



COURT OF APPEAL FOR ONTARIO

CITATION:
    Alectra Utilities Corporation v. Solar Power Network Inc., 2019 ONCA 254

DATE:
    20190402

DOCKET:
    C65868 and M49635

Hourigan,
    Benotto and Huscroft JJ.A.

BETWEEN

Alectra
    Utilities Corporation

Applicant
    (Respondent)

and

Solar
    Power Network Inc.

Respondent
    (Appellant)

Simon
    Bieber and Nathaniel Read-Ellis, for the appellant

Gavin
    MacKenzie and Brooke MacKenzie, for the respondent

Heard:
    February 22, 2019

On
    appeal from the order of Justice Herman J. Wilton-Siegel of the Superior Court
    of Justice, dated August 17, 2018, with reasons reported at 2018 ONSC 4926.

Huscroft J.A.:

OVERVIEW

[1]

The parties
    agreed to arbitrate their contractual dispute under the
Arbitration Act,
    1991
, S. O. 1991, C. 17

(the
Arbitration Act, 1991
 or
    the Act). Following a seven-day hearing, the arbitrator found that Alectra
    Utilities Corp. (the respondent) unlawfully terminated its contract with the
    Solar Power Network Inc. (the appellant) and awarded $12.3 million in damages.

[2]

The
    arbitrators award was supposed to be final: the parties chose not to establish
    a right of appeal on any basis from the arbitrators award. The respondent brought
    an application to set aside the arbitrators award under s. 46(1)3 of the
Arbitration
    Act, 1991
, arguing that it was made in excess of the arbitrators
    jurisdiction. The application judge accepted this argument and set aside the
    award.

[3]

As I
    will explain, the application judge erred in doing so. The arbitrators award
    must be reinstated.

[4]

I
    would allow the appeal for the reasons that follow.

BACKGROUND

The Facts

[5]

The
    facts in this matter may be stated briefly. A fuller recitation of the facts is
    found in paras. 2-13 of the application judges decision. The relevant
    contractual provisions are set out in an appendix to this decision.

[6]

The
    parties entered into a purchase and management agreement (the PAMA) pursuant
    to which the respondent was to finance the construction of solar power projects.
    The projects were to be developed and operated by the appellant pursuant to a
    provincial program known as the Feed in Tariff program (the FIT program). The
    appellant would apply for contracts from the Ontario government and would earn income
    by receiving revenue on account of construction and operational and maintenance
    services, in addition to a share of residual profits.

[7]

On
    June 29, 2016, the parties were awarded 69 contracts in the fourth round of the
    FIT program. The respondent proposed to purchase the appellants interest in
    the venture and negotiations went on during the summer of 2016. No agreement
    was reached. On September 14, 2016 the respondent issued a Defunct Project
    Notice in respect of all 69 contracts, purportedly exercising its discretion
    to end the agreement. Delivery of the Defunct Project Notice had the effect of
    terminating the parties relationship, thus depriving the appellant of the
    value of the contracts that they had been awarded.

[8]

The
    appellant invoked the arbitration clause in the PAMA, challenging the
    respondents right to deliver the Defunct Project Notice and seeking $19.5
    million in damages for lost profit for the alleged breach of the PAMA. The
    respondent counterclaimed for recovery of amounts paid to the appellant.

The arbitrators decision

[9]

The
    arbitrator found that although the respondent had the ability to deliver a
    Defunct Project Notice in its sole discretion under the PAMA, that discretion
    had to be exercised in good faith. The respondent could not rely on the
    allegation that certain conditions precedent could not be satisfied because it
    had not fulfilled its obligation to use commercially reasonable efforts to
    finalize the required documents. The arbitrator found, further, that the
    respondents statement that the economic return was insufficient was not an
    honest one, as no attempt had been made to calculate the rate of return, and
    that the respondents assertion that it did not wish to develop the projects
    was untrue in light of its ongoing negotiations to purchase the appellants
    interest in the projects.

