CITATION: Swift v Allied Track Services, 2017 ONSC 6514
COURT FILE NO.: CV-16-564640
DATE: 20171101
ONTARIO
SUPERIOR COURT OF JUSTICE
IN THE MATTER OF the Arbitration Act, 1991 S.O. 1991, c. 17;
BETWEEN:
JEFFREY SWIFT, SUZANNE SWIFT AND DEBORAH JOHN FIRMIN, TRUSTEES, for and on behalf of the Trust known as THE 2012 JEFF SWIFT FAMILY TRUST, RODNEY SWIFT, ALAINE REIDPATH AND DEBORAH JOAN FIRMIN, TRUSTEES for and on behalf of the Trust known as THE 2012 ROD SWIFT FAMILY TRUST, JOHN SWIFT, DOREEN SWIFT, JEFFREY SWIFT, RODNEY SWIFT, and 2109123 ONTARIO INC.
Appellants
– and –
ALLIED TRACK SERVICES INC.
Respondent
Jonathan Rosenstein, for the Appellants
Martin J. Henderson and Brian Chung, for the Respondent
HEARD: October 25, 2017
ENDORSEMENT
DIAMOND J.:
Overview
[1] By Notice of Appeal dated November 21, 2016, and Supplementary Notice of Appeal dated June 14, 2017, the appellants commenced an appeal from the arbitral award and costs award (dated October 25, 2016 and May 31, 2017 respectively) of the Honourable Colin L. Campbell, Q.C. (“Campbell”).
[2] Both appeals were subsequently combined into one Amended Notice of Appeal dated June 15, 2017. Based upon the record filed before me, there is no current return date for that appeal.
[3] The respondent brings this motion seeking an order quashing the appeal for want of jurisdiction, specifically on the grounds that there was no prescribed right of appeal in the Joint Submissions to Arbitrate signed by the parties (described in greater detail hereinafter).
[4] The appellants resist this motion on the basis that the underlying Share Purchase Agreement signed by the parties on March 21, 2014 provides that the arbitral award was to be final and binding upon the parties “barring manifest error”, and the appeal should therefore proceed on that basis.
The Share Purchase Agreement
[5] Pursuant to a Share Purchase Agreement dated March 21, 2014 (“SPA”), the appellants sold all of their issued and outstanding shares in Swift Railroad Contractors Corporation to the respondent.
[6] The SPA contained provisions relating to price adjustments arising from, inter alia, potential working capital and inventory issues. If the relevant pre-closing estimates proved to be inaccurate, those provisions allowed for a process whereby the respondent could propose new post-closing calculations, and the appellants could then agree with those new calculations, take issue with them, or negotiate further with the respondent.
[7] In the event any resulting disputes could not be resolved, the SPA further provided an arbitral process. Clause 2.5(e) of the SPA is the arbitral process for working capital disputes. That clause is essentially identical to clause 2.8(c) dealing with inventory disputed. Clause 2.5(e) states as follows (my emphasis in bold):
“If the Buyer and the Sellers are unable to resolve the Dispute within the 10-day period after the Buyer's receipt of the Dispute Notice, the Buyer and the Sellers shall jointly engage the Designated Accountant. The Designated Accountant's function shall be to review only those items that are in Dispute with respect to the determination of the Working Capital Adjustment and/or the Holdback A/R Adjustment and to resolve such Dispute in accordance with the requirements of this section. The Designated Accountant shall, as promptly as possible and in any event within thirty (30) days after the date of its appointment, render its decision on the Dispute in writing to the Buyer and the Sellers, together with a revised Working Capital Adjustment or the Holdback A/R Adjustment reflecting its decision with respect to each of the items in Dispute. The date on which the Working Capital Adjustment or the Holdback A/R Adjustment is finally determined in accordance with this section is referred to as the "Determination Date". The Designated Accountant's decision shall be final and binding upon the parties, and the Working Capital Adjustment or the Holdback A/R Adjustment, as revised pursuant to the Designated Accountant's decision, shall be final and binding, barring manifest error. The Designated Accountant, in its sole and absolute discretion, shall determine the proportion of its fees and expenses to be paid by the Sellers and the Buyer, respectively, based primarily on the degree to which the Designated Accountant has accepted the positions of the respective parties in relation to the Dispute.”
Prior Litigation
[8] Post-closing disputes arose, and the respondent was forced to bring an application before Mr. Justice Newbould for a declaratory order requiring the parties to engage in binding arbitration pursuant to the SPA. Justice Newbould granted the application, and ordered three post-closing adjustment disputes to be arbitrated in accordance with clauses 2.5(e) and 2.8(c) of the SPA.
[9] In accordance with the explicit provisions in the SPA, Justice Newbould appointed BDO Canada Limited (“BDO”) as the arbitrator. Unfortunately BDO was no longer willing to act as arbitrator due to the appellants’ allegation of bias against it. A further motion was brought before Justice Newbould, who ultimately ordered Campbell to be the arbitrator.
The Joint Submission to Arbitrate
[10] After the release of Justice Newbould’s second decision, the parties entered into a Joint Submission to Arbitrate dated October 21, 2015 (“JSA”) appointing Campbell as the arbitrator to decide the post-closing disputes. Of note:
- the JSA was “made pursuant to Articles 2.5 and 2.8 of the SPA”; and,
- the JSA provided that the arbitration “shall be governed by the Ontario Arbitration Act 1991, S.O. 1991 C.17” (“the Act”).
