Montebello Packaging, 2021 ONSC 5924

COURT FILE NO.: CV-21-69

DATE: 07/09/2021

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

Kingston Automation Technology Inc.

Applicant

– and –

Montebello Packaging, A Division of Great Pacific Enterprises Inc.

Respondent

COUNSEL:

R. Steven Baldwin for the Applicant

Gerald L.R. Ranking and Zohar Levy for the Respondent

HEARD: May 28, 2021

DECISION ON APPLICATION

Justice Sally Gomery

[1] Kingston Automation Technology Inc. (“Kingston”) challenges two arbitral awards issued by the Honourable Douglas C. Cunningham, QC (the “Arbitrator”) in favour of Montebello Packaging, A Division of Great Pacific Enterprises Inc. (“Montebello”) in 2021. Kingston seeks leave to appeal the awards under s. 45 of the Arbitration Act, 1991, S.O. 1991, c. 17 (the “Act”) or, in the alternative, an order setting aside the awards under s. 46 of the Act.

Background

[2] Montebello manufactures and sells consumer packaging around the world. It has facilities in Canada and the United States. Kingston designs and manufactures automation equipment for production processes.

[3] Between 2015 and 2018, Montebello issued purchase orders (“POs”) for work by Kingston for work in connection with blow moulding machines (referred to by the parties as “BMMs”). The parties also signed a contract, the Shaped Container Engineering Agreement (the “Agreement”) in January 2016. One of the POs provided that Kingston would deliver two blow moulding machines (BMM4 and BMM5) to Montebello at a cost of USD $2,887,322.80. The other four POs provided, respectively, that Kingston would retrofit a blow moulding machine (BMM3) produced earlier by another supplier, and manufacture infeed equipment, an annealing oven and spare parts for the blow moulding production process. Montebello made payments to Kingston totalling several million dollars for the work to be performed pursuant to the Agreement and the five POs.

[4] In May 2018, Montebello notified Kingston that it was in material breach of the Agreement because it had failed to meet contractual milestones for the first blow moulding machine it was required to deliver. When Kingston refused to schedule factory testing by a certain deadline, Montebello advised that it was terminating the Agreement and the PO for the delivery of two blow moulding machines. It also cancelled the other four POs on the basis that Kingston had performed no meaningful work pursuant to them.

[5] At termination, Montebello sought the return of equipment that had been delivered to Kingston for the purpose of its work and the delivery of any new blow moulding machinery that Kingston had started to manufacture, as well as the underlying designs for it. Kingston took the position that the Agreement governed all outstanding POs and that it had not breached its terms. It refused to deliver any machinery until Montebello paid outstanding invoices totalling roughly $1,000,000 for unpaid work allegedly performed by Kingston as well as a profit margin of 19.5 percent. Kingston contended that, by refusing to pay these invoices, Montebello was itself in breach of the Agreement. According to Kingston, Montebello had the option of seeking an audit, pursuant to the Agreement, if it wished to challenge Kingston’s entitlement to the payments made or invoiced pursuant to any of the POs.

[6] Montebello brought an action in Superior Court to compel Kingston to return equipment and records to it. In response, Kingston sought the referral of the parties’ dispute to arbitration pursuant to an arbitration clause in the Agreement. Montebello consented to an order staying the action and referring all disputes to the Arbitrator, who had been selected by Kingston.

[7] Following a five-day hearing in Fall 2020, the Arbitrator issued an award on February 11, 2021 (the “First Award”). He concluded that:

• Only the PO for the manufacture and delivery of BBM 4 and BBM5 (the “SCEA PO”) was governed by the Agreement. All other POs were “non-SCEA POs”.

• Further to the Agreement and the SCEA PO, Kingston was required to deliver a production machine (ie., a blow moulding machine capable of being used for production purposes) within a specified deadline. The parties did not enter into a time and materials contract with no fixed delivery dates, as argued by Kingston. The Agreement specified that time was of the essence and the SCEA PO set deadlines that Kingston was expected to meet. Although Montebello had extended the deadlines for milestones prior to March 2018, it had never waived that term..

• Kingston materially breached its obligations pursuant to the Agreement and the SCEA PO by failing to meet contractual milestones. When Montebello gave Kingston notice of its breach and an opportunity to cure it, Kingston refused to commit to a testing schedule within the deadline reasonably set by Montebello.

• As of March 2018, Kingston has also failed to complete meaningful work that it had undertaken to perform pursuant to the non-SCEA POs.

• Montebello was entitled, in the circumstances, to terminate the Agreement and cancel all outstanding POs. It did not breach any of its own contractual obligations in doing so.

• At termination, Kingston was required to refund Montebello for a payment it had made pursuant to the SCEA PO for a milestone that had not been met, and to return all blow moulding machinery and related documentation to Montebello. With interest, the amount that Kingston had to reimburse pursuant to the Agreement was over USD $308,000. Montebello was not required to seek an audit pursuant to art. 4.1.2 of the Agreement in order to obtain this reimbursement, because the audit provision only became operative when a working production machine was delivered by Kingston and Montebello was required to pay the last 10% of the price for it. The Arbitrator likewise held it was “commercially unreasonable if not absurd” to permit Kingston to charge a 19.5% profit margin for work done pursuant to the Agreement, as the profit clause at art. 4.1.1 of the contract was also only triggered on delivery of a production machine.

