SMART Technologies ULC v Electroboard Solutions Pty Ltd, 2017 ABQB 559

Court of Queen’s Bench of Alberta Citation: SMART Technologies ULC v Electroboard Solutions Pty Ltd, 2017 ABQB 559 Date: 20170915 Docket: 1601 13637 Registry: Calgary Between: SMART Technologies ULC Applicant - and - Electroboard Solutions Pty Ltd. and Electroboard Solutions (NZ) Ltd. Respondents _______________________________________________________ Reasons for Judgment of the Honourable Mr. Justice J.T. McCarthy _______________________________________________________ I.

Introduction [ 1 ] Arbitration is considered an alternative form of dispute resolution for parties who wish a speedier resolution to an issue, often at less cost, and in a more flexible and private forum than a court. The parties in this case contracted to submit their disputes to arbitration and followed through with that promise when a dispute arose. The dispute was resolved by an arbitrator in favour of SMART Technologies. Electroboard Solutions then appealed the decision to a three-member Appeal Tribunal, who found in its favour.

SMART Technologies now applies to this Court to set aside the Appeal Tribunal’s decision. Under the applicable law, there are limits on this Court when reviewing arbitration proceedings. The question is whether those limits restrict the Court in this case or whether a type of error occurred which permits intervention.

II. Background [ 2 ] SMART Technologies is a technology company that was founded in the 1980s (SMART). It develops interactive whiteboards and group collaboration tools for classrooms and meeting rooms. Electroboard Solutions Pty Ltd. and Electroboard Solutions (NZ) Ltd. are two privately held technology companies in Australia and New Zealand (Electroboard). Starting in the mid- 1990’s, Electroboard started distributing SMART products in Australia and New Zealand.

Electroboard was SMART’s only distributor in those countries until 2014. [ 3 ] Around 2012, it appears that SMART and Electroboard’s relationship started to encounter some friction. Their relations deteriorated for a number of reasons over the next couple of years and in June 2014 SMART decided to add an additional distributor for its Australia and New Zealand operations, upsetting Electroboard. [ 4 ] By this point in time, Electroboard had failed to pay a number of outstanding invoices to SMART for product, totalling over $3 million dollars.

On July 3, 2014, SMART issued a Statement of Claim for payment of the invoices. On July 31, 2014 SMART served Notices of Termination to Electroboard terminating the distribution agreements between them. [ 5 ] Electroboard responded to the claim with a Statement of Defence and Counterclaim. Electroboard’s pleadings raised a number of issues including problems with SMART’s products’ functionality, breach of contract, and passing off.

Electroboard later amended its Counterclaim to argue that SMART breached a duty to negotiate in good faith under the then newly released decision of Bhasin v Hrynew , 2014 SCC 71 , [2014] 3 SCR 494. Electroboard sought to set-off SMART’s claim by $3.6 million in SMART product that it wished to return. It also sought approximately $18 million in other damages. [ 6 ] SMART responded to the Counterclaim by arguing the parties’ agreements limited liability and contained a “no set-off” clause. [ 7 ] The parties’ distribution agreements provided that any disputes between them be resolved through arbitration.

The agreements provided that the arbitration would be administered by the American Arbitration Association, in accordance with the International Centre for Dispute Resolution (ICDR)’s International Arbitration Rules. The agreements specified that secondary to the ICDR Rules, the arbitration and agreements would be governed by the laws of the Province of Alberta and the federal laws of Canada. [ 8 ] The parties also agreed that an arbitral award could be appealed to a panel of three arbitrators.

Clause 10.1.6 of their agreement specified that the appeal tribunal could replace or modify the initial arbitral award only if it found clear errors of law or clear and convincing factual errors: 10.1.6 All arbitration awards shall be final and binding, and enforcement of the award shall not be subject to appeal except as expressly provided in this agreement. If the award exceeds $750,000 US... a party ... may notify the AAA of an intention to appeal to a second arbitral tribunal of three arbitrators, constituted in the same manner as the initial tribunal.

The appeal tribunal shall not modify or replace the initial award except for clear errors of law or clear and convincing factual errors. The award of the appeal tribunal shall be final and binding, and enforcement of the tribunal’s award shall not be subject to appeal or further review. [ 9 ] The parties submitted their dispute to an arbitrator. He issued a

summary judgment award in favour of SMART on some issues and a later award in favour of SMART on the remaining issues, including dismissing the amended Counterclaim focusing on the breach of the duty and good faith and honesty in contractual performance. [ 10 ] Pursuant to Clause 10.1.6 the arbitral award was then appealed to an appeal tribunal. The majority of the Appeal Tribunal reversed and found in favour of Electroboard, with a third panel member dissenting. SMART now applies to this Court to set aside the Appeal Tribunal’s award. For its part, Electroboard seeks an order recognizing and enforcing the award.

III. Governing Law [ 11 ] The parties agree that the applicable law is the International Commercial Arbitration Act, RSA 2000, c I-5, and in particular

Schedule 2 to the Act, the UNCITRAL Model Law on International Commercial Arbitration (the Model Law). [ 12 ]

Article 34 of the Model Law provides this Court with the authority to set aside a decision of an international arbitral tribunal on six limited grounds. SMART relies on Article 34(2)(a)(iii), alleging that the Majority of the Appeal Tribunal exceeded its jurisdiction by ignoring the terms and scope of the submission to Arbitration:

Article 34. Application for setting aside as exclusive recourse against arbitral award ...

