Canada – Narrow Basis For Excess Jurisdiction Set Aside Challenges Reaffirmed

This article was first published in the Arbitration Matters Blog, here.

In Mensula Bancorp Inc. v. Halton Condominium Corporation No. 137, 2022 ONCA 769, the Ontario Court of Appeal overturned a Superior Court set aside decision and restored an arbitral award. The Court reiterated and underscored directives from  Alectra Utilities Corporation v. Solar Power Network Inc., 19 ONCA 254: There is a narrow basis for set aside challenges to arbitral awards on the ground  of alleged excess of jurisdiction. Review of the substance of the arbitral award is not authorized. The correctness or reasonableness of the arbitrator’s decision is irrelevant. Set aside is not an appeal.

Background – Halton Condominium Corporation No. 137 (“HCC 137”) is a condominium corporation with residential units and parking units. Mensula Bancorp Inc. (“Mensula”) owned parking units within HCC 137. Mensula wanted access to the parking units through HCC 137’s condominium hallways and lobby. HCC 137 maintained Mensula’s only access was by way of an external staircase. 

Key documents establishing a condominium under the Condominium Act, 1998, S.O. 1998,c. 19 (Condo Act), include the declaration and bylaws. The HCC 137 Declaration established rules concerning parking units and use of common elements such as hallways and the lobby. Section 132 of the Condo Act directs declaration disputes to arbitration. HCC 137 Bylaw No. 6 set out an arbitration process. 

Mensula initiated arbitration, seeking an order requiring HCC 137 to provide parking unit access via the condominium common elements. The arbitrator rejected Mensula’s interpretation of the HCC 137 Declaration as “absurd”: “it could never have been intended that the owner or tenants of these 43 parking units could simply wander through the residential building for no known purpose. This would be antithetical to the very purpose of the Declaration which is to frame sensible rules governing community living.”  The arbitrator determined that Mensula’s sole access to the parking units was through the external staircase. 

Mensula applied to set aside the arbitral award under s. 46(1)3 of theArbitration Act, 1991, S.O. 1991, c. 17 (AA), which provides grounds for set aside where: “[t]he award deals with a dispute that the arbitration agreement does not cover or contains a decision on a matter that is beyond the scope of the agreement.”  

Superior Court decision – In  Mensula Bancorp Inc. v. Halton Condominium Corp. No. 137, 2021 ONSC 2575, Justice Vermette summarized the main issue in the set aside application at para 27:  “…did the arbitrator simply engage in an interpretation exercise within the scope of his jurisdiction, as alleged by HCC 137, or did the arbitrator go beyond a contractual interpretation exercise and in effect amend the Declaration to correct what he thought was an error or inconsistency in the Declaration, thereby exceeding his jurisdiction, as alleged by Mensula?”

Justice Vermette set aside the arbitral award, finding the arbitrator went beyond his jurisdiction to interpret the HCC 137 Declaration and instead corrected and amended that document: 

“[30]  Without expressing any view with respect to the reasonableness of the arbitrator’s conclusions regarding errors and consistencies [sic] in the Declaration, I am of the opinion that the arbitrator crossed the line between interpretation and correction/amendment in this case. While the issue of Mensula’s access to the common elements of HCC 137 was properly before him, he was not satisfied with the answer provided by the plain language of the Declaration, and he purported to deal with and correct what he thought were errors and inconsistencies in the Declaration. In doing so, he decided a matter that was beyond the scope of the arbitration agreement in this case because the correction of errors and inconsistencies in the Declaration is a matter for the Superior Court of Justice under section 109 of the Condo Act.”

Court of Appeal decision – Justice Zarnett (Benotto and Copeland JJ.A concurring) restored the arbitral award and reconfirmed that s. 46(1)3 of the AA is to be narrowly interpreted. The Court referenced its detailed explanation of this set aside ground inAlectra Utilities Corporation v. Solar Power Network Inc., 2019 ONCA 254, emphasizing key points from that decision. He noted that in Alectra the court stated that s. 46(3) of the Arbitration Act, 1991, allows for only limited review for jurisdictional error; it is not an appeal route and the correctness or reasonableness of the the arbitrator’s decision is not relevant (paras. 41 – 44):

“[25] Although the court cannot apply s. 46(1)3 without having regard to an arbitrator’s decision, the court’s authority to set aside an arbitration award under that subsection depends on the mandate the arbitration agreement confers on the arbitrator to resolve a particular dispute. In order to succeed on an application to set aside an arbitration award, an applicant must establish either that the award deals with a dispute that the arbitration agreement does not cover or contains a decision on a matter that is beyond the scope of the arbitration agreement.

[26] For example, if an arbitration agreement provides that an arbitrator shall resolve a particular question and the arbitrator does so, the court has no authority to set aside the award on the basis that the arbitrator’s decision is unreasonable or incorrect. If, however, in the course of resolving the particular question remitted the arbitrator asks and answers an additional second question, the award may be set aside — not because the arbitrator’s answer to the second question is unreasonable or incorrect, but because the arbitrator had no authority to reach any conclusion on the second question at all.

[27] In short, s. 46(1)3 requires that arbitrators act within the bounds of the authority granted by the arbitration agreement pursuant to which they are appointed – no less, but no more. Section 46(1)3 is not an alternate appeal route and must not be treated as such.”

[Note: Bolded text above was italicized by the Court of Appeal in Alectra; non-italicized text was underlined by Justice Zarnett in the subject decision]

The Court disagreed that the arbitrator corrected or amended the HCC 137 Declaration:

“[46] …[T]he arbitrator nowhere said that he was correcting or amending the declaration. He did not refer to any party requesting he do so, or describe that as anyone’s position. He did not cite any test for doing so. He did not say he was making an order that the declaration be corrected or amended. By his reference to a reasonable interpretation of the declaration in its context based on surrounding circumstances at the time of its formation, it is clear that he was deciding what the declaration always meant, not that it had meant something else which now had to be changed.

[47]  The application judge referred to the arbitrator having expressed a “common sense interpretation of the [d]eclaration” and to his engagement in a “contractual interpretation exercise”. As the arbitrator had the jurisdiction to interpret the declaration and did so, the court’s task under s. 46(1)3 was over. The application judge erred in proceeding to superimpose a different characterization of what the arbitrator did – calling it “in effect” an amendment – by reviewing the substance of the arbitrator’s award and considering whether a proper interpretive analysis could justify it.”

Contributor’s Notes: 

First, subsection 46(1)3 of the AA is based on Article 34(2)(iii) of the UNCITRAL Model Law on International Commercial Arbitration (the “Model Law”). Equivalent set aside provisions are found in multiple Canadian domestic and international arbitration acts. As such, the Court of Appeal decisions in Alectra and this case provide important direction for courts and counsel beyond Ontario considering set aside applications for alleged excess of jurisdiction. Both Ontario decisions also provide much-needed guidance on differentiating the role of the court in applying set aside and appeal provisions. The latter are a non-Model Law addition, with notable variation in scope across the country in some Canadian domestic arbitration acts.

Second, the Court of Appeal decision in Alectra was considered in Arbitration Matters Case Note: Ontario – once court finds arbitrator acted within jurisdiction, it cannot consider merits in exercise of that jurisdiction – #184. Justice Benotto was a panel member in Alectra  and on this appeal. 

Third, Justice Vermette’s Superior Court decision was summarized in Arbitration Matters Case Note: Ontario – jurisdiction to correct/ amend document affecting others reserved to Superior Court by legislation #493. 

author

Jonathan Eades

Jonathan Eades is Senior Legal Counsel in the British Columbia Ministry of Attorney General.

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