Ontario Court sets aside arbitral award, finding procedural fairness violation where arbitrator refused to admit evidence filed with consent.

Facts

The Applicant, Mattamy, held a 49 per cent stake in the landholding company that owned the Downsview Project lands in Toronto. In the context of proceedings under the Companies' Creditors Arrangement Act, Mattamy acquired Urbancorp's majority 51 per cent share in that landholding company.

The transaction gave rise to several disputes. One was over the alleged entitlement by an entity in the Urbancorp group, to a consulting fee under a co-ownership agreement pertaining to the Downsview Project (the COA).

One of the parties' main disagreements was the meaning of "Gross Receipts" as defined in the COA, which was relevant to calculating the consulting fee. Specifically, they disagreed on whether Gross Receipts included the purchase price of residential condominium units that had been sold, but where the deal had not closed as of the Transfer Date (another defined term). Urbancorp argued these sale proceeds were included; Mattamy argued they were not.

At the hearing, the Arbitrator raised three questions the parties did not canvass in their pre-hearing submissions or evidence. All the questions pertained to the Gross Receipts issue. One of them was: "[W]hat do the ASPE [accounting standards for private enterprises] require for the sale of residential condominium units?" It was uncontested that the Arbitrator raised these three sub-issues for the first time during the hearing; neither party raised them in their materials. The Arbitrator agreed to adjourn the hearing so the parties could lead additional evidence and submissions on these new points.

Included in the new evidence that Mattamy sought to adduce was an affidavit attaching excerpts from the Real Property Association of Canada's handbook entitled "Recommended Accounting Practices for Real Estate Investment and Development Entities Reporting in Accordance with ASPE" (the Handbook). Although Urbancorp objected to some of the evidence, it did not object to the Handbook excerpts.

The Arbitrator scheduled a case conference to address the evidentiary issues. Before the case conference, Mattamy advised Urbancorp that if it maintained its objection to some of the evidence, Mattamy would bring a motion for leave to admit the contested evidence. The Arbitrator refused to hear a formal motion. Instead, he said he would decide the evidentiary issue at the case conference. He allowed the parties to make written and oral submissions.

The Arbitrator struck all references to the Handbook in the affidavit despite admitting other evidence related to the ASPE revenue recognition policy. The Arbitrator did not provide written reasons for his ruling. He nevertheless acknowledged Urbancorp's consent to the Handbook's inclusion. However, he apparently stated that he had a "mind of his own."

The Arbitrator rendered an award granting Urbancorp the full amount it claimed as consulting fees ($5.9 million).

Decision

Mattamy brought an application before the Ontario Superior Court of Justice (Commercial List) to set aside the award. It argued the Arbitrator exceeded his jurisdiction and violated procedural fairness in refusing to admit the Handbook excerpts into evidence despite Urbancorp's consent.

The Court granted Mattamy's application, set aside the award and removed the Arbitrator. It disagreed with Mattamy that the Arbitrator exceeded his jurisdiction. Although the questions he raised on his own motion invoked points the parties had not, they fell within the larger rubric of the parties' dispute over the consulting fees under the COA.

However, the Court found that the Arbitrator's unprompted decision to exclude the Handbook violated procedural fairness and denied Mattamy a fair opportunity to present its case. First, the Handbook was relevant to the new issues the Arbitrator raised. Second, the Court rejected Urbancorp's argument that the evidence from the Handbook was merely corroborative such that its exclusion did not materially impact Mattamy's rights. Third, the Court likewise rejected the argument that the Handbook's exclusion was immaterial since the Arbitrator's decision did not hinge on the additional evidence and submissions the parties filed. Absent reasons for the decision to exclude the Handbook evidence, the Court found the Arbitrator's decision appeared "arbitrary" and "unfair to Mattamy" amounting to a procedural unfairness to Mattamy and "a failure of natural justice."

Analysis

This decision offers several interesting analysis points.

First, it provides an important reminder that although arbitral tribunals enjoy broad procedural discretion, and courts will generally defer to an arbitral tribunal's discretionary procedural decisions, that discretion is not unfettered. All procedural rulings must obey the fair and equal treatment standard contained in section 19 of the Arbitration Act, 1991 (and similar provisions in other domestic and international arbitration legislation across Canada).

Second, the Arbitrator's choice to address the evidentiary issue at a case conference, rather than by formal motion, merits some discussion. In principle, the Arbitrator was entitled to direct that the evidentiary issue be addressed in this way. This falls squarely within an arbitrator's procedural discretion. Furthermore, using the vehicle of a case conference rather than a formal motion will often be appropriate. Indeed, one way in which arbitration (often) outshines the courts in efficiency is by doing away with "motion practice." All litigators know motions, especially purely procedural motions, tend to increase costs and delay final resolution. In that regard, the Arbitrator's inclination to deal with the matter at a case conference is commendable, again, in principle.

That said, sometimes the case conference format (i.e., no evidence or ability to cross-examine) may be inappropriate. In all cases, the procedure chosen must provide each party with a sufficient opportunity to present their case and respond to the opposing party's case (as well as any issues the arbitral tribunal raises of its own motion).

In this case, the Court could not satisfy itself that the procedure was appropriate. Since the Arbitrator gave no reasons, other than to say he had a "mind of his own," the Court could not confirm Mattamy enjoyed procedural fairness. On the contrary, based on the record, the Court considered the decision arbitrary and unfair. In that respect, arbitral tribunals may take some guidance from the Court: When faced with an opaque and unreasoned decision about material procedural issues, a court might feel compelled to err on the side of caution and grant a remedy.

Mattamy (Downsview) Limited v KSV Restructuring Inc (Urbancorp), 2023 ONSC 3013