In Campbell v. Toronto Standard Condominium Corporation No. 2600, 2024 ONCA 218, ("Campbell") the Court of Appeal for Ontario considered the proper interpretation of the term "fraud" as it appears in the appeals and set-aside provisions of the Arbitration Act, 1991, S.O. 1991, c. 17 (the "Arbitration Act"), finding that the term – which is undefined in that legislation – does not encompass constructive fraud. Below, we review the takeaways from Campbell with respect to the meaning of fraud and the circumstances that permit an application to set aside an arbitral award.
Factual Background
From December 2018 to February 2021, a dispute arose between the owners of a condominium unit in a particular building (identified as the "Respondents" in this matter) and the condominium corporation for that building, Toronto Standard Condominium Corporation No. 2600 (the "Condo Corporation"). The parties' dispute originated from complaints received by the Condo Corporation about excessive noise from the Respondents' unit, and subsequently regarding the use of the unit as a short-term rental.
The parties initially agreed to proceed with mediation, but ultimately no mediation occurred because the Respondents withdrew their consent. In October 2020, the Condo Corporation wrote a cease and desist letter to the respondents demanding that they cease using their unit for short-term rentals. A month later, the Condo Corporation delivered a notice of arbitration pursuant to the Condo Corporation's declaration. By February 2021, the Respondents were in the process of selling the unit – which would effectively resolve nearly all of the parties' substantive issues – but there remained a live issue as to whether the Condo Corporation was entitled to its legal costs incurred in pursuing the Respondents.
On March 4, 2021 – the same day that the Respondents signed a conditional agreement for the sale of the unit – the parties entered into an arbitration agreement for the resolution of (1) the alleged contraventions of the rules regarding short-term rentals, and (2) the issue of all costs as incurred by the parties. The arbitration agreement stipulated that there would be no right of appeal, and specified that the parties agreed not to appeal to attempt to set aside any aspect of the Arbitration award (although not specifically addressed by the Court of Appeal in its decision, this latter agreement was obviously unenforceable given that the Arbitration Act's set-aside provisions are not waivable).
The arbitration was completed in writing by August 2021, and the arbitrator rendered his decision on September 6, 2021, awarding the Condo Corporation $30,641.72 in costs on a partial indemnity basis.
The Application Judge's Decision
57 days after the arbitrator delivered his decision, the Respondents commenced a set-aside application in the Superior Court under Section 46(1) of the Arbitration Act to set aside the award on the basis of fraud by the Condo Corporation, and constructive fraud by the arbitrator. Notably, this was despite the fact that the deadline for commencing a set-aside application, which is 30 calendar days from the date of delivery of the arbitrator's award, had passed. That being said, this statutory time limit also contains an exception for set-aside applications based on allegations of corruption or fraud.
Sections 46(1)(9) and Section 47 of the Arbitration Act provide in relevant part as follows:
46 (1) On a party's application, the court may set aside an award on any of the following grounds:
[...]
-
The award was obtained by fraud.
[...]
47 (1) An appeal of an award or an application to set aside an award shall be commenced within thirty days after the appellant or applicant receives the award, correction, explanation, change or statement of reasons on which the appeal or application is based.
(2) Subsection (1) does not apply if the appellant or applicant alleges corruption or fraud. [emphasis added]
Although the application judge concluded that there was no actual fraud in this case, he concluded that the arbitral award was obtained by constructive fraud, as the arbitrator had adjudicated issues beyond those set out in the arbitration agreement.
