COURT FILE NO.: CV-20-00653364-00CL
DATE: 20220325
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
1107051 ONTARIO LTD.
Applicant
– and –
GG KINGSPA ENTERPRISES LIMTED PARTNERSHIP
Respondent
Sonia Bjorkquist, Adam Hirsh, Mark Sheeley and Stephen Armstrong, for the Applicant
Michael Barrack, Max Shapiro and Christopher DiMatteo, for the Respondent
HEARD: November 22, 2021;
SUPPLEMENTARY WRITTEN SUBMISSIONS RECEIVED: January 7, 2022;
SUPPLEMENTARY WRITTEN REPLY SUBMISSIONS RECEIVED: January 19, 2022
REASONS FOR DECISION
McEwen J.
[1] The Applicant 1107051 Ontario Ltd. (“110”) brings this Application seeking to overturn the Arbitrator’s decision in which he assumed jurisdiction over a dispute between 110 and GG Kingspa Enterprises Limited Partnership (“Great Gulf”) regarding a major real estate development at King Street West and Spadina Avenue in Toronto (the “Project”).
[2] For the reasons that follow I grant the order and declaration sought by 110.
BACKGROUND
[3] 110 and Great Gulf entered into a comprehensive Co-Tenancy Agreement (the “Agreement”) concerning the Project. Each Party has a 50% interest in the Project and thus has equal decision-making power over the Project.
[4] Various provisions of Article 1 of the Agreement contemplate a Project with four components:
(i) A residential (condominium) component defined in the Agreement as the “Residential Lands.”
(ii) A retail component defined in the Agreement as the “Retail Lands.”
(iii) A hotel component defined in the Agreement as the “Hotel Lands.”
(iv) A parking component defined in the Agreement as the “Parking Lands.”
[5] The Agreement, however, does not stipulate that both condominiums and a hotel must be included in the Project. The Purpose and Scope are set out, in part, in Article 2.3(a) as follows:
Purpose and Scope
(a) The business and purposes of the Co-Tenancy, subject to the provisions of this Agreement, shall be:
(i) the acquisition, ownership, development, servicing and management of the Lands and the construction thereon of a mixed use project; and
(ii) such other activities and operations as are reasonably incidental or ancillary to the foregoing.
[6] Pursuant to Article 5 of the Agreement, management of the Co-Tenancy is delegated to a Management Committee. The Management Committee is comprised of four members: two appointed by 110 and two appointed by Great Gulf. Further, Article 5.13 states that: “All decisions of the Management Committee shall require the approval of all of the Representatives.”
[7] The aforementioned provisions result in unanimity being required for decision-making, subject to the duties imposed on the representatives by Article 5.16 of the Agreement, that provides as follows:
Any decision required to be made by the Management Committee in respect of the Project shall be made in good faith and in the best interests of the Project and strictly upon the merits of the matter in respect of which its decision is required it shall be made as expeditiously as possible in the circumstances and shall not be unreasonably withheld, delayed or conditioned.
[8] Further, the Parties specifically stipulated in the Agreement that they did not want to create a partnership (Article 2.6), thus, there is no ability to wind up the relationship to resolve a conflict. The Parties also agreed that there could be no partitioning and sale of the Co-Tenancy Assets and, as such, the provisions of the Partition Act, R.S.O. 1990, c. P.4, do not apply to the Agreement. Additionally, the Parties agreed that they would not resort to any actions at law or in equity for a sale in lieu of partition (Articles 2.18 and 2.19).
[9] In addition to the aforementioned restrictions in the Agreement, there is a general prohibition (Article 7.1) restricting either one of the Parties from, amongst other things, selling its interests or creating any form of mortgage. There are limited exceptions in Article 7, however, that do allow a transfer to outsiders or as between the Parties.
[10] The Parties describe the aforementioned structure of the Agreement as being “divorce proof” with the purpose being to promote unanimous decision-making.
[11] Article 11.4 of the Agreement also contains a broad arbitration clause (the “Arbitration Clause”) which provides, amongst other things, the following:
Whenever and wherever a dispute arises under this Agreement including, without limitation, whether an Event of Default as defined in this Agreement exists, (collectively, a “Dispute”) it shall be resolved by arbitration.