[10]

The arbitrator
    rejected the respondents argument that the appellant was barred by the terms
    of the PAMA from claiming lost profits as damages. Article 5 of the PAMA required
    each party to indemnify the other with respect to breaches of covenants, but
    also provided that the indemnifier shall not be liable for damages for lost
    profit. The arbitrator found that the appellants claim was not for breach of a
    covenant  it was for improper exercise of the right to issue Defunct Project
    Notice. The arbitrator concluded that he could award lost profits because the
    resolution process for indemnity claims under the PAMA was separate from the
    arbitration process, which contemplated the award of damages without regard to
    the more limited conception of damages that applied in the indemnity claims
    resolution process. The arbitrator awarded the appellant $12,337,655 in damages
    plus interest.

The applications

[11]

The appellant brought
    an application to enforce the arbitrators award under s. 50 of the
Arbitration
    Act, 1991
. The respondent brought an application to set aside the award,
    relying in particular on s. 46(1)3 of the Act. That subsection provides that
    the court may set aside an arbitration award if:

The award deals with a dispute that
    the arbitration agreement does not cover or contains a decision on a matter
    that is beyond the scope of the agreement.

The application judges decision

[12]

The application judge noted
    that the PAMA provided that there was to be no appeal from the determination of
    an arbitrator to the court. However, he described the issues raised on the
    application as jurisdictional in nature and stated that interpretation of the PAMA
    was necessary in order to resolve them. The application judge considered the
    standard of review under s. 46(1)3. Although he was inclined to the view that
    the appropriate standard was reasonableness rather than correctness, he found
    it unnecessary to determine the matter because he would reach the same decision
    regardless of which standard applied.

[13]

The application judge
    found that the arbitrator did not exceed his jurisdiction in concluding that
    the agreement imposed a duty of good faith on the respondents exercise of its
    discretion to issue a Defunct Project Notice. The arbitrator was required to
    interpret the relevant provision of the PAMA (s. 2.8) in order to determine
    whether he had jurisdiction to hear the issue, and his interpretation was not
    only reasonable but also correct.

[14]

However, the
    application judge concluded that the arbitrators determination that he could
    award damages for loss of profits was unreasonable because it was based on two
    unreasonable findings. First, the arbitrator unreasonably found that the
    limitation on damages in s. 5.3(3) of the PAMA did not limit his authority to
    award damages under the arbitration agreement set out in s.7.1. Second, the
    arbitrator unreasonably found that the appellants claim for breach of the duty
    of good faith was not a breach of a covenant within s. 5(2) of the PAMA. The
    application judge outlined his conclusion at paras. 62 and 63 as follows:

[T]he arbitrators interpretation of the PAMA to the effect
    that PowerStreams [a predecessor of Alectras] actions did not constitute a
    breach of a covenant described by section 5.2(b) of the PAMA to which the
    provisions of section 5.3(3) applied was unreasonable. Under the PAMA, SPNs
    claim falls squarely within the provisions of section 5.2(b) as a claim based
    on a breach of a covenant on the part of PowerStream contained in the PAMA.
    While such claim is arbitrable under Article 7, as there is no separate dispute
    resolution process for claims asserted under sections 5.4 and 5.8, it is
    subject to the monetary limitations in section 5.3(3).

Accordingly, I conclude that the arbitrator lacked the
    jurisdiction under the PAMA to award SPN damages for its loss of profits. I
    therefore also conclude that, in awarding such damages, the arbitrator made a
    decision on a matter that was beyond the scope of the PAMA for the purposes of
    s. 46(1)3 of the Act.

The positions of the parties

[15]

The appellants
    principal argument focuses on s. 46(1)3 of the
Arbitration Act, 1991
,
which the appellant says permits intervention by the courts only on
    jurisdictional issues. The court has to be satisfied as a threshold matter that
    an application to set aside an award raises a true question of jurisdiction,
    which according to the appellant arises only if the arbitrator exceeds the
    limits of his decision-making authority.

[16]

The application judge
    erred, the appellant says, by failing to appreciate the distinction between
    narrow review on a true question of jurisdiction and a broader review on the
    merits. As a result, the application judge launched into a review of the merits
    of the arbitrators decision and ended up impermissibly substituting his
    interpretation of the agreement for that of the arbitrator. This, according to
    the appellant, had the effect of converting a limited review on a question of
    true jurisdiction into an appeal on a question of mixed fact and law, an error
    the appellant submits is dispositive of the appeal.

[17]

The respondent says
    that determining an arbitrators jurisdiction necessarily involves contractual
    interpretation because the contract is the source of an arbitrators
    jurisdiction. The fact that contractual interpretation is required in order to
    determine a question of jurisdiction does not turn the inquiry into a review of
    the arbitrators decision on the merits.

