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Recently, the Supreme Court of Canada in Uber vs. Heller put the commercial world in a tizzy, invalidating a clause that Uber drivers agree to future arbitration in the event of a dispute over their compensation. Meanwhile, the family law bar yawned, knowing all too well that feeling of ineffectual future arbitration clauses.
What we call a “secondary arbitration” clause – a term in a separation agreement (/Minutes of Settlement), court order or arbitration award purporting to direct the parties to arbitrate specific issues arising from that initial document – is near-worthless and even dangerous. “Near-worthless”, in that a party who signs an agreement with a secondary arbitration clause likely won’t be held to proceed to arbitration, nor will such a clause act to stay a court proceeding. “Dangerous” because there are conflicting judicial decisions on the issue, leading to parties to litigate over the very forum of their dispute resolution, a problem we also face over lines of appeal.
The recent decision in Magotiaux v. Stanton came shortly after Uber v Heller, and it continues the debate over what exactly a “secondary arbitration” clause actually does. The purpose of this paper is not to review the conflicting caselaw. Rather than analyzing this conundrum by looking at the existing legislation, in essence “What were they thinking?”, let’s travel into the not-to-far past – looking at the legislative history to determine “What were we thinking?” After all, the relevant legislation came into effect in 2007: well after the Internet and even Facebook, the year when the IPhone was introduced and people still thought Blackberries were business chic.
(A) Using caselaw to define the problem
There were already rumblings from 2011 to 2015 that something wasn’t right with our ‘standard’ secondary arbitration clauses. For those not keeping score of the more recent decisions on secondary arbitration clauses:
|
Case |
Judge |
Enforceable by Court? |
Stays Court Proceedings? |
|
Michelon v. Ryder, 2016 ONCJ 327 (CanLII) |
Kurz J. |
No |
Likely not (not at issue) |
|
Horowitz v Nightingale, 2017 ONSC 2168 (CanLII) |
Nelson J. |
No |
No |
|
Lopatowski v. Lopatowski, 2018 ONSC 824 (CanLII) |
Gray J. |
Yes |
Likely (but not at issue) |
|
Giddings v. Giddings, 2019 ONSC 7203 (CanLII) |
Gray J. |
Yes |
Likely (implicitly) |
|
Magotiaux v. Stanton, 2020 ONSC 4049 (CanLII) |
Mackinnon J. |
No |
No |
Before you think the situation is just ‘Justice Gray against the World’, consider the following argument for allowing a secondary arbitration clause to force parties to arbitration and stay litigation over the same issues:
You see, FLA s. 59.7 defines “secondary arbitration” as
- “a family arbitration that is conducted in accordance with a separation agreement, a court order or a family arbitration award
- that provides for the arbitration of possible future disputes relating to the ongoing management or implementation of the agreement, order or award.”
Comparable (but different) wording can be found at Section 4(2) of the Reg, Family Arbitration[1], which states that:
“An arbitrator who conducts one or more secondary arbitrations under a separation agreement, court order or family arbitration award, shall create a record containing the following matters …”
Question: Why would we care about the underlying document and what it provides for, if that document is not operative? It must be that that the “separation agreement, court order or family arbitration award” are operative – and enforceable – documents!
This argument was made in Michelon v. Ryder, where Kurz J. found that notwithstanding that wording, there was no express statutory authorization to order parties to arbitration. On the other hand, the argument was accepted in Lopatowski, where Justice Gray states, at 41-42:
“The reference to “court order” in this definition can only be a reference to an order made on consent. That must be so since it is accepted that a court order that is not made on consent cannot contain a requirement to arbitrate. While the definition does not expressly say that the court has the power, on consent, to order that disputes be arbitrated, the definition cannot be meaningfully understood unless it impliedly recognizes that the court has the power to make such an order on consent.
To the extent that Kurz J. came to a different conclusion in Michelon, supra, I respectfully disagree.”
Now, countering this argument is that the legislation provides “the standard provisions” aka “formal requirements” needed to enter both a Family Arbitration Agreement and a Secondary Arbitration Agreement. Specifically, that the Reg (at s.2(2)(b)) makes it clear that:
“Every secondary arbitration agreement made on or after September 1, 2007 shall contain … the provisions set out in paragraphs 1, 2 and 3 and subparagraphs 5 i, ii and iii of subsection (4).”
