Mediation Misread: Sensible Dispute Resolution Clauses Supported on Appeal

The Ontario Court of Appeal in J.P. Thomson Architects Ltd. v. Greater Essex County District School Board emphasized that interpreting dispute resolution clauses requires considering the contract as a whole and its commercial context, especially in long-standing business arrangements. In overturning the decision of the application judge, Gomery J.A. found that the clause had been misconstrued and that factual findings were made which should have been left to the arbitrator. This decision reinforces the importance of a contextual and purposive approach to contract interpretation.

Key Takeaways

The decision highlights the need to interpret dispute resolution clauses in light of the whole contract and the commercial realities of the parties’ relationship and with business sense. Dispute resolution clauses are intended to promote informal negotiation before formal proceedings, particularly in longstanding contractual relationships. It also confirmed that determining the scope of disputes under an arbitration agreement is a matter for the arbitrator, not the court.

Background

The case arose from a dispute between J.P. Thomson Architects Ltd., an architectural services firm, and the Greater Essex County District School Board, with whom it had a long-standing contractual relationship. The contract contained a dispute resolution clause requiring mediation and arbitration for unresolved issues:

"Any dispute between the parties arising out of or relevant to this Agreement which cannot be resolved by the parties within thirty (30) days of the dispute arising, shall be referred to mediation, upon the request of either party.” “In the event that the parties have not selected a mediator within thirty (30) days of the giving of notice of mediation by one party to the other, either party may proceed to the arbitration process as hereinafter set forth. In the event that any dispute between the parties has not been resolved by such mediation within thirty (30) days following selection of the mediator, such dispute shall be settled and determined by binding arbitration requested by either party, pursuant to the Arbitration Act of Ontario […]"

The parties were unable to agree on the appropriate fees for an architectural project. The architect delivered a notice requesting mediation and sought to appoint a mediator, but the school board declined to participate, asserting that no dispute existed. The architect then issued a notice to arbitrate and ultimately applied to the court for an order appointing an arbitrator.

The application judge found that this clause imposed a strict, 30-day deadline on the parties to seek mediation. As a result, the judge dismissed the architect’s application, concluding that they had failed to comply with the contractual requirement by not requesting mediation within 30 days of the dispute arising. In doing so, the judge made various factual findings about the nature and timeline of the dispute.

Appeal Decision

In allowing the appeal, the Court of Appeal held that a proper grammatical reading of the dispute resolution clause meant the parties were required to attempt to resolve disputes for at least 30 days before seeking mediation, rather than imposing a strict 30-day deadline to request mediation.

By assessing the contract in its entirety, the Court held that this interpretation was consistent with the overall structure and commercial purpose of the contract. The Court added that obliging informal negotiation before proceeding to a formal dispute resolution process makes commercial sense in the context of longstanding contractual relationships. It would not make sense to require parties to serve a notice of mediation every time they couldn’t resolve a dispute within 30 days.

Finally, the Court commented on the jurisdiction of an arbitrator, restating that when a dispute falls within the terms of an arbitration agreement, it is for the arbitrator, not the court, to make a final determination regarding the scope of the dispute. The Court noted that the application judge erred by making extensive factual findings about the parties’ history, thereby encroaching on the arbitrator’s role.