Court File and Parties

COURT FILE NO.: CV-17-575026 DATE: 2018-04-06 SUPERIOR COURT OF JUSTICE – ONTARIO

RE: Hilda R. Bedard et al, Respondents AND: Richard D. Bedard et al, Appellants

BEFORE: Stinson J.

COUNSEL: Shara N. Roy and Laura E. Robinson, for the Respondents Clifford I. Cole and Brent J. Arnold, for the Appellants

HEARD at Toronto: March 29, 2018

REASONS FOR DECISION

Background and Facts

[1] These reasons concern an appeal under s. 45 of the Arbitration Act, 1991, S.O. 1991, c. 17. The appeal is brought by Richard D. Bedard and the Richard Bedard Family (2001) Trust (to whom I shall refer collectively as “Ric" or the “Ric parties”). The respondents to the appeal are Hilda R. Bedard, Delano E. Bedard and Thorncrest Management Limited (to whom I shall refer collectively as “Del" or the “Del parties”). The Del parties bring a cross-application under s. 50 of the Arbitration Act for an order enforcing the arbitrator’s awards.

[2] The arbitration in question took place pursuant to an arbitration agreement, in which the Del parties were the claimants and the Ric parties were the respondents. The arbitration proceeded over a period of years and resulted in a series of five interim and final awards. This appeal concerns the fifth such award (“Award No. 5”), dated April 12, 2017. All five awards were incorporated into a formal judgment, but this appeal concerns just one specific provision in that judgment, as I will explain below. The formal judgment erroneously bears the date April 12, 2016, but it plainly was intended to be dated April 12, 2017.

[3] For purposes of these reasons, I accept as accurate and incorporate by reference the summary of facts set out in the following paragraphs of Del's factum dated March 14, 2018: paragraphs 7 to 15; paragraphs 17 to 34; paragraphs 36 to 39; paragraphs 42 to 53; and paragraphs 55 and 56.

[4] In addition to those facts, I note the following points that are material for this decision:

a) The only named parties to the arbitration agreement were the Del parties and the Ric parties.

b) The parties expressly agreed in the arbitration agreement that any awards and directions that may be made would also be binding upon the corporate entities Actco Systems Inc. (“ASI”) and Cetaris Canada Inc. (Canadian corporations controlled by Del), although they were not named as claimants or respondents in the arbitration agreement.

c) Cetaris Inc. (“Cetaris US"), a Delaware Corporation controlled by Ric, was not a party to the arbitration agreement.

d) The arbitration agreement provided that parties could be added to the arbitration on the motion of any party. Although in his defence to Del’s claim in the arbitration Ric pleaded that Cetaris US was not a party to the arbitration and that no claim was or could be made against it, no motion was brought to add Cetaris US as a party.

e) In Award No. 5, as incorporated into paragraph 14 of the formal judgment, the arbitrator directed that the profits of Cetaris US (which are payable ultimately to Del under the parties’ 50/50 profit sharing agreement) be determined by the board(s) of directors of ASI and Cetaris Canada.

Issues and Analysis

[5] On this appeal, the contention of Ric is that by granting authority to the board(s) of directors of ASI and Cetaris Canada to determine the profits of Cetaris US and thus purporting to oblige Cetaris US to remit those profits, the arbitrator exceeded his jurisdiction. Put simply, because Cetaris US was not a party to the arbitration agreement, it cannot be ordered by the arbitrator to do anything nor can its affairs be governed or affected by a decision of an arbitrator to whose authority it never submitted its rights.

[6] In response, Del argues that: (1) Ric is attempting to appeal aspects of the arbitrator’s earlier awards for which the time for appealing has expired; (2) Ric is trying to re-litigate issues that are res judicata; (3) this appeal is an abuse of process; and (4) Ric is further delaying the final resolution of the parties’ long-standing disputes.

[7] At the outset of the hearing before me, I posed a series of questions to Ric’s counsel and received the following responses:

a) Ric concedes and acknowledges that the 50/50 division of profits as found by the arbitrator is a binding determination of that issue that he does not and cannot challenge.

b) Ric further concedes and acknowledges that the 50/50 division of profits extends to the profits of Cetaris US.

c) Ric acknowledges that he controls Cetaris US and thus he is able to control the determination of its profits.

d) In the event Ric conducts the affairs of Cetaris US in such a fashion as to undermine the rule that all profits are to be divided 50/50, Del could pursue a remedy against him for failure to comply with the previous determinations of the arbitrator.

Counsel for Ric also confirmed that the only aspect of the arbitrator’s awards that his clients were seeking to set aside was the provision in paragraph 14 of the formal judgment, based on Award No. 5, in which the arbitrator purported to confer on the board(s) of directors of ASI and Cetaris Canada the power to determine the profits of Cetaris US.

