Sep 16, 2019
When does ‘Final and Binding’ Mean ‘Final and Binding’?
Torkin Manes LegalWatch
One of the main purposes of commercial arbitration is to provide an efficient way for the parties to resolve their dispute. By agreeing to take their proceeding off the Court track and into private arbitration, the parties avoid the delays associated with civil litigation. This is why Ontario’s Arbitration Act, 1991, S.O. 1991, c.17 allows plaintiffs and defendants to contractually curtail or eliminate the right to appeal an arbitral award to the Superior Court.
But where the contract states that the arbitral award is “final and binding”, does this mean there is no right to appeal, even on questions of law? A recent decision of the Superior Court says “likely, yes”.
The “Horror” of a Final and Binding Arbitration Clause
108 Media Corp. v. BGOI Films Inc., 2019 ONSC 880, a 2019 decision of the Superior Court affirmed by the Court of Appeal, 2019 ONCA 539, involved a “Sales Agency Agreement” (the “SAA”) between a film distributor, 108 Media Corp. (“108”) and a producer of horror films, BGOI Films Inc. (“BGOI”).
Under the SAA, 108 agreed to act as BGOI’s sales agent for a horror film outside of North America for five years. 108 also provided a minimum guarantee of USD$55,000.00 to BGOI within six months of the movie’s original release.
The SAA included an arbitration clause:
Should there be a disagreement or a dispute between the parties…the same shall be referred to a single arbitrator….and the determination of such arbitrator shall be final and binding upon the parties…[emphasis added]
The relationship between the parties soured. The movie was released on September 8, 2015, but 108 did not pay BGOI the minimum guarantee by March 16, 2016.
108 alleged that BGOI did not deliver the film within 30 days of execution, as required under the SAA. BGOI argued that 108 committed fundamental breaches of contract, relating to the marketing and distribution of the film.
BGOI terminated the SAA on June 1, 2016 and commenced arbitration.
The Arbitrator held that BGOI was entitled to payment of the minimum guarantee. The Arbitrator also held that 108 failed to perform its duties under the SAA and that those breaches were not excused or justified by BGOI’s failure to deliver the film (the “Arbitral Award”).
In response, 108 commenced an application for leave to appeal the Arbitral Award to the Ontario Superior Court.
Leave to Appeal Arbitral Awards on Questions of Law
Under section 45(1) of the Arbitration Act, 1991, if the arbitration agreement does not deal with questions of law, a party can appeal the arbitral award on a question of law, with leave of the Court and so long as certain preconditions are met. Section 3 of the Act allows parties to vary or exclude certain provisions of the Act.
The combined effect of section 3 and 45(1) is that a statutory right to appeal on a question of law exists, unless the parties, by their agreement, eliminate the right to appeal.
108 argued that the phrase “final and binding” in the arbitration clause of the SAA did not preclude an appeal on questions of law. In other words, the parties had agreed that an appeal of the arbitral award was still available, despite the fact that the SAA stated that the arbitral award was “final and binding”.
The Superior Court rejected this argument, ultimately holding that the SAA reflected the parties’ intention to exclude the right to appeal.
The Court held that where a legislative provision provides that an order is “final”, there is no appeal from that order. Similarly, the “phrase ‘final and binding’ [in a contract such as the SAA] would have no meaning whatsoever if it did not exclude a right to appeal that had been given by statute”.
The Court further noted that while the use of the term ‘final and binding” does not necessarily preclude an appeal, it “does reflect an intention to exclude a right to appeal”.
The fact that the CEO of 108 may have had a subjective intention to preserve a right to appeal the arbitral award on a question of law at the time of the SAA’s formation was irrelevant:
…[t]here is no evidence that BGOI and 108 shared the view that Section 18.2 of the SAA preserved a right of appeal…the surrounding circumstances advanced by 108 do not alter the ordinary and grammatical meaning of the phrase ‘final and binding’ as found in Section 18.2.
108 then sought to appeal the Superior Court’s decision denying leave to appeal the arbitral award to the Court of Appeal.
The Court of Appeal granted BGOI’s motion to quash the appeal, on the basis that no appeal lies from a refusal to grant leave where that refusal is based on the merits.
The Finality of Arbitration
Apart from applying the ordinary meaning of “final and binding” in this case, the Superior Court’s decision in 108 Media advances the policy underlying commercial arbitration generally: where the parties agree that a commercial arbitral award is to be ‘final’, recourse to the Courts is simply not an option.
While it is arguable that the Courts’ reluctance to get involved in a commercial arbitration has the effect of stunting the evolution of the common law, it also respects a promise between commercial parties that once civil litigation is eliminated as a dispute resolution mechanism, that promise must be kept.