For shorthand:
- Paragraph 1 is a clause stating that the arbitration will be decided according to Ontario law;
- Paragraph 2 is on appeal rights;
- Paragraph 3 is the name of the arbitrator;
- 5(i)-(iii) relate to a certificate signed by the arbitrator, confirming (i) fair treatment, (ii) appropriate training to arbitrate and (iii) confirming the parties were screened for power imbalances.
That is, the Regs ensure that, even if there is reference to further secondary arbitration in a separation agreement, court order or arbitration award, you still need to enter into an actual arbitration agreement, and that the arbitrator provide a certificate after screening is completed. The only difference for secondary arbitrations – vis a vis ‘regular’ family arbitrations – is no requirement that a party have independent legal advice (nor the arbitrator confirming the same in the arbitrator’s certificate).
In Lopatowski (at 58), the Court didn’t find a need to get around the formal requirements. Rather, Justice Gray found that secondary arbitration clauses already address them, implicitly:
“The principle of good faith and honest contractual performance would require that the parties take the steps necessary to make that agreement operative. In a case such as this, the parties, represented by experienced counsel, would know that certain formalities would be required, including statutory formalities.”
Similarly, in Giddings, Justice Gray found that the parties had express terms in their secondary arbitration clause to fulfil the formal requirements.
Yet, the idea of implied or even express terms to comply with formal requirements is not without controversy. The formal requirements are not mere drafting issues nor technicalities to check off a checklist, especially with respect to screening for power imbalances. The reader is directed to Hilary Linton’s extensive reviews on this subject.[2] From the other caselaw cited above, the formal requirements are the end of secondary arbitration clauses as we had them as a means of dispute forum selection and staying court proceedings.
(B) A Look at the Legislative Development and Submissions
How did we get it so wrong? Or better asked, why would the legislation talk about the underlying document (“separation agreement, court order or arbitration award”), if that document is not operative or enforceable?
If you simply want the answer, skip to Part (C) below. Otherwise, follow me down the rabbit hole.
To answer this question, I looked at into some of the legislative history of Bill 27: An Act to Amend the Arbitration Act (1991)[3]. In particular I reviewed the Boyd Report (December 2004) and the submission Exhibits maintained for The Standing Committee on General Government, 2nd Session, 38th Parliament, Bill 27. Links to these documents are at the end of this document.
(1) Underlying Objectives of the Legislative Amendments
In June 2004, the Ontario government commissioned Marion Boyd to conduct a review of the use of arbitration in family (and estate) matters. Her resulting report is called “In Dispute Resolution in Family Law: Protecting Choice, Promoting Inclusion” (December 2004) (“Boyd Report”). An executive summary is available online[4]. The Boyd Report formed the original basis for the legislative changes.
Dr. Barbara Landau succinctly summarizes the purpose of the resulting legislative amendments (Ex 12A)
“There is a concern about the need to protect vulnerable people, that is, those in abusive relationships or who are not well informed about Canadian rights and protections, from awards that do not reflect Canadian law or values. On the other hand there is a need to allow informed individuals the right to make process choices and achieve finality in their arrangements after a separation.
In addition, many couples select arbitration to resolve fairly narrow issues or to address disputes that arise some time following a negotiated Separation Agreement or Court Order. These arbitrations rarely address the broad scope of issues arising from a separation and are a constructive effort to find a relatively time and cost efficient dispute resolution mechanism. Such participants usually have already had ILA and are making an informed choice and would benefit from finality.”
This paper is sidestepping the politics of the time. Just note the balancing act between (i) the need to ‘protect vulnerable’ on the one hand, yet (ii) allow individuals to ‘make process choices’. Dr. Landau’s second paragraph is talking about secondary arbitration as a means “to resolve fairly narrow issues or to address disputes that arise some time following a negotiated Separation Agreement or Court Order” in a manner that is “time and cost efficient”.
(2) Secondary Arbitration Conceived
Recommendations 5 and 6 of the Boyd Report are Secondary Arbitration in form, but not name:
“5. Part IV of the Family Law Act should be amended so that if a co-habitation agreement or marriage contract contains an arbitration agreement, that arbitration agreement is not binding unless it is reconfirmed in writing at the time of the dispute and before the arbitration occurs.
- The reconfirmation in writing should not be required for an arbitration conducted:
- under a separation agreement;
- as a consequence of an award made in an arbitration that was itself agreed to contemporaneously; or
- as a consequence of a judgment of a court.”