[8] In light of these concessions, I disagree with Del that the time for appealing has expired. The sole provision in dispute in this appeal is paragraph 14 of the judgment dated April 12, 2017, which flowed from Award No. 5. Ric’s Notice of Appeal was served within the required time limit in relation to that award. I also disagree that Ric is trying to delay the process of resolving the parties’ disputes. There no evidence of intentional or improper delay. The right of appeal was something the parties themselves included in their arbitration agreement. And as my analysis below concludes, Ric’s appeal is meritorious.

[9] I turn now to Del’s submissions that Ric is trying to re-litigate issues that are res judicata and that this appeal is an abuse of process. The acknowledgments of Ric’s counsel confirm he does not and cannot dispute the binding determination of all issues that affect Ric and all other parties to the arbitration agreement. Simply stated, Ric is bound by all such determinations. What Ric contests in this appeal is the purported exercise of authority by the arbitrator over a non-party, Cetaris US. That is an issue that was decided for the first time in Award No. 5, and thus there is no attempt by Ric to re-litigate anything that has been finally determined previously. For the same reason I conclude that the doctrine of abuse of process is inapplicable.

[10] It is important to recognize what an arbitrator can and cannot decide. As noted by Echlin J. in Canadian Musical Reproduction Rights Agency Ltd. v. Canadian Recording Industry Assn. [2005] O.J. No. 6387 (S.C.J.) (at paras. 9 and 11) an “arbitrator ha[s] no inherent jurisdiction, unlike a Superior Court judge” and “an arbitration agreement cannot give an arbitrator jurisdiction over a non-party.”

[11] In Rampton v. Eyre, [2006] O.J. No. 5222 (S.C.J.), Lalonde J. correctly stated as follows (at para. 37):

[T]he right to submit a dispute to arbitration, rather than proceed through the ordinary litigation process, is a right that is governed by contract. The parties must consent to refer a proceeding to arbitration. Quite simply, non-parties cannot be bound by the arbitration provisions of an agreement, and cannot be compelled to submit to this method of dispute resolution. Without the consent of the parties and their participation in the process, an arbitrator does not have the jurisdiction to bind the parties or determine their rights.

[12] In Pirner v Pirner (1997), 1997 CanLII 12165 (ON SC), 34 O.R. (3d) 386 (Gen. Div.), Jarvis J. noted (at para. 18) that an “arbitral award which purports to dispose of the rights of non-parties to the arbitration constitutes an excess of jurisdiction rendering the award void. See Machinists, Fitters, and Helpers, Local No. 3 v. Victoria Machinery Depot Co. (1960), 1960 CanLII 290 (BC CA), 31 W.W.R. 564 at 570-71 (B.C.C.A.) per Sidney Smith, J.A.”

[13] Del relies on Advanced Explorations Inc. v Storm Capital Corp., 2014 ONSC 3918 and submits that, despite full knowledge that proper accounting for and payment of the profits of Cetaris US were in issue in the arbitration, Ric did not dispute the authority of the arbitrator to deal with that topic, as required by s. 17(3) of the Arbitration Act. As a consequence, the submission continues, Ric cannot now challenge the arbitrator’s jurisdiction. Unlike the present case, however, the alleged “excess of jurisdiction” in the Advanced Explorations case did not affect the rights or status of a non-party to the arbitration agreement. I therefore would not fault Ric for failing to object under s. 17(3) on these facts.

[14] Del further argues that the determination of profits for Cetaris US directed to be performed by ASI and Cetaris Canada is only “[f]or purposes of the 50/50 agreement” between Del and Ric. The problem with that submission is that, as a result of such determination, Cetaris US would be obliged to remit that sum to Del. Thus the result of the arbitration was to purport to bind or govern the affairs of a non-party.

[15] As mentioned above, Cetaris US was not a party to the arbitration agreement. Despite the fact that this issue was raised by Ric at the pleadings stage, Del took no steps to add Cetaris US as a party. Consistent with the authorities quoted above, Cetaris US cannot be bound by a decision made in an arbitration process to which it was not a party.

[16] Cetaris US is a distinct legal entity, separate and apart from its controlling shareholder, Ric. This was recognized by the arbitrator himself in Award No. 3 dated April 12, 2016, in which he commented (at para. 28) that he had “serious doubts that I possess the authority or jurisdiction in these proceedings to give effect to a corporate reorganization of Cetaris US, a Delaware corporation that is not a party to this arbitration.” In my respectful view, despite that concern, this is what the arbitrator went on to do in Award No. 5: he removed certain corporate authority from the board of directors of Cetaris US and assigned it to the board(s) of ASI and Cetaris Canada. In so doing, he “dispose[d] of the rights of non-parties to the arbitration” and thereby exceeded his jurisdiction.

