Grupo Unidos Por El del Canal, S.A. et al v. Autoridad del Canal de Panama: Disclosure Obligations and Partiality in Arbitration Revisited

In Grupo Unidos por el Canal, S.A. v. Autoridad del Canal de Panama (“Grupo Unidos v ACP“),[1] the United States Court of Appeals for the Eleventh Circuit (the “Court of Appeals“) considered whether a lack of disclosure regarding the involvement of arbitrators in separate proceedings compromises the impartiality of a tribunal. The Court concluded that although the tribunal’s disclosure was lacking, it was insufficient to ground a finding of partiality. Below, we consider the relevance takeaways of this important decision for Canadian arbitration practitioners.


Grupo Unidos, a consortium of European companies, secured a multi-billion dollar contract to design and build new locks for the Panama Canal expansion that began in 2009 and was set to conclude by October 2014. However, unforeseen complications led to a delay of over twenty months, resulting in numerous disputes between the parties involving seven arbitrations. The appeal in Grupo Unidos v ACP concerned one of these arbitrations, namely the Panama 1 Arbitration, where Grupo Unidos brought several contractual claims against the canal authority, Autoridad del Canal de Panama (the “Arbitration”).[2]

The contract between Grupo Unidos and Autoridad del Canal de Panama contained a mandatory arbitration clause, which required that disputes be resolved through arbitration in Miami pursuant to the International Chamber of Commerce’s Rules of Arbitration (the “ICC Rules“). Each party nominated one arbitrator, confirmed by the International Court of Arbitration (“ICA“). The nominees were Dr. Robert Gaitskell, and Claus von Wobeser, who in turn appointed Pierre-Yves Gunter as the president of the tribunal.[3] Autoridad del Canal’s counsel included Andres Jana, James Loftis, and Manus McMullan.

All three arbitrators had substantial international arbitration experience, having collectively been involved in over 500 arbitrations.[4] After their confirmation, each submitted statements confirming their impartiality and independence and disclosed any potential conflicts. At that stage, neither party sought additional disclosure or other details from the arbitrators.

The Arbitration

The subject arbitration took over five years, involving thousands of pages of pleadings, over 150 fact and expert witnesses, thousands of exhibits, and a 20-day merits hearing. On September 21, 2020, the tribunal issued a Partial Award (the “Partial Award”) by which Grupo Unidos was awarded $26.8 million while Autoridad del Canal was awarded $265.3 million, amounting to a net victory of $238.5 million, plus interest, for Autoridad del Canal.[5]

Three weeks after the Partial Award was granted, Grupo Unidos began to question the arbitrators’ impartiality, seeking additional information concerning the arbitrators’ relationships with (1) each other, (2) other arbitrators in related matters, and (3) with the parties’ counsel in other arbitrations.[6] The disclosures revealed certain professional engagements amongst the arbitrators, and between the arbitrators and the parties’ counsel in the current and other, unrelated arbitrations.[7]

The ICA Decision

Based on these disclosures  and prior to the issuance of a final award, Grupo Unidos filed an application with the ICA seeking the removal of the tribunal members, claiming they had concealed significant connections that raised doubts about their neutrality. After extensive proceedings, the ICA determined that although some of the professional intersections should have been disclosed, there was no conflict significant enough to sustain a challenge to the arbitrators. The tribunal then issued a Final Award on February 17, 2021, amounting to approximately $285 million in favour of Autoridad del Canal (the “Final Award“). Grupo Unidos subsequently paid the full amount of the Final Award.[8]

The District Court’s Decision

On November 25, 2020, before the ICA released its decision, Grupo Unidos moved to vacate the Partial Award in the Southern District of Florida. Additionally, by April 19, 2021, Grupo Unidos had also moved to vacate the Final Award. Grupo Unidos argued that the arbitrators showed clear bias, basing their assertions on the New York Convention . Specifically, they relied on Articles V(2)(b), V(1)(d), and V(1)(b) of the New York Convention, which allow a party to resist the enforcement of an international arbitration award if (1) enforcement would be contrary to the public policy, (2) the arbitral procedure was not in accordance with the agreement of the parties, or (3) the party was unable to present its case.[9]

The District Court determined that none of these defenses were available, and criticized Grupo Unidos’ stance as being based on skeptical (and speculative) assumptions about the arbitrators and assuming the worst about their character. Thus, the Court rejected the motion to vacate, and confirmed Autoridad del Canal’s awards. Grupo Unidos appealed this decision to the Court of Appeals. [10]

The Court of Appeals’ Decision:

Which law should govern this case?

Relying on a prior en banc decision, the Court stated that if an arbitration is seated in the United States or governed by United States law, Chapter 1 of the Federal Arbitration Act (“FAA“) dictates the grounds for vacating an award. In this case, the parties agreed that the FAA would govern the arbitration, and although the parties’ arguments on vacatur were framed as arising out of the Convention, the core dispute about vacatur centered on the FAA‘s ‘evident partiality’ exception.[11]

Deference to Arbitral Decisions

As a preliminary point, the Court emphasized that U.S. federal courts will only overturn an arbitral award under rare circumstances:

“[…] U.S. courts refrain from unilaterally vacating an award, rendered under international arbitral rules, in all but the most extreme cases.  It is no surprise, then, that although the losing parties to international arbitrations often raise defenses to award enforcement before our courts, those efforts “rarely” succeed.”[12]

Moreover, with respect to international arbitrations, the reluctance to overturn decisions is even more pronounced, primarily because the New York Convention emphasizes global standards for arbitral agreement observance and award enforcement. As such, American courts only vacate international arbitral awards in exceptional cases.

Grupo Unidos argued that the Panama 1 Arbitration was one such exception due to the non-disclosure of potential biases of the arbitrators. Although the Court agreed that the ICC Rules and American arbitration law emphasized transparent disclosure, it did not accept that Grupo Unidos’ claim that mere professional familiarity amounted to potential bias.

The Appellant’s Arguments

The Court considered and rejected each of the four instances Grupos Unidos submitted as proof of evident partiality, and explained why bias could not be established. Grupo Unidos’ submissions were as follows:

  1. Gaitskell’s Nomination of Gunter: During the Panama 1 Arbitration, Gaitskell nominated Gunter to head another tribunal. In that regard, the Court’s decision described Grupo Unidos’ argument as suggesting that Gunter’s receiving of a lucrative appointment may have (consciously or subconsciously) influenced him to side with Gaitskell, such that it may have constituted a quid pro quo.
  2. von Wobeser and Jana’s Concurrent Service: Grupo Unidos cited a conflict where, while the Panama 1 Arbitration was ongoing, von Wobeser and Jana served as co-arbitrators in another arbitration.
  3. Gaitskell and Loftis’s Prior Co-Arbitration: Prior to the Panama 1 Arbitration, Gaitskell and Loftis served as co-arbitrators in a separate arbitration and Loftis subsequently joined the counsel of the canal authority.
  4. Gaitskell and McMullan Prior Involvement: Gaitskell served as an arbitrator in a different case where McMullan represented a party.

Gaitskell’s Nomination of Gunter

The Court determined that this alone did not qualify as evidence of partiality, as Grupo Unidos did not present any precedent where the simple fact of one arbitrator nominating another in a separate matter was sufficient cause for vacating an award. Indeed, to the contrary, the Court cited to American precedent for the proposition that the fact arbitrators appoint each other to panels does not per se manifest evident partiality. Moreover, Gunter’s extensive arbitration experience and his affirmed impartiality negated the suspicion of bias.[13]

von Wobeser and Jana’s Concurrent Service

The Court rejected this argument, and in doing so, rejected Grupo Unidos’ reliance on prior case law holding that partiality exists where an arbitrator represented co-defendants in a different matter with a member of counsel appearing before them. The Court observed that the relationship between co-arbitrators is not the same as the relationship between co-counsel, because arbitrators do not represent a client and have a duty of impartiality. As such, there was nothing inherently suspect regarding von Wobeser and Jana having served as co-arbitrators in another case.[14]

Gaitskell and Loftis’s Prior Co-Arbitration

The Court found that because the mere fact that an arbitrator had previous contact with a party’s counsel does not automatically imply bias. In that regard, the Court observed that international construction arbitration law is a relatively small community, and as such, prior interactions or relationships is a less compelling basis for arguing partiality than might otherwise be the case in non-specialized areas (in other words, it is to some extent unavoidable that construction arbitrators will serve with other construction arbitrators, only to then appear before them as counsel).[15]

Gaitskell and McMullan Prior Involvement

The Court found this insufficient to question Gaitskell’s impartiality, re-emphasizing that repeated interactions within the small international arbitration community do not indicate bias. The record showed no actual bias in the Panama 1 Arbitration, and as such, the overlap was not a cause for concern.[16]

Thus the Court upheld the district court’s decision against vacating the awards.

Confirming the Awards:

After determining there were no grounds to vacate the awards under the FAA, the Court assessed whether to confirm the awards under the New York Convention. Grupo Unidos relied upon the same three provisions from Article V of the Convention as they had relied upon during the District Court’s proceedings.

The first defense centred on the arbitrators’ undisclosed relationships infringing Article V(2)(b) of the Convention (i.e. the award is contrary to public policy). Relying on the basic proposition that enforcement will only be refused where it would violate the jurisdiction’s most basic notions of morality and justice, the Court observed that the public policy in question here pertained to evident partiality, which was not breached (as explained above)[17]

Next, the Court rejected Grupo Unidos reliance on Article V(1)(d) of the New York Convention (i.e. refusing enforcement on the basis the tribunal or procedure was not in accordance with the parties’ agreement or the law of the country where the arbitration took place), Grupo Unidos argued that late disclosures showed a level of partiality that they would not have initially agreed to had they known at the time the tribunal was formed. While these nondisclosures did not breach the evident partiality portion, the focus shifted to whether the arbitration violated the ICC Rules. The Court found that despite late disclosures by Gaitskell and von Wobeser, the ICA did not disqualify them or question their impartiality, emphasizing their adherence to the ICC Rules. As a result, the arbitration followed the format the parties agreed upon, and the ICA’s interpretation of its rules was deemed reasonable.

Finally, Grupo Unidos relied upon Article V(1)(b) to argue that it as not given proper notice regarding the appointment of an arbitrator or the proceeding (which is intended to protect procedural fairness). The Court again rejected Grupo Unidos’ argument, stating that this exception is narrow and safeguards only against severe procedural defects that render the arbitration fundamentally unjust. The Court additionally observed that Grupo Unidos’ claim did not contradict basic principles of due process, which demands an impartial hearing where parties can present and rebut evidence. Here, the Court found no evidence that Grupo Unidos did not have such an opportunity.[18]

Thus, the Court affirmed the District Court, denying the application for vacatur and confirming the arbitral awards.


Overall, three main takeaways emerge from Grupo Unidos v ACP that are broadly applicable to construction arbitration practice in Canada.

First, this case reaffirms the basic principle that arbitral awards are not easily set aside on grounds of bias. Specifically, mere allegations or suspicions of bias will not be enough to vacate arbitral awards. This is equally true in the Canadian context, as Canadian arbitration practitioners will appreciate. Consolidated Contractors Group S.A.L. (Offshore) v Ambatovy Minerals S.A.[19] presents a perfect example of such deference, where the Ontario Court of Appeal observed that “this court has repeatedly held that reviewing courts should accord a high degree of deference to the awards of international arbitral tribunals under the Model Law”.

In this particular case, it appears that Grupo Unidos position was not assisted by the timing of its challenge – in particular, Grupo Unidos appears to only have begun to raise questions as to the impartiality of the arbitrators after it received the Partial Award, which was adverse to its interests. While this timing may have been coincidental, a disinterested observer (or, more importantly, a court) might be led to conclude that Grupo Unidos’ challenge was motivated by its loss on the merits rather than genuine concerns of partiality. Needless to say, courts will be skeptical of any challenges that exhibit such timing.

Second, this decision aptly illustrates the distinction between bias and mere professional familiarity. As the Court observed, not every professional overlap can be construed as bias, especially in specialized areas of law such as international construction arbitration.

In that regard, the Court properly rejected the suggestion of any quid pro quo flowing from the overlap of arbitral appointments; given that acting as an arbitrator inevitably involves remuneration, and given the narrow pool of arbitrators in the construction industry, a finding to the contrary would have been problematic as a practical matter insofar as party-appointed arbitrators will commonly appoint other arbitrators with whom they are familiar or with whom they have arbitrated in the past (and likely will again in future). In other words, such a situation is, in practical terms, essentially unavoidable in specialized industries, and in any event, the appointment of a tribunal president will involve agreement between both party-appointed arbitrators, such that a quid pro quo would seem speculative at best.

Finally, this case highlights the importance of judicious and timely disclosure by arbitrators. There is a delicate balance that arbitrators must maintain between disclosing any matters that could give rise to justifiable concerns as to their impartiality and avoiding over-disclosure. In respect of the latter point, it would arguably be impractical for arbitrators to disclose every conceivable professional relationship that might give rise to unjustified or unsupported concerns as to impartiality, as this would simply invite objections to the arbitrator’s appointment on spurious grounds.

In this particular case, and as the tribunal observed, the disclosure sought by Grupo Unidos following the Partial Award were different and much broader than the ICC’s Note to Parties and Arbitral Tribunals on the Conduct of the Arbitration, which was then followed by an even more far-reaching request, which the tribunal indulged. In that regard, although the Court did not specifically rely on the ICC Note in reaching its conclusions, and although guidance prepared by leading arbitral institutions is not binding, it may nevertheless be a persuasive authority on this point (as is the case, for example, with the IBA’s Guidelines on Conflicts of Interest).

Interestingly, Grupo Unidos also provides a useful reminder that a legitimate lack of disclosure is not sufficient in and of itself for a finding of bias or partiality – there must be something more in order to ground such a finding. Here, the ICA concluded that certain of the professional relationships amongst the arbitrators and counsel should have been disclosed by the arbitrators, but nevertheless concluded that the lack of disclosure in and of itself was not sufficient to ground a finding of partiality or lack of independence. This is consistent with English case law on the topic (such as Halliburton v Chubb), as well as certain Canadian case Law (such as Aroma Franchise Company v Aroma Espresso, which we previously discussed here, although the court ultimately made a finding of reasonable apprehension of bias in that case).

On balance, then, it appears that arbitration practitioners should (and perhaps will) manage their practices with a strong emphasis on continuous disclosure, and may lean towards over-disclosure notwithstanding the potential for losing out on arbitral mandates on spurious grounds. As the aphorist has observed, sunlight is the best disinfectant.


[1] No 21-14408 (11th Cir 2023) [Grupo Unidos v ACP].

[2] Grupo Unidos v ACP at 4.

[3] Grupo Unidos v ACP at 4.

[4] Grupo Unidos v ACP at 5.

[5] Grupo Unidos v ACP at 7.

[6] Grupo Unidos v ACP at 7.

[7] Grupo Unidos v ACP at 8-9.

[8] Grupo Unidos v ACP at 9-10.

[9] Grupo Unidos v ACP at 10-11.

[10] Grupo Unidos v ACP at 10-11.

[11] Grupo Unidos v ACP at 11-12.

[12] Grupo Unidos v ACP at 14.

[13] Grupo Unidos v ACP at 16-17.

[14] Grupo Unidos v ACP at 17-18.

[15] Grupo Unidos v ACP at 18-19.

[16] Grupo Unidos v ACP at 19-20.

[17] Grupo Unidos v ACP at 21.

[18] Grupo Unidos v ACP at 23-24.

[19] 2017 ONCA 939 at para 23.

Sky Power v IrAero: Remote Arbitration Hearings May Create Difficulties for the Parties, But are Unlikely to Cause Prejudice

A recent decision of a Hong Kong court suggests that fully virtual arbitration hearings are becoming standard practice even as the COVID-19 pandemic (the “Pandemic”) has ebbed, and that courts may be reluctant to find that such a hearing in and of itself causes prejudice to one of the parties.

In Sky Power Construction Engineering Limited v IrAero Airlines JSC (“Sky Power v IrAero”),[1] Hong Kong’s Court of First Instance found that the respondent had not been prejudiced by the fact that an arbitrator had conducted a fully virtual – rather than semi-virtual – hearing over the respondent’s objections. The Court would therefore not entertain a request by the respondent to apply to set aside the Court’s earlier order to enforce the arbitrator’s award.


Hong Kong-based Sky Power Construction Engineering Limited (“Sky Power”) obtained an award against Russia-based IrAero Airlines JSC (“IrAero”) at the London Court of International Arbitration (“LCIA”) in an arbitration conducted by remote hearing in February 2022 before a single arbitrator.

The hearing had originally been scheduled for December 2021, but was postponed to February 2022 because the arbitrator contracted COVID-19. Roughly a month prior to the hearing, in January 2022, the arbitrator issued Procedural Order Number 3 (“PO #3”), which set out procedural parameters for a semi-virtual hearing. Counsel and the parties’ own fact witnesses were to convene at one location in Moscow, while other fact and expert witnesses could participate remotely via video-conferencing. The arbitrator would sit in London, and conduct the hearing remotely. PO #3 appears to have reflected such an agreement between the parties.

However, shortly after the issuance of PO #3, Sky Power indicated that its only fact witness was not available to travel to Moscow “due to the inconvenience and disruptions to his business, and the safety concerns of exposure to the risk of becoming infected with Covid”.[2] Sky Power proposed a fully virtual hearing. IrAero objected, given that the parties’ agreement to hold a semi-virtual hearing had been memorialized in PO #3 earlier the same month.

The arbitrator decided that the hearing would proceed on a fully virtual basis rather than be postponed until such time as the witness could attend in Moscow. She explained that it was necessary for her “to balance both the need for the proceedings to be concluded expeditiously and for the conduct of the proceedings to be fair to the Parties”,[3] and referred to Article 14 of the LCIA Arbitration Rules (the “LCIA Rules”),[4] which imposes the following duties on an arbitral tribunal (which readers will recognize are broadly consistent standard international rules of procedure):

(i)   a duty to act fairly and impartially as between all parties, giving each a reasonable opportunity of putting its case and dealing with that of its opponent(s); and

(ii)   a duty to adopt procedures suitable to the circumstances of the arbitration, avoiding unnecessary delay and expense, so as to provide a fair, efficient and expeditious means for the final resolution of the parties’ dispute.[5]

Given the continuing impact of the Pandemic, the continued regulatory uncertainty it engendered, and the nature of the case, the arbitrator concluded that it was more appropriate to conduct the hearing on a fully virtual basis than to wait indefinitely in the hopes of rescheduling the semi-virtual hearing.

Ultimately, Sky Power obtained an award in its favour, and subsequently obtained an enforcement order in Hong Kong against IrAero, which IrAero sought to challenge after the statutory deadline for bringing such a challenge. IrAero therefore required leave from the Court to file an affirmation (equivalent to an affidavit) and to apply to set aside the enforcement order. In deciding whether to grant leave, the Court considered the merits of IrAero’s application to set aside the order.

The Court declined to grant leave on the basis effectively that IrAero’s application would fail on the merits, as discussed below.

Position of the Respondent (IrAero) on the Merits

In trying to resist enforcement of the arbitrator’s award, IrAero argued on the merits essentially that the arbitrator lacked jurisdiction to alter PO #3 over IrAero’s objections, and that IrAero was prejudiced by the fully virtual nature of the hearing.

With respect to jurisdiction, Article 14 of the LCIA Rules states in addition to the foregoing:

14.2   The Arbitral Tribunal shall have the widest discretion to discharge these general duties, subject to the mandatory provisions of any applicable law or any rules of law the Arbitral Tribunal may decide to be applicable; and at all times the parties shall do everything necessary in good faith for the fair, efficient and expeditious conduct of the arbitration, including the Arbitral Tribunal’s discharge of its general duty.[6] [emphasis added]

IrAero took the position that the arbitrator’s decision to proceed conflicted with applicable law, because the UK’s Arbitration Act 1996 (the “Act”)[7] provides at section 34 that a tribunal’s power to decide procedural and evidential matters is “subject to the right of the parties to agree any matter.”[8] In IrAero’s view, the arbitrator (i.e., the tribunal in this case) impermissibly overruled PO #3, which reflected the parties’ agreement to hold a semi-virtual hearing.

With respect to prejudice, IrAero argued that it was hindered from “adequately viewing the demeanour” of Sky Power’s sole fact witness because he attended remotely, and from vetting the “genuineness and the authenticity” of his oral evidence.[9] Further, IrAero claimed it was unable to present its case adequately. As well, IrAero’s director-general claimed he would have preferred to testify in person, and that, because Sky Power’s witnesses ended up testifying remotely from Irkutsk, rather than from Moscow, the time difference with London (eight hours versus three) put IrAero at a disadvantage (for reasons that are not explained).[10]

The Court’s Decision on the Merits

As noted above, Sky Power v IrAero involved a request for leave to apply to set aside an order to enforce an arbitration award. The Court considered the merits of the application. On the merits, the Court rejected both of the respondent’s arguments.

First, the Court found that there was no longer an agreement between the parties once Sky Power requested a fully virtual hearing. Therefore, the arbitrator did not exceed her jurisdiction in deciding which procedure to follow.

The Court made note of the considerable deference that is owed to arbitrators in determining procedure:

Whether it is appropriate in any particular case to permit the factual witnesses to give evidence at the hearing remotely, whether the effectiveness of cross-examination can be or was undermined, whether appropriate measures are required or were put in place to ensure the security of the process, are all matters for the consideration and final decision of the tribunal in the case.[11]

Second, the Court found no prejudice to IrAero, based on two grounds:

  • first, any inconvenience that arose as a result of the virtual hearing would have been suffered by both parties, such that “each party was subjected to the same risks and difficulties”[12]; and
  • second, the arbitrator made the final award based on contractual and contemporaneous documents, the construction of the documents, and the legal issues raised, rather than on the basis of witness evidence. As noted by the Court, the arbitrator specifically observed that she preferred the evidence of contemporaneous documents where witness evidence was not consistent with those documents. Therefore, findings of credibility regarding Sky Power’s sole fact witness were not determinative of the outcome.

Indeed, as stated by the Court, “On the materials available, I cannot see any real injustice or prejudice to the Respondent, in the sense that the outcome of the Arbitration could have been different, if the hearing had not been conducted on [a] fully virtual basis.”[13]


Although Sky Power v IrAero is a Hong Kong case, and while the arbitration at issue involved special circumstances – namely, it occurred during the height of the Omicron wave of the Pandemic – it nevertheless suggests that a party to an arbitration may face an uphill battle when arguing that a virtual hearing caused it prejudice, even in a post-Pandemic context.

This is not to suggest that there are no tradeoffs involved in opting for a remote hearing. While remote hearings generally result in substantial cost savings when parties, counsel, witnesses and/or the tribunal are in different locations, there can also be technical difficulties, time zone differences, and challenges to examining witnesses.

However, as noted by the Court, both parties will generally face the same difficulties and risks in a remote hearing, the implication being that they will be able to make their respective cases in an equal manner. On the other hand, however, this potentially understates the significance of a scenario where one party calls several witnesses while the other party calls very few (particularly if the tribunal has ordered equal time-limits for the parties’ presentation of their cases). Arguably, in circumstances where one party relies much more heavily on oral testimony, their counterparty’s argument of prejudice may be more persuasive. In any event, the foregoing strengthens the proposition that, in the construction context, contemporaneous project documents are generally considered preferable over witness testimony delivered months or years after the fact.

In this case, it may be that IrAero felt genuinely misled by Sky Power, given that Sky Power had agreed to a semi-virtual hearing before requesting a fully virtual hearing. IrAero may also have found it more challenging to impeach the credibility of Sky Power’s fact witness, and IrAero’s director-general may indeed have struggled giving testimony remotely. Even so, IrAero’s arguments were decidedly unpersuasive to the Court – which serves to highlight how difficult it may be for a dissatisfied party to find a meaningful basis to obtain redress after the fact.

First, while there may be instances in which a tribunal will hold a party to a prior agreement on procedure that the party had made with the opposing party, the question of whether to do so is generally within the jurisdiction of the tribunal. In this case, once the party’s position changed, there was a disagreement to be resolved by the arbitrator, which she did by balancing the various factors at play, including uncertainty surrounding the Pandemic.

In other instances, a tribunal may insist that a prior agreement stand, and may even do so summarily, i.e., without entertaining formal submissions on the question (although declining to hear submissions on such an issue may result in allegations of parties being deprived of sufficient opportunity to present their case). Ultimately, the power of a tribunal to resolve a disagreement over procedure generally cannot be preempted simply by denying that the disagreement exists.

Conversely, it would seem that IrAero’s argument was not without some merit, insofar as it raises an interesting question as to the relationship between the parties’ arbitration agreement and the chosen procedural rules. Given that the parties were in agreement as to the content of PO #3 – that is, it was issued on consent – it may be arguable that PO #3 formed part of the parties’ arbitration agreement and accordingly, it would follow that the arbitrator could not deviate from the parties’ agreement to proceed on a semi-virtual basis.

That being said, it is standard practice for an arbitration agreement and/or Procedural Order #1 to provide the tribunal with full latitude to establish and vary rules of procedure, in which case an interpretive issue would arise as to whether the provision endowing the tribunal with procedural powers can override a different, subsequent provision that dictates a specific method of procedure. Ultimately, the answer would likely depend on the specific wording of the procedural order(s) in issue. In any event, it would appear wise for a tribunal to include in its procedural orders a provision permitting the tribunal to vary the order if necessary and appropriate.

