Endorsement
Court File No.: CV-24-96162
Date: 2025/02/03
Ontario Superior Court of Justice
Re: Andrew Abraham and A. Abraham Holdings, Applicants
And: Lukus Abraham, Respondent
Before: Justice A. Kaufman
Counsel:
Christopher Spiteri, Eugene Meehan K.C., and Cory Giordano, Counsel for the Applicants
Geoffrey Cullwick and Alexandra Mazgola, Counsel for the Respondent
Heard: November 12, 2024
Introduction
1The applicants apply for an Order pursuant to s. 46 of the Arbitration Act to set aside the award of Arbitrator Rohan Bansie dated May 17, 2024, and bring a motion for leave to introduce fresh evidence.
Background
2Andrew Abraham (“Andrew”) and Lukus Abraham (“Lukus”) are cousins who started a business named Ottawa Capital Management Corporation in 2013, which later became OCM Financing Group Ltd. (“OCM”). OCM provides funding for car loans.
3On August 27, 2021, Lukus’ employment with OCM was terminated due to concerns regarding his involvement in other businesses that competed with OCM. Andrew and Lukus reached a settlement on September 23, 2022 (the “Settlement Agreement”), which required Andrew to pay Lukus 35% of all sums that he or A. Abraham Holdings obtained from OCM and related entities. The agreement stipulated that Andrew would advance Lukus $10,000 per month, with a reconciliation to be conducted annually. Additionally, Lukus was entitled to a lump sum payment of $350,000 by June 30, 2023.
Non-Disparagement Obligation
4Lukus signed a statutory declaration on the same day as the Settlement Agreement, in which he covenanted not to "disparage Andrew Abraham or any other corporate entities, brands, and marks controlled or associated with Andrew Abraham."
5Andrew ceased making the $10,000 monthly payments in January 2023 and failed to make the $350,000 payment by June 30, 2023. He claimed that Lukus disparaged a company called PURR, of which Andrew was a director.
The Arbitration
6The Settlement Agreement stipulated that any disputes arising from it would be resolved by a single arbitrator in accordance with the Arbitration Act, 1991 (the “Act”). Lukus and Andrew entered into an arbitration agreement that provided that the arbitrator’s award “shall be final and binding upon the parties” and “shall not be appealed by either party”.
7Lukus commenced arbitration proceedings on June 23, 2023, alleging that the applicants breached the Settlement Agreement by failing to pay the amounts owed to him. He sought an order for the payment of these amounts. In the event that the arbitrator found that Lukus breached the Settlement Agreement by disparaging PURR, he sought relief from forfeiture as an alternative.
8Two weeks after Lukus initiated the arbitration proceedings, Andrew and OCM commenced an action in the Superior Court seeking damages resulting from Lukus' alleged fraudulent conduct.
9In their initial response to the Notice of Arbitration, the applicants alleged that Lukus disparaged PURR on December 22, 2022. They also alleged that:
a. Subsequent to the execution of the Settlement Agreement, they discovered that Lukus had been defrauding OCM during the term of his employment; and
b. Lukus breached the confidentiality provisions of the Settlement Agreement when he referenced that agreement in the Statement of Defence he filed in the Superior Court.
10The applicants initially claimed that the Settlement Agreement was void because Lukus concealed the fact that he had been defrauding OCM. They argued that they would not have entered into the Settlement Agreement had they been aware of Lukus’ fraudulent activities.
11Lukus responded to all the applicants’ allegations, including the claim that he defrauded OCM. He filed affidavits from several witnesses to address this issue.
12The applicants subsequently amended their response to the Notice of Arbitration, abandoning the allegations that Lukus had defrauded OCM, and they no longer sought recission of the Settlement Agreement based on Lukus’ fraudulent conduct. The arbitration then proceeded on the issues of Lukus’ alleged disparagement of PURR and the breach of the confidentiality provisions.
