Ontario Superior Court of Justice sets aside $12 million arbitration award and holds that arbitrator overstepped his bounds

In a recent Ontario Superior Court of Justice decision, the court set aside an arbitral award of over $12 million despite the fact that the arbitration clause in the agreement between the parties stated that there was no right of appeal. The court held that the arbitrator overstepped his boundaries and did not have jurisdiction under the arbitration provision to make his award.

In Alectra Utilities Corporation v. Solar Power Network Inc., 2018 ONSC 4926, two parties entered into a development agreement, which provided that: all disputes between the parties would be resolved by arbitration and that the result of such arbitration was final and could not be appealed. The agreement also provided that no party was to be liable for damages for loss of profit or loss of opportunity.

A dispute arose between the parties, the parties engaged in an arbitration to resolve the claim for damages.  The arbitrator, the Honourable Frank Newbould, allowed the claim and ordered payment of damages in the amount of $12 million. The damages award included an amount for anticipated lost profits, despite the terms of the development agreement.

The losing party applied to the Court to have the award set aside of the basis that the arbitrator exceeded his jurisdiction.  The Court set aside the arbitral award on the basis that the arbitrator wrongfully made a decision that overstepped his bounds.

The Facts

In 2015, Solar Power Network Inc. (the “Vendor”) and Alectra Utilities Corporation’s predecessor, PowerStream Inc. (the “Purchaser”) entered into an agreement to participate in a round of contracts to be awarded pursuant to the Government of Ontario’s Fee-In Tariff Programme (the “Agreement”).

A section in the Agreement stated that the Purchaser had the right to deliver a Defunct Project Notice if the Purchaser determined that: (a) it did 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 its targets; or (c) one or more of the condition precedents set forth in the Agreement are not capable of being satisfied.

The Agreement stated that if any differences, disputes, claims or controversies between the parties could not be resolved by negotiation, the dispute could be referred by either party to arbitration. The section also stated that any decision made by the arbitrator would be final, binding and not subject to any appeal.

In 2016, the Purchaser delivered a defunct project notice to the Vendor deeming each of the projects a defunct project. The Vendor, shortly after, delivered a Notice of Arbitration pursuant to the Agreement, alleging “improper delivery of Defunct Project Notice” and claiming damages of $29.5 million. The Purchaser counterclaimed.

The arbitrator granted the Vendor’s claim and dismissed the Purchaser’s counterclaim, awarding the Vendor $12,337,655.00 in damages plus interest and costs.

In making his decision, the arbitrator concluded that even though the Agreement stated that no party shall be liable for damages for loss of profit of loss of opportunity, those sections of the Agreement did not apply to the arbitral process and the arbitration provision The arbitrator awarded damages to the Vendor that included anticipated lost profits from the projects.

The Purchaser brought an application seeking an order setting aside the arbitral award. The Vendor subsequently sought an order enforcing the award.

The Court set aside the arbitral award under section 46(1)(3) of the Arbitration Act, 1991. This section states that, notwithstanding an agreement between the parties stating that the award cannot be appealed, the Court may set aside an award if it 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 Court found that the arbitrator’s conclusion regarding his jurisdiction to award damages for loss of profits was unreasonable. The Court held that the arbitrator was governed by the Agreement, which stated that damages did not include damages for loss of profit or loss of opportunity. The Court explained that just because the word “damages” was not specifically defined in the section of the arbitration provision, this did not mean that the definition of “damages” in the rest of the Agreement did not apply to the arbitration provision.

The Takeaway

This case serves as a strong reminder that an arbitrator’s jurisdiction is strictly confined by the terms of the agreement created by the parties to the arbitration.  Even if the decision i​s not subject to appeal, it may still be set aside by the courts if the arbitrator takes liberties and oversteps his or her bounds.