Authors
Partner, Disputes, Toronto
Associate, Disputes, Toronto
Associate, Disputes, Toronto
In Campbell v. Toronto Standard Condominium Corporation No. 2600[1] (Campbell), the Ontario Court of Appeal held that “fraud” as used in the Arbitration Act, 1991[2] (the Act), is limited to the common law definition of fraud and does not include the broader equitable concept of constructive fraud. This decision has important implications for applications to set aside arbitral awards on the basis of fraud, and the applicable time periods to bring any such application.
Background
The original arbitration concerned a dispute under the Condominium Act, 1998[3] regarding the respondents’ alleged non-compliance with rules of the appellant, the Toronto Standard Condominium Corporation No. 2600 (the Condominium Corporation) prohibiting the use of the respondents’ unit for short-term rentals.
The parties signed an arbitration agreement under which the parties agreed that the arbitration would be final and binding, and that the parties would not appeal or attempt to set aside any aspect of the arbitration award. The arbitration agreement stated the issues to be resolved as the respondents’ alleged contraventions of the rules regarding short-term rentals; and the issue of all costs as incurred by the parties. However, prior to the commencement of the arbitration, the respondents sold their unit, effectively resolving the substantive issues in dispute. As such, the parties agreed to narrow the scope of the matter to the costs of the arbitration.
The Arbitrator released reasons in September 2021, awarding the condominium corporation $30,641.72 in costs on a partial indemnity basis. In these reasons, the arbitrator rejected the respondents’ statement that they had abided by the rule preventing short-term rentals since its implementation.
The application judge’s decision
The application judge acknowledged that, pursuant to the arbitration agreement, no appeal was available to the respondents. Moreover, even if an appeal was available, the respondents were barred from the application by section 47(1) of theAct, which requires applications to set arbitral awards aside to be brought within 30 days of receiving the award.
Despite these facts, the application judge granted the respondents’ application. He found that the respondents were exempt from the time limitation because they had alleged fraud under subsection 47(2).
The application judge granted the respondents’ application and set aside the arbitral award. Although he held that there was no actual fraud in this case, he found that the condominium corporation had committed constructive fraud by agreeing to proceed with the arbitration to determine the issue of costs but then expanding the issues to address the entire history of the dispute between the parties. He held that the word “fraud” as it appears in subsections 46(1)9 and 47(2) includes constructive fraud.
Fraud vs. constructive fraud
The Court of Appeal examined the distinction between fraud and constructive fraud. Common law fraud requires the defendant to have an intent to deceive and make a false statement that he or she knows is false or that he or she is indifferent to its truth value. Constructive fraud is broader: it 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. The Court reiterated the characterization of the application judge, that constructive fraud focuses on “unfairness”.
Constructive fraud in the act
The word “fraud” is not defined in the Act. The Court found that “fraud” has an established legal meaning at common law and that the legislature would have explicitly included a broader definition of “constructive fraud” had that been its intention. In making this finding, the Court was guided by the object and purpose of the Act: promoting efficacy and finality, limiting judicial intervention into arbitral matters, and respecting arbitral primacy once the parties have entered into an arbitration agreement. Moreover, interpreting “fraud” to mean common law fraud, rather than the expansive definition of constructive fraud, is consistent with previous judicial interpretations of section 46 of the Act, which provides a narrow basis upon which a court may interfere with an arbitral award and does not serve as an alternate appeal route.
The Court noted that case law has repeatedly emphasized the exceptional nature of applications to appeal or set aside arbitral awards and the primacy of the terms of the arbitration agreement, under which parties are entitled to restrict or preclude appeals. Expanding the meaning of “fraud” in subsections 46(1)9 and 47(2) to include constructive fraud would be at odds with this case law. Doing so would also risk inviting strategic enlargement of the grounds for setting aside an arbitral award. The Court of Appeal remarked that, contrary to the role of an application judge in determining whether to set aside an award, the application judge had delved into the merits of the award.
The Court suggested that the respondents may have succeeded had they brought an application within the prescribed 30-day time period, under some of the other grounds enumerated under section 46 for setting aside an award, such as the invalidity of the agreement under section 46(1)2 or procedural unfairness under section 46(1)6 of the Act.
Ultimately, the Court of Appeal allowed the appeal and restored the arbitral award.
Takeaways
In the absence of a definition in the Act, Campbell clarifies that “fraud” will be construed consistently with the common law definition of fraud, rather than the broader equitable concept of constructive fraud. Correspondingly, applications to set aside arbitral awards on the basis of fraud under subsection 46(1)9 of the Act must include the elements of common law fraud. In addition, applications seeking to set aside an arbitral award on the basis of fraud under subsection 47(2) of the Act must allege common law fraud. Allegations of unfairness are insufficient.
Moreover, the case reaffirms that the enumerated grounds to set aside an arbitral award will be construed narrowly. Campbell encourages judicial restraint in setting aside arbitral awards and maintaining the primacy of arbitration agreements. Parties are entitled to agree to foreclose routes of appeal, and such agreements are not to be easily interfered with by a reviewing court.
[1] Campbell v. Toronto Standard Condominium Corporation No. 2600, 2024 ONCA 218.
[2] S.O. 1991, c. 17.
[3] S.O. 1998, c. 19.
