Canada: Arbitrator's "Mind Of His Own" Results In Procedural Unfairness: Mattamy (Downsview) Limited v. KSV Restructuring Inc. (Urbancorp)

In the Ontario Superior Court Application, Mattamy (Downsview) Limited v. KSV Restructuring Inc. (Urbancorp),¹ Justice Kimmel set aside an arbitral award issued by the Honourable Frank Newbould K.C. (the "Arbitrator") after finding that his actions led to procedural unfairness and a breach of the principles of natural justice.

Pursuant to section 46 of the Arbitration Act, 1991,² Justice Kimmel held that the Arbitrator's refusal to admit evidence relevant to questions that the Arbitrator raised was procedurally unfair to Mattamy. This refusal was in a circumstance where the opposing party, Urbancorp had no objection to Mattamy adducing the evidence in question. As a result, Justice Kimmel overturned the Arbitrator's award and ordered a new arbitration.

Background to the Arbitration

Mattamy and Urbancorp were partners in a joint venture through which they owned Downsview Homes Inc. ("DHI") for the development of a residential construction project in Toronto. Urbancorp eventually sold its interest in DHI to Mattamy as part of a proceeding under the Companies Creditors Arrangement Act.³ In this context, the parties could not agree on the calculation of consulting fees owing to Urbancorp under their co-ownership agreement (the "Agreement").

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").

The Arbitrator 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. The parties called these matters the "New Issue" as the Arbitrator raised these questions himself.

In response to the New Issue, Mattamy sought to file an affidavit containing excerpts from an ASPE interpretive handbook (the "Handbook") and other evidence responsive to the New Issue. Urbancorp objected to some of Mattamy's affidavit but did not contest adducing the Handbook as evidence. The Arbitrator ruled on the affidavit's admissibility at a case conference, refusing Mattamy's request to make its submissions on admissibility on motion.

At the case conference, the Arbitrator struck all references to the Handbook from Mattamy's affidavit. The Arbitrator did not provide written reasons for his ruling. He stated only that he had a "mind of his own" as to the Handbook's inclusion. Ultimately, the Arbitrator ruled in Urbancorp's favour in the arbitration, awarding the full $5.9 million in consulting fees that Urbancorp had sought. Mattamy accordingly brought an application before the Ontario Superior Court to set aside the arbitration award on the grounds of unfairness pursuant to section 46 of the Arbitration Act, 1991.

The Application

Mattamy argued that the Arbitrator's decision should be set aside under s. 46 of the Arbitration Act, 1991 for the following two reasons:

1. in asking questions about the calculation of the consulting fees that were not raised in the parties' pre-filed evidence or submissions, the Arbitrator exceeded his jurisdiction by considering the New Issue; and
2. the Arbitrator's assessment of the consulting fees without admitting the Handbook excerpts into evidence was procedurally unfair.

Justice Kimmel dismissed Mattamy's first point. Her Honour held that the Arbitrator had jurisdiction to consider the New Issue. Because the quantum and timing of the consulting fees were plainly disputed in the parties' pleadings, the Arbitrator's analysis of a new point of interpretation relevant to calculating the consulting fees did not exceed his jurisdiction.

In respect of Mattamy's second point, Her Honour agreed that the Arbitrator's refusal to admit the Handbook excerpts denied Mattamy the opportunity to file evidence relevant to the New Issue. The Arbitrator made his decision "in the absence of any principled distinction between the relevance or admissibility of the Handbook excerpts and the other evidence that was admitted about the ASPE". Justice Kimmel accordingly held that the Arbitrator's actions were procedurally unfair to Mattamy and ordered that a fresh arbitration take place and summed-up matters well as follows:

Takeaways

Justice Kimmel's decision to set aside the Arbitrator's award 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.

The threshold for intervention with an arbitral award is high. Had the Arbitrator admitted the Handbook excerpts into evidence and assessed the weight to be given to such evidence, it is hard to see how the Arbitrator's decision would have been set aside.

Disallowing the Handbook into evidence resulted in a most unfortunate circumstance. 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.

Footnotes

1. Mattamy (Downsview) Limited v. KSV Restructuring Inc. (Urbancorp), 2023 ONSC 3012 ("Mattamy v. Urbancorp")

2. Arbitration Act, 1991, SO 1991, c 17, at s. 46

3. Companies' Creditors Arrangement Act, RSC 1985, c. C-36

4. Mattamy v. Urbancorp, at para 90

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2021