[18]

The respondent relies
    on the decision of this court in
Mexico v. Cargill, Incorporated
, 2011 ONCA 622, 107 O.R. (3d) 528,
for the
    proposition that the arbitrator had to correctly identify the jurisdictional
    limits on his ability to award damages. In that case, at para. 52, the court
    set out the proper approach in determining whether an arbitration award goes
    beyond the scope of a tribunals jurisdiction as involving three questions,
    which the respondent paraphrased as follows:

a)

What was the issue that the arbitral tribunal decided?

b)

Was that issue within the submission to arbitration?

c)

Is there anything in the arbitration agreement, properly
    interpreted, that precluded the tribunal from making the award?

[19]

The respondent says
    that, properly interpreted, the arbitration agreement in this case was
    subject to other provisions of the PAMA that not only precluded the arbitrator
    from determining a dispute arising out of the delivery of a Defunct Project
    Notice (s. 2.3(8)), but also precluded the award of damages for lost profits in
    any event (s. 5.3(3)).

DISCUSSION

The role of the court under the
Arbitration Act, 1991

[20]

The
    starting point in exercising the courts role under the
Arbitration Act
,
1991
is the recognition that appeals from private arbitration decisions are
    neither required nor routine. Section 45 of the Act makes clear that the
    parties are free to establish or to preclude an appeal to the court on a
    question of law, fact, or a mixed question of law and fact. If the arbitration
    agreement is silent on this point, an appeal to the court on a question of law
    lies only with leave, which may be granted only if the court is satisfied that
    the matter is sufficiently important to justify an appeal and that
    determination of the question of law at issue will significantly affect the
    rights of the parties.

[21]

In
    this case the parties  sophisticated commercial parties represented by counsel
     chose not only to resolve their contractual dispute by arbitration rather
    than litigation, but also to preclude appeals to the court. Section 7.8(1) of
    the PAMA provides as follows:

There shall be no appeal from the determination of the
    arbitrator to any court. Judgment upon any award rendered by the Arbitrator may
    be entered in any court having jurisdiction thereof.

[22]

There is no ambiguity
    here: there is no appeal to the court, period. The arbitrators determination
    is final and binding.

[23]

Accordingly, the only
    basis for the respondent to challenge the award was under s. 46(1) of the
Arbitration
    Act, 1991
, which authorizes the court to set aside an arbitration award on
    the limited and specific grounds it enumerates. A court may set aside an
    arbitration award if:

1. A party entered into the arbitration agreement while under a
    legal incapacity.

2. The arbitration agreement is invalid or has ceased to exist.

3. The award deals with a dispute that the arbitration
    agreement does not cover or contains a decision on a matter that is beyond the
    scope of the agreement.

4. The composition of the arbitral tribunal was not in
    accordance with the arbitration agreement or, if the agreement did not deal
    with that matter, was not in accordance with this Act.

5. The subject-matter of the dispute is not capable of being
    the subject of arbitration under Ontario law.

6. The applicant was not treated equally and fairly, was not
    given an opportunity to present a case or to respond to another partys case,
    or was not given proper notice of the arbitration or of the appointment of an
    arbitrator.

7. The procedures followed in the arbitration did not comply
    with this Act.

8. An arbitrator has committed a corrupt or fraudulent act or
    there is a reasonable apprehension of bias.

9. The award was obtained by fraud.

10. The award is a family arbitration award that is not
    enforceable under the
Family Law Act
.

[24]

These grounds for
    setting aside an arbitration award are, in general, not concerned with the substance
    of the parties dispute. They concern issues such as the establishment and
    composition of the arbitration tribunal, compliance with Ontario law, and the
    requirements of procedural fairness.

[25]

Although the court
    cannot apply s. 46(1)3 without having regard to an arbitrators decision, the
    courts authority to set aside an arbitration award under that subsection
    depends

on the mandate the

arbitration agreement

confers
    on the arbitrator to resolve a particular dispute. In order to succeed on an
    application to set aside an arbitration award, an applicant must establish either
    that the award deals with a dispute that the arbitration agreement

does
    not cover

or contains a decision on a matter that is beyond the scope of

the arbitration agreement.

