When Does The Limitation Period Start When A Party Repudiates A Contract?

You might think that there is one answer to this question. But in Pickering Square Inc. v. Trillium College Inc., the Court of Appeal for Ontario recently reminded us that there are two answers, depending on whether the innocent party accepts the repudiation or not. If the repudiation is accepted, then the contract comes to an end and the limitation period starts to run for all claims under the contract. But if the innocent party does not accept the repudiation, then the contract continues and the repudiation may well constitute a continuing breach of contract. If that is so, then for each day of non-performance, the limitation period runs from that day.

Background

Pickering was the lessor and Trillium was the lessee under a lease of space in a shopping centre. In the lease, Trillium agreed to pay rent, to occupy the premises and to continuously operate its business as a vocational college, and to restore the premises at the expiry of the lease. Trillium gave notice to Pickering that it was vacating the premises and did so in December 2007. In June 2008, Pickering sued the appellant for rent arrears and payment under the lease for its failure to occupy the premises and to conduct its business continuously. The suit was settled in August 2008 and Trillium agreed to resume occupation of the leased premises. Trillium paid the rent for the remainder of the lease but it did not re-occupy the premises, did not conduct its business in those premises, and did not restore the premises at the end of the lease ended. After the lease expired, Pickering sued Trillium for breach of the lease.

Trillium brought a motion for summary judgment, arguing that Pickering’s claim was brought outside the two-year limitation period under s. 4 of the Ontario Limitations Act, 2002. The motion judge held that Trillium’s breach of the covenant to occupy the premises and operate its business continuously was of a continuing nature, such that each day of the breach gave rise to a fresh cause of action. As a result, only the claim relating to the breach occurring more than two years prior to commencement of the action ­­was barred by the Limitations Act, 2002.

The motion judge also held that Pickering’s claim for damages for breach of the covenant to restore the premises was not time barred. The obligation to restore arose when the lease expired on May 31, 2011, and Pickering’s action in February 16, 2012 was brought within two years of that date. .

The Appeal

Trillium argued that its breach of the covenant to operate its business continuously was complete on October 1, 2008, the first day it failed to resume occupation of the leased premises and operate its business. It submitted that each subsequent day that it failed to operate its business was not a separate breach and that each day of non-occupation did not give rise to a separate cause of action; rather, each such day constituted an instance of additional damages. Trillium submitted that a continuing breach of contract requires a succession or repetition of separate acts. In this case, it argued, there was a single act with continuing consequences and consequently, Pickering’s claim became statute-barred on October 1, 2010, two years after October 1, 2008 when Trillium failed to resume occupation and conduct its business, and long before Pickering commenced its action in February 2012.

The Ontario Court of Appeal rejected this submission. In doing so, the court differentiated between a repudiation of a contract which is accepted, in which case the contract comes to an end, and a repudiation of contract which is not accepted, in which case the contract remains in force. In the latter situation, the continuing failure of the repudiating party may amount to a continuing breach of contract. In that latter situation, the limitation period applies to each day of continuing breach. The limitation period expires on a rolling basis, so that once two years passes from a particular day then the limitation period for that day expires, but it has not yet expired for successive days and breaches.

The Ontario Court of Appeal explained the repudiation principle as follows:

“The election to cancel a contract as a result of a serious breach or repudiation brings a contract to an end and relieves the parties of any further obligations under it. The contract is not void ab initio: the innocent party may sue for damages for breach of the contract….By contrast, if the innocent party elects to affirm the contract despite the serious breach or repudiation, the contract remains in effect and the parties are required to perform their obligations under it. The innocent party retains the right to sue for past and future breaches…Pickering elected not to cancel the lease following Trillium’s October 1, 2008 breach. It affirmed the lease and, as a result, the parties were required to perform their obligations under it as they fell due….Trillium could have resumed performance of its obligations at any time prior to the end of the term of the lease by carrying on its business at the leased premises in accordance with the terms of the covenant. Had it done so, Pickering would have been required to accept Trillium’s performance and would have been unable to terminate the lease in the absence of a further serious breach or repudiation. Trillium would have been liable for damages from the date of its October 1, 2008 breach until the date it resumed the performance of its covenant obligations, but would not have incurred liability for breach of the lease beyond that date. Trillium chose not to resume its obligations at any point prior to the expiry of the lease.”