• With respect to the non-SCEA POs, Kingston was again only entitled to be paid for work actually performed at the time of termination. Since the payments made by Montebello prior to termination obviously exceeded the value of the work done by Kingston as of that date, Montebello was entitled to some reimbursement. The invoices issued by Kingston did not, however, allow the Arbitrator to understand what work had actually been performed for the purpose of calculating the balance of restitutionary damages owed to Montebello.

[8] In light of the Arbitrator’s finding that he could not determine how much money Kingston was entitled to retain for the work it had done in relation to the non-SCEA POs, he granted it a further opportunity to file evidence on this issue.

[9] In final argument at the hearing, Kingston had challenged the Arbitrator’s jurisdiction if he rejected its argument that the Agreement did not govern all of the POs. After noting that Kingston should have raised this issue earlier, the Arbitrator held that he had jurisdiction pursuant to the arbitration clause in the Agreement to adjudicate the entire dispute.

[10] On May 14, 2021, the Arbitrator issued a supplementary award dealing with Montebello’s overpayment for work pursuant to the non-SCEA POs (the “Supplementary Award”).[^1] He granted Montebello’s motion to strike the further materials that Kingston had filed pursuant to the indulgence he had granted at the end of the First Award. The Arbitrator found that the new evidence contradicted the sworn testimony of Kingston’s representatives at the arbitration hearing. He furthermore found that Kingston had not been authorized to file this evidence. It had been granted leave to file further materials only for the purpose of demonstrating that the amounts of its repayment should be reduced by the value of the work it had performed in respect of the four non-SCEA POs. Through its new materials, Kingston sought to demonstrate not that there should be a reduction in the amounts it owed but rather that it was owed money by Montebello. Given the Arbitrator’s determination in the First Award that Montebello had not breached the Agreement or any PO, he held that there was no basis for any recovery by Kingston.

[11] Having rejected Kingston’s new evidence, the Arbitrator determined the amount owed to Montebello based on the evidence of its engineer at the hearing. He concluded that Montebello had pre-paid roughly USD $400,000 for work that Kingston had not performed with respect to the non-SCEA POs when those POs were cancelled. He accordingly ordered Kingston to reimburse this amount to Montebello, in addition to the amount of approximately USD $308,000 Kingston was required to pay in the First Award in respect of the SCEA PO.

Issues on this application

[12] Based on the written and oral arguments on this application, the issues I must resolve can be summarized as follows:

(i) Did the Arbitrator exceed his jurisdiction?

(ii) Is Kingston entitled to seek leave to appeal the Awards and, if so, should leave be granted?

(iii) Should the First Award or Supplementary Award be set aside on the basis that:

(a) The Arbitrator did not address Kingston’s evidence?

(b) The Arbitrator did not treat the parties fairly and equally, and the conduct of the arbitration gives rise to a reasonable apprehension of bias against Kingston?

(i) Did the Arbitrator exceed his jurisdiction?

[13] Pursuant to s. 46(1), para. 3 of the Act, the court may set aside an award if it “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”. The parties’ arbitration agreement is contained in arts. 13.1 and 13.2 of the Agreement. Further to art. 13.1, the parties agreed to submit to arbitration “any dispute or disagreement … with respect to the interpretation of any provision hereof, the performance of either Party hereunder, or any other matter that is in dispute between the Parties arising from or in connection with or related to this Agreement”. Kingston argues that, based on this language, once he found that the Agreement did not govern the non-SCEA POs, the Arbitrator had no jurisdiction under the Agreement to adjudicate Montebello’s claims in respect of them.

[14] Kingston did not raise any objection to the Arbitrator’s jurisdiction during the hearing. It raised the issue for the first time in final argument. At paras. 119-20 of the First Award, the Arbitrator disposed of its argument as follows:

One final note. KAT [Kingston], rather late in the game, has raised the issue of my jurisdiction, arguing that if the four POs related to the BBM retrofit, the infeed, the annealing oven, and the spare parts are not governed by the SCEA, they are now withing my jurisdiction. I disagree. My jurisdiction is found in ss. 13.1 and 13.2 of the SCEA.

It was always the position of MB [Montebello] that these four POs were not governed by the SCEA such that any jurisdictional argument ought to have been brought at the beginning of this arbitration. One of the many areas of dispute within this arbitration has had to do with the status of these four POs as regards to the SCEA. Indeed, “a dispute between the Parties arising from or in connection with or related to this Agreement”.

[15] In arguing that the Arbitrator erred in taking jurisdiction with respect to the non-SCEA POs, Kingston relies on Justice Mew’s decision in April 2021 denying it a stay of the First Award pending the outcome of this appeal.[^2] Mew J. denied the stay on the basis that Kingston had not proved that it would suffer irreparable harm or that the balance of convenience favoured a stay. On the first branch of the test for injunctive relief, however, Mew J. was satisfied that there were serious issues to be tried. One of those issues was Kingston’s argument about the Arbitrator’s limited jurisdiction.

