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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