13On May 17, 2024, Arbitrator Bansie released his decision. He concluded that there was no evidence that Lukus knew or should have known about the relationship between PURR, Andrew, OCM, or any related OCM entities. Additionally, he found that there was insufficient evidence to support the claim that Lukus made the disparaging comments attributed to him.
14Concerning the allegation that Lukus breached the confidentiality of the Settlement Agreement, it was a term of the Agreement that disclosure could be made for the purpose of implementing or enforcing the agreement, or as required by law, provided that advance notice was given to the other party. Arbitrator Bansie concluded that Lukus had informed Andrew that portions of the Settlement Agreement would be referenced in his Statement of Defence when he served Andrew's counsel. As a result, he found that Lukus did not breach the confidentiality provisions of the Settlement Agreement.
15Arbitrator Bansie ordered Andrew to pay Lukus $632,588 owed to him pursuant to the Settlement Agreement, plus interest and costs.
This Application
16On June 17, 2024, the applicants commenced this application to set aside the arbitral award. They allege that the arbitrator failed to draw an adverse inference from Lukus’ failure to call a witness, did not conduct a proper credibility analysis, incorrectly imposed an evidentiary burden on the applicants, failed to explain how the award was calculated, and misinterpreted the word “disparagement” by neglecting to consider the surrounding circumstances. The applicants contend that the arbitration decision is vitiated by a series of shortcomings that amount to blatant breaches of the rules of natural justice and procedural fairness, thereby contravening sections 19 and 46 of the Act.
Motion to Adduce Fresh Evidence
17The applicants seek leave to introduce, as fresh evidence in this application, the Affidavit of Jennifer Lynch, sworn on August 19, 2024. Ms. Lynch is the President and Principal Forensic Accountant of Lynch & Associates. She attaches two exhibits to her affidavit: her resume and a Forensic Accounting Report (FAR) that she prepared for OCM.
18The applicants retained Ms. Lynch in relation to the Superior Court action they initiated on July 6, 2023. They obtained the FAR on August 15, 2024. Ms. Lynch examined Lukus’ "activities" during his time as an Operations Manager. She was tasked with quantifying OCM’s losses resulting from Lukus’ outside business activities. Ms. Lynch concluded that OCM suffered $299,151 in "verifiable losses" and an additional $316,585 in "unverifiable losses." She based her findings on the assertions made in Andrew and OCM’s Statement of Claim.
19The factors governing the admission of fresh evidence were articulated by the Supreme Court of Canada in R. v. Palmer:
i) The evidence was not discoverable by reasonable diligence before the end of the trial;
ii) The evidence must be relevant in the sense that it bears upon a decisive or potentially decisive issue in the trial;
iii) The evidence must be credible in the sense that it is reasonably capable of belief; and
iv) The evidence must be conclusive in the sense that it could reasonably be expected to have affected the result.
20The applicants’ motion to adduce fresh evidence fails on the second and fourth factors; it is not relevant and could not have affected the outcome of the arbitration.
21The relevance of the fresh evidence should be assessed with respect to 1) the issues to be decided in the arbitration and 2) the grounds upon which this application is based. The FAR is not relevant to either of these considerations.
22Whether Lukus defrauded OCM by engaging in outside activities was an issue that the applicants initially raised but later abandoned in the arbitration. Instead, they chose to advance this issue in a separate action before this Court. Since the applicants removed this issue from the arbitration, the FAR does not relate to any matters that were before the arbitrator.
23The applicants argue that the FAR supports their allegations that Lukus engaged in fraudulent conduct and that the Settlement Agreement could be rescinded on that basis. The applicants initially sought this remedy in the arbitration but later abandoned that request for relief. The interests of justice are not served when litigants address certain issues at trial, those issues are resolved in a manner deemed unsatisfactory by one litigant, and then that litigant attempts to present a completely new theory and introduce evidence supporting a different theory from what was originally considered. (Osborne v. Pavlick, 2000 BCCA 11, para 10)
24Moreover, as will be further discussed below, the applicants have no right to appeal from the arbitral award. Their only remedy is found in s. 46 of the Act, which sets out an exhaustive list of grounds on which a court may set aside an arbitral award. The applicants rely on section 46(1)(6), arguing that the arbitrator’s failures amounted to "blatant breaches of the rules of natural justice and procedural fairness." However, the FAR does not pertain to any potential breaches of procedural fairness in the arbitration; it addresses an issue that was simply not advanced during the arbitration.
