Procedural Unfairness And The Limits Of Arbitrator Discretion

• Published date: 20 September 2023
• Subject Matter: Litigation, Mediation & Arbitration, Real Estate and Construction, Arbitration & Dispute Resolution, Real Estate
• Law Firm: Glaholt Bowles
• Author: Ms Patricia Joseph

The decision in Mattamy (Downsview) Limited v. KSV Restructuring Inc. (Urbancorp), 2023 ONSC 3013 [Mattamy] provides an insightful review of the limits of an arbitrator's discretion in decision making. It is also an instance where the Court takes the uncommon step of overturning an arbitration award and ordering a new hearing by a different arbitrator.

The key parties in this dispute were major residential developers Mattamy (Downsview) Limited and Urbancorp Downsview Park Development Corp. Together these companies formed a separate entity, Downsview Homes Inc., as the vehicle through which they would build a residential complex consisting of condominiums, townhomes, semi-detached homes and rental units.

When Urbancorp went insolvent, its 51% ownership interest in Downsview Homes Inc. was sold to Mattamy.

Within the context of Urbancorp's CCAA proceeding, a dispute arose concerning whether Urbancorp was entitled to a $5.9 million consulting fee from Mattamy. Urbancorp's position was that the consulting fee, a 1.5% fee of the gross receipts on the project, was payable prior to the sale of its interest in Downsview Homes Inc. On the other hand, Mattamy argued that Urbancorp was not entitled to the $5.9 million payout based on an interpretation of gross receipts per the partnership agreement that, for instance, included the revenues received from the sale of residential units.

Upon hearing each party's account of entitlement to the payout, the arbitrator came up with a series of question geared toward an issue that had not been addressed by either of the parties' filings. Namely, the arbitrator wanted to know the following:

1. What did the ASPE accounting principles require for the sale of residential condominium units?
2. How did the auditors on the project account for the sale of residential condominium units?
3. What was the closing status for [Phase 2] Block A and P units including dates of actual and anticipated closings?

These questions came as a surprise to Mattamy because there was no previous disagreement between the parties concerning the application of gross receipts for Phase 2 of the residential units. Urbancorp never claimed the sale of the Phase 2 units were deemed received prior to Urbancorp's sale of its interest to Mattamy. In other words, it appeared as if the arbitrator was making hay of a non-issue.

As requested, both parties nonetheless provided supplementary material on these questions. Mattamy included several supporting documents for...