[12] The term “Dispute” is not defined in the Agreement.
[13] Notwithstanding the provisions of the Agreement that contemplated a project with the four aforementioned components, which included condominium and hotel components, a disagreement has arisen. Great Gulf has subsequently formed the view that the Project should not include a hotel component. 110 still wants both condominium and hotel components. For the time being at least they are deadlocked on this issue.
[14] Given the deadlock, Great Gulf commenced the Arbitration asserting that the Arbitrator should resolve the dispute and had the authority to do so given the provisions of the Arbitration Clause. Great Gulf asserts that Article 5.16 provides the standard by which disputes can be resolved that being, “the best interests of the Project”.
[15] 110 objected to the arbitration being brought on the basis that the issue posed, i.e. the configuration of the Project, was not justiciable or arbitrable on the basis that the Parties did not agree to have an Arbitrator break deadlocks amongst the Management Committee or make business decisions on their behalf. 110 stresses that the Agreement provided that the Management Committee should have exclusive authority over such matters.
[16] The Arbitrator, however, accepted Great Gulf’s submissions and found that he had jurisdiction to determine the dispute.
[17] In this regard, the Arbitrator made the following significant findings:
• The Co-Tenancy Agreement was a carefully worded document which was obviously the product of capable legal advice.
• Pursuant to Article 5.6, the Management Committee has the power and authority to “manage, control, supervise, administer and operate the business affairs of the Co-Tenancy” and has “exclusive authority in respect of the day-to-day management and operation of the activities of the Co-Tenancy”.
• Decisions of the Committee under Article 5.16 are to be made in good faith, in the best interests of the Project and strictly upon the merits of the matter.
• The Parties were deadlocked with respect to the issue of whether a hotel should be included in the Project and for all practical purposes would remain deadlocked.
• The dispute was not legal in nature but rather a business-related dispute having to do with the strategic direction of the Project.
• There is no specific deadlock-breaking provision in the Agreement. Looking at the commercial reasonableness of the deadlock, one could objectively arrive at the conclusion that the Project could well remain in limbo endlessly and this did not make good business sense and could well lead to an absurdity.
• The Arbitration Clause was broad in nature.
[18] In conjunction with the aforementioned findings, and while accepting the dispute was not a legal dispute, the Arbitrator concluded that it was one that was clearly a dispute under the Agreement as framed in the broadly worded Arbitration Clause. Since nothing in the Arbitration Clause limited arbitrations to legal disputes, he found that non-legal disputes could be arbitrated and thus he had the jurisdiction to do so. Even though a formal decision had not been made by the Management Committee, the Arbitrator further concluded that the current deadlock would be reflected in any such decision. The Arbitrator was further comforted by the wording of the arbitration clause that it included disputes under the Agreement “without limitation” which informed a broad interpretation of the Arbitration Clause.
[19] In accepting jurisdiction, the Arbitrator elected not to join the issue of jurisdiction to the issue of merit and determined the entire dispute. Thus, the Arbitrator rendered a decision on jurisdiction without considering the merits.
STANDARD OF REVIEW
[20] The Parties agree that the standard of review of the Arbitrator’s decision on a jurisdictional question is correctness. I also agree: see Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 SCR 235, at para. 8; Hornepayne First Nation v. Ontario First Nations (2008) Ltd., 2021 ONSC 5534, at paras. 1-6.
PRELIMINARY ISSUE
[21] As noted, at the hearing of the Application, 110 sought an order setting aside the Arbitrator’s decision on the basis of jurisdiction as well as a declaration that the Arbitrator lacked jurisdiction. Great Gulf sought to have the Application dismissed.
[22] The Parties, however, agreed that in the alternative, the issue of jurisdiction could be deferred and referred back to the Arbitrator to be decided along with the merits. This would have the benefit of a full factual record and evidence concerning the history of the Agreement, which could also presumably include the Parties’ conduct, updates on the state of the Project and market conditions.
[23] At the hearing, neither side entirely fleshed out this alternative submission as both were concentrating on the primary relief they were seeking.
[24] After the conclusion of the hearing, when considering this matter, I came to the conclusion that a full hearing, including merits, might be the sensible path. I, therefore, invited further submissions, in writing, on the alternative relief option.
