While an arbitrator’s ruling can come under occasional scrutiny, it is unusual for the court to reverse their ruling.
However, in the case of Mattamy (Downsview) Limited vs. KSV Restructuring Inc. (Urbancorp), nearly $6 million was at stake.
As outlined by Jason Annibale and Kyle Lambert, both partners with McMillan LLP, Mattamy and Urbancorp jointly owned Downsview Homes Inc. (DHI), a developer of a residential construction project in Toronto.
When Urbancorp sold its interest in DHI to Mattamy as part of a proceeding under the Companies Creditors Arrangement Act, they couldn’t agree on the consulting fees owed to Urbancorp under their co-ownership agreement. Urbancorp claimed it was owed $5.9 million based on a calculation of “gross receipts,” as defined by the co-ownership agreement and the corresponding 1.5 per cent consulting fee entitlement.
They sought arbitration to resolve the matter.
The arbitrator was the Honourable Frank J.C. Newbould, K.C., a judge with the Ontario Superior Court of Justice from 2006 until his retirement in 2017. Newbould is described on the website of Thornton Grout Finnigan LLP as having, “a reputation as a ‘giant’ in commercial law from his career spent as a judge, counsel and arbitrator.”
“Determining the consulting fees required the arbitrator to evaluate the definition of ‘gross receipts’ in the agreement, which provided that gross receipts included all cash revenues for any accounting period as determined in accordance with the accounting standards for private enterprises (ASPE),” write Annibale and Lambert.
Newbould asked the parties, “to make submissions regarding ASPE and other matters related to when the proceeds of sale for certain of DHI’s residential condominiums were deemed to be received for the purpose of calculating Urbancorp’s consulting fees.”
This was deemed a “new issue” by virtue of Newbould raising the matter himself.
“Mattamy sought to file an affidavit containing excerpts from an ASPE interpretive handbook and other evidence responsive to the new issue,” write Annibale and Lambert. “Urbancorp objected to some of Mattamy’s affidavit but did not contest adducing the handbook as evidence.”
However, during a case conference, Newbould struck all reference to the handbook without providing any written reasons. He simply stated he had a “mind of his own,” and awarded Urbancorp the full $5.9 million.
Although Justice Kimmel of the Ontario Superior Court ruled Newbould had the jurisdiction to consider this new issue, he was not satisfied that the arbitration process was thorough in the absence of the handbook. He set the $5.9 million award aside and directed the parties to proceed with a new arbitration before a different arbitrator.
He was clear in his reasoning.
“I find that the arbitrator’s refusal to admit certain evidence that Mattamy sought to tender in respect of the new issue (with the consent of the respondents) was procedurally unfair to Mattamy and led to a failure of natural justice in the arbitration process.”
By Kimmel’s own admission, overturning an award made by an arbitrator was a challenge.
“The court does not lightly interfere with arbitration awards,” he wrote.
As Annibale and Lambert suggest, Kimmel’s decision, “is a reminder that while arbitral decisions are rarely overturned, they remain subject to judicial scrutiny and will be overturned where there is procedural unfairness and a failure of natural justice. Parties choose arbitration as a faster, less procedurally formal, and less adversarial process in comparison to court action. In following the ‘mind of his own,’ the arbitrator contributed to the sort of process that the parties sought to avoid in choosing arbitration in the first place.”
On another point, Bruce Reynolds, co-managing partner of Singleton Urquhart Reynolds Vogel LLP, and associate Nicholas Reynolds write, “The arbitrator’s decision to address the issue via case conference rather than formal motion appears to have been a significant factor, as the latter would have undoubtedly provided a more thorough procedure. In future, wary arbitrators may err on the side of caution in addressing similar issues.”
John Bleasby is a Coldwater, Ont.-based freelance writer. Send comments and Legal Notes column ideas to firstname.lastname@example.org.