Overview:

In D Lands Inc. v. KS Victoria and King Inc., 2022 ONSC 1029, the Ontario Superior Court of Justice summarized the legal principles to be applied when determining whether parties have a right of appeal in contracts that are silent on the issue of appeals, and more particularly, where the agreement was executed under the former Ontario Arbitrations Act and was then arbitrated under the Ontario Arbitration Act, 1991, which provided for different default rights of appeal. 

The court found that parties could rely on the default rights of appeal set out in the arbitration legislation governing the contract at the time of formation, only if the arbitration agreement was specifically subject to that legislation. The court also found that reference in the agreement to the determination of the tribunal being “conclusive upon the parties” was not a clear and unequivocal signal that the parties intended to waive a right to appeal. As such, the Ontario Superior Court of Justice found there was a right of appeal, and allowed the appeal to proceed, where it was ultimately dismissed.

This case reminds parties that it is best practice to expressly provide for or waive the right to appeal in an arbitration agreement to avoid uncertainty in the event that the governing law changes.

Background

This case concerned a 99-year lease of lands at 18 King St. East, in the City of Toronto (the “Lease”), between D Lands Inc. (the “Landlord”) and KS Victoria and King Inc. (the “Tenant”). Both the Landlord and the Tenant are successors to the parties who negotiated the Lease in 1968. Rent for the Lease resets every 25 years, and the Landlord and the Tenant were unable to agree on the rent for the 25-year period commencing December 1, 2018. In accordance with the terms of the Lease, the Landlord and the Tenant arranged for an arbitration before a three-member tribunal to determine the rent, based on the “appraised value of the Demised Premises”.

In its award, the majority of the tribunal (the “Majority Award”) determined that the appraised value of the Demised Premises at December 1, 2018 was $63.3 million. 

The Landlord sought to appeal the Majority Award, and brought an application pursuant to section 45(1) of the Arbitration Act, 1991, seeking leave to appeal.1 In the alternative, the Landlord sought to have the Majority Award set aside on the basis that the tribunal was acting outside its jurisdiction.

Application for Leave

In the application for leave to appeal, the parties disagreed on whether the Landlord was entitled to appeal the Majority Award. 

The parties' arbitration agreement included provisions that the court summarized as follows:

(a) arbitrations are to be conducted by a 3-member or 1-member arbitral tribunal in accordance with the “rules then obtaining of the American Arbitration Association”; and

(b) the determination of the majority of arbitrators or sole arbitrator shall be conclusive upon the parties and judgement upon the same may be entered in any court having jurisdiction thereof.

The Landlord submitted that section 45 of the Ontario Arbitration Act, 1991 applied to the arbitration, which allowed an appeal to the court on a question of law with leave. 

The Tenant argued that there was no right of appeal, because the governing statute when the Lease was drafted, the former Ontario Arbitrations Act,2 required parties to opt in to a right of appeal, which they did not. The Tenant also argued, and the court agreed, that the proper approach to determining which legislation applied was set out by the Ontario Court of Appeal in L.I.U.N.A., Local 183 v. Carpenters and Allied Workers Local 27 (“LIUNA”):

The proper approach to the problem of agreements containing arbitration clauses that overlap the provisions of the former and present Arbitration Acts, is to analyze each agreement within the context that it was written.3 

Since the Lease was silent on the right to an appeal, the court had to determine the intention of the original parties by examining the language of the agreement and the circumstances surrounding its making.4 The court considered two factors: (1) whether the language of the arbitration agreement in the Lease suggested that it was governed by the Arbitrations Act; and (2) whether the parties had expressly waived the right to appeal, regardless of which legislation applied.

Comparing the language of the arbitration agreement in the Lease to the language of the arbitration agreement in LIUNA, the court held that the original parties did not make their agreement with reference to the Arbitrations Act, and simply agreed to be bound by the rules promulgated by the American Arbitration Association (“AAA”) at the time of arbitration:

In LIUNA, the provisions of the regime in force at the time – the 1980 Arbitrations Act – were a critical consideration in the analysis. The parties to the arbitration agreement in LIUNA agreed to a “speedy resolution of any dispute … by final and binding arbitration under the Arbitrations Act, R.S.O. 1980, c. 25.” However, in the case at bar, the original parties to the Lease did not make their arbitration agreement subject to the regime in force at the time, being the 1960 Arbitrations Act. Rather, they opted out of the 1960 Arbitrations Act and specifically availed themselves of the “rules then obtaining” of the American Arbitration Association governing Canadian domestic arbitrations.5 

At the time the Lease was made, the rules promulgated by the AAA were the Canadian-American Commercial Arbitration Facilities Rules of Procedure. By the time of the arbitration, the rules promulgated by the AAA were the ICDR Canada Rules. Neither set of rules directed that the arbitration be conducted under any particular legislation and both sets of rules were silent on rights of appeal from an arbitration award. The court, therefore, found that the Arbitration Act, 1991 applied, since that statute expressly applies to arbitrations conducted under arbitration agreements made before it came into force, and was the legislation in force at the time of the arbitration.6