[25] Supplemental written submissions were provided by the Parties. At that time, Great Gulf changed its position with respect to alternative relief and submitted that it was not open to this Court to order the alternative relief by referring the jurisdiction question back to the Arbitrator to be determined along with the merits. Great Gulf submitted that the Arbitration Act, 1991, S.O. 1991, c. 17, required this Court to determine jurisdiction at this stage.
[26] Given Great Gulf’s change of position, I allowed 110 an opportunity to respond in writing. The Parties’ submissions did not include any case law and I have been unable to locate any applicable case law.
[27] In my view, it would have been preferable to refer the matter back to the Arbitrator to determine the issue of jurisdiction, along with the issue of merit, on a full record. This would have provided the Arbitrator with useful evidence as to the intention of the Parties, expert opinions and other evidence that would have clarified the standard of review that the Arbitrator accepted as being, “what is in the best interests of the Project”. I have come to the conclusion, however, that I do not have jurisdiction to refer the matter back to the Arbitrator based on the provisions of the Arbitration Act.
[28] The plain wording of the Arbitration Act, particularly ss. 17, 45 and 46, which deal with rulings and objections concerning jurisdiction, appeals and setting aside awards, do not provide this Court with the jurisdiction to refer a decision on jurisdiction back to the arbitrator to determine the issue in conjunction with the merits so as to allow for a decision both on jurisdiction and the merits of the disagreement.
[29] The law is settled that this Court does not have inherent jurisdiction where jurisdiction is conferred on the Court by statute: see R. v. Rose, 1998 CanLII 768 (SCC), [1998] 3 S.C.R. 262, at para. 64; Ontario v. Criminal Lawyers’ Association of Ontario, 2013 SCC 43, [2013] 3 S.C.R. 3, at para. 23.
[30] The only provision of the Arbitration Act that arguably could apply would be s. 46(8) which provides as follows:
(8) Instead of setting aside an award, the court may remit it to the arbitral tribunal and give directions about the conduct of the arbitration.
[31] Section 46(8), however, does not apply to an issue of jurisdiction which is governed by s. 17. Section 17(7) expressly gives the Arbitrator an election to deal with the issue of jurisdiction as a preliminary question or as part of an award. The Arbitrator, in this instance, elected to deal with the issue of jurisdiction as a preliminary question. I accept Great Gulf’s submissions that the word “award” as used in s. 46(8) does not refer to any decision of the Arbitrator but rather an Arbitrator’s ultimate decision on the merits: Inforica Inc. v. CGI Information Systems and Management Consultants Inc., 2009 ONCA 642, 97 O.R. (3d) 161, at para. 29; Universal Settlements Intern’l Inc. v. Duscio, 2011 ONSC 968, at para. 125.
[32] Based on the foregoing, neither ss. 45 nor 46 apply until an Arbitrator makes an “award”. Since the Arbitrator ruled only on the issue of jurisdiction, he did not render an award, thus the provisions of s. 46(8) are not engaged and there is nothing in s. 17 that provides me with jurisdiction to refer the matter back to the Arbitrator.
THE ISSUE OF THE ARBITRATOR’S JURISDICTION
The Position of the Parties
The Position of 110
[33] 110 firstly submits that, generally speaking, non-legal business decisions are not justiciable. In this regard, 110 points to the fact that the Arbitrator acknowledged, at paras. 13 and 19 of his decision, that the dispute between the Parties is not legal in nature but rather a business-related dispute having to do with the strategic direction of the Project.
[34] 110 submits that the case law supports the notion that a justiciable matter can be resolved by the application of “widely accepted and known legal standards”, while non-justiciable matters require the application of an extra-legal analytical framework: see Wall v. Judicial Committee of the Highwood Congregation of Jehovah’s Witnesses, 2016 ABCA 255, 404 D.L.R. (4th), at para. 100, per Wakeling J.A. (dissenting), rev’d 2018 SCC 26, [2018] 1 S.C.R. 750. 110 therefore argues that a claim is non-justiciable if there are no judicial or manageable standards to judge the issues: see Buttes Gas and Oil Co. v. Hammer (No. 3), [1981] 3 All E.R. 616, at p. 663 (HL).
