In Toronto Standard Condominium Corporation No. 2299 v. Distillery SE Development Corp ("Distillery SE"), 2024 ONCA 712, the Ontario Court of Appeal considered the issue of whether a party could appeal a court order appointing an arbitrator, and in particular, whether that order could be construed as flowing from any statutory provision other than s. 10(2) of the Arbitration Act (the "Act")(which precludes appeals to the court's appointment of an arbitral tribunal).
In quashing the appeal, the Court of Appeal affirmed its limited supervisory role in overseeing arbitrations (including in respect of appointments of arbitrators) and explained when s. 10 of the Act would be triggered.
Below, we review the case and consider the implications of this decision.
Factual Background
Distillery SE Development Corp ("Distillery") and Toronto Standard Condominium Corporation No. 2299 ("2299") were parties to a Shared Facilities Agreement (the "SFA") in respect of a condominium property on 70 Distillery Lane in Toronto.1 The SFA provided a dispute resolution process which included provisions related to negotiation and mediation. In circumstances where a settlement was not achieved through either negotiation or at mediation, disputes under the SFA were to be resolved by way of binding arbitration. The SFA contemplated that any arbitration would be overseen by a single arbitrator.
Disputes arose in 2018 under the SFA. The Parties were unable to resolve these disputes by negotiation or mediation. As a result, 2299 served a Notice of Arbitration (the "2018 Notice") proposing a single arbitrator. On July 24, 2018, the parties agreed in writing (the "July 2018 Agreement") on an arbitrator to proceed with the hearing of the dispute (the "Original Arbitrator"). For reasons not discussed in the case, the arbitration did not proceed before the Original Arbitrator at that time. Subsequently, in 2022, 2299 served a Fresh as Amended Notice of Arbitration (the "2022 Notice") proposing a different arbitrator.
The 2022 Notice generated disagreement between the Parties regarding three issues: (1) whether the new issues in the 2022 Notice should be part of the arbitration; (2) whether an additional party should be added as a party to the arbitration; and (3) who would serve as the arbitrator.
As noted, in the 2022 Notice, 2299 had proposed an arbitrator other than the Original Arbitrator. In response, Distillery reminded 2299 of the existence of the July 2018 Agreement to appoint the Original Arbitrator. Distillery also noted its objection to the 2022 Notice.
In the face of Distillery's objections, 2299 would not confirm the July 2018 Agreement to appoint the Original Arbitrator, but stated instead that it was willing to proceed before him if the arbitration included the new matters in the 2022 Notice.
Based on 2299 not confirming the July 2018 Agreement to appoint the Original Arbitrator, Distillery purported to agree that there was no agreement to appoint the Original Arbitrator, while maintaining its objection to the 2022 Notice.
As a result, the parties appeared to be at an impasse, and 2299 was unable to progress the arbitration.
The Superior Court Decision
2299 brought an application seeking, among other things, an order to appoint the Original Arbitrator as arbitrator for the dispute under the SFA, and to confirm that the Original Arbitrator, once appointed, would have jurisdiction to consider all issues raised in the 2022 Notice and render an award in respect of same. The application was made under ss. 6, 7, and 17 of the Act as well as r. 14 of the Rules of Civil Procedure.
Distillery argued that the July 2018 Agreement to appoint the Original Arbitrator had been repudiated by 2299, and that this agreement did not extend to appointing the Original Arbitrator to decide disputes under the 2022 Notice.
Conversely, Distillery sought for the 2022 Notice to be quashed altogether on the basis that it raised claims not yet eligible for arbitration, as the negotiation and mediation procedures under the SFA had not yet been completed in respect of those issues added to the 2022 Notice (i.e., issues which were not in the 2018 Notice).
The application judge rejected Distillery's argument that 2299 had repudiated this agreement, and instead found that the parties had in fact agreed in 2018 that the Original Arbitrator would serve as the arbitrator for the disputes under the SFA.
The application judge left the issues related to the 2022 Notice to the Original Arbitrator, directing him to determine his jurisdiction.
The Court of Appeal Decision
Distillery appealed the lower court's decision on two grounds: (1) the application judge erred in law in failing to find that the agreement to appoint the Original Arbitrator was repudiated; and (2) even if there was a subsisting agreement to appoint the Original Arbitrator for the disputes in the 2018 Notice, the application judge was wrong not to limit the Original Arbitrator's appointment to those issues.
For its part, 2299 moved to quash the appeal, arguing that Distillery had no right to appeal an order appointing an arbitrator in these circumstances. 2299 argued that the application judge's order was made under s. 10(1) of the Act, and appeal from it was precluded by s. 10(2):
"10 (1) The court may appoint the arbitral tribunal, on a party's application, if
[...]
(b) a person with power to appoint the arbitral tribunal has not done so after a party has given the person seven days notice to do so.
(2) There is no appeal from the court's appointment of the arbitral tribunal." [emphasis added]
The Court of Appeal found it unnecessary to deal with either of Distillery's grounds of appeal, as the matter could be resolved solely by reference to 2299's motion to quash.
Distillery argued that the application judge had relied on r. 14.05 of the Rules in making their order, but neither 2299 nor the application judge cited to s. 10 of the Act. Therefore, s. 10 did not apply and Distillery was not precluded from appealing.
However, the Court of Appeal explained that r. 14.05 is not a provision that confers jurisdiction upon the Court to appoint an arbitrator – r. 14.05 only prescribes a permissible procedure for the determination of certain matters within the jurisdiction of the Superior Court. Furthermore, the application judge did not need to cite the source of authority to make the appointment order. Since the authority to appoint came from the Act, it came from s. 10 irrespective of whether the application judge explicitly referred to that provision or not.