[16] Mew J.’s finding in the context of the motion to stay is not binding. As he observed at para. 24 of his reasons, “at this stage the assessments of the merits is preliminary in nature”. The first branch of the test for an injunction sets a relatively low bar. Having had the opportunity to fully consider Kingston’s argument, I find no error in the Arbitrator’s determination that he had jurisdiction to adjudicate the parties’ entire dispute.

[17] The Act restricts a party’s ability to raise jurisdictional objections or to seek to have an award set aside on the basis of a lack of jurisdiction. Section 46(3) of the Act provides that “the court shall not set aside an award on grounds referred to in paragraph 3 of subsection (1) if the party has agreed to the inclusion of the dispute or matter, waived the right to object to its inclusion or agreed that the arbitral tribunal has power to decide what disputes have been referred to it.” This provision is the corollary of s. 17(3) of the Act, which bars a party from raising a jurisdictional objection after a hearing has begun. It states that:

A party who has an objection to the arbitral tribunal’s jurisdiction to conduct the arbitration shall make the objection no later than the beginning of the hearing or, if there is no hearing, no later than the first occasion on which the party submits a statement to the tribunal.

[18] This Court has repeatedly held that a party’s failure to raise a jurisdictional objection at the outset precludes them from doing so later on: see, for example, Piazza Family Trust v. Veillette, 2011 ONSC 2820 (Div. Ct.), at paras. 69-73, and Nasjjec v. Nuyork, 2015 ONSC 4978, at para. 152. As stated by Justice Smith in Piazza, at para. 71, s. 17(3) is intended to forestall parties “from seeking the benefit of arbitration and proceeding without objection and then attempting to contest the jurisdiction of the arbitrator once the result is known”.

[19] At all times prior to closing argument, Kingston took the position that the parties’ entire dispute was arbitrable pursuant to arts. 13.1 and 13.2 of the Agreement. That was the basis on which it successfully sought to stay Montebello’s court action. Kingston’s approach was premised on its contention that all POs were governed by the Agreement. It was aware, however, that Montebello had a different view. In a May 2018 email from Montebello’s president to Kingston, he stated that four of the five POs were not subject to the Agreement. This was the same position Montebello took in opening argument. Kingston did not raise any objection to the Arbitrator’s jurisdiction at that time, or at any time during the hearing until closing submissions two months later.

[20] I find that, by seeking to refer the entire dispute between the parties to arbitration, and by failing to raise any concern prior to or during the hearing about the Arbitrator’s capacity to adjudicate all amounts claimed by Montebello, Kingston waived its right to raise a jurisdictional objection. It accepted that the Arbitrator could deal with the parties’ claims in respect of the Agreement and all five POs.

[21] Kingston argued that it should not be penalized for failing to advance an alternative theory at the arbitration and that there would be no prejudice in allowing a “technical non-compliance” with s. 17(3). It did not produce any authority for this proposition. I do not, in any event, accept Kingston’s argument that its failure to raise a timely objection to the Arbitrator’s jurisdiction was only technically non-compliant with the Act or that it had no consequence. Had Kingston complied with s. 17(3), the parties could have led evidence only on the jurisdiction issue, without getting into the quantum of restitutionary damages due to Montebello. The contours (and the cost) of the litigation could have been quite different.

[22] Kingston is effectively making a “heads I win, tails you lose” argument. If the Arbitrator had accepted its position about the ambit of the Agreement, it would not be challenging his jurisdiction now. It is only because Kingston realized, at the end of the hearing, that it might lose this argument that it belatedly attempted to qualify its position. This is exactly what s. 17(3) and s. 46(3) are designed to prevent.

[23] I therefore conclude that the Arbitrator’s dismissal of Kingston’s jurisdictional argument was well-founded and that the Awards should not be set aside based on any lack of jurisdiction on his part.

(ii) Is the Applicant entitled to seek leave to appeal the Awards and, if so, should leave be granted?

[24] Kingston seeks leave to appeal the Awards under s. 45(1) of the Act. Montebello argues that the parties’ arbitration clause precludes Kingston from seeking leave to appeal the Awards under s. 45. In the alternative, it argues that Kingston does not meet the test for leave to appeal and that leave should therefore be denied.

Does the Agreement permit Kingston to seek leave to appeal under s. 45(1)?

[25] The relevant parts of s. 45 of the Act provide as follows:

Appeal on question of law

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.

Idem

(2) If the arbitration agreement so provides, a party may appeal an award to the court on a question of law.

Appeal on question of fact or mixed fact and law

(3) If the arbitration agreement so provides, a party may appeal an award to the court on a question of fact or on a question of mixed fact and law.

[26] These provisions contemplate appeal rights in three situations. If the parties’ agreement provides for a general right of appeal, s. 45(3) applies, and a party may appeal an award on a question of fact or mixed fact and law. If the agreement provides for appeals only on questions of law, a party may appeal on a question of law, pursuant to s. 45(2). If the parties’ arbitration clause “does not deal with appeals on questions of law”, then a party can only appeal with leave of the court pursuant to s. 45(1).