[35] Based on the above, 110 submits that the Parties did not agree that an Arbitrator could break a deadlock within the Management Committee relating to a business decision. 110 argues that the Parties expressly agreed to the contrary by giving the Management Committee exclusive authority over such matters and thus Great Gulf’s claim is beyond the scope of the Arbitration Clause contained in Article 11.4 of the Agreement.
[36] Further, in this regard, 110 relies upon the decision of the Privy Council in Burland v. Earle (1901), [1900-03] All E.R. Rep. Ext. 1452, at p. 1455 (JCPC) wherein, on an appeal from the Ontario Court of Appeal, held that, “it is an elementary principle of the law relating to joint stock companies that the Court will not interfere with the internal management of companies acting within their powers, and in fact has no jurisdiction to do so.” 110 submits that the modern jurisprudence has continued on with this thinking and will not generally interfere with or substitute their business judgment for the decisions of the directors and officers of a corporation, where those decisions are made honestly, in good faith and on reasonable grounds: see CW Shareholdings Inc. v. WIC Western International Communications Ltd.(1998), 1998 CanLII 14838 (ON SC), 160 D.L.R. (4th) 131 (Ont. Gen Div.) at pp.. 150-151.
[37] 110 further relies upon the decision of the Court of Appeal in Brant Investments Ltd. v. KeepRite Inc. (1991), 1991 CanLII 2705 (ON CA), 80 D.L.R. (4th) 161 (ONCA), wherein the Court held, at pp. 190-191, “it would generally be impossible” for a judge to substitute his or her own business judgment for that of managers, directors or a committee tasked with the making of business decisions, because the judge:
…is dealing with the matter at a different time and place; it is unlikely that he will have the background knowledge and expertise of the individuals involved; he could have little or no knowledge of the background and skills of the persons who would be carrying out any proposed plan; and it is unlikely that he would have any knowledge of the specialized market in which the corporation operated. In short, he does not know enough to make the business decision required.
[38] Based on the foregoing, 110 argues that matters calling for the application of business judgment for their resolution, rather than legal standards, are non-justiciable.
[39] 110, however, concedes that parties in theory can agree to arbitrate non-justiciable disputes but, if so, they must do so clearly and specifically and thereafter it is the duty of the Arbitrator to decide the questions submitted according to the legal rights of the parties and not according to what the Arbitrator may consider to be fair and reasonable: see Faubert and Watts v. Temagami Mining Co. Ltd. (1959), 1959 CanLII 384 (ON CA), 17 D.L.R. (2d) 246, at pp. 256, 259-260 (Ont. C.A.), aff’d 1960 CanLII 3 (SCC), [1960] S.C.R. 235.
[40] 110, in this regard, further submits that a non-justiciable matter cannot be resolved according to law because it lacks a “sufficient legal component to engage the decision-making capacity of the Courts”: see Tanudjaja v. Canada (Attorney General), 2014 ONCA 852, 123 O.R. (3d) 161, at para. 27. 110 stresses that there would be no legal standard to apply.
[41] Further, 110 argues, that the Agreement establishes specific legal rights between the Parties and that a dispute, in order to be arbitrable, is one that must be legal in nature, i.e. a claim for breach of the Agreement or a recognized cause of action arising from the Parties’ relationship. It does not include matters of business or of a non-legal nature. In this regard, 110 submits that the Parties, to the contrary, confer broad authority on the Management Committee including, under Article 5.16, the power to “give any approvals and to make any decisions required or permitted to be given or made by the members with respect to the Co-Tenancy and the Co-Tenancy assets.” The Parties did not agree that an Arbitrator could break a deadlock within the Management Committee relating to any business decision and in fact they expressly agreed to the contrary by giving the Management Committee exclusive authority over such matters.
[42] Also, in support of this argument, 110 submits that the Arbitration Clause does not provide any criteria by which an Arbitrator could determine the issue. 110 disputes that the criteria could be determined in “the best interests of the Project” as this is, to a large extent, a subjective matter: Kevin P. McGuiness, Canadian Business Corporations Law, 3rd ed (Toronto: LexisNexis, 2017), at §14.137.
