Appointments Without Appeal: TSCC No. 2299 V Distillery SE Development Corp. And The Prohibition On Appealing Court Appointments Of Arbitrators

The limits of court jurisdiction to interfere in an arbitration process is a topic of seemingly constant debate. Parties to arbitrations who may be unhappy with a procedural or substantive matter frequently turn to the courts for assistance, testing the limits of the judicial role when arguing that the circumstances warrant or empower a court to intervene. Just a few months ago, in Clayton v Canada (Attorney General),¹ the Ontario Court of Appeal prohibited a party from using a manufactured jurisdictional issue as "a transparent attempt to circumvent clear limits on the ability of courts to interfere with the decisions of arbitration boards" [for further discussion on Clayton v Canada, see my previous blog post here]. The Court of Appeal's recent decision in TSCC No. 2299 v Distillery SE Development Corp.,² released last month, further confirms that courts will not abide overly semantic or technical arguments seeking to "end-run" the clear requirements of arbitration legislation and the limited role courts are intended to have in the arbitration process.

TSCC No. 2299 v Distillery SE Development Corp. related to the constitution of an arbitral tribunal to resolve a dispute under a Shared Facilities Agreement between a condominium corporation ("TSCC 2299") and a development company ("Distillery"). The agreement provided that, failing settlement, disputes were to be resolved by binding arbitration, where the parties "may agree on a single arbitrator or may each appoint an arbitrator who would agree to appoint a single arbitrator."

When disputes arose under the agreement and they were not resolved by negotiation and mediation, TSCC 2299 served a notice of arbitration in 2018. The parties agreed on an arbitrator, but the arbitration did not proceed at the time. TSCC 2299 later served a Fresh as Amended Notice of Arbitration in 2022 (the "2022 Notice"). Distillery objected to the scope of disputes in the 2022 Notice.

TSCC 2299 brought a court application seeking an order appointing the arbitrator who had been agreed at the time of the initial notice of arbitration, and confirming that all issues raised in the 2022 Notice were within his jurisdiction.

The application judge upheld the parties' prior agreement on the appointment of an arbitrator, rejecting Distillery's arguments that the agreement had been repudiated. She did not determine whether the issues in the 2022 Notice were properly before the arbitrator, leaving the arbitrator to determine his own jurisdiction and mandate.

Distillery appealed the application judge's decision. TSCC 2299 moved to quash the appeal.

The Ontario Court of Appeal quashed Distillery's appeal on the basis that the application judge's order was made pursuant to s. 10(1) of the Arbitration Act (the "Act") (which empowers a court to appoint an arbitral tribunal on a party's application where certain circumstances exist), and s. 10(2) of the Act precludes appeal of an appointment under s. 10(1).

In reaching this conclusion, the court rejected a number of arguments made by Distillery:

1. Distillery argued that the application judge's order had not been made pursuant to s. 10(1) of the Arbitration Act, as that provision was not specified either by TSCC 2299 as a basis for the application or by the application judge as a basis for the authority. Instead, Distillery asserted, the order was made under Rule 14.05(3)(d) of the Ontario Rules of Civil Procedure (which permits a court to determine rights under a contract on application), and therefore the order was appealable.The court disagreed. Although the application was not expressly premised on s. 10(1) of the Act, it did refer to the Act, and s. 10(1) is the only provision that contemplates court appointment of an arbitrator. Further, regardless of whether the application judge cited s. 10(1) as the source of her authority, that still is where her authority came from.
2. Distillery argued that the conditions for s. 10(1) of the Act to apply were not present. Pursuant to s. 10(1), a court may appoint an arbitrator if (a) the arbitration agreement provides no procedure for appointing the arbitral tribunal, or (b) a person with power to appoint the arbitral tribunal has not done so after seven days' notice. As a matter of statutory interpretation, the court found that, where parties jointly have the power to appoint an arbitrator and either fail to agree or refuse to follow through on an agreement, this constitutes a person with power to appoint the arbitral tribunal failing to do so. With Distillery having refused to follow through on its agreement with respect to arbitrator appointment, the court's powers under s. 10(1) were engaged.
3. Distillery argued that the portion of the application judge's order relating to the arbitrator's power to determine his own jurisdiction and mandate was separate from the appointment order, and therefore not subject to the prohibition on appeals in s. 10(2) of the Act. The court disagreed. This section of the order did no more than give effect to s. 17 of the Act, which empowers an arbitral tribunal to rule on its own jurisdiction. It was not severable and did not exceed the application judge's authority to make an appointment or engage a separate appeal regime.

Distillery's attempt to effectively do an "end-run" around s. 10 of the Act therefore was unsuccessful.

By upholding the letter and spirit of the applicable provisions of the Act, the Court of Appeal reiterated that it takes seriously its limited statutory role in relation to arbitrations, and intends to stay squarely within the boundaries circumscribing that role.

Footnotes

1. Clayton v Canada (Attorney General), 2024 ONCA 581.

2. Toronto Standard Condominium Corporation No. 2299 v Distillery SE Development Corp., 2024 ONCA 712.