COURT FILE NO.: CV-20-105-00
DATE: 2021-04-20
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
OPTIVA INC.
E. Van Eyken, A. Coates, for the Applicant
Applicant
- and -
TBAYTEL
A. Rose, A. Urbanski, for the Respondent
Respondent
HEARD: October 29, 2020 at Thunder Bay, Ontario
Mr. Justice W.D. Newton
Reasons For Judgment
Overview
[1] Tbaytel had a services contract with Optiva (the “Agreement”). Tbaytel terminated that contract and commenced arbitration proceedings by agreement against Optiva.
[2] Tbaytel brought a motion for summary judgment in the arbitration and the arbitrator affirmed Tbaytel’s right to terminate the Agreement and recover the money paid to Optiva.
[3] Optiva argues that the award should be set aside because:
a. The arbitrator could not, absent consent of Optiva, proceed by way of summary judgment;
b. The arbitrator decided the summary judgment motion on issues not raised by Tbaytel and, therefore, decided matters beyond the scope of the arbitration agreement; and
c. The arbitrator decided the motion for summary judgment based on his own legal research without giving the parties the right to make further submissions.
[4] Alternatively, Optiva seeks leave to appeal the award, alleging that the arbitrator erred in law in deciding the limitation of liability clause under the Agreement.
[5] For the reasons that follow, Optiva’s application to set aside the award and for leave to appeal is dismissed.
The Facts
[6] As set out in paras. 10-13 of Tbaytel’s factum, the following are the facts leading to the termination and the arbitration:
In June 2016, Optiva and Tbaytel (together, the “Parties”) entered into a Software Supply, License, Hardware and Services Agreement (the “Agreement”). The parties ultimately settled on a 24-month timeline from start to finish, with an expected completion date in July 2018.
The Agreement contemplated that Optiva would provide certain “Services” to Tbaytel, including design, implementation and project management services. Section 20.1 of the Agreement limited Optiva’s liability in the case of “damages arising out of a breach in the rendering of Services” to a certain percentage of the fees paid “in respect of the Services that gave rise to the liability”. Similar limitations applied in the case of damages relating to the granting of rights of use under a software license or the use of third party hardware.
Under the Agreement, Optiva made a series of basic covenants, including those that are relevant to this Application:
(a) Optiva would ensure that all advice and information provided under the Agreement is “accurate, complete and not misleading” [ss.7.2(3)(a)] and, as an implied term, Optiva would act honestly in the performance of its contractual obligations and would not lie or knowingly deceive Tbaytel about matters linked to the performance of the Agreement 16;
(b) Optiva would use its best efforts to ensure that its personnel are engaged full-time for the duration of the project to which they are assigned on activities undertaken for or in connection with the project [s.15.1]; and
(c) Optiva would ensure that it continued to have the necessary skill, experience and resources to perform under the Agreement [s. 19.1].
[Emphasis added]
The Agreement entitled Tbaytel to terminate the Agreement for a material breach or breaches of these covenants. One of the issues that ultimately arose between the Parties was whether the limitation of liability under section 20.1 of the Agreement would apply to an intentional breach of these covenants.
[7] Tbaytel terminated the Agreement in March 2018.
Procedural History
[8] The parties appointed a sole arbitrator and entered into an arbitration agreement in November 2018.
[9] Under s. 8.1 of the parties’ arbitration agreement, the arbitrator’s jurisdiction included “jurisdiction to consider and rule upon all motions during the Arbitration including, without limitation, the power to: […] 8.1.12 [make] rulings, directions and generally deal with any and all interlocutory matters and procedural questions relating to the issues within the Arbitration.”
[10] Following an unsuccessful mediation in April 2019, counsel for Optiva wrote to the arbitrator on behalf of both parties to discuss setting a hearing to address scheduling and the “possibility of a summary judgment motion by Tbaytel.”
[11] That hearing resulted in a Procedural Order, July 2, 2019, which had the following preamble:
Hearing the submissions made by counsel for the parties at a meeting for directions…I accept that a motion for summary judgment to be launched by the Claimant Tbaytel may obviate or reduce the significant time and cost of expansive documentary production that might be required in this arbitration.