[27] Montebello argues that none of these three scenarios arise in this case, based on the wording of the arbitration clause in the Agreement. Arts. 13.1 and 13.2 of the Agreement provide that any arbitration is “final and binding”. Rather than failing to deal with appeals on questions of law, this language shows an intention by the parties to exclude any right of appeal whatsoever.

[28] Montebello relies on 108 Media Corporation v. BGOI Films Inc., 2019 ONSC 880 and the caselaw cited therein. In 108 Media, Justice Faieta noted that, pursuant to s. 3 of the Act, parties to an arbitration agreement “may agree, expressly or by implication, to vary or exclude certain provisions” of the Act, except for six mandatory sections. Section 45 is not one of the six mandatory sections. In light of this, Faieta J. concluded that parties to an arbitration agreement may, expressly or by implication, eliminate any right of appeal; 108 Media, at para. 16. He further found that the parties before him had eliminated any right of appeal by characterizing any arbitral award as “final and binding” in their arbitration agreement. He relied on the interpretation that other courts have given to these terms, and the need to impute them with meaning in the context of an arbitration clause, reasoning at paras. 20 and 21 as follows:

Unless the context indicates otherwise, it is generally accepted that where a legislative provision provides that an order is "final" there is no appeal from that order. The phrase “final and binding” would have no meaning whatsoever if it did not exclude a right of appeal that had been given by statute: Yorkville North Development Ltd. v. North York, 1988 CanLII 4701 (ON CA), [1988] O.J. No. 410, paras. 7 & 8 (C.A.).

It is now well-established that an arbitration agreement which states that the parties agree to “final and binding” arbitration does not necessarily preclude judicial review, but it does reflect an intention to exclude a right of appeal: Labourers’ International Union of North America, Local 183 v. Carpenters and Allied Workers Local 27 et al., para. 22; Kucyi v. Kucyi, 2005 CanLII 48539 (ON SCDC), [2005] O.J. No. 5626 (Div. Ct.) para.14; Weisz v. Four Seasons Holdings Inc., 2010 ONSC 4456, paras. 22-25, 37-39; Nasjjec Investments Ltd. v. Nuyork Investments Ltd., 2015 ONSC 4978, paras. 30-35.

[29] Kingston did not address Montebello’s argument about the impact of “final and binding” language in its written submissions. In oral reply at the hearing, Kingston’s counsel implicitly acknowledged that parties could, through their arbitration agreement, exclude any right of appeal. He argued, however, that the language in the Agreement should be distinguished from the language in cases such as 108 Media and Nasjjec because the arbitration agreements in those cases did not refer to the Act.

[30] This argument is not persuasive. There is only one reference to the Act in the Agreement. Having carved out certain non-arbitrable disputes, art. 13.2 states that: “All other Disputes hereunder that cannot be settled in the manner hereinbefore described will be settled by final and binding arbitration pursuant to the provisions of the Act (Ontario)”. The reference to the Act in this provision does not contradict or undermine the interpretation of “final and binding” as excluding a right of appeal. Section 3 of the Act allows the parties to derogate from s. 45. It does not, however, permit the parties to exclude s. 46, which allows a party to ask the court to set aside an arbitral award. The language in art. 13.2 is consistent with an interpretation that an arbitral award is final and binding in the sense that the parties have no right to appeal it, but that they may nonetheless challenge it by way of an application for judicial review.

[31] In Alectra Utilities Corp. v. Solar Power Network Inc., 2019 ONCA 254, at para. 20, the Court of Appeal stated that, if the parties’ arbitration agreement is silent on the question of an appeal, s. 45(1) applies and leave to appeal on a question of law may be granted. The parties’ agreement in this case is not, however, silent. In their arbitration clause, Kingston and Montebello referred twice to the “final and binding” nature of any awards.

[32] I conclude that I should follow the reasoning in 108 Media and other cases. I must give effect to the parties’ intentions as indicated in the unambiguous language of their Agreement. Accepting that parties may choose not to make an arbitral award subject to appeal is consistent with s. 3 of the Act and the approach that courts should take in reviewing awards made through private arbitration. As stated by the Court of Appeal in Popack v. Lipszyc, 2016 ONCA 135, 129 O.R. (3d) 321, at para. 26, in denying the appeal of a judge’s refusal to set aside an arbitral award:

The application judge exercised her discretion in the context of a review of an award rendered in a private arbitration before a panel chosen by the parties to determine the dispute between them. The parties’ selection of their forum implies both a preference for the outcome arrived at in that forum and a limited role for judicial oversight of the award made in the arbitral forum: see Quintette Coal Ltd. v. Nippon Steel Corp. (1990), 1991 CanLII 5708 (BC CA), [1991] 1 W.W.R. 219, at p. 229 (B.C.C.A.), leave to appeal refused, [1990] S.C.C.A. No. 431; Rhéaume v. Société d’investissements l’Excellence inc., 2010 QCCA 2269, at paras. 52-62, leave to appeal refused, [2011] S.C.C.A. No. 57.

[33] In this case, the parties agreed, through arts. 13.1 and 13.2 of the Agreement, that almost all disputes would be resolved through private arbitration and that the court’s role in reviewing arbitral awards would be limited to judicial review rights set out in s. 46 of the Act. Kingston is accordingly precluded from seeking leave to appeal the Awards.

