Host of recent decisions bolster Canada's reputation as arbitration-friendly jurisdiction

This article was produced in partnership with ADR Chambers

Mallory Hendry of Canadian Lawyer sat down with Barry Arbus, mediator and arbitrator at ADR Chambers, to discuss the state of arbitration in Canada.

When it comes to judicial intervention in arbitration, there’s a lot going on these days says Barry Arbus, mediator and arbitrator at ADR Chambers.

One of the main problems Arbus has been seeing lately is the venue that the dispute will be heard in. People don’t read their agreements before they head off to court. Historically, when parties disagreed they’d go to litigation lawyers, who would run to court to get the action started. But oftentimes the agreement states that if there’s a dispute, arbitration is the first and only port of call. 

“People have to make sure they’re in the right venue before they start the slings and arrows,” Arbus says. “I see parties head to court only to have the judge read the agreement and tell them the issue should be arbitrated. There’s more of that going on lately than you would believe.”

The agreements are traditionally drafted by business lawyers who understand better than litigators that arbitration is a far less expensive and more expedited process than litigation.

The second issue Arbus views as a hot topic is the role of the court in reviewing an arbitration decision. Canada is often promoted as an “arbitration-friendly” jurisdiction with a judiciary that is supportive of arbitration, and court intervention is expressly limited by statute. Arbus regularly writes about cases involving judicial intervention in arbitration awards and the court’s consistent reluctance to intervene. Most recently, Arbus considers the question of whether a summary judgment motion in arbitration constitutes a “hearing” under arbitration legislation.

Optiva Inc. v. Tbaytel involved a post-award challenge to an arbitrator’s decision to proceed by way of summary judgment without the consent of the defendant. The defendant objected to this, arguing the arbitrator didn’t have jurisdiction to proceed absent its consent. The Ontario Superior Court of Justice ruled that the defendant failed to advance a convincing argument that by proceeding by summary judgment, on notice, it was deprived of the opportunity to present a case or respond to the plaintiff’s case. Remaining arguments were rejected and the court dismissed the defendant’s application to set aside the arbitrator’s award, establishing that an arbitral tribunal has jurisdiction to preside over and issue an award arising out of a motion for summary judgment — even where one of the parties objects.

The decision also provides guidance as to what is considered to be a “hearing” in any arbitration in Ontario, Arbus says, and despite differences between Ontario’s Arbitration Act and the International Commercial Arbitration Act, neither “requires ‘hearings’ in the context we would expect in a courtroom.”

“Whether domestic or international, what is important is whether the process followed by the arbitrator permitted adequate consideration of the facts and application of the law,” Arbus says.

Another recent case, while fact-specific, offers helpful guidance to counsel and arbitrators dealing with a non-participating party to an arbitration. In Vanhof & Blokker Ltd. v. Vanhof & Blokker Acquisition Corp., the Ontario Superior Court of Justice dealt with an appeal from an arbitral award where the arbitration proceeded in the absence of one of the parties, and one of the issues to be decided was whether the arbitrator erred in proceeding with the hearing without the appellants.

The court ruled the arbitrator was correct to proceed in the absence of the appellants in accordance with s. 27(3) of the Arbitration Act, which states: “If a party fails to appear at a hearing or to produce documentary evidence, the arbitral tribunal may, unless the party offers a satisfactory explanation, continue the arbitration and make an award on the evidence before it.”

The arbitrator had the jurisdiction to hear the dispute pursuant to the consent order of the parties and their agreement on the choice of arbitrator, Arbus notes, and most importantly there was no objection to jurisdiction raised at the arbitration hearing. The Arbitration Act requires that all objections to jurisdiction are to be made before the arbitrator, he adds.

“Notably, in certain circumstances, the parties need not agree to the Terms of Appointment in order for the arbitration to proceed,” Arbus says. "In all circumstances, however, parties and their counsel must be mindful of any requirements imposed by the applicable arbitration statute.”

While Arbus notes most of these cases aren’t novel or ground-breaking, they add to a growing body of Canadian “arbitration-friendly” jurisprudence. However, it is important to recognize that when supported by the facts of the case, the courts aren’t afraid to step in.

A recent decision out of the Supreme Court of British Columbia is an example of this. Shahcheraghi v. Divangahi involved a petition for judicial review from an order of an arbitrator of the Residential Tenancy Branch (RTB) pursuant to the Residential Tenancy Act (RTA). The landlord argued the arbitrator’s 11-page written decision was “patently unreasonable” and that the reasons given by the arbitrator were so deficient it was impossible to discern the rationale for the conclusions they had reached.

Because BC’s Administrative Tribunals Act doesn’t define the standard of patent unreasonableness as it relates to a tribunal’s findings of fact and law, the standard in this context was defined by the common law. The court found the arbitrator’s reasons didn’t meet the minimum standard articulated in Laverdure v. First United Church Social Housing Society, and therefore the arbitrator’s decision was “arbitrary and irrational” as “the parties should not be left to guess.” The petition was allowed, the arbitrator’s order set aside and the matter was remitted to the RTB for reconsideration.

While the decision points out that the reviewing court must be mindful of the institutional context within which a statutory decision-maker functions and that the reasons of an arbitrator under the RTA are not to be held to the standard expected of a superior court judge, the case also "makes clear that every decision-maker should endeavor to satisfy the requirements set out in Laverdure - failure to do so will put a decision at risk,” Arbus says. The lesson is that the arbitrator has the authority to hear most disputes and the courts will approve and rule on them. If a decision is patently deficient or unreasonable, courts will not hesitate to jump in and set aside a decision.

Overall, Arbus says the time and cost saved by providing for arbitration in an agreement will benefit the clients of business and corporate lawyers, and Canada’s reputation as an arbitration-friendly jurisdiction will remain intact.

“The quality of commercial arbitrators available today are exceptional,” Arbus says. “Only rarely will the courts intervene to overrule an arbitrator’s decision.”

Barry is an experienced mediator and arbitrator who specializes in business and corporate matters, including domestic and international mergers and acquisitions. Barry has mediated and arbitrated two-party and multi-party matters in automotive, entertainment, hospitality, food, communications, commodities, agriculture, and primary resources. He is a member of the Canadian Arbitration Association, the Toronto Commercial Arbitration Society, the International Bar Association, the American Bar Association, the Canadian Bar Association, the Ontario Bar Association and the Canadian Tax Foundation.