(2) An arbitral award may be set aside by the court specified in

article 6 only if: (

a) the party making the application furnishes proof that: ... (iii) the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the award which contains decisions on matters not submitted to arbitration

may be set aside... IV. Arguments of the Parties [ 13 ] SMART’s main argument is that the Majority of the Appeal Tribunal did not decide the Appeal on the basis of clear errors of law or clear and convincing factual errors. SMART admits that on the surface it appears the Majority followed the applicable standards, however when one considers the Dissent and other comments made by the Majority, it argues that the Majority actually ignored the standards of review and sought to “do justice above all else” (quoting from the Dissent).

SMART argues that in doing so, the Majority decided the cases on the basis of ex aequo et bono. [ 14 ] Black’s Law Dictionary defines ex aequo et bono as: According to what is equitable and good. A decision-maker (esp. in international law) who is authorized to decide ex aequo et bono is not bound by legal rules and may instead follow equitable principles. ... ...Arbitrators who decide ex aequo et bono normally begin and end with a private sense of justice, going directly to a personal view of the right result... Black’s Law Dictionary, 10 th ed, Bryan A. Garner, (St.

Paul, Minnesota: Thomson Reuters, 2014), sub verbo “ex aequo et bono” [ 15 ] SMART points out that under Article 28(3) of the Model Law, an arbitral tribunal shall only decide a dispute on an ex aequo et bono basis “if the parties have expressly authorized it to do so.” No such authorization was given in this case, grounding SMART’s argument that the Appeal Tribunal exceeded its jurisdiction by dealing with a dispute not falling within the terms of submission to arbitration. If so, that would open the door for this Court to intervene under

Article 34. [ 16 ] SMART concedes that normally there is a high onus to set aside an arbitral decision under the Model Law, however it states that the test is met in this case due to the jurisdictional error. [ 17 ] SMART notes that there is limited case law considering the application of ex aequo et bono in the context of the Model Law. However, it provided a case digest from a Cairo Court of Appeal which annulled an arbitral tribunal’s decision because it was made on the basis of “fairness and equity”, rather than on Egyptian law, which had been agreed to in the terms of arbitration: Case No. 72/117 , Cairo Court of Appeal, Egypt, 8 January 2002. [ 18 ] SMART also provided an English

summary of the case of Schieds VZ 2005 , 308 , Case No. 34 Sch 10/05, Higher Regional Court of Munich, 22 June 2005, where a Munich Court considered the decision of an arbitral tribunal. The tribunal was asked to set aside an agricultural lease contract on the basis of negligent misrepresentation. However, rather than deciding the parties’ dispute on the basis of the contract, the tribunal decided to adjust the terms of the contract extensively to fashion a remedy for the parties. It did so after attempting to assist the parties with a settlement proposal that was not accepted.

The Munich Court found that rather than rendering a decision based on the law, the tribunal had redrafted the contract to address the parties’ concerns. [ 19 ] The Court found the tribunal rendered a decision ex aequo et bono because there was no legal criteria considered or applied by the tribunal. The tribunal had amended the contract based on its point of view of what was in the best interests of the parties.

As the parties had not consented to the tribunal deciding the matter in this manner, the tribunal’s decision was set aside. [ 20 ] In support of its argument, SMART provided a detailed review of the procedural steps and awards made from the early stages in front of the Arbitrator to the Final Award issued by the Appeal Tribunal.

SMART points to a number of instances which it argues demonstrate the Majority’s disregard for the law and pursuit of justice on its own terms. [ 21 ] Those instances include: 1) The Chair of the Appeal Panel (a member of the Majority) commenting at the appeal that submissions on the standard of review were “angels dancing on the head of a pin.” 2) The Majority exceeding the scope of the submission to arbitration by considering the Arbitrator’s decision to grant the

Summary Award. The Majority challenged the evidentiary record and the legal test relied upon ( Hryniak v Mauldin , 2014 SCC 7 , [2014] 1 SCR 87, (sub nom. Combined Air Mechanical Services Inc v Flesch ), despite the fact the parties had agreed on both of those matters. The Majority also raised the issue of the Arbitrator’s jurisdiction on its own volition as it was not in Electroboard’s Notices of Appeal. 3) The Majority deciding to set aside the entirety of the

Summary Awards instead of modifying the awards to allow set-off as requested by ELB. 4) The Majority failing to show any deference to the Arbitrator’s findings of fact. 5) The Majority deciding impermissible questions of mixed fact and law, whereas appeals are only allowed on clear errors of law and clear and convincing errors of fact.

6) The Majority based its costs decision on an improper ground of appeal, as the Majority found Electroboard should be awarded fullindemnity because it was deprived of its right to be heard at the initial stage of the arbitration. SMART submits that the Arbitrator didnot have the opportunity to grant or deny Electroboard the right to be heard on any issue that was relevant to the Appeal, so this was animproper basis for awarding indemnity costs. [22] In the alternative, SMART argues the Majority ignored the Appellant Rules on costs that applied to the Appeal.

It submits thiswas an error of jurisdiction on its own. [23] Electroboard disagrees with SMART’s characterization of the Majority’s decision. It argues that the Majority decided theAppeal within the terms and scope of the submission to arbitration by concluding that the Arbitrator made clear errors of law and fact.Electroboard submits that SMART is attempting to re-litigate the merits underlying the Appeal, which is specifically prohibited underArticle 34. [24] Electroboard notes that the role and function of this Court is very limited under the

Article 34 jurisprudence. The policyunderlying this approach is to minimize judicial intervention in international commercial arbitration proceedings. This providespredictability for dispute resolution in the international commercial system and respects the parties’ choice of forum: Quintette Coal Ltdv Nippon Steel Corp (1990) (BC CA), 50 BCLR (2d) 207, 1990 CarswellBC 232 (BCCA), at para 32, leave to appealto SCC refused [1990] SCCA. No 431: ...