Second, IrAero struggled to convince the Court of any real prejudice under the circumstances. For instance, IrAero could not persuade the Court that the trier of fact – i.e., the arbitrator herself – was unable to assess the demeanour of Sky Power’s sole fact witness, because even under PO #3, the arbitrator would have conducted the hearing remotely from London. Instead, IrAero could only argue that it could not assess the witness’s credibility. The corollary of the foregoing is that, if the arbitrator could assess the witness’s credibility remotely, it would be difficult for IrAero to argue that it could not.

Similarly, it is unclear from the decision why IrAero would be at a disadvantage due to the time difference between Irkutsk and London, as opposed to Moscow and London, when it was Sky Power’s witnesses that were in Irkutsk, rather than IrAero’s. If anything, it would seem that Sky Power was at a disadvantage.

That being said, it is conceivable that a different Court or judge might have decided this point differently. Over the course of the Pandemic, disputes lawyers and judges have expressed varying opinions as to the importance of being able to examine witnesses in person, with many taking the position that in-person examination is indispensable – and indeed fundamental – to interrogating a witness’s credibility and reliability. With that in mind, a likeminded judge might very well have ruled differently.

In any event, in the post-Pandemic landscape, it would appear difficult for one party to argue that it was prejudiced by the use of a remote hearing. While it is impossible to categorically dismiss the possibility of such a finding if a case were to have the right set of facts, Sky Power v IrAero suggests a high threshold for any such argument.


[1] Sky Power Construction Engineering Limited v IrAero Airlines JSC, [2023] HKCFI 1558 [Sky Power v IrAero].

[2] Sky Power v IrAero at para 12.

[3] Sky Power v IrAero at para 30.

[4] LCIA Arbitration Rules, effective October 1, 2020, available at [The LCIA Rules].

[5] The LCIA Rules, art 14.1.

[6] The LCIA Rules, art 14.2.

[7] UK Arbitration Act 1996, 1996 c. 23 [The Act].

[8] The Act, s 34(1).

[9] Sky Power v IrAero at para 7.

[10] Given that IrAero is based in Irkutsk, and Sky Power is registered in Hong Kong, there may be a typographical error in the decision regarding which party testified from Irkutsk.

[11] Sky Power v IrAero at para 39.

[12] Sky Power v IrAero at para 37.

[13] Sky Power v IrAero at para 41.

Remedial Measures May be Imposed on Regulated Medical Professionals for Degrading Online Comments

What happens when a regulated medical professional’s use of their expressive rights conflicts with the ethical standards of their profession?

In Peterson v College of Psychologists of Ontario, 2023 ONSC 4685, the Divisional Court considered a case pitting high profile psychologist Jordan Peterson against a decision by the College of Psychologists’ Inquiries, Complaints and Reports Committee (the “ICRC“) requiring him to complete a specified continuing education or remedial program (a “SCERP”). The ICRC’s decision was based on what appeared to be inflammatory and unprofessional comments by Peterson in various venues, including on social media and podcasts.

Background Facts

Jordan Peterson is a registered clinical psychologist who has amassed a sizeable social media following. In 2022, the College received complaints regarding Peterson’s public conduct on social media and for his public appearances on several podcasts which were criticized for being degrading, demeaning, and unprofessional:[i]

  • On a popular podcast, Peterson said about children’s deaths: “it’s just poor children, and the world has too many people on it anyways.”
  • In response to a tweet by a well known transgender actor discussing transgender representation on TV, Peterson tweeted “Remember when pride was a sin? And [the actor] just had her breasts removed by a criminal physician.”
  • Referring in a tweet to an Ottawa city councillor who uses gender neutral pronouns: an “appalling self-righteous moralizing thing”.[ii]

The ICRC Decision

The ICRC found that Peterson’s statements could be seen as degrading, demeaning, and unprofessional, emphasizing that psychologists can reasonably regard these statements as disgraceful and dishonourable.[iii] The panel expressed concern that Peterson’s comments were inconsistent with professional standards, posed a risk of harm to the public, and had the potential of undermining public trust in the profession.[iv] The panel noted that despite not practicing clinically, he continues to be registered, and has the authority to practice.[v]

The panel ordered Peterson to undergo a SCERP which required that Peterson attend a coaching program to address his professionalism. Peterson sought judicial review.

The Divisional Court’s Decision

The main issue in judicial review was whether the Panel’s decision to order a SCERP was reasonable.[vi]  Peterson’s main argument was that the ICRC did not properly consider his freedom of expression.

The Legal Framework

The court began by outlining the framework for determining how Charter guarantees are meant to be protected in the context of adjudicated administrative decisions. That framework is set out in Doré v Barreau du Québec, 2012 SCC 12, which requires administrative decision-makers like the ICRC to proportionately balance Charter rights and values and its statutory objectives. As the Court explained, this is a “highly contextual inquiry”[vii]:

A decision-maker must first consider the statutory objectives it is seeking to uphold, and then, secondly, “ask how the Charter value at issue will best be protected in view of the statutory objectives.” This requires conducting a proportionality exercise, balancing “the severity of the interference of the Charter protection with the statutory objectives”.[viii]

However, a decision-maker need not “choose the option that limits the Charter protection least”.[ix]

Review of the ICRC Decision

The Divisional Court found that the ICRC appropriately balanced Peterson’s freedom of expression with the statutory objectives of the College.[x]

With respect to the statutory objectives at issue, the Court referred to various sections of the Canadian Code of Ethics for Psychologists including a statement that “respect for the dignity of persons is the most fundamental and universally found ethical principle across disciplines, and includes the concepts of equal inherent worth, non-discrimination, moral rights, and distributive, social and natural justice”. The Code continues by requiring that members of the profession “Not engage publicly…in degrading comments about others, including demeaning jokes based on such characteristics as culture, nationality, ethnicity, colour, race, religion, sex, gender or sexual orientation.”[xi]

While Peterson argued that reliance on the Code by the ICRC was “misplaced’ given that he was expressing his “off duty opinions” (i.e. that his statements were made in his personal capacity), the Court rejected this argument and held that Peterson’s comments were “not personal comments made in conversation with friends or colleagues, but public statements to broad audiences” and that he described himself both on Twitter and on the podcast as a clinical psychologist. Peterson’s regulated status lent credibility to his words. Moreover, the Court noted that even when “off duty”, members of regulated professions can still harm public trust in the profession.[xii]

The Court then considered whether the ICRC appropriately balanced the statutory objectives of the Code with Peterson’s freedom of expression. The Court emphasized that given the ICRC’s role as a screening body, it effectively had three options: refer the matter to the Discipline Tribunal, do nothing, or direct a SCERP. By directing a SCERP, the “ICRC pursued a proportionate and reasonable option to further its objective of maintaining professional standards, and which will have a minimal impact on Dr. Peterson’s right to freedom of expression.” The ICRC’s decision “does not prevent Dr. Peterson from expressing himself on issues of interest to him and his audiences; rather, the Decision is focussed on concerns over his use of degrading or demeaning language” particularly in light of earlier warnings he had received in 2020. [xiii]


The freedom of expression of regulated professionals is not absolute in circumstances where their speech transgresses certain boundaries set by the profession itself. Even when “off duty”, regulated professions may still cause harm to the public trust (and therefore be subject to remedial and disciplinary measures) by engaging in conduct which is inconsistent with the core values of their profession.

[i] Ibid at para 9.

[ii] Ibid.

[iii] Ibid at para 23.

[iv]Ibid at para 24.

[v] Ibid at para 25.

[vi] Ibid at para 28.

[vii] Ibid at para 31.

[viii] Ibid at para 32.

[ix] Ibid at Para 33

[x] Ibid at para 38.

[xi] Ibid at paras 40-41.

[xii] Ibid at paras 46-47, 51-55.

[xiii] Ibid at para 64.

Mattamy (Downsview) Limited v. KSV Restructuring Inc. (Urbancorp): Procedural Fairness in Arbitral Proceedings

In this article, we consider the Ontario Superior Court’s decision in Mattamy (Downsview) Limited v. KSV Restructuring Inc. (Urbancorp), 2023 ONSC 3012, and its implications for the limits to an arbitrator’s discretion over matters of procedure and evidence in arbitration.

Brief Factual Background

Downsview Homes Inc (“DHI“) owned land where DHI had developed a residential construction project (the “Downsview Project“). Ownership of DHI was shared by Urbancorp Downsview Park Development Inc. (“UDPDI“) and Mattamy (Downsview) Limited (“Mattamy“), where the rights and obligations between the two parties were governed by the Amended and Restated Co-Ownership Agreement (the “Co-Ownership Agreement“).

In May of 2016, KSV Restructuring Inc. was appointed monitor (the “Monitor“) over UDPDI and its affiliated entities under a Companies’ Creditors Arrangement Act (“CCAA“) proceeding. Consequently, Mattamy became a lender under a debtor-in possession (“DIP“) facility, secured by a charge over UDPDI’s property, which included UDPDI’s interest in DHI. As part of the CCAA proceeding, KSV Restructuring was appointed as the monitor (the “Monitor“) over UDPDI.

In June of 2021, the Superior Court approved a sale process (the “Sale Process Order“) proposed by the Monitor for the sale of UDPDI’s interest in DHI to Mattamy. The proceeds were intended to satisfy the outstanding DIP facility. Additionally, the Sale Process Order also directed the Monitor to arbitrate various disputes, including, among other things, the determination of any Urbancorp Consulting Fees (the “Consulting Fees“) payable by Mattamy to Urbancorp Toronto Management Inc (“UTMI“) – from the same group of companies as UDPDI (together, “Urbancorp”)  under the Co-Ownership Agreement.

Notably, section 2.7 of the agreement of purchase and sale provided that the transaction was:

Without prejudice to the Purchaser’s [Mattamy’s] position that neither the Seller [UDPDI]] nor UTMI are entitled to the payment of any amounts in respect of the Urbancorp Consulting Fee, the Purchaser acknowledges that no consideration is being paid to UTMI in respect of the Urbancorp Consulting Fee and as such UTMI retains whatever rights it may have, if any, to recover such amounts.

The above-mentioned purchase and sale transaction closed in January of 2022 (the “Transfer Date“).

The Arbitration

In March of 2022, the Monitor (on behalf of the Urbancorp parties) submitted a Notice of Request to Arbitrate. The Monitor/Urbancorp sought a determination that UTMI was entitled to receive the Consulting Fees amounting to $5.9 million as of the Transfer Date. This amount was based on a calculation of “Gross Receipts” (as defined by the Co-Ownership Agreement) for the Downsview Project and the corresponding 1.5% percent Consulting Fee entitlement.

The dispute revolved around the definition of “Gross Receipts”, in respect of which the Monitor argued that revenues from the sale of residential dwellings should be included on a “non-cash basis”. This interpretation suggested that revenues from sales were to be included under “Gross Receipts” when such dwellings were sold, regardless of whether the sale proceeds were actually collected at that time. Conversely, Mattamy contended that “Gross Receipts” only included revenues from residential dwellings once the sales had closed as of the Transfer Date.

In determining the correct interpretation of “Gross Receipts”, the Arbitrator posed questions that were not covered in the parties’ pre-filed evidence or submissions. As such, the Arbitrator introduced a new issue (the “New Issue“) regarding accounting standards and the status of specific residential units that were sold, but not closed.

Accordingly, the arbitration hearing was adjourned, and the parties were directed to provide supplementary materials addressing the New Issue. Mattamy sought to adduce an affidavit that included portions of the ASPE [accounting standards for private enterprises] and a handbook published by the Real Property Association of Canada entitled “Recommended Accounting Practices for Real Estate Investment and Development Entities Reporting in Accordance with ASPE” (the “Handbook”).

The Urbancorp parties objected to some aspects of this affidavit, but interestingly, none of these objections were related to the Handbook. Mattamy indicated that if there were further objections to their proposed supplementary evidence, they would bring a motion for leave to file the evidence based on a proper record.

However, in June of 2022, the Arbitrator orally ruled at a case conference that certain parts of Mattamy’s affidavit would not be allowed into evidence. Specifically, the Arbitrator declined Mattamy’s request to schedule a motion to determine the admissibility of the Handbook, and struck all references to the Handbook, without providing written reasons for his decision.

In accordance with the Arbitrator’s ruling, Mattamy provided a revised version of their affidavit and argued that the application of the ASPE supported the proposition that Gross Receipts should not include revenue from sales until such revenue had been recognized at the interim closing date. Since certain residential condominium sales in question reached interim closing after the Transfer Date, Mattamy contended that such sales should not be calculated as part of the Gross Receipts.

The Arbitrator dismissed Mattamy’s argument and ruled that the definition of “Gross Receipts” did not require revenues to be received in order to be included within the Gross Receipts. Hence, the residential units in question could be recognised as Gross Receipts even if certain amounts were yet to be collected, and the Arbitrator granted the Monitor/Urbancorp an award of $5.9 million (the “Award“) in respect of the unpaid Consulting Fees.

The Superior Court’s Decision

Following the Arbitrator’s ruling, Mattamy brought an application to set aside the Award and to order a new arbitration under section 46 of the Arbitration Act, 1991 (the “Act“) based on two grounds:

1) exceeding the scope of the Arbitration and the Arbitrator’s jurisdiction; and

2) breaching the requirements of procedural fairness.

The Arbitrator did not Exceed his Jurisdiction

The Court first emphasized that an arbitrator’s jurisdiction is derived “exclusively from the authority conferred by the parties in their arbitration agreement and the terms of appointment of the arbitrator.” To determine whether the Arbitrator had gone beyond his jurisdiction, the Court applied the test established in Mexico v Cargill, 2011 ONCA 622 which involved the consideration of three questions:

  1. a) What was the issue that the arbitral tribunal decided?
  2. b) Was that issue within the submission to arbitration?
  3. c) Is there anything in the arbitration agreement, properly interpreted, that precluded the tribunal from making the award?

In applying the foregoing test, the Court identified that the issue in question was UTMI’s entitlement to any Consulting Fees and the mechanics and timing of when such fees were to be paid. This issue was clearly set out both in the Notice of Request to Arbitrate provided to the Arbitrator, and in the parties’ pleadings. Although, the New Issue raised by the Arbitrator “shifted the analysis” as to whether monies paid after the Transfer Date fell within the definition of Gross Receipts, the Court determined that this was simply “another data point and perspective” to be considered when determining UTMI’s entitlement to the Consulting Fees. Thus, the New Issue fell within the submission to arbitration.

The Court also confirmed that that there was nothing in either the Co-Ownership Agreement or the Terms of Appointment that precluded the Arbitrator from making the Award. Consequently, the Court ruled that the Arbitrator did not exceed his jurisdiction in raising and considering the New Issue.

The Arbitrator’s Conduct gave rise to Procedural Unfairness

Mattamy argued that the Arbitrator’s ruling on the inadmissibility of the Handbook gave rise to a procedural unfairness. According to Mattamy, they were denied a sufficient opportunity to present their case, as the Arbitrator failed to engage in a thorough procedure to determine the admissibility of the Handbook and further denied an appropriate way for the evidence to be received.

The Court concurred with Mattamy’s position, and highlighted that Section 46(1)6 of the Act allows a Court to set aside an award on the basis that an applicant is treated unequally and unfairly, denied the chance to present a case or to respond to another party’s case, or is not given proper notice of the arbitration or of the arbitrator’s appointment.

Furthermore, the Court observed that the Handbook was relevant to the New Issue raised during the arbitration. The Handbook not only provided context and guidance on the application of ASPE principles concerning revenue recognition from the sale of residential condominium units, but it also provided rationale as to why revenue from the sale of residential condominium units was to be recognized at the time of interim closing. As such, the Arbitrator did not have the benefit of the full context of accounting principles from an industry perspective when making his decision.

Even if the accounting approach and the contents of the Handbook were, in hindsight, not found to be determinative in interpreting the definition of Gross Receipts, the Court held that an accounting rationale remained a “relevant data point” that Mattamy should have had the opportunity to present in support of its submissions on the New Issue.

Mattamy further asserted that if the Arbitrator was concerned that the Handbook was lacking support by an expert opinion, Mattamy would have rectified this issue (including by leading expert evidence) even if it were to delay the arbitration. The Court found that this point reinforced the conclusion that Mattamy was not afforded a sufficient opportunity to present its case on the New Issue.

The Court then turned to whether the Arbitrator engaged in a thorough proceeding to determine whether to admit the Handbook into evidence. The Court considered that the Arbitrator’s decision to strike the Handbook was made despite:

  1. a) the lack of objection from the respondents regarding the inclusion of this evidence;
  2. b) Mattamy’s request for an opportunity to bring a motion for leave to determine the admissibility of evidence contained in the affidavit; and
  3. c) the admission of similar materials that contained the application of ASPE principles.

Considering these findings, coupled with the fact that the Arbitrator’s decision was made without the benefit of a motion and supporting reasons for excluding Mattamy’s evidence, the Court deemed the arbitration process to be unjust and unfair. The Court therefore ordered that the Award be set aside and the parties were directed to procced with a new arbitration before a different arbitrator.

Analysis and Commentary

Broadly speaking, Mattamy provides a useful reminder of the limits to an arbitrator or tribunal’s procedural discretion. It is common practice – particularly in construction disputes – to provide that a set of procedural rules will apply to the arbitration (e.g. the UNCITRAL Arbitration Rules, which themselves provide the tribunal with wide procedural discretion), and to provide in Procedural Order No. 1 that the tribunal will then have the authority to modify those chosen rules to the extent the tribunal deems appropriate or just. However, as Mattamy shows, it is critical to bear in mind that such authority is necessarily limited by the requirement of fair and equal treatment, which is part of essentially all arbitration legislation (and cannot be excluded by the parties’ agreement, unlike other legislative provisions).

In that regard, Mattamy raises an interesting question as to the overlap between administrative law and arbitration. In particular the Court relied upon the Supreme Court of Canada’s decision in Université du Québec à Trois-Rivières v. Larocque, [1993] 1 S.C.R. 471 to conclude that a decision to exclude evidence in an arbitration is not a “procedural” decision that is immune from review, unlike certain other procedural decisions which are immune from review (e.g. declining to admit fresh evidence following delivery of an award, or ordering security for costs). Indeed, the Court referred to “blanket categories” of procedural decisions of arbitrators that are immune from review, but did not elaborate on the underlying basis for which a given form of decision would qualify for such immunity.

In any event, while the Court’s conclusion seems intuitively correct as a matter of procedural fairness, it nevertheless bears noting that the Supreme Court has clarified on several occasions that there are “important differences between commercial arbitration and administrative decision‑making”.[1] While it is important not to overstate the degree to which arbitration and administrative law are separate spheres[2], the most notable among these differences is arbitration’s greater emphasis on party autonomy and freedom of contract (particularly in respect of crafting rules of procedure). As a result, it arguably would have been preferable for the Court to more fully articulate a freestanding rationale for why such a decision in the arbitral context is not immune from review, rather than relying on an administrative law authority.[3] This would be particularly beneficial to determining a principled basis for when a form of procedural decision constitutes one of the aforementioned “blanket categories”.

Similarly, it is worth also clarifying the significance of the lack of written reasons in respect of the New Issue since, understood through an administrative lens, the absence of written reasons might (in certain circumstances) be grounds in and of itself for a finding of procedural unfairness. In this case, the Court observed that (among other things), in the absence of any written or oral reasons from the Arbitrator as to why he decided to exclude the Handbook, the Court could not satisfy itself that a thorough procedure was followed in determining whether to exclude the Handbook.

Importantly, this is not to suggest that in all instances, a lack of written or oral reasons in the arbitral context will inevitably give rise to a finding of procedural unfairness. Indeed, it is not uncommon for parties to agree (for the sake of expediency) that a tribunal will not need to provide detailed (or any) reasons as part of its final award. The more salient point in respect of this issue is that, on this set-aside application, there was insufficient evidence before the Court that a thorough procedure had been followed in arriving at the decision to exclude the Handbook.

In that regard, the Arbitrator’s decision to address the issue via case conference rather than formal motion appears to have been a significant factor, as the latter would have undoubtedly provided a more thorough procedure. In future, wary arbitrators may err on the side of caution in addressing similar issues – while this will ensure greater procedural rigour, it is arguable that some of the efficiency of arbitration may be eroded.

In addition, the nature of Urbancorp’s position as to the admissibility of the Handbook raises an interesting question as to what qualifies as ‘agreement’ between the parties and its impact on the scope of the arbitrator’s jurisdiction. As noted above, the Court observed that Urbancorp did not object to the admission of the Handbook into evidence. On that basis, the argument could be made that the parties agreed to its inclusion, thus modifying their arbitration agreement and thereby leaving the Arbitrator with no discretion to exclude the Handbook (meaning a decision to do so would exceed the arbitrator’s jurisdiction).

However, this in turn raises the question of whether a lack of disagreement (i.e. a lack of objection) is synonymous with agreement; the Court’s analysis is not clear whether Urbancorp expressly or implicitly agreed with the Handbook’s admission, or whether Urbancorp simply took no position on the issue. As readers will appreciate, the issue of whether an agreement has been reached in the contractual context is highly fact-specific, and it is accordingly difficult to state as a general proposition that a lack of disagreement amounts to acquiescence and in turn agreement (or, in fact, whether acquiescence is itself sufficient for agreement as a matter of contract law).

Clearly, though, it appears that the Court is predisposed to protect a party’s right to make its case and to be able to respond to the case against it, such that, as a conservative practice, the potential rejection of significant evidence by an Arbitrator should be accompanied by the opportunity to be heard and an articulation of the basis for exclusion.

Eric Lee (summer student) assisted with the preparation of this article.

[1] See, for example, Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, 2021 SCC 7 at para 119, citing Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 at para 104.

[2] See, for example, Vento Motorcycles, Inc. v. United Mexican States, 2021 ONSC 7913, where the Ontario Superior Court concluded that the applicable test for admitting fresh evidence on an application to set aside an international arbitral award on procedural fairness grounds is akin to the test for admitting fresh evidence in the context of an application for judicial review of an administrative decision.

[3] Parenthetically, this also calls to mind the current uncertainty in relation to the applicable standard of review for arbitral awards following the Supreme Court’s decision in Vavilov.

Devlan Construction Ltd v SRK Woodworking Inc: Joinder of Trust and Lien Claims is Not Permissible Under Ontario’s Construction Act


Below we consider the Divisional Court’s decision in Devlan Construction Ltd v SRK Woodworking Inc, 2023 ONSC 3035 (“Devlan Construction“) and its implications for the joinder of trust and lien claims under Ontario’s Construction Act. Broadly, based on a reading of the Construction Act’s regulations and rules of statutory interpretation, the Divisional Court concluded that trust claims could not be joined with lien claims under the Construction Act.

Below, we discuss some implications of this decision, contrasting it with the recommendation on the joinder of lien and trust claims from Striking the Balance: Expert Review of Ontario’s Construction Lien Act (“Striking the Balance“), which was one of the bases for the updating of the Construction Lien Act (or the Construction Act, as it ultimately became).

Brief Factual Background

In the original dispute (SRK Woodworking Inc. v. Devlan Construction Ltd. et al., 2022 ONSC 6229), SRK Woodworking Inc. (“SRK”) brought a lien action with respect to payment for the supply and installation of millwork to a local public school against the contractor, Devlan Construction Ltd. (“Devlan”). Subsequently, SRK sought to amend its pleadings by adding parties who were officers and directors of Devlan, and to claim breach of trust under the Construction Act. At issue was what the Construction Act and O Reg 302/18 provided regarding joinder of lien and trust claims.

The Superior Court’s Decision

The contract that was the subject of the proceedings was entered into in March 2019. The motion judge was unable to determine which version of the Construction Act applied. Though the subcontract between Devlan and SRK was executed in March 2019, it was unclear to the Court when the prime contract was executed or when procurement began based on the evidence available.

For this case, the motion judge specified that while s. 50(2) of the Construction Lien Act was no longer part of the Construction Act, the permissive section of joining lien claims and breach of contract claims was introduced into the Construction Act’s new regulations.

Both parties asked the motion judge to apply the legal principle of statutory interpretation which provides that the expression of one or more things of a particular class may be regarded as impliedly excluding others (the “implied exclusion” principle).

One concern raised was the proper manner in which to interpret the removal of two sections in the Construction Lien Act prior to its amendment in 2017. Specifically, the removal of the following sections:

Section 50(2)

A trust claim shall not be joined with a lien claim but may be brought in any court of competent jurisdiction; and


Section 55(1)

A plaintiff in an action may join with a lien claim a claim for breach of contract or subcontract.

While both sections were removed, s. 55(1) was subsequently re-enacted, verbatim, in O Reg 302/18 at s. 3(2) – that is, as a regulation to, instead of a provision within, the Construction Act.

Devlan relied on O Reg 302/18, s. 3(2), which only specified that breach of contract or subcontract claims could be joined with lien claims (i.e. the lack of a similar permission in respect of breach of trust claims meant that it was implicitly forbidden). By contrast, SRK’s position was that since the former prohibition to join trust and lien claims no longer existed in the statute, the legislature intended that such joinder was permitted.

For the motion judge, the key issue regarding the meaning of O Reg 302/18, s. 3(2) was whether the legislature – by creating a regulation which expressly allowed joinder of breach of contract claims to lien claims – intended to signal that the joinder of all other claims to lien claims was barred.