25Finally, the applicants argue that the FAR is relevant to the issue of relief from forfeiture, which the arbitrator decided in Lukus’ favor. The arbitrator found that there was insufficient evidence to conclude that Lukus had disparaged a company he knew (or should have known) was associated with OCM, and that he did not breach the confidentiality provisions of the Settlement Agreement. The arbitrator also concluded that he would have granted relief from forfeiture even if these breaches were demonstrated, as no evidence was presented to support any misconduct by Lukus towards Andrew, the alleged breaches were not significant, and there was no evidence that Andrew suffered any harm arising from the alleged breaches.
26The applicants contend that the FAR is relevant to the doctrine of “clean hand”, which may prevent a court from granting relief from forfeiture. They argue, however, that the clean hands doctrine comes into play only if the Court accepts that the arbitrator committed breaches of procedural fairness. The applicants argue that it would be inequitable to enforce the award based on the arbitrator’s subsidiary conclusion that he would have granted relief from forfeiture.
27I will now turn to consider the merits of the applicant’s application.
This Application Challenges the Merits of the Arbitral Award
28The Act offers two avenues to challenge an arbitral award: appeals under section 45 and reviews under section 46. Section 45 allows the parties to specify rights of appeal in their arbitration agreement (on questions of law, mixed fact and law, and/or fact). If the arbitration agreement is silent regarding appeals, the Act provides a default right of appeal solely on questions of law, and only with leave of the Court.
29Pursuant to section 3 of the Act, the parties to an arbitration agreement may agree to vary or exclude most of the Act’s provisions, including section 45. In this case, the parties excluded the right to appeal from the arbitral award in accordance with section 3.
30However, section 46 of the Act cannot be excluded by agreement. Section 46(1) provides an exhaustive list of grounds on which a court may set aside an arbitral award. The grounds for review enumerated under section 46 are considered essential to maintaining arbitration’s legitimacy as a form of alternative dispute resolution. These grounds include, in section 46(1)(6), the requirement that parties be treated equally and fairly, given an opportunity to present or respond to a party’s case, and be provided with proper notice of the arbitration.
31This court has already determined that the arbitral award should be enforced, and that this application constitutes an impermissible appeal of the merits of the arbitration award. Shortly after this application was commenced, Lukus filed a separate application to enforce the award. The Honourable Justice Ryan Bell granted Lukus’ application, concluding that it constituted “an impermissible attempt to use section 46(1)(6) as a broad appeal route to challenge the Arbitrator’s findings, which the parties expressly agreed in section 5 of the arbitration agreement would be immune from appeal.” (Abraham v. Abraham, 2024 ONSC 531, para 25)
32I adopt paragraphs 19 to 27 of Ryan Bell J.’s reasons as my own. Section 46 authorizes a court to set aside an arbitral award on "limited and specific grounds" which "are, in general, not concerned with the substance of the parties’ dispute." (Alectra Utilities Corporation v. Solar Power Network Inc., 2019 ONCA 254, para 24) Section 46 is not to be treated as an alternate appeal route. (Tall Ships Development Inc. v. Brockville (City), 2022 ONCA 861, para 2)
33I am satisfied that the complaints raised against the award are substantive in nature and could only have been pursued within the context of an appeal.
Disposition
34For the preceding reasons, the applicants’ motion to adduce fresh evidence, as well as this application, are dismissed with costs to the respondent. The parties have agreed that costs in the amount of $15,000 should be awarded to the respondent.
35I award costs in the amount of $15,000 to be paid by the applicants to the respondent.
A. Kaufman
Date: February 3, 2025