It is important to parties to future such arbitrations and to the integrity of the process itself that the court express its views on thedegree of deference to be accorded the decision of the arbitrators. The reasons advanced in the cases discussed above for restraint in theexercise of judicial review are highly persuasive.

The "concerns of international comity, respect for the capacities of foreign andtransnational tribunals, and sensitivity to the need of the international commercial system for predictability in the resolution of disputes"spoken of by Blackmun, J. are as compelling in this jurisdiction as they are in the United States or elsewhere. It is meet therefore, as amatter of policy, to adopt a standard which seeks to preserve the autonomy of the forum selected by the parties and to minimize judicialintervention when reviewing international commercial arbitral awards in British Columbia.

That is the standard to be followed in thiscase. [25] Electroboard submits that the case law is clear that the grounds of appeal in

Article 34 are to be narrowly construed and donot include errors of fact or law. Article 34(2)(a)(iii), which is relied upon by SMART in this case, only allows a court to review anaward based on an excess of jurisdiction: United Mexican States v Cargill Inc, 2011 ONCA 622, 107 OR (3d) 528, at para 31, leave toappeal to SCC refused, [2011] SCCA. No. 528 [Cargill].

As such, courts such as this one are not permitted by Article 34(2) to review themerits of a tribunal’s decision: Cargill at para 31; Canada (Attorney General) v Mobil Investments Canada Inc, 2016 ONSC 790, 129OR (3d) 506 at para 34 [Mobil]; Bayview Irrigation District No. 11 v United Mexican States, [2008] OJ No 1858 (Ont Sup Ct) at para63 [Bayview]. [26] Further, there is a powerful presumption that the arbitral tribunal acted within its powers, Corporacion Transnacional deInversiones S.A .de C.V. v STET International S.p.A (1999), (ON SC), 45 OR (3d) 183, 1999 CarswellOnt 2988, atpara 27 (Ont Sup Ct), aff’d (2000), 49 OR (ed) 414 (Ont CA), leave to appeal to SCC refused, [2000] SCCA.

No. 581, [STETInternational]: An arbitral award is not invalid because, in the opinion of the court hearing the application, the Arbitral Tribunal wrongly decided apoint of fact or law: Quintette Coal, supra, at p. 227. Where a tribunal's jurisdiction is called into question as it is here, an applicant mustovercome "a powerful presumption" that the Arbitral Tribunal acted within its powers: Quintette Coal, supra, per Hutcheon J.A., at p.223, citing with approval Parsons & Whittemore Overseas Co., Inc. v.

Société Générale de L'Industrie du Papier, 508 F.2d 969 (2nd Cir.1974). [27] With regard to SMART’s argument that the Majority decided the case ex aequo et bono pursuant to

Article 28 of the ModelLaw without consent, Electroboard sees this as an attempt “to do an end run” on the onerous requirements under the Model Law forsetting aside an award.

It notes that true jurisdictional questions are narrow in nature and go to the question of whether the AppealTribunal had the authority to hear and determine the dispute and not the manner in which the matter was decided, citing Cargill.Electroboard submits that this Court is not sitting as an appeal court from the Appeal Tribunal’s award and can only intervene if there aregrounds to do so under the Model Law. [28] Finally, Electroboard states that there is no evidence the Majority concluded that the application of legal principles wouldhave an unjust result, then decided to craft its own remedies outside of the law on an ex aequo et bono basis.

Electroboard submits thatthe Majority applied legal principles and reasoning in granting the awards and did not rely on ex aequo et bono decision-making. TheMajority considered the legal principles of the duties of good faith and honesty in contractual performance articulated by the SupremeCourt in Bhasin, reviewed other relevant case law on point, and then applied that law to the case before it. If the Majority made an errorin applying the standard of review, that would at best be an error of law or fact, which is not a basis for setting aside an award. V.

Discussion [29] In order to determine whether the Majority ignored the standard of review and made their decision on an ex aequo et bonobasis, it is necessary to review the decisions of the Arbitrator and the Appeal Tribunal. A. Arbitrator’s Awards

[ 30 ] The Arbitrator accepted his appointment on July 23, 2014. Over the course of the following 18 months, he issued a number of procedural orders and two main awards relating to the parties’ dispute. A review of the relevant awards follows. i.

Summary Judgment Award [ 31 ] The Arbitrator heard a

summary judgment motion in December 2014. The motion considered SMART’s application for

summary judgment on its claim against Electroboard, as well as

summary dismissal of Electroboard’s Counterclaim. Electroboard objected to the

summary dismissal application for a number of reasons, including that a hearing with viva voce evidence was necessary to resolve triable issues of fact and law and to make credibility determinations. [ 32 ] With the parties’ agreement, the evidence before the Arbitrator consisted solely of the transcripts of questioning of the three key players in the dispute: SMART’s President and CEO Neil Gaydon, SMART’s Australian and New Zealand sales manager Ricky Butler, and Electroboard’s Managing Director Marie Bolton. [ 33 ] The Arbitrator found that he had the jurisdiction to hear and decide the

summary judgment application. The Arbitrator applied the Supreme Court’s decision in Hryniak ( sub nom. Combined Air ). He found that there was no genuine issue regarding SMART’s claim for payment of invoices that required a hearing with viva voce evidence. [ 34 ] The Arbitrator found in favour of SMART. He reviewed the distributor agreements between the parties and found they appointed Electroboard as SMART’s distributor on a non-exclusive basis. He also found the Agreements required payment within 90 days of the invoice and that invoices must be paid without set-off. He noted that at her questioning, Ms.