Notice the theme of a “separation agreement, arbitration or court order”? It is in reference to a “Reconfirmation” of a cohabitation agreement and marriage contract containing “an arbitration agreement”. Question: Is that an actual “arbitration agreement” or merely an “agreement to arbitrate”?
(3) Comments on Secondary Arbitration Arising from the Then-Proposed Legislation
The proposed legislation can be found within ‘Ex 012A – Submission of ADR Institute and OAFM (Barbara Landau) dated January 16, 2006’. The section on “secondary arbitration” is the same then as it is now.
Reviewing the various submissions, the other legal issues the family practitioners were concerned with at the time included:
- the enforcement of an arbitration award;
- The seeming ability to set aside an arbitration award on the basis of 56(4)(a), failure of financial disclosure;
- Requirement for ILA and whether a party can waive the requirement;
- Whether screening would be conducted by the arbitrator professional or by another third-party;
- Contracting on out of the right of appeal; and
- Explicitly specifying parenting coordinators as a form of Secondary Arbitration.
So there was a lot on everyone’s plate. On the issue of Secondary Arbitration, I am taking the space to copy specific highlights (underline emphasis added):
Ex 008 – Submission of OBA Joint Family, ADR and Feminist Sections Submission dated January 16, 2006
“We wish to draw the committee’s attention to a potentially serious problem with the draft legislation as it relates to the issue of secondary arbitration.
Secondary arbitration (particularly mediation-arbitration) is a common, cost effective way for parties to resolve disputes around interpreting, implementing and changing their separation agreements. We feel that the proposed definition may not be broad enough to include the range of future disputes that parties may wish to arbitrate without having to start all over again and incur the cost of further ILA on the process.
We understand the objective behind section 59.4 of the amending legislation, and agree that parties should not be bound by an agreement to arbitrate contained in a marriage contract. We query whether the same standard should apply however to arbitration provisions in separation agreements, which are extremely common.”
011 Submission of Thomas G. Bastedo dated January 16, 2006
“16. I submit that these two Sections 5(9) 59.4 and 59.7 – as currently drafted, interfere with and effectively destroy one of the most common and useful facets of arbitration which is used regularly by the public at this time in this province.
- I set out three separate examples of the sort of problems which are being dealt with now by arbitrators or by person who have arbitral powers:
(a) The assistance given to parents to deal effectively with each other on matters relating to parenting their children through the assistance and under the supervision of parenting coordinators. This role is clearly set out by Dr. Barbara Fiddler in her submissions to this Committee. There is very real concern that the Bill will eliminate the possibility of this role continuing because the essence of the role is to give to the parenting coordinator the power to regulate and resolve disputes which may arise in the future.
(b) The resolution of ongoing financial disputes which may arise in the future. Under the statutory provisions relating to the determination of child support, the amount of child support paid is a function of the determination of the payor’s income. Many individuals’ income changes from year to year and there are issues relating to the determination of that income. I, and others, are regularly named in agreements as the Mediator/Arbitrator to resolve these disputes as they occur, usually in the late spring after tax returns of the parties are filed. This process gives the parents and spouses a swift and effective means of concluding and resolving issues relating to obligations for the support of children. The alternative is to start an application in the Court system to have the matter determined if the parties cannot agree. I am very concerned that the combination of Sections under discussion will not permit this sort of future resolution by arbitral process.
(c) The resolution of issues under a Marriage Contract. Where two persons sign a Marriage Contract and each of the parties has some assets, a common provision of the Marriage Contract is that in the event of separation, each party will keep his or her own assets and the issues relating to spousal or child support will be resolved through Mediation or Arbitration. In addition, other disputes which are commonly reserved for this sort of process relate to issues concerning the division of possessions, or details having to do with the sale of property. Again, I am concerned that the two sections under discussion will not permit the resolution of these sorts of disputes, which the parties wish to have determined in the future in the event of the disputes arising.
- In the event that the Members feel that the policy objectives of the proposed legislation would be seriously weakened by the withdrawal from the Bill of Sections 5(9) 59.5 and 59.7 (a concern, which as I have stated I do not share), then as an alternative but a less desirable submission, I urge that the definition of “secondary arbitration” be recast so as to permit the resolution of disputes clearly set out in a “family arbitration agreement”.
