Ontario Court of Appeal emphasizes narrow basis for setting aside arbitral award

Court upholds three arbitration awards in favour of Brockville

Ontario Court of Appeal emphasizes narrow basis for setting aside arbitral award

The Ontario Court of Appeal has ruled that there is a narrow basis for setting aside an arbitration award concerned only with extricable questions of law.

The dispute in Tall Ships Development Inc. v. Brockville (City), 2022 ONCA 861, arose from a public-private partnership agreement (PPPA) between the city of Brockville and Tall Ships Landing Development Ltd. to develop a waterfront property on the St. Lawrence River in downtown Brockville. The project aimed to create a significant draw to the city, which had suffered from a dwindling tax base and a declining manufacturing industry over previous decades. The project included a mixed residential and commercial condominium tower and the Maritime Discovery Centre.

Tall Ships undertook to remediate and develop the waterfront project and sell it to Brockville for a price agreed in the purchase agreement between the parties. The purchase price included the cost of construction, the budget for which was defined in the agreement as $7.4 million.

However, upon completion of the project, Tall Ships claimed approximately $1.8 million in additional construction costs from Brockville. Tall Ships asserted that Brockville was aware that construction was over budget, and the design changes, which inevitably led to cost increases, were approved.

Brockville refused to pay the additional costs, arguing that it was unaware that construction costs exceeded the budget until the project was substantially complete and that it had not consented to any increases over the $7.4 million budget.

Brockville also refused to pay invoices of $929,893 for remediation costs on the grounds that they were out of time pursuant to the Brownfields Agreement (BA). The city also disputed Tall Ships’ claim for interest. Tall Ships did not advise Brockville that it would be claiming interest on the invoice before the closing date but asked for prime plus five percent in interest on its statement of claim.

Arbitration awards

The parties submitted the claims to arbitration and agreed on the arbitrator’s appointment. Tall Ships’ claims were eventually dismissed after a four-week hearing.

The arbitrator rejected Tall Ships’ claim for remediation costs in the first award under the BA. The process for the claims was set out in the BA, and the arbitrator held that Tall Ships was deemed to have accepted Brockville’s determinations because it had failed to send dispute notices within the 15-day deadline specified in the agreement. As a result, the arbitrator concluded that Tall Ships’ claim was out of time and statute barred.

In the second award, the arbitrator found that Tall Ships was responsible for the cost overruns because it failed to keep Brockville informed despite knowing that the project would be much larger and cost substantially more than initially planned.

In the third award, the arbitrator rejected Tall Ships’ claim for interest on an invoice paid a year after it was submitted. The arbitrator found that Tall Ships did not advise Brockville that it would be claiming interest on the invoice before the closing date but asked for prime plus five percent in interest in its statement of claim. The arbitrator concluded that Tall Ships was effectively estopped from claiming this interest.

Awards set aside

On appeal, the application judge had set aside the three arbitral awards and ordered a new arbitrator to preside over the matters upon reconsideration.

Brockville asserted that the questions before the arbitrator were of mixed fact and law, which did not give rise to any right of appeal under the Arbitration Act and the arbitration agreement between the parties. On the other hand, Tall Ships asserted that the arbitrator committed extricable errors of law and breached their rights to procedural fairness. Consequently, Tall Ships argued that the application judge ruled correctly.

No extricable questions of law

The matter reached the Ontario Court of Appeal, which ruled that the application judge made an error by characterizing questions of mixed fact and law as extricable questions of law. The court said, “Section 46 of the Arbitration Act cannot be used as a broad appeal route to bootstrap substantive arguments attacking an arbitrator’s findings which the parties had agreed would be immune from appeal.”

The court pointed out that the parties agreed that the arbitrator’s decision was final, subject only to appeals on questions of law under the Arbitration Act. The court emphasized that there is a narrow basis for setting aside an arbitral award under s. 46 of the Arbitration Act, which is “not concerned with the substance of the parties’ dispute and is not to be treated as an alternate appeal route.”

The parties agreed that only questions of law would be subject to appeal. The appeal court warned that judges exercising their appellate powers under the Arbitration Act should be cautious about extricating questions of law from the interpretation process.

“Failing to exercise such caution will result in the very inefficiencies, delays and added expense that choosing an arbitral process seeks to avoid,” the appeal court said.

In this case, the court found that none of the alleged errors made by the arbitrator could properly be considered extricable errors of law. Likewise, the court did not find any breaches of procedural fairness that could attract review under s. 46 of the Arbitration Act. As a result, the court allowed the appeal and reversed the application judge’s decision.

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