Bolton had admitted the invoices were due and payable, but chose not to pay them because of her set-off claim. The Arbitrator found the distributor agreements were clear in stating that invoices must be paid without set-off, defeating Electroboard’s defence on that basis. [ 35 ] The Arbitrator also found that Electroboard’s other defences were not viable. Electroboard was not forced into entering into the Agreements. Nor did it matter if SMART was intending to add another distributor as the Agreements expressly stated that the appointment was non-exclusive.

He ordered Electroboard to pay the outstanding invoices. [ 36 ] As for the Counterclaim, the Arbitrator found that most of Electroboard’s claims were precluded by the Agreements. In particular, he found that the claims relating to a breach of a duty of honesty in contractual performance from Bhasin were tied to Electroboard’s unsuccessful claim that it was SMART’s exclusive distributor. There was therefore nothing improper about Mr. Butler or Mr.

Gaydon’s conduct in identifying and entering into an agreement with another distributor. [ 37 ] The Arbitrator found that two claims in the Counterclaim survived and required a hearing. The first was Electroboard’s allegation of a breach of confidentiality and the second was Electroboard’s claim that it was entitled to return the SRS Lync product for a refund. ii. Arbitrator’s Partial Final Award [ 38 ] After the

Summary Judgment Award was issued, Electroboard hired new counsel and received approval to amend its Counterclaim. The amendments included new claims relating to the breach of the duties of good faith and honesty in contractual performance pursuant to Bhasin . A hearing was held in front of the Arbitrator for five days in June 2015. He heard evidence from six witnesses, including Mr. Gaydon, Mr. Butler, Ms. Bolton, Mr. Damian Bolton, one SMART employee and one Electroboard employee. [ 39 ] The Arbitrator issued his Partial Final Award on November 27, 2015 in a 39-page decision.

The decision considered the factual background relating to the parties and the various events that unfolded in the fall 2012 to June 2014 timeframe in detail. The Arbitrator found that the relationship between SMART and Electroboard was already showing strains by the fall of 2012. He found that differences between the companies became more evident in 2013 and 2014. [ 40 ] The key issues between the parties related to SMART’s launching of a new product, SRS Lync, and its requirement that Electroboard establish an independent company to distribute it, called Creacomm; as well as SMART’s appointment of Mr.

Butler to work with Creacomm in January 2014. Mr. Butler and Ms. Bolton had a strained relationship in the January to May 2014 time period. [ 41 ] At the hearing, each party blamed the other for the decline in the relationship, with Electroboard focusing on Mr. Butler’s “campaign to undermine Electroboard within SMART”. Electroboard claimed that from the beginning Mr. Butler disparaged Electroboard, Creacomm and Ms. Bolton to SMART and lobbied for a new distributor. [ 42 ] SMART claimed that problems between the companies started prior to Mr. Butler’s hiring.

The problems related to SMART’s concerns about Electroboard’s performance in the market and failure to sell the new SRS Lync product. SMART also focused on the difficulties of working with Ms. Bolton. [ 43 ] The Arbitrator found in favour of SMART and made numerous findings of fact relating to the January to June 2014 time period. He found that Mr. Butler had attempted to work productively with Ms. Bolton until May 2014. He also found that during the January to May 2014 timeframe, Mr. Butler had fairly identified that SMART may need a new distribution system.

The Arbitrator found it was legitimate and reasonable for Mr. Bolton to have done so considering the non-exclusive contractual terms and the roadblocks Mr. Butler was facing in making SMART and SRS Lynch successful in the territory. [ 44 ] The Arbitrator found that by mid-May 2014, Mr. Butler was actively supporting the appointment of a new distributor and was not supportive of Creacomm. He was also directing orders for SRS Lync to a new distributor. [ 45 ] The Arbitrator specifically considered two events that occurred in May in relation to the breach of a duty of good faith and honesty.

The first was an email Mr. Butler sent to Mr. Gaydon on May 13, 2014 which disparaged Ms. Bolton and referred to her “appalling verbal abuse” of her staff and called her “a bully, vindictive, untrustworthy, and outright unprofessional.” Mr. Butler’s email

also stated he would not promote Creacomm or Electroboard to the Microsoft Lync community. At the hearing, Mr. Butler conceded that his harsh words were false. [ 46 ] The second event was Mr. Gaydon’s decision in mid-May to appoint Westcon as a second distributor in the territory. Mr. Gaydon informed Ms. Bolton of that decision during a May 28 video-conference call. He sent her a letter on May 30th stating that the decision had been made because Electroboard failed to operate Creacomm as a new independent distributor and failed to sell SRS Lync.

He also cited difficulties SMART had working with Electroboard. [ 47 ] Ultimately, the Arbitrator found that SMART did not breach its duty of honesty. The Arbitrator cited paragraph 74 of Bhasin , noting that the duty imposes a “minimum standard of honest contractual performance.” He then quoted paragraph 73 of Bhasin describing the duty: ... This means simply that parties must not lie or otherwise knowingly mislead each other about matters directly linked to the performance of the contract.

This does not impose a duty of loyalty or of disclosure or require a party to forego advantages flowing from the contract; it is a simple requirement not to lie or mislead the other party about one’s contractual performance. Recognizing a duty of honest performance flowing directly from the common law organizing principle of good faith is a modest, incremental step. ... [ 48 ] The Arbitrator found that there was blame on both sides for the failed relationship, however he noted in particular Ms.

Bolton’s unwillingness to trust SMART and her failure to work productively to make their changing relationship a success. Others were also to blame, but neither party acted dishonestly. The only breach of the Agreements the Arbitrator found was Electroboard’s refusal to pay all invoices [ 49 ] In terms of Mr. Butler, the Arbitrator found that although he supported the appointment of a new distributor by May 2014, his actions did not amount to dishonesty in contractual performance.