To help determine legislative intent, the motion judge reviewed a chart prepared by the Ministry of the Attorney General titled Amendments to the construction lien and holdback provisions, which stipulated that the prohibition on joinder of lien claims and trust claims had been removed.

The judge also reviewed Striking the Balance, which recommended removing the prohibition on joinder of trust claims and lien claims under s. 50(2) of the Construction Lien Act.

The judge analyzed the totality of the Construction Act and noted that the legislation was designed to provide a scheme that would allow construction projects to move forward in an organized, efficient, effective, and timely manner.

Nevertheless, the motion judge was unconvinced by the argument that joining trust and lien claims was inconsistent with the Construction Act as a whole. This was because the parts of the Construction Act dealing with prompt payment and adjudication did not apply to the matter before them. Thus, the motion judge found that SRK should be allowed to join their trust claim with their lien claim. Devlan accordingly appealed to the Divisional Court.

The Divisional Court’s Decision

The Divisional Court began by acknowledging that the Construction Act and its regulations, read together, could be clearer about this issue of joinder; however, for the purpose of this case, the Court stipulated that the key question was simply what the Construction Act and regulations provided. The current Construction Act neither permitted nor prohibited joinder of claims in a construction lien proceeding.

While the Construction Act provided for recourse to the Rules of Civil Procedure, this was only in respect to procedural matters left unaddressed by the Construction Act and regulations. Thus, once O Reg 302/18 came into effect, this regulation ousted the application of the Rules of Civil Procedure in respect of the joinder of claims. This was because of the express language of s. 50(2) of the Construction Act:

Except to the extent that they are inconsistent with this Act and the procedures prescribed for the purposes of this part, the Courts of Justice Act and the rules of court apply to the actions under this part. [emphasis added]

In that regard, O Reg 302/18 stipulated that “a plaintiff in an action may join with a lien claim a claim for breach of contract or subcontract.” By expressly permitting joinder of contract and subcontract claims, O Reg 302/18 impliedly excluded joinder of other claims. In this, the Court considered the implied exclusion principle noted above.

The Court acknowledged that the express prohibition on joinder of trust and lien claims was repealed and not reintroduced in the regulations. However, the applicable principle of statutory interpretation set out in the Legislation Act precluded construing current provisions on the basis of prior versions of the legislation:

No implication

56 (1) The repeal, revocation or amendment of an Act or regulation does not imply anything about the previous state of the law or that the Act or regulation was previously in force;


(2) The amendment of an Act or regulation does not imply that the previous state of the law was different.

Finally, the Court noted that the Construction Act should be as far as possible a summary procedure. Adding breach of trust claims would, it surmised, result in adding further issues that would significantly complicate the narrow issue of breach of contract in a lien action. This would then increase documentary production, examinations for discovery, and the number of parties and issues to be tried, which would undoubtedly increase the cost and the length of the proceeding.

Furthermore, the Court observed that even if it were wrong in its reading of the Construction Act and the regulations, this could be remedied by amending the regulations to expressly address joinder of trust and lien claims.

Accordingly, Devlan’s appeal was allowed, with the breach of trust claims struck from the proceeding and the action struck as against the trust defendants.

Analysis & Commentary

Devlan Construction provides helpful clarification about relevant rules of statutory interpretation used by the Divisional Court to make its determination, including:

  • By expressly permitting the joinder of breach of contract claims to lien claims, this by implication precluded the joinder of other claims (such as breach of trust claims) – in other words, the principle of implied exclusion applies; and
  • Current statutory provisions cannot be construed on the basis of prior versions of the legislation.

That being said, Devlan Construction raises important issues for further consideration.

First, it is arguable whether the Legislation Act explicitly precludes analysis of prior versions of legislation in all cases. Section 56(1) of the Legislation Act lists repeal, revocation, and amendment of an act or regulation as elements that do not imply anything about the previous state of the law. In Devlan Construction, what is at issue is re-enactment of a provision as a regulation, which might arguably not be captured by s. 56(1).

Also, s. 46 of the Legislation Act indicates that every provision of “Part IV – Interpretation” – that is, the Part wherein s. 56 appears – applies to every Act and regulation. However, an exception appears in s. 47:

47 Section 46 applies unless;

(b) its application would give to a term or provision a meaning that is inconsistent with the context. [emphasis added]

According to Sullivan’s Statutory Interpretation, courts work with an expansive view of admissible context, meaning very little cannot be considered if it is relevant to the interpretive problem at hand.[1] This includes legislative history, which is anything that is prepared to facilitate the passage of legislation[2], and legislative evolution, which begins with analysis of the first enactment of legislation, followed by subsequent amendments, up to final repeal.[3]

Even if current provisions cannot be construed based on prior versions of the legislation, s. 56(2) of the Legislation Act only specifies that “amendment of an Act or regulation” does not imply anything about the previous state of the law. This language arguably does not extend to the context surrounding the amendments.

This proposition is also supported by the Superior Court’s recent decision in Director of Employment Standards v Sleep Country Canada, 2023 ONSC 3975. There, the Court observed that an amendment to the statute at issue in and of itself did not reveal anything; rather, the Court referred to the lack of evidence (such as Hansard) that would have demonstrated a reason for why the legislature made the amendment in question. This suggests that the context surrounding the amendments forms a valid part of the assessment. In the present case, there was ample evidence of context surrounding the intent of the amendments and the desire to remove the prohibition against joinder of lien and trust actions specifically.

As such, the position of the Divisional Court appears to somewhat understate available extrinsic context, such as legislative history, especially in light of s. 47(b) of the Legislation Act. For example, this creates a situation where the recommendation to remove the prohibition on joinder of trust and lien claims in the Striking the Balance report was not followed.

This is despite the fact that Ontario is the only common law province that prohibits this type of joinder, and despite the fact that multiple stakeholders consulted in Striking the Balance believed that this type of joinder should be allowed. The ultimate question is of course what the legislature intended; however, since this report was commissioned and written in order to aid the legislature in updating the Construction Lien Act – in addition to which the drafters of the report were engaged by the legislature to consult in the drafting of the legislation – it still forms part of the relevant interpretive context.

Additionally, removing the prohibition on joining trust and lien claims was expressly included in the chart prepared by the Ministry of the Attorney General on July 1, 2018 in Amendments to the construction lien and holdback provisions. This document, described as “a chart describing some of the key changes”, was part of a summary prepared by the Ministry of the Attorney General to explain the amendments to the Construction Act.

The chart specified the following: “the prohibition on joinder on lien claims and trust claims has been removed.” This chart followed the Hansard debates from November 15, 2017, where the removal of the prohibition on breach of trust claims being joined with lien claims was described as a “well overdue” amendment. Again, this forms part of the context surrounding the updates to the Construction Lien Act.

Second, without a regulation being added to explicitly prohibit joinder of trust claims to lien claims, the arguable implication of Devlan Construction appears to be that this explicit removal of the prohibition on joinder of trust and lien claims ultimately served no purpose.

However, both s. 50(2) and s. 55(1) were removed from the Construction Lien Act, but only s. 55(1) was re-enacted as a regulation. According to Sullivan’s Statutory Interpretation, departure from a pattern or practice is one reason why Courts may reject certain interpretations of legislation.[4]

This re-enactment of s. 55(1) as a regulation may create a fixed pattern of expression where the legislature seems to have been aware of the need to re-enact certain provisions as regulations. Despite the legislature knowing about the removal of the provision that prohibited joinder of trust and lien claims based on the contextual evidence above, they did not re-enact said provision as a regulation.

Third, the issue of implied exclusion raises questions regarding other related principles of statutory interpretation, including analysis of legislative intent and the objective of the amendments. In Rizzo v Rizzo Shoes Ltd (Re), [1998] 1 SCR 27 (“Rizzo”), the Supreme Court stated that there is only one principle or approach to the interpretation of legislation:

[T]he words of the Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament.

The objectives of amending the Construction Lien Act to the Construction Act included the following:

  • Modernizing the construction lien and holdback rules;
  • Helping to make sure that workers and businesses are paid on time for their work; and
  • Helping to make sure payment disputes are addressed quickly and painlessly.[5]

While prompt payment was one objective of the amendments, modernizing the construction lien rules was also another expressly-stated objective. Permitting joinder of trust claims with lien claims would arguably help modernize the construction lien rules because the basis for the prohibition was from a Report of the Attorney General’s Advisory Committee in 1983. At the time, it was decided that issues related to lien and trust claims were very different, and resolving lien claims was the primary concern under the Construction Lien Act.[6]

However, in practice, courts had been willing to join lien and trust claims while the Construction Lien Act was in force.[7] Thus, permitting joinder of these types of claims in the Construction Act at least to some degree would only be following the actual practice of the courts themselves. Furthermore, as readers will appreciate, the Courts of Justice Act (along with the Rules of Civil Procedure) emphasize the avoidance of a multiplicity of proceedings, which proposition is particularly relevant in respect of this issue given that trust issues often overlap to a significant extent with lien issues. In other words, such a change would modernize the legislation by bringing it into line with modern practice, both specifically in the construction context and in the litigation context more generally.

As stated by the Supreme Court in Rizzo, using legislative history to help determine the intention of the legislature is an “entirely appropriate” exercise that has frequently been employed by the Supreme Court. In conjunction with the potential applicability of s. 47 of the Interpretation Act, it may be possible to look at the legislative history of s. 50(2) of the Construction Lien Act and the provision’s subsequent removal in the Construction Act.

In that regard, one point made by the motion judge bears repeating: the principle of implied exclusion should be used carefully, as much depends on the context, and thus it is not a principle of universal application.

Due to the significance of the questions raised by Devlan Construction, we look forward to seeing how it will be subsequently interpreted or applied, or if the provincial legislature will subsequently respond with additional regulations to clarify this issue. In that regard, it bears noting that Devlan may somewhat understate the ease with which regulations are revised. While moving the relevant provisions from the Construction Act to its regulations may have avoided the issue of having to formally amend the legislation through the legislature, the practical reality remains that revising regulations requires significant input from stakeholders both within and outside of government. Ultimately, the legislature will ideally consider the original intent behind Striking the Balance in making any subsequent changes; in the interim, however, there will likely be some confusion and difficulties in matters involving breach of trust issues under the Construction Act, and associated additional costs will be borne by litigants.

Jeff Wong (summer student) assisted in the preparation of this article.

[1] Ruth Sullivan, Statutory Interpretation, 3rd ed (Toronto: Irwin Law Inc, 2016) at 51 [Statutory Interpretation].

[2] Ibid at 259.

[3] Ibid at 260.

[4] Ibid at 149-150.

[5] Ministry of the Attorney General, “Summary” (October 1, 2019), online <>.

[6] Bruce Reynolds & Sharon Vogel, “Striking the Balance” (April 30, 2016), online <>.

[7] Ibid.

Arad Incorporated v Rejali et al: Court Wary of Returning Security in Lien Claims on the Sole Basis of Statutory Adjudication

The Ontario Superior Court’s recent decision in Arad Incorporated v Rejali et al, 2023 ONSC 3949[1] (“Arad”) provides helpful guidance on motions for the return of posted security in circumstances where an interim adjudication process has concluded in accordance with Ontario’s Construction Act (the “Act”).[2]

In particular, the court confirmed that it would be wary of relying on the determinations of adjudicators (which are, of course, interim binding) when deciding to reduce or return security that has been paid into court to vacate a lien claim.[3] In fact, the court in Arad suggests that the determinations of adjudicators themselves will generally not be sufficient for a court to grant such relief.


In Arad, the plaintiff (or its principal – this fact was unclear) entered into a contract to provide services and materials for the improvement of a residential property owned by two of the defendants (a third defendant was alleged to have acted as the owners’ agent or joint venture partner). The plaintiff alleged that the defendants owed it money in respect of the supply of such services and materials, and as a result, the plaintiff registered a claim for lien and certificate of action against the property. The claim for lien and certificate of action were vacated from title pursuant to s. 44 of the Act, with the defendants paying money into court as security.

The plaintiff then commenced a construction dispute interim adjudication under Part II.1 of the Act. The third defendant (the alleged agent or joint venture partner) also brought an adjudication for monies allegedly overpaid to the plaintiff’s principal. An engineer, acting as the adjudicator for both issues, concluded that no additional monies were owed to the plaintiff, and that the plaintiff’s principal was not responsible for any overpayment by the third defendant.

Neither party sought judicial review or a stay of the adjudicator’s decision. Instead, the defendants brought a motion to reduce or return the security paid into court, on the basis that the adjudicator had found no additional monies were owed to the plaintiff.

No details are provided in the decision as to the status of the lien action.

The Superior Court’s Decision

As noted by the Court, “in a nutshell, the issue [of this case was] whether the determinations of the adjudicator that no monies are owed means that the money paid into court should be returned”.

In bringing their motion, the defendants relied on s 44(5) of the Act, which states:

Reduction of amount paid into court

(5) Where an amount has been paid into court or security has been posted with the court under this section, the court, upon notice to such persons as it may require, may order where it is appropriate to do so,

(a) the reduction of the amount paid into court, and the payment of any part of the amount paid into court to the person entitled; or

(b) the reduction of the amount of security posted with the court, and the delivery up of the security posted with the court for cancellation or substitution, as the case may be.[4]

Relying on prior case law[5], the Court found that the applicable test was whether the Court was “satisfied on the basis on the motion material that there is no reasonable prospect of the lien claimant proving that the lien claimed attracts the requirement to attract security per ss 44(1) or (2) of the Act.”[6]

While the defendants filed two affidavits, the Court observed that the “sole evidentiary basis” they provided were the determinations of the adjudicator.[7] The Court therefore considered whether or not it was appropriate to reduce or return the security based solely on the determinations of the adjudicator (who, as noted above, found against the plaintiff entirely).

In that regard, the Court found it necessary to examine the adjudicator’s methodology and conclusions. In doing so, the Court discussed the nature of interim adjudication, and adopted the following statement from Pasqualino v MGW-Homes Design Inc:

The Adjudication provisions were introduced into the Construction legislation to provide a quick, efficient, interim determination allowing funds to flow down the contractual “pyramid”. I stress that adjudication determinations are interim, allowing the parties to continue litigating the issues, including those the subject of the Adjudication determination to a final and binding determination in the courts or by arbitration.[8]

The Court also added the following observations about the interim nature of adjudication under the Act:

As interim decisions, it does not put an end to the proceeding. The proceeding continues between the parties including that which was subject of the adjudication process. The determinations of the adjudicator are not binding upon this court. The findings and conclusions of an adjudicator set out in the determination is evidence, like any other evidence, this court may take into consideration in determining whether to exercise its discretion to reduce security “where it is appropriate to do so.” But an adjudicator’s conclusions are not determinative on the decision to reduce security.[9]


For the adjudication process, I make no assertion that such a methodology is or is not permitted. … Not all evidentiary rules may be adhered to.  Not all evidence provided may be subject to scrutiny through the discovery process or subject to cross examination.[10] [emphasis added]

In other words, although the Court recognized that statutory adjudication was deliberately designed to allow for the relaxation of certain rules of procedure and evidence, it appears that this relaxation was itself cause for skepticism from the Court of the weight to be assigned to the adjudicator’s determination.

In that regard, with respect to the methodology of the adjudicator in this case, the judge noted that the adjudicator indicated that no witnesses were called and that determinations were made based on documentary evidence, oral submissions, and a site visit.[11] Further, the Court noted as follows:

The adjudicator made findings based on his opinion as an engineer and not based on the expert opinion or reports of others presented by either of the parties. His opinion was not subject to contestation by any of the parties. He made findings based on a site visit and verbal statements during the oral hearing. His findings were not all based on admissible evidence. He admitted that there was contradicting claims and statements made by the parties on the facts: the agreement and the scope of work to be performed and the worked performed. The adjudicator conceded that he did not consider the extra claims of the plaintiff for, in his opinion, he did not receive “proper evidence”. The adjudicator also decided to just rely on the documentation provided and use his own construction and engineering experience to make final determinations.[12] [emphasis added]

The Court therefore found that the “determinations of the adjudicator alone do not meet the evidentiary threshold required for the court to conclude that the lien claim does not attract need for security.”[13]

Ultimately, the Court concluded that courts should be wary of solely relying on the findings of an adjudicator in deciding whether to reduce or return security for a lien claim.[14] In this particular case, the Court also found that there was no basis to reduce the amount of the security, given that any reduction would be arbitrary without evidentiary basis.[15]


While Arad suggests that courts may be wary of relying solely on the determinations of an adjudicator, it is also important to note that the Court did not rule out the possibility that an adjudicator’s determinations could provide sufficient evidence to reduce or return security in the right circumstances.

In the Court’s view, consideration must be given to whether the adjudicator’s determinations provide the “necessary evidentiary foundation” for reducing or returning the security[16], meaning that a court will scrutinize the adjudicator’s methodology and conclusions in deciding whether the adjudicator’s findings provide a sufficient evidentiary basis.

It follows that the closer an adjudicator adheres to evidentiary rules and elements of the adversarial system such as cross-examination of witnesses – in short, to standard civil procedure – the likelier it would be that a court would find an adjudicator’s determination to be sufficient evidence. The same would seem to hold true more broadly, in other circumstances in which a party may seek to rely on an adjudicator’s determinations as evidence in a proceeding, such as in a motion for summary judgment. Therefore, in commencing a construction dispute interim adjudication, it is important to consider that the quicker and more efficient the process is, the less likely it will subsequently be relied on by a court as evidence in a proceeding.

It therefore remains to be seen if this will incentivize parties to avoid or curtail the summary nature of adjudication in favour of a more robust procedure that they might then rely upon in the context of related lien litigation (or other construction court proceedings). As readers will appreciate, adjudication was intended from its inception to forego procedural trappings in favour of a quicker, “rough justice” approach in order to maintain the flow of funds down the construction pyramid. If parties begin to view this skepticism as it relates to related proceedings, then this aspect of adjudication might unfortunately be undermined.

The summary nature of adjudication (and its contemplation of subsequent court proceedings) is, of course, one of the reasons that adjudication is interim. By contrast, the return of posted security removes a protection for lien claimants granted by statute, and is itself more akin to a final determination (except to the extent that such an order is successfully appealed). It would seem inconsistent with the purpose of the Act – and the purpose of adjudication – for a lien claimant to lose its right to the protection of posted security on the basis of an interim determination alone, and accordingly, this decision appears to strike the appropriate balance in that regard.

[1] Arad Incorporated v Rejali et al, 2023 ONSC 3949.

[2] Construction Act, RSO 1990, C-30.

[3] While the Act distinguishes between security posted with the court and monies paid into court as security, they are equivalent for the purposes of this analysis and treated as interchangeable. See Construction Act, RSO 1990, C-30, s 44(5).

[4] Construction Act, RSO 1990, C-30, s 44(5).

[5] Pentad Construction Inc v 2022988 Ontario Inc, 2021 ONSC 824; and Chesney et al v Malamis et al, 2023 ONSC 1742.

[6] Arad Incorporated v Rejali et al, 2023 ONSC 3949 at para 22.

[7] Arad Incorporated v Rejali et al, 2023 ONSC 3949 at para 19.

[8] Pasqualino v MGW-Homes Design Inc, 2022 ONSC 5632 at para 30.

[9] Arad Incorporated v Rejali et al, 2023 ONSC 3949 at para 17.

[10] Arad Incorporated v Rejali et al, 2023 ONSC 3949 at para 28.

[11] Ibid at para 20.

[12] Ibid at para 25.

[13] Ibid at para 24.

[14] Ibid at para 28.

[15] Ibid at para 30.

[16] Ibid at para 24.

CZT v CZU: Deliberative Secrecy in Arbitration

In CZT v CZU,[1] the plaintiff – seeking to set aside the award of an arbitral tribunal on the basis of serious allegations by the dissenting arbitrator against the two other members of the tribunal – brought an application to compel the arbitrators to produce records of their deliberations.

The Singapore International Commercial Court (“SICC” or “Court”) dismissed the plaintiff’s production application, concluding that the plaintiff had not demonstrated that the interests of justice outweighed the policy reasons for protecting the confidentiality of deliberations. In the Court’s view, the application to set aside the award could proceed without those records.

The decision is an important benchmark in terms of deliberative secrecy in arbitration, which according to the Court, will only yield in the rarest of cases, which generally would not include bare allegations even of a serious nature.


The plaintiff entered into a contract with the defendant to deliver certain component packages that included materials, machinery and equipment, which the defendant subsequently alleged were defective. The defendant commenced arbitration proceedings in Singapore under the Rules of Conciliation and Arbitration of the International Chamber of Commerce (“ICC”) in Singapore. The majority on a panel of three (the “Majority”) found in favour of the defendant. However, the dissenting arbitrator (the “Minority”) made various allegations against the majority, accusing them of:

  • having “engaged in serious procedural misconduct”,
  • “continued misstating of the record”,
  • attempting “to conceal the true ratio decidendi from the Parties”,
  • “distortion of the deliberation history”,
  • a lack of impartiality, and
  • knowingly stating an incorrect reason for the Minority’s refusal to sign the Majority’s final award (the “Final Award”).[2]

The Minority concluded in his dissent that he had “lost any and all trust in the impartiality of [his] fellow arbitrators”.[3]

On the basis of this apparent “smoking gun,” the plaintiff brought an application before the SICC to have the award set aside under Singapore’s International Arbitration Act 1994 (2020 Revised Edition). When the ICC Secretariat and all three members of the panel refused voluntarily to hand over records of the deliberations, the plaintiff filed summonses in the SICC against the three arbitrators for production of their records.

The SICC’s Decision

With respect to general principles of deliberative secrecy, it was common ground between the parties that the records of arbitral deliberations are confidential by default and therefore protected against production orders, and the Court agreed that “it can scarcely be argued otherwise” even though no statutory provision expressly protects the confidentiality of arbitrators’ deliberations.[4] In the Court’s view, the confidentiality of deliberations, like the confidentiality of arbitral proceedings themselves, “exists as an implied obligation in law”[5] – that is, it exists at common law independent of (or in addition to) any statutory, institutional, or contractual provision to similar effect, for the following well-recognized policy reasons (which readers will recognize as very similar to the reasons justifying deliberative secrecy for courts):

  • Confidentiality is a necessary pre-requisite for frank discussion between the arbitrators;
  • Freedom from outside scrutiny enables the arbitrators to reflect on the evidence without restriction, to draw conclusions untrammelled by any concern in respect of subsequent disclosure of their thought processes, and, where they are so inclined, to change these conclusions on further reflection without fear of subsequent criticism or of the need for subsequent explanation (e.g., to the party who appointed them);
  • The duty of the tribunal to keep deliberations confidential protects the tribunal from outside influence (i.e., discourage an arbitrator from leaking or publicising discussions or decisions with which they disagreed); and
  • The rule helps to minimise spurious annulment or enforcement challenges based on matters raised in deliberations or differences between the deliberations and the final award and is thereby critical to the integrity and efficacy of the whole arbitral process.[6]

The parties were also in general agreement that the default rules of confidentiality with respect to arbitral deliberations are subject to exceptions. The plaintiff argued that confidentiality will yield in appropriate circumstances to “considerations of due process, the interests of justice and the public policy of preserving the integrity and reputation of Singapore as a seat of arbitration.”[7]Conversely, the defendant and one of member of the Majority (who was present before the Court) argued that confidentiality will yield only in the “rarest of cases”, and requires “the most compelling reasons and exceptional circumstances”.[8] The member of the Majority further drew a distinction between “process issues” and “disagreements on substance”, and submitted that there is an exception for process issues, such as “allegations that one arbitrator has been excluded from deliberations”.[9]

The Court agreed that the plaintiff’s formulation was too wide in scope, and found that confidentiality of deliberations only applies to protect substantive disagreements that involve an arbitrator’s thought processes or reasons for his/her decision; conversely, confidentiality does not apply to “essential process issues”. However, the Court did not consider the protection of essential process issues to be an exception to the principle of confidentiality, because such process issues do not represent the tribunal’s thought processes or reasons for decision, and therefore do not engage the policy reasons for protecting confidentiality in the first place.[10] The Court relied on case law from the UK and Australia, as follows:

In Duke of Buccleuch,[11] the court held (at 457) that an arbitrator may be questioned as to what had taken place before him, including what matters had been submitted to him for decision, but he could not be questioned as to how he arrived at his decision. In Nathan v MJK Constructions [1986] VR 75 (“Nathan”), the Australian Supreme Court of Victoria held that whilst an arbitrator may not be questioned as to his reason for making a particular decision, there was no policy reason why he should not give evidence as to what took place before him.[12]

The Court also acknowledged that the line between process issues and substantive issues is not always clear, and that “there may also well be some issues which are described as ‘process issues’ which raise questions of fact and degree as to the extent of consultation between arbitrators which could give rise to the need to explore deliberations”. On the facts of this case, the Court did not find it necessary to consider that issue further.[13]

The Court found that there can be an exception to confidentiality when the facts and circumstances are such that the interests of justice in ordering the production of records of deliberations outweigh the policy reasons for protecting the confidentiality of deliberations.[14] This would only occur in the “very rarest of cases”, and would require a case involving allegations that (1) are very serious in nature, and (2) have a real prosect of succeeding.[15] For example, the Court observed allegations of corruption would be serious enough because they “attack the integrity of arbitration at its core.”[16]

The Decision

The plaintiff argued that it was entitled to production on the following grounds:

  1. The majority in fact decided a key liability issue on grounds (or for true reasons) that were not contained in the Final Award, and/or as a result of a breach of the fair hearing rule, which can arise from the chain of reasoning adopted by the majority.
  2. The majority attempted to conceal the true reasons behind the Final Award.
  3. The Majority lacked impartiality.[17]

With respect to the first argument, the Court found that  even if it were true, it would be insufficient to displace the protection of confidentiality, and that this allegation could in any event be decided on the basis of the arbitration record alone (i.e. without reference to deliberation records). On that basis, the Court concluded that this ground could not amount to an exception to the default rule of deliberative secrecy for arbitrations.

