Commercial arbitration is widely perceived as a pathway to obtaining a final and binding decision (styled as an "award") that is not subject to appeal. However, this is not always the case in Canada. The degree of finality of the award may vary considerably depending on whether the dispute is international or domestic in nature and the province in which the seat of arbitration is located.
International commercial awards issued in Canada are governed by the International Commercial Arbitration Acts of various provinces, which are generally identical and which follow the UNCITRAL Model Law on International Commercial Arbitration. Under these acts, an international commercial award is not subject to an appeal on the merits, but can only be "set aside" on a very limited number of narrow grounds, all of which go to whether there exist circumstances where there was a fundamental defect in the manner in which the arbitration was undertaken. These grounds are:
By contrast, domestic awards issued in Canada are not only subject to set-aside on similar grounds, but may also be appealed on their merits in some instances. To further confound matters, the default rules and the scope of appeal rights vary somewhat between each province's Arbitration Act, and are not always intuitive. In the case of Ontario, Section 45 of the Arbitration Act, 1991, SO 1991, c 17 [Arbitration Act] provides as follows:
Appeal
Appeal on question of law
45 (1) If the arbitration agreement does not deal with appeals on questions of law, a party may appeal an award to the court on a question of law with leave, which the court shall grant only if it is satisfied that,
(a) the importance to the parties of the matters at stake in the arbitration justifies an appeal; and
(b) determination of the question of law at issue will significantly affect the rights of the parties.
Idem
(2) If the arbitration agreement so provides, a party may appeal an award to the court on a question of law.
Appeal on question of fact or mixed fact and law
(3) If the arbitration agreement so provides, a party may appeal an award to the court on a question of fact or on a question of mixed fact and law.
Section 49 of the Ontario Arbitration Act further provides that a decision of the Superior Court of Justice on an appeal or set-aside application may be appealed to the Ontario Court of Appeal with leave of that court.
In the recent decision in Baffinland Iron Mines LP v Tower-EBC GP/SENC, 2023 ONCA 245 [Baffinland Iron Mines], the Ontario Court of Appeal introduced much-needed clarity regarding the availability and scope of appeal rights in domestic arbitrations, as well as the circumstances in which the Superior Court's decision on a leave to appeal may be appealed further to the Court of Appeal under Section 49. This decision, and the key takeaways arising from it, is discussed below.
In 2017, Baffinland Iron Mines (BIM) and Tower-EBC (TEBC) entered into two earthworks contracts to support BIM’s construction of a railway to transport ore from its mine on Baffin Island, Nunavut, to a nearby port. Both contracts provided that any disputes that had not been resolved through other mechanisms available under the contracts were to be "finally settled" by arbitration under the Rules of Arbitration of the International Chamber of Commerce (the ICC Rules). Neither contract expressly addressed appeals from an eventual arbitral award.
In 2018, BIM terminated the contracts due to delays. TEBC commenced arbitration proceedings challenging BIM's right to terminate the contracts and claiming damages arising from the termination. The arbitral tribunal reached a split decision in favour of TEBC, with one member of the tribunal issuing a partial dissent disagreeing with the majority on their interpretation of Ontario law and reducing the damages awarded to TEBC by more than 50 percent.
Subsequently, BIM sought leave to appeal under Section 45 of the Arbitration Act on questions of law, including those that it believed drove the divergent results reached by the majority and the dissent. The Superior Court of Justice refused to grant leave to appeal, holding that the arbitration agreement precluded any appeal by (1) stating that disputes would be "finally settled" by arbitration, and (2) incorporating the ICC Rules, which included a waiver of any form of recourse against the award. On this basis, the application judge declined to grant BIM leave to appeal.
BIM subsequently appealed the application judge's decision to the Ontario Court of Appeal pursuant to Section 49 of the Arbitration Act. In response, TBEC moved to quash BIM's appeal on the basis that Section 49 does not contemplate an appeal from a decision on a leave application. The Court of Appeal dismissed TBEC's motion to quash the appeal, but ultimately held that the application judge made no reversible error in finding that the arbitration agreement precluded appeals to the court on any question.