The Ontario Court of Appeal then explained the applicable limitations principle:

“In these circumstances, when did the two-year limitation period begin to run? It is clear that a cause of action accrues once damage has been incurred, even if the nature or the extent of the damages is not known….But accrual of a cause of action is not determinative for limitation purposes in the context of a continuing breach of contract and an election by the innocent party to affirm the contract. The motion judge properly concluded that a fresh cause of action accrued every day that breach continued – every day that Trillium failed to carry on its business in accordance with the covenant……The accrual of fresh causes of action has consequences for the innocent party as well as the party in breach of the contract. It sets the clock running for a new two-year limitation period. Pickering’s election to affirm rather than cancel the lease does not have the effect of postponing the date for discovery of the breach until expiry of the lease…..The limitation period in this case applied on a “rolling” basis……The two-year limitation period commenced each day a fresh cause of action accrued and ran two years from that date. Thus, Pickering was entitled to claim damages for breach of the covenant for the period going back two years from the commencement of its action on February 16, 2012 – the period that ran from February 16, 2010 until the lease expired on May 31, 2011.”

The Court of Appeal also upheld Pickering’s claim for repairs to be done at the end of the lease. Pickering was only claiming for breach of this covenant at the end of the lease, and not before. According, the limitation period for that breach arose in May 2011 when the lease expired, not in October 2008 when Trillium failed to resume occupation.

Discussion

This decision is a useful reminder of the distinction between an accepted and unaccepted repudiation of contract. The former brings the contract to an end. The latter does not, and as such has been described as something “writ upon water”. The fact that the contract remains in place is obviously important for the ongoing performance of the contract, as the obligation of performance remains in place on both sides of the contract. But as importantly, the limitation period continues to apply, on a rolling basis, to the breaches that occur after the unaccepted repudiation. And the Court of Appeal has held in this case that it does not require separate and positive acts by the defaulting party to occur for there to be continuing breaches of the contract. Rather, the failure to act and the omission of performance amount to continuing breaches of the contract.

There may be other implications of an unaccepted repudiation of the contract. It is not just the obligation of performance that continues. In addition, the parties remain entitled to exercise positive rights under the contract. Also, the performance of contracts with subcontractors and consultants, and the coverage and reporting obligations under insurance contacts and bonds, may be affected.

See Heintzman and Goldsmith on Canadian Building Contracts, 5th ed., chapter 8 part 8(b) and chapter 9 part 3.  

Pickering Square Inc. v. Trillium College Inc., 2016 ONCA 179

Contracts – repudiation – non-acceptance of repudiation – limitation period

Thomas G. Heintzman O.C., Q.C., FCIArb                                                 April 17, 2016  

www.heintzmanadr.com

www.constructionlawcanada.com

Is The Commencement Of An Arbitration Claim Also The Commencement Of An Arbitration Counterclaim?

In a recent English decision, the court held that the commencement of an arbitration by the claimant could also amounted to the commencement of the arbitration of any counterclaim. In Glencore International AG v (1) PT Tera Logistic Indonesia (2) PT Arpeni Pra, the English court held that if the notice given by the claimant, and the appointment of an arbitrator by the respondent, refer to “claims” and “all disputes” then the notice and appointment are sufficient, under the English Arbitration Act, 1990, to amount to the commencement of any counterclaim arising from the same facts and which effectively asserts a claim which can be brought into the balance of accounts between the parties.

This decision is obviously of considerable importance for many reasons, and especially limitation purposes. If this decision applies, then the respondent in the arbitration does not have to serve its own notice of arbitration in respect of its counterclaim and may, in effect, shelter under the claimant’s notice, if the counterclaim can be brought into account in respect of the claim being made by the arbitral claimant.

Would the same decision be made by a Canadian court?