With respect to the second argument, the Court found it “difficult to follow”.[18] The plaintiff alleged that the ICC, which reviewed the drafts of the Final Award, had approved an earlier draft (the “May Award”, and that the majority then concealed from the ICC that the final version of the Final Award included substantial changes made after the ICC had approved an earlier version. The Court was skeptical that this amounted to an impropriety, and found that the Final Award would stand or fall on its own merits, since it contained the reasons that the Majority “chose to give to justify the findings they made”.[19] The Court therefore similarly found that this ground could not constitute an exception to the default rule of deliberative secrecy for arbitrations.

With respect to the third argument, the Court found that it could – as a general proposition – constitute an exception, because “impartiality is fundamental to the integrity of arbitration proceedings”[20], and that the general principle of deliberative secrecy was not intended to facilitate the concealment from the parties of an arbitrator’s partisanship.

On the facts of this case, however, the Court did not come to a definitive conclusion, because it found that the plaintiff had not shown that its allegations on this issue had any real prospect of succeeding. This is because, while the allegations of the Minority were serious, they were bare allegations. No facts were stated in the dissent that would support the Minority’s views or opinions. The dissent did not explain how the draft May Award differed from the Final Award, nor how the Majority had allegedly distorted the history of deliberations or misstated the record.

The plaintiff argued that the Minority was constrained by what he was permitted say in the dissent, but the Court found that the Minority seemingly did not feel any such constraint given that his allegations of serious misconduct and improprieties were contained within his dissent. Rather, the Court’s analysis suggests that it was incumbent upon the Minority to fully articulate the allegations of fact necessary to support an argument that could justify an argument that the Majority lacked impartiality. In other words, if an arbitrator is to allege misconduct by other members of the same tribunal, it would seem that the arbitrator would have to go much further in particularizing such allegations in order to justify intervention by a court. Accordingly, the Court refused to allow a “fishing expedition” based on bare allegations regarding the dishonesty of the Majority.[21]

Finally, The Court found that the May Award – which the plaintiff relied upon to argue that the Majority had concealed its true reasons for rendering its ultimate decision – was protected by the confidentiality of arbitral deliberations, such that the May Award need not be produced (and the plaintiff was not entitled to receive it).


Although CZT is a Singaporean case, and although it may be appealed, it is nevertheless of interest to Canadian readers given the novelty of deliberative secrecy in the arbitration context. Given the lack of similar case law in Canada, it may also stand as persuasive authority for parties faced with a similar situation in future (particular where Canada, much like Singapore, has placed an emphasis on presenting itself as an arbitration-friendly jurisdiction).

To that end, as CZT v CZU illustrates, the party seeking to set aside the award will, generally speaking, only be able to rely on the record. Bare allegations, even serious ones made by a member of an arbitral panel, will generally not displace the protection of confidentiality of arbitral deliberations, particularly if the case for setting aside an award can be made using the arbitration record.

This is particularly true in circumstances where the standard of proof requires ‘real prospects of succeeding’, meaning that bare allegations will invariably fail to meet that threshold. It is unclear what level of detail would be required of such allegations in order to meet such a threshold, but it stands to reason that evidence directly from the dissenting arbitrator (e.g. an affidavit or testimony) might suffice.

In that regard, the Court’s decision raises an interesting question of whether it in fact serves as guidance for dissenting arbitrators in a similar situation to CZT. In this case, the plaintiff’s argument faltered in large part due to what, in the Court’s view, was a lack of particularization in the Minority’s reasons. Going forward, it is possible that dissenting arbitrators might particularize allegations of impropriety in much greater detail, thereby pre-empting judicial concern for arbitral confidentiality by exposing the tribunal’s deliberations.

In any event, while the Court raised four policy reasons for protecting confidentiality of deliberations, it also arguably raises a fifth: finality (which, as readers will know, is arguably the most attractive aspect of arbitration). Here, the Minority alleged that the Majority was “wrong in its findings”, and disagreed with the Majority’s “conclusions and reasoning… (vehemently, in fact)”[22] – in other words, that the Majority and the Minority were in fundamental disagreement as to substantive aspects of the arbitration. Disagreements between arbitrators are not uncommon, and indeed are an aspect inherent to the very nature of the process. Such substantive disagreements, although they may be vehement and may sometimes dovetail with allegations of impropriety, are not grounds in and of themselves to interrogate the legitimacy or finality of an award.

Finally, it is also worth noting that the Court did not appear to be seriously concerned by the allegation – bare though it was – that the Majority concealed its “true” reason(s) for its decision. While this allegation can be quite serious if accompanied by allegations of corruption, or potentially allegations of partiality (assuming there is a real prospect of success), the Court observed that the “reasons for the Final Award are those that the Majority chose to give to justify the findings they made, and they stand or fall on their own merits.”[23] The distinction between the stated and unstated reasons for an award would appear to be immaterial, since the reasons that a tribunal does provide are subject to scrutiny and/or challenge.

We await with interest to see if CZT is appealed, and if so, its outcome.

[1] CZT v CZU, [2023] SGHC(I) 11. As readers will appreciate, in certain jurisdictions – Singapore among them – courts frequently anonymize party names for matters being referred from arbitration, in order to preserve (insofar as possible) the confidentiality ostensibly afforded by arbitration. This practice is typically not followed in Canada.

[2] CZT v CZU, [2023] SGHC(I) 11 at para 19.

[3] Ibid.

[4] Ibid at para 43.

[5] International Coal Pte Ltd v Kristle Trading Ltd, [2009] 1 SLR(R) 945 at 82.

[6] Ibid at para 44.

[7] Ibid at para 46.

[8] P v Q, [2017] EWHC 148 at para 68(3)(d).

[9] CZT v CZU, [2023] SGHC(I) 11 at para 49.

[10] Ibid at para 50.

[11] Duke of Buccleuch v The Metropolitan Board of Works (1872), LR 5 HL 418

[12] CZT v CZU, [2023] SGHC(I) 11 at para 51.

[13] Ibid at para 52.

[14] CZT v CZU, [2023] SGHC(I) 11 at para 52.

[15] Ibid at para 53.

[16] Ibid.

[17] CZT v CZU, [2023] SGHC(I) 11 at para 58.

[18] Ibid at para 60.

[19] Ibid.

[20] Ibid at para 61.

[21] Ibid at para 67.

[22] CZT v CZU, [2023] SGHC(I) 11 at paras 65, 69.

[23] CZT v CZU, [2023] SGHC(I) 11 at para 60.

Bhatnagar v. Cresco Labs Inc.: Clarifying the Duty of Honest Performance and the Presumption of Loss

In this article, we consider the Court of Appeal for Ontario’s recent decision in Bhatnagar v. Cresco Labs Inc., 2023 ONCA 401, and its impact on the duty of honest performance, as articulated by the Supreme Court of Canada in Bhasin v Hrynew and Callow v Zollinger. As readers will appreciate, these cases have been significant in shaping the boundaries of acceptable conduct in contractual relationships.

In Bhatnagar, the Ontario Court of Appeal considered the issue of damages flowing from a breach of the duty of honest performance, and in particular, the burden of proof for proving such damages in case of breach. Ultimately, while Bhatnagar offers helpful clarification as to the appropriate measure of damages, it also raises a number of questions on how to remain compliant with the duty as set out by the Supreme Court of Canada in Bhasin and Callow.

Brief Factual Background

180 Smoke – a retailer of vaping products – was founded by Gopal Bhatnagar, Boris Giller, and Ashutosh Jha (the “Appellants“). Through a share purchase agreement (the “SPA“) dated February of 2019, 180 Smoke was sold to a company called Origin House for $25 million.

Under the SPA, Origin House provided the Appellants an opportunity to earn an additional $15 million: $2.5 million was to be awarded if 180 Smoke obtained a processing license within a specified period of time, and $12.5 million was to be awarded in installments if 180 Smoke met yearly revenue milestones over the first three years after closing (the “Revenue Milestone Payments“). Specifically, three “earn-out” periods were set for the 2019, 2020, and 2021 calendar years, where each year had a target payment of $4,166,667 (for an aggregate total of $12.5 million).

The SPA also included an “Unearned Milestone Payment Commitment” clause (“Commitment Clause”), which, broadly speaking, stipulated that if there was a change of control of Origin House during the three year “earn-out” period, then the Appellants would be entitled to the amount of all future unearned milestone payments (i.e., the balance of the $12.5 million).

In April of 2019, Origin House and Cresco Labs (“Cresco“) entered into an agreement where Cresco would purchase Origin House (the “Cresco Transaction“) – thereby transferring control of the company to Cresco. The Cresco Transaction was expected to take place before the end of 2019, triggering the earn-out period of all three years pursuant to the Commitment Clause.

Aware of the Cresco Transaction, the Appellants asked Origin House in June of 2019 what would happen to the Revenue Milestone Payments if the deal did not close in time. Origin House responded that there was no reason to believe that the deal would not close by the end of 2019. However, Cresco, in October of 2019, proposed to postpone the closing date to January of 2020. Origin House did not relay this information to the Appellants, and the Cresco Transaction proceeded to close on January 8, 2020.

Per the Commitment Clause, Cresco provided the 2020 and 2021 Revenue Milestone Payments to the Appellants ($8.333M). However, Cresco did not include the 2019 Revenue Milestone Payment as, in their view: (1) the Cresco Transaction fell outside the first earn-out period (i.e., after 2019 had concluded notwithstanding the original closing date), and (2) the Appellants did not meet the revenue target in 2019. Accordingly, the Appellants brought an application seeking an order directing Cresco to pay the 2019 Revenue Milestone Payment ($4.166M).

Decision of the Court

Before the application judge, the Appellants argued that their failure to achieve the 2019 revenue target was a result of breaches of contract by Origin House, and that they were denied the opportunity to obtain the processing license (also due to breaches of contract by Origin House). More specifically, the Appellants claimed that Origin House’s failure to advise them of the postponement of the Cresco Transaction’s closing to 2020 – after previously advising that the closing was expected to occur in 2019 – breached an unspecified “duty of good faith in contractual dealings”.

The application judge agreed with the Appellants’ argument, and held that Origin House’s failure to update them of the change in closing date constituted a breach of the duty of honest performance. In particular, although the application judge made no finding that Origin House had intentionally misled the Appellants about the closing date, the breach lay in Origin House’s failure to update the Appellants upon determining that the closing date was impossible.

Nevertheless, despite finding in favour of the Appellants, the application judge did not award any damages for the breach. According to the judge, even if the Appellants had been promptly advised of the change in closing date, the Appellants would not have been able to meet the revenue target by the end of 2019, nor could they have taken steps to force the Cresco Transaction to close by the end of 2019. Hence, the court decided that the Appellants were not entitled to damages, as there was no evidence of a lost opportunity, and no damages were inferred or proven to flow from the breach.

Having failed to receive any of the damages they sought, the Appellants appealed the decision of the application judge.

The Court of Appeal

On appeal, the Appellants argued that the application judge erred:

  1. in failing to presume loss by the Appellants as a result of Origin House’s breach of the duty of honest performance;
  2. in misapprehending the evidence of lost opportunity;
  3. in failing to award damages on a basis other than expectation damages; and
  4. by failing to find that Origin House breached its contractual duty of good faith by impeding the Appellants from achieving the milestones during the first earn-out period.

There is no presumption of loss as a result of the breach of the duty of honest performance

First, the Appellants submitted that if a court found that a party had breached its duty of honest performance, there existed a legal presumption of damages. Accordingly, the Appellants claimed that the Court must presume that Origin House’s breach caused the Appellants to lose the opportunity of reaching the 2019 revenue milestone target and that the Court’s only task would be to quantify damages resulting from the loss. The legal authority for this argument was derived from the words of paragraph 116 (“the Emphasized Words“) of Callow, which stated that:

[E]ven if I were to conclude that the trial judge did not make an explicit finding as to whether Callow lost an opportunity, it may be presumed as a matter of law that it did, since it was Baycrest’s own dishonesty that now precludes Callow from conclusively proving what would have happened if Baycrest had been honest. [Emphasis added.]

The Court of Appeal rejected the Appellants’ interpretation of Callow, and held that in determining damages, the claimant has the onus of providing that the breach resulted in “the claimant failing to have a fair opportunity to protect its interests or caused [the claimant] to lose an opportunity.”

Furthermore, the Court found that the Emphasized Words must be read in the context of paragraph 116 as a whole. The Emphasized Words contained the word “may”, indicating permissive language. Hence, the Appellants were incorrect in their submission that the Court was obligated to presume that the Appellants suffered a loss of opportunity – at best, the Court had the discretion to make such a presumption.

The Emphasized Words were followed by qualifying language. As explained by the Court of Appeal, it can be presumed that a party has lost an opportunity if the opposing party’s dishonesty precluded the claimant from conclusively proving what would have happened had the opposing party acted honestly. In this case, the findings of the application judge indicated that there was “little or no chance” for the Appellants to achieve the 2019 revenue milestone target in question, and as a result, the Appellants had no evidentiary foundation (unlike in Callow) to support their claim of a lost opportunity.

The application judge did not misapprehend the evidence relating to lost opportunity

Second, the Appellants submitted that the application judge erred in misapprehending the evidence relating to lost opportunity. However, this argument was summarily dismissed, as the Court of Appeal held that the application judge correctly concluded that there was no evidence before the court to support the Appellants’ claim of lost opportunity.

The application judge did not err in refusing to award damages on a basis other than expectation damages

The Appellants further claimed that the application judged erred in refusing to award damages on a basis other than expectation damages, which was warranted on the basis that courts have recognized the necessity of departing from the ordinary measure of damages in cases where expectation damages are difficult or impossible to calculate or where expectation damages would effectively allow the breaching party immunity, notwithstanding the breach.

Although not explicitly stated, it appears from the Court’s analysis that the Appellants had argued that in the alternative to expectation damages (i.e., the normal measure of damages for breach of contract, which puts the aggrieved party in the position that it would have been had the duty been performed), they ought to be entitled to punitive damages or disgorgement of the benefit gained by Cresco as a result of its breach.

However, the Court of Appeal also dismissed this submission, given that the “ordinary contractual measure” would be to award expectation damages, and the issue remained that the Appellants had no entitlement to expect anything given their inability to demonstrate they could have achieved the Revenue Milestone Payment. Moreover, the Court found that both punitive damages and disgorgement for breach of contract would be inappropriate measures – in relation to punitive damages, there was no evidence before the court to suggest that Cresco had been dishonest or untoward, and in relation to disgorgement, there was nothing exceptional about the Appellants’ interest that would justify such a remedy.

The application judge did not err in failing to find that Origin House breached its duty of good faith by impeding the Appellants from achieving the milestones

Finally, the Appellants argued that the application judge erred in failing to find that Origin House breached its duty of good faith.

Though not explicitly stated, this appears not to have been an argument based on a duty of honest performance, but rather a duty of avoiding interfering with a contractual counterparty. However, the fundamental nature of this claim appears to have been muddled by the fact that the Appellants’ relied upon the idea that Cresco undermined the Appellants’ “legitimate expectations and interests”, which concepts were discussed by the Supreme Court in Bhasin v Hrynew in the context of the organizing principle of good faith rather than the duty of honest performance.

In any event, the Court of Appeal also dismissed this argument in short order. Without engaging in or clarifying the nature of the foregoing submission, the Court more straightforwardly observed that the Cresco Transaction could not be contrary to the Appellants’ expectations when it was specifically contemplated in the SPA.

Furthermore, certain provisions of the SPA allowed the Appellants to give notice of a complaint, which they failed to do.

The Cross Appeal

In addition, Cresco cross-appealed that the application judge erred in concluding that Origin House breached its duty of honest performance. Cresco submitted that the application judge erred:

  • in finding that Origin House had “repeatedly” advised the Appellants of a 2019 closing date, when only two occasions were referred to by the judge; and
  • by incorrectly finding that the Appellants were not aware that the closing date was delayed.

The Court of Appeal acknowledged that referring only to two occasions may not amount to Origin House “repeatedly” advising the Appellants of the closing date. However, the Court of Appeal nevertheless held that there was sufficient evidence to make such a finding, and that “judges do not need to discuss every item of evidence in their reasons.”

Regarding the second error, the Court of Appeal examined a letter from the Appellant’s counsel from November of 2019, which stated in relevant part as follows:

The [Appellants] are nevertheless prepared to refrain from taking legal action to enforce their rights under the [SPA] upon receiving your confirmation that in the event that the [Cresco Transaction] fails to close by January 30, 2020, the [Appellants] will receive the Milestone Payments in the total amount of $12,500,000 and the License Milestone payment in the amount of $2,500,000 to be deposited into their account no later than the close of business on January 31, 2020. [Emphasis added.]

Based on the letter, the Court of Appeal found that the Appellants were aware in 2019 that the closing of the Cresco Transaction could be delayed. Furthermore, this was an error that could not support the application judge’s finding that Origin House breached its duty of honest performance. As a result, the Court reversed this decision and held that Origin House did not breach this duty.

Relatedly, Cresco also sought to introduce fresh evidence.[1] However, the Court dismissed the motion as the evidence at hand did not meet the criteria for admission under the Palmer test.[2] Furthermore, the Court held that admitting such evidence would be contrary to the interests of justice.

Accordingly, the Court of Appeal dismissed the appeal, and granted the cross-appeal.

Analysis and Commentary

Bhatnagar provides a welcome insight in interpreting the duty of honest performance. Importantly, this decision suggests that Callow does not create a presumption of damages for a breach of the duty of honest performance, but rather, the claimant must show that on a balance of probabilities, the breach of the duty deprived the claimant of an opportunity to protect its interests or else caused it to lose an opportunity to realize a gain.

This conclusion appears to be a common-sensical one, insofar as the general proposition is that a party must prove its damages (i.e., that the onus of proof rests with the claiming party). It is not clear why any particular contractual duty would deviate from this norm, particularly on the basis of a single clause within one sentence of Callow. To the extent that the burden of proof were to be altered, it stands to reason that such a change must be clearly discussed and established by an appellate court.

However, the Appellants did identify what, in isolation, would appear (at least at first blush) to support arguments for such a deviation. As a result, it would be beneficial for the Supreme Court to clarify this point if and when the opportunity arises.

In any event, one takeaway from Bhatnagar is the need for parties and their lawyers to deliver appropriate evidence when seeking damages for lost opportunity based on a breach of the duty of honest performance. The application judge and Court of Appeal’s conclusions were both fundamentally premised upon the lack of evidence before the Court in that regard.

In addition, the Court’s discussion of the proper measure of damages recalls the discussion between the majority and the concurrence in Callow, whereby the majority concluded that the expectation interest was the appropriate measure of damages (i.e. the claimant should be put in the position it would have been in had the duty not been breached), while the concurrence concluded that the reliance interest was the appropriate measure (i.e. the claimant should be entitled to the loss caused by relying on the dishonesty). Although in practice, these two measures may often be the same, Bhatnagar raises the interesting question of whether reliance damages might be appropriate in circumstances where expectations damages cannot be proven.

At a minimum, such an approach would be more palatable than the possibility of punitive damages or disgorgement, both of which rely on very different justifications than the standard rationale for compensatory damages for breach of contract.

That being said, Bhatnagar also warrants further caution from parties in future. In particular we note as follows:

  • the application judge found that Origin House was not dishonest about the potential for a ‘change of control’ transaction;
  • the application judge did not find that Origin House misled the Appellants about the closing date, and
  • there was no suggestion that the delay in the Cresco Transaction was intentional or the fault of any action or inaction on the part of Origin House and/or Cresco.

Taken together, these findings suggest a lack of intentional misconduct on the part of Origin House and Cresco, yet the application judge nevertheless found a breach of the duty of honest performance based on an objective failure to correct the misrepresentation that the transaction would close in 2019.

Notwithstanding that the Court of Appeal overturned the application judge on this point, the foregoing nevertheless supports a recommendation that parties be vigilant in ensuring that their representations to counterparties are, and remain, accurate. Bhatnagar does not suggest that Origin House or Cresco intentionally failed to correct their statements that had become incorrect, yet such unintentional failure may nevertheless be the basis for finding a breach of such a duty.

Similarly, Bhatnagar raises the question of whether the duty of honest performance can be indirectly satisfied. Before the Court of Appeal, Cresco sought to introduce fresh evidence demonstrating that even though Origin House may not have advised the Appellants directly of the delayed closing date, Origin House had publicly released this information to the market though press releases and other documents. Although this evidence was not considered and the Court refrained from addressing this question, it will be interesting to see in future cases if indirect means of communication may fulfill the duty of honest performance. Ultimately, parties should continue to strive to be transparent and forthcoming in their communications with contractual counterparties.

Eric Lee, summer student, assisted with the preparation of this article.

[1] Evidence that existed at the time of the trial, but was not before the trial judge.

[2] Briefly put, the Palmer requires that the additional evidence (1)   should generally not be admitted if, by due diligence, it could have been adduced at trial; (2) must be relevant, in the sense that it bears on a decisive or potentially decisive issue in the trial; (3) must be credible, in the sense that it is reasonably capable of belief; and (4) if believed and when taken with the other evidence adduced at trial, could reasonably be expected to have affected the result.

Haider v Rizvi: Implications of Failing to Prescribe Form and Content of a Release

In Haider v Rizvi, 2023 ONCA 354, the Court of Appeal for Ontario found that where the terms and content of a full and final mutual release are not prescribed, the court will imply the terms by interpreting the settlement. Without an agreement to the contrary, a court will only imply what the case law suggests are “standard” or “usual” terms. Below, we review the case and consider the implications of failing to prescribe the form and content of a release in a settlement.


On December 11, 2017, the appellant, Zulfiqur Al Tanveer Haider (“Haider”), the respondent, Syed Aftab Hussain Rizvi (“Rizvi”), and Rizvi’s wife signed Minutes of Settlement (the “Minutes”) which settled all claims arising out of the subject matter of Actions CV-13-480703 and CV-16-547391 (the “Actions”). The Minutes provided that the parties had to enter into a full and final mutual release; however, the form and content of the release were not prescribed. The Minutes also attached an undertaking which provided that specific indemnities would survive the settlement (the “Undertaking”).

In January 2019, when a draft full and final mutual release was provided by Rizvi’s counsel to Haider, Haider’s counsel objected to “the release of unknown claims, and a clause prohibiting the parties from taking proceedings against any other person who could claim over for contribution or indemnity against a releasee” (a “no claims over clause”). The terms of the release were never finalized.

In November 2021, Rizvi brought a motion seeking: (1) a declaration that the parties had reached a settlement of the Actions; (2) an order requiring Haider to enter into a Full and Final Mutual Release as contemplated by the Minutes of Settlement; and (3) an order and declaration that the form of release sent to Haider’s counsel on January 25, 2019 met the requirements of a full and final mutual release contemplated by the Minutes of Settlement.

Haider opposed the motion and argued that r. 49 of the Rules of Civil Procedure – which was relied upon in Rizvi’s notice of motion – was not applicable, that Rizvi was statute-barred because the limitation period had expired, and that if the parties were required to sign a full and final mutual release, then it should not include the release of unknown claims or a no claims over clause.

The Motion Judge’s Decision

The motion judge agreed that Rizvi was entitled to enforce the settlement under r. 49 since “the action in which the settlement was reached had not yet been dismissed”, and rejected Haider’s argument that the limitation period had expired. The parties were required to provide a full and final mutual release, and because the parties had not provided for the content of the release in the Minutes, the motion judge concluded that “they should be required to sign a ‘standard form’ release releasing all claims arising out of the subject matter of the Actions and containing a provision barring claims over”, as a no claims over clause is “‘part of and parcel’ of a standard full and final release”. As such, the motion judge ordered that Haider sign a standard form release, with a no claims over clause.

The Court of Appeal’s Decision

On appeal, Haider submitted that the motion judge erred as follows:

  1. in determining the issues on a r. 49 motion, rather than requiring Rizvi to bring a motion for summary judgment after commencing a new proceeding;
  2. in failing to find that Rizvi’s claim for delivery of a full and final mutual release was statute-barred under the Limitations Act; and
  3. in requiring the delivery of a full and final mutual release in a “standard form” and including a ‘no claims over’ provision.

There was no Procedural Defect in the Manner in Which the Case was Brought to Court

Although the Court found that r. 49 was in fact not applicable, it held that it was still appropriate for Rizvi to bring this matter to court by way of motion and that therefore, there was “no [demonstrated] reversible error in the motion judge’s conclusion that the issue could be determined on the motion before her.”