- If this alternative is accepted, I respectfully suggest that the current draft of the definition of “secondary arbitration”, amended so as to broaden significantly the ambit of the arbitration of possible future disputes. Such a clause could read:
‘”Secondary Arbitration’ means a family arbitration that is conducted as a result of a family arbitration agreement and which provides for the arbitration of possible future disputes which are clearly described and set out in the family arbitration agreement.”
- A third and yet another alternative position would be to accept the recommendation contained in paragraph 6 of the executive Summary of the Report prepared by Marion Boyd, in an Dispute Resolution Family Law: Protecting Choice, Promoting Inclusion (December 2004).
- That Recommendation distinguished between the “reconfirmation” requirements to be required as between different types of contracts.
…
- Therefore, the Boyd Report recommends that Arbitrations conducted under Separation Agreements would not have a reconfirmation requirement and Marriage Contracts and Cohabitation Agreements would have such a reconfirmation requirement.
- I believe it to be essential that agreements made between parties under a Separation Agreement to provide for a resolution of future disputes, whether these disputes relate to parenting, monetary adjustment or resolution of other issues, be maintained and allowed to continue. I say this because these alternatives are widely used, and from my observation greatly benefit the families involved in many ways.
- I argue less strenuously for the continuation of future dispute resolution arising out of Cohabitation Agreements or Marriage Contracts, but I do say that with the new safeguards which the Government has proposed, that the concerns arising out of past practices should be significantly if not completely resolved.”
Ex 013 MINISTRY OF ATTORNEY GENERAL – Document entitled ‘Bill 27, Family Statute Law Amendment Act, 2005 Clause by clause analysis’ dated January 16, 2006
“59.6
An arbitration agreement cannot be enforced if it is made before the dispute to be arbitrated arises. This is intended to ensure that the parties know what they are arguing about and can decide if arbitration is the right way to resolve the dispute.
…
Section 59.7 provides three exceptions to the general rules for secondary arbitrations.
“Secondary arbitrations” are conducted according to the terms of a final resolution, which was reached with all of the requisite protections, that provides for the arbitration of future disputes that may arise in the implementation or management of that final resolution. For example, a court order may provide that disputes about exercising child custody or access rights must be referred to a social worker or child psychologist who knows the children and the parents and who can make a quick binding arbitration award.
There is neither time nor need for the formalities of a full family arbitration for these secondary arbitrations (agreement to arbitrate made after the dispute arises, legal advice, awards in writing with reasons.) The parties will have had these protections by virtue of the fact that they applied to the proceedings from which the court order, award or agreement arose.
The exceptions in this section do not change the basic rule that the arrangement must have been made in accordance with Ontario or other Canadian law.
…
Compendium Family Statute Law Amendment Act, 2005
…
In addition, except for secondary arbitrations (explained below), it is proposed that there can be no agreement to arbitrate in advance of the dispute arising.
Secondary arbitrations are exempted from some of the formal requirements of regular family arbitrations. Secondary arbitrations are arbitrations that are conducted in accordance with a separation agreement, court order or final arbitration award that provides for the arbitration of possible future disputes relating to the management or implementation of the agreement, order or award. For example, a separation agreement might include a section that required future access disputes to be determined by the social worker who assessed the children. Parties to a secondary arbitration will normally have had the benefits of the legal protections given by the proposed Act at the time of the principal legal dispute.”
(C) So what were we thinking when we said “Secondary Arbitration”?
I was hoping to come through this analysis with some clarity. and to the extent of any clarity it is that there was it was evident back then that
- A secondary arbitration was meant to be “an arbitration agreement” not merely an “an agreement to arbitrate,” the subtle difference being that a further document was needed.
- On the other hand, the government – not having the benefit of future case law – believed it possible to order parties (on consent?) to have future access disputes determined by a social worker.
The discrepancy of (1) and (2) is the theoretical foundation of Justice Gray’s analysis, so, frankly, it should not be dismissed out of hand.
From the Boyd Report to the various submissions, I believe we can at least explain the general intention in the wording of s. 59.7:
- The primary issue of secondary arbitration in the Boyd Report was preventing the agreement to arbitrate future disputes while the relationship was intact (specifically where a “cohabitation agreement or marriage contract contains an arbitration agreement”). Within the Boyd Report, she discusses foreign marriage contracts with such terms.
