It has been commonplace to include arbitration clauses in commercial agreements. The benefits of arbitrating disputes rather than litigating over them are well known. Arbitrations are usually considered to be a cheaper and faster way to adjudicate disputes than litigation. Typically, arbitrations are seen to be the better approach particularly when the parties expect to continue to do business with each other after the dispute has been resolved. For example, where a dispute arises during a contract where the performance of obligations by each side is expected to continue on a long-term basis and the dispute is not serious enough for either party to actually terminate the agreement, arbitrations are thought to be a somewhat less acrimonious and certainly more efficient way of handling the issue at hand.
Often, one of the key features of arbitration has to do with the limits on appeal rights. It is not uncommon for an arbitration clause to provide that there simply is no appeal of any kind from the arbitrator’s decision.
A limit on appeals may seem like a good idea at the time the contract is signed. Presumably, neither party actually anticipates there is going to be a dispute during the course of the business relationship and it may provide some comfort to know that if there is a dispute, its resolution will not be dragged out by an appeal process.
However, this feature becomes a lot less appealing when one engages in an arbitration to resolve a dispute and loses. What then?
An arbitration provision that provides that the arbitration’s decision is final will be interpreted by the court in exactly that manner – as final. If it turns out that the arbitrator didn’t understand the evidence or simply got it wrong in the opinion of one of the parties (or perhaps both), that’s simply too bad. That is a risk that one takes when entering into such an agreement. Presumably, the risk cuts both ways.
Having said that, in Ontario, the Arbitration Act does provide for some recourse in certain circumstances. Section 46 of the Act allows an unhappy party to ask the court to set aside an arbitration award on the basis that the arbitrator failed to conduct the hearing in a procedurally fair manner. For example, an award can be set aside by a party who is not treated equally and fairly, was not given an opportunity to present its case or respond to the opponent’s case, or was not given proper notice of the arbitration or the appointment of an arbitrator.
There is often a temptation to bring such a motion on the basis of allegedly unequal or unfair treatment when all that has really happened is that one of the parties does not like the award. In the recent case of Aquanta Group Inc. et al. v. Lightbox Enterprises Ltd., 2023 ONSC 971, Aquanta applied to the court for an order to set aside the award because a few days before the commencement of the arbitration, the arbitrator dismissed its motion to amend its pleading. The arbitrator, a retired trial judge, had considered the arguments on both sides and exercised his discretion to dismiss the motion and require the arbitration to proceed as scheduled.
At the motion to set the award aside, Aquanta argued that the arbitrator’s refusal to allow it to amend its pleading amounted to unfair and unequal treatment. The court disagreed and dismissed the motion.
In doing so, the judge relied on a decision of the Ontario Court of Appeal released in December 2022 called Tall Ships Development Inc. v. Brockville (City), 2022 ONCA 861. In that case, the Court of Appeal made it abundantly clear that the basis for setting aside an award for procedural unfairness is extremely narrow. That provision of the Act “is not concerned with the substance of the parties’ dispute and is not to be treated as an alternate appeal route.”
Accordingly, it appears clear that at a motion to set aside an award, the court will not consider the substantive issues in the dispute. It will only concern itself with matters of a procedural nature. In the Lightbox decision, for example, the issue was not whether or not the arbitrator exercised his discretion correctly or even reasonably. The only issue was whether or not the arbitrator had the jurisdiction to make the decision that he made. As the arbitrator acted within the bounds of the authority granted to him by the arbitration agreement, that ended the matter. Arbitration clauses in commercial agreements have become popular because they offer the possibility of a speedy resolution to disputes. However, an arbitration provision with no appeal rights does present some element of risk which should be considered carefully before the agreement is signed.