When Is It Too Late to Arbitrate?

Published on: February 2022 | What's Trending

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A recent judgment of the Court of Appeal dealt with the application of a limitation period to an agreement to arbitrate.

In Maisonneuve et al. v Clark et al. [February 8, 2022][1], the Court of Appeal upheld a lower court decision[2] that the limitation period did not start to run until after it was known, or ought to have been known, that one of the parties would no longer negotiate.

Since there is no standard form of arbitration agreement, this decision fell to the interpretation of the terms of the arbitration agreement. The Court of Appeal found that the application judge did not make any palpable or overriding errors that would warrant appellate intervention.

The agreement provided that “[i]f the parties are unable to resolve the Excluded Issue as between them, then the Excluded Issue shall be fully and finally referred to the Arbitrator for resolution.”

The lower court held that the arbitration was not barred by the basic limitation period of two years from when a claim is discovered in section 4 of the Limitations Act, 2002. Section 5 of that Act sets out rules for when a claim is discovered and includes a condition in s.5(1)(a)(iv) “that having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it”. The first three conditions in s.5(1)(a) had been met more than two years earlier. With respect to condition (iv), the lower court found that arbitration was not necessarily “appropriate” until it was clear that the dispute could not be resolved through negotiation. The Court of Appeal agreed that the inclusion of the word “then” created a temporal component that made the clause both temporal and conditional. In this case, an attempt at a negotiated resolution was a prerequisite to arbitration.

The lower court differentiated the arbitration agreement at hand from that in Markel Insurance Company of Canada v. ING Insurance Company of Canada[3]. The Markel decision related to the statutory arbitration provision in s.275(4) of the Insurance Act, R.S.O. 1990, c.I.8, which provided that “[i]f the insurers are unable to agree with respect to indemnification under this section, the dispute shall be resolved through arbitration under the Arbitration Act”. The Court of Appeal had decided in Markel that negotiation was not a precondition to arbitration under the terms of that section of the Insurance Act. Note, “then” does not appear in that section.

Markel was also differentiated in that the Markel decision related to the interpretation of a statute and, as a statute, the interpretation is a question of law. The lower court referred to Sattva[4], in deciding that interpretation of a contract is different, “the court’s unique focus is the discernment of the parties’ intent at the time they reached their agreement”.

The appellant argued that the lower court decision will lead to uncertainty with respect to the application of limitation periods because it is difficult to ascertain when negotiations are at an end. The Court of Appeal held that “[p]arties are free to agree to arbitration clauses that make no reference to the possibility of an informal agreement or that are more specific about the steps and timing leading to arbitration. In this case, as stated by the application judge, it was open to the appellants to let the respondents know at any time that no further negotiations would take place.”

I expect that it will still fall to the arbitrator to determine whether the underlying claim relating to the Excluded Issue is barred by the basic two-year limitation period.

[1] 2022 ONCA 113 (CanLII) https://canlii.ca/t/jm87m

[2] 2021 ONSC 1960 (CanLII) https://canlii.ca/t/jdr03

[3] 2012 ONCA 218 (CanLII), 109 OR (3d) 652 https://canlii.ca/t/fqvv7

[4] Sattva Capital v. Creston Moly, 2014 SCC 53 (CanLII), [2014] 2 SCR 633 https://canlii.ca/t/g88q1