Distillery also argued that the appointment order could not have been made under ss. 10(1)(a) or (b) of the Act, as they only pertained to narrow circumstances not applicable in this case. However, the Court concluded (based on the modern rules of statutory interpretation2) that where the parties jointly have the power to appoint an arbitrator pursuant to an arbitration agreement, they are jointly the "person with the power to appoint". If they either: (1) fail to agree, or (2) reach an agreement but then one party refuses to follow through on it, "a person with power to appoint the arbitral tribunal has not done so" has occurred, and therefore a court's discretionary power to appoint under s. 10(1)(b) of the Act is triggered.
In reaching this conclusion, the Court first relied upon the text of s. 10, which the Court concluded was not limited to a person with the sole or exclusive authority to make the appointment; rather, that language extends to a person whose power resides in the requirement under their arbitration agreement to an appointment.
Next, the Court noted that the context and purpose of the Act supported this reading, insofar as the Act contemplated an important but limited role for the courts in matters subject to arbitration agreements. An interpretation of Act allowing a court to appoint an arbitrator where the appointment is frustrated by the failure of the parties to agree, or a failure to carry out an agreement on who the arbitrator will be, furthers the role of the courts in assisting the conduct of arbitration.
On this point, the Court also observed that an interpretation of s. 10(1) permitting the Court to respond where there is a "log jam" in the appointment of an arbitrator is consistent with the Court's limited role in supervising arbitrations.
In relation to Distillery's reliance on r. 14.05, the Court of Appeal also firmly rejected the proposition that that the Superior Court's authority to appoint an arbitrator is simply the Superior Court's general jurisdiction to enforce an agreement.
First, s. 6 of the Act provides that "[n]o court shall intervene in matters governed by this Act, except for the following purposes, in accordance with this Act", such that the idea of a free-standing jurisdiction, outside the Act, would be inconsistent with the Act's foregoing restriction on court intervention. Similarly, the Court observed that placing the jurisdiction to appoint outside of the Act would amount to doing an "end around the restrictions on appeal rights" of the Act, which was contrary the very purpose of its restrictive appeal rights framework.
As a result of all the foregoing, the Court quashed Distillery's appeal.
In that regard, the Court rejected Distillery's argument that the portions of the appointment order not specifically dealing with appointment – including issues of the arbitrator's jurisdiction, mandate, and the addition of a further party – were not part of the prohibition on appeals.
Analysis
Distillery SE is another welcome addition to the body of Ontario case law that confirms the limited nature of court intervention in Ontario arbitrations.
In that regard, the Court of Appeal was faced with certain clever arguments from Distillery that a different, less arbitration-friendly court might have seized upon in order to expand court oversight of arbitrations. Accordingly, Distillery offers a number of small but important takeaways.
First, it is noteworthy that the Court of Appeal expressly confirmed that if parties have a joint power to appoint an arbitrator, they are collectively "the person with the power to appoint" pursuant to s. 10(b) of the Act. This result may be somewhat surprising insofar as the plain language of s. 10(b) refers to "a person" and not "persons", thus suggesting a singular person rather than multiple; on the other hand, however, the plain language to the effect that "a person" has the power to appoint does not suggest that they are the only person who holds that power; rather, as noted, it can be held jointly. Consequently, it is now clear that if the parties to an arbitration agreement fail to agree, or one party reneges on an appointment, a court's appointment power under the Act can be triggered and cannot be appealed. This should provide some comfort to parties who unfortunately find themselves in a dispute over a previously-agreed upon arbitrator, or in circumstances where a party seems unwilling to cooperate in the appointment process.
Second, the Court prioritized substance over form in its determination that explicit reference to s. 10 of the Act is not necessary in every instance of an appointment application in order to engage the Court's appointing power. This is a welcome conclusion insofar as it limits the extent to which an appointment application can be resisted upon technical grounds (although some would arguably dispute characterizing such an issue as "technical"). However, it is important to note that in this case 2299 did state that its application was made under the Act, and also referenced s. 6 of the Act. Therefore, it seems that at least some reference to the Act would be necessary in case of an appointment application (with best practice obviously being express reference to s. 10).
Finally, it is interesting to consider the Court of Appeal's rejection of Distillery's argument that the portions of the appointment order not specifically dealing with appointment – including jurisdiction, mandate, and the addition of a further party – were not part of the appeal prohibition. While the issue of jurisdiction intuitively makes good sense insofar as it is consistent with the competence-competence principle, it is not universally the case that challenges to the jurisdiction of an arbitrator must first be referred to the arbitrator.3
Accordingly, it seems at least plausible that Distillery may have had a credible position that the issue of jurisdiction should have been considered separately from the issue of appointment. It is not clear what was meant by "mandate" in this case and how it differed from the issue of jurisdiction, but the issue of adding a further party to the arbitration was intriguing insofar as adding a non-party to the arbitration agreement without their consent would, ironically, require assistance from the Court in any event in order to compel the non-party to participate (thus bringing the parties back before a court).
Footnotes
1. Toronto Standard v Distillery SE, 2023 ONSC 5340 at para 4.
2. See Rizzo & Rizzo Shoes Ltd, 1998 CanLII 837 (SCC) at para 21 and R v Basque, 2023 SCC 18 at para 63.
3. As we have written about elsewhere, the Court of Appeal has also confirmed that challenges to the jurisdiction of an arbitrator must normally be referred to the arbitrator, unless they involve (1) pure questions of law or (2) questions of mixed fact and law that can be determined by a superficial review of the evidence in the record (see our articles here and here).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