- The words in 59.7, that a secondary arbitration is “a family arbitration that is conducted in accordance with a separation agreement, a court order or a family arbitration award” was meant to exclude marriage contracts or cohabitation agreements.
- The words “that provides for the arbitration of possible future disputes relating to the ongoing management or implementation of the agreement, order or award.” means exactly that, that the parties, arbitrator or the judge assessed that they have gone through enough ‘process’ that the narrow issues of ongoing management or implementation can be arbitrated through a secondary arbitration.[5]
- It was expected that parties would take the agreement, order or award to the arbitrator any time after the originating document and before the dispute arose, to sign a secondary arbitration agreement, which bypasses the independent legal advice requirement.
Reading the law in this context, Nelson J. in Horowitz v. Nightingale (at 53) was correct stating that the clause directing parties to arbitrate is not an arbitration agreement, and therefore s. 7 of the Arbitration Act, that provides for a stay of litigation in face of an arbitration agreement, does not apply to the secondary arbitration clause found in an agreement, court order or award.
What remains disturbingly unclear is the term “that provides for the arbitration”, and the caselaw focusses on whether there is any authority to order parties into arbitration. More confusing, the Reg uses equally unclear – and different – wording “under a separation agreement, court order or family arbitration award.” (A search through the Family Law Act of the term “under a” is clearly “pursuant to”). At best, we can state per Michelon v. Ryder that this awkward terminology clearly does not say “that directs for the arbitration” or “compels for the arbitration”. Yet, the Government’s own summary materials [Ex 013 above] foresaw the underlying document directing the future dispute to a third party arbitrator!
So what did we mean when we said “secondary arbitration”? In light of the legislative discussion, I would propose that the plain reading is merely permissive:
“A family arbitration that is conducted [after] a separation agreement, a court order or a family arbitration award [to the exclusion of a marriage contract or cohabitation agreement] that [the underlying document explicitly allows, or even directs(?)] for the arbitration of possible future disputes relating to [only] the ongoing management or implementation of the agreement, order or award [may be entered into without the need of the protections of entering the arbitration before the dispute arose, the need for ILA on the arbitration itself or the Arbitrator providing written reasons for the summary resolution of ongoing management and implementation].”
Similarly, the Reg should be read as
“An arbitrator who conducts one or more secondary arbitrations [where the relaxing of protections is allowed by] a separation agreement, court order or family arbitration award, shall create a record containing the following matters …”
And what of the situation – from the except from Ex 013, above – where “a court order may provide that disputes about exercising child custody or access rights must be referred to a social worker or child psychologist who knows the children and the parents and who can make a quick binding arbitration award” – what if a party refuses to sign a secondary arbitration agreement in such circumstances?
Answer: The current litigation.
Shmuel Stern is a family lawyer and founder of DisclosureClinic.ca, an online limited scope practice assisting people in identifying their family law financial disclosure obligations and cogently presenting it. He is a past Chair of the OBA Child and Youth Law section and recently completed an LLM in Family Law. You can follow his Ontario family law caselaw Twitter feed @corollaryrelief.
Appendix – Documents Reviewed
[1] Ontario Regulation 134/07
[2] See in particular The Meaning and Importance of Arbitration Act Reg. 134/07: For Counsel, Arbitrators and Parenting Coordinators (FDRIO, January 2020), and Best Practices for Addressing Power Imbalances and Safety in Family Dispute Resolution Processes: Research, Protocols and the Law (Ontario Family Law Reporter, Volume 33, Issue 10, April 2020 and Riverdale Mediation, April 2020)
[3] The full name is “Bill 27, An Act to amend the Arbitration Act, 1991, the Child and Family Services Act and the Family Law Act in connection with family arbitration and related matters, and to amend the Children’s Law Reform Act in connection with the matters to be considered by the court in dealing with applications for custody and access”
[4] https://www.attorneygeneral.jus.gov.on.ca/english/about/pubs/boyd/executivesummary.html. As an aside, it is interesting to see how far the government went from the initial recommendations in the Report.
[5] Query whether a motion to change or annual adjustment is even considered as part of “ongoing management or implementation”. This was one of the issues presciently raised by Thomas (Tom) Bastedo. I would argue it does not, as a Motion to Change is it’s own court process and we’d surely expect an arbitrator to provide the formalities of s.38 of the Arbitration Act (writing, reasons, delivery to parties) for such a determination.
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