The Ontario Court of Appeal recently released a decision in Optiva Inc. v. Tbaytel, 2022 ONCA 646, upholding an application judge’s arising from an arbitration involving a breach of contract claim. One of the main issues in dispute was whether the arbitrator had jurisdiction to hear and decide a summary judgment motion.
The respondent, Tbaytel, is an independent provider of telecommunication services. In June 2016, Optiva Inc. agreed to sell Tbaytel various services and software products. A series of problems arose which resulted in Tbaytel terminating the contract in March 2018. Tbaytel alleged various breaches by Optiva.
In the contract, the parties had agreed that disputes arising out of, or in connection with, the contract would be resolved by arbitration. The parties entered into an arbitration agreement, naming the arbitrator and describing the arbitrator’s powers.
Tbaytel sought to bring a summary judgment motion. The arbitrator held that some of the issues could be properly resolved by way of a summary judgment motion. Ultimately, the arbitrator concluded that Optiva breached the contract. The arbitrator held that Tbaytel was entitled to terminate the contact and recover monies paid out under, or in reliance on, the contract. The arbitrator granted a partial award of $4,390,000 in favour of Tbaytel.
Optiva moved in Superior Court for an order setting aside the arbitrator’s award pursuant to ss. 17 and 45 of the Arbitration Act, 1991 (“the Act”). Optiva also sought leave on questions of law pursuant to s. 45 of the Act. The application judge refused to set aside the arbitrator’s order and dismissed Optiva’s application for leave to appeal.
The Court of Appeal granted leave to appeal from the application judge’s order, but ultimately dismissed the appeal.
1. Did the application judge err in holding that Optiva’s application was governed by s. 17 of the Arbitration Act, and that Optiva had failed to challenge the ruling that Tbaytel could proceed by summary judgment within 30 days of receiving notice of the ruling as required by s. 17(8) of the Act?
The Court of Appeal turned to s. 17(1) of the Act, which provides in part that an arbitral tribunal may rule on its own jurisdiction to conduct the arbitration. Section 17(8) of the Act states that if an arbitral tribunal rules on an objection on a preliminary question, a party may, within 30 days after receiving notice of the ruling, make an application to the court to decide the matter.
In the application before the Superior Court of Justice, Tbaytel submitted that Optiva was required to bring an application before the Superior Court to challenge the arbitrator’s preliminary ruling within 30 days of the arbitrator giving notice of the decision. Optiva did not do this and, instead, proceeded with the arbitration and only challenged the ruling afterwards.
Optiva argued that s. 17 of the Act had no application to procedural orders, such as the one made by the arbitrator and further argued that the arbitrator did not have the authority to proceed with a summary judgment motion.
Optiva relied on Inforica Inc. v. CGI Information Systems and Management Consultants Inc., 2009 ONCA 642, which is the leading decision governing s. 17 of the Act. In Inforica, the Court concluded that the arbitrator’s decision to proceed by way of summary judgment was not a decision under s. 17(1) of the Act. As such, s. 17(8) of the Act did not apply.
As a result, the Court of Appeal held that the application was not out of time.
2. Did the application judge err in holding that the arbitrator could proceed by way of summary judgment motion?
The Court of Appeal held that the application judge did not err in holding that the arbitrator could proceed by way of summary judgment motion. Optiva submitted three reasons in support of its position on this issue: (1) the arbitration agreement was silent on the availability of a summary judgment procedure; (2) despite the terms of the arbitration agreement, s. 26 of the Act gave Optiva the right to an oral hearing; and (3) the summary judgment procedure followed by the arbitrator resulted in unfairness to Optiva.
The Court rejected Optiva’s submissions. First, the agreement was far from silent on the arbitrator’s authority to decide on the procedures to be followed in the course of the arbitration, as it provided several examples of the kinds of motions the arbitrator could hear and gave broad interpretative powers.
Secondly, the phrase “presentation of evidence” in s. 26 of the Act does not necessarily involve the presentation of viva voce evidence only and given that it was ultimately a procedural question, it was within the arbitrator’s discretion to decide on how evidence would be heard.
Thirdly, Optiva agreed that the arbitrator could determine the procedures governing the arbitration, and Optiva had a full and fair opportunity to challenge the case.
3. Did the application judge err in holding that the arbitrator did not base his interpretation of the limitation of liability clause on a legal theory not advanced by either party?
The Court of Appeal determined that the arbitrator did not introduce a new untested theory of liability. Optiva relied on a limitation of liability provision in the agreement to try to limit damages owing to Tbaytel.
Tbaytel submitted that the limitation of liability provision applied only to contractual breaches arising out of the “performance of services” under the agreement and maintained the position that Optiva’s breaches arose out of “non-performance” of the agreement.
Tbaytel filed a case authority in support of its argument, but counsel for Tbaytel did not refer to this authority in oral argument. The arbitrator referred to the case authority in the decision, but not the passage that was highlighted by counsel for Tbaytel.
Optiva argued that the arbitrator’s reference to the case authority introduced a new theory of liability, which it did not have an opportunity to address.
The Court of Appeal accepted the proposition that a decision based on a legal theory which a party had no opportunity to address in evidence or argument is a fundamentally unfair decision and cannot stand. However, the Court of Appeal rejected the argument that the arbitrator introduced a new untested theory of liability.
The Court of Appeal held that the arbitrator’s analysis flowed from the common sense observation that conscious and wilful conduct in violation of the terms of the contract cannot be characterized as conduct performed “in the rendering of services” under the contract.
In any event, the Court of Appeal stated that Optiva had the opportunity to address anything of relevance in the case authority in issue. Neither the arbitrator, nor counsel, were restricted to reading only the passages highlighted by counsel for Tbaytel.
4. Did the application judge err in refusing to grant leave to appeal from the arbitrator’s interpretation of the limitation of liability clause in the contract, and/or the arbitrator’s interpretation of the arbitration agreement?
The Court of Appeal found that the application judge did not err in refusing to grant leave to appeal from the arbitrator’s interpretation of the limitation of liability clause and of the arbitration agreement. The Court confirmed that refusal to grant leave under s. 45 of the Act, as a general rule, is not appealable to the Court. The refusal to grant leave is appealable if it reflects an erroneous declining of the jurisdiction given to the Superior Court judge to grant leave under s. 45.
The application judge did not decline to exercise his jurisdiction to determine whether leave to appeal should be granted under s. 45. Instead, he refused leave on the merits.
The biggest takeaway from this decision is that the Court of Appeal affirmed that an arbitrator has the ability to hear and determine a summary judgment motion, unless perhaps such a motion is specifically prohibited under an arbitration agreement.
The Court of Appeal has previously stated, in Popack v. Lipszyc, 2016 ONCA 135, that, if the parties select the arbitrator and fashion their own rules governing the conduct of the arbitration, judicial oversight of the conduct or outcome of the arbitration is very limited.
Parties should carefully consider the terms of an arbitration agreement. The broader the powers given to the arbitrator in the arbitration agreement, the less likely the court will intervene in the arbitrator’s exercise of those powers.