‘Final And Binding’: Ontario Court Upholds Arbitral Award Despite Finding Error Of Law

Key takeaways

• The Ontario Superior Court upheld an arbitration award despite finding an error of law by the arbitrator in Tedescon Infrastructure Ltd. v. The County of Simcoe.
• The Court determined that the arbitration agreement’s clause stating the award was “final and binding” negated Tedescon’s right to appeal the award.
• Despite finding an error of law, the Court upheld the arbitrator’s award, emphasizing the importance of the parties’ choice to make arbitration final.

In its recent decision in Tedescon Infrastructure Ltd. v. The County of Simcoe (Tedescon), the Ontario Superior Court of Justice upheld an arbitration award in a construction dispute despite finding the arbitrator had committed an error of law. Specifically, the Court found that the arbitrator erred in finding that the contractor’s contractually-permitted work stoppage was nevertheless a repudiation of the contract entitling the owner to damages for the cost of a replacement contractor. However, the Court found that a clause in the parties’ arbitration agreement that arbitration was to be “final and binding” meant that it had no jurisdiction to hear the contractor’s appeal of the arbitration award.

Background

Tedescon concerned a 2020 contract from the County of Simcoe for reconstruction of a section of road, awarded to Tedescon Infrastructure Ltd. (Tedescon). The contract was a unit rate contract based on the Ontario OPSS.MUNI 100 standard form for public works construction contracts.

During the project, Tedescon submitted claims for compensation and extensions of time relating to change orders and alleged delays, a number of which had been rejected. Tedescon commenced arbitration of those claims in March 2022. The parties appointed an arbitrator and entered into an Arbitration Agreement based on the arbitrator’s standard form.

Nearly a year later, Tedescon served notice of default on the County alleging over 80 breaches of the contract and claiming that the contract administrator had failed to act impartially. Shortly after issuing the notice of default, Tedescon gave notice that it was exercising its right under GC 7.10 of the OPSS.MUNI 100 general conditions to suspend work until the County resolved the alleged breaches. The County responded with a letter stating that if Tedescon did not resume work, it would consider Tedescon to have abandoned the contract.

Tedescon did not return to work. Shortly afterward, the County awarded a contract to another contractor to complete Tedescon’s work. The parties amended their pleadings in the existing arbitration to include the issue of Tedescon’s alleged repudiation of the contract.

The arbitrator’s award

The arbitrator found that Tedescon’s work stoppage amounted to abandonment of the contract, and that Tedescon’s contractual right to stop work did not include a right to abandon the contract. The arbitrator held that Tedescon’s refusal to remobilize was therefore a repudiation of the contract, which the County accepted by replacing Tedescon with another contractor. The arbitrator awarded the County a net amount of $511,243.13.

Decision of the Ontario Superior Court of Justice

Tedescon applied to the Ontario Superior Court of Justice for leave to appeal the arbitrator’s award, as well as to set aside the award on grounds of lack of jurisdiction and procedural unfairness. The Court dismissed Tedescon’s application in its entirety.

The threshold issue on Tedescon’s application for leave to appeal was whether a right of appeal was available at all. The County argued that the arbitration agreement, which provided that arbitration decisions would be “final and binding,” precluded any appeal.

Section 45(1) of the Arbitration Act, 1991 provides that “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”. Section 3 of the Act permits parties to contract out of provisions of the Act, including the appeal rights in section 45(1). The Court noted that the Ontario Court of Appeal has interpreted sections 3 and 45(1) to mean that there is no right of appeal if the arbitration agreement expressly or impliedly precludes appeals.

The Court in Tedescon noted that the Ontario Court of Appeal has previously found that words similar to “final and binding” in an arbitration agreement can be sufficient to exclude rights of appeal. In Baffinland Iron Mines LP v. Tower-EBC G.P./S.E.N.C. (Baffinland), the Ontario Court of Appeal found that an arbitration agreement that provided for disputes to be “finally settled” by arbitration pursuant to the arbitration rules of the International Chamber of Commerce negated the right of appeal that would otherwise be available under section 45(1) of the Arbitration Act, 1991.

However, the Court in Tedescon also noted that in Denison Mines Ltd. v. Ontario Hydro (Denison Mines), a case in which the parties’ contract mandated arbitration but the parties nevertheless entered into a separate standalone arbitration agreement, the Ontario Court of Appeal found that similar “finally settled” language was not sufficient to exclude the right of appeal in section 45(1). In Denison Mines, the “finally settled” language was included in the parties’ contract, but not in the subsequent arbitration agreement. The Court found that the later arbitration agreement prevailed, with the result that the parties were free to apply for leave to appeal under section 45(1).

The Court in Tedescon applied Baffinland and distinguished Denison Mines, finding that the words “final and binding” in the arbitration agreement were sufficient to exclude any right of appeal. The Court held that the facts before it were “logically the reverse” of the facts of Denison Mines, because the mandatory arbitration clause in GC 3.14 of the OPSS.MUNI 100 general conditions expressly contemplates the existence of a separate arbitration agreement. As a result, the Court found that it was unnecessary to “agonize over the priority” of the two agreements, and that the “final and binding” language in the arbitration agreement prevailed.

The Court in Tedescon went on to say that if a right of appeal had been available, it would have granted leave to appeal and found an error of law in the arbitrator’s award. The Court held that the arbitrator made two incompatible findings. In the Court’s view, once the arbitrator had found that Tedescon was justified in exercising its contractual right to stop work, the arbitrator could not have found that Tedescon had repudiated the contract. The Court stated that justification for stopping work and abandonment are “two sides of the same coin”, and “it must land on one side or the other”. As a result, the Court found that Tedescon’s conduct could not have been an abandonment or repudiation of the contract.

The Court found that the case law relied upon by the arbitrator to find that Tedescon had abandoned the contract was inapplicable. The Court held that cases like D&M Steel Ltd. v. 51 Construction Ltd. stand for the principle that a contractor cannot refuse to perform work as leverage to force an owner to pay amounts that are not owed or have not yet become due. In contrast, the Court found that Tedescon’s exercise of its right to stop work was based on amounts that were already due, but not paid, by the County.

In the result, the Court dismissed Tedescon’s application and upheld the arbitration award, despite having found that the award was based on an error of law and that it would have otherwise replaced the $511,243.13 award in favour of the County with a $2,598,518.75 award in favour of Tedescon.

Considerations

Tedescon is a reminder that contractual language about the finality of arbitration, such as “final and binding”, can have significant consequences for a party’s ability to appeal an unfavourable award. Although eliminating rights of appeal might be desirable for some parties who may want to avoid the additional expense and potential delays to enforcement that could arise from appeals to the Court, that choice can lead to situations like Tedescon, in which a party may find itself without recourse even when the Court would otherwise agree with an unsuccessful party’s position.