The Court of Appeal decision in Baffinland Iron Mines contains four key takeaways for domestic arbitrations that are seated in Ontario.
As drafted, Section 45 of the Ontario Arbitration Act, which governs availability of appeals from domestic awards, is not inherently intuitive. The Court of Appeal introduced some much-needed clarity by expressly finding that it contemplates three different scenarios:
As noted, Section 49 of the Ontario Arbitration Act provides for a further appeal to the Court of Appeal from a decision of the Superior Court of Justice on an appeal or a set-aside application, with leave of the Court of Appeal. However, Section 49 is silent on appeals from a denial of leave to appeal under Section 45(1).
The Court of Appeal in Baffinland Iron Mines again introduced some much-needed clarity on this issue while explaining and reconciling two of its own seemingly competing decisions cited by the parties in support of their respective positions. The Court set out the following rules for when an appeal lies to the Court of Appeal under Section 49 of the Arbitration Act from a decision on a leave application:
As noted, in this case, the application judge refused to consider the merits of BIM's leave application on the basis that the arbitration agreement precluded any appeals. Applying the above principles, the Ontario Court of Appeal dismissed TEBC's motion to quash BIM's appeal to the Court of Appeal.
Having considered and rejected TBEC's motion to quash BIM's appeal, the Court of Appeal went on to consider the merits on BIM's leave application, affirming the decision of the Superior Court of Justice to deny leave to appeal. In doing so, the Court of Appeal:
a. affirmed that the words "finally settled" in an arbitration agreement preclude appeals from an arbitration award in Ontario; and
b. held that there is no distinction between the meaning of phrases "final and binding" and "finally settled", even if those phrases are used within the same agreement.
In reaching these conclusions, the Court of Appeal emphasized the word "final", holding that a different phrase containing the word "final" will convey the same meaning, as long as the additional words accompanying it do not materially modify it. The Court further cited approvingly its prior decision in 1988 decision in Yorkville North Development Ltd v North York (City) (1988), 64 OR (2d) 225 (CA), in which it held that the word "final" should be construed as admitting of no further disputation, thereby excluding any right of appeal.
As noted above, the Superior Court of Justice's decision in the Superior Court to refuse to consider the merits of BMI's leave application was based in part on the ICC Rules, which were incorporated by reference into the arbitration agreement. In this case, the pertinent rule was Rule 35(6), which provides as follows:
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.
In considering whether Rule 35(6) was inconsistent with the phrase "finally settled", the Court of Appeal made the following observation in obiter:
The application judge, however, held the terms were not inconsistent, and there was no error in that finding. As noted above, [the arbitration agreement] was properly interpreted to preclude appeals, just as the wording of ICC Rule 35(6) does. To the question of whether appeals are permitted, both provisions give the same answer: no, they are precluded.
[emphasis added]
Thus, while not establishing a binding precedent, the Court of Appeal gave strong indication that the parties may successfully contract out of appeal rights simply by adopting appropriately worded arbitration rules, such as the ICC Rules.
The Court of Appeal decision in Baffinland Iron Mines provides much-needed clarity regarding availability of appeals from domestic arbitral awards rendered in Ontario. It also carries important implications for transaction counsel. In particular, it reinforces the importance of discussing the desirability of appeal rights with one's clients and expressly addressing the issue in the arbitration agreement. While the decision indicates that the word "finally settled" or "final and binding" may be sufficient to oust appeal rights, transaction counsel would be well-advised to include express language that the parties agree to waive any and all appeal rights to the extent permitted by law if that is desired by the parties.
It is also important to appreciate that the discussion and authority above applies to Ontario only, and that the rules governing appeals from domestic awards are different in other provinces in Canada. This, in turn, underscores the importance of carefully selecting the legal seat of arbitration.
All of the above reinforces the importance of obtaining expert advice when drafting dispute resolution clauses for commercial agreements. To discuss your specific needs and to receive tailor-made advice, please contact the Bennett Jones International Arbitration group.