SMART had the contractual right to appoint another distributor and did not have a fiduciary or other duty to disclose that it was considering doing so. [ 50 ] Regarding the May 13, 2014 email, the Arbitrator found it was unfair, untrue and reflected poorly on Mr. Butler. However, the impact of the email was not “sufficiently material” to lead to a conclusion that SMART’s conduct was dishonest. Instead, the Arbitrator found Mr. Gaydon’s decision to add another distributor was made based on his own experiences with Electroboard from 2012 onwards, including a number of events that occurred prior to Mr.

Butler being hired. The events included: hearing about a fallout between the companies in 2012 when he started at SMART; hearing that certain customers did not want to work with Electroboard in 2013; and hearing that there were concerns about Electroboard’s performance in 2013. [ 51 ] The Arbitrator concluded there was no plan by Mr. Butler to undermine the relationship with Electroboard. Nor did Mr. Butler have the necessary type of influence over Mr. Gaydon to do so, as he was new to SMART and worked as a salesman, not as a part of management. iii.

Final Award [ 52 ] The Arbitrator issued a Final Award specifying the amounts to be paid by Electroboard to SMART, including costs, in December 2015. SMART was awarded over $3.6 million in US funds for its unpaid invoices claim and additional costs of over $550,000 CAD. B. Appeal Tribunal’s Awards i. Appeal Tribunal’s Partial Final Award [ 53 ] In the Partial Final Award, the Majority of the Appeal Tribunal found in favour of Electroboard. It concluded that the Arbitrator made clear and convincing factual errors, particularly in his finding that Mr.

Butler did not behave dishonestly. [ 54 ] The Majority referred to documentary evidence in the nature of emails that Mr. Butler wrote to SMART management in February 2014, a month after he was hired, which it characterized as “expressing his negative views about Creacomm and Electroboard.” In the emails, Mr. Butler suggested there were problems with Ms. Bolton’s approach and that she was blocking all conversations with her staff. Mr.

Butler suggested they may need additional distributors, referred to SMART as being held “ransom” by Electroboard which “has to change,” suggested aggressive targets for Electroboard, and stated that Creacomm was not the best model for SMART at this time. [ 55 ] The Majority noted that Mr. Butler recanted his evidence that Ms. Bolton was “blocking all conversations” and that she merely wished to participate in meetings. The Majority also noted other problematic behaviour of Mr.

Butler including his dealings with a long-term Electroboard customer who was attempting to get a better deal by dealing directly with SMART, and diverting customers to Westcon after mid-May even though SMART still had valid agreements with Electroboard. [ 56 ] The Majority commented on Mr. Butler’s admittedly inaccurate depiction of Ms. Bolton in his May 13 email, and noted that in Mr. Gaydon’s response to the email he gave instructions to appoint a new distributor. The Majority found that the Arbitrator’s finding Mr.

Butler had not behaved dishonestly was “simply wrong and inexplicable” as his lies led to the decision to appoint Westcon as a second distributor. The Majority concluded Mr. Butler “lied about Ms. Bolton to his superior with devastating effect on Electroboard.” [ 57 ] In addition to factual errors, the Majority found that the Arbitrator made a serious error of law in his

interpretation and application of Bhasin . The Majority noted that “while a contracting party has an implied duty to perform honestly, it need not act dishonestly in order to breach its obligation under the principle of good faith.” Further, “[t]he guiding standard is whether the party has acted with appropriate regard to the other’s legitimate contractual expectations in the context of their particular relationship.”

[ 58 ] In relation to the

Summary Judgment Award, the Majority was critical of the Arbitrator’s decision for a number of reasons, including: questioning whether the Arbitrator had the jurisdiction to issue

summary judgment; questioning the Arbitrator’s decision to proceed without viva voce evidence as it hindered his ability to decide the issues; and questioning the Arbitrator’s reliance on Hryniak in an arbitration proceeding. The Majority was also critical of the

Summary Judgment Award because it was based entirely on the language of the distribution agreements without considering the behaviour of the parties. [ 59 ] The Majority found the Arbitrator made two specific errors in relation to the Bhasin analysis. First, the Arbitrator wrongly focused his attention on the addition of a distributor, rather than on whether Mr. Butler and others diverted business away from Electroboard and Creacomm.

The Majority found that although SMART may have had the strict contractual right to add a distributor, it was wrong to do so because it defeated Electroboard’s reasonable commercial expectations that SMART would support Electroboard and Creacomm in selling SMART products. [ 60 ] Secondly, the Arbitrator erred by focusing on the question of whether Mr. Butler was dishonest, rather than focusing on whether he and others at SMART had appropriate regard for the legitimate contractual interests of Electroboard and Creacomm. The Majority found that Mr. Butler’s activities, which were supported by Mr.

Gaydon and other senior management, constituted an egregious breach of their duties to Electroboard and Creacomm. In the Majority’s view, Ms. Bolton’s behaviour was irrelevant to the question of whether Mr. Butler and SMART were in breach of their good faith obligation. [ 61 ] The Majority concluded that Mr. Butler and SMART breached their good faith obligations to Electroboard through Mr.