The court then considered whether the original parties expressly excluded the right to an appeal, by stating in their agreement that the determination of the tribunal shall be “conclusive upon the parties”. After considering the meaning of the term “conclusive” and the relevant case law, the court held that the phrase “conclusive upon the parties” was not sufficiently clear and unequivocal to waive the right to an appeal. Specifically, the court accepted the reasoning in the UK case Shell Egypt West Manzala GmbH v. Dana Gas Egypt Ltd.:

I accept Mr Hildyard's submission that meaning has to be given to the word ‘conclusive' in the phrase ‘final, conclusive and binding on the parties'. However, in my judgment all three words, in context, are apt to describe the effect of a valid arbitral award on the parties, even in the absence of any agreement excluding the right of appeal. To some extent the meanings conveyed by each of the three words overlap; but this does not, in my view, point to a conclusion that the clause, let alone the word ‘conclusive', should be construed as an agreement to exclude rights of appeal.

…

I agree that the word ‘conclusive' does not alter the position, and that a phrase such as ‘final, conclusive and binding' in the context of an arbitration agreement such as cl 14 of the FIA does no more than restate what has long been the rule in relation to arbitrations, namely that an award is final, conclusive and binding in the traditional sense, in that it creates a res judicata and issue estoppel. Such words, by themselves and absent any other contextual indicators, are not sufficient, in my judgment, to amount to an agreement to exclude rights of appeal under s 69 of the 1996 Act.7

The court, therefore, held that the Landlord had the right to appeal the arbitration award. 

Standard of Review and Appeal of Majority Award

Acknowledging the current controversy around the standard of review for arbitration awards, the court held that the standard of review applicable to the issues raised by the Landlord – i.e., failure to interpret the Lease in accordance with governing principles of contractual interpretation and failure to apply binding authority – was correctness.8

The court held that the majority of the tribunal correctly identified and relied on the principles of contractual interpretation set out in Sattva Capital Corp. v. Creston Moly Corp and in Weyerhaeuser Company Limited v. Ontario (Attorney General).9 It also held that the majority did not ignore binding jurisprudence.10 Therefore, it dismissed the Landlord's appeal.

Moreover, the court held that the Landlord had not raised a true issue of jurisdiction, and dismissed its application to have the Majority Award set aside.

Key Take-Aways

This case reminds parties to arbitration agreements that it is risky to rely on the default rights of appeal set out in legislation. Parties ought to carefully consider and clearly set out in their contracts their intentions with respect to a right to appeal arbitration awards. This is particularly true where an arbitration agreement is part of a long-term contract, such as a lease, that could apply in the context of present and future arbitration legislation. As this case shows, parties that silently rely on the default for appeals set out in the governing legislation at the time a contract is formalized, may find themselves unintentionally opting-in to or waiving a right to appeal, particularly if and when legislation changes. 

Parties who are interested in having their agreements governed by specific legislation should indicate which version of the law applies, including or excluding amendments as is appropriate for their intentions. Further, parties who have long-standing contracts that provide for arbitration ought to periodically review those agreements and the relevant legislation, to ensure that their intentions are clearly captured in their arbitration agreement, and have not been affected by changes in the relevant legislation. Because parties are able to control almost all aspects of the arbitration process through the arbitration agreement, they should revisit their agreement periodically, and before a dispute arises, to verify that the agreement still fits their needs and to make any necessary amendments.

Footnotes

1. Arbitration Act, 1991, S.O. 1990, c. 17.

2. Arbitrations Act, R.S.O. 1960, c. 18.

3. Labourers' International Union of North America, Local 183 v. Carpenters and Allied Workers Local 27 (1997), 1997 CarswellOnt 2605, 34 O.R. (3d) 472 (C.A.) at para. 20 [LIUNA].

4. LIUNA at para. 20.

5. D Lands Inc. v. KS Victoria and King Inc., 2022 ONSC 1029 at para. 34.

6. D Lands Inc. v. KS Victoria and King Inc., 2022 ONSC 1029 at para. 51; Arbitration Act, 1991, s. 2(2).

7. Shell Egypt West Manzala GmbH v. Dana Gas Egypt Ltd., [2009] EWHC 2097 (Comm) at paras. 45, 47; emphasis added by the Ontario Superior Court.

8. D Lands Inc. v. KS Victoria and King Inc., 2022 ONSC 1029 at paras. 59-64.

9. Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53; Weyerhaeuser Company Limited v. Ontario (Attorney General), 2017 ONCA 1007.

10. D Lands Inc. v. KS Victoria and King Inc., 2022 ONSC 1029 at para. 125.

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