[26]

For example, if an
    arbitration agreement provides that an arbitrator shall resolve a particular
    question and the arbitrator does so, the court has no authority to set aside
    the award on the basis that the arbitrators decision is unreasonable or
    incorrect. If, however, in the course of resolving the particular question
    remitted the arbitrator asks and answers an additional second question, the
    award may be set aside  not because the arbitrators answer to the second
    question is unreasonable or incorrect, but because the arbitrator had no
    authority to reach
any
conclusion on the second question at all.

[27]

In short, s. 46(1)3
    requires that arbitrators act within the bounds of the authority granted by the
arbitration agreement
pursuant to which they are appointed  no less,
    but no more. Section 46(1)3 is
not
an alternate appeal route and must
    not be treated as such.

The concept of jurisdiction

[28]

The parties agree that
    s. 46(1)3 allows review for jurisdictional error  true jurisdictional error,
    as they describe it  but they disagree on what jurisdictional error is and how
    it is properly established. There should be no surprise in this. The difficulty
    in identifying jurisdictional error is well known.

[29]

Jurisdictional error
    has a long and controversial history in Canadian administrative law that need
    not be recounted here. Suffice it to say that, historically, the courts often
    exercised their judicial review authority to interfere in matters that were
    committed by the legislature to determination by administrative tribunals. In
C.U.P.E.
    v. N.B. Liquor Corporation
, [1979] 2 S.C.R. 227 at p. 233, Dickson J.
    admonished courts not to do so:

The question of what is and is not jurisdictional is often very
    difficult to determine. The courts, in my view, should not be alert to brand as
    jurisdictional, and therefore subject to broader curial review, that which may
    be doubtfully so.

[30]

But this proved easier
    said than done, and the concept of jurisdiction has continued to bedevil
    Canadian law despite Dickson J.s admonition. That is so because, as Lord
    Denning explained in
Pearlman v Keepers and Governors of Harrow School
,
    [1978] EWCA Civ 5, the distinction between an error that is jurisdictional in
    nature  which justifies judicial intervention  and an error made
within
jurisdiction  which does not  is so fine as to be manipulable. The same
    matter can be characterized as jurisdictional or non-jurisdictional depending
    on whether one seeks to intervene or defer.

[31]

So it is here.

[32]

The respondent says
    that the arbitrator had no jurisdiction to award damages for lost profits
    because the arbitrators authority was limited by the terms of the PAMA, which
    precluded liability for such damages. The appellant says that the arbitration
    agreement gave the arbitrator jurisdiction to interpret and apply the terms of
    the PAMA, so whether any terms of the PAMA precluded damages for lost profits
    was for the arbitrator to determine.

[33]

The problem with the respondents
    argument is plain: given that an arbitrators authority stems from the
    agreement pursuant to which he or she is appointed,
any
unreasonable or
    mistaken interpretation of that agreement could be characterized as resulting
    in an excess or loss of jurisdiction. On this approach, arbitration awards that
    are not subject to appeal would, nevertheless, be vulnerable to being set aside
    for jurisdictional error. In effect, arbitrators would have only the
    jurisdiction to make awards that are reasonable or correct.

[34]

This is not the law in
    Ontario. The role of courts in addressing claims of jurisdictional error in the
    context of private arbitration is far more limited than the respondent would
    have it.

The application judge erred in setting aside the
    arbitrators award

[35]

In order to set aside
    the arbitrators award, the application judge was required to find either that
    the award dealt with a matter not covered by the arbitration agreement or
    included a decision on a matter beyond the scope of the agreement. Interpretation
    of the arbitration agreement, set out in s. 7 of the PAMA, was key to applying
    s. 46(1)3.

[36]

Section 7.1 provides
    as follows:

Subject to and in accordance with the provisions of
    this Article 7,
any and all differences
, disputes, claims or
    controversies between the Vendor and the Purchaser
arising out of or in any
    way connected with this Agreement
, whether arising before or after the
    expiration or termination of this Agreement, and
including, its negotiation,
    execution, delivery, enforceability, performance, breach, discharge,
    interpretation and construction, existence, validity and any damages resulting
    therefrom or the rights, privileges, duties and obligations of the parties
    under or in relation to this Agreement (including any dispute as to whether an
    issue is arbitrable)
(a Dispute) shall be resolved [sic] the manner
    described in this Article 7. (emphasis added)

[37]

The terms of s.7.1 are
    broad and general in nature, and make clear that the arbitrator had the
    authority to resolve any and all differences arising out of or in any way
    connected with the agreement, including  performance, breach  and any
    damages resulting therefrom.