While r. 49 does not apply to non-compliance with a settlement agreement, a motion was still the appropriate way for Rizvi to bring the matter before court as the “commencement of a fresh proceeding to enforce the settlement was unnecessary and would have been inappropriate”. The Court stated that when the issue is not whether the parties concluded a settlement, but some step in its execution, subsequent disputes should be resolved by application, or by common sense within the framework of the settlement to which the parties have agreed. As the motion judge had the jurisdiction to determine the motion, she did not err in hearing and deciding it.

No Limitation Defence to the Delivery of a Release

Regarding the limitations defence, the Court made two key findings. First, the Court found that Haider had not identified an error with the motion judge’s conclusion that Rizvi’s claim arose only at the time that Haider refused to deliver any release at all. On that factual basis, it was clear that the limitation period had not expired.

Further, the Court held that there was no basis for Haider to rely on the expiry of a limitation period. As the delivery of the release was properly sought in the context of a motion in an ongoing action, Rizvi was “not required to start a new action or to amend his pleadings to seek an order for an exchange of releases as part of the completion of the settlement.” Even if no release had been delivered, Rizvi was released by the terms of the Minutes, subject only to the Undertaking.

The Motion Judge ought to have Prescribed the Specific Form of the Release

First, relying on the Superior Court’s decision in Terranata Winston Churchill Inc. v. Teti Transport Ltd., et al., 2020 ONSC 7577 (“Terranata”), the Court found that when the form of release is not prescribed in a settlement, the “content and scope of the release depend on an interpretation of the settlement.”

In Terranata, the Superior Court found that when an offer to settle is silent on the terms of the release, the court’s task is to imply the terms of the release that are consistent with the settlement made by the parties. In this context, a court will imply that the parties agreed to sign a “standard form general release consistent with the settlement”, and would imply only those terms that are ‘standard’ or ‘usual’ as those terms have been interpreted in the case law.

In this case, Haider argued that the scope of the release was overbroad, as it would apply to claims he might have in the future against Rizvi arising out of anything that was raised or could have been raised in the Actions. Haider also objected to the inclusion of the no claims over clause on the basis that he had contemplated and subsequently commenced a new action against unrelated parties in which Rizvi was third-partied.

The Court found that the motion judge ought to have considered Haider’s arguments in the context of the specific terms of the settlement the parties had reached, including the Actions that had been settled and the Undertaking that would survive the settlement.

In addition, the Court observed that it would have been helpful for the motion judge to have reviewed and approved a particular version of a release, with modifications as appropriate to reflect the motion judge’s interpretation of the Minutes and its surrounding circumstances. In this regard, the parties provided two draft releases to the Court, which the Court reviewed. The parties agreed on all the terms except for the inclusion of a no claims over clause and whether that clause should include an indemnity.

The Court held that the full and final mutual release should include a no claims over clause, because the parties intended that – in consideration of the payment of the settlement funds and the survival of Rizvi’s indemnities – the matters raised in the Actions could not be raised again. In that regard, the inclusion of a no claims over clause was “consistent with the parties’ goal of providing a full and final release.” However, by contrast, the Court found that there was no basis for an indemnity in the no claims over clause, as the parties had already bargained for certain indemnities to survive the settlement (which were those included specifically in the Undertaking).

The Court therefore approved the version of the full and final mutual release that contained a no claims over clause, in the form submitted by Haider, and directed Haider to sign and deliver to Rizvi a copy of that release.


Given that settlements are one of the most common forms – if not the most common form – of dispute resolution in the construction industry and in commercial disputes more generally, and given that releases are standard in settlements, it goes without saying that an agreed-upon form of release is critical to achieving a settlement that fully and finally disposes of a given matter.

On that point, Haider v Rizvi offers an important reminder to parties and their counsel to be mindful of arriving at an agreed-upon form and content of the release as part of a settlement. Executing minutes of settlement in the absence of a finalized release runs the risk of a release being ordered that defies one or both parties’ best interests, insofar as the Court of Appeal’s decision indicates that “standard” or “usual” terms as interpreted in the jurisprudence will be implied. In the context of a highly specialized area of practice and/or an especially idiosyncratic dispute that requires complex or unusual terms, the introduction of the “usual” terms into a release might be to both parties’ detriment. Put simply, parties may end up with standard language that does not reflect the deal that one or both parties may have believed it was making.

As the release is an essential part of a settlement, agreeing to finalize the form and content at a later date may expose the parties to risks that neither anticipated at the time of settlement. This is particularly relevant in the construction context, where disputes are often large and complex, and may overlap with subsequent disputes. For example, if the parties have only valued damages up to a certain point in time and the potential future harm to a project is unknown, the parties may agree to settle the dispute at that point in time and leave open the possibility of future liability if additional harm results from certain prescribed circumstances. As a full and final mutual release would usually release the parties from all claims arising from the subject matter of a dispute, parties must be cautious to include specifically what will be released by the settlement.

This case is therefore an important reminder that counsel should be mindful of the “standard” terms of a release, and should specify the form and content of a release whenever a settlement is contemplated. In addition, this case emphasizes the importance of certain types of clauses in a release, such as the no claims over clause and a release of unknown claims, when determining what the “standard” term language is. Finally, a clear understanding of what terms are generally expected to be included in such a release may assist counsel when negotiating release language.

Kingsgate Property Ltd. v. Vancouver School District No. 39: Issue Estoppel and Prior Arbitrations under the Same Agreement

The British Columbia Supreme Court’s decision in Kingsgate Property Ltd. v. Vancouver School District No. 39, 2023 BCSC 560 (Kingsgate v. VSD39) has implications for the application of issue estoppel to multiple arbitrations on the same subject matter under the same agreement. Below, we review the case and outline our considerations in respect of the issues reviewed by the Court.

Brief Factual Background

In 1972, Vancouver’s Board of Education of School District 39 (“VSB”), as landlord, entered into a lease with Royal Oak Holdings Ltd. (“Royal Oak”) which included several renewal periods, for a total of 99 years (the “Lease”). Section 29.09 of the Lease prescribed a formula that set the rent for each renewal term as follows:

… eight and one-quarter (8-1/4%) percent of the market value of the SAID LANDS at the date which shall be six (6) months before the expiration of the TERM or the renewal term next preceding the renewal term in respect of which the BASIC RENT has not been agreed upon, as the SAID LANDS would be valued at that time if vacant and ready for immediate development to their highest and best lawful use by a person or persons ready, willing and able to purchase and develop the SAID LANDS for that immediate use and such market value of the SAID LANDS shall be determined by arbitration as provided in Article XXIV. [emphasis added]

As noted above, the Lease expressly provided that the market value of the Property was to be determined by arbitration as described in the agreement. This form of arbitration was triggered twice, and ultimately resulted in the most recent arbitration being appealed to the BC Supreme Court (as discussed below).

1999 Market Value Arbitral Award (the “1999 Award”)

In 1999, VSB and Royal Oak engaged Section 29.09 of the Lease in order to initiate arbitration to determine the market value for the 1997-2007 term. The tribunal appointed by the parties for this arbitration was asked to interpret section 29.09 to consider the market value of the property. The majority of the tribunal interpreted s. 29.09 – and in particularly the reference to “immediate use” – as referring to “outright approval use” in order to determine the Property’s market value.

In doing so, the tribunal rejected the possibility of “discretionary conditional use” under the provision, given that discretionary conditional use would entail a lengthier approval process and therefore was inconsistent with 29.09’s express reference to “immediate use” (as emphasized above). In other words, outright approval allowed for a particular use of the property to immediately commence as of right, whereas discretionary conditional use would have required an indeterminate amount of time before that particular use could commence.

Subsequently, in 2005, Royal Oak assigned the Lease to Kingsgate Property Ltd. (“Kingsgate”), who in turn agreed – along with Beedie Development LP (“Beedie“) as a partner – to perform Royal Oak’s obligations under the Lease.

2022 Market Value Arbitral Award (the “2022 Award”)

In 2022, VSB and Kingsgate initiated arbitration to determine the market value for the 2017-2027 term. Like the 1999 arbitration, the award in the 2022 arbitration was not a unanimous decision. Unlike the 1999 arbitration, however, the majority of the tribunal in 2022 interpreted Section 29.09 of the Lease and concluded that the “immediate use” language referred to the highest and best use for which the property might lawfully be developed as of the applicable valuation date – in other words, “discretionary conditional use” governed rather than “outright approval use.” In this regard, the panel disagreed with the conclusions of the original panel in the 1999 Award.

Importantly for the purpose of this article, the 2022 tribunal considered whether it was bound to follow the 1999 majority’s interpretation of the Lease by virtue of the legal concept known as issue estoppel.

Broadly speaking, issue estoppel entails that the judgement of a court (or in this case, arbitral tribunal) is final and the same legal issues cannot be subsequently re-litigated (or arbitrated) in a separate suit commenced between the same parties (see, for example, Danyluk v. Ainsworth Technologies Inc., 2001 SCC 44 at para 54).[1]

Although the tribunal majority noted that issue estoppel would prima facie apply to certain of the 1999 majority’s findings, the majority considered whether it nevertheless should exercise its discretion not to apply the doctrine. The majority concluded that if it were to strictly apply issue estoppel and consider itself bound to follow the incorrect interpretation applied by the 1999 tribunal, that would ultimately “work an injustice” and “frustrate the contractual intentions of both parties.” Therefore, the majority declined to apply issue estoppel in the circumstances.

As a result, the property was valued at $116.5 million; by contrast, had the majority followed the interpretation described in the 1999 Award, the property would have been valued at only $20 million. Kingsgate and Beedie were therefore found liable for significant back rent amounts owing to VSB (a total that was $42 million greater than what it would have been had the 1999 Award been followed).

Unsurprisingly, Kingsgate and Beedie applied for leave to appeal on the basis that the arbitral tribunal had incorrectly refused to follow the doctrine of issue estoppel when making its decision, given that the 1999 Award had already settled the very same issue under the very same agreement.

The Decision of the British Columbia Supreme Court

The decision relevant to this article is in respect of Kingsgate and Beedie’s application for leave to appeal the 2022 Award.

Under s. 31(2) of British Columbia’s old Arbitration Act, 1996 (which applied in this case) – as well as its successor legislation (the Arbitration Act, SBC 2020, c2), for that matter – leave to appeal was available in respect of questions of law if the Court were to determine that one of three conditions was met:

  1. the importance of the result of the arbitration to the parties justifies the intervention of the court and the determination of the point of law may prevent a miscarriage of justice,
  2. the point of law is of importance to some class or body of persons of which the applicant is a member, or
  3. the point of law is of general or public importance.

In addition, the Court noted that the language of the statute indicated that it “may grant leave”, meaning that it held the discretion to deny leave even if the statutory requirements were met.

Before considering this case, however, the Court reviewed (1) what constitutes a question of law, and (2) what the appropriate threshold was in order to assess the question of law at issue in a given case.

In relation to the first issue, questions of law are “about what the correct legal test is”, and although contractual interpretation is generally a question of mixed fact and law, an extricable question of law might be identifiable. The Court observed that, broadly speaking, the more the question can be abstracted from the particular facts of the case and understood as a question of principle, the more likely it is that the question will be characterized as a question of law with general application/precedential value. That being said, the Court also cautioned that precedential value was not a prerequisite to the existence of a legal question, and that as a general proposition, the scope of what constitutes a question of law is relatively narrow.

In relation to the second issue, the Court observed that the legislation requires that a court be satisfied that the determination of that point of law “may prevent a miscarriage of justice”. In that regard, the Court concluded that the appropriate threshold was whether the leave application has “arguable merit”, meaning the issue cannot be dismissed through a preliminary examination. The Court further noted that this assessment is done against the standard of review that would be applied to the appeal itself (if granted), in turn alluding to the uncertainty as to the standard of review applicable to arbitral awards following Vavilov. (Interestingly, we note that courts across Canada have generally appeared reluctant to address this issue, subject to certain exceptions).

Turning to the case at issue, the Court first considered whether the proposed appeal was grounded in a question of law arising out of the award. The Court identified two questions of law:

  1. whether the tribunal majority erred in law in its interpretation of the 1999 Award, and the issue to which estoppel applied; and
  2. whether the 2022 tribunal majority considered irrelevant factors when it decided not to apply issue estoppel.

In respect of the first question, the Court noted that prior case law supports the proposition that issue estoppel and res judicata apply to arbitration proceedings, and that whether a court has erred in applying the principles of res judicata and in purporting to overrule a previous decision have been held to be a question of law. However, the Court also observed that it had not been presented with any case law on whether an interpretation made by an arbitral tribunal in respect of a prior arbitration award for purposes of identifying the issue to which issue estoppel applies is a question of law. As a result, the Court approached this issue from a first-principles basis.

Relying on the distinction between questions of law, questions of fact, and questions of mixed fact as set out in Canada (Director of Investigation and Research) v. Southam Inc., 1997 CanLII 385 (SCC) (“Southam”), the Court acknowledged that the interpretation of a prior arbitral award in a subsequent arbitration proceeding[2] was not about a legal test and therefore, at first glance, did not appear to be a legal question. However, the Court also noted that neither did it fit neatly into the category of a question of fact or a question of mixed fact and law.

Interestingly, the Court instead resolved this ambiguity by concluding that the interpretation of a prior arbitration award to apply issue estoppel resembled the interpretation of a statute, which is a question of law, more closely than it resembled the interpretation of a contract, which is a question of mixed fact and law. The Court explained:

[69]…the questions of interpreting an Award and identifying issues to which issue estoppel applies can be analogized more readily to a question of statutory interpretation—which is a question of law—being the interpretation of legal text with binding force (an Award) to determine the parties’ governing obligations under a legal doctrine (issue estoppel). [emphasis added]

As a result, the Court concluded that the interpretation of an arbitration award by a subsequent panel for purposes of identifying the issue to which issue estoppel relates was a question of law.

Regarding the second question – whether the 2022 tribunal majority considered irrelevant factors in deciding not to apply issue estoppel – the Court’s analysis was brief and straightforward. In particular, the Court determined that since consideration of an irrelevant factor when exercising a discretion conferred by law is an error of law, the second question was therefore also a question of law – such that an appeal was appropriate.

Lastly, the Court turned to the question of whether any of the criteria of s. 31(2) of Arbitration Act, 1996 had been met, and if so, whether the Court would exercise its discretion to nevertheless deny leave.

First, the Court found that the significant financial consequences of the 2022 Award (namely a $42M increase in rent owing), were sufficient to satisfy the “importance of the result to the parties” criterion. Second, the “general importance to the public” criterion applied to clarifying the application of issue estoppel in arbitration proceedings.

Finally, given the Court’s conclusion that both questions were questions of law, the Court then considered whether either or both satisfied the “arguable merit” threshold discussed above. The Court found that there was arguable merit to both proposed questions of law, as the tribunal majority had (1) arguably misinterpreted the 1999 Award for the purpose of identifying the issue to which issue estoppel applied, and (2) considered irrelevant/inappropriate factors in deciding not to apply issue estoppel.

As a result, the Court exercised its discretion to grant Kingsgate leave to appeal the arbitral award. As of the date of publication for this case comment, the appeal remains in progress.


Given that this case involved only an application for leave to appeal, and not the appeal itself, the foregoing is certainly not the final word on the matter. In that regard, we await with interest how these issues are addressed at the actual appeal.

Nevertheless, this decision raises interesting and potentially significant questions as to the finality of arbitration in the context of long-term contractual relationships. As the Court observed, it in fact raises the issue of competing forms of finality – on the one hand, finality in the form of narrow rights of appeal of an award, and on the other hand, the finality of a prior award when there is a subsequent arbitration under the same agreement.

Broadly speaking, appellate case law across Canada has endorsed deference to the decisions of arbitrators in order to promote efficiency and finality in arbitration. Similarly, courts have cautioned against any judicial inclination to readily identifying extricable questions of law so as to situate a matter within narrow appeal routes. To that end, it is notable that British Columbia’s legislation at s. 31(2) creates an additional hurdle to any appeal, by providing the court a residual discretion to deny leave even where the statutory requirements are otherwise met.

However – and bearing in mind that Kingsgate was only required to meet the “arguable merit” threshold (as noted by the Court) rather than fully prove its case on the merits – it is nevertheless notable that British Columbia courts have seemingly demonstrated a greater willingness to push the boundaries of what might constitute an extricable question of law (see, for example, Escape 101 Ventures Inc. v March of Dimes Canada, 2022 BCCA 294, where the British Columbia Court of Appeal concluded that a material misapprehension of the evidence was an extricable error of law).

In any event, the specific questions of law at issue in Kingsgate v. VSD39 are intriguing for the impact they may have on commercial arbitration more generally.

Most significant is the conclusion of the Court that interpretation of a prior arbitration award for purposes of identifying the issue to which issue estoppel applies is a question of law. As the Court’s analysis makes clear, this was a difficult issue to assess because it did not fit comfortably within the scope of a question of law or a question of mixed fact and law. While the Court’s analogizing to statutory interpretation is persuasive in some respects, it raises further questions in other respects. For example, as the Court itself observed, issues of statutory interpretation are not inevitably questions of law – questions about the application of a statute that are “inextricably linked to the evidentiary record at the arbitration hearing” are questions of mixed fact and law, if not questions of fact.

Arguably, then, this suggests that a preliminary battleground (as it relates to the interpretation of a prior arbitration award for purposes of issue estoppel) is the framing of the question as sufficiently abstract and general to avoid the conclusion that it is tied to the particular record of the dispute. Interestingly, this exact issue was raised by VSB in this case (i.e., that Kingsgate was attempting to disguise specific complaints about the 2022 Award as general questions of law), but appears not to have been addressed by the Court. Of note, this might be a re-occurrence of the same issue that arose following the Supreme Court of Canada’s decision in Sattva, where parties sought to re-frame issues as questions of law to fit within the scope of narrowed appeal rights.

Furthermore, it is also worth scrutinizing how similar the interpretation of a prior arbitral award (for purposes of issue estoppel) is to statutory interpretation. Statutes, on the one hand, are intended to be general in nature (i.e., not tied to a particular set of facts). By contrast, arbitral awards are inherently tied to the facts of a case, and fundamentally, originate from a contract. This latter point was perhaps understated in Kingsgate v. VSD39, given the basic proposition that contractual interpretation is generally a question of mixed fact and law.

In that regard, it was notable that the Court concluded that (1) a prior award is not interpreted by a subsequent tribunal against the factual matrix as would be a contract, and (2) nor is such a question inextricably linked to the evidentiary record from the second arbitration. Both of those propositions militated against finding a question of mixed fact and law, although upon review, it appears as though the Court was careful to frame the 2022 Award as having given limited consideration of the factual record of the 1999 arbitration.

Conversely, it seems well-established that that issue estoppel and res judicata apply to arbitration proceedings, and that whether a court has erred in applying the principles of res judicata and in purporting to overrule a previous decision is a question of law.

Read together, the application of issue estoppel (as a form of res judicata) in the arbitration context would seem to be a logical corollary of the two foregoing propositions. In the circumstances, it was perhaps unsurprising that the Court would conclude accordingly, notwithstanding that the question of issue estoppel across multiple arbitrations does not fit comfortably within the framework established by the Supreme Court of Canada in Southam (as noted above) and is arguably distinct in certain respects from an exercise in statutory interpretation.

Ultimately, we view the greatest irony of Kingsgate v. VSD39 as being that the questions at issue in this case could potentially have been avoided by virtue of the Lease clearly providing whether any findings of fact and/or law in a given arbitration under the Lease would be binding on future arbitrations under the Lease.

Parties drafting arbitration agreements that contemplate multiple arbitrations of the same issue(s) would therefore be well-advised to consider this issue carefully, consult a lawyer, and include clear language as appropriate.

Jonathon Obara, summer student, assisted with the preparation of this article.

[1] Issue estoppel (along with cause of action estoppel) is considered a species of the legal doctrine known as res judicata, which has been considered a “at the heart of the administration of justice” (Toronto (City) v. C.U.P.E., Local 79, 2003 SCC 63, at para. 1) and a “fundamental principle of our system of justice” (R. v. Van Rassel, [1990] 1 S.C.R. 225, at p. 238). In brief, res judicata is intended to prevent matters which have already been decided from being re-litigated. Issue estoppel exists to prevent the same outcome.

[2] Although not explicitly stated by, the Court’s statement on this point was presumably limited to subsequent arbitrations under the same arbitration agreement.

Bill 27, the Money Judgment Enforcement Act: An Overview of Proposed Key Changes to the Enforcement of Money Judgments in B.C.


On May 1, 2023, the BC government tabled Bill 27,  the Money Judgment Enforcement Act (“MJEA”). Long in the making, the MJEA is designed to modernize and simplify the enforcement of money judgments in BC. This legislation targets many of the most common problems with the enforcement process, including: the difficulty of seizing certain types of assets, the need for repeat garnishing orders, and the necessity of going to court for most enforcement matters. While it brings major changes, MJEA will be largely operationalized by existing entities, including court bailiffs who are defined in the new act as “enforcement officers.”

Universal Exigibility

The most fundamental change that the MJEA will introduce is the presumption of universal exigibility. This means that by default, every type of property in which a debtor has an interest may be subject to an enforcement charge, unless the MJEA provides otherwise. This universal rule applies to all manner of personal or real property and marks a significant change from previous legislation, which enumerated specific categories of property that were available for the satisfaction of judgments.

The Money Judgement Enforcement Registry

The biggest structural change that the MJEA will introduce is the creation of the Money Judgement Enforcement Registry (the “Registry”). The Registry will create a universal system for registering judgements that is both public and searchable. Upon receiving a money judgment, a creditor will be able to register it within two years by submitting a judgment statement to the registrar. Once in the Registry, a money judgment can be searched to obtain information such as the amount owing. Judgments that have been registered can also be enforced through instructions to an enforcement officer, eliminating applications to garnish wages or bank accounts and for orders for seizure and sale.

Simplification of the Garnishment Process

As with any enforcement action under the MJEA,  to garnish wages or bank accounts the creditor need only provide instructions to do so to an enforcement officer. Once instructed, the enforcement officer may seize an account by giving notice of seizure to the account debtor. When it comes to garnishing wages, this process works indefinitely; rather than filing repeated applications to Court, once notice of seizure is given, wages will continue to be garnished from the account debtor until the notice of seizure is withdrawn.

Improved Procedures for Seizing Problem Assets

Another area of reform introduced by the MJEA is improved procedures for seizing assets that were difficult or impossible to seize under the previous regime. The MJEA creates new procedures for seizing crops, fixtures, intellectual property, interests under lease, and even trade secrets in certain situations. It also modernizes the procedures for seizing securities and futures contracts.

Mechanisms for the Seizure of Co-owned Real Property

The MJEA creates new procedures for the seizure of co-owned property. Under the MJEA, enforcement officers may seize co-owned property in its entirety and dispose of it. Seizure of co-owned property is based on a new presumption that debtors have equal co-ownership of co-owned property. There are two protections for non-debtor co-owners under the MJEA; they may get an order from the court that the debtor’s interests are less that the presumed equal interest, or they may purchase the debtor owner’s co-ownership interest. The MJEA also introduces mechanism to convert joint tenancies into tenancies in common, for the purpose of disposing of seized property.

Distributable Funds

The MJEA also creates a standard process for the distribution of funds from the seizure of assets. Once an enforcement officer receives money toward a debt, a distributable fund will be created and the funds will be distributed to the creditors in accordance with the MJEA. All monies must go through this distributable fund.


The MJEA will mark a major overhaul to the system of court order enforcement in BC, and is expected to be brought into force through regulation in 2025. For more information or for advice regarding specific concerns about the MJEA or court order enforcement generally, contact Daniel Barber,

Brian Palaschuk, summer student, assisted with the preparation of this article.

The Estate of Arbabbahrami v. MSH International (Canada) Ltd.: Implications for “War” and “Military or Usurped Power” Insurance Exclusions and Force Majeure Clauses


The Ontario Superior Court’s recent decision in The Estate of Arbabbahrami v. MSH International (Canada) Ltd., 2022 ONSC 5723 appears to have implications for the “act of declared or undeclared war” and “act of military or usurped power” exclusions commonly found in insurance contracts, as well as potential ramifications for force majeure claims in the construction context and elsewhere. The case is also relevant to some of the evidentiary issues which may be encountered in the interpretation of such clauses.

Factual Background

In January 2018, Arshia Arbabbahrami (“Arbabbahrami”) moved from Iran to Calgary. As an international student, he was required to purchase an insurance policy which provided accidental death coverage for common carrier accidents (the “Policy”).

In December 2019, Arbabbahrami returned to Iran. On January 8, 2020, he began his return to Calgary by boarding Ukraine International Airlines Flight No. PS752 (“Flight PS752”). Shortly after takeoff, the airplane was downed by missiles fired by Iran’s Islamic Revolutionary Guard Corps (the “IRGC”). Tragically, all of the passengers and crew were killed.

Arbabbahrami’s estate (the “Estate”) made a claim under the Policy’s accidental death benefit. The insurers denied coverage based on the following exclusion:

This policy does not cover losses or expenses related in whole or in part, directly or indirectly to any of the following:


  1. an act of declared or undeclared war, civil war, rebellion, revolution, insurrection, military or usurped power or confiscation or nationalization or requisition by or under the order of any government or public or local authority.

