appear to have agreed that the debts of the partnership would be addressed in this arbitration (see Nasjjec’s Counterclaim paragraph 25(c)).

[150] He then addressed the issue before him on the Jurisdiction Motion which was the need to retain counsel on behalf of the Partnership to respond to the Third Party Claim. After noting that Ms. Neuberger was conflicted, the Arbitrator authorized Nuyork to retain and instruct counsel for the Third Party Claim on behalf of the Partnership and stated that if there were any other third party/159 issues, he could be spoken to.

[151] Having regard to the Arbitrator’s reasons, I am satisfied, based on his findings of fact, that he was correct in assuming jurisdiction over the Third Party Claim against the Partnership. It is clear from the record that 159 was a party to the arbitration from the outset and repayment of 159’s loan to the Partnership was an issue in the arbitration.

[152] In my view, the fact that 159 was not party to the Partnership Agreement containing the arbitration clause is not determinative. It was a party to the arbitration from the outset. Nasjjec (or 159) submits that 159 took no steps to appear in the arbitration or make submissions. While that may be so, it was entitled to. Section 17 (3) of the Act creates a positive duty to deal with jurisdiction issues before the arbitrator. By not addressing the question of jurisdiction at the outset, in my view, 159 has submitted the issue of its loan to the Partnership to the Arbitrator. See: Piazza Family Trust v. Veillette, 2011 ONSC 2820 (Div. Ct.) at para. 69-73.

[153] Nuyork submits that the issue raised by Nasjjec concerning jurisdiction is now moot because subsequent to the August 2015 Recusal and Jurisdiction Award, the Partnership, on the agreement of the parties, has paid off the balance of 159’s loan.

[154] Nasjjec submits that $410,000 of the loan still remains owing and it is entitled to have that issue determined by a court in the Third Party Claim.

[155] In the March 2015 Procedural Award, the Arbitrator held, among other things, that the Partnership would repay on closing the balance of 159’s loan as of November 15, 2013 with interest at 7.53% per annum (with a $410,000 reduction in the loan amount owed to 159 as of September 19, 2010). Nasjjec does not seek to set aside that Award.

[156] The $410,000 amount was referred to by the Arbitrator in the September 2013 Award as one of the issues between the parties that caused the breakdown in the Partnership. Nasjjec took that sum from the Partnership without Nuyork’s knowledge or consent. In ordering that the $410,000 be deducted from 159’s loan repayment, the Arbitrator was simply trying to even the accounts between the partners.

[157] In paying off 159’s loan, the Partnership paid it the amount owing as directed by the Arbitrator less $410,000. It is that amount that 159 submits it is still entitled to be repaid by the Partnership and that that issue should be decided by a court in the Third Party Claim.

[158] In my view, the Arbitrator has decided the issue of the repayment of 159’s loan and the deduction of the $410,000. He clearly had the jurisdiction to do so. As a result, a court has no jurisdiction to decide the issue (again). I therefore agree with Nuyork that 159 has been repaid its loan from the Partnership rendering the issues raised in the Third Party Claim moot.

Recusal Motion

[159] Nasjjec’s Recusal Motion before the Arbitrator was based on certain comments the Arbitrator made in the Costs Award as well as his comments and conclusions in the July 16, 2015 Miscellaneous Issues Award concerning the Jurisdiction Motion.

[160] In the July 16 Miscellaneous Issues Award, the Arbitrator addressed Nuyork’s Jurisdictional Motion concerning 159 and concluded that he had jurisdiction.

[161] Following issuance of the July 16, 2015 Miscellaneous Issues Award, counsel for Nasjjec contacted the Arbitrator and took issue with his decision in the Jurisdiction Motion on the grounds that while the date for hearing the motion had been set, the parties had not yet made their submissions.

[162] On July 22, 2015, the Arbitrator released brief supplementary reasons noting that when he dealt with the issues in the Jurisdictional Motion, he was under the “misapprehension that counsel wanted me to deal with those issues.” The Arbitrator then went on to state he was in error in that regard and that his conclusions on those issues were accordingly “premature”. The Arbitrator vacated that portion of the July 16, 2015 Miscellaneous Issues Award dealing with the Jurisdictional Motion and stated it was of no force and effect.

[163] When the Jurisdictional Motion came before the Arbitrator for hearing on July 31, 2015, Nasjjec brought the Recusal Motion at the outset based on the Arbitrator’s premature conclusions on the Jurisdiction Motion in the July 16, 2015 Miscellaneous Issues Award as well as certain comments the Arbitrator made in the Costs Award. Following submissions, the Arbitrator dismissed the Recusal Motion with reasons to follow and proceeded to hear the Jurisdiction Motion. The Arbitrator’s reasons for dismissing the Recusal Motion were set out in the August 2015 Recusal and Jurisdiction Award.

[164] Nasjjec seeks an order setting aside the August 2015 Recusal and Jurisdiction Award and a declaration that the Arbitrator shall be recused from hearing any further matters concerning the issues. Nasjjec submits that the obligation of fairness was breached by the reasonable apprehension of bias of the Arbitrator.