[12] The Procedural Order set out a timeline for:
a. Service of the motion record for summary judgment and supporting affidavits;
b. Service of the responding record and supporting affidavits;
c. Completion of cross-examinations on opposing affidavits;
d. Service of facta and brief of authorities and all documents “contemplated in respect to the Motion”; and
e. The date and place of the summary judgment motion.
[13] Tbaytel delivered a 56 paragraph Notice of Motion for Summary Judgment setting out the grounds for its claim for summary judgment, and affidavits from its CEO and from its director of IT/co-project manager. The affidavit evidence ran to 71 pages and included over 1000 pages of exhibits.
[14] Optiva delivered a 47 paragraph Response to Motion for Summary Judgment which included objections to the arbitrator’s jurisdiction to proceed by summary judgment motion notwithstanding the Procedural Order, its position on the motion, and affidavits from its CEO and its Chief Architect on the project.
[15] Tbaytel cross-examined the deponents of the Optiva affidavits. Optiva did not cross-examine the deponents of the Tbaytel affidavits.
Preliminary Hearing on Jurisdiction to Proceed by Summary Judgment
[16] At the commencement of the summary judgment motion, Optiva raised its objection to proceeding by way of summary judgment, arguing that the arbitrator had no jurisdiction to proceed by summary judgment absent its consent.
[17] After submissions, the arbitrator, acknowledging that the law was “unsettled”, concluded that he had “jurisdiction [to proceed by way of summary judgment] based on section 20 of the Arbitration Act and section 8.1 of the arbitration agreement, and the lack of exceptions or exclusions” and determined that it was “appropriate to do so in this instance.” Following delivery of his oral reasons, the arbitrator delivered Procedural Order, November 21, 2019, confirming his decision.
The Summary Judgment Hearing and the Award
[18] The motion was heard over two days in November 2019. In a 66 page decision, the arbitrator granted summary judgment on two of the three alleged breaches, concluding that:
(i) Optiva breached the Agreement by failing to use best efforts to ensure that Optiva Personnel were engaged full-time for the duration of the Project, contrary to section 15.1 of the Agreement; and
(ii) Optiva failed to ensure that all advice and information provided under the Agreement was accurate, complete and not misleading, contrary to section 7.2(3)(a) of the Agreement and the implied duty of good faith and honest performance at common law.
[19] The arbitrator concluded that Optiva breached s. 7.2(3)(a) of the Agreement (the covenant to ensure that all information provided under the Agreement is “accurate, complete and not misleading”), and failed in the implied duty of good faith and honest performance at common law. As the project required a collaborative effort of the parties, and the Agreement demanded it, the arbitrator held this breach was not immaterial nor inconsequential.
[20] The arbitrator ultimately held that the breach of ss. 15.1 and 7.2(3)(a) (and the implied duty of good faith and honest performance), in aggregate, entitled Tbaytel to accept the offer from Optiva’s CEO to terminate the Agreement under s. 17.1 and at common law. The arbitrator then ordered Optiva to repay Tbaytel for the amounts it had paid under, and in reliance on, the Agreement.
Positions of the Parties
Optiva
Setting Aside the Award
a. The arbitrator could not proceed by way of summary judgment without Optiva’s consent.
[21] Optiva submits that an arbitrator is required to hold a hearing if requested and that a summary judgment motion is not a hearing, as oral testimony was not permitted. Further, by proceeding by summary judgment, Optiva “was not given an opportunity to present a case or to respond to another party’s case” contrary to s. 46(1) of the Arbitration Act, 1991, S.O. 1991, c. 17 (the “Act”).
b. By making findings on delay, fraud and deceit, the arbitrator decided matters beyond the scope of the motion.
