TORONTO -- An award granted by a Jewish court in New York to a Canadian businessman should stand despite a serious breach of the arbitration agreement involved, Ontario's top court ruled Thursday.
In its decision, the Court of Appeal rejected arguments against overturning an earlier ruling that upheld the US$400,000 award to Moshe Lipszyc.
The award came after Lipszyc, of the Toronto area, had a falling out with his business partner, Joseph Popack, of New York. The men agreed to submit their dispute to arbitration before a rabbinical court in New York, which held eight weeks of hearings in August 2013.
During the hearings, Lipszyc's representative suggested the panel should hear from a previous arbitrator, Rabbi Aharon Schwei. Popack did not object. Without telling either man, the panel met Schwei but, as per the arbitration agreement, made no record of the meeting. It did later state the information obtained from the rabbi had no impact on its decision.
Popack turned to Ontario Superior Court to set aside the award on the grounds that the panel had breached the agreed procedure by meeting secretly with Schwei.
In her ruling last June, Justice Wendy Matheson agreed the arbitral tribunal had committed a "significant" breach of the arbitration agreement by failing to give proper notice of the meeting with the rabbi. She nevertheless upheld the award.
Among other things, Matheson found the parties had agreed to defer to the arbitral tribunal's discretion to set its own process. She also noted the panel only met the rabbi -- a neutral party -- at Lipszyc's request and without an objection from Popack, and that a key witness had died in the interim.
In siding with Lipszyc, the Appeal Court said Matheson's decision was discretionary and owed strong deference absent any glaring error.
The court also took issue with Popack's conduct, saying he had made no formal complaint at the time about the panel's procedure and did not demand a hearing to raise his concerns. Instead, he let the panel know -- without telling Lipszyc --that he would only want a hearing if the panel decided Schwei's evidence was important.
"His conduct strongly suggests a tactical decision whereby Mr. Popack was content to allow the panel to finish its adjudication and make its award despite the improper ex parte meeting with Rabbi Schwei," the Appeal Court said.
"Mr. Popack positioned himself so that he could decide to raise the issue formally and on notice to Mr. Lipszyc only if he was not satisfied with the award given by the panel."
Setting aside the panel's decision in such circumstances, the Appeal Court ruled, would "eviscerate" the idea that arbitral decisions are generally final.
The court also awarded Lipszyc $25,000 in costs.
Some legal experts said the decision underlined the risk of giving an arbitral tribunal unfettered discretion, and the importance of crafting a written agreement that protects participants when an arbitrator allegedly acts improperly. In this case, the men had agreed no record of the proceedings would be kept.
