Ontario Court Confirms Limited Potential Appeal Rights From “Final and Binding” Arbitral Awards

The Ontario Superior Court of Justice recently affirmed that courts will not second-guess a “final and binding” arbitral award. By refusing leave, the Court signalled that clear intent in an arbitration agreement to bar appeals will be enforced.

Facts and Decision

In 2501373 Ontario Inc. et al. v. Selfe et al. (Selfe), a trio of parties sought leave to appeal an arbitral award relating to disputes arising from a 2020 share purchase agreement (SPA), including payment of the balance of the purchase price after the close of the share purchase, the performance of the parties’ contractual obligations under the SPA and the termination of one party’s employment. In August 2023, the arbitrator issued an award granting nearly C$770,000 in damages to certain parties.

Under the Ontario domestic arbitration statute, if the parties’ arbitration agreement does not deal with appeals on questions of law, a party may seek leave to appeal an arbitral award on questions of law. Otherwise, the arbitration agreement must specifically provide that the parties may appeal on questions of law or of mixed fact and law. The unsuccessful parties sought leave to appeal the award under section 45(1) of the Ontario Arbitration Act, raising questions of law. The Court dismissed the leave application for two main reasons.

First, the Court found that the parties had waived appeals on questions of law pursuant to the arbitration agreement in the SPA. Specifically, that agreement provided that “[t]he decision of the Arbitrator shall be final and binding upon the parties and not subject to appeal either on an issue of law or an issue of mixed fact and law.” The Court held that the parties’ intent to exclude appeals on questions of law was clear, not only due to the second half of the sentence in the arbitration agreement, but also due to the comment that the Arbitrator’s decision would be “final and binding.” Notably, the Court commented that the “final and binding” language would have been enough, on its own, to reflect an intention to exclude an appeal right.

On a related point, the unsuccessful parties argued that the arbitration was not conducted under the arbitration agreement in the SPA but rather under the terms of appointment executed by the parties and the arbitrator, which they argued did not oust appeal rights. The Court disagreed, noting that although the terms of appointment did vary certain terms of the arbitration agreement in the SPA, it did not replace the arbitration agreement. Since the arbitrator’s jurisdiction originated with the arbitration agreement in the SPA, the terms of that arbitration agreement continued to govern, unless specifically varied by the terms of appointment.

Second, the Court held that the unsuccessful parties had also failed to identify an extricable question of law, which is a requirement for leave to appeal. The Court noted that judicial intervention in commercial arbitrations is the exception, not the rule, and referred to the Supreme Court of Canada jurisprudence dictating that courts must be cautious in identifying “extricable questions of law in disputes over contractual interpretation,” which is an inherently fact-specific exercise.

Key Takeaways 

The decision in Selfe reinforces well-established principles of deference in commercial arbitration proceedings:

1. Arbitration clauses explicitly stating that decisions are “final and binding” and “not subject to appeal” can be effective tools to foreclose appellate review of arbitration awards.
2. Varying procedural aspects of an arbitration agreement through an arbitrator’s terms of appointment will not override an arbitration agreement as a whole.
3. Courts will be reluctant to find extricable questions of law in relation to contractual interpretation questions, given their fact-specific nature.

Although the outcome was to a large extent driven by section 45 of the Ontario Arbitration Act, the same principles are likely to apply in British Columbia since section 59 of the British Columbia Arbitration Act, SBC 2020, c 2 similarly permits parties to contract out of the ability to appeal an arbitral award on a question of law. However, in Alberta, section 44(2) of the Alberta Arbitration Act, RSA 2000, c A-43 permits a party to appeal an award on a question of law, with the court’s permission, even if the arbitration agreement states that an appeal on a question of law is not permitted. As always, it is critical to review the relevant arbitration statute when assessing potential procedural and substantive rights related to challenging arbitral awards.

For more information, please contact the authors or any other member of our Arbitration or Litigation & Dispute Resolution groups.