The Arbitral Awards
[11] In his decisions, Campbell ultimately awarded the respondent a net amount of $33,913.00 payable by the appellants. That sum represented the overall purchase price adjustments due and owing under the SPA.
[12] Campbell further awarded the respondent its costs of the arbitration in the amount of $355,000.00. This sum was ordered due to the respondent’s greater success in the arbitration, and the fact that the positions taken by the appellants during the arbitration lengthened the proceedings.
Position of the Parties
[13] The respondent argues that the JSA replaced clauses 2.5 and 2.8 of the SPA and set out a new agreement between the parties. As such, the right to appeal any arbitral award is governed solely by the provisions of the Act. Pursuant to section 45(1) of the Act, where an arbitration agreement does not deal with appeals on questions of law, a party may only appeal an award on a question of law with leave of the Court.
[14] Under section 45(3) of the Act, a party may only appeal an award on a question of fact or mixed fact and law if the arbitration agreement provides such a right. The respondent therefore submits that as the JSA contains no such explicit or implicit right, the appeal of Campbell’s awards requires leave of the Court. As no such leave was sought or obtained by the appellants, and the time for doing so has long passed, the respondent submits that the appeal must be quashed.
[15] The appellants submit that the parties never replaced the dispute mechanisms contained in the SPA, and simply engaged those dispute mechanisms. As a result, clauses 2.5 and 2.8 of the SPA still govern and the appeal must proceed, albeit on the basis that Campbell could only be reversed if he is found to have made “manifest errors”.
[16] When I asked counsel for the appellants what the term “manifest error” meant for the purpose of his clients’ appeal, I was told that the term “manifest error” must mean something, but that it was a matter for the presiding judge to decide at the return of the appeal.
Decision
[17] Both the SPA and the JSA were negotiated by the parties with legal representation. Unfortunately, the only evidence filed on this motion is from a law clerk and a legal assistant, primarily based upon information and belief.
[18] In reading Justice Newbould’s decision, I find that the scope of the disputes to be arbitrated by Campbell was expanded from the contents of the SPA, including the issue of whether equipment was in fact inventory as defined by the SPA. This expansion is in fact referenced in clause 4 of the JSA.
[19] I find that the JSA did replace the SPA and was a stand-alone arbitration agreement that resulted from, inter alia, the attendances before Justice Newbould. The JSA sets out all of the terms governing the arbitration, which was subject to the provisions of the Act. As held by Justice Conway in 652443 Canada Inc. v. Toronto (City) 2016 ONSC 7147:
“In this case, the parties simply stated that the appeal would be in accordance with the 1991 Act. It did not provide for a right of appeal on questions of law, fact or mixed fact and law. The parties were represented by senior counsel who are presumed to know that the 1991 Act requires the agreement to specify whether the parties have the right to appeal questions of law, fact or mixed fact and law, failing which they are entitled to appeal only on questions of law, with leave.”
[20] The provisions of section 45 of the Act apply to any appeal of Campbell’s awards. I do not see the need to refer back to the SPA in order to interpret any of the terms of the JSA. In any event, the salient portions of clauses 2.5 and 2.8 of the SPA simply qualify the final and binding nature of a potential arbitral award. The parties agreed that any arbitral awards would be final and binding, subject to manifest error. Such choice of language does not express a clear intention that there be a right of appeal, but rather allows the parties to revisit any manifest errors on the face of the award with the arbitrator. In my view, clauses 2.5 and 2.8 confirm that the resulting decisions are to be final and binding, with only the adjusted amounts to be final and binding barring manifest error. This allows the parties to revisit the calculations carried out pursuant to the decision with the arbitrator, but nothing more.
[21] Accordingly, the respondent’s motion is granted, and the appeal is quashed.
Costs
[22] I would urge the parties to exert the necessary efforts to try and resolve the costs of this motion, and the proceeding itself.
[23] If such efforts prove unsuccessful, the parties may exchange written costs submissions (totaling no more than four pages including a Costs Outline) in accordance with the following schedule:
a) the respondent may serve and file its costs submissions within 10 business days of the release of this Endorsement.
b) the appellants shall thereafter have an additional 10 business days from the receipt of the respondent’s costs submissions to deliver their responding costs submissions.
Diamond J.
Released: November 1, 2017
CITATION: Swift v Allied Track Services, 2017 ONSC 6514
COURT FILE NO.: CV-16-564640
DATE: 20171101
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
JEFFREY SWIFT, SUZANNE SWIFT AND DEBORAH JOHN FIRMIN, TRUSTEES, for and on behalf of the Trust known as THE 2012 JEFF SWIFT FAMILY TRUST, RODNEY SWIFT, ALAINE REIDPATH AND DEBORAH JOAN FIRMIN, TRUSTEES for and on behalf of the Trust known as THE 2012 ROD SWIFT FAMILY TRUST, JOHN SWIFT, DOREEN SWIFT, JEFFREY SWIFT, RODNEY SWIFT, and 2109123 ONTARIO INC
Appellants
– and –
ALLIED TRACK SERVICES INC.
Respondent
ENDORSEMENT
Diamond J.
Released: November 1, 2017