On September 11, 2009, the Ontario Court of Appeal released its decision in Inforica Inc. v. CGI Information Systems and Management Consultants Inc., 2009 ONCA 642 (CanLII). The decision confirms the courts’ reluctance to interfere with the conduct of arbitrations until after a final award has been granted. The procedure to be followed in an arbitration is set by the parties, and the courts will not interfere with an arbitrator’s procedural order. In this particular case, the Court of Appeal upheld the arbitrator’s procedural order requiring the complainant, Inforica Inc., to post $750,000 in security for costs before continuing with its $14.4-million arbitration claim.
CGI and Inforica entered into a services agreement in July 2004. The agreement provided for any disputes to be resolved by arbitration under the Ontario Arbitration Act, 1991. In July 2007, Inforica commenced arbitral proceedings against CGI pursuant to the arbitration provisions in the agreement, claiming, among other things, damages in the amount of $14.4 million. CGI and Inforica agreed that the arbitration would be conducted by an arbitrator at ADR Chambers.
Before the hearing of the arbitration, CGI brought a motion for security for costs.
The arbitrator granted CGI’s motion, ruling that Inforica was required to post $750,000 in security for the costs of the arbitration, failing which CGI could move to have the arbitration dismissed. The arbitrator found that he had jurisdiction to make an order for security for costs pursuant to the Arbitration Act, 1991 and the ADR Chambers Rules.
Application Judge’s Ruling
Inforica brought an application to set aside the arbitrator’s order, arguing that the arbitrator did not have jurisdiction to order security for costs. CGI opposed the application on the basis that the Application Judge did not have jurisdiction to hear the application because the order appealed from was a procedural order rather than a final award, and the Arbitration Act, 1991 does not permit an appeal from a procedural order.
The Application Judge allowed Inforica’s Application and set aside the arbitrator’s order. She held that the arbitrator had no jurisdiction to order security for costs because such an order “is not merely a matter of procedure” and “may properly be placed in a specialized category of its own.” The Application Judge also found that the ADR Chambers Rules did not apply because they had not been specifically incorporated into the parties’ arbitration agreement. The Application Judge made no explicit ruling on her jurisdiction to hear the Application.
The Court of Appeal’s Ruling
The Court of Appeal set aside the Application Judge’s decision and upheld the order of the arbitrator, without specifically ruling on whether arbitrators have the authority to order security for costs under the Arbitration Act, 1991. Rather, the court held that the Application Judge had no jurisdiction to hear Inforica’s application in the first place because the Arbitration Act, 1991 only permits appeals from a final award, which disposes of the merits of an arbitration, and not an arbitrator’s procedural order.
The Court of Appeal also confirmed the arbitrator’s finding that the ADR Chambers Rules, which gave an arbitrator explicit authority to order security for costs, applied to the arbitration.
In reaching its conclusion, the Court of Appeal reaffirmed the primacy of arbitration and the importance of judicial restraint (at para. 14):
It is clear from the structure of and purpose of the Act in general, and from the working of s. 6 in particular, that judicial intervention in the arbitral process is to be strictly limited to those situations contemplated by the Act. This is in keeping with the modern approach that sees arbitration as an autonomous, selfcontained, self-sufficient process pursuant to which the parties agree to have their disputes resolved by an arbitrator, not by the courts. […] The Act encourages parties to resort to arbitration, “require[s] them to hold to that course once they have agreed to do so,” and “entrenches the primacy of arbitration proceedings … by directing the court, generally, not to intervene.”
The Court of Appeal also confirmed the importance of security for costs as a mechanism “to protect the integrity of the dispute resolution process by preventing parties from structuring their affairs in a manner that immunizes them from the discipline of costs.”
McCarthy Tétrault Notes
This case reinforces the rights of parties to choose to seek confidential, expeditious and cost-effective resolution of their disputes by way of private arbitration. It is also a reminder to ensure that careful attention is paid to arbitration clauses, including the procedural rules and tools available to the arbitrator in the event that a dispute arises, such as the ability to award security for costs. Security for costs is a useful tool when a party is forced to defend an arbitration claim against a party with no realizable assets and nothing to fear from an unsuccessful result.