The English Decision

The claims arose under a shipping contract. Two arbitrations were commenced. In the first arbitration, the Owners gave notice in writing that they commenced “arbitration proceedings against you in respect of their claims under this Contract”, appointed an arbitrator and required Glencore to appoint an arbitrator. Glencore responded by appointing a second arbitrator “in relation to all disputes arising under the [contract]”. (underlining added)

In the second arbitration, the Owners gave notice in writing that they commenced “arbitration proceedings against you in respect of claims under this Contract”, appointed an arbitrator, and required Glencore to appoint an arbitrator. Glencore responded by appointing a second arbitrator “in relation to all disputes arising under the [contract]”. In due course in each arbitration, the two appointees then appointed a third arbitrator. (underlining added)

By the time Glencore served its defence and counterclaim submissions in the arbitrations, the limitation period for claims under the contracts had expired. Two members of the arbitral tribunal found that the counterclaims were time-barred. The third member of the tribunal dissented, holding that the notices of commencement of arbitration and the appointments of arbitrators included both claims and counterclaims.

The English decision was based upon section 14(3)-(5) of the English Arbitration Act, 1990 which states as follows:

(3) Where the arbitrator is named or designated in the arbitration agreement, arbitral proceedings are commenced in respect of a matter when one party serves on the other party or parties a notice in writing requiring him or them to submit that matter to the person so named or designated.

(4) Where the arbitrator or arbitrators are to be appointed by the parties, arbitral proceedings are commenced in respect of a matter when one party serves on the other party or parties notice in writing requiring him or them to appoint an arbitrator or to agree to the appointment of an arbitrator in respect of that matter.

(5) Where the arbitrator or arbitrators are to be appointed by a person other than a party to the proceedings, arbitral proceedings are commenced in respect of a matter when one party gives notice in writing to that person requesting him to make the appointment in respect of that matter. (underlining added)

Relying on the underlined words, the English court held that the claimant’s notice of arbitration and the respondent’s appointment of arbitrator, referring to “claims” and to “all disputes arising under the contract,” stopped the running of time in respect of the counterclaim for the purposes of s 14(4) of the English Act if the claim and counterclaim arise from a single set of facts which effectively create a ‘balance of accounts’ between the parties. The judge did not deal with the circumstances which would arise in respect of other counterclaims and whether, and in what circumstances, the respondent must issue its own notice of arbitration. The judge held as follows:

“In my judgment the reference in the notices to “claims” and to “all disputes arising under the contract” had the effect of referring counterclaims for MV Demurrage, and not just claims for FC Detention, to the arbitrations. The context is one of a contract under which delay was capable of giving rise to money obligations on either side of an account, with a net sum falling for payment. The party commencing the arbitration is in effect asking for an account and asserting that the balance is in its favour. It is further commercially unlikely that the parties would contemplate that MV Demurrage and FC Detention Claims would be separate for the purposes of reference to arbitration, so that only one and not the other would be within a reference unless the parties were more explicit that both were within the reference. The attendant possibility that there could otherwise be separate tribunals reinforces the unlikelihood.“

The specific order that the judge made was as follows:

“In circumstances where a claim and a counterclaim arise from a single set of facts giving rise to a balance of accounts or netting-off under a contract, a reference to “claims” and to “all disputes arising under the contract” in notices of appointment of an arbitrator will ordinarily suffice to interrupt the running of time in respect of the counterclaim for the purposes of s. 14(4) Arbitration Act 1996, and does so in this case.” (underlining added)

The judge specifically declined to decide whether the word `claims` alone would have had the same effect.

The judge in this case was clearly influenced by commercial common sense under a shipping contract. How far this decision applies outside of those circumstances is unclear. But the decision is clearly an important one which will be cited in the future.

Would the same result arise under Canadian arbitration statutes?

In addition to questions about the scope and effect of this English decision, would the logic of this decision apply in Canada?

Arbitration Statutes

Many Canadian provinces have, in whole or in part, adopted the Uniform Arbitration Act (UAA”) promulgated by the Uniform Law Conference of Canada (“ULCC”). The UAA addressed the limitation period applicable to counterclaims in two ways.

