Top 5 Civil Appeals - May 2012

Universal Settlements International Inc. v. Duscio, 2012 ONCA 215 (O'Connor A.C.J.O., Simmons J.A. and Perell J. (ad hoc)), April 4, 2012 MacGregor v. Potts, 2012 ONCA 226 (Feldman, MacPherson and Hoy JJ.A.), April 11, 2012 The Equitable Trust Company v. Marsig, 2012 ONCA 235 (O'Connor A.C.J.O., Simmons J.A. and Perell J. (ad hoc)), April 13, 2012 1420041 Ontario Inc. v. 1 King West Inc., 2012 ONCA 249 (Cronk and Blair JJ.A. and Strathy J. (ad hoc)), April 20, 2012 Dhingra v. Dhingra, 2012 ONCA 261 (Rosenberg, Cronk and Watt JJ.A.), April 24, 2012 1. Universal Settlements International Inc. v. Duscio, 2012 ONCA 215 (O'Connor A.C.J.O., Simmons J.A. and Perell J. (ad hoc)), April 4, 2012

The issue in this appeal was whether the application judge erred in setting aside an arbitrator's final award and three interlocutory orders, as well as ordering that the arbitrator be removed. The decision re-affirms the court's relatively limited scope for intervention in the arbitration process.

The case arose out of an arbitration pursuant to a shareholder agreement. The parties were: Universal Settlements International Inc. ("Universal"), a financial services company owned by Martina Capital Corporation ("Martina Capital"), whose principal was Duscio; The Brokerwise Group Inc. ("Brokerwise"), whose principal was Panos; and 1508211 Ontario Inc. ("1508211"), whose principal was Hallas.

The complicated procedural history began in November, 2006, when Hallas and Panos accused Duscio of misappropriating Universal's funds. Duscio responded by triggering the shotgun provision in the shareholder agreement. Hallas and Panos then commenced an action seeking, amongst other things, relief from oppression. The action was subsequently stayed and the dispute was submitted to arbitration pursuant to the shareholder's agreement.

Universal, Brokerwise and 1508211 were claimants in the arbitration against Duscio and Martina Capital. Pursuant to the arbitration agreement, the arbitrator was permitted to make interlocutory and final orders as if he were a judge of the Superior Court of Justice.

The arbitrator made an interim award allowing Brokerwise and 1508211 to purchase Duscio's and Martina Capital's interest in Universal. The parties subsequently entered into an escrow agreement requiring Brokerwise and 1508211 to pay the $1 million purchase price, to be held pending disposition of the arbitration.

The arbitrator also granted Duscio's and Martina Capital's motion seeking the release of part of the escrow funds to pay their lawyers as well as Duscio's living expenses. Brokerwise and 1508211 subsequently brought a motion seeking repayment of the funds, alleging that Duscio had led false evidence in support of the motion for release of the funds. When the repayment motion was argued, Duscio and Martina Capital were in bankruptcy, but orders had been made lifting the automatic stay of the arbitration.

At the repayment motion, Brokerwise and 1508211 asked the arbitrator to make a finding that Duscio and Martina Capital had obtained the funds fraudulently to ensure that any repayment order would survive the bankruptcies pursuant to s. 178(1) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3. The arbitrator directed that the funds released to Duscio and Martina Capital be repaid, but declined to make a finding of fraud. In their costs submissions, Brokerwise and 1508211 again asked the arbitrator to make a finding of fraud. The arbitrator awarded costs but once again declined to make such a finding. Duscio and Martina Capital then filed a court application to set aside the repayment order and costs award, and to have the arbitrator removed.

Meanwhile, in the context of the arbitration, Brokerwise and 1508211 brought a motion for an order striking Duscio's and Martina Capital's statement of defence on the basis of non-compliance with the repayment and costs orders. Duscio and Martina Capital argued that the arbitrator had no jurisdiction to enforce repayment, which was a matter for the Bankruptcy Court and trustees in bankruptcy. However, the arbitrator struck the statement of defence and noted Martina Capital and Duscio in default pursuant to Rule 60.12 of the Rules of Civil Procedure.

Duscio and Martina Capital then amended their notice of application to request that the order striking their statement of defence in the arbitration be set aside. At the same time, Brokerwise and 1508211 brought a motion without notice for a default award in the arbitration. That motion proceeded in the absence of Duscio and Martina Capital and the arbitrator found that Duscio had fraudulently converted money from Universal to his own use. He awarded damages of $5,511,160.85 and ordered that the escrow funds be paid to Universal.

Duscio and Martina Capital then further amended their notice of application requesting that the arbitrator's final award be set aside. The application ultimately came before Justice Lederer, who set aside the repayment order, the costs award, the order striking out the statement of defence and the final arbitral award. He also ordered that the arbitrator be removed. Brokerwise and 1508211 appealed, with leave, to the Court of Appeal.

Perell J., relying on the Court of Appeal's decision in Inforica Inc. v. CGI Information Systems and Management Consultants Inc., 2009 ONCA 642, held that the court does not have jurisdiction to overturn interlocutory orders of an arbitrator and that it was an error for the application judge to do so. He noted that judicial intervention in arbitrations is strictly limited to the circumstances identified in the Arbitration Act, 1991, S.O. 1991 c. 17, citing Sharpe J.A. in Inforica, who observed that the modern approach "sees arbitration as an autonomous, self-contained, self-sufficient process pursuant to which the parties agree to have their disputes resolved by an arbitrator, not by the courts".

With respect to the order striking out the statement of defence, Perell J. determined that different considerations applied because it was a final order. He found that the application judge had jurisdiction to set aside both the order striking out the statement of defence and the final award pursuant to s. 46(1)(6) of the Arbitration Act, which permits the court, on application, to set aside an award on the grounds (amongst others) that "[t]he applicant was not treated equally and fairly" or "was not given an opportunity to present a case or respond to another party's case".

Perell J. agreed with the application judge that the order striking out the statement of defence and the default arbitral award were unfair, since Duscio and Martina Capital were denied an opportunity to respond and because their compliance with the repayment order would not have been possible or lawful in light of the bankruptcies. Perell...