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What Can Be Resolved By Arbitration Should Stay In Arbitration

5 minute read

There are certain tenets that are fundamental to modern arbitration practice, including:

  1. Arbitration is a parallel system of dispute resolution, not one that is subservient to the courts. Court intervention in arbitration should, accordingly, be limited; and
  2. Party autonomy, including the choice to grant jurisdiction over disputes to an arbitrator, must be respected.

In the short but important decision in Toronto Standard Condominium Corporation No. 1628 v. Toronto Standard Condominium Corporation No. 1636, 2021 ONCA 360,  the Ontario Court of Appeal gave full effect to both of these tenets.

The appellant TSCC 1636 is a 55-unit condominium, the units of which have always been owned by the appellants, Soho and Soinco. TSCC 1636 and the respondent TSCC 1628 (another condominium) are physically integrated and share certain facilities (the “common facilities”).

Soho and TSCC 1628 were the original parties to a Reciprocal Agreement that sets out the cost sharing ratios for the common facilities. TSCC 1636 has since assumed all of Soho’s responsibilities under the Reciprocal Agreement.

A dispute arose as to whether TSCC 1628 was in arrears for its share of the cost of three rooms owned by Soinco, the common expenses of which are addressed in the Reciprocal Agreement. The Reciprocal Agreement contains an arbitration clause which provides that:

The validity, construction and performance of this Agreement shall be governed by the laws of the Province of Ontario and any dispute that may arise under this Agreement shall be determined by arbitration by a single arbitrator to be agreed upon by the parties within thirty (30) days of written notification by any of the parties of a request for arbitration.

In reliance on this provision and pursuant to s. 132 of the Condominium Act, 1998, S.O. 1998, c. 19 (the “Act”) (which provides for an arbitration process), TSCC 1636 advised that it intended to arbitrate the issue of the arrears.  TSCC 1628 disputed the arbitration and commenced an application in the Superior Court of Ontario against TSCC 1636, Soho and Soinco, seeking a declaration that the common expenses for the three rooms should not form part of the Reciprocal Agreement cost-sharing but should be paid by Soinco as owner, and for an order that any funds it had previously paid for the expenses associated with those rooms be refunded.

Importantly, it also sought relief for oppression, alleging certain misconduct by Soho in relation to the origins of the Reciprocal Agreement.  Section 135(1) of the Act provides that: “An owner, a corporation, a declarant or a mortgagee of a unit may make an application to the Superior Court of Justice for an order under this section.”

The appellants brought a motion to stay the court application on the basis of the arbitration clause.  The motion judge refused the stay, noting that, although TSCC 1628 conceded that the issue as to whether the common expenses were shared costs pursuant to the Reciprocal Agreement was arbitrable, the “core or essential” claim was the oppression claim. That claim was in respect of Soho’s conduct in drafting the Reciprocal Agreement.  The motion judge found that it had to be determined by the court under s. 135(1).  He concluded that the entire matter should therefore be heard by the court and refused the motion to stay.

The Court of Appeal disagreed, making the following key points:

  1. The Supreme Court of Canada in Telus Communications Inc. v. Wellman, 2019 SCC 19 made it clear that, where parties have agreed to have a dispute arbitrated, that agreement must be given effect. Accordingly, to the extent that the dispute was one that was governed by the arbitration agreement, the language of which was very broad, the court application in respect of that aspect of the dispute must be stayed.
  2. The core issue was not oppression but the interpretation of the Reciprocal Agreement. The Court of Appeal warned that “courts should be wary of allowing (oppression) claims to overtake, and potentially distort, the dispute resolution process that lies at the heart of the Act a central aspect of which is a preference for arbitration over court proceedings.” (para 24). Central to its comment was the court’s recognition of arbitration as a separate dispute resolution process that is legislatively preferred to court litigation in this context.
  3. Contrary to the finding of the motion judge, the fact that an application “may” be brought to the Superior Court of Justice does not oust the jurisdiction of the arbitrator. The language in s. 135(1) is permissive. Given the broad language of the arbitration clause, the arbitrator’s jurisdiction is sufficiently broad to review allegedly oppressive conduct by at least TSCC 1636.
  4. The fact that the dispute involves parties that are not signatories to the Reciprocal Agreement does not change the fact that the primary issue as between TSCC 1628 and TSCC 1636 must be determined by way of arbitration. Either the issues between TSCC 1628, and Soho and Soinco can be subject to separate and parallel court proceedings, or the parties may voluntarily agree to have those issues litigated in the arbitration. The court left open the possibility that, because Soho and Soinco are “owners”, the issues involving them may also be caught by the arbitration process mandated by s. 132(1) of the Act.

In making these findings, the Court of Appeal made clear that, where the parties have agreed to arbitration, the court must give effect to that agreement even if related disputes are to be determined by the courts.  To do otherwise would undermine the choice of the parties and, in this case, the legislature, to have disputes determined by arbitration as a recognized parallel method of dispute resolution.

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Cynthia B. Kuehl

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