  1. Section 23 of that UAA states the various ways in which an arbitration can be commenced. One of the ways that the arbitration may be commenced is set forth in Section 23(1)(a):

A party to an arbitration agreement serves on the other parties notice to appoint or to        participate in the appointment of an arbitrator under the agreement. (underlining added)

Then, section 24 states as follows:

A notice that commences an arbitration without identifying the dispute is deemed to refer to arbitration all disputes that the arbitration agreement entitles the party giving the notice to refer. (underlining added)

The Commentary to this section says that, “The purpose of this is self-explanatory.”

  1. Section 52(1) of the UAA says that the law with respect to limitation periods applies to an arbitration as if the arbitration were an action and a claim made in the arbitration were a cause of action. So presumably, the limitations statute of a province adopting this sub-section applies to a counterclaim in an arbitration.

These sections are adopted in some, but not all, of the provincial arbitration statutes.

Thus, the arbitration statues in Alberta, Saskatchewan, Manitoba, Ontario, New Brunswick and Nova Scotia appear to adopt these provisions from the UAA. The limitation statutes in the other common law provinces do not appear to address these issues.

Article 2892 of the Quebec Civil Code says that cross demands and notices to submit a dispute to arbitration constitute judicial applications, and Article 2882 says that any ground of defence may be asserted after prescription even if it could be asserted as direct action.

There are clear differences between section 23 of the UAA, and in the various provincial limitations statutes which adopt that section, and section 14 of the English statute.

First, the Canadian section refers to the disputes that the “party giving the notice” may refer to arbitration.   This wording would appear to exclude claims that the respondent might refer to arbitration.

Second, the Canadian section says the effect of that section is “deemed” to be so. The English statute refers to “a matter” and “in respect of that matter”.

Limitations Statutes

The provincial limitations statutes are quite different across Canada. To the author’s understanding there are basically three different regimes applicable to limitation periods and counterclaims:

  1. In four provinces, the limitations statutes extend the limitation period for counterclaims if an action is commenced, in certain circumstances relating to the connection of the counterclaim to the main action: British Columbia, Alberta, Manitoba, and Newfoundland and Labrador. This provision reflects section 13(1) of the Uniform Limitations Act (“ULA”) of the ULCC.

2.     The limitations statutes of six provinces and territories do not seem to contain any such extension of the time to commence a counterclaim, and state that the same limitation period which is applicable to actions also applies to counterclaims and set-offs: Nova Scotia, P.E.I., Saskatchewan, Yukon, Northwest Territories and Nunavut. Quebec law appears to adopt the same approach. In Book 8, Prescription, Article 2892 of the Quebec Civil Code says that cross demands (and, as noted above, notices to submit a dispute to arbitration) constitute judicial applications. Article 2882 says that any ground of defence may be asserted after prescription even if it could be asserted as direct action.

3.     In Ontario, the limitation statute does not appear to expressly address this issue so far as counterclaims are concerned. One could infer that, therefore, the limitation period for counterclaims is not extended by the original action.

4.     Presumably, however, the judge-made rule with respect to equitable set-offs (namely that they can be relied upon in the defence and therefore are not caught by the limitations period) would apply in all these cases.

Discussion

The Canadian arbitral and limitation statutes appear to raise a Rubik’s cube of possible results. In the absence of a definitive Canadian decision to discuss, now is not the time to answer questions but to raise them. Here are just a few of them:

1.     Do the words “in respect of a matter” in the English statute, and the words “the party giving the notice to refer” in section 23 of the UAA (and provincial statutes which adopt it) mean that, in Canada under the provincial limitations statues which adopt section 23 of the UAA, the commencement of arbitration is limited to those claims which the claimant can submit to arbitration, and not those which can be raised by counterclaim?

2.     Can the claimant forestall the application of section 23 of the UAA by stating, expressly or by implication, that the arbitral claim does not raise any issue by, or related to, an arbitral counterclaim?

3.     If the claims raised by counterclaim are ones that can be “brought into account” within Glencore decision, why do they not fall within the apparent right of the arbitral respondent to assert an equitable set-off without commencing a counterclaim?

4.     What is the basis or effect of the Glencoe decision?

Does it mean that the respondent’s notice appointing an arbitrator is itself the commencement of a counterclaim if it refers to “all disputes” or words to that effect? If so, that would mean that the words “notice to appoint….an arbitrator” in section 23(1)(a) mean and include the appointment of an arbitrator by the respondent in response to the claimant’s demand for the appointment of an arbitrator.