If s. 45(1) applies, should leave be granted?

[34] Even if the Agreement did not preclude an appeal, I would not grant Kingston leave to pursue one.

[35] Section 45(1) provides that a party “may appeal an award to the court on a question of law with leave” if they meet certain criteria. Accordingly, a prerequisite to obtaining leave is the identification of a legal error by the Arbitrator.

[36] A question of law is a question “about what the correct legal test is”; Teal Cedar Products Ltd. v. British Columbia, 2017 SCC 32, at para. 43. In Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, at paras. 49 and 50, the Supreme Court stated that, as a general rule, contractual interpretation involves issues of mixed fact and law. This principle is founded on the need to “limit the intervention of appellate courts to cases where the results can be expected to have an impact beyond the parties to the particular dispute”; Sattva, at para. 51.

[37] As a result, only “extricable” errors of law by an arbitrator can be appealed. At para. 53 of Sattva, the Court noted that, in the context of disputes turning on contractual interpretation, extricable errors may include the application of an incorrect principle, the failure to consider a required element of a legal test, or the failure to consider a relevant factor. The Court cautioned, however, that extricable errors are rare, because the determination of the objective intentions of the parties is inherently fact specific; Sattva, at para. 56.

[38] Kingston generally alleges that, in interpreting the Agreement, the Arbitrator failed to take into account all relevant provisions and effectively re-wrote the parties’ contract. It contends that he made two specific extricable errors: (1) he concluded that the Agreement did not apply to four of the POs, without considering the language in a schedule to the agreement; and (2) he denied Kingston the right to payment on invoices based on an unreasonable interpretation of the Agreement.

[39] I begin by observing that the Arbitrator was clearly alive to the principles of interpretation set out in Sattva. At para. 47 of the First Award, he recognized that he must “read the contract as a whole, giving the words their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of the formation of the contract”. In addition to Sattva, he cited passages from Weyerhauser Co. Ltd. v. Ontario (Attorney General) 2017, ONCA 1007, at paras. 65 and 66. At para. 51 of the First Award, the Arbitrator noted that, although the evidence of surrounding circumstances may be relevant, it cannot be used to overwhelm the words of the parties’ agreement or to deviate from the text of the agreement so as to create a new agreement. He also observed that the interpretation of a commercial agreement must make sense from a commercial perspective.

[40] The Arbitrator concluded that a “plain reading of the Agreement clearly reveals that this was a contract under which Kingston was to manufacture blow moulding machines” (para. 52, First Award). He noted that the preamble to the Agreement cited Kingston’s undertaking “to design, engineer and build a production machine based on existing Montebello IP”. This led him to conclude, at para. 86 of the First Award, that the Agreement only applied to one of the POs, the PO that explicitly required Kingston to deliver such a machine:

[T]he SCEA only applies to Production Machines which the Agreement clearly defines as aluminium container blow moulding machines. None of the non-SCEA POs are for Production Machines, and I am satisfied neither the infeed nor the annealing oven are blow moulding machines. Without hesitation, I place no weight on Ben Pilon’s assertion that [Montebello] told him during the Agreement negotiation that it would apply to all POs. That is not what the Agreement says and it was never changed in writing.

[41] Kingston argues that, in reaching this conclusion, the Arbitrator failed to consider a schedule to SCEA that refers to various components of the BBM production process as a whole.

[42] It is true that the Arbitrator did not specifically mention this schedule. He was not required to reproduce every term of the Agreement in his reasons. He did not mention other provisions of the Agreement, such as the definitions of “Deliverables”, “Production Machine”, and “Purchase Order”, or the other numerous provisions that refer only to Production Machines, all of which supported his analysis.

[43] Kingston contends that the Arbitrator’s conclusion ignored evidence that a blow moulding machine does not produced a shaped container absent infeed and annealing components, which were the subject of two of the purchase orders characterised as non-SCEA POs in the Awards.

[44] The Arbitrator focussed on the words in the parties’ contract as objective evidence of the parties’ intentions. In his view, the Agreement governed the design, manufacture and delivery of production machines only. Only one of the POs was for such a machine. This was, in my view, a reasonable interpretation. Even if that interpretation were unreasonable, however, it would not give rise to an extricable error of law. It is a mixed finding of law and fact.

[45] With respect to the consequences of Montebello’s termination under the Agreement, the Arbitrator found that Kingston failed to agree to factory acceptance testing within the required deadline. Art. 10.5 of the Agreement provided that Kingston’s failure to deliver a production machine in accordance with the parties’ agreement would constitute a material breach. Art. 10.2 stated that:

10.2. In the event that Kingston is unable to produce the Production Machine ordered by MONTEBELLO for delivery as specified In writing by MONTEBELLO, or as otherwise agreed in writing between the Parties, or becomes insolvent, Kingston shall, if requested by MONTEBELLO, provide all drawings related to the Production Machine, specifications for the Production Machine and all components thereof and related documents and all accounts accrued to date shall be paid by MONTEBELLO. For clarity, any Kingston IP therein shall continue to be owned by Kingston. Also for clarity MONTEBELLO will be responsible for reimbursing costs incurred by Kingston for transferring drawings, technical know-how and other documentation needed for a third party engaged by MONTEBELLO to build the Production Machine. MONTEBELLO shall purchase the materials and components produced or acquired by Kingston, at cost, with respect to the incomplete order of the Production Machine.