Butler’s dishonest behaviour, his immediate launching of a campaign to replace Electroboard/Creacomm, and by diverting business away from Electroboard. [ 62 ] The Majority ordered SMART to take back all of Electroboard’s remaining stock of SMART products for credit and reimburse Electroboard for shipping and related expenses. ii. Dissent to Partial Final Award [ 63 ] A strong dissent was issued by one of the members of the Appeal Tribunal. The dissenting arbitrator raised the issue of the role of an appellate arbitrator. He stated that the proper role is to review the

interpretation and application of the law of the initial arbitrator for “clear error” and to review the initial arbitrator’s findings of fact for “clear and convincing factual errors”. He noted that instead of doing this, the Majority took a “holistic” approach to appellate review and believed their role was “to do justice between the parties above all else” and reach a “just result relatively unhindered by the findings below.” [ 64 ] The Dissent took issue with the Majority’s decision 1) to reverse the

Summary Judgment Award on an issue that was first raised on appeal, and 2) to reverse the Partial Final Award by failing to give due deference to the findings of fact made by the Arbitrator. [ 65 ] The Dissent was especially concerned with the Majority’s approach to the facts because the Arbitrator heard live evidence from witnesses whereas the Appeal Tribunal only had a written record to review.

He noted that the credibility of witnesses is best judged by those who see and observe how a witness gives evidence and responds to questions, noting it is a tenet of appellate judicial review to give deference to the trier of fact. He condemned the Majority’s reweighing of the impact of the evidence and found the Majority “totally disregard[ed] every finding of fact the Arbitrator found below to be true.” iii.

Final Award [ 66 ] On January 31, 2017, the Majority of the Appeal Tribunal released a Final Award which awarded Electroboard costs of the arbitration and appellate arbitration proceedings, and costs against SMART on a solicitor-client basis. The Dissenting Arbitrator refused to sign the Award for reasons similar to those expressed in his prior Dissent. VI.

Findings of this Court [ 67 ] I now consider whether the Majority of the Appeal Panel in fact dealt with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contained a decision on matters beyond the scope of submission to Arbitration, pursuant to Article 34(2)(a)(iii) of the Model Law. Both parties agreed that there is a high onus to set aside an arbitral decision under the Model Law. [ 68 ] The jurisprudence considering the application of Article 34(2) is clear that only true jurisdictional errors permit this Court’s intervention. This is not a traditional appeal.

None of the grounds in

Article 34 allow a court to review the merits of a tribunal’s decision: Cargill ; Mobil .

This Court does not engage in a hearing de novo of the merits or undertake a review of the tribunal’s decision as a court would under judicial review: Bayview at para 11. [ 69 ] Notably, there is no basis to set aside an international arbitration award because it is factually wrong or legally wrong: STET International at para 27, see also paras 68-69: An arbitral award is not invalid because, in the opinion of the court hearing the application, the Arbitral Tribunal wrongly decided a point of fact or law: Quintette Coal, supra, at p. 227. [ 70 ] This narrow scope of review has been put in place to show respect for international commercial arbitration awards “in the interest of comity among nations, predictability in decisions and respect for autonomy of the parties’ chosen panel”: Bayview at para 13. [ 71 ] The meaning of a “true jurisdictional error” was explained thoroughly in Cargill .

The Ontario Court of Appeal considered whether an arbitration tribunal’s damages award could be set aside under Article 34(2)(a)(iii). The allegation was that the tribunal awarded a head of damages it did not have the authority to award under NAFTA’s

Chapter 11 provisions.

[72] Referring to Article 34(2)(a)(ii) , the Court stated that it “allows a court to review the award based on excess of jurisdiction”at para 31. The Court then specifically discussed the meaning of jurisdiction as it relates to

Article 34. It quoted from Dunsmuir notingthat: “‘Jurisdiction’ is intended in the narrow sense of whether or not the tribunal had the authority to make the inquiry. In other words,true jurisdiction questions arise where the tribunal must explicitly determine whether its statutory grant of power gives it the authority todecide a particular matter.

The tribunal must interpret the grant of authority correctly or its action will be found to be ultra vires...”Cargill at para 40, citing Dunsmuir v New Brunswick, 2008 SCC 9 , [2008] 1 SCR 190 at para 59. [73] The quote from Dunsmuir goes on to identify a case involving a true case of jurisdiction, United Taxi Drivers’ Fellowship ofSouthern Alberta v Calgary (City), 2004 SCC 19, [2004] 1 SCR 485. In that case the issue was whether the City of Calgary wasauthorized under the relevant municipal acts to enact bylaws limiting the number of taxi plate licenses.

The Court in Dunsmuir statedthat the case involved “the decision-making powers of a municipality and exemplifies a true question of jurisdiction...” at para 59. [74] In Cargill, the Court of Appeal noted that courts should take a narrow view of what constitutes a question of jurisdiction andresist broadening the scope of the issues to effectively decide the merits of the case. This is especially true in an international arbitrationcontext, Cargill at paras 46-47: ...

Courts are warned to limit themselves in the strictest terms to intervene only rarely in decisions made by consensual, expert,international arbitration tribunals, including on issues of jurisdiction.... Therefore, courts are to be circumspect in their approach to determining whether an error alleged under Article 34(2)(a)(iii) properly fallswithin that provision and is a true question of jurisdiction. [75] The Court provided two helpful examples of jurisdictional errors where a tribunal’s decision would go beyond the limits of itsdecision-making ability.

One example would be if the tribunal awarded damages for 2009 to 2010 in a case where the parties had agreedin their submission that the years in question were 2007 and 2008. One other example would be if the tribunal awarded damages underNAFTA for an investment made by an investor in Brazil, contrary to the

Chapter 11 requirement that the investment to be located in theterritory of a Party to NAFTA, Cargill at para 49: For example, if the submission to arbitration, agreed to by both parties, makes a claim for damages suffered in the years 2007 and 2008,and the tribunal awards damages for 2009 and 2010, that would be an "award ... not falling within the terms of the submission toarbitration." Another example might be where the "investment" made by an investor from one Party is located in Brazil - i.e. not in theterritory of another Party - and the tribunal awards

Chapter 11 damages for losses suffered by the investor in Brazil even though Chapter11 defines an investment as being located in the territory of another Party to the NAFTA i.e., Canada, the United States or Mexico. [76] The Court then outlined the questions a reviewing court should ask to identify and narrowly define any true question ofjurisdiction.