Does it mean that the provisions of the applicable arbitration statute over-ride the limitations statute, and that, because of the nature of arbitration proceedings, once an arbitration is commenced and arbitrators appointed then the arbitration is commenced for all applicable purposes including counterclaims (as delimited in the Glencoe decision) notwithstanding the limitations statute?

How does that approach conform to, say, those sections of Canadian limitation statutes (such as section 19(2) of the Ontario Limitations Act, 2002) that provide that the limitation period prescribed in the Act applies notwithstanding any other statute?

Or is that approach consistent with a section such as section 52(1) of the UAA, and the provincial sections that follow it, which state that the provisions of the limitations statute that apply to actions also apply to arbitrations?

In other words, is the decision in Glencoe consistent with relationship between arbitral and limitations law established under the UAA?

If the arbitration statute prevails over the limitation statute (in the sense that the commencement of the arbitration and appointment of arbitrators amount to the commencement of all potential proceedings in the arbitration, at least to the extent of “money obligations on either side of an account, with a net sum falling for payment”, to use the words from Glencoe), then at least some of the discussion about the effect of the limitation statues on counterclaims in arbitrations may be irrelevant. To the extent that is not the case, however, then:

5.     In those provinces and territories whose limitation statutes state that the limitation period applies to set-off, does that mean that the reasoning in the Glencoe decision does not apply?

6.     In four provinces, the limitation statutes expressly provide for the extension of the limitation period if the counterclaim is related to the claim in the original action. However, the arbitration legislation in only two of these Provinces (Alberta and Manitoba) provides, as does section 52(1) of the UAA, that the limitation period for arbitrations is the same as those in actions. Does that mean that in the other two provinces (British Columbia, and Newfoundland and Labrador) that the extension of time to commence a counterclaim does not apply to arbitrations?

One can imagine many other permutations or combinations of these statutory provisions. In addition, in those provinces which have not expressly dealt with some of these issues, arriving at a reasoned conclusion may be even more difficult.

What can be said is that parties to arbitrations should be aware of the pitfalls relating to the limitation period. A party wishing to assert a counterclaim in an arbitration notwithstanding a prescription or limitation period, or a party wishing to preclude the assertion of a counterclaim in an arbitration by reason of prescription and limitation period, must be familiar with the provisions of both the arbitral statute and the limitations or prescription statute, and should consider the inter-relation, if any, between the two.

Glencore International AG v (1) PT Tera Logistic Indonesia (2) PT Arpeni Pra [2016] EWHC 82 (Comm)

Arbitration – counterclaim – limitation and prescription periods

Thomas G. Heintzman O.C., Q.C., FCIArb                                                             March 25, 2016  

www.heintzmanadr.com

www.constructionlawcanada.com

 

Can An Arbitral Tribunal Summons The Decision-Makers Of A Public Authority?

When a contract dispute between a public authority and a private party proceeds to arbitration, can the private party inquire into the process or reasoning that led to public authority’s decision in question? For instance, if the public authority decides to terminate a construction contract, or to award a tender to one bidder, can an arbitral tribunal compel the public authority’s decision-makers to testify about their decision-making process?

It might be argued that this sort of inquiry is irrelevant and impermissible because the public authority is making a public law decision for which the publicly released decision is all that is relevant, and the reasons of the decision-makers within the public authority are unknowable; and the arbitral tribunal is there to make the determination as to whether the decision was valid or not, not what the decision-makers within the public authority thought about the matter.

However, in Commission scolaire de Laval v. Syndicat de l’enseignement de la région de Laval the Supreme Court of Canada has just held that the arbitrators may summon the decision-makers within a public authority, and the arbitrator may receive evidence about the process leading to the decision that is relevant to the arbitration. And in its decision, the Supreme Court made strong statements about the inadvisability of any court interfering beforehand in the arbitrator’s role in making these evidentiary rulings.