In that regard, the application judge concluded that there was no fraud in the well-established legal definition of "deceit and dishonesty".1 By contrast, he found that there was constructive fraud given that this term " does not necessarily involve dishonesty or moral fraud in the ordinary sense, but a breach of [the] sort that would be enforced by a court of conscience", but rather focuses more on unfairness than deceit.2
On the facts of this case, the application judge concluded that the arbitrator had adjudicated beyond the scope of the parties' arbitration agreement by looking at substantive issues beyond the narrow issue of costs. Although such a conclusion would normally be considered to raise a jurisdictional issue, and potentially an issue as to deprivation of natural justice, the application judge found that it amounted to constructive fraud insofar as it was "'unconscionable and unfair' that the Condo Corporation 'lured their legal counsel, and the Arbitrator' into adjudicating issues beyond those of costs" by delving into substantive issues beyond costs.3
Accordingly, the application judge concluded that the term "fraud" as it appears in the Arbitration Act includes constructive fraud, and set aside the award.
The Court of Appeal's decision
On appeal, the Condo Corporation took the position that the application judge had erred in the interpretation of the term "fraud", insofar as he concluded that it encompasses constructive fraud. The Court of Appeal allowed the appeal, concluding that the application judge had erred in expanding the definition of "fraud" to include constructive fraud.
In that regard, the Court of Appeal noted that while the arbitrator did determine substantive issues, it was both "appropriate and necessary for him to consider factors such as the history and the nature of the complaints, the length of the proceedings, and the reasonableness of the parties' conduct in exercising his cost discretion" pursuant to Section 54 of the Arbitration Act.4
With respect to whether the term "fraud" should be construed so as to encompass constructive fraud, the Court of Appeal observed that because the term "fraud" has an established legal meaning at common law, it was incumbent upon the legislature to use clear language in order to displace this well-understood meaning. In other words, if the legislature had intended to expand the meaning of "fraud" in the Act in order to include constructive fraud, then the legislature would have made this explicit in the language of the Act.5 It did not, meaning that as a matter of statutory interpretation, "fraud" could not include constructive fraud.
Furthermore, the Court of Appeal observed that expanding the meaning of "fraud" to include constructive fraud would be at odds with the relevant case law on the Arbitration Act's set-aside provisions, which are not intended as an alternative appeal route. To allow such an interpretation would risk undermining the principles of efficiency and finality that have been consistently emphasized by the case law. Therefore, this too was a basis upon which to reject the inclusion of constructive fraud within the concept of "fraud".
Finally, the Court of Appeal noted from a policy perspective, the Arbitration Act clearly intended that there should be limited court intervention in arbitral matters. To the extent that an arbitration agreement allows for any appeal rights, courts are required to avoid strategic attempts to broaden the scope of the appeal by turning questions of mixed fact and law into questions of law, and are required to guard against strategic attempts to enlarge the scope of an appeal beyond what the parties have agreed to.
Bearing all of the foregoing in mind, the Court of Appeal concluded that "fraud" should not be interpreted to include constructive fraud, and that in reality, the Respondents in this case were simply seeking to circumvent the time limit for a set-aside application by alleging fraud and constructive fraud. Accordingly, the Court of Appeal allowed the appeal, restoring the arbitral award.
Takeaways
Campbell is a useful reaffirmation of the basic principles of arbitration, including most prominently that court intervention is intended to be limited. In that regard, the Court's decision not to include constructive fraud within the concept of "fraud" under Ontario's domestic arbitration legislation is a positive step, insofar as the alternative would appear far less desirable. Notwithstanding that the facts of this case were arguably somewhat unusual, it is not difficult to envisage an alternate outcome in which parties would exploit the inclusion of constructive fraud as a means of avoiding the Arbitration Act's set-aside deadline in order to draw out dispute resolution even further. This is particularly true in circumstances where Sections 46(1)(9) and Section 47 of the legislation do not provide a deadline for bringing applications based on fraud, meaning that the standard two-year limitation period would presumably apply.
In the circumstances, the Court of Appeal has rightly continued to uphold arbitration as a means of private dispute resolution and not simply a dress rehearsal for court proceedings.
Footnotes
1. Campbell v. Toronto Standard Condominium Corporation No. 2600, 2024 ONCA 218, at para 24 ["Campbell"].
2. Campbell, at para 24.
3. Campbell at para 24.
4. Campbell, at para 61.
5. Campbell, at para 54.
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