[46] Art. 10.7 more broadly addressed the consequences of the termination of the Agreement:

10.7. Upon the expiration or termination of this Agreement all fees for Services performed up to the effective date of termination, in accordance with section 4 of this Agreement, will become immediately due and payable. Kingston shall, on any such termination, deliver to MONTEBELLO all physical assets, components, parts, records and any other components related to the Production Machines together with any and all MONTEBELLO IP in its possession.

[47] At paras. 98 to 100 of the First Award, the Arbitrator considered how these sections applied in the circumstances. In doing so, he rejected Kingston’s argument that it was entitled to a 19.5% profit margin on all amounts payable by Montebello for work done up to that point:

Pursuant to s. 10.2 of the Agreement, this was an incomplete order for the Production Machines. Accordingly, it was Kingston’s obligation to return all equipment and related documents upon request. It was [Montebello’s] responsibility, and its only responsibility to pay Kingston for work due up to that point. That is the case whether it be under s. 10.2 or s. 10.7.

I agree with [Montebello], if there is a conflict between these two sections, the specificity of s. 10.2 prevails over the generality of s. 10.7. To be clear, in a case such as this, of an incomplete order, there is no entitlement to the profit provision of s. 4.1.1. To assert otherwise would be commercially unreasonable if not absurd. Only upon the sale of a Production Machine would s. 4.1.1 be engaged.

Clearly, and as confirmed in evidence by Ben Pilon, the June 19, 2018 invoice regarding BMM4 and BMM5 [the two production machines to be delivered pursuant to the Agreement] totalling $891,820.62 USD included an amount reflecting profit of 19.5%. This, in my view, does not accord with the proper interpretation of s. 4.1.1. Moreover, neither s. 10.2 nor s. 10.7 would permit any profit on termination.

[48] Kingston contends that the Arbitrator’s interpretation of the remedies in the Agreement ignores the plain meaning of ss. 4, 10.5 and 10.7, and that it is “inconsistent” and “shows confusion in the analysis”.

[49] In his analysis on remedies, the Arbitrator considered ss. 4 and 10 of the Agreement and how they should be read together. In doing so, he considered whether the interpretation proposed by Kingston was consistent with commercial reality, as required by the Court of Appeal in Weyerhauser. He considered Kingston’s evidence about the parties’ discussions and rejected it. He instead adopted the interpretation argued by Montebello which, on his analysis, was supported by the plain words of the contract.

[50] I am unable to identify any error that would constitute an extricable error of law. Kingston’s fundamental complaint is not, in fact, that the Arbitrator ignored certain provisions of the Agreement. It is unhappy about how he interpreted those provisions. This would once again constitute, at most, an error of mixed law and fact.

[51] I conclude that Kingston has not identified an extricable error of law in the Arbitrator’s decision. Leave cannot be granted under s. 45(1) on questions of mixed law and fact. As a result, even if the Agreement permitted Kingston to seek leave to appeal, I would deny it.

(iii) Should the Awards be set aside?

[52] In addition to its jurisdictional argument, Kingston contends in its written argument that the Awards should be set aside under s. 46(1) of the Act for other reasons. I have sorted these submissions into two categories: (1) arguments about whether the Arbitrator failed to address or consider Kingston’s evidence; and (2) arguments about whether he acted unfairly and in a way that demonstrates a reasonable apprehension of bias in Montebello’s favour.

[53] In oral argument on this application, counsel for Kingston for the first time raised a third ground, by asserting that the Arbitrator also violated the Act by failing to provide reasons as required by s. 38 of the Act.

(a) Did the Arbitrator fail to address Kingston’s evidence?

[54] Kingston contends that, in the First Award, the Arbitrator failed to address its evidence with respect to the purpose and scope of the Agreement and with respect to Montebello’s motivations in ordering Kingston to stop work in 2018. It contends that, in the Supplementary Award, the Arbitrator unfairly rejected its new evidence about work performed up to the point of termination.

[55] Further to para. 6 of s. 46(1), a court may set aside an award if a party was not given an opportunity to present its case. If an arbitration tribunal were to disregard a party’s evidence completely, this would amount to a denial of the right to be heard.

[56] Kingston argued at the arbitration hearing that the Agreement represented a collaborative research and development project with no fixed delivery dates. The Arbitrator rejected this argument based on the terms of the Agreement and evidence about surrounding circumstances. The evidence reviewed by the Arbitrator included Kingston’s delivery of a feasibility report in March 2015 that indicated that it could readily build a production BBM with only “basic engineering design changes” that would “satisfy Montebello’s requirements”. The Arbitrator also relied on contemporaneous records of correspondence, the terms of the SCEA PO, and testimony from various witnesses, including the current president of Montebello. He rejected Kingston’s argument that, because the PO initially issued for production machines set a delivery deadline that was overtaken by later events, this meant that there were no fixed delivery dates. The Arbitrator instead found that new delivery dates were negotiated.