The Estate commenced an action seeking payment under the Policy, as well as other damages. In the context of that action, the Estate brought a motion for partial summary judgment seeking the following coverage:

  • The common carrier accident (Accidental Death and Dismemberment) benefit of $100,000;
  • Repatriation benefits to a maximum of $20,000; and
  • Expenses incurred for travel for members of the immediate family to a maximum of $5,000.

Decision of the Court

Before turning to the Policy language, the Court first considered two sources tendered as evidence in order to permit the key findings of fact necessary to interpret the Policy.

First, the Court considered the expert opinion of a political scientist filed by the insurers which considered whether the actions of the IRGC amounted to “an act of declared or undeclared war, civil war, rebellion, revolution, insurrection, military or usurped power or confiscation or nationalization or requisition by or under the order of any government or public or local authority.” The Court excluded this expert opinion on a number of bases, including the fact that in opining on the interpretation of the words in an insurance policy, the expert was straying far outside of his area of expertise.

Second, the Court considered the Accident Investigation Report delivered by Iran’s Aircraft Accident Investigation Board, as well as the review of the report conducted by a Forensic Examination and Assessment Team at the instruction of Canada’s Minister of Foreign Affairs. Considering these two sources, the Court made the following findings:

  • The Iranian missile operator who launched the missile(s) did not know that he was shooting at a civilian airliner;
  • The missile operator thought that he was shooting at an incoming missile;
  • The Iranian military authorities did not delegate to the missile operator the authority to launch missiles without approval from command;
  • No Iranian official ordered the operator to shoot the missiles, and the operator did not have the necessary approval(s) to fire the missiles;
  • The missile attack on Flight PS752 was not premeditated; and
  • A properly functioning military command and control operation would have prevented the attack on Flight PS752.

The Court then turned to its interpretation of the Policy. Given that the insurers accepted that Arbabbahrami’s death fell within the Policy’s initial grant of coverage, the onus rested with the insurers to establish that one or more of the Policy’s exclusions applied. The insurers relied on two exclusions: (1) losses related to an act of declared or undeclared war; and (2) losses related to an act of military or usurped power.

Losses Related to an Act of Declared or Undeclared War

With respect to the first exclusion, the insurers conceded that there was no state of declared war between Iran and the United States, such that the key question was in fact whether the shooting down of Flight PS752 was an undeclared act of war. On this issue, the Court considered both the dictionary definition of war submitted by the insurers (“a state of usually open and declared armed hostile conflict between nations”), as well as international law norms.

In respect of the latter, the Court accepted the finding of the UN’s Special Rapporteur on extrajudicial, summary, or arbitrary executions that Iran and the United States were not involved in an international armed conflict before or after the American drone strike that killed General Soleimani of the IRGC on January 3, 2020 and the Iranian ballistic missile response on January 8, 2020. The Court considered this to be “strong evidence” that Arbabbahrami’s death should not be excluded as being related to an act of undeclared war.

The Court furthermore observed that to be an act of war, it is not enough that the act occur during a period of hostilities or that the act is one committed by a member of the military during a period of hostilities. In that regard, the Court compared this case to a set of cases involving the sinking of the British ocean liner Lusitania at the outset of World War I.

In relation to the Lusitania, the German government had issued a proclamation declaring the waters surrounding Great Britain and Ireland, including the whole English Channel, to be a war zone. The proclamation declared that every enemy merchant ship found in the war zone would be destroyed. The Lusitania – which was unarmed, carrying non-combatants, and made no attempt to disguise itself – was struck by two torpedoes from a German submarine killing nearly 1,200 civilians. The attack was found to have been “deliberate, and long contemplated, and intended ruthlessly to destroy human life, as well as property”: Re: The Lusitania (1918), 251 F715 (SDNY). The estate of one of the deceased passengers brought an action on his life insurance policy, which claim was denied because the loss was excluded from coverage given that the death resulted from an act of war (see Vanderbilt v. Travelers’ Ins. Co. (1920), 112 Misc 248, 184 NYS 54).

Here, the Court contrasted Flight PS752 to the Lusitania in observing that, among other things:

  • The plane was operated by Ukrainian International Airlines, which was not engaged in any hostilities with Iran;
  • 146 of the passengers killed were travelling on Iranian passports;
  • The airplane was not flying in space that Iran had declared to be a war zone;
  • Iran had not warned that civilian planes in its airspace would be shot down – in fact, it cleared Flight PS752 for take-off;
  • The airplane was not readily identifiable to the missile operator as the Lusitania was to the German submarine captain;
  • The downing of the airplane was not deliberate, long-planned, and intended to destroy human life;
  • The missiles were not launched in accordance with the instructions of a sovereign government, nor were they launched by an operator to whom the government had delegated the authority to make such a decision;
  • Although the Iranian government initially denied responsibility for the downing of the plane, within days, Iranian President Hassan Rouhani tweeted that the “great tragedy and unforgivable mistake” had been caused by human error. Such an acknowledgment was, in the Court’s view, “not how a sovereign government describes its acts of war”.

As a result, the Court concluded that none of the features that made the sinking of the Lusitania  an act of war were present in relation to Flight PS752. Accordingly, the exclusion was not engaged.

Losses Related to an Act of Military or Usurped Power

With respect to the second exclusion, the Court observed that rather than being two separate exclusions (i.e. an act of military or an act of usurped power), this was in fact single exclusion (i.e. “military or usurped power”).

In that regard, the Court noted that this exclusion in fact has a long history in the insurance context, having appeared in insurance contracts since at least 1720, and having been interpreted by Canadian, American, and British courts since that time. In relation to that case law, the Court observed that the following points had been noted in the case law:

  • The phrase “military or usurped power” has been interpreted to create a single exclusion for “losses caused by the military activities of usurping power”. The “or” is read as conjunctive rather than disjunctive; and
  • “Military or usurped power” refers to “an invasion of the kingdom by foreign enemies or an internal armed force in rebellion and assuming the power of government, by making laws, and punishing for not obeying those laws.”[1] In other words, it is the action of an army giving its own law, silencing the law of the land.[2]

Interestingly, the Court did not scrutinize the word “or” in “military or usurped power” despite the fact that “or” is clearly disjunctive; rather, relying on the prior case law, the Court implicitly treated “or” as conjunctive without considering this point in detail. In any event, and in contrast to the foregoing, the Court observed that the Iranian operator who fired the missile did not usurp the power of the military, but rather acted without instructions. This was not the same as usurping the power of the state. Accordingly, this exclusion did not apply either.


As Russia’s invasion of Ukraine makes clear, we live in an increasingly dangerous world. The Court’s guidance on ‘war’ exclusions in insurance policies is therefore welcome, and likely has implications for other areas as well. In particular, we consider that Arbabbahrami may have implications for force majeure clauses, which commonly identify war, civil war, acts of foreign or public enemies, and acts of terrorism (or some variation of the foregoing language) as force majeure events.

Indeed, Russia’s illegal invasion of Ukraine has generated a number of contractual claims for force majeure relief on the basis that the conflict – and the ensuing sanctions imposed on Russia as well as Russian companies and individuals – have allegedly disrupted supply chains and increased the cost of various materials.

However, neither country has formally declared a state of war; Russia characterizes its invasion as a “special military operation” while Ukraine recognizes Russia as a “terrorist state”. Accordingly, there may be some question about whether a force majeure clause identifying ‘war’ as a force majeure event would necessarily be engaged in the circumstances. Arbabbahrami does not create a bright line test with respect to determining what might constitute an undeclared war, but may nevertheless be instructive in identifying the relevant factors that go into making such a determination.

However, it is important to note that Arbabbahrami is an insurance law decision, and therefore engages a specialized body of case law and interpretive principles. Indeed, the Court observed this very fact in Arbabbahrami. Accordingly, it will be interesting to see how, if at all, Arbabbahrami is applied in future.

Finally, this case is a helpful reminder that counsel should be mindful of the proper limits of expert evidence in the interpretation of contractual language.

[1] Drinkwater v The Corporation of London Assurance (1767), 95 ER 863 (KB).

[2] See also Barton v Home Insurance Co. (1868), 42 Mo 156 (SC).

Husky Food Importers & Distributors Ltd v. JH Whittaker & Sons Limited: Ontario’s New Test for Staying Litigation in Favour of Arbitration to Determine the Validity of an Arbitration Agreement


This article considers the Court of Appeal for Ontario’s recent decision in Husky Food Importers & Distributors Ltd v. JH Whittaker & Sons Limited, 2023 ONCA 260 and its implications for the framework to be applied in assessing stay motions in favour of arbitration.

Relying upon the Supreme Court of Canada’s recent decision in Peace River Hydro Partners v. Petrowest Corp, 2022 SCC 41 (“Peace River“), the Court of Appeal considered what standard of proof a party seeking a stay under the International Commercial Arbitration Act (the “ICAA”) must meet to be granted a stay. The Court in Husky concluded that the moving party must only meet the “arguable case” standard, rather than the more onerous balance of probabilities.

Below, we discuss some implications of the Peace River framework for arbitration in Ontario and how it may affect the evidentiary burdens required for both the party seeking a stay, as well as the party seeking to avoid arbitration.

Brief Factual Background

In 2014, Husky Food Importers & Distributors (“Husky“) entered an initial distribution agreement where they would import, distribute, and market in Canada products of a New Zealand confectionary manufacturer named JH Whittaker & Sons (“Whittaker“). Subsequently, between 2016 and 2020, the parties tried to negotiate a formal long-term exclusive distribution agreement regarding Whittaker’s product, and in early 2020, they exchanged drafts of such an agreement.

On April 19, 2020, Whittaker added and redlined an arbitration clause to Schedule G of the draft long-term distribution agreement, which had not appeared in any prior draft (the “Arbitration Clause”). Husky subsequently emailed a further revised draft on May 15, 2020, which removed the redlining in the Arbitration Clause, and included a slight amendment to a separate part of Schedule G. This email was described in Husky’s evidence as one where the changes made in the April 19 draft were “accepted”. Husky also added s. 8.4 to the main body of the draft agreement:

If there is any inconsistency between any provision or term in the main body of this Distribution Agreement and in any schedule annexed hereto, the terms in the main body of this Distribution Agreement shall have paramountcy to the extent of such inconsistency only.

Both the April 19 and May 15 drafts contained s. 8.7 in the main body of the distribution agreement, whereby the parties agreed to submit to the non-exclusive jurisdiction of the courts of New Zealand to hear and determine all disputes arising from or related to the distribution agreement, or any “transactions contemplated [t]herein”.

While the parties discussed the agreement after May 15, 2020, they ultimately did not sign the new long-term distribution agreement (although Husky subsequent pled that the parties had reached an agreement, notwithstanding the lack of signatures). That summer, a dispute arose between the parties, and Husky commenced an action in Ontario on June 3, 2021. Whittaker moved to stay Husky’s action pursuant to s. 9 of the ICAA:

Where, pursuant to article II(3) of the [New York Convention] or article 8 of the [UNCITRAL Model Law], a court refers the parties to arbitration, the proceedings of the court are stayed with respect to the matters to which the arbitration relates. [emphasis added]

Decision of the Court Below

Before the motion judge, Husky took the position that although the parties executed a distribution agreement, the Arbitration Clause did not form part of the agreement because it was inserted “behind” Schedule G and was not part of the standard purchase agreement order form, such that it was not incorporated by reference into the distribution agreement.

Husky furthermore argued that there was no meeting of the minds between the parties that disputes would be arbitrated, and that the Arbitration Clause ultimately had no effect because (1) section 6.2 of the distribution agreement provided that the terms and conditions contained in Schedule G applied “unless otherwise agreed”, and (2) s. 8.7 of the distribution agreement provided that the parties would attorn to the non-exclusive jurisdiction of the New Zealand courts.

In determining that a stay was warranted, the motion judge applied the then-prevailing test set out in Haas v. Gunasekaram, 2016 ONCA 744, which asks the following questions: (1) is there an arbitration agreement? (2) what is the subject matter of the dispute? (3) what is the scope of the arbitration agreement? (4) does the dispute arguably fall within the scope of the arbitration agreement? and (5) are there grounds on which the court should refuse to stay the action?

In the motion judge’s view, the test for whether there was an arbitration agreement was only whether it was “arguable” that the party was subject to an arbitration agreement. It was not necessary for the party seeking the stay to prove the existence of an arbitration agreement on a balance of probabilities.

Applying the Haas framework, the motion judge concluded it was arguable that there was an arbitration agreement between the parties because Husky engaged with the document, removed the redlining from the document, and did not make changes to the Arbitration Clause.

On this basis, the motion judge granted the motion to stay Husky’s action, and referred the parties to arbitration in New Zealand. Although not expressly stated, the implication of the motion judge’s ruling was that consistent with the competence-competence principle, it would be left to the arbitrator to determine whether there was a valid arbitration agreement between the parties.

The Court of Appeal

Husky appealed the motion judge’s decision on two related grounds:

  • first, that the party asking for a stay had to prove the existence of an arbitration agreement on a balance of probabilities, rather than simply whether it was “arguable” that an arbitration agreement existed; and
  • second, that the motion judge erred in that it was not arguable there was an arbitration agreement between Husky and Whittaker, because Husky explicitly rejected the inclusion of an arbitration agreement in the distribution agreement.

In rejecting Husky’s appeal, the Court of Appeal first referred to Peace River to reiterate the proposition that a court should normally refer challenges to an arbitrator’s jurisdiction to the arbitrator, which follows from the competence-competence principle. While exceptions to the principle exist, Husky Foods did not fall under those exceptions.

In rejecting Husky’s position as to the appropriate standard of proof, the Court of Appeal confirmed that the Haas framework was overtaken by the framework adopted by the Supreme Court of Canada in Peace River. Though the Peace River framework was made for domestic arbitration legislation, the Court of Appeal confirmed that the framework was equally applicable to international arbitrations under the ICAA.

In any event, the Peace River framework (which our firm discussed in an earlier article here) first requires the applicant for a stay to establish four technical prerequisites on the applicable standard of proof:

  1. an arbitration agreement exists;
  2. court proceedings have been commenced by a “party” to the arbitration agreement;
  3. the court proceedings are in respect of a matter that the parties agreed to submit to arbitration; and
  4. the party applying for a stay in favour of the arbitration does so before taking any “step” in the court proceedings.

If all four prerequisites are met, the mandatory stay provision is engaged, at which point the party seeking to avoid arbitration must show that one of the statutory exceptions apply. In Husky Foods, there were no applicable statutory exceptions, such that the case turned entirely on the first phase of the analysis.

The Court of Appeal disagreed with Husky’s submission that the ‘balance of probabilities’ standard was the applicable standard of proof for proving the existence of an arbitration agreement in the context of a stay applicable, relying on the proposition articulated in Peace River, that “the standard of proof applicable at the first stage is lower than the usual civil standard… the applicant must only establish an ‘arguable case’ that the technical prerequisites are met.” As such, the Court of Appeal concluded that the motion judge applied the correct legal test for this matter.

Regarding the second ground of appeal, the Court of Appeal summarily rejected Husky’s submission that the evidence demonstrated that it did not agree to submit disputes to arbitration, and that the motion judge ignored certain material facts in Husky’s favour. Instead, the Court of Appeal observed that the motion judge was alive to Husky’s submissions in respect of the allegedly ignored “material facts”, and that in any event, determining the issue of the existence of the arbitration agreement would require a thorough review of the parties’ competing evidence.

Accordingly, Husky’s appeal was dismissed.


Although the result in Husky Foods was perhaps unsurprising, it is nevertheless a welcome affirmation of Ontario courts’ respect for the competence-competence principle and arbitration as a co-equal forum for dispute resolution more generally. Of the same token, maintaining some burden of proof to justify a stay is equally important to preserving the legitimacy of arbitration as a dispute resolution forum, as absent any burden of proof, parties might simply rely upon stay motions (and arbitration) as a delay tactic and abuse of process – outcomes which should of course be avoided.

In that regard, Husky Foods is also welcome for the clarification that it provides with respect to the applicable test for a stay. Under the Haas framework, moving parties were arguably required to meet a higher evidentiary bar of proving the arbitration agreement exists, before moving to the lower, “arguable” standard of whether the dispute in question fell within the scope of the arbitration agreement. Whatever the case, the Haas framework entailed a more comprehensive review by a court of the evidence in order determine whether to grant a stay. By contrast, the Peace River framework consistently relies upon the “arguable” standard in assessing all of the prerequisites for a stay.

Interestingly, however, the application of the Peace River framework requires some elaboration as it relates to domestic arbitration in Ontario, insofar as the Arbitration Act, 1991 is somewhat idiosyncratic with respect to its stay provisions. Readers will recall that Peace River involved the application of British Columbia’s Arbitration Act, 1996, which specifically provided that a party could move for a stay so long as it had not taken “any other step in the [litigation] proceedings”. Similarly, Ontario’s ICAA – which is based on the Model Law – provides that a party may seek a stay “not later than when submitting his first statement on the substance of the dispute”.

By contrast, the Arbitration Act, 1991 provides that a court will stay litigation on the motion of a party to the arbitration agreement; however, it may reject the motion if (among other things) the motion was brought with “undue delay”. The case law appears settled that taking several steps in the litigation constitutes “undue delay”, although it is less clear whether taking a single step (such as filing a statement of defence) in the litigation and then moving for a stay constitutes “undue delay” (see, for example, Leon v. Dealnet Capital Corp., 2021 ONSC 3636 at paras 47-52, and Bombino v. Serendipity Homes, 2022 ONSC 1410 at paras 52-58). It appears that with respect to domestic arbitration in Ontario, the test is far more holistic and flexible; and in any event, the onus is on the party asserting the delay to prove that it was undue. This may be particularly relevant as it relates to construction matters since, for example, a party might need to take certain steps in litigation to preserve statutory rights (such as lien rights).

Finally, it will be interesting to see if parties wishing to pursue litigation will now seek to frame jurisdictional issues as questions of law rather than mixed fact in law, in order to avoid having the jurisdictional issue referred by a court to the relevant arbitrator for determination pursuant to their own jurisdiction. As the Court in Husky Foods observed, challenges to the jurisdiction of an arbitrator must normally be referred to the arbitrator, unless they involve (1) pure questions of law or (2) questions of mixed fact and law that can be determined by a superficial review of the evidence in the record.

Since a “superficial review” is one where the necessary legal conclusions can be drawn from facts that are either evident on the face of the record or are undisputed by the parties, it may stand to reason that parties will attempt to avoid this narrow eye of the needle and instead frame the issue as a question of law in order to create the opportunity to fully brief the issue before a court and persuade the court to hear the challenge (and assume jurisdiction). To some degree, this approach would parallel attempts by parties and appellate courts following Sattva to be overly expansive in identifying extricable questions of law in order to gain jurisdiction in appeals from arbitral awards, which approach was ultimately cautioned against by the Supreme Court in Teal Cedar Products Ltd. v. British Columbia, 2017 SCC 32.

Jeffrey Wong (summer student) contributed to the production of this article.

Limits on the Presumption of Consistent Expression in Contracts: Baffinland Iron Mines v. Tower-EBC


In this article, we consider the Court of Appeal for Ontario’s recent decision in Baffinland Iron Mines LP v. Tower-EBC G.P./S.E.N.C., 2023 ONCA 245 and its impact on the presumption of consistent expression in contractual interpretation. In this case, and in the context of a motion to quash, the Ontario Court of Appeal considered whether two similarly phrased expressions in a construction contract, “finally settled” and “final and binding”, had different meanings. The Court of Appeal found that that these two non-identical terms were to be interpreted to have the same meaning relying on, among other things, the Supreme Court of Canada’s decision in Sattva.

Below, we discuss some of the implications of the contractual interpretation principle in the context of contractual drafting, and consider it in conjunction with other principles utilized in interpreting, among other things, construction contracts.

Brief Factual Background

Baffinland Iron Mines LP and Baffinland Iron Mines Corporation (collectively “BIM”) owned and operated the Mary River Mine on Baffin Island in Nunavut. Tower-EBC G.P./S.E.N.C., (“TEBC”) was a general partnership formed between EBC Inc. and Tower Arctic Limited to perform earthworks on the project for BIM, which includes a railway for the transportation of ore.

To that end, BIM and TEBC entered into two separate FIDIC contracts that were modified in certain respects for this particular project, although relevant to the case, the dispute resolution provisions were not modified from the standard FIDIC language. In relevant part, the dispute resolution provisions provided as follows:

Unless settled amicably, any dispute in respect of which the [dispute adjudication board’s] decision (if any) has not become final and binding shall be finally settled by international arbitration. Unless otherwise agreed by both Parties:

(a) the dispute shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce,

(b) the dispute shall be settled by three arbitrators appointed in accordance with these Rules, and

(c) the arbitration shall be conducted in the language for communications defined in Sub-Clause 1.4 [Law and Language]. [emphasis added]

International Chamber of Commerce (ICC) Rule 35(6) was also relevant to any arbitration under the contracts. Specifically, Rule 35(6), which was incorporated by reference into the contracts, provided in relevant part:

Every award shall be binding on the parties. By submitting the dispute to arbitration under the Rules, the parties undertake to carry out any award without delay and shall be deemed to have waived their right to any form of recourse insofar as such waiver can validly be made. [emphasis added]

Ultimately, BIM terminated the contracts with TEBC due to delays. Unsurprisingly, TEBC initiated arbitration (that is, the parties did not first proceed to a dispute adjudication board for a final and binding decision, nor did they agree to settle), challenging the validity of BIM’s right to terminate and claimed for damages arising from the termination.

The arbitral tribunal made an award in TEBC’s favour exceeding $100 million.

Decision of the Court Below

BIM sought leave under the Arbitration Act, 1991 to appeal on the arbitral award, based on alleged errors of law. BIM’s position before the application judge was that the words “final and binding” in the dispute resolution provision of the modified FIDIC contracts related to the dispute adjudication board were intended to prohibit any appeal or otherwise preclude either party from further recourse, whereas the words “finally settled” in respect of the arbitration portion of the dispute resolution clause must necessarily have meant something different given the different choice of words. As a result, in relation to arbitration, BIM argued that the parties must have intended something other than to preclude appeals from any arbitration. TEBC disagreed, asserting that the contracts prohibited any form of appeal from an arbitral award.

The application judge found that the dispute resolution provision precluded any form of appeal as submitted by TEBC. In relevant part, he rejected BIM’s argument that “final and binding” and “finally settled” necessarily meant two different things because different words were used, concluding instead that the two expressions shared the same intent of precluding appeals. He also rejected BIM’s argument that ICC Rule 35(6), whose language BIM acknowledged precluded appeals, was in conflict with s. 20.6 and was overridden by it – in other words, Rule 35(6) supported the proposition that appeals were prohibited. As a result, the application judge quashed BIM’s application for leave to appeal.

The Court of Appeal

On a motion to quash raised by TEBC in respect of BIM’s further appeal, the Court of Appeal heard arguments from both parties as to whether or not it was appropriate for the appellate court to consider a denial of leave to appeal by the Superior Court. While not relevant to this article, the Court of Appeal reviewed the general rule against such further appeals and the specific exceptions to same.

Ultimately, the Court of Appeal decided to hear the motion and in doing so, upheld the application judge’s decision, agreeing that the contracts precluded appeals on any question of law. In relevant part, the Court focused on a key principle of contractual interpretation – namely, the presumption of consistent expression.

In brief, and as noted by the court, although the presumption of consistent expression assumes that identical contractual terms share the same meaning, and different terms are intended to convey a different meaning, a contractual drafter may nevertheless use multiple expressions to convey the same thing.

In that regard, BIM again argued that “final and binding” (which was utilized in respect of decisions of the Dispute Adjudication Board) must mean something different than “finally settled” (which was utilized in respect of arbitration decisions). BIM submitted that the court erred in failing to apply the presumption of consistent expression which required giving “finally settled” a different meaning.

Notwithstanding this presumption, the Court observed that the fundamental holding of the Supreme Court of Canada in Sattva v Creston Moly Corp still governs – namely, that the “primary concern of contractual interpretation is to give effect to the intent of the parties by reading the contract as a whole, giving the words used their ordinary and grammatical meaning”.

To that end, when the ordinary meaning of different words or phrases is the same, the presumption cannot be applied to force a different meaning onto one set of words. The Court observed that “although the presumption of consistent expression may in some cases be helpful in illuminating the parties’ intention, it is important not to treat the presumption as a dominating technical rule of construction that overwhelms the interpretation of a contract based on the ordinary and grammatical meaning of its text.”

Bearing the foregoing in mind, the Court concluded that in relevant part, the terms “final and binding” and “finally settled” both contain the same, critical word – “final”, or “finally”. This word, which yields the same meaning of “admitting of no further disputation”, thereby excluded any right of appeal. In that regard, the Court noted that the presumption of consistent interpretation was in fact applied by the application judge to the key word, and that the addition of the words “binding” and “settled” did not materially change the meaning (although in theory, it might have been possible that a sufficiently clear modifier could have altered the meaning of “final”).

Thus, the presumption applied in this case in relation to the word “settled” in “finally settled” to convey that arbitration would be the ultimate level of recourse (subject to any statutory rights of set-aside, of course).


Overall, the Court in Baffinland reached a relatively straightforward result that is consistent with the state of the law on contractual interpretation following Sattva. As noted in the decision itself, the technical rule of the presumption of consistent expression cannot dominate the fundamental principle that contractual interpretation is primarily concerned with giving effect to the intent of the parties. Thus, while a Court might find (as it did in this case) that the presumption operated in a manner consistent with the parties’ intent in precluding appeals, it is easy to imagine a scenario in which the presumption would have to give way.