A court should ask if the tribunal decided an issue that was not part of the submission to arbitration, or misinterpreted itsauthority under the governing law, at para 52. [77] The Court later reiterated that “the inquiry under Article 34(2)(a)(iii) is restricted to whether the tribunal dealt with a matterbeyond the submission to arbitration, not how the tribunal decided issues within its jurisdiction,” Cargill at para 66 [italics mine]. [78] Applying Cargill, I must ask whether the Majority of the Appeal Tribunal decided an issue that was beyond the submission toarbitration, or whether it misinterpreted its authority under the AAA Optional Appellant Rules, or under Clause 10.1.6. [79] The issues that the parties submitted to arbitration were set out in SMART’s Statement of Claim and Electroboard’s Statementof Defence and Counterclaim (and amended Counterclaim).

Those issues were whether Electroboard was required to pay SMART over$3 million dollars in outstanding invoices or whether any of Electroboard’s defences, including set-off, breach of contract, or a breach ofthe duty of good faith or honest performance were valid. The arbitration was to be governed by the ICDR International Arbitration Rules,and the laws of Alberta and Canada.

Clause 10.1.6 of the distribution agreements and the AAA Optional Appellant Rules also definedthe terms and scope of the submission on appeal by requiring clear errors of law or clear and convincing factual errors to be found inorder to modify or replace the award below. [80] After a careful review of the Majority of the Appeal Tribunal’s Awards, as well as the two Dissents, I find the AppealTribunal did not consider any matters outside of its authority. [81] Ultimately this was a contractual dispute over unpaid invoices and unused inventory; the question being whether the invoiceshad to be paid or whether the inventory could be returned.

These issues were considered by the Arbitrator and the Appeal Tribunal. TheMajority concluded that Electroboard was in breach of its good faith and honesty in contractual performance obligations to Electroboardand fashioned what it saw as an appropriate remedy. [82] The Majority came to a different conclusion than the Arbitrator about the application of the law to the facts, such as the impact of Mr. Butler’s May 13th email to Mr. Gaydon and whether Mr. Butler’s conduct was a breach of the good faith and honesty incontractual performance.

However, its conclusion was based on issues in dispute that were within the scope of the submission toarbitration. [83] Aside from the standard of appeal issue, I find that the Appeal Tribunal had the jurisdiction to hear and decide the matter thatit did, and that any issues as to how they came to that decision are not under the purview of Article 34(2)(a)(iii), such as the proceduraland substantive issues relating to the

Summary Judgment Award and the basis for the costs award. Delving into those issues wouldrequire this Court to consider the merits of the decision(s). [84] The more serious issue raised by SMART is whether the Appeal Tribunal’s decision was within the terms of the submissionto arbitration, and in particular within the standard of review prescribed by the Rules and Clause 10.1.6. If the Appeal Tribunal failed toapply the standard of review and instead made the decision ex aequo et bono, it would be acting beyond its jurisdiction. This is the onlytrue jurisdictional issue raised.

[ 85 ] I have some sympathy for SMART’s position, as it appears the Majority of the Appeal Tribunal did not follow the typical approach in appellate review, at least in courts, of focusing their discussion on a review of the findings of fact and the application of the law to those facts in the court below. In particular, the Majority gave little deference to some of the Arbitrator’s findings of fact, stating that deference was not owed on the

Summary Judgment Award because the Arbitrator decided the matter on the Record and did not observe witnesses or decide credibility on the basis of in-person observations. However, the Majority did not acknowledge that deference should apply to some findings of fact and the credibility assessments considering that the Arbitrator heard a 5-day oral hearing for the Partial Final Award. Instead, the Majority declared no deference arose for the Partial Final Award because there were clear and convincing factual errors.

This is not convincing on its own. [ 86 ] However, the Majority clearly set out the standard of review in pages 18 to 21 of its decision, quoting both the applicable AAA Optional Appellate Arbitration Rules provision and referring to Clause 10.1.6. The Majority was therefore clearly aware of the standards of review that applied on appeal. [ 87 ] I also find the Majority in fact applied the standards of review to the Arbitrator’s Awards. [ 88 ] The focus of the Majority’s decision in the case was on the duty of good faith and honesty in contractual performance.

The Majority reviewed the Bhasin case in detail and found that the Arbitrator had applied the case improperly in both the

Summary Judgment Award and the Partial Final Award. I find that the Majority’s findings in paragraphs 74 to 79, which follow, and formed the basis for its decision, demonstrate that the Majority considered and applied the standard of review by finding, in its opinion, clear factual errors and clear legal errors: As previously stated, particularly at paragraph 54 above, the Arbitrator’s

Summary Judgment Award on this Claim for payment of its invoices was based entirely on the language of the Distribution Agreement. The Arbitrator found that Electroboard’s Claim, that the invoiced amounts should be set off by the damages owed by SMART on Electroboard’s Counterclaims, was precluded by the agreements and decided summarily that Electroboard was contractually obligated to pay the invoices without regard to any damages that Electroboard might recover.

In making this finding the Arbitrator was clearly in error and acted contrary to the principles above stated. [Referring to Bhasin and other good faith cases] The Arbitrator made two further significant errors in respect to his Bhasin analysis. The first was that he focused most of his attention not on the activities of Mr. Butler and others in diverting business away from Electroboard and Creacomm, but instead focused on the opening of a competing distributor in ANZ. The focus of the Bhasin analysis must be on whether the activities of one party defeated the reasonable commercial expectations of the other. ...