While the decision was rendered within an employment context, it raises serious issues about the powers of arbitral tribunals to inquire into the motives and the processes of public authorities. Combined with the recent decision of the Supreme Court in Bhasin v. Hrynew, which has mandated the honest performance of contracts, it could very much broaden the powers of arbitral tribunals to look behind the decisions of public authorities relating to the performance of contracts.

Background

B was a vocational training instructor employed by the Laval School Board since 2000. In March 2009, the principal of the school where B worked asked B to submit a declaration concerning his judicial record. As a result of recent amendments to the Quebec Education Act, (EA) a school board was required to “ensure” that “persons who work with minor students and persons who are regularly in contact with minor students . . . have no judicial record relevant to their functions within that . . . board.” If a school board notes that a teacher or a person holding a teaching licence has a record it considers relevant to that person’s functions, it must inform the Minister of Education and the Minister may refuse to renew the teacher’s licence or may suspend or revoke it or attach conditions. That power cannot be exercised, however, if the teacher’s offence is unrelated to his or her employment or if a pardon has been issued to the teacher.

In June 2009, B was summoned to attend a special meeting of the Board’s executive committee. The Supreme Court of Canada said the following about that meeting:

“After hearing B in a “partially in camera meeting” (from which the public was excluded), the executive committee ordered a “totally in camera meeting” (from which the teacher and his representative were excluded) in order to deliberate. Upon completion of these two in camera meetings that lasted a total of 27 minutes, the committee, sitting in public once again, proceeded to adopt resolution No. 238, which terminated B’s employment contract.”

This resolution listed the offences of which B had been convicted, noted [translation] “the provisions of the [EA] concerning judicial records of persons who work with minors” and mentioned the recommendations of the human resources unit and the director general that B’s record was relevant to his functions. The executive committee unanimously decided that “the employment relationship between the teacher [B] and the Board [is] resiliated as of this day on the ground of incapacity”. In the Board’s view, the fact that a teacher has a judicial record that is relevant to his or her functions makes the teacher legally incapable of performing those functions.”

On July 2, 2009, the Union filed a grievance on B’s behalf to contest his dismissal. The collective agreement between the Union and the board stated that a teacher’s employment contract could be terminated “only after thorough deliberations at a meeting of the board’s council of commissioners or executive committee called for that purpose.”

On July 3, 2009, the day after the grievance was filed and four days after the employment relationship was terminated, the National Parole Board granted B a pardon.

The Union’s grievance on behalf of B came to an arbitration hearing in May 2010. The Union summoned three members of the executive committee who had been present for the deliberations in June 2009. The Board objected, arguing that the motives of the members of the committee were irrelevant and that doctrine of deliberative secrecy shielded the members from being asked what had been said in camera. The Union submitted that this testimony would be relevant, admissible and necessary, given that it contested both the procedures and the substantive grounds relating to the termination.

The Lower Decisions

The arbitrator held that Union was entitled to examine the members of the executive committee on what had been said in camera. In order to determine whether the committee’s deliberations had been “thorough” as required by the collective agreement, he held that it was necessary to know their substance, including what information had transmitted orally and in writing in the discussions between the members, as well as any objections that were raised.

The arbitrator held that the doctrine of deliberative secrecy did not preclude him hearing the evidence which the executive committee had heard in camera. The fact that a body deliberated in camera did not necessarily mean that it benefited from deliberative secrecy, and the mere fact that the executive committee had decided unilaterally to sit in camera did not shield its members from scrutiny by a grievance arbitrator. The arbitrator said that he would hear the evidence of the executive committee’s members in camera if he received a request to that effect, to ensure that they would be able to speak as freely as in their deliberations.

Mr. Justice Delorme J. heard a motion for judicial review of the arbitrator’s interlocutory decision. He held that the intentions of members of the executive committee’s decision to terminate B’s contract of employment were irrelevant. He also held that the executive committee’s decision to deliberate in camera had rendered its deliberations confidential.

By a majority, the Quebec Court of Appeal allowed the appeal. The majority held that a decision with respect to employment, and more specifically with respect to dismissal, made by a public body falls under employment law, whether individual or collective, and not under public law. The rule that deliberative motives are irrelevant did not apply. The majority of the Court of Appeal also held that deliberative secrecy did not apply since the executive committee was not an adjudicative body, and the fact that the executive committee decided unilaterally to meet in camera did not shield its members from testifying.

