Setting Aside An Arbitration Award for Fraud

legal case

I recently read a case about a condo arbitration. A condominium brought an application to set aside an arbitration award because of alleged fraud by the owners. The condominium started the arbitration because it believed the owners had not complied with section 98 of the Condominium Act, 1998. The arbitrator disagreed and awarded the owners $216,643.49 in costs!

The declarant converted a nineteenth-century mansion and coach house into a four unit condominium. The declarant resided within one of the units. The owners who were party to the arbitration sent a renovation proposal to the declarant. The condominium and owner entered into a section 98 agreement. The agreement was registered on title  with two preliminary drawings (the arbitrator found that the agreement envisioned the approval of further drawings by the board).

A turnover meeting was held and new directors were elected, including one of the owners making the changes to the unit. Between January and September of 2013 there was no mention of further drawings for the unit. On October 10, 2013, there was a meeting of the board. The other two directors raised concerns about the scope of work. Various emails were exchanged by the directors and owners regarding the work and a resolution was reached in November. By December 2013 the exterior work was substantially completed.

In March 2014 the condominium notified the owners that they had breached the section 98 agreement by constructing their unit and the common elements in a way that was not compliant with the agreement. The owners continued their renovations. Mediation was held, but no settlement was reached so the dispute was submitted to arbitration.

The arbitrator released his decision on May 5, 2017. He found in favour of the owners and ordered the condominium to discharge all liens registered against the unit. The arbitrator’s reasoning was that the section 98 agreement incorporated by reference the working and permit drawings, which had no variances. In the alternative, all of the alleged variances were referred to in the agreement or approved by the directors at its board meeting and the various emails exchanged after the meeting.

After the arbitration award was released, the condominium contacted the declarant and former directors. They indicated that they had no recollection of the meeting the owner alleged happened to discuss the plans. The condominium commenced the application to set aside the award for fraud and for leave to appeal the award on the ground of error of law. The condominium also brought a motion to the arbitrator to have the award set aside on the grounds of fraud, but the arbitrator dismissed the motion.

The court reviewed its jurisdiction to set aside an arbitration award according to section 46 of the Arbitration Act, 1991, which included awards obtained by fraud. To set aside an arbitration award for fraud: 1) the moving party proves fraud on a balance of probabilities; 2) the fraud must be material and go to the foundation of the case; 3) evidence of the fraud must not have been known to the party seeking to set aside the order; and 4) the party seeking to set aside the order must have acted with due diligence.

The court found that the condominium did not satisfy the test to set aside the award. The court was not satisfied that a fraud was committed. Furthermore, the court found that the condominium did not act with due diligence as the evidence could have been discovered prior to the hearing “by the exercise of reasonable diligence.” Finally, even if the new evidence was reliable, it would not affect the outcome of the arbitration as the alleged fraud was not material.

Key points:

  • ensure the section 98 agreement clearly captures the intent of the parties. A boilerplate agreement may not work in every case and careful consideration must be given to the changes being made by the owner.
  • read the arbitration agreement before signing it and make sure you understand any limits on your appeal rights.
  • be diligent and gather all relevant material for the arbitration as you may not be entitled to introduce the evidence later.