[17] I therefore conclude that, although Ric is obliged to respect all determinations made by the arbitrator because he was a party to the arbitration agreement, paragraph 14 of the formal judgment, as it relates to Cetaris US, cannot stand and must be set aside. To that extent alone, the appeal is allowed.

[18] I should mention that Del argues that this appeal by Ric was inappropriate, given that the true objector to the arbitrator’s decision was Cetaris US. In the circumstances, the argument goes, Cetaris US should have applied under s. 48(1)(d) of the Arbitration Act, seeking declaratory relief as a party who has not participated in the arbitration. I do not read that provision as either mandatory or as prohibiting a party to an arbitration from raising an issue concerning an arbitrator’s purported exercise of jurisdiction over a non-party. Further, the sole relief available under s. 48(1) is a declaration that the arbitration is invalid. It is telling that, although Ric controls Cetaris US, he did not cause it to pursue that remedy. Rather, as mentioned previously, Ric concedes that the 50/50 division of profits as found by the arbitrator is a binding determination of that issue that extends to the profits of Cetaris US.

Disposition

[19] Under s. 45(5) of the Arbitration Act, on an appeal of a question of law (which this case involves) the “court may confirm, vary or set aside the award or may remit the award to the arbitral tribunal with the court’s opinion on the question of law, in the case of an appeal on a question of law, and give directions about the conduct of the arbitration.” As explained above, I have decided that paragraph 14 of the formal judgment, as it relates to Cetaris US, must be set aside. I am thus empowered to remit the award to the arbitrator and give directions. In my view, this is the route I should follow, rather than attempting to redraft paragraph 14 myself.

[20] As the arbitrator noted, the submissions before him were presented on a “binary basis” in which he was asked to choose between each party’s version of the various paragraphs of the formal judgment. Based on the submissions before me, it is apparent that the issue of how Ric should discharge his obligation to cause Cetaris US to comply with the 50/50 agreement is somewhat nuanced, which makes me reluctant to insert language of my own crafting.

[21] What the parties need to do is fashion a suitable directive to Ric to include in the formal judgment that will oblige him to (1) carry out fully the implementation of the 50/50 agreement to which he is bound; (2) cause the affairs of Cetaris US to be carried out in a fashion consistent with that obligation, including the timely determination of its profits consistent with the arbitrator’s conclusions, together with remittance of the funds owing; and (3) disclose fully and regularly to Del all information regarding Cetaris US that is required for Del to be satisfied that Ric is discharging his obligations properly.

[22] To accomplish the result described in paragraph 21 above, I direct the parties to collaborate in attempting to draft language that will accomplish this purpose and, if necessary, to make in-person submissions to the arbitrator. After the parties have done so, the arbitrator shall prepare and issue a further award consistent with these reasons. In this fashion a suitable and uncontestable directive can be incorporated into the arbitrator’s final formal judgment that will guide and govern the parties’ future conduct.

[23] In view of the foregoing disposition, I question whether it is appropriate and also whether I have jurisdiction to grant the relief sought in Del’s cross-application under s. 50 of the Arbitration Act, for an order to enforce the remaining portions of the April 12, 2017 formal judgment. I therefore decline that request, without prejudice to the right of Del to renew it (before me, if that can be arranged conveniently) once the further award is issued by the arbitrator. Should either party disagree with this approach, they may arrange a telephone conference with me through my assistant to discuss that issue within the next 20 days. Despite these invitations to return to me or to arrange any required telephone conference, I do not consider myself seized of this matter.

[24] In relation to costs, I urge the parties to reach agreement. Should they be unable to do so within 20 days of the date of release of these reasons, I direct as follows:

(a) Ric shall serve his Bill of Costs on Del, accompanied by written submissions, within 30 days of the release of these reasons.

(b) Del shall serve his response on Ric within 20 days thereafter. I expressly invite Del to submit the Bill of Costs he would have presented had he been successful on this appeal.

(c) Ric may, but is not obliged to, serve a reply within 10 days thereafter.

(d) In all cases, the written submissions shall be limited to three double-spaced pages, plus Bills of Costs.

(e) I direct counsel for Ric to collect copies of all parties' submissions and arrange to have that package delivered to me in care of Judges' Administration, Room 170 at 361 University as soon as the final exchange of materials has been completed. To be clear, no costs submissions should be filed individually: rather, counsel for Ric will assemble a single package for delivery as described above.

Stinson J.

Date: April 6, 2018