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Ontario Court of Appeal Reaffirms Narrow Power to Set Aside Arbitration Award for Lack of Jurisdiction

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Litigation and Dispute Resolution Bulletin

In its recent decision Mensula Bancorp Inc. v. Halton Condominium Corporation No. 137,[1] the Ontario Court of Appeal confirmed that the judicial power to set aside an award under subsection 46(1)3 of the Ontario Arbitration Act[2] (the “Arbitration Act”) is a narrow one: this power is limited to jurisdictional errors and does not permit a review of the correctness or reasonableness of the arbitrator’s decision. Consequently, the court allowed the appeal, finding that the application judge improperly engaged in a substantive review of the correctness and reasonableness of the arbitrator’s decision instead of confining herself to the jurisdictional question before her.

Mensula concerned a disagreement between Halton Condominium Corporation No. 137 (“HCC 137”) and Mensula Bancorp Inc. (“Mensula”), the owner of certain of the condominium’s parking units. Through arbitration, the parties sought to determine Mensula’s ability to access the parking units through the common elements of the residential condominium, including its lobby and stairwell. The parties’ arbitration turned on the meaning of the provisions of HCC 137’s “declaration,” a special form of contract registered pursuant to the Ontario Condominium Act.[3] The arbitrator concluded that Mensula did not, under the declaration, have rights of pedestrian access through the residential condominium.

Under subsection 46(1)3 of the Arbitration Act, a party can apply to the court to have an arbitral award set aside where the arbitrator’s decision is on a matter that is beyond the scope of the parties’ arbitration agreement — where, in other words, an arbitrator has exceeded his or her jurisdiction. Mensula applied to the court under this provision, arguing that the arbitrator exceeded his jurisdiction by “in effect” amending the declaration, as opposed to merely interpreting it. The application judge agreed with Mensula, finding that the arbitrator “was not satisfied” with the plain language of the declaration, and “purported to deal with and correct what he thought were errors and inconsistencies” in it.[4]

HCC 137 successfully appealed to the Court of Appeal. In allowing the appeal, the court affirmed its prior holding in Alectra Utilities Corporation v. Solar Power Network Inc.[5] that subsection 46(1)3 provides only a narrow basis on which a court may intervene to set aside an arbitral award, and that the provision “does not create a right of appeal, nor contemplate a review of the correctness or reasonableness of the arbitrator’s decision.”[6]

The Court of Appeal stated that since the arbitrator had the jurisdiction to interpret the declaration and did so, the court’s task under subsection 46(1)3 was complete. Issues such as whether or not the arbitrator gave effect to the plain language of the declaration, went beyond its text, or properly reconciled inconsistencies or used surrounding circumstances were issues that spoke to the quality of the arbitrator’s interpretation and the manner in which he exercised his jurisdiction. These issues did not impact whether the arbitrator had jurisdiction; and any errors on these issues did not result in loss of jurisdiction.[7] The court has no authority under subsection 46(1)3 to set aside an award on the basis that the arbitrator’s decision is unreasonable or incorrect. The application judge engaged in an impermissible review of the reasonableness or correctness of the arbitrator’s decision by concluding that a proper interpretation of the declaration could not have led to the arbitrator’s result, and then “relabel[ing]” the arbitrator’s decision as “a purported interpretation that was ‘in effect’ an amendment […].”[8]

The Court of Appeal showed significant deference to the arbitrator in this case. In rendering its decision, the court acknowledged that the arbitrator had himself characterized his task as interpretation, not amendment, and that he “nowhere said that he was correcting or amending the declaration.”[9] Given these observations, the Court of Appeal did not address whether, on other facts, an arbitrator may properly be found to have engaged in “effective” contractual amendment, so as to exceed jurisdiction. As the application judge stated, the line between interpretation and amendment “does exist”[10] — perhaps we will see another case that engages this issue in the future.

[1] 2022 ONCA 769 [Mensula ONCA].

[2] S.O. 1991, c. 17.

[3] S.O. 1998, c. 19.

[4] Mensula Bancorp Inc. v. Halton Condominium Corporation No. 137, 2021 ONSC 2575 at para. 30 [Mensula ONSC].

[5] 2019 ONCA 254.

[6] Mensula ONCA at para. 5; see also para. 40.

[7] Mensula ONCA at para. 48.

[8] Mensula ONCA at para. 6.

[9] Mensula ONCA at para. 46.

[10] Mensula ONSC at para. 28.

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