[165] The obligation of procedural fairness requires that there be no bias or reasonable apprehension of bias on the part of the decision maker.

[166] The test for reasonable apprehension of bias was initially set out by in Committee for Justice and Liberty v. National Energy Board, 1976 2 (SCC), [1978] 1 S.C.R 369 (S.C.C.) at para. 40 as follows:

… the apprehension of bias must be a reasonable one, held by reasonable and right minded persons, applying themselves to the question and obtaining thereon the required information… [T]hat test is ‘what would an informed person, viewing the matter realistically and practically – and having thought the matter trough – conclude. Would he think that it is more likely than not that [the decision maker], whether consciously or unconsciously, would not decide fairly.”

[167] The parties agree that the above test is applicable. The Arbitrator referred to it in his reasons dismissing the Recusal Motion. He concluded that “a reasonable person, fully informed, would not conclude that I cannot deal with the third party/159 issues de novo and fairly.”

[168] Nasjjec submits that the Arbitrator’s premature determination to assume jurisdiction of the third party claim against the Partnership considered in combination with disparaging comments against Nasjjec in the Cost Award, would cause an informed person, viewing the matter realistically and practically to conclude that it is more likely than not that the Arbitrator would not decide the issue fairly.

[169] The review of the Arbitrator’s decision on the recusal motion arises under Section 46(1) 6 of the Act, which, as already noted, provides that the court may set aside an award where, among other things, the applicant was not treated equally or fairly.

[170] It is clear from the July 22 Award which withdrew the portion of the July 16, 2015 Miscellaneous Issues Award dealing with jurisdiction over the Third Party Claim against the Partnership that the Arbitrator was under the impression that he was to deal with the issue at that time as opposed to on the hearing date scheduled for August 11, 2015. Once the error was brought to his attention, the Arbitrator immediately retracted that portion of his decision. He then heard detailed submissions (85 pages of transcript) from both sides on the Recusal Motion on July 31, 2015.

[171] In my view, the fact that the Arbitrator released reasons in respect of the jurisdiction issue prior to hearing argument does not, by itself, give rise to an informed person concluding the Arbitrator would “more likely than not” decide the issue unfairly. Judicial decision makers almost always receive written submissions in advance of oral argument which, when reviewed, often result in preliminary views being reached on the issues raised. That does not mean, however, that the decision maker cannot thereafter decide the issue fairly. The decision maker is required, despite any preliminary views, to keep an open mind until all submissions are received. Oral submissions are important. The Arbitrator is a former trial and Court of Appeal judge with many years of judicial decision making experience. There is no indication in the record before me that the Arbitrator did not maintain an open mind on the issue of jurisdiction over 159 until conclusion of the oral argument on July 31, 2015.

[172] The material in respect of the Jurisdiction Motion had been filed with the Arbitrator. He was under the impression that the parties wished him to decide the matter. Once his error was brought to his attention, he immediately withdrew the portion of the award dealing with jurisdiction over 159. There is nothing in the transcript of the submissions on July 31, 2015 that give any indication that the Arbitrator had pre-determined the issue. In my view, a reasonable person, properly informed of the circumstances, would not conclude that there was a likelihood of a reasonable apprehension of bias based on the premature release of a decision in the Jurisdiction Motion.

[173] Nor do I consider that the Arbitrator’s comments in the Costs Award concerning the conduct of Nasjjec during the arbitration either by themselves or in conjunction with the premature release of reasons in the jurisdiction issue give rise to any issue of reasonable apprehension of bias on the Arbitrator’s part. The costs determination was a separate proceeding. As I have already noted, the parties conduct during the proceedings is a relevant factor for the Arbitrator to consider when fixing costs (see Rule 57.01(1) (e)). Further, the comments complained of were in direct response to submissions made by either Nuyork or Nasjjec. They were not gratuitous.

[174] Accordingly, for the above reasons, I do not consider that there was a reasonable apprehension of bias on the part of the Arbitrator.

Application CV-15-10914

[175] Initially, Nuyork’s application CV-15-10914 sought orders enforcing the March 2013 Interlocutory Award, the September 2013 Award and the December 2014 Award and an order sealing certain of the documents filed in the applications as confidential.

[176] At the hearing on August 6, Nuyork brought a motion to amend its notice of application to add the subsequent awards released by the Arbitrator subsequent to March 20, 2015 (the date the application was commenced). I granted that amendment save and except for the August 2015 Recusal and Jurisdiction Award which had just been released the day before and which Nasjjec indicated it wished to move to set aside.

[177] In light of the fact that Nasjjec and 159 have subsequently brought application CV- 15-11083-00CL seeking to set aside the August 2015 Recusal and Jurisdiction Award which was argued on October 19, 2015, it is appropriate to further amend Nuyork’s notice of application to include the August 2015 Recusal and Jurisdiction Award in the awards seeking to be enforced.