That being said, Baffinland does serve as a useful cautionary tale to parties drafting dispute resolution provisions – particular on complex construction projects, where the applicable contract often provides for multiple different forms of dispute resolution either sequentially (i.e., as part of a stepped dispute resolution clause) or as alternatives.

One obvious takeaway for readers is that in drafting dispute resolution provisions, aim to use consistent terminology to the extent possible. Had that been the case in Baffinland, the parties likely could have avoided expending significant resources and time in pursuing the attempted appeal. In other words, there should be no dispute over the differences in language created by the use of terminology such as “final and binding” or “finally settled”. Despite the common sense similarities between these two phrases (and the further inclusion of preclusive language in ICC Rule 35(6)), both parties ultimately had to undergo considerable expense in having to make such arguments before the courts following a lengthy arbitration.

Finally, and further considering the ICC language noted above, drafters would be well advised to be mindful of any potential implications of incorporating other terms or documents by reference into their dispute resolution provisions (and conflict of terms provisions) lest it create any confusion as to priority of terms. This proved not to be an issue in Baffinland given the Court’s finding that the ICC Rules regarding the finality of arbitration were consistent with the dispute resolution provision, it is equally easy to foresee a situation in which such provisions would be in conflict and the contract’s conflict of terms provision(s) are not of assistance. In such a circumstance, parties could easily fall into dispute as to the proper interpretation of the contract with no clear answer. Again, clear drafting – including consideration of the full scope and impact of documents incorporated by reference, such as institutional arbitral rules – is best practice.

Judicial Support for Expert Determination as a Dispute Resolution Alternative: KHM Cardiology Centres v Lambardar

An expert determination is a unique subset of dispute resolution methods, the usage of which appears to be on the rise in Ontario in respect of a myriad of different commercial arrangements. Given that we frequently see expert determinations in the context of construction and infrastructure projects, the manner in which these decisions (as well as related procedures) are considered by the judiciary is of particular importance.

In this article, we consider a recent decision on expert determinations in the context of commercial leasing arrangements. Specifically, in KMH Cardiology Centres Inc. v. Lambardar Inc., 2022 ONSC 7139, the Ontario Superior Court held that experts could determine questions of mixed fact and law, or even questions of law, if parties to a contract have clearly given that expert the authority to do so. Below, we discuss some of the implications of providing experts with this authority in the context of construction industry disputes.


KMH Cardiology Centres Incorporated (“KMH”) is one of Canada’s largest providers of nuclear cardiology services, and was founded by Vijay Kanmar (“Kanmar”). KHM leased three office properties from the respondent, Lambardar Inc. (“Lambardar”), which was also owned by Kanmar and his wife (the “Original Leases”).

Kanmar subsequently sold KMH, and in the course of this sale, new leases for three of the properties were negotiated and signed as part of the transaction whereby Kanmar sold KMH to independent, third-party owners (the “New Leases”). In that regard, the executed New Leases were the product of arms’ length negotiations among sophisticated and well-represented parties. For the purposes of this article, the relevant provisions of each of the New Leases are the same.

Specifically, in relevant part, each New Lease contained language that required Lambardar (as landlord) to estimate KMH’s (as tenant) share of operating costs for the leased property at the beginning of each year. KMH was then required to pay one-twelfth of that total estimated amount each month to cover its operating cost share for that year. At the end of each year, Lambardar would then provide a statement reconciling the actual costs incurred in the year against the initial estimate; in the result, either KMH would pay Lambardar for any shortfall or Lambardar would repay any surplus to KMH.

Following the execution of the New Leases, the parties were unable to agree on the proper calculation of operating costs for the 2017 to 2020 fiscal years. In particular the parties disagreed as to three things: (1) whether the area of the basements on two of the properties should be included in the calculation of the gross leasable office area of the buildings; (2) whether Lambardar was entitled to charge a 15% administration fee on taxes; and (3) whether Lambardar was entitled to charge for the services of its site supervisor provided through a separate corporation.

All of the New Leases contained a term providing that any dispute concerning the accuracy of Lambardar’s reconciliation statement would be referred to an “independent professional consultant” who would be “qualified by education and experience to make such decision”:

If Tenant disputes the accuracy of any Statement, Tenant shall nevertheless make payment in accordance with the Statement, pending resolution of the dispute, but, subject to Section 4.8, the disagreement shall be referred by Landlord for prompt decision to an independent professional consultant approved by the Tenant, acting reasonably, who is qualified by education and experience to make such decision and who shall be deemed to be acting as an expert and not an arbitrator. The consultant’s signed determination shall be final and binding on both Landlord and Tenant. Any adjustment required to any previous payment made by Tenant or Landlord by reason of any such determination shall be made within fourteen (14) days thereof, and the party required to pay such adjustment shall bear all costs of the consultant, except that if the amount to be paid is three percent (3%) or less of the amount in dispute, Tenant shall pay all such costs. [Emphasis added.]

In other words, if KMH had an issue with the accuracy of the reconciliation, it still had to pay in accordance with the reconciliation; however, Lambardar was required to refer the disagreement to an “expert” properly qualified by education and experience, who was to be approved by KMH, for a prompt decision.

In turn, a further provision of the New Leases provided KMH with the right to require Lambardar to provide reasonable backup information for the claimed operating costs utilized in the reconciliation. If KMH was dissatisfied with the accuracy of the backup, it had the right to have its own accountant or auditor attend at Lambardar’s office to conduct an audit, and if such audit did not resolve a dispute, then said dispute would be resolved by the same expert referred to above.

Notwithstanding the “shall be referred” language in the provision provided above, Lambardar refused to appoint an expert, instead taking the position that the disputes were matters of contractual interpretation (that is, of the lease language itself) that required consideration by a court. In that regard, Lambardar took the position that question of interpretation require procedural fairness, party submissions, and a neutral trier; and given the foregoing, the parties could not have intended to give an expert authority to decide questions of law or questions of mixed fact and law. Finally, Lambardar maintained that questions of “accuracy” of the operating costs were limited to simple, arithmetical exercises like adding up a column of numbers drawn from invoices.

The Ontario Superior Court Decision

The Superior Court declared that Lambardar was required under the New Leases to appoint an independent professional consultant (i.e. an expert) to deal with the disputes.

In its analysis, the Court first considered the role of an expert as an alternative dispute resolver, in comparison to an arbitrator or a judge. The Court found that while arbitrators and judges are neutral officials who resolve disputes on evidence submitted via rules and procedures, experts are people appointed to solve a problem themselves based on their subjective knowledge and expertise which are relevant to the circumstances of their engagement. As well, an expert decision is typically fast and inexpensive and, unlike an arbitration or court decision, there are no appeals.

Interestingly, the court also considered that the expert mandate could be broad enough to have some overlap with what may be argued to be within the realm of a legal decision. Specifically, the Court held that the inclusion of some questions of contractual interpretation or even questions of law in a dispute should not be considered a bar to the use of an expert in the resolution of that dispute. Lambardar submitted that the parties could not have intended to give an expert the authority to engage in contractual interpretation and to make decisions of mixed fact and law or decisions of law. The Court disagreed, noting that it could not be assumed that parties must prefer arbitration or court to resolve disputes. In each case, the Court emphasized that one must consider the appointment language in the context of the agreement as a whole to identify the parties’ intentions.

On that point, the Court identified four main reasons in this case why the parties in this case intended that the relevant lease disputes would go to an expert (rather than a court or arbitrator):

  1. First, the expert mechanism was limited specifically to the determination of operating costs in the context of commercial leases. This is a field where plenty of expertise exists and where any number of industry people would know the answer to the issues being posed.
  2. Second, the contract did not specify the appointment of an accountant or a person with any specifically defined expertise; instead, the parties agreed that whoever was to be appointed must be “qualified by education and experience to make such decision” and subject only to the reasonable approval of the other party. The Court found that this indicated that a broader scope of disputes was expected to be considered by such an expert, and that the parties agreed to pick an appropriate expert for each “such decision” required.
  3. Third, the word “accuracy” denoted correctness or meeting a set standard. While it may have meant mathematical correctness, the meaning of “accuracy” was not necessarily so limited.
  4. Fourth, before the parties could appoint an expert, the tenant has a unilateral right to call for documentary backup and then to audit. If the parties were not content with the outcome of an audit, it would not be sensible to conclude that the dispute would then goes to the expert is just adding up a simple column of numbers. Rather, such a dispute would necessarily involve consider of interpretations advanced by each side regarding why their column of numbers was the correct one.

Turning next to a review of certain general principles distinguishing experts from judges and arbitrators, the Court noted in relevant part as follows:

  • Arbitrators and judges are neutral officials who resolve disputes on evidence, which evidence is submitted to them pursuant to rules and established procedures. Experts, on the other hand, do not necessarily hear any evidence or submissions from the parties, and there can be as much or as little process as the parties agree upon;
  • Judges and arbitrators are not supposed to bring their own personal knowledge to bear on the facts, but rather, conduct an adversarial hearing in order to receive evidence; if special expertise is required, the parties will provide expert evidence to help the judge or arbitrator to draw appropriate inferences. By contrast, experts are specifically appointed to solve a problem themselves, based on their own knowledge and expertise;
  • Appeals are available in litigation and sometimes in arbitration, whereas expert determinations are final and binding; and
  • Whereas expert determinations are typically fast and inexpensive, arbitration or litigation will almost always be slower and more expensive.

In addition, the Court noted that there was no dollar limit or any other financial or issue-based threshold and that, since the process called for a “prompt” decision, this would eliminate civil litigation as an option. We note that even an arbitration with the best-laid of plans could hardly be considered as “prompt” in such circumstances.

As a result, the Court concluded that “it is completely within the domain of reasonable commercial parties to take a topic that is well understood in their world, like determining a proper and fair allocation of operating costs, and to decide to leave the resolution of disputes to an expert in the field.”


Although KMH Cardiology was related to commercial leasing, it is nevertheless broadly relevant to the use of expert determination to resolve disputes, including in respect of construction projects. This decision is also arguably relevant when considering the use of project neutrals as well.

First, the Court’s finding that an expert is entitled to render a decision in respect of questions of mixed fact and law, or even questions of law, supports the proposition that an expert can engage in issues beyond purely technical questions without inevitably exceeding the scope of their authority. This is particularly important in circumstances where the technical question at issue is inextricably bound up in an interpretation of relevant contractual provisions, which scenario is not uncommon in construction disputes.

By way of example, an Independent Certifier, Payment Certifier, Consultant or other similar role is often required to make critical decisions on a Project regarding delay, entitlement to compensation, or other contractual entitlement, all of which require consideration of legal principles, contractual interpretation, and relevant facts. With respect to certain issues, these decisions are often final and binding. This decision brings clarity to those roles, and the entitlement of such individuals to make certain decisions, notwithstanding the fact that they may consider some elements that go beyond their technical expertise and would ordinarily be left for an arbitrator or judge.

Furthermore, the Court provided an important clarification in rejecting the blanket proposition that questions of interpretation will inevitably require procedural fairness, party submissions, and a neutral trier. To the contrary, and consistent with the principle of party autonomy, the Court’s conclusions support the proposition that parties to a dispute resolution agreement can craft procedural protections as they see fit, and that an expert will not necessarily be bound by the same procedural limitations as an arbitrator or judge. This is particularly important given that construction experts typically do not have a legal background, and should ideally allay some fear on the part of experts that they will be held to a similar standard as an arbitrator or judge.

That being said, the Court’s analysis also highlights the importance of a contract being very clear and precise with respect to the appointment of an expert decision-maker, including what authority the expert is given. This is particular true given that unlike arbitration, expert determination does not have a statutory framework that exists in the background to provide default rules or parameters. As a result, a poorly-drafted expert determination provision could create ambiguities as to what procedural protections are required of the expert, thus lending itself to further disputes between parties and cast a shadow over the entire process.

On balance, KMH Cardiology therefore provides strong support for the use of expert determination to resolve commercial disputes, and we are of the view that this is particularly relevant for construction projects. In this regard, the decision represents a positive development in an area of law for which there has previously existed limited judicial consideration.

In that regard, allowing parties to give an expert authority to decide questions of mixed fact and law, or even questions of law, without necessarily being bound by fulsome procedural requirements, provides the construction industry with a meaningful supplement to arbitration. As readers are aware, arbitration is commonplace in the construction industry, but may nevertheless be more cumbersome than parties would prefer due to the procedural protections associated with it.

Further, with the recent upswing in arbitration resulting from, among other things, a backlog in the court system, it may soon become more difficult to find available arbitrators given the volume of disputes in the construction industry.

In that regard, the judiciary providing endorsement for expert determinations is a welcome signal not only to the experts looking to grow this part of their business themselves, but also to commercial parties and their counsel looking to craft further alternative dispute resolution processes.  This is one more step by the courts to promote efficiency in dispute resolution, and we look forward to seeing if expert determinations grow as a viable early avenue for the resolution of disputes on construction projects.

Aroma Franchise Company v Aroma Espresso: Guidance and Questions on Disclosure Obligations and Reasonable Apprehension of Bias in Arbitration

In the recent decision of Aroma Franchise Company Inc. et al v Aroma Espresso Bar Canada Inc. et al, 2023 ONSC 1827 (“Aroma”), the Ontario Superior Court of Justice provided important guidance in relation to the reasonable apprehension of bias for arbitrators in circumstances where an arbitrator is retained on multiple occasions by the same party or firm. While the court’s guidance, discussed below, should be carefully considered by lawyers and litigants, it also raises a number of further questions.


Aroma Espresso Bar Canada Inc. (“Aroma Canada”) was the master Canadian franchisee of, and therefore acted as middleman in relation to individual Aroma franchisees for, Aroma Franchise Company Inc. (“Aroma Franchisor”). A dispute arose between the two parties regarding their master franchise agreement, which resulted in an arbitration run by a sole arbitrator (the “First Arbitration”) under the International Commercial Arbitration Act, 2017 (given that the Aroma Franchisor was not a Canadian entity) seated in Ontario. Aroma Canada was for the most part the successful party.

However, while the First Arbitration was still in progress, and in fact significantly advanced, the arbitrator was retained by counsel for Aroma Canada as the sole arbitrator on another dispute (the “Second Arbitration”). Neither Aroma Canada nor the Aroma Franchisor was a party to the Second Arbitration.

Just prior to releasing his final award for the First Arbitration, the arbitrator emailed counsel for both parties. In his email, the arbitrator inadvertently copied a lawyer from the same firm as counsel for the respondent, although the inadvertently copied lawyer was not involved in the First Arbitration. This inadvertent inclusion raised a concern in the mind of counsel for Aroma Franchisor.

Through subsequent correspondence, in which the arbitrator acknowledged having inadvertently copied the incorrect counsel, the arbitrator disclosed that he had been retained as arbitrator in respect of the Second Arbitration some time into the First Arbitration. The arbitrator further noted that counsel for Aroma Canada in the First Arbitration had “involvement from time to time” in the Second Arbitration, rather than day-to-day carriage. The arbitrator also expressed the view that there was no overlap in the issues presented by the First Arbitration and the Second Arbitration, and that he was unaware of any connection between the parties in the two arbitrations.

Aroma Franchisor thereafter applied to set aside the arbitrator’s final award, as well as his costs awards, on the basis of a reasonable apprehension of bias stemming from his engagement in and non-disclosure of the Second Arbitration.

The Court’s Decision

In reviewing the set-aside application, the Court canvassed a number of key issues in arriving at its ultimate conclusion that the awards should be set aside and that a new arbitration should be conducted by a new arbitrator.

Disclosure of the Second Arbitration

First, the Court considered whether it was incumbent upon the arbitrator to disclose the Second Arbitration to Aroma Franchisor. Relying on Article 12 of the Model Law (as incorporated into the International Commercial Arbitration Act, 2017) as well as the IBA Guidelines on Conflicts of Interest in International Arbitration, the Court concluded that those authorities necessitated a careful consideration of the circumstances in order to determine whether disclosure was required (in other words, the answer was not immediately obvious based on a review of those authorities). To that end, the Court considered a number of factors, including the following:

  • The expectations of the parties in the selection of the arbitrator. A review of the parties’ contemporaneous correspondence at the time of the arbitrator’s selection revealed that the parties expected that, if a proposed arbitrator had previously been retained or engaged by either party, then that retainer or engagement needed to be disclosed at that time;
  • The extent to which there were any overlapping issues as between the two arbitrations. On this point, the Court observed that there were some overlapping issues (i.e. similar causes of action), which based on the United Kingdom Supreme Court’s (UKSC) decision in Halliburton Company v. Chubb Bermuda Insurance Ltd. [2020] UKSC 48, might give rise to an appearance of bias. However, in this case, there were limited overlapping issues, and the Second Arbitration did not involve a franchise dispute and was in a different industry, such that there was no appearance of bias; and
  • The fact that the arbitrator was a sole arbitrator in both arbitrations (and therefore controlled the outcome in both). The Court did not explore this issue in detail, although the balance of the Court’s analysis suggests that the obligation to disclose was heightened by the fact that the arbitrator exerted greater control over the outcome than he might have done in the context of an arbitral tribunal.

The Court then turned to a review of the applicable institutional rules, including the UNCITRAL Arbitration Rules and the ADRIC Code of Ethics, highlighting that those rules variously require disclosure in circumstances that “could reasonably give rise to justifiable doubts” (emphasis added) as to their impartiality or independence, as well as “might create an appearance of partiality or bias” (emphasis added). Again, although not stated explicitly, the Court’s analysis appears to implicitly suggest that the bar for disclosure is lower than the balance of probabilities.

Finally, the Court turned to Halliburton v Chubb (noted above), considered to be the United Kingdom’s leading case on arbitrator bias. Although not identical to this case, Halliburton involved a very similar scenario in which an arbitrator accepted appointments from the same party in multiple, overlapping cases, arising out of the same incident, without disclosure. While the arbitrator disclosed his prior appointments at the time he was retained in the arbitration at issue, he then did not disclose the subsequent appointment. Although the UKSC determined that the arbitrator should have disclosed the subsequent appointments, it went on to find that this did not create a reasonable apprehension of bias.

Based on the foregoing, the Court in Aroma determined that the arbitrator ought to have disclosed his appointment in the Second Arbitration to the parties in the First Arbitration.

Reasonable Apprehension of Bias

Turning to the key issue of whether there was a reasonable apprehension of bias, the Court observed that the test for determining whether there is reasonable bias in respect of a judge applies with equal force to an arbitrator, despite the fact that their functions differ in several respects: “[W]hat would an informed person, viewing the matter realistically and practically – and having thought the matter through – conclude. Would he think that it is more likely than not that [the decision-maker], whether consciously or unconsciously, would not decide fairly.” The Court also considered a number of significant factors, including the following:

  • The threshold for a finding of real or perceived bias is a high one, since it calls into question both the personal integrity of the adjudicator and the integrity of the administration of justice. The grounds must be substantial, and the onus is on the party seeking to disqualify to bring forward evidence to satisfy the test.
  • The presumption of impartiality is high.
  • The inquiry is objective and requires a realistic and practical review of all the circumstances from the perspective of a reasonable person. The courts will not entertain the subjective views of the parties in making such a determination.
  • A challenge based on reasonable apprehension of bias will not be successful unless there is evidence to support the allegation beyond a mere suspicion that the hearing officer would not bring an impartial mind to bear. Mere suspicion is insufficient.
  • When considering bias, context matters. Any review of an arbitrator’s conduct must be considered in context and not through the review of selected excerpts or specifically chosen terms, phrases, or questions posed.

As a result, the Court concluded that the determination of whether a reasonable apprehension of bias exists is extremely fact specific.

It is apparent from the Court’s decision that the high bar noted in the case law and relevant guidelines must be met in order to support a finding of a reasonable apprehension of bias; however, in the circumstances that bar was found to have in fact been met here. In particular, the Court highlighted a number of factors it considered relevant in reaching that conclusion, including the following:

  • In respect of the Second Arbitration, Aroma Canada had not tendered evidence in respect of a number of salient points, including how much the arbitrator was being paid, who had suggested the arbitrator’s appointment, who had reached out to the arbitrator to retain him, and whether the parties to one arbitration were aware of the other arbitration;
  • The optics of Aroma Canada’s lead counsel retaining the arbitrator in the Second Arbitration after the First Arbitration was underway. Although not explicitly stated, the Court’s observation on this point raises questions as to whether the courts are or will be concerned with counsel retaining an arbitrator on multiple occasions and any related objectives of doing so. In that regard, Aroma Franchisor argued that the mere proffering of money to the arbitrator via the Second Arbitration was itself fatal to the arbitrator’s impartiality, which argument the Court did not expressly reject;
  • The fact that the arbitrator was selected for the Second Arbitration despite Aroma Canada’s counsel not having any prior experience with him as an arbitrator prior to the First Arbitration, and despite the availability of other competent commercial arbitrators in Toronto; and
  • The parties’ pre-appointment correspondence (discussed above), in which both parties emphasized the importance of selecting an arbitrator without a pre-existing relationship with either party or their counsel.

Based on the foregoing considerations, the Court determined that there was a reasonable apprehension of bias. In the circumstances, Article 18 of the Model Law was found to have been violated, which qualified as grounds for set-aside pursuant to Article 34(2) of the Model Law. As a result, the Court set aside the awards in the First Arbitration and directed that a new arbitration be conducted by a new arbitrator.

Review of the Decision and Questions Raised

Given the significant impact of the Court’s decision to remit the matter back for an entirely new arbitration, Aroma raises several important issues for further consideration.

First, prior to Aroma, the Halliburton decision was (and still is) considered a persuasive authority in the international arbitration community, and was considered instructive to arbitration practitioners in Canada notwithstanding that it was not a binding authority.

In that regard, it bears noting that in Halliburton, the arbitrator had arguably engaged in conduct that would give rise to an even greater apprehension of bias – there, the arbitrator had accepted appointments in multiple, overlapping matters from the same party, all arising out of the same incident (the Deepwater Horizon incident). Nevertheless, the UKSC found that an objective observer would not have concluded that the arbitrator was biased.

In this case, Aroma Franchisor argued – and the Court appears to have accepted – that Halliburton was distinguishable on the basis that (1) the applicable UK legislation set a higher threshold for removing an arbitrator or setting aside an award – namely, the applicant must show that a substantial injustice has been or will be caused – and (2) the UK legislation did not contain a statutory duty of disclosure, unlike the Model Law.

That being said, this position appears to somewhat understate the relevance of the UKSC’s findings in Halliburton insofar as (1) the test applied by the UKSC for bias was effectively the same as that applied in Aroma, yet the UKSC reached the opposite conclusion (i.e., that there was no bias), and (2) the UKSC found a common law duty of disclosure, such that it was functionally equivalent to the Model Law’s statutory duty (as expressed in the Ontario legislation). Furthermore, in respect of the “substantial injustice” requirement set out in Halliburton, it bears noting that the Court in Aroma similarly observed a finding of real or perceived bias requires “substantial” grounds. In that regard, these thresholds are more similar than they might first appear.

As a result, Halliburton potentially could have been considered as a more persuasive authority in Aroma against a finding of a reasonable apprehension of bias and may be considered as such in future cases.

Second, Aroma’s emphasis on the parties’ expectations as articulated in their pre-appointment correspondence is, in some sense, unfair to the arbitrator, insofar as the Court’s analysis does not suggest that the arbitrator had any knowledge of that correspondence or the importance that the parties had placed on their chosen arbitrator having no business relationship with either party or their counsel.

This issue in fact appears to have been the most important to the Court’s ultimate determination. In that regard, there exists a tension between the Court’s emphasis on the parties’ expectations, and the pre-existing case law establishing that courts will not entertain the subjective views of the parties in assessing a claim of bias. In any event, whereas knowledge by the arbitrator of the parties’ expectations may have militated in favour of a finding of an apprehension of bias (i.e. knowing of the parties’ wishes but acting against them), the opposite is equally true that lack of such knowledge could arguably militate against such a finding.

Third, the Court’s comments regarding the selection of the arbitrator for the Second Arbitration raise an interesting question as to the frequency with which an arbitrator may be appointed by the same counsel or parties. This question is particularly important in specialized practice areas, such as construction law, where there are a limited number of arbitrators with the subject matter expertise and experience to adjudicate such disputes.

To reiterate, the Court was somewhat critical of the fact that the arbitrator was selected for the Second Arbitration despite Aroma Canada’s counsel not having any prior experience with him as an arbitrator, and despite the noted availability of other commercial arbitrators in Toronto.

One the one hand, and as the Court observed, the IBA Guidelines identify three or more appointments by the same counsel within a period of three years as falling within the “orange list” as a problematic-but-not-disqualifying circumstance which may warrant disclosure; in other words, repeated use of an arbitrator may pose problems with respect to using them again. On the other hand, however, the Court appeared to be critical of the fact that Aroma Canada’s counsel had appointed the arbitrator a second time despite having had no experience with him as an arbitrator prior to the First Arbitration.

In the circumstances, these two propositions appear to be in tension insofar as they suggest a fairly narrow range of permissibility – it is potentially problematic to appoint an arbitrator whom counsel has already retained repeatedly, yet it may also be problematic to repeatedly appoint an arbitrator whom counsel has not already retained previously.

