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  • Daniel Ebady

A Win For The Creditors! I Guess...

In our court system, obtaining a favourable judgment is the main objective of any party that is involved in a court proceeding. The key attraction to obtaining a judgment is that it brings with it finality. Finality is important. Finality is certainty. Certainty is critical for businesses and their ability to do business.


A recent decision affirmed the importance of the finality of judgments.


Background

This involved a construction contract dispute that went to arbitration. At issue in the arbitration was the interpretation of the contract. Namely, whether specific items were included in the contract or not. Party B was holding back funds claiming that it was included, whereas Party A is claiming that it wasn’t.

There was a tolling agreement that was signed by both parties to suspend the limitation period. However, Party A did not see the signed agreement come in as the email went to counsel’s junk mail. Party A decided to issue an Action for breach of trust against the Party B. Party B submitted a defence and counterclaim asserting deficiency and delay claims.

It appears Party A was successful in arbitration. Of course, Party B sought to stay the execution of the arbitration award pending resolution of its action.


Court’s Analysis


The first question the court answered was whether under section 50 of the Arbitration Act was a court allowed to stay a final arbitral award.


Party A argued that section 50 allowed a court to stay judgements if certain conditions are met. Namely, if conditions listed in subsection 50(3) or 50(5), which mainly were time periods around setting aside awards, appealing the awards etc.


The court rejected this interpretation and held that the listed sections must be read in light of section 50(8), which provides that a court has the same powers with respect to the enforcement of awards as with respect to the enforcement of its own judgments.


The court reasoned that a court’s powers in respect of an enforcing a final judgement include the power to stay it under section 106 of the Courts of Justice Act (“CJA”).


The court relying on the 1247902 Ontario Inc. v. Carlisle Power Systems Ltd., [2003] O.J. No. 6300 (Div. Ct.), held that a court does have some jurisdiction to stay a final judgement. In Carlisle, “affirmed the importance of the finality of judgements, holding that a judgment creditor’s right to enforce a final judgement should not be stayed in the absence of evidence that judgment creditor acted in an oppressive manner.”


The Divisional Court in Carlisle outlined that to justify a stay, it must be proven that the judgment creditor’s continuance in the enforcement of the award works as an “because it would be oppressive or vexatious or an abuse of the process of the Court and that the stay would not cause an injustice to the [judgement debtor] ….”. consequently, stays of final judgments are in the rare circumstance.


The Divisional Court in Carlisle reasoned that there is good reason to set the bar high. Citing earlier authorities that held where there is derogation from the notion of finality, it would amount to a frustration of commercial enterprise. It may also encourage a whole new area of litigation.


In light this, the court in Carlisle held that section 106 of the CJA does give a court a very limited jurisdiction to stay an enforcement of a final judgment.

The court moved to apply Carlisle against the facts before it.


Applying Carlisle


In Carlisle, the court rejected that the RJR-MacDonald test for interlocutory stay of pending matters also applies to stays of final judgments.


The Court of Appeal in Carlisle, however, did not decide whether the RJR-MacDonald or the more restrictive test of the Divisional Court in Carlisle held was the correct test to be applied on a stay of a final judgment. It held that the less restrictive RJR-MacDonald test would have not stayed the judgement. Therefore, it follows that the more restrictive, Divisional Court test would have undoubtedly not stay the judgment


Given the Court of Appeal’s reluctance to decide on one test over another, the court in this decision applied both tests to the facts.


The Test Used by the Divisional Court in Carlisle


In Carlisle, the Divisional Court held that where the enforcement of a judgement would be oppressive, vexatious or an abuse of process, a court does have limited jurisdiction to stay a judgement.


At issue in this matter before the arbitrator was an interpretation of the agreement. The effect of the interpretation did have monetary impacts as Party B was holding amounts that it viewed were amounts in relation to items it believed were a part of the contract. The details of the arbitration decision were not released. However, the consequence of the decision was that the amounts Party B was holding must be paid out to Party A.


On this basis, the court held that the dispute before the arbitrator was not for a claim for work done on contract which could have been defended by a deficiency or delay claim related to work. But rather an interpretation of the contract.


Party B argued that since the action lodged by Party A was a breach of trust action impugning liability against Party B’s directors and that Party B was counterclaiming with deficiency and delay claims, it was distinguishable from Carlisle.


The court in response viewed the breach of trust was a separate cause of action from the contractual interpretation claim. The court commented and I also editorialize that the trust claim was brought as insurance in case the limitation period expired. It was not related to the crux of the dispute in the trust claim or counterclaim.


Party A is able to counterclaim for damages without it being prejudiced by Party B executing. There was no evidence Party B was unable to pay a prospective judgment.


RJR-MacDonald Test


The court also applied the RJR-MacDonald test. The court held that there was no serious issued to be tried with respect to arbitral award. I comment that Party B was not attacking the merits of the arbitration decision. Nor could it, as its main claim was deficiency/delay claims. That irreparable harm would not result if the stay was refused. Lastly, the balance of convenience favours refusing the stay. “The importance of the court’s process, being final and enforceable, supports such a refusal.”


Conclusion: The Importance of the Finality of Judgments


The court here provides creditors with relief that judgments are secure. Though the law on which test applies on staying a final judgment is not clarified, the judiciary has signalled that it takes security of judgments seriously and it will not set it aside unless it has good reason to do so.

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