In this case, as we can see from the opening words of the Distribution Agreements, which is reproduced at paragraph 3 above, and a reading of the agreements as a whole, the expectation was that SMART would support Electroboard and Creacomm in their business of selling SMART products. ... The second error was the Arbitrator’s focus on the question of whether there was dishonesty on the part of Mr. Butler. One can be honestly in breach of the obligation to have appropriate regard for the legitimate contractual interests of the other party just as one can be dishonestly in breach of it.

The question is not about honesty, but it is the question the Arbitrator appears to have asked himself when he declined to find Mr. Butler’s conduct to be in breach of the Bhasin principle. He should not have done so as Mr. Butler’s activities, supported by Mr. Gaydon and other senior management, constituted an egregious breach of their duties to Electroboard and Creacomm. ... The Arbitrator’s failure to recognize Mr. Butler’s recanting of his May 13, 2014 email, in which he excoriates Ms. Bolton, is clearly an error which goes to the heart of his decision. Mr.

Butler admits without reservation that what he wrote was untrue. In other words, he lied about Ms. Bolton’s behaviour to his senior management, resulting in the decision to appoint Westcon as a second distributor.

Such behaviour is nothing if not dishonest, just as was diverting business from Electroboard to Westcon and others... [ 89 ] There are some gaps and problems in the approach of the Majority to its review, and its comments about “angels dancing on the head of a pin” are unfortunate, however the focus of this Court’s inquiry is on whether the Majority decided a matter within its jurisdiction. [ 90 ] Therefore, despite some hesitation regarding the Majority’s approach to appellate review, I reject SMART’s allegation that the Majority decided the matter ex aequo et bono and completely ignored the applicable standard of review . [ 91 ] In particular, I note that even if the Appeal Tribunal’s standard of review was improperly applied, a failure to apply the appropriate standard of review is an error of law, not an error of jurisdiction: Canada (Minister of Citizenship and Immigration) v Huntley , 2011 FCA 273 , [2012] 3 FCR 118, at para 8 , leave to appeal dismissed [2011] SCCA No 522; Dirom v Furgeson , 2014 ABCA 261 ,580 AR 158, at para 23 .

A jurisdictional error would only have occurred if the Majority’s decision ignored the standards of review completely and was based solely on what the Majority saw as “equitable and good” ( ex aequo et bono): STET International ; Consolidated Contractors Group S.A.L. v Ambatovy Minerals S.A. , 2016 ONSC 7171 , at paras 13 , 34 [ Consolidated Contractors ] . [ 92 ] The cases provided by SMART where decisions were made ex aequo et bono are easily distinguishable from the type of decision-making that occurred in this case.

In the Cairo Court of Appeal case the tribunal failed to apply the law of the jurisdiction entirely. The Majority here applied the relevant law relating to the breach of good faith and honesty in contractual performance. Nor is this case similar to the Munich decision where the Arbitrator essentially imposed a settlement on the parties by re-writing their contract rather than applying the law.

Here I find the Majority of the Appeal Tribunal considered and applied the applicable law, including the standard of review. [ 93 ] I agree with Electroboard’s submission that the process here was a far cry from a situation where an arbitrator reviews the law and concludes its application will have an unjust outcome, then abandons legal principles to craft his or her own remedy outside of the law.

[ 94 ] The comments of the Dissent, which evidence obvious frustration with the “holistic” approach to appellate review of the Majority, does not go so far as to suggest that the Majority did not apply the law in coming to its decision. In fact the Dissent notes that the Arbitrator and the Majority interpret Bhasin’s new contractual obligations differently. The Arbitrator’s

interpretation was reasonable and did not rise to the level of a ‘clear error of law’ for the Dissenting Arbitrator. The Majority came to the opposite conclusion. However, there was not a failure to apply the law. [ 95 ] At most, SMART and the Dissent’s view on the Majority’s problematic appellate approach could support a finding that the standard of review was applied improperly.

However as noted previously, that would be an error of law, not jurisdiction. [ 96 ] I find that the Majority of the Appeal Tribunal applied the law and did not decide the appeal ex aequo et bono. [ 97 ] In terms of the costs award in the Appeal Tribunal’s Final Award, I find that the Majority correctly concluded it had the authority to address such issues based upon the arbitration clause in the distribution agreements and the applicable ICDR and Appellate Rules.

It properly found authority in Articles 10.1.4 and 12.6 of the distribution agreements to apply those Rules in priority over Alberta law (being the costs regime set out in the Rules of Court ). No question of jurisdiction arises: Consolidated Contractors at para 123 .

The manner in which solicitor-client costs were awarded is an issue involving the merits of the decision, and is beyond this Court’s purview. [ 98 ] As SMART has failed to demonstrate that the Awards were rendered upon ex aequo et bono decision-making or contrary to Article 34(2), this Court recognizes Appeal Tribunal’s Partial Final Award and Final Award pursuant to

Article 35 of the Model Law and declares that Electroboard is entitled to enforce the Awards against SMART in the Province of Alberta. [ 99 ] If the parties are unable to agree on the costs of this application, they may make an appointment to speak to same. Heard on the 13 th day of April, 2017. Dated at the City of Calgary, Alberta this 15 th day of September, 2017. J.T. McCarthy J.C.Q.B.A. Appearances: Allison G. Kuntz and Lisa K. Hodgson Norton Rose Fulbright Canada LLP for the Applicant Josef G.A. Kruger, QC and Jessica L. Cameron Borden Ladner Gervais LLP for the Respondents