[57] On this application, Kingston contends that the Arbitrator’s conclusions on these points imply that he failed to consider its arguments. It also complains that the Arbitrator did not accept the “undisputed evidence” of Ben Pilon, Kingston’s owner, about the parties’ understanding.

[58] I agree with Montebello’s submission that this attack under the guise of s. 46(1) is an attempt by Kingston to sidestep the lack of appeal rights in arts. 13.1 and 13.2 of the Agreement so that it may challenge the awards on issues of mixed law and fact. As stated by the Court of Appeal, “an application under s. 46(1) is not an appeal”, and the grounds for setting aside an award under s. 46(1) are “not concerned with the substance of the parties’ dispute”; Alectra Utilities, at para. 24. Kingston’s fundamental complaint is that the Arbitrator made findings of fact and mixed fact and law unfavourable to its case. He did not overlook Kingston’s evidence and arguments but rather preferred the evidence and arguments advanced by Montebello. A finder of fact is entitled to reject the evidence of any witness. Such a rejection is not grounds to set an award aside, unless there is evidence that it stems from an improper motive or bias. There is no such evidence here.

[59] Kingston also contends that the Arbitrator failed to address its argument that Montebello’s termination of the parties’ commercial relationship was motivated by something other than a concern about Kingston’s ability to meet contract milestones. Kingston is owned by Ben Pilon. When the Agreement and POs were negotiated and executed, Montebello’s president was his mother, Betty Pilon. In February 2018, Ms. Pilon retired from Montebello and, a few weeks later, became president of Kingston. Kingston argues that the Arbitrator did not consider its argument that Montebello terminated the Agreement as a result of these events as well as the parties’ failure to resolve intellectual property issues with respect to blow moulding technology.

[60] The Arbitrator was clearly aware of Ms. Pilon’s retirement from Montebello in early 2018, and her successor’s order to Kingston to stop work shortly after she announced her new position with Kingston. These events were described in his lengthy recitation of the facts in the First Award.

[61] The Arbitrator’s analysis, however, focused on the parties’ rights and obligations pursuant to the terms of the Agreement and the POs, and their compliance or breach of those terms. He found that the Agreement explicitly provided that time was of the essence, that the Agreement and the SCEA PO set firm delivery dates and that, although Montebello gave Kingston a series of extensions prior to March 2018, it had never waived its right to require compliance with the contractual deadlines. He concluded that Montebello had not breached any of the parties’ agreements. In light of this, it would have been pointless for the Arbitrator to consider Kingston’s evidence that there were might have been other issues, as of Spring 2018, that soured the relationship between the parties.

[62] Finally, Kingston argues that the Arbitrator wrongly rejected the new evidence that it filed after the First Award was issued. I will deal with this argument further below, in considering Kingston’s argument that the Awards were unfair. For now, I will only repeat that the appreciation of evidence was the unique province of the Arbitrator. The Arbitrator found that Kingston, through the filing of the new evidence, was attempting to launch a collateral attack on issues that had already been determined in the First Award and, in so doing, to contradict its own witnesses’ prior testimony about the invoices it relied on at the hearing. The Arbitrator’s rejection of the evidence was a decision he was entitled to make that is not open to review.

[63] I conclude that the Awards should not be set aside based on a failure by the Arbitrator to review the evidence.

(b) Did the Arbitrator fail to treat the parties fairly and equally, or did the conduct of the arbitration or the Awards give rise to a reasonable apprehension of bias against Kingston?

[64] Under s. 46(1) of the Act, an award may be set aside if a party was not treated equally and fairly (para. 6) or if there is a reasonable apprehension of bias (para. 8). As noted in Simcoe Condominium Corporation No. 798 v. Simcoe Condominium Corporation No. 50, 2006 CanLII 4510 (ONSC), at para. 57, the test for reasonable apprehension of bias is high because:

[I]t calls into question both the personal integrity of the adjudicator and the integrity of the administration of justice. The grounds must be substantial and the onus is on the party alleging bias to bring forward the evidence. The inquiry is highly fact-specific. The test for showing reasonable apprehension of bias is an objective test. A real likelihood of bias must be demonstrated; mere suspicion is not enough.

[65] Kington made several submissions about how the awards and the conduct of the Arbitration unfairly favoured Montebello.

[66] First, Kingston argued that the Arbitrator “unfairly weighed evidence”. It suggested that, because he drew an adverse inference based on Kingston’s failure to call evidence from an engineer, he was bound to draw an adverse inference from Montebello’s failure to call evidence about a representative directly involved in the parties’ negotiation of the Agreement. According to Kingston, the Arbitrator’s failure to draw an adverse inference against Montebello gives rise to a reasonable apprehension of bias.

[67] The preference of one party’s evidence over the other is not inherently unfair, nor does it give rise to a reasonable apprehension of bias. If that were the case, virtually every losing party at arbitration could seek to set aside the award under s. 46(1). The Arbitrator explained why the evidence of Montebello’s engineer was important, and how Kingston’s failure to call responding evidence undermined its case. He rejected Mr. Pilon’s testimony about conversations with Montebello’s representatives. There was accordingly no need for Montebello to call evidence to rebut this testimony, and no adverse inference to be drawn against it based on its failure to do so.

