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ONCA: Appellate powers under the Arbitration Act should be used with caution

by Dana Carson and Linda Mochon

In its recent decision in Tall Ships Development Inc. v. Brockville (City)[i], the Court of Appeal for Ontario reviewed the appellate powers under sections 45 and 46 of the Arbitration Act[ii], under which judges may review arbitration awards.

Key Facts

The City of Brockville (“Brockville”) and Tall Ships Landing Development Ltd. (“Tall Ships”) entered into a partnership to develop waterfront property on the St. Lawrence River in downtown Brockville. After a number of issues arose in connection with the project, the parties agreed to arbitrate the following claims advanced by Tall Ships:

1. Brockville’s liability for the difference between the estimated and actual cost of construction.
2. Brockville’s refusal to pay invoices for certain environmental remediation costs.
3. Tall Ships’ claim for certain interest payments.

The arbitrator dismissed all three claims.

Pursuant to their arbitration agreement, the parties agreed that the arbitrator’s decision would be final, and that only questions of law would be subject to appeal under the Arbitration Act. Despite this, Tall Ships challenged the arbitrator’s awards in three separate applications to the Ontario Superior Court of Justice, relying on sections 45(2) and 46(1) of the Arbitration Act which permit appeals of arbitral awards to the court on questions of law. 

On appeal, the application judge set aside the three awards and ordered a new arbitrator for reconsideration. The application judge found that the arbitrator erred in finding that Tall Ships breached obligations that were not pleaded or argued by Brockville, that he failed to apply the appropriate legal analysis for implying contractual terms and that his conclusion that Tall Ships breached its duty of good faith could not stand because it resulted from an improper implication of a contractual term.

Brockville appealed the application judge’s finding to the Court of Appeal for Ontario.

The Court of Appeal Decision

The appeal turned on whether the application judge incorrectly categorized questions of mixed fact and law as extricable questions of law that warranted the court’s intervention. The court allowed the appeal, concluding that none of the alleged errors made by the arbitrator could properly be considered extricable errors of law and that there were no breaches of procedural fairness that could attract review pursuant to the Arbitration Act.

In its reasoning, the Court of Appeal emphasized the principles established by the Supreme Court of Canada in Sattva Capital Corp. v. Creston Moly Corp.[iii] confirming that judges exercising their appellate powers under section 45 of the Arbitration Act should be cautious about extricating questions of law from the interpretation process and that such circumstances “will be rare”.[iv] The Court of Appeal further emphasized that “[f]ailing to exercise such caution will result in the very inefficiencies, delays and added expense that choosing an arbitral process seeks to avoid.”[v]

Similarly, section 46 of the Arbitration Act sets out the grounds on which a court may set aside an arbitral award. In its reasoning, the Court of Appeal highlighted the narrow basis for setting aside an arbitral award under this section, clarifying that it is not concerned with the substance of the parties’ dispute and is not to be treated as an alternate appeal route:

“[S]ection 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.”[vi]

Key Takeaway

While the Arbitration Act allows parties to challenge and set aside arbitral awards, there is only a narrow basis for doing so. Judges exercising their appellate powers to interfere with arbitral awards should be cautious about extricating questions of law from the interpretation process.

[i] 1991, S.O. 1991, c. 17 (the “Arbitration Act”).

[ii] 2022 ONCA 861.

[iii] 2014 SCC 53.

[iv] Supra note 2 at para. 16.

[v] Supra note 2 at para. 3.

[vi] Supra note 2 at para. 95.