[178] Having dismissed Nasjjec’s applications seeking to set aside the various awards of the Arbitrator, I am satisfied that Nuyork’s application for an order to enforce the awards in Ontario pursuant to s. 50 of the Act should be allowed. The awards which shall be enforced are the nine awards listed in paragraph 1(a) of Nuyork’s notice of application, as amended. If there is an issue as to the form of the order I may be spoken to.

[179] Nuyork also seeks an order pursuant to s. 137(2) of the Courts of Justice Act, R.S.O. 1990, c. C.43 sealing documents filed in the applications as confidential and listed in Schedule “A” to Nuyork’s notice of application.

[180] Nuyork’s request is tailored only to commercially sensitive material – i.e. valuation and financial information concerning the Partnership. There is no impact from non-disclosure beyond the parties. Accordingly, I am satisfied that the requirements for a sealing order as set out in Sierra Club of Canada v. Canada (Minister of Finance), 2002 SCC 41, [2002] 2 S.C.R. 522 (S.C.C.) at para. 53 have been met. The requested documents shall be sealed.

Conclusion

[181] For the above reasons, therefore, Nasjjec’s applications CV-15-10916-00CL and CV-15-10914-00CL are dismissed in their entirety. Further, its August 6, 2015 motion in application CV-15-10916 -00CL concerning payment out of Partnership funds is also dismissed. Nuyork’s application is allowed as noted. If there is any issue with respect to the form of the order I may be spoken to.

[182] In the July 28 Award, the Arbitrator dealt with two issues involving concerns with respect to closing adjustments and clarification of the Costs Award. After dealing with those issues, he stated at para. 11:

In my view the time has come to complete the real estate transaction referred to in the September 2013 award. The parties should execute the MOU and APS on or before August 4, 2015. The purchase/sale should close on or before August 13, 2015. If the parties agree, these dates may be changed.

[183] Needless to say, in light of Nasjjec’s applications, the dates set by the Arbitrator have passed. At the conclusion of the argument on August 6, 2015, the parties agreed that I could set the dates for signing the MOU and the APS and for closing of the real estate transaction given that the dates set by the Arbitrator could not be met.

[184] I agree with the Arbitrator’s intent expressed in the dates he set which was to conclude the real estate transaction as quickly as possible. More than two years has transpired since the September 2013 Award and all the issues concerning the closing, including the wording of the MOU and APS, have been resolved by the Arbitrator. Nuyork has indicated that it has had the closing funds available for some time. It is appropriate in my view and in the circumstances, to set a reasonably short time period to complete the real estate transaction.

[185] At the conclusion of the August 6th argument, Nasjjec requested a period of time following release of my reasons to consider its position and next steps. I indicated I would grant that. At the same time, as I have indicated, I consider it important as the Arbitrator did, that the real estate transaction be completed as soon as possible. Accordingly, as part of the enforcement order, I order that the parties shall execute the MOU and the APS on or before November 27, 2015. The purchase/sale shall close on or before December 4, 2015. As the Arbitrator noted, the dates may be varied by agreement of the parties in writing.

Costs

[186] Nuyork has been entirely successful both in respect to its application and Nasjjec’s applications. It is therefore entitled to its costs of the applications.

[187] Notwithstanding that I have concluded there is no merit to Nasjjec’s applications, it was entitled to bring them. Further, it has cooperated in bringing matters forward expeditiously. Accordingly, I do not consider that substantial indemnity costs are appropriate. In my view, costs should be assessed on a partial indemnity basis.

[188] I have received costs outlines from both parties for all matters up to and including the August 6, 2015 hearing and then separately for the October 19, 2015 hearing.

[189] With respect to the hearings on March 26, 2015 and August 6, 2015 (applications CV-15-10916-00CL and CV-15-10914-00CL), Nuyork claims total partial indemnity costs of $94,212.61 made up of fees of $81,099.60, HST of $10,542.94 and disbursements of $2,570.07.

[190] With respect to the October 19, 2015 hearing (application CV-15-11083-00CL), Nuyork claims total partial indemnity costs of $12,434.39 made up of fees of $10,580.10, HST of $1,375.41 and disbursements of $478.88.

[191] Having regard to the factors to be considered in determining costs as set forth in Rule 57.01and the expectations of Nasjjec as indicated by its costs outlines, in my view the total costs claimed by Nuyork are fair and reasonable.

[192] The issues between the parties were significant. In my view, the hours claimed and the rates charged were not unreasonable. Nuyork was required to respond to all of Nasjjec’s submissions, which were numerous.

[193] Accordingly, Nuyork is entitled to its costs on a partial indemnity basis in applications CV-15-10916-00CL and CV-15-10914-00CL fixed at $94,212.61 inclusive of taxes and disbursements.

[194] Further, Nuyork is entitled to its costs of a partial indemnity basis in application CV-15-11083-00CL payable by the applicants and fixed at $12,434.39 inclusive of taxes and disbursements. Both amounts are payable forthwith.

L. A. Pattillo J.

Released: November 6, 2015