[38]

Despite the broad
    wording of the arbitration agreement in s. 7.1, the application judge proceeded
    on the basis that the arbitrators jurisdiction depended upon the proper
    interpretation of sections 2 and 5 of the PAMA. The application judge stated,
    at para. 54, that: jurisdiction exists only to the extent that such an award
    would not contravene any other provision of the PAMA.

[39]

With respect, this is
    a mistake. It is exactly the problem I outlined above: it is a conclusion that
    an arbitration award that is not subject to appeal must be set aside because,
    in essence, the arbitrator had only the jurisdiction to make an award that is
    reasonable or correct. This mistake renders the application judges decision
    interpreting and applying s. 46(1)3 indistinguishable from the sort of decision
    that might have been made if the arbitrators decision had been subject to a
    right of appeal. It fails to recognize the distinction between having
    jurisdiction to award damages and making an error in the exercise of that
    jurisdiction.

[40]

Neither s. 2 nor s. 5
    of the PAMA limited the scope of the arbitrators authority in the manner
    contemplated by s. 46(1)3. The arbitrator did exactly what he was authorized to
    do by the terms of the arbitration agreement: he resolved the parties dispute
    concerning the alleged breach of their agreement and awarded damages.

[41]

Once the application
    judge concluded that the arbitrator acted within the authority conferred upon
    him by the arbitration agreement, his task was at an end. It was for the
    arbitrator, not the court, to interpret and apply the substantive provisions of
    the PAMA, and it is of no moment whether the arbitrator did so reasonably or
    unreasonably, correctly or incorrectly. The decision was the arbitrators to
    make. The application judges conclusion that the arbitrators interpretation
    of the agreement was both unreasonable and incorrect had the effect of converting
    s. 46(1)3 into an appeal on a mixed question of fact and law  an appeal the
    parties deliberately chose not to establish.

[42]

The application
    judges approach is not mandated by this courts decision in
Cargill
,
    an arbitration under the North American Free Trade Agreement. That case concerned
    international arbitration, rather than arbitration under the
Arbitration Act,
    1991
, and the court was at pains to emphasize that in determining
    jurisdictional questions the court is to avoid a review of the merits (at
    para. 53)  the very thing the court failed to do in this case.

[43]

It is important to
    emphasize that s. 46(1)3 allows only for limited review for jurisdictional
    error. As this court said in
Smyth v. Perth and Smiths Falls District
    Hospital
, 2008 ONCA 794, 92 O.R. (3d) 656, at para. 17, s. 46(1)3 sets out
    a jurisdictional question that must be answered correctly. It neither requires
    nor authorizes review of the substance of an arbitrators award.

[44]

For greater certainty I
    would add this: once the jurisdictional question is answered, in the absence of
    a right of appeal pursuant to s. 45 the court has no authority to go on to
    review the arbitrators award for reasonableness.
Smyth
is not to be
    read as authority to the contrary. The basis for the courts decision is not
    set out and its comments must be regarded as obiter.

CONCLUSION

[45]

I would allow the
    appeal and reinstate the arbitrators award.

[46]

The appellant is
    entitled to costs on the appeal, including the leave motion, in the agreed
    amount of $25,000, and costs of $20,000 on the application, both amounts
    inclusive of taxes and disbursements.

Released:
    April 2, 2019 (C.W.H.)

Grant Huscroft J.A.

I agree. C.W. Hourigan
    J.A.

I agree. M.L. Benotto J.A.



