December 14, 2023
Courts in Ontario will usually defer to arbitrators and are reluctant to second guess their decisions. We have written about this before.
ISSUE
Where does the court draw the line?
Courts will act to ensure that arbitrators apply the correct law, especially on arbitrations under the Arbitration Act 1991 which are subject to appeal on questions of law.
THE CASE
Taseko Mines Limited v. Franco-Nevada Corporation began as a dispute over whether or not a mining agreement known as a streaming agreement, was frustrated when the development did not obtain the required permits to proceed. If an agreement is frustrated, it ends with no one having to pay anything because the termination was not due to anybody’s fault.
Under Ontario law, it is very clear that for events to lead to frustration, they must be unforeseen at the time the agreement is entered into, unless the agreement in the “frustration clause” says something different.
This arbitration was subject to Ontario law.
However, the arbitrator ignored that Ontario law and applied law from other provinces where the “unforeseen” requirement is less clear.
The Taseko streaming agreement anticipated what would happen if the permit was refused. Under Ontario law, it was not frustrated.
The arbitrator found that the agreement WAS frustrated.
Judges, especially appeal court judges, expect the law to be applied properly. That is what a system of laws is all about.
So not surprisingly, the arbitrator’s award was overturned in this exceptional situation.
TAKEAWAYS
- Courts will continue to defer to arbitrators generally.
- Courts are more likely to intervene where the arbitrator is wrong in law.
- This is particularly true of interpretation of contracts, where the issue requires the application of law.
- The doctrine of frustration, in Ontario, normally requires that the frustrating events be unforeseen when the contract is agreed to.
- The language of the “frustration clause” in the agreement can change the result.
- The frustration clause is often one of those “boilerplate” clause a drafter (lawyer) picks from a precedent.
- The parties should pay attention to the frustration clause before signing the agreement, to makes sure it truly matches their intent.
WHAT WEILERS LLP CAN DO TO HELP YOU
Weilers LLP’s proud tradition in mining law goes back to our roots. Before Biff and Bernie Weiler combined their practices in Fort William (now Thunder Bay) 75 years ago, they got their starts in Red Lake and Hardrock mining camp (Geraldton) respectively. We now combine that tradition with a progressive approach that reflects our extensive work with resource industries, investors, lenders and First Nations. If you have questions about streaming agreements or any other aspect of mining law, we might be the right lawyers for you.
Our progressive approach includes a familiarity with alternative dispute resolutions, including arbitration, and we could help avoid errors leading to expensive appeals.