Fourth, the Court’s observations as to the optics of Aroma Canada’s lead counsel retaining the arbitrator in the Second Arbitration after the First Arbitration was underway – what the Court referred to as a “bad look” – raises an interesting question as to the presumption of an arbitrator’s impartiality. As noted above, the Aroma Franchisor appears to have argued that the fact money was proffered to the arbitrator via the Second Arbitration was in itself fatal to his role in the First Arbitration, while the balance of the judgment suggests a concern regarding the optics of counsel’s intentions and objectives in selecting the same arbitrator twice.

This raises questions for future decisions as to how the presumption of the arbitrator’s impartiality will be considered, as the Court did not explicitly confirm that the proffering of money is insufficient to ground a finding of bias. To the contrary, it can and should be presumed – which presumption can be rebutted with specific evidence – that the arbitrator will continue to act impartially in such circumstances; arbitration invariably involves remunerating arbitrators, and as such, the presence of remuneration should not in and of itself be disqualifying. Put differently, payment for services rendered by an arbitrator should not be considered the functional equivalent of an inducement.

Practically speaking, in specialized industries, it is not uncommon for a party to appoint the same arbitrator on matters while that arbitrator is already arbitrating prior matters in which the same party is involved. If the use of arbitrators on multiple construction matters were to qualify as grounds for reasonable apprehension of bias, then the pool of available arbitrators would be drastically narrowed. This would no doubt be problematic for the growth of arbitration – at least as it relates to Canadian construction law, particularly as the judiciary continues to work through the backlog of cases created by the COVID-19 pandemic.

As well, and as recognized by the Court in Aroma, arbitrators are not judges, and are remunerated by parties rather than the state; as a result, in our view, precedents applicable to the judiciary are not necessarily fully transposable to the arbitral context. Here the Court’s selection of the test appears to have subordinated the fact that, under the IBA Guidelines, this situation fell into the Orange category, perhaps resulting in a decision that appears inconsistent with the outcome in Halliburton despite their similar factual matrices.

Finally, and as noted above, this issue raises questions as to how courts should interpret the intent of counsel. It is plausible that rather than retaining an arbitrator a second time in order to curry favour, counsel might retain them on the basis that the arbitrator demonstrated a high level of proficiency in their role as arbitrator (competent case management, strong grasp of the issues, etc.).

Given the broad significance of the questions raised by Aroma, we look forward to seeing how it will be subsequently interpreted or applied whether again by the Ontario Superior Court of Justice or in the appellate courts. One thing is clear, however – arbitrators should manage their practices with a strong emphasis on continuous disclosure.

Handley Comes for Lien Court: Immediate Disclosure of Settlement Agreements Altering the Litigation Landscape in the Context of Lien Assignments

Recent case law from the Court of Appeal for Ontario has repeatedly confirmed the strict rule that settlement agreements which “change entirely” the “litigation landscape” must be immediately disclosed.[1] That case law has now impacted a lien matter for the first time.

In GH Asset Management Services Inc. v. Lo, 2022 ONSC 7218 (“GH Asset”), the Court considered whether disclosure of a settlement and assignment agreement was subject to the immediate disclosure obligation set out in Handley Estate v DTE Industries Limited, 2018 ONCA 324 (“Handley”), and if so, whether such disclosure was timely. The Court ultimately determined that the settlement and lien assignment agreement in question was not a settlement that triggered the immediate disclosure requirement. However, it warned that such agreements may trigger the rule in other cases.


The underlying dispute in GH Asset pertained to work allegedly performed by J&J Property Management Services Inc. (“J&J”) at a residential apartment building owned by Jan Ju Lo and Reng Song Lo (the “Los”). The Los entered into a contract with GH Asset Management Services Inc. (“GH Asset Management”) for property management services for the apartment building. GH Asset Management then, by verbal agreement, engaged J&J to perform maintenance and renovation services at the building.

Though GH Asset Management initially paid J&J for its services from the rental income it collected on behalf of the Los, the Los eventually began collecting the rent directly, and no further payments were made to J&J for the services it rendered. Ultimately, J&J registered a claim for lien for its alleged unpaid services, and perfected its lien by commencing an action listing the Los, GH Asset Management, and its principal, as defendants. The Los subsequently delivered a statement of defence, counterclaim, and crossclaim, asserting among other things, that GH Asset Management acted without its authority in engaging J&J. As a result, the Los alleged that it was solely liable for J&J’s damages.

GH Asset Management and J&J ultimately settled J&J’s claim on March 25, 2019, in a document referred to as a “Deed of Assignment of Lien and Lien Action and Undertaking to Produce Documents” (the “Agreement”).[2] In exchange for payment, the Agreement provided that J&J would assign its claims and liabilities related to the apartment building to GH Asset Management and release its claims against GH Asset Management and its principal. In the Agreement, J&J also agreed to provide GH Asset Management with documents and an affidavit. As a result of the Agreement, GH Asset Management was both a plaintiff (given the assignment) as well as a defendant to the action.

The Agreement was not disclosed to the Los until October 8, 2020, when GH Asset Management served a motion record that included a copy of the Agreement. The Los ultimately brought a motion to permanently stay the lien action on the basis of inadequate disclosure of the Agreement.

The Handley Principles

As set out in Handley and subsequent cases, a settlement agreement which “changes entirely the landscape of the litigation in a way that significantly alters the adversarial relationship among the parties to the litigation or the ‘dynamics of the litigation’” must be immediately disclosed.[3] The purpose of the rule is to ensure that other parties receive prompt notification of potential impacts on their litigation strategies, as well as to ensure that the Court can properly control its processes.[4] Courts need to “know the reality of the adversity between the parties”.[5]

Over the past five years, the rule has received significant attention from the Court of Appeal for Ontario, which has consistently confirmed its strictness, as well as the draconian mandatory remedy applied in cases of non-disclosure: a permanent stay of the proceeding. The principles have recently been summarized as follows:

  1. There is a “clear and unequivocal” obligation of immediate disclosure of agreements that “change entirely the landscape of the litigation”. They must be produced immediately upon their completion;
  2. The obligation extends to any agreement between or amongst the parties “that has the effect of changing the adversarial position of the parties into a co-operative one” and thus changes the litigation landscape;
  3. The obligation is to immediately disclose information about the agreement, not simply to provide notice of the agreement, or “functional disclosure”;
  4. Both the existence of the settlement and the terms of the settlement that change the adversarial orientation of the proceeding must be disclosed;
  5. Confidentiality clauses in the agreements in no way derogate from the requirement of immediate disclosure;
  6. The standard for disclosure is “immediate”, not “eventually” or “when it is convenient”;
  7. The absence of prejudice does not excuse a breach of the obligation of immediate disclosure; and
  8. Any failure to comply with the obligation of immediate disclosure amounts to an abuse of process. The only remedy to redress the abuse of process is to stay the claim brought by the defaulting, non-disclosing party.[6]

The Court’s Analysis

In GH Asset the Court held that the Agreement did not constitute a settlement which triggered the rule.

The Court distinguished the Agreement from the various settlements at issue in the recent decisions rendered by the Court of Appeal on the basis that, unlike in those cases, there is statutory authority for the assignment of a lien pursuant to the former Construction Lien Act.[7] Further, the provision in the Agreement requiring J&J to provide evidence and an affidavit was necessary for GH Asset Management to prove the claims J&J assigned to it given that the settlement preceded documentary disclosure by J&J in the action.

As such, the Court found that the Agreement did not alter the adversarial orientation of the parties in a material way:

  • the fact that J&J and GH Asset Management were formally adverse in litigation was not “dispositive of the ‘reality of the adversity’ between them” (i.e. the fact that the parties were adverse on the face of the pleadings was not conclusive of the actual litigation landscape);[8]
  • GH Asset Management and the Los were already adverse in interest prior to the settlement;
  • J&J had not altered its adversarial position: the fact that it was now providing documents and evidence to GH Asset Management, its assignee, was of no moment because the Agreement did not require J&J to tailor any evidence to support GH Asset Management’s newly acquired claim against the Los. It would be open to both the Los and GH Asset Management to argue about how the documents should be treated in determining liability, just as if J&J had remained the plaintiff;
  • GH Asset was not involved in preparing the affidavit of J&J’s principal. Unlike some of the other cases decided under Handley, there was nothing in the Agreement suggesting that the settlement was conditional on GH Asset Management’s approval of the affidavit (sometimes referred to as a “proffer” of evidence), a situation which, in some circumstances, may alter the litigation landscape; and
  • the position of the Los in the litigation was unchanged because GH Asset Management was simply pursuing J&J’s assigned claim as against them.


GH Asset is the first decision of which we are aware that applies the Handley principles – which have been the focus of a sea of recent litigation – in the construction lien context. As noted by the Court in this case, “settlement agreements by their nature will have an impact on the litigation landscape”, and “cooperation between litigants does not necessarily fundamentally alter that litigation landscape”.[9] However, the Court of Appeal has also cautioned that where parties are unclear about their disclosure obligations, they can bring a motion for directions.[10] Given the strictness of the rule and the draconian nature of the remedy, litigants in lien matters would be well advised to become familiar with the Court of Appeal’s recent case law on this issue. As another Court recently held in another Handley decision, “better to be safe than sorry.”[11]

[1] Handley Estate v. DTE Industries Limited, 2018 ONCA 324.

[2] GH Asset Management Services Inc. v. Lo, 2022 ONSC 7218 at para 9.

[3] Poirier v. Logan, 2022 ONCA 350 at paras 47-48; Handley Estate v. DTE Industries Limited, 2018 ONCA 324 at para 39.

[4] Pettey v. Avis Car Inc. (1993), 13 OR (3d) 725 (Ont Gen Div).

[5] Handley Estate v. DTE Industries Limited, 2018 ONCA 324 at para 39 citing Moore v. Bertuzzi, 2012 ONSC 3248.

[6] CHU de Québec-Université Laval v. Tree of Knowledge International Corp., 2022 ONCA 467 at para 55. Additional principles can be found in Crestwood Preparatory College Inc. v Smith, 2022 ONCA 743 at para 43.

[7] See Section 73 of the former Construction Lien Act.

[8] GH Asset Management Services Inc. v. Lo, 2022 ONSC 7218 at para 33.

[9] GH Asset Management Services Inc. v. Lo, 2022 ONSC 7218 at para 43.

[10] Crestwood Preparatory College Inc. v. Smith, 2022 ONCA 743 at para 43(d).

[11] Poirier v. Logan, 2021 ONSC 1633 at para 61 aff’d 2022 ONCA 350.

Rare Example of Partial Summary Judgment in a Construction Matter Upheld

Motions for partial summary judgments are typically frowned upon by the judiciary in Ontario. The Court of Appeal for Ontario has repeatedly held that such motions should be granted only rarely, and only where an issue “may be readily bifurcated from those in the main action and that may be dealt with expeditiously and in a cost-effective manner”.[1] Otherwise, there is a risk that findings made in the summary judgment motion will be inconsistent with findings made following the trial of the balance of the action.[2]

Moreover, where a key witness is facing credibility issues, partial summary judgment motions are almost never granted. Judges prefer to assess credibility in the flesh; it is understandably difficult to assess on a paper record.[3]

However, partial summary judgment, while rarely granted, is not always refused. In its recent decision in Learmont Roofing Ltd. v Learmont Construction Ltd., 2022 ONCA 894, the Court of Appeal upheld a rare example of a successful partial summary judgment emerging from a construction dispute which developed between a general contractor and subcontractor as part of a CCDC stipulated price contract in respect of a commercial roof replacement.

The Decisions

The case involved a dispute between a general contractor (Learmont Construction Ltd.) and a roofing subcontractor (Learmont Roofing Ltd.). Despite their names, the two parties were not related. The subcontractor had agreed to perform all the work for the project. In this arrangement, the contractor would receive the entirety of the payment from the owner (who was not a party to this dispute) and retain 5% of the gross amount of each invoice billed. The subcontractor would then receive 95% of the total amount billed for that work.

The owner paid each of the five invoices rendered by the contractor for the completion of the entire scope of work. The owner did not set off against any invoices and for the purposes of this case appeared to have no concerns with the work performed by the contractor/subcontractor. Despite having received full payment, the contractor only remitted the amount owing to the subcontractor for four of the five invoices (invoices 1, 2, 3 and 5 were paid to the subcontractor in full). The principal of the contractor – Mr. Boer – later explained that he had refused the payment for the fourth invoice because he believed that the contract price had been inflated as part of a corrupt scheme whereby the lead engineer on the project would have his cottage roof installed by the subcontractor at no charge. Mr. Boer deposed to having attended a meeting where this was admitted. Mr. Boer also claimed that the contractor did not have the funds to pay the subcontractor.

The subcontractor commenced an action to recover the amount owing, $138,134 for invoice #4.  The contractor commenced “a myriad of counterclaims”, including for fraud and conversion.

Notwithstanding the rarity of the relief, the subcontractor successfully obtained partial summary judgment on its claim. The motion judge granted the relief finding, among other things, that Mr. Boer’s “speculative allegation” regarding the corrupt scheme was not a genuine issue requiring a trial: there was no evidence that the price had been inflated for the benefit of the engineer, or that the engineer had failed to properly certify the value of the work done. Indeed, the subcontractor provided a cheque representing full payment by the engineer for his cottage roof as well as an email in which the engineer expressed appreciation for the work done and stated that the amount owing would be paid in full. The motion judge also found no “credibility issues” raised by the contractor.

Moreover, Mr. Boer’s suggestion that the contractor did not have the funds to pay the subcontractor the remaining amount was “obviously disingenuous”. The motion judge found that the funds received from the owner had been diverted to Mr. Boer for his personal benefit or the benefit of his holding company. Mr. Boer was therefore “liable for the breach of the [contractor’s] trust obligations under the Construction Act, R.S.O. 1990, c. C.30, as he failed to remit the amount owing to [the subcontractor].”[4] As a result, Mr. Boer and his holding company were jointly and severally liable for the full amount owing to the subcontractor.

Finally, the motion judge rejected the risk of inconsistent findings. Far from being intertwined with the subcontractor’s claim, the slurry of counterclaims made by the contractor were entirely separate.

The Court of Appeal upheld the motion judge’s decision, including her conclusions that there was no risk of inconsistent findings and that the evidentiary record did not give rise to any credibility problems: “We agree that the appellants raised no genuine issues requiring a trial. Further, after reviewing the evidentiary record, the motion judge concluded that it did not give rise to any credibility problems. We see no palpable and overriding error justifying appellate interference with the motion judge’s findings.”[5]


Partial summary judgments are difficult to obtain; it can even be challenging to convince the Court to schedule such a motion. Nevertheless, they remain an option to claimants or defendants in the right circumstances. This may be particularly so when considering clear and apparent breaches of the trust obligations imposed by the Construction Act in circumstances such as those in the present case.

Furthermore, making allegations which would seem to raise credibility issues may not prevent a partial summary judgment where those allegations lack any evidentiary foundation. Moreover, parties should consider carefully whether their claims (or counterclaims) are intertwined with other parts of the litigation. If not, partial summary judgment is an option that warrants further discussion with counsel.

[1] Butera v Chown, Cairns LLP, 2017 ONCA 783 at para 34.

[2] Butera v Chown, Cairns LLP, 2017 ONCA 783 at paras 26-29, 33.

[3] Trotter v Trotter, 2014 ONCA 841 at para 55.

[4] Learmont Roofing Ltd. v Learmont Construction Ltd., 2022 ONCA 894 at para 17.

[5] Ibid at para 21.

Tall Ships Development Inc. v. Brockville (City): The Ontario Court of Appeal Reaffirms the Court’s Narrow Basis for Setting Aside Arbitral Awards

In the recent decision of Tall Ships Inc. v. Brockville (City)[1], the Ontario Court of Appeal has again emphasized that courts will be reluctant to set aside arbitral awards under the Arbitration Act where the parties in their arbitration agreement choose only to permit appeals on questions of law.


This matter arose out of a public-private partnership between the City of Brockville (the “City”) and Tall Ships Landing Development Ltd. (“Tall Ships”) with respect to the development of a waterfront property along the St. Lawrence River which included a mixed residential/commercial condominium and a Maritime Discovery Centre attraction (“the Project”). The Project was undertaken to revitalize downtown Brockville. The anticipated total capital cost of the Project was $12,000,000, and the Project had an estimated construction budget of $7,400,000 as set out in the Purchase Agreement.

Various disputes arose between the parties following the completion of the Maritime Discovery Centre which was approximately 6,000 square feet larger than originally designed and approximately $1,800,000 over budget, which included disputes relating to: (1) remediation costs, (2) construction cost overruns, and (3) interest costs (the “Tall Ships Claims”).

Pursuant to the parties’ arbitration agreement, the Tall Ships Claims were submitted to arbitration for resolution. Following a four-week hearing, the arbitrator dismissed the Tall Ships Claims through three separate arbitral awards. Tall Ships appealed the arbitral awards to the Superior Court of Justice. Notably, the arbitration agreement only provided for appeals on questions of law. On appeal, the application judge found in favour of Tall Ships and set aside all three arbitral awards.

The City appealed the application judge’s decision to the Ontario Court of Appeal and argued that the application judge erred in finding errors of law as the questions before the arbitrator were, in fact, questions of mixed fact and law which did not give right to a right of appeal in accordance with Ontario’s Arbitration Act and the parties’ arbitration agreement. Tall Ships, on the other hand, argued that the arbitrator committed extricable errors of law, breached their rights to procedural fairness, and that the application judge was correct in her determination.

Ontario Court of Appeal Decision

The Ontario Court of Appeal allowed the City’s appeal and held that the application judge erred in categorizing the matters at issue as extricable questions of law finding that the issues were questions of mixed fact and law. In reaching its decision, the Ontario Court of Appeal made a number of key observations in relation to each of the Tall Ships Claims, described briefly below.

The Court of Appeal found that judges in exercising their appellate functions “should not be too ready to characterize issues as issues of law because doing so may render the point of consensual arbitration nugatory.”[2] In this regard the Court cited the Supreme Court’s decision in Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co, 2016 SCC37, [2016] 2 S.C.R. 23 at para 113 where it was noted that “the circumstances in which a question of law can be extricated from the interpretation process will be rare.”

Remediation Claims

The arbitrator rejected Tall Ships’ claim for environmental remediation costs as the process for claiming such costs were governed by the Brownfields Agreement which provided for a 15-day deadline to provide notices of dispute which was not adhered to by Tall Ships. In addition, the arbitrator held that the remediation claims were statute barred.

The application judge allowed Tall Ships’ appeal and concluded that the arbitrator erred in relying on an implied “time of the essence” clause which was not advanced or argued which violated Tall Ships’ right to procedural fairness and that the reliance on an “unargued theory” was an error of law in accordance with Section 45 of the Arbitration Act.

The Court of Appeal held that the application judge erred in finding that Tall Ship’s right to procedural fairness had been breached, as the arbitrator did not read a time of the essence clause into the contract, but rather considered the Brownfields Agreement and the factual matrix as a whole as part of the arbitrator’s detailed and extensive reasons, and that the arbitrator’s use of the term “time of the essence” was incidental in nature.

The Court of Appeal found that this issue was a question of mixed fact and law which was not subject to appeal.

Construction Cost Overruns Claims

The arbitrator concluded that Tall Ships was responsible for the construction cost overruns under the contract based on the language of the contract and the factual background as Tall Ships did not inform the City of the potential overruns despite its knowledge that the Project would be larger and substantially more expensive than originally estimated. In this regard, the arbitrator held that Tall Ships did not reasonably perform its duty as construction manager and breached its duty of good faith in arbitrarily withholding such information. The arbitrator also dismissed Tall Ships’ claims for unjust enrichment on the same basis as denying the claim in contract.

The application judge allowed Tall Ships’ appeal and held that the arbitrator, among other things, erred in law in concluding that Tall Ships breached certain obligations which were not advanced or argued, failed to apply the appropriate legal analysis for implying contract terms, and misinterpreted the duty of good faith.

The Court of Appeal held that, similar to Tall Ships’ remediation claim, the primary error committed by the application judge was in mischaracterizing the issues as errors of law rather than mixed fact and law. The Court of Appeal explained that the arbitrator’s analysis of this claim involved the interpretation of the contract as a whole within the broader context of the Project as a whole which was a matter of mixed fact and law and which was not subject to appeal.[3] The Court of Appeal also rejected Tall Ships’ unjust enrichment claim on the same basis.

Interest Claims

The arbitrator rejected Tall Ships’ claim for interest costs based on the principle of estoppel as Tall Ships did not advise the City it would be claiming interest on the invoice at the time, and only advanced such a position in its Statement of Claim.

The application judge allowed Tall Ships’ appeal and held that the arbitrator incorrectly held that Tall Ships was required to inform the City of its intent to claim interest, and that the arbitrator’s conclusion relying on the principle of estoppel was unfair.

The Court of Appeal held that the arbitrator committed no extricable error of law, and that this was a finding of mixed fact and law which are not subject to appeal.


The Court of Appeal’s decision highlights the Court’s deference to arbitrators and the arbitral process as a whole.[4] In this regard, and as explained by the Supreme Court of Canada, as a matter of public policy, judges exercising such appellate powers under Section 45 of the Arbitration Act should exercise caution when extracting questions of law from the contract interpretation process as “[f]ailure to exercise such caution will result in the very inefficiencies, delays and added expense that choosing an arbitral process seeks to avoid.”[5]

Overall, the Court of Appeal was clear that the court system should not be treated as an appeal route for parties attempting to set aside an arbitral award. The decision provides parties with increased certainty about the final and binding nature of arbitration decisions.



[1] 2022 ONCA 861.

[2] Tall Ships Development Inc. v. Brockville (City), 2022 ONCA 861 (“Tall Ships”) at para 16.

[3] Note that Tall Ships conceded that it was not able to dispute the arbitrator’s findings that it breached the duty of good faith. See Tall Ships at para 84.

[4] See, for example, Tall Ships at para 2.

[5] Tall Ships at para 3, citing Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at paras. 54-55; Teal Cedar Products Ltd. v. British Columbia, 2017 SCC 32, [2017] 1 S.C.R. 688, at paras. 45-47.

Social Media Pump and Dumps: A Warning for Canadian Influencers

On December 13, 2022, the SEC announced charges against seven social media influencers in connection with a pump and dump scheme they promoted on Twitter and Discord. The announcement shines a light on the ability of influencers to manipulate markets for their own benefit.

A ‘pump and dump’ scheme generally involves a company (or its principals) issuing false or misleading announcements to inflate the trading price of its securities. Once the perpetrators have inflated the price (the ‘pump’), they liquidate their own holdings of the securities at the inflated price making a significant profit (the ‘dump’).[1]

Pump and dump schemes are usually prosecuted by Canadian securities regulators under the fraud and market manipulation provisions of the relevant provincial securities legislation. In Ontario, that provision, section 126.1 of the Securities Act, provides:

126.1 (1) A person or company shall not, directly or indirectly, engage or participate in any act, practice or course of conduct relating to securities, derivatives or the underlying interest of a derivative that the person or company knows or reasonably ought to know,

(a)  results in or contributes to a misleading appearance of trading activity in, or an artificial price for, a security, derivative or underlying interest of a derivative; or

(b)  perpetrates a fraud on any person or company.

The advent of social media influencers has created a variation on the traditional pump and dump. Rather than a company pumping the price of its own securities through misleading public announcements (and occasionally the use of manipulated trading to create the appearance of an active market for the securities[2]), individuals with no connection to the company – but having large social media followings – promote that company’s securities on their social media platforms. After their followers have themselves invested in the company’s securities (creating the ‘pump’), the influencers liquidate their holdings without telling their followers (the ‘dump’).

The SEC’s charges allege exactly this:

According to the SEC, since at least January 2020, seven of the defendants promoted themselves as successful traders and cultivated hundreds of thousands of followers on Twitter and in stock trading chatrooms on Discord. These seven defendants allegedly purchased certain stocks and then encouraged their substantial social media following to buy those selected stocks by posting price targets or indicating they were buying, holding, or adding to their stock positions. However, as the complaint alleges, when share prices and/or trading volumes rose in the promoted securities, the individuals regularly sold their shares without ever having disclosed their plans to dump the securities while they were promoting them.

The defendants allegedly obtained profits of USD $100 million through the scheme.

Given the relative ease with which significant social media influencers could operate a pump and dump scheme, it is surprising that Canadian authorities appear to have pursued few similar cases. Indeed, we were unable to locate any direct analogues to the SEC case amongst the Canadian English-speaking regulators.

Nevertheless, Canadian influencers should be very careful about promoting securities on their platforms. Prudence suggests that they should disclose any interest they have in the securities of a company they are discussing, and avoid overstating the attributes of the company or the benefits of holding its securities.

The SEC case also highlights the need for securities regulators to be vigilant in their market monitoring.  Just because large price fluctuations do not appear to be driven by a company’s press releases does not mean that market manipulation is not occurring through other means. That said, it will likely be challenging for regulators to locate influencers operating these schemes unless complaints are made.

Want to learn more about market manipulation in Canada? We last wrote about this topic in February 2021 in the context of the GameStop Short Squeeze.

[1] See e.g. Sulja Bros. Building Supplies, Ltd. et al. (Re), 2011 ONSEC 16.

[2] See e.g. Paolucci (Re), 2020 ONSEC 32.