Appendix

2.3(3) if the Purchaser
    determines, in its sole discretion, that:

(A)     it does not wish to continue to develop one
    or more Projects,

(B)     that one or more Projects cannot generate an
    economic return sufficient for the Purchaser to achieve the Target IRR, or

(C)     one or more of the conditions precedent set
    forth in Section 2.5(1) that have been inserted for the benefit of the
    Purchaser are not capable of being satisfied on or before the Longstop Date,

then in any
    such case the Purchaser may deliver written notice to the Vendor:

(a)     advising that the Purchaser deems each such
    Project(s) a Defunct Project and reasonably detailed reasons therefor; and

(b)     if such written notice is delivered before
    the Closing Date, directing the Vendor to either (at the Purchasers option):

(i)      within one hundred eighty (180) days
    following receipt of the Defunct Project Notice  Purchaser, pay to the
    Purchaser the product obtained when $0.10/w DC is multiplied by the Estimated
    Capacity of the Project, or

(ii)      immediately assign and transfer to the
    Purchaser Compensatory Leases with a deemed value equivalent to the amount
    calculated pursuant to (i);



2.3(8) for greater certainty,
    the delivery or [sic] a Defunct Project Notice  Purchaser or Defunct Project
    Notice  Vendor, as the case may be, shall not be subject to dispute by the
    receiving Party. Each Party hereby acknowledges and agrees with the other:

(a)     that this Agreement has been executed and
    delivered in strict reliance upon this Section 2.3(8), and that the breach of
    the same may result in substantial damage and irreparable harm to the
    delivering Party, both financial and otherwise; and

(b)     to the granting of interim or permanent
    injunctive or other equitable relief in favour of the delivering Party, without
    proof of actual damages, in addition to any other remedy to which the
    delivering Party may be entitled.



5.2 Each Party (an
    Indemnifier) shall indemnify the other Party (together with its directors,
    officers, employees, Affiliates and agents, collectively, the Indemnified
    Party) and defend and save the Indemnified Party fully harmless against, and
    will reimburse them for, any Damages arising from, in connection with or
    related in any manner whatsoever to:

(a)     any inaccuracy or misrepresentation in any
    representation or warranty of the Indemnifier contained in this Agreement; and

(b)     any breach of any covenant on the part of the
    Indemnifier contained in this Agreement.

5.3(1) Subject to Section
    5.3(2), the maximum aggregate liability of either Party herein shall not exceed
    the total potential Consideration payable hereunder.

(2) Section 5.3(1) shall not
    apply to claims for indemnification made by the applicable Indemnified Party
    against the applicable Indemnifier in respect of:

(a)     any inaccuracy or misrepresentation in any of
    the Fundamental Representations; or

(b)     any inaccuracy or misrepresentation in any
    representation or warranty of the Indemnifier arising as a result of fraud or
    willful misconduct of the Indemnifier.

(3) Notwithstanding any other
    provision of this Agreement, the Indemnifier shall not be liable for any Claims
    by an Indemnified Party for consequential, special, incidental or punitive
    damages, including damages for loss of profit or lost opportunity suffered by
    such Indemnified Party.

5.4 If an Indemnified Party
    becomes aware of any act, omission or state of facts that may give rise to
    Damages in respect of which a right of indemnification is provided for under
    this Article 5, the Indemnified Party shall promptly give written notice
    thereof (a Notice of Claim) to the applicable Indemnifier. Such notice shall
    specify whether the potential Damages arise as a result of a claim by a Person
    against the Indemnified Party or any of its successors (a Third Party Claim)
    or whether the potential Damages do not so arise (a Direct Claim), and shall
    also specify with reasonable particularity (to the extent that the information
    is available):

(a)     the factual basis for the Direct Claim or the
    Third Party Claim, as the case may be; and

(b)     the amount of the potential Damages arising therefrom,
    if known.



5.8 With respect to a Direct
    Claim, the Indemnifier shall have a period of 10 Business Days from receipt of
    a Notice of Claim in respect thereof within which to investigate and respond to
    the Indemnified Party in writing to such Direct Claim. If the Indemnifier does
    not so respond within such period, the Indemnifier shall be deemed to have
    rejected such Direct Claim, in which event the Indemnified Party shall be free
    to pursue such remedies as may be available to it pursuant to this Agreement.



7.2 In the event of a
    Dispute, upon written notice from one party to the other parties of such
    Dispute (a Dispute Notice), the senior management personnel from all parties
    shall meet and diligently attempt in good faith to resolve the Dispute for a
    period of thirty (30) days following the receipt of such Dispute Notice. If any
    party refuses or fails to meet, or the Dispute is not resolved by negotiation
    within the applicable time period, the Dispute may be referred by any party to
    arbitration under the

Arbitration Act
,
1991
(Ontario).