[22] Tbaytel asserted five main claims against Optiva:
Breach of contract on the basis that Optiva did not ensure all information under the Agreement was “accurate, complete and not misleading” [s.7.2(3)];
Breach of contract on the basis that Optiva did not use best efforts to ensure that its personnel were “engaged full-time for the duration of the Project” [s.15.1];
Breach of contract on the basis that Optiva failed to “continue to have the necessary skill, experience and resources to perform” under the Agreement [s.19.1];
Breach of contract on the basis of delay in that Optiva did not deliver the elements of the ICRM Solution to Tbaytel within the timelines contemplated by the Agreement; and
Fraudulent/negligent misrepresentation on the basis that Optiva knowingly made a series of representations that were untrue, inaccurate or misleading, which Tbaytel relied upon in entering into the Agreement.
[23] Of the above five claims, only the first three breach of contract claims were raised by Tbaytel in its Notice of Motion. Optiva submits that by making findings of delay and fraudulent misrepresentation, the arbitrator based his decision on issues that were not a subject of the summary judgment motion.
c. The arbitrator decided the motion for summary judgment based on his own legal research without giving the parties the right to make further submissions.
[24] In deciding the applicability of the limitation of liability clause under the Agreement, the arbitrator relied upon paras. 158-63 of Ticketnet Corp v. Air Canada (1997), 1997 CanLII 1471 (ON CA), 154 D.L.R. (4th) 271 (Ont. C.A.) when counsel for Tbaytel only referred to paras. 119-20 of Ticketnet.
[25] Optiva argues that by doing so and not giving Optiva an opportunity to make submissions on those paragraphs, Optiva was deprived of the opportunity to present its case.
Leave to Appeal
[26] Alternatively, Optiva also seeks leave to appeal the decision of the arbitrator on the limitation of liability provision, advancing some of the same arguments: the arbitrator decided this issue without giving Optiva the opportunity to make full submissions on Ticketnet. Optiva submits that this is an error in law and that Optiva meets the test for leave to appeal.
Tbaytel
Setting Aside the Award
a. The arbitrator could proceed by summary judgment without Optiva’s consent and that Optiva’s application to dispute procedure is Out of Time.
[27] Tbaytel submits the application to set aside a decision on jurisdiction must be brought within 30 days of that decision, or by December 22, 2019, and not, as was done here, after the release of the award.
[28] Further, Tbaytel submits that a summary judgment is a “hearing” and that oral evidence is not required for a hearing under the Act. Tbaytel submits that Optiva was treated fairly, was given an opportunity to respond to Tbaytel’s case, and was not deprived of a hearing.
b. The arbitrator did not decide issues excluded from the motion. His findings of delay and deceit relate to determination of issues that were the subject of the summary judgment motion.
[29] Tbaytel submits the findings with respect to delay were made only for the purpose of determining whether Optiva’s restructuring and consequent loss of personnel, as admitted by Optiva, was material.
[30] Tbaytel submits that the findings regarding delay and deceit were not made in respect of the claims outside the Notice of Motion (i.e., delay as a breach of contract and fraudulent/negligent misrepresentation leading the parties to enter into the Agreement). Rather, the arbitrator’s findings were made only for the purposes of determining whether Optiva breached the Agreement by providing incomplete and misleading information, including information regarding its ability to satisfy certain deadlines.
c. The arbitrator did not decide the motion for summary judgment based on his own legal research but rather on the review of case law submitted by Tbaytel and not objected to by Optiva.
[31] Tbaytel submits that the limitation of liability defence was put in issue by Optiva and that Tbaytel submitted a supplementary book of authorities that included Ticketnet without objection from Optiva. Tbaytel submits that Optiva was not deprived of its ability to present its case with respect to the limitation of liability issue. In any event, the analysis with respect to Ticketnet was not determinative and Optiva has not advised what submissions would have been made.
Leave to Appeal
[32] Tbaytel submits that the interpretation of the limitation of liability provision of the Agreement is a question of mixed fact and law and that leave is only granted for questions of law. Further, Tbaytel argues that Optiva has not met the test for granting leave.
Analysis and Disposition
Arbitration and the Courts
[33] The Act provides for a limited role of the courts.
[34] Section 6 provides that “no court shall intervene” except:
To assist the conducting of arbitrations.
To ensure that arbitrations are conducted in accordance with arbitration agreements.
To prevent unequal or unfair treatment of parties to arbitration agreements.