[43] In these circumstances, the issue such as the one before this Court calls for the application of business judgment in land development, rather than legal standards and the Arbitrator does not possess the special qualifications to determine the issue. While 110 concedes that there could be any number of legal disputes that fall within the scope of the Arbitration Clause, including a claim that 110 or Great Gulf breached the Agreement, there has been no breach of the Agreement giving rise to the disagreement between the Parties, but rather the disagreement deals with the Parties’ different business strategies.
[44] Last, amongst other ancillary arguments, 110 submits that, as the Arbitrator acknowledged, the Parties recognized the potential for deadlock when they agreed to the structure of the Management Committee. Therefore, no commercial absurdity arises since it is entirely reasonable for the Parties to attempt to resolve the deadlock, and the compromise that may be required to resolve the deadlock. This is exactly what the Parties bargained for and is in keeping with the “divorce proof” nature of the Agreement.
[45] Thus, to allow an Arbitrator to decide business disputes runs contrary to the Parties’ intention in entering into the Agreement.
Great Gulf
[46] Great Gulf submits that the situation is rather straightforward.
[47] The Management Committee is deadlocked on whether the Project will contain a hotel. Great Gulf submits that the “unfettered” Arbitration Clause contained in Article 11.4 applies since it provides, amongst other things, that: “whenever and wherever a dispute arises under this Agreement, including, without limitation when an Event of Default as defined in this Agreements exists, (collectively, a “Dispute”) it shall be resolved by arbitration.”
[48] Great Gulf further submits that, since the word “Dispute” is not defined, it includes a “conflict or controversy”: see Sport Hawk USA Inc. v. New York Islanders Club, 2008 CarswellOnt 2488, (Ont. S.C.), at para. 8. Further, and in this regard, Great Gulf submits that Article 5.16 of the Agreement provides a standard by which the deadlock can be broken: the “best interests of the Project”.
[49] In support of its argument, Great Gulf relies upon the Supreme Court of Canada decision in Desputeaux v. Éditions Chouette (1987) inc., 2003 SCC 17, [2003] 1 S.C.R. 178, at para. 22 wherein the Court held that, “parties to an arbitration agreement have virtually unfettered autonomy in identifying the disputes that may be the subject of the arbitration proceeding.”
[50] Great Gulf also relies upon para. 35 of Desputeaux in which the Court held, amongst other things, that the arbitration agreement should be liberally interpreted and the arbitrator’s mandate must not be interpreted restrictively by limiting it to what is expressly set out in the arbitration agreement.
[51] Further, relying upon the decision of the Court of Appeal in Huras v. Primerica Financial Services Ltd. (2001), 2001 CanLII 17321 (ON CA), 55 O.R. (3d) 449 (C.A.), at paras. 10, 11, 12 and 18, Great Gulf submits that an arbitration clause must be interpreted to determine whether the dispute falls within its terms and in doing so it is important to bear in the mind the function of the arbitration clause in the contract. Great Gulf also submits that it is established policy that Courts should encourage the resolution of disputes through arbitration.
[52] Great Gulf therefore submits that when looking at the Arbitration Clause, one must also look at a number of contextual factors, including the purpose of the Agreement and the nature of the relationship created by the Agreement: see Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633. Thus, in a situation where the purpose is to develop a building, the arbitrator ought to be allowed to determine the issue concerning the disagreement over whether the Project ought to include condominiums only or condominiums and a hotel.
[53] Last, Great Gulf submits that the Court of Appeal decision in Ventas, Inc. v. Sunrise Senior Living Real Estate Investment Trust, 2007 ONCA 205, 85 O.R. (3d) 254, is of specific importance since, at para. 24, the Court sets out how a commercial contract is to be interpreted:
(a) as a whole, in a manner that gives meaning to all of its terms and avoids an interpretation that would render one or more of its terms ineffective;
(b) by determining the intention of the Parties in accordance with the language they have used in the written document based upon the “cardinal presumption” that they have intended what they have said;
(c) with regard to objective evidence of the factual matrix underlying the negotiations of the contract, but without reference to the subjective intention of the Parties; and (to the extent that there is any ambiguity in the contract),
(d) in a fashion that accords with sound commercial principles and good business sense, and that avoids a commercial absurdity.
[54] Relying specifically on subparagraph (d), Great Gulf submits that the dispute in question clearly falls within the provisions of the Arbitration Clause as it is a dispute under the Agreement. To find otherwise, it submits, would result in an absurdity in that the disagreement between the Parties could not be resolved absent agreement, which is unlikely at this point in time given the deadlock.