The dissenting judge would have dismissed the appeals. He held that the rule against the admissibility of the motives of public decision-makers applied to the decisions of any public collective decision-maker, whether acting in a private or public capacity, provided that the communicated decision officially expresses the public body’s will.

Decision of the Supreme Court of Canada

The Supreme Court of Canada unanimously dismissed the appeal. The majority and minority of the Supreme Court were divided on which standard of review to apply. That issue is not one that this article will address. On the other issues, the court held as follows:

  1. The rule that the motives of a public decision-maker are irrelevant and “unknowable” (known as the Clearwater principle from a decision of the Supreme Court) applies to a legislative body, or a public body exercising regulatory, policy or purely discretionary powers. But that rule does not apply to any decision of a public authority in a contractual or other private law context.

In this respect, the Supreme Court did not draw a dividing line between employment cases and other cases. Rather, it drew the dividing line between decisions of a legislative, regulatory and pure policy nature, on the one hand, and decisions relating to the assertion of private law rights, on the other. Decision-makers within a public body that was involved in contractual or other private law matters were subject to testifying about their deliberations, if their testimony is relevant.

On this point, the reasons of the Supreme Court are important:

“…it is wrong to say that Clearwater established a rule of relevance that applies to every collective decision made by a decision‑making body by means of an official document regardless of the nature of the decision or of the body making it. Rather, the “unknowable” motives in question are those that led a legislative body to adopt provisions of a legislative nature, that is, to carry out acts of a public nature….[the Clearwater rule] applies to decisions made by a public body when it carries out acts of a public nature. (emphasis added)

In the instant case, even though the Board is a legal person established in the public interest under the EA, it was acting as an employer when it decided to dismiss teacher B by way of a resolution of its executive committee. That decision had an effect on the employment contract between B and the Board and was made in the context of a process provided for in the collective agreement between the parties. It was not a decision of a legislative, regulatory, policy or discretionary nature. Rather, it was made in the context of the very type of contractual relationship that was at issue in Dunsmuir and Wells. In reviewing such a decision, a grievance arbitrator applies the principles of employment law that are applicable to any dismissal. As a result, this case is clearly distinguishable from Clearwater. A rule of relevance based on the public nature of an impugned decision does not apply here.”   (emphasis added)

The Supreme Court also noted the fine line between process, motives and substance in the making of a decision relating to private or contractual rights:

“Furthermore, it is quite hard to distinguish questions concerning the process that led to a decision from questions concerning the motives behind the decision. A single question could be useful for determining both whether the process was lawful and whether the disciplinary sanction satisfies the substantive requirements provided for in the collective agreement and in labour legislation. For example, the question whether the members of the executive committee considered the existence of B’s application for a pardon might be relevant to the assessment of the process followed by the committee. The same question might also be relevant to the assessment of the validity of the committee’s substantive decision.”

Finally, the Supreme Court noted that principles involved should apply equally to the private and public sector if contractual and other private-law rights are in issue. It said:

“In the appellants’ submission, Clearwater would apply not only to public bodies like school boards, but also to Crown corporations, all of which make their decisions known through resolutions adopted collectively by their decision‑making authorities. And the same rule would apply to private corporations that operate in the same way. If that were the case, the makers of a wide range of decisions made collectively would be shielded from ever testifying about their motives or their deliberations, even in cases in which such testimony would be of particular relevance to the dispute. It would not be desirable to attribute such a scope and such effects to the reasons of narrow scope given by Binnie J. in Clearwater.” (emphasis added)

  1. The Supreme Court held that the members of the Board’s executive committee were not protected from testifying by the doctrine of deliberative secrecy. That doctrine only applied to a body exercising an adjudicative function, such as a court, arbitrator or administrative tribunal.   The Board’s executive committee was not performing an adjudicative function. Rather, “it was acting as an employer in the context of a contractual relationship to which the principles of employment law applied.”
  1. The Supreme Court declined to rule on whether the proposed examination of the executive committee members was relevant, for three reasons:

First, the assessment of relevance fell within the exclusive jurisdiction of the arbitrator, and it is “not open to a reviewing court to speculate about the types of questions that could be relevant before the examination has even begun”;

Second, the arbitrator had authority over both the substantive validity of the board’s decision, and the issue of the proper penalty;

Third, the arbitrator had to decide whether the Board had taken “thorough deliberations” as required by the collective agreement.