To enforce awards.
[35] Section 17 provides that an arbitrator may rule on its own jurisdiction and any objections, subject to review by the court. However, s. 17(8) requires the party seeking court review to do so promptly, within 30 days of the ruling.
[36] Under s. 46(1), a court may set aside an award in limited circumstances, only two of which are asserted to be applicable in this case:
On a party’s application, the court may set aside an award on any of the following grounds:
The applicant was not treated equally and fairly, was not given an opportunity to present a case or to respond to another party’s case, or was not given proper notice of the arbitration or of the appointment of an arbitrator.
The procedures followed in the arbitration did not comply with this Act.
[Emphasis added.]
[37] The ground to set aside an award under cl. 6 is based on the obligations to treat the parties “equally and fairly” and to give each party “an opportunity to present a case and to respond to the other parties’ cases”, as set out in ss. 19(1) and (2).
[38] Appeals are also restricted, limited to questions of law only and with leave only if the court 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.
[39] This limited role of the courts was affirmed in Inforica Inc. v. CGI Information Systems & Management Consultants Inc., 2009 ONCA 642, 97 O.R. (3d) 161, at para. 14:
It is clear from the structure and purpose of the Act in general, and from the wording of s. 6 in particular, that judicial intervention in the arbitral process is to be strictly limited to those situations contemplated by the Act. This is in keeping with the modern approach that sees arbitration as an autonomous, self-contained, self-sufficient process pursuant to which the parties agree to have their disputes resolved by an arbitrator, not by the courts. As Inforica states in its factum, "arbitral proceedings are presumptively immune from judicial review and oversight". The Act encourages parties to resort to arbitration, "require[s] them to hold to that course once they have agreed to do so" and "entrenches the primacy of arbitration over judicial proceedings . . . by directing the court, generally, not to intervene": Ontario Hydro v. Denison Mines Ltd., [1992] O.J. No. 2948 (Gen. Div.), Blair J.
[Emphasis added.]
Should the Award be Set Aside
a. Could the arbitrator proceed to summary judgment without Optiva’s consent?
[40] Section 20 of the Act provides that the arbitrator may “determine the procedure to be followed in the arbitration, in accordance with this Act.”
[41] The only limitation with respect to procedure is set out in s. 26(1):
The arbitral tribunal may conduct the arbitration on the basis of documents or may hold hearings for the presentation of evidence and for oral argument; however, the tribunal shall hold a hearing if a party requests it.
[Emphasis added.]
[42] As noted, s. 17(8) requires the party seeking court review of jurisdiction and objections to do so promptly, within 30 days of the ruling. Optiva raised a formal objection to the adoption of the summary judgment procedure and made submissions before the arbitrator.
[43] The rationale for such a timeline is clear. Objections to jurisdiction and procedure are to be determined at the outset, and not after the arbitration proceeding and the award.
[44] The arbitrator ruled on November 21, 2019, that summary judgment was appropriate. Optiva did not challenge that ruling until after the partial award released on February 13, 2020.
[45] I agree that this challenge is out of time.
[46] However, even if the challenge was not out of time, I conclude that the arbitrator could elect to proceed by summary judgment absent the consent of Optiva.
[47] Addressing summary judgment by the courts in Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87, the Supreme Court of Canada stated, at paras. 49-50:
There will be no genuine issue requiring a trial when the judge is able to reach a fair and just determination on the merits on a motion for summary judgment. This will be the case when the process (1) allows the judge to make the necessary findings of fact, (2) allows the judge to apply the law to the facts, and (3) is a proportionate, more expeditious and less expensive means to achieve a just result.
These principles are interconnected and all speak to whether summary judgment will provide a fair and just adjudication. When a summary judgment motion allows the judge to find the necessary facts and resolve the dispute, proceeding to trial would generally not be proportionate, timely or cost effective. Similarly, a process that does not give a judge confidence in her conclusions can never be the proportionate way to resolve a dispute. It bears reiterating that the standard for fairness is not whether the procedure is as exhaustive as a trial, but whether it gives the judge confidence that she can find the necessary facts and apply the relevant legal principles so as to resolve the dispute.
