In Baffinland Iron Mines LP v. Tower-EBC G.P., S.E.N.C., the Ontario Court of Appeal (the “ONCA”) has confirmed that “finally settled” by arbitration means the same thing as “final and binding”, and that both phrases may preclude appeals under the Ontario Arbitration Act, 1991, S.O. 1991, c. 17 (the “Act”). The decision, among other things, provides welcome guidance on the scope of appeal rights in domestic arbitrations and reaffirms the willingness of courts to respect the parties’ choice to proceed by arbitration.

Background

In 2017, Baffinland Iron Mines LP (“Baffinland”) and Tower-EBC (“TEBC”) entered into two contracts pursuant to which TEBC was to perform earthworks for Baffinland’s construction of a railway (the “Contracts”).

In the event of a dispute between the parties, the Contracts provided three avenues for resolution:

• the dispute could be settled amicably;
• the dispute could be referred to a Dispute Adjudication Board (“DAB”), the decisions of which would, in certain circumstances, be “final and binding”; and
• if the dispute was not settled amicably or by means of a final and binding DAB decision, it was to be “finally settled” by arbitration. [s. 20.6]

The Contracts also incorporated Rule 35(6) of the Rules of Arbitration of the International Chamber of Commerce (“ICC Rules”), which provides that:

Every award shall be binding on the parties. By submitting to arbitration under the Rules, the parties’ undertaking to carry out any award without delay and shall be deemed to have waived their right to any form of recourse insofar as such waiver can validly be made.

Neither of the Contracts expressly addressed appeals from an eventual arbitral award.

In 2018, following some unexpected delays, Baffinland decided to terminate the Contracts. TEBC commenced an arbitration proceeding challenging Baffinland’s right to terminate and seeking damages arising from the termination.

An arbitration took place pursuant to the ICC Rules before a three-member tribunal (the “Tribunal”). In December 2020, the Tribunal found in favour of TEBC and the majority awarded TEBC damages of over $70M (the “Award”).

Baffinland brought an application before the Ontario Superior Court of Justice (“ONSC”) seeking, among other things, an order granting it leave to appeal the Award under s. 45(1) of the Act on the basis that the Tribunal committed errors of law.^[1]

The Ontario Superior Court of Justice denies leave to appeal

The preliminary question before the ONSC was whether the Contracts precluded an appeal on questions of law. The application judge accepted TEBC’s argument that the parties had contracted out of all rights of appeal, stating that disputes would be “finally settled” by arbitration, as well as by having incorporated Rule 36(5) of the ICC Rules into the Contracts.

The application judge rejected Baffinland’s argument that since the Contracts used “final and binding” (a phrase recognized as precluding appeals) in relation to the DAB decisions, by using “finally settled” in relation to arbitration, the parties must have intended a different meaning for the latter. Rather, the application judge found that both phrases have the same meaning, precluding appeals. Accordingly, the application judge held that there could be no appeal of the Award on a question of law, and Baffinland’s application for leave to appeal was dismissed.

Baffinland appealed the ONSC’s denial of leave to the ONCA pursuant to s. 49 of the Act, which provides that a decision of the ONSC on an appeal or a set-aside application may be appealable to the ONCA with leave of that court. TEBC argued that s. 49 does not contemplate an appeal from a decision on a leave application and sought to quash Baffinland’s appeal.

Decision of the Ontario Court of Appeal

The ONCA dismissed TEBC’s motion to quash; however, it ultimately dismissed Baffinland’s appeal, concluding that the application judge did not err in interpreting the arbitration agreement as precluding appeals on questions of law.

Motion to quash

The ONCA dismissed TEBC’s motion to quash, finding that where the ONSC declines to consider the merits of an application for leave to appeal (as the application judge had in this case on the basis that the arbitration agreement precludes appeals), an appeal to the ONCA is available.

The presumption of consistent expression

Baffinland had argued that the application judged failed to properly apply the contractual principle known as the presumption of consistent expression (which presumes that language in a contract is used consistently, with the same words meaning the same thing and, by corollary, the use of different words indicating an intention to refer to different things). Specifically, Baffinland claimed that because the Contracts referred to “final and binding” in relation to some decisions of the DAB but used “finally settled” in respect of arbitrations, applying the presumption of consistent expression required giving “finally settled” a different meaning.

The ONCA disagreed. The ONCA began its analysis by drawing on the Supreme Court of Canada’s guidance in Sattva Capital Corp. v. Creston Moly Corp. and the principle that contractual interpretation is not to be dominated by technical rules of construction. While recognizing that the presumption of consistent expression may help illuminate the parties’ intention, the ONCA ultimately found that the presumption of consistent expression should not be seen to bar the use of differently worded but mutually reinforcing phrases that can only be understood to have the same meaning.

The ONCA concluded that the phrase “final and binding” in an arbitration agreement precludes appeals because of the word “final” and that a different phrase that contains “final” will convey the same meaning so long as the additional words don’t materially modify it. Examining the phrase “finally settled” in this case, the ONCA therefore held that the word “settled”, like “conclusive” or “binding”, reinforces the meaning of final – it does not alter it.

The ONCA also rejected Baffinland’s argument that Rule 35(6) of the ICC Rules (i.e., “award shall be binding”) was inconsistent with the phrase “finally settled”, noting that:

Before the interpretive principles concerning reconciling apparently inconsistent terms are to be applied, the terms must be apparently inconsistent in the sense, for example, of one appearing to say “yes” while the other appears to say “no” to the same question…. The application judge, however, held that the terms were not inconsistent, and there was no error in that finding. As noted above, s. 20.6 of the [C]ontracts was properly interpreted to preclude appeals, just as the wording of ICC Rule 35(6) does. To the question of whether appeals are permitted, both provisions give the same answer: no, they are precluded. [Emphasis added]

Key Takeaways

• Even if the phrase “finally settled” by arbitration and “final and binding” are used within the same arbitration agreement, there is no distinction between them and both phrases may preclude appeals from an arbitration award in Ontario.
• The decision highlights the willingness of Ontario courts to respect the parties’ decision to arbitrate while reminding us that parties should be careful about the words that they use in arbitration agreements regarding the finality of arbitration awards. For instance, parties wishing to ensure that an arbitral award is appealable on errors of law would, in light of this decision, be well advised to expressly state so in the arbitration agreement.
• Parties to an arbitration agreement should carefully consider all implications of their choice of arbitration rules. For example, the adoption of the ICC Rules by the parties in this case may have made it easier for them to contract out of appeal rights.
• The decision reinforces that an appeal to the ONCA is available with leave under s. 49 of the Act where the ONSC declines to consider the merits of an application for leave to appeal. In contrast, an appeal may not be available where the ONSC denies leave after having considered the application on its merits.

[1] Section 45(1) of the Act provides that if an 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, which the court shall grant only if it is satisfied that, a) the importance to the parties of the matters at stake in the arbitration justifies an appeal; and b) determination of the question of law at issue will significantly affect the rights of the parties.