Analysis
[55] I begin with the issue as to whether non-legal disputes are justiciable. As identified by the Arbitrator, I agree the dispute between the Parties is one of a business nature, not a legal nature. I accept that parties can arbitrate non-justiciable disputes if they clearly and specifically intended to do so. In this regard, I further accept that the Parties, given the broad wording of the Arbitration Clause could arbitrate a non-legal dispute.
[56] Where I respectfully part company with the Arbitrator, however, is that the Arbitration Clause, however broad in nature, plainly states that the dispute must arise “under this Agreement” as per Article 11.4. In my respectful view, the dispute does not arise under the Agreement between the Parties.
[57] Nowhere in the Agreement are there provisions that stipulate that either Party has a right to a certain configuration, i.e. whether or not the Project should contain a hotel. In my view, if the Parties had intended to make fundamental development plans subject to the Arbitration Clause, this would have been plainly stated in the Agreement. This would have included, amongst other things, detail with respect to the applicable standard of review and particulars of the issues that can be determined at arbitration. Nothing in the Agreement speaks to the dispute between the Parties concerning the fundamental development of the Project.
[58] The concept of the rights of the Parties ultimately has to be grounded in the Agreement. The Parties therefore do not have the right to arbitrate any dispute they might have with respect to the Project created by the Agreement. Rather, only the rights and obligations of the Parties as contained in the Agreement are subject to arbitration. As submitted by 110, this could include several disagreements that could arise under the Agreement such as, to name a few, disputes concerning financing (Article 3) or the transfer of interests in the Co-Tenancy (Article 7). This does not include, however, a dispute such as one involving the overall configuration of the Project. Article 2.3 stipulates that the business and purposes of the Co-Tenancy are to develop a mixed-use Project but nothing in the aforementioned Article, or any Article for that matter, speaks to the issue in dispute. Further, in my view, had the Parties intended disputes such as the one in question to be subject to Arbitration they would have identified the arbitrator as someone with a background in the development industry, paying attention to the identity and qualifications of that arbitrator.
[59] I appreciate the Arbitrator’s attempt to try to implement a resolution of the dispute between the Parties so that the Project can move forward. He described the ongoing situation as one where the Project could remain in limbo which could lead to an absurdity. Although I agree with the Arbitrator that the current deadlock is certainly problematic, it is my respectful view that this does not lead to an absurdity.
[60] In creating a “divorce proof” Agreement, the Parties expressly agreed that all decisions would require the approval of all representatives of the Management Committee, i.e. unanimity. I believe that an absurdity would result if, notwithstanding the “divorce proof” nature of the Agreement, the Parties could arbitrate any business dispute between them. The Arbitration Clause does not make any specific reference to Article 5, or decisions of the Management Committee. To the contrary, the Parties conferred broad authority upon the Management Committee to manage the business and affairs of the Co-Tenancy.
[61] The result would be no need for unanimity at all. Rather, either Party could bring any dispute to the Arbitrator concerning the development of the Project.
[62] This would cast the Arbitrator, and ultimately this Court in the event of an appeal, in the role of an overall operational and project manager. Any and all manners of dispute, large and small, would ultimately be determined by way of arbitration. As an example, if the Arbitrator did have jurisdiction to determine the dispute in issue, i.e. whether a hotel should be included in the Project, one can only imagine what disputes would follow. Disputes could involve issues as to how many floors in the Project should be dedicated to the hotel, the overall quality of the hotel, the size of the rooms, etc.
[63] The disputes could be endless. Great Gulf submits that this is entirely in keeping with the Agreement and is sensible. In this regard, Great Gulf contends that the Arbitrator could arbitrate any and all disputes including such granular decisions as to what finishings could be used in the kitchen areas of the condominiums. I do not agree. Such disputes could also easily spill over outside of operational and project management into other issues such as marketing. This could not have been what the Parties intended.
[64] All of these disputes are non-legal issues beyond those contemplated by the Agreement and would lead to numerous iterations as to what the Project should look like and potentially endless trips to the Arbitrator and this Court.