[Emphasis added.]
[48] Optiva argues that a summary judgment motion is not a hearing as there was no opportunity to present oral evidence, and that a summary judgment does not give a party an opportunity to present a case or respond to the other party’s case.
[49] With respect, I disagree.
[50] Hearings are required if requested under s. 26 of the Act. However, s. 26 describes hearings as for the “presentation of evidence” and for “oral argument.” In this case, evidence was presented by affidavits filed by both parties and supplemented by cross-examination, although Optiva opted not to cross-examine the deponents of the Tbaytel affidavits. There is no requirement under the Act for oral evidence, only oral argument which occurred over the two days of the hearing.
[51] Summary judgment motions proceed with the requirement that the responding party puts its “best foot forward”. Optiva has not advanced any convincing argument that by proceeding by summary judgment, on notice, it was deprived of the opportunity to present a case or respond to the other party’s case.
[52] For the same policy reasons expressed in Hryniak, summary judgment should be available to the parties in an arbitration subject to the requirement, as stated in Hryniak, that the process:
(1) allows the arbitrator to make the necessary findings of fact;
(2) allows the arbitrator to apply the law to the facts; and
(3) is a proportionate, more expeditious and less expensive means to achieve a just result.
b. By making findings on delay, fraud and deceit, did the arbitrator decide matters beyond the scope of the motion?
[53] The reasons of the arbitrator disclose that he was aware that breach of contract for delay and pre-contract fraudulent/negligent misrepresentation were not issues before him on the summary judgment motion.
[54] One of the issues was whether Optiva breached s. 15.1 of the Agreement which required Optiva personnel to be engaged full time for the project. The arbitrator found that Optiva deliberately failed to retain personnel full time for the project constituting a material breach of s. 15.1. Although this no doubt caused delay, the arbitrator clearly stated that he was not finding a breach based on delay but a breach of s. 15.1
[55] Another issue was whether Optiva failed to ensure that all information under the Agreement was “accurate, complete and not misleading” during the term of the Agreement, a requirement under s. 7.2(3). Tbaytel argued that Optiva’s assurances about deadlines and concealment of project changes during the project misled or deceived Tbaytel. The arbitrator clearly acknowledged that delay was not pursed as a breach and further found that assurances regarding timelines did not constitute a breach of s. 7.2(3). However, the arbitrator found that there was deliberate concealment by Optiva of deletion of project components constituting a breach of s. 7.2(3).
[56] The conclusion as set out by the arbitrator confirms that the arbitrator did not decide matters beyond the scope of the motion:
- (i) The Record does not afford a determination of the standard and state of the qualifications, skills and experience of Redknee personnel and contracted replacement workers sufficient for a determination on a breach of s. 15(4)(3) and s. 19.1(a).
(ii) Despite a contractual obligation to bring best efforts to the retention of full-time staff, there was a deliberate and blatant disruption and decrease in the project’s personnel, which was noticeably destructive to the Project. While the Agreement defines “Redknee Personnel” to enable Redknee to utilize contracted help, it is difficult to suggest that replacing the original architects and key personnel was in accordance with the words and spirit of s. 15.1. This was a breach of the Agreement and material in nature and consequence.
(iii) Despite a contractual obligation to ensure that all advice and information provided during the course of the Project was accurate and complete and not misleading, there were conscious and inaccurate representations made and assurances given, and information not disclosed, contrary to s. 7.2(3)(a). While Mr. Rahim attempts to characterize some of the misinformation as due to simply miscalculations and underestimating, I do not find his evidence in this regard particularly convincing; especially in the face of Ms. Royston’s evidence on the conduct and state of affairs.
While this motion will not determine whether delay constituted breach of contract, the progress and delays in the progress of the Project comes into consideration. While the evidence is more general than particularized, on the evidence available, I am inclined to believe that assurances by the Respondent on progress and timing were less intended to be accurate and more intended to simply buy time and hope for the best. I do not consider the conduct to be, in itself, sufficiently presented or consequential to justify termination. The non-disclosure of the change from the NSN engine to the URCS engine however, is far more profound and disturbing.