In concluding, the Supreme Court made two observations that are very relevant to the law of arbitration.

First, the court said that it was inadvisable for a court to review an interlocutory decision of an arbitral tribunal, particularly a decision about the relevance or admissibility of evidence. The court noted that such a review is not suitable to the process:

Finally, it seems to me self‑evident that the nature of arbitration proceedings would be unsuited to an advance assessment of testimony that has not yet been heard. Relevance is established on the basis of the legal framework, the factual context and the circumstances of the particular case: …..Owing to certain features specific to grievance arbitration, the legal framework and factual context often become known only as the proceedings and the examination of witnesses unfold.…..To the above must be added the informal nature of the pleadings that lead to arbitration and the absence of applications with detailed allegations that would be available to a court of law to help it determine what is relevant on the basis of the facts alleged in support of a proceeding. In this context, it would be risky to rule in advance on the relevance of evidence that could depend on what will be revealed in the course of the examination of the employer’s representatives….. Likewise, it would be inappropriate to preclude in advance all questions about the motives behind the dismissal.  (emphasis added)

Second, the court also made the point that there are good policy grounds for disallowing review of the interlocutory decisions of arbitrators, as the present case illustrated:

“In concluding, I must make one final comment. In my humble opinion, it is most unfortunate that, more than six years after filing a grievance with respect to a dismissal, the Union has not yet been able to begin presenting its evidence. The mission of the grievance arbitration system, that is, to provide employers and employees with justice that is accessible, expeditious and effective, has been forgotten. I would note the importance of the sensible rule that, with only a few exceptions, a grievance arbitrator’s interlocutory decision, in particular one concerning evidence and procedure, is not subject to judicial review….The courts of several provinces have taken a similar deferential approach to interlocutory decisions of arbitrators….” (underlining added)

Discussion

This decision of the Supreme Court is important for the law of contracts, construction law and arbitration, and not just for employment law.

For arbitration law, The Supreme Court’s observation will undoubtedly confirm the modern approach to arbitration and the respect which court now give to arbitral awards and in particular the interlocutory decisions of arbitrators.

For contract and construction law, consider the situation in which a public body tenders a contract for the construction of a building. That tender process is governed by the law of contract, and particularly the law applicable to tenders. The public authority’s decision to award the building contract is governed the Supreme Court of Canada’s decision in Ron Engineering, and the many subsequent decision arising from that decision. An important element in the validity of that decision is the fairness of the decision of the public authority’s decision.

Consider also the recent decision of the Supreme Court of Canada in Bhasin v. Hrynew, in which the Supreme Court held that a party to a contract has a duty of honest performance. Whether a public authority has honestly performed the contract may be a serious issue, particularly in the authority’s use or mis-use of the change order regime and the dispute resolution process.

On these and other issues relating to the performance of contracts entered into by public authorities, the Laval School Board decision is a powerful statement. The decisions of public authorities in that context are not legislative, policy or regulatory decisions, but decisions made according to contract and other private law rules. The internal processes leading to those decisions will not be entitled to a blanket privilege against disclosure. The admissibility of evidence from the decision-makers will be determined by an arbitrator, if an arbitration agreement is applicable, and courts should be very reluctant to interfere with that process. The admission of evidence about the decision-making process of the public authority may well be in aid of an allegation of improper purpose or motive, or unfairness.

Commission scolaire de Laval v. Syndicat de l’enseignement de la région de Laval, 2016 SCC 8

Arbitration – Evidentiary rulings by arbitrators –review of interlocutory decisions of arbitrators –Public authorities – Distinction between private law and public law decisions of public authorities

Thomas G. Heintzman O.C.,Q.C., FCIArb                      March 30, 2016                                                                                                                

www.heintzmanadr.com

www.constructionlawcanada.com