[68] Kingston argues, next, that the Arbitrator’s own words show that the conduct of the arbitration was unfair. At para. 114 of the First Award, the Arbitrator stated that, “in fairness” to Kingston, it should have a further opportunity to provide evidence about the work done on the non SCEA POs at the time of termination. Despite this, in the Supplementary Award, the Arbitrator rejected new evidence filed by Kingston.

[69] The Arbitrator allowed Kingston to adduce further evidence about work done in respect of non-SCEA POs because it had framed its entire case on the assumption that all POs were governed by the Agreement. Although the Arbitrator wrote that he granted this indulgence “in fairness” to Kingston, fairness did not, in fact, dictate that he do so. Another tribunal or court may well have concluded that Kingston was on notice of Montebello’s position from the outset and had ample opportunity to present its case over the two-month hearing that preceded the First Award.

[70] Even if fairness had dictated that Kingston be given a chance to file supplementary evidence on work done in respect to non SCEA POs, the Arbitrator’s decision to reject the materials filed by Kingston was reasonable. He did not grant it the right to challenge his finding in the First Award that there was no basis on which Kingston might have a claim for further payment by Montebello. Had the Arbitrator given Kingston a chance to re-litigate what it was owed pursuant to the Agreement, Montebello might well have had reason to challenge such an opportunity for a “do over” as unfair.

[71] Finally, Kingston argues that the overall result of the arbitration is unfair to Kingston. It contends that the “numerous and inexplicable errors of the arbitrator, each of which were in favour of [Montebello], suggest to a reasonable person the lack of equality and fairness”. I have not reviewed every single one of the errors that Kingston alleges the Arbitrator made, many of which involve obviously non-reviewable determinations of fact or mixed determinations of fact and law. But even if I had found multiple reviewable errors, this would not, in itself, give rise to a reasonable apprehension of bias.

[72] There is no evidence to support Kingston’s allegation of reasonable apprehension of bias against it. As Montebello points out, Kingston had notice of its position and a full and complete opportunity to present its case. Three rounds of affidavits were filed by the parties. Kingston called direct evidence through two witnesses and had an opportunity to cross-examine Montebello’s five witnesses. The hearing took five days. There is no indication that Kingston’s procedural or substantive rights were compromised through the conduct of the arbitration. To borrow the words of the court in Nasjjec, at para. 67: “Losing, by itself, does not equate to unfair or unequal treatment”.

[73] I conclude that the Awards should not be set aside based on a lack of fairness or reasonable apprehension of bias.

(c) Did the Arbitrator fail to provide reasons?

[74] Because this argument was made for the first time at hearing and was not pursued in any depth, I will deal with it summarily.

[75] Section 38 of the Act requires an arbitrator to provide written reasons. The Arbitrator did so. Kingston contends, however, that these reasons are inadequate because they did not address all arguments it raised at the hearing.

[76] I have already dealt with this submission in the context of Kingston’s contention that the Arbitrator failed to address its evidence. In the context of s. 38, the Supreme Court has cautioned that adequacy (or rather inadequacy) of reasons is not, in of itself, a basis for quashing an arbitral award; Newfoundland and Labrador Nurses’ Union v. Newfoundland and Labrador (Treasury Board), 2011 SCC 62, [2011] 3 S.C.R. 708, at para. 14. At para. 16, the Court explained that:

Reasons may not include all the arguments, statutory provisions, jurisprudence or other details the reviewing judge would have preferred, but that does not impugn the validity of either the reasons or the result under a reasonableness analysis. A decision-maker is not required to make an explicit finding on each constituent element, however subordinate, leading to its final conclusion… . [I]f the reasons allow the reviewing court to understand why the tribunal made its decision and permit it to determine whether the conclusion is within the range of acceptable outcomes, the Dunsmuir criteria are met. [Internal citations omitted, emphasis added.]

[77] The Arbitrator’s First Award is over twenty pages long. The Supplementary Award is much shorter, because it deals with a single discrete issue. The reasons are transparent, intelligible and justified. The Arbitrator did not refer to every piece of evidence or every argument advanced by either party. He did not need to. There is no problem understanding why he concluded as he did or what evidence he relied upon.

[78] I conclude that the Arbitrator complied with s. 38 of the Act.

Disposition and Costs

[79] Kingston’s application is dismissed.

[80] If the parties are unable to reach an agreement on costs, they shall exchange and file submissions attaching their respective bills of costs within twenty days of this decision. Submissions shall not exceed five pages in length, double spaced. In addition to their bills of costs, the parties may attach to their submissions any document directly relevant to the assessment of costs. Submissions shall be electronically filed in searchable PDF format and each document attached shall be electronically bookmarked or hyperlinked to a table of contents. No books of authorities shall be filed but the parties may refer to caselaw and other authority in their submission, provided they include a hyperlink to an electronic publication.

Justice Sally Gomery

Released: September 7, 2021

[^1]: The Arbitrator issued rulings between February and May 2021. I have not reviewed them because they are not relevant to the issues on this appeal.

[^2]: Kingston Automation Technology Inc. v. Montebello Packaging, 2021 ONSC 2684.