Based on the evidence presented on this motion, and with the exception of the COM representation which may be outside the sphere of breach, the Respondent both failed in the implied duty of good faith and honest performance at common law, and breached s. 7.2(3) if not also s. 15.5. Because of the Project requiring a collaborative effort of the parties, and the Agreement demanding this, the breach is not immaterial nor inconsequential.
[Emphasis added.]
c. Did the arbitrator decide the motion for summary judgment based on his own legal research?
[57] This issue focuses on the arbitrator’s use of the Ticketnet case in his analysis of a limitation of liability clause under the Agreement.
[58] Optiva argued that, if it did breach the Agreement, its liability was limited by s. 20.1 of the Agreement.
[59] Section 20.1 provided that there was no liability for indirect or consequential losses, loss of profits and revenue. Liability for other direct damage caused by certain specified breaches was limited to certain percentages of sums paid to Optiva for specified products. Direct damages “arising out of a breach in the rendering of Services” was limited to thirty percent of net fees paid in the preceding twelve months for the Services. Liability arising from fraudulent misrepresentation or deceit was not limited.
[60] As the arbitrator noted, Tbaytel was not relying upon fraudulent misrepresentation or deceit to escape the limitation of liability provision. Rather, Tbaytel argued that the breaches it advanced were not breaches “in the rendering of Services.”
[61] The arbitrator concluded that the limitation of liability with respect to the “rendering of Services” did not apply to the breaches advanced by Tbaytel. The arbitrator stated:
It is my interpretation that by specifying the “rendering of Services”, it is intended that the limitation on liability be circumscribed to breaches arising specifically from those operations and activities naturally and normally generated in Services, and only within those parameters. In other words, the limitation provision applies to losses arising from breaches “in the rendering of Services”; not from breaches committed in not rendering the Services. The fact that liability is not limited to a global figure, perhaps a percentage of the entire contract amount, but instead to a portion of what has been paid for services over a recent period, gives support to this interpretation. The provision does not limit liability in any event, nor to damages arising from any form or variety of breach.
[62] After so concluding, the arbitrator referenced Ticketnet as supporting his analysis. Ticketnet was submitted in Tbaytel’s supplementary book of authorities and Optiva did not object to the supplementary book of authorities. The particular passages from Ticketnet referenced by the arbitrator were not addressed by either party in submissions.
[63] Optiva argues that the arbitrator could not rely upon other excerpts from the Ticketnet decision without giving Optiva an opportunity to respond.
[64] With respect, I do not agree. Counsel knew that the limitation of liability issue was “live” and that the Ticketnet decision was “in play”. I find no merit to the suggestion that, as Optiva had not anticipated that the entire decision would be read by the arbitrator, it must be given the right to make further submissions.
Leave to Appeal
[65] Appeals are limited to questions of law only with leave.
[66] In its factum, Optiva repeats the objection over the use of Ticketnet in seeking leave to appeal, describing this as an error of law. This objection is, as noted, without merit.
[67] In any event, Tbaytel submits that the interpretation of the limitation of liability provision is not a question of law but a question of mixed fact and law, citing Creston Moly Corp. v. Sattva Capital Corp., 2014 SCC 53, [2014] 2 S.C.R. 633. A review of the arbitrator’s reasons for determining that the limitation of liability provisions do not apply make it clear that this was a question of mixed fact and law. As such, Optiva has no right of appeal.
Conclusion
[68] Optiva’s application to set aside the award and for leave to appeal is dismissed.
[69] If the parties cannot agree to costs, Tbaytel shall submit its cost submissions, limited to 10 pages plus costs outline, within 30 days of this decision. Responding materials are to be filed 21 days thereafter and are also limited to 10 pages plus costs outline.
“original signed by”
The Hon. Mr. Justice W. D. Newton
Released: April 20, 2021
COURT FILE NO.: CV-20-105-00
DATE: 2021-04-20
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
OPTIVA INC.
Applicant
- and -
TBAYTEL
Respondent
REASONS FOR JUDGMENT
Newton J.
Released: April 20, 2021
/cjj