[65] Instead, as I read the Agreement, the Parties created an Agreement that required unanimous decision-making with the potential that a deadlock could result. That is what has occurred here with respect to the hotel. The Parties got exactly what they bargained for when they drafted the Agreement. There is no doubt that there is a disagreement concerning the hotel, but it is one that they bargained for in the Agreement. It cannot, therefore, be resolved by way of arbitration.
[66] Further, there is no standard of review for this dispute in the Agreement. Inherent in any arbitration is the Arbitrator having a clear standard contained in the agreement between the parties The Arbitrator found the standard of review could simply be: “the bests interests of the Project as per Article 5.16”. Article 5.16, however, only deals with the overarching principle that the Parties must make decisions in good faith and is not linked to the current issue in dispute.
[67] This begs the question as to what constitutes the best interests of the Project: would it be the highest and best use of the Project or some other standard of review? Here, no standard of review for the dispute exists.
[68] This does not mean, however, that the Parties have to remain in deadlock. Options are available to them. First, the obvious option is compromise, failing which the property could be sold by the Parties, or one Party could transfer its interest as per the provisions of Article 7.
[69] I believe that my conclusion that the Arbitrator does not have jurisdiction to determine the issue in dispute, is supported by Mr. J. Brian Casey’s comments in his text, Arbitration Law of Canada, 3rd ed (New York: Juris, 2017), at pp. 7-8, where he notes:
If the parties agree, an arbitral tribunal may settle a dispute by “amiable composition” or “equity and good conscience.” The award in such a case is as binding and enforceable as any other arbitral award. Such a case is decided not necessarily on the basis of law and equity as those terms are known to the courts, but rather on what is “fair” in the circumstances. A tribunal hearing a matter under amiable composition may disregard the strict legal rights and duties of the parties and determine the matter on what appears to be right and just in the circumstances. This does not allow the tribunal to ignore the contract between the parties, but it does allow the tribunal to disregard the rigours of the law, where to strictly apply it would be in a general sense, unfair. In fact, the arbitrator has a duty to apply this notion of equity and not follow strict legal principles unless he or she can show that the strict rule of law is in conformity with that is fair[^1].
Resolving a dispute by means of an amiable compositeur may be of benefit in international arbitrations where no particular law has been agreed to by the parties and a true “business decision” is sought to resolve a dispute. However, under the Domestic Acts and the Model Law, the arbitral tribunal may decide ex aequo et bono, or as amiable compositeur, only in circumstances where the parties have expressly authorized it to do so[^2]. Amiable composition does not permit the arbitrator to disregard the fundamental rules of procedure required by the Model Law or the Domestic Acts, such as the obligation to treat the parties fairly, to hear both sides, and to observe due process. (Emphasis added).
[^1]: See the French case of Halbout & Matenec HG v. Hanin, Cass. Civ. 2e, 15 February, 2001. [^2]: UNCITRAL Model Law on International Commercial Arbitration 1985, Art. 28(3). The Domestic Acts do not have a comparable provision, as amiable composition was not known to the common law. The Domestic Acts provide that the arbitral tribunal shall decide in accordance with law, including equity (for example Ontario domestic Act s.31). This is not a mandatory section and can thus be altered by the parties’ express agreement.
[70] I agree with Mr. Casey’s sentiments and in this case have found that the Parties by virtue of the provisions of the Agreement did not provide the Arbitrator with the express authorization to determine the issue of dispute between them, i.e. the configuration of the Project insofar as the inclusion of a hotel is concerned.
[71] For all the reasons above, therefore, I find that the Arbitrator’s decision was incorrect and grant the order and declaration sought by 110.
DISPOSITION
[72] An order shall therefore go setting aside the decision of the Arbitrator as well as a declaration that the Arbitrator does not have jurisdiction over the claim brought by Great Gulf.
[73] The Parties have agreed with respect to the issue of the payment of costs notwithstanding who should prevail on this Application and therefore no order in this regard is required.
McEwen J.
Released: March 25, 2022
COURT FILE NO.: CV-20-00653364-00CL
DATE: 20220325
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
1107051 ONTARIO LTD.
Applicant
– and –
GG KINGSPA ENTERPRISES LIMTED PARTNERSHIP
Respondent
REASONS FOR JUDGMENT
McEwen J.
Released: March 25, 2022