Mattamy (Downsview) Limited v. KSV Restructuring Inc. (Urbancorp), 2023 ONSC 3013
What is the test for considering a new issue in insolvency arbitration?

Overview: This case considers whether an arbitrator in a CCAA proceeding exceeded his jurisdiction by raising and deciding a new issue in the arbitration, and/or whether he unfairly refused to permit one of the parties to present evidence it considered relevant to the new issue, once raised.

Downsview Homes developed a residential construction project comprised of condominiums, townhomes, semi-detached homes, and rental units. Urbancorp held a 51% ownership interest in Downsview Homes. The remaining 49% was held by Mattamy. The rights and obligations of Urbancorp and Mattamy as co-owners of Downsview Homes were set out in the Co-Ownership Agreement signed by the parties in June 2013.

Urbancorp eventually sold its interest in Downsview Homes to Mattamy in the context of a CCAA proceeding over Urbancorp that has been ongoing since 2016. The court approved a sale process proposed by the Monitor for the sale of Urbancorp's interest in Downsview Homes in order to satisfy an outstanding Debtor-In-Possession Facility (the “Sale Process Order”). In the Sale Process Order, the court also directed the Monitor to arbitrate various disputes, including, among other things, the determination of any Urbancorp Consulting Fees payable to the Urbancorp parties under the Co-Ownership Agreement. The purchase and sale transaction closed in early January 2022 (the “Transfer Date”).

In the Notice of Request to Arbitrate dated March 23, 2022, the Monitor sought a determination that the Urbancorp parties were entitled to the Urbancorp Consulting Fee of $5.9 million as at the Transfer Date. The Arbitrator released the arbitration award on July 6, 2023, granting the Monitor the full amount claimed as owing to the Urbancorp parties in respect of unpaid Urbancorp Consulting Fees, plus costs.
 
Mattamy sought to set aside the arbitration award pursuant to s. 46 of the Arbitration Act on the basis that the Arbitrator exceeded his jurisdiction by raising and deciding a new issue and on grounds of unfairness arising from his refusal to permit Mattamy to present certain evidence that it considered relevant to the new issue, once raised. The two key principles underlying the arbitration were: (a) if and when Urbancorp became entitled to the Consulting Fees; and (b) the mechanics and timing of when they had to be paid. During the arbitration hearing, the Arbitrator asked questions about points that had not been covered in the parties’ pre-filed evidence or submissions. Mattamy now argued that these questions were all directed to the “New Issue” of when the purchase price for residential condominium units in Phase 2, which had been sold but had not closed, ought to be considered or treated as having been received for the purposes of determining the gross receipts as at the Transfer Date.

Mattamy maintained that the decision to treat proceeds from the sale of Phase 2 condominium units as having been “received” prior to the Transfer Date was a function of the New Issue that the Arbitrator identified at the June 3, 2022 hearing. Mattamy complained that this issue was outside of the scope of the Arbitrator’s jurisdiction and/or that it was unfair and a breach of the principles of natural justice for the New Issue to be decided without the evidence that the Arbitrator refused to allow Mattamy to file.
 
Pursuant to s. 46(1)3 of the Act, the court may set aside an arbitral 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”. An arbitrator's jurisdiction is derived exclusively from the authority conferred by the parties in their arbitration agreement and the terms of appointment of the arbitrator. Urbancorp’s Notice of Request to Arbitrate expressly sought a determination that the Urbancorp parties were entitled to the Urbancorp Consulting Fees, calculated to be $5.9 million in accordance with the Co-Ownership Agreement.

The determination of whether the Award went beyond the scope of the Arbitrator’s jurisdiction involves the consideration of three questions:

1. What was the issue that the arbitral tribunal decided?

2. Was that issue within the submission to arbitration?

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

The questions that were decided by the Arbitrator fell squarely within the relief claimed in the Notice of Request to Arbitrate. These were the issues set out in the pleadings, which were provided to the Arbitrator prior to the Terms of Appointment being executed. They reflected the parties’ agreement as to the matters in dispute and the bounds of the Arbitrator’s jurisdiction. There was nothing in the Co-Ownership Agreement that precluded the Arbitrator from making the award he did.

Within the framework of the pleadings, there was always a dispute with respect to Phase 2 of the project about entitlement to Consulting Fees on amounts received after the Transfer Date. The Urbancorp parties maintained that they were entitled to Urbancorp Consulting Fees on those receipts for the reasons set out in their Request to Arbitrate and written submissions. Mattamy disagreed. The New Issue raised by the Arbitrator shifted the analysis by introducing a new point of interpretation and raising the question of whether monies paid after the Transfer Date could be considered or treated to have been received before the Transfer Date within the meaning of the definition of gross receipts. Although this was a new way of looking at the question of entitlement to Consulting Fees and the determination of their quantum, the Court held that it did not fall outside of the scope of the broad questions that had been submitted to the Arbitrator to decide. The New Issue was simply another data point and perspective to be considered as part of the entitlement and quantum questions.
 
Accordingly, the Arbitrator had the jurisdiction to raise the New Issue, which came within the broad scope of the questions submitted to arbitration. However, the Court concluded that the Arbitrator’s refusal to admit certain evidence that Mattamy sought to tender in respect of the New Issue (with the consent of the respondents) was procedurally unfair to Mattamy and led to a failure of natural justice in the arbitration process. As such, the award was set aside and a new arbitration before a new arbitrator was ordered.

Judge: Justice Kimmel

Counsel: Matthew Gottlieb and Niklas Holmberg of Lax O'Sullivan for Mattamy; Robin Schwill of Davies for the KSV as Monitor; Neil Rabinovitch of Dentons for the Foreign Representative of Urbancorp Inc.