Are Canadian Courts Toughening Up On Private Arbitration?

By Jack Zwicker

While Canadian trial and appeal courts generally afford a large measure of deference to private arbitration, especially commercial arbitration, private arbitrators still need to comply with certain legislated basics that are prescribed in each province’s arbitration statutes. In a recent 2019 decision of the Ontario Superior Court of Justice in FCA CANADA INC. v REID-LAMONTAIGNE [2019 ONSC 364], the court reminded us that despite its respect for private arbitration, failure to comply with legislated basics can result in arbitration awards being set aside.

In that case one of the parties brought a motion to set aside the arbitrator’s award arguing that the arbitrator had no jurisdiction to proceed with the arbitration; that the arbitrator had a mistaken view of the law on jurisdiction; and that his findings were unreasonable in any event. This decision is now seen as a primer on the kinds of things that sometimes go wrong in arbitration.

For example, where arbitrators can be proven to have acted unfairly, been biased, or even worse, are guilty of corruption, the arbitrators award will not stand. Similarly, where the arbitrator wrongly assumes jurisdiction not provided for in the arbitration agreement, the award can be set aside, and a new arbitration ordered before a different arbitrator. Thirdly, if the arbitrator makes such a mess of the arbitration leaving a court no alternative other than to characterize the arbitration as unreasonable, it will be set aside.

In this case, the Court looked at the transcript of the arbitration hearing and at the written materials filed at that time, and supported the arbitrator’s decision by ruling that he had not wrongly assumed jurisdiction. In fact, the party complaining never challenged the arbitrator on jurisdiction until after the arbitrator released his decision, a decision it did not like. The take away is that motions made such as this that smell of sour grapes tend to fail.

More importantly, the Court reviewed the basic test for settling side an arbitrator’s award. And that test requires evidence that the arbitration process and the arbitrator’s award is so unreasonable that the parties’ legitimate interests in the arbitration are not adequately protected. In practical terms, what this means is that an arbitrator need not be perfect in his work. He does not even need to be correct in admitting or refusing to accept evidence. In addition, an arbitrator does not need to be correct in his factual findings or in his application of the law to the facts as he finds them.

In other words, correctness is not the standard. Reasonableness is, and the arbitrator has to make a virtual mess of the process before the point is reached where a motions court will set aside the arbitrator’s award and order a fresh arbitration before a new arbitrator. That the legal standard is set this high speaks to the fact that our courts respect and support private arbitration where parties choose to participate in it as an alternative to litigation.

Leaving aside these procedural issues, there is a substantive issue that businesses need to face when electing to resort to private arbitration rather than litigation. And that involves several provincial statutes that provide consumers with minimum prescribed rights that arbitrators cannot compromise. For example, the right of residential tenants under provincial landlord and tenants laws; the protections afforded to consumers under consumer protection legislation; and the rights of employees under provincial employment standards laws are protected from private arbitration where these minimum rights might be at risk.

In the 2019 decision of the Ontario Court of Appeal in Heller v Uber Technologies Inc.[2019 ONCA 1] the Court stayed a private arbitration in favour of a class action brought by an Uber driver against that company. In a very lengthy set of reasons the Ontario Court of Appeal reaffirmed its deference to private arbitration in purely commercial matters. However, in this case, the Court was concerned with the power imbalance at various levels between Uber and its drivers. As a result, it came to the conclusion that that the arbitration agreement effectively had the potential to compromise the employment standards rights of Uber drivers under Ontario’s Employment Standards Act and that those rights as expressly provided in this Act took precedence over the parties signed arbitration agreement.

The take away from this decision is to proceed with caution before seeking arbitration agreements from parties where there is a significant power imbalance and where the relationship is not really a ‘business to business’ relationship. While the courts still support private arbitration as with everything that support resembles an elastic band. Stretch it too far and it breaks.

Jack Zwicker is a practising Markham, Ontario lawyer, mediator and chartered arbitrator.