Supreme Court Finds Contractor Has A Duty To Tell Sub-Subcontractors About The Existence Of A Payment Bond

Third parties

In a much anticipated decision, the Supreme Court of Canada has recently held that a contractor which is a trustee under a payment bond has an obligation to advise sub-contractors of the existence of the bond applicable to the project.

In Valard Construction Ltd. v. Bird Construction Co., 2018 CarswellAlta 261, 2018 SCC 8, the Supreme Court reversed the decisions of the Alberta courts below, and set aside over 40 years of lower court decisions which had held that owners and contractors had no such duty.


Bird was the general contractor on an oilsand construction project near Fort McMurray, Alberta. Bird subcontracted the electrical work to Langford, and that subcontract required Langford to obtain a labour and materials payment bond.

That bond was in the standard form CCDC 222-2002 format. It was issued by the Guarantee Company of North America for $659,671. The bond named Bird as Obligee, Langford as Principal, and the Guarantee Company as Surety.

Under the terms of the bond, a beneficiary of the bond was a provider of work/labour or materials who had not received payment from Langford within 90 days of the last day upon which it provided work/labour or materials. The beneficiary was entitled to sue Guarantee on the bond for the unpaid amount. The bond designated Bird as the trustee, holding in trust for the beneficiaries their right to recover from Guarantee. The bond required the beneficiary to give note of its claim to Langford, Guarantee and Bird within 120 days of its last provision of work/labour or materials.

Neither the bond, nor notice of it, was posted on the notice board at the work site. Neither Bird nor anyone on its behalf notified Valard of the bond’s existence. Valard was unaware of the bond until after the 120 day notice period had expired. .

Valard began its work on March 17, 2009 and finished on May 20, 2009. At that date, unknown to Valard, the 120 day notice period under the bond started to run.

Valard’s invoices went unpaid by Langford and on March 9, 2010, it was granted default judgment against Langford for $660,000. By then, Langford was insolvent.

In April 2010, or about seven months after the 120 day notice period under the bond had expired, Valard’s project manager learned that there was a payment bond on another project upon which it and Bird were engaged. Valard inquired of Bird whether there had been a payment bond on the project on which it had not been paid, and was told Yes. This was a surprise to Valard’s project manager since he had never encountered a payment bond on a privately owned oilsands project.

Valard then filed a claim with Guarantee for the unpaid amount. Guarantee denied the claim due to Valard’s failure to give timely notice of its claim. Valard then sued Bird for breach of trust, alleging that Bird had failed to inform the beneficiaries of the bond of the existence of the bond and their right of action provided by the bond.

The Alberta Court of Queen’s Bench and the Alberta Court of Appeal dismissed Valard’s claim. Those decisions were reviewed by me in articles dated April 15, 2016 and May 25, 2017. Basically, those courts held that subcontractors on construction projects have a duty to look after their own self-interest and make their own inquiries about the existence of payment bonds; and that since a decision of an Ontario county court judge back in 1970, it has been the understanding in the construction industry that owners or contractors, when they act as a trustee under a payment bond, do not have the obligation to advise subcontractors and sub-subcontractors of the existence of a payment bond.

Decision of the Supreme Court

In reversing the courts below, the majority of the Supreme Court applied the following reasoning:

  1. A trustee has a duty to disclose to the beneficiaries the existence of the trust wherever it could be said to be to the unreasonable disadvantage of the beneficiary not to be informed of the trust’s existence:

“Whether a particular disadvantage is unreasonable must be considered in light of the nature and terms of the trust and the social or business environment in which it operates, and in light of the beneficiary’s entitlement thereunder. For example, where the enforcement of the trust requires that the beneficiary receive notice of the trust’s existence, and the beneficiary would not otherwise have such knowledge, a duty to disclose will arise. On the other hand, “where the interest of the beneficiary is remote in the sense that vesting is most unlikely, or the opportunity for the power or discretion to be exercised is equally unlikely”, it would be rare to find that the beneficiary could be said to suffer unreasonable disadvantage if uninformed of the trust’s existence.

  1. Valard was unreasonably disadvantaged by Bird’s failure to inform it of the trust’s existence:

“Valard required knowledge of the trust in order to enforce it. The expiry of the 120-day notice period before Valard learned of the bond effectively prevented it from enforcing the trust by making a claim against the Guarantee Company and recovering sums owed under its contract with Langford. I would therefore find that Bird, as trustee, had a duty to disclose the bond’s existence to Valard.”

  1. While one of the purposes, and perhaps the main purpose of payment bonds is to protect the trustee — being the owner or a general contractor — from the risk and expense of liens, that purpose can only be meaningful if the beneficiaries are capable of enforcing the bond. Accordingly, the proper operation of the trust “tends to affirm rather than negate the necessity of disclosing their existence.”
  1. While there are longstanding lower court decisions holding that a contractor does not have a duty to inform sub-subcontractors about the existence of a bond applicable to a construction project, that does not prove that there is an understanding and practice in the construction industry to this effect. The existence of such a trade practice or understanding is a matter of fact and would have to be proven by evidence.   The evidence before the court in this case was that payment bonds were uncommon on private oilsands construction projects.
  1. The entitlement of Valard, under s. 33 of Alberta’s Builders’ Lien Act, to obtain a copy of the main contract between the owner and contractor and the subcontract between the contractor and subcontractor, does not eliminates the unreasonable disadvantage that arises from Valard being uninformed about the trust. Nothing in Section 33 is tantamount to a statement that a trustee is absolved of its fiduciary duty to disclose the existence of a trust contained within the bond.
  1. Bird Construction was not just a bare trustee with no duties to perform. A bare trusteeship assumes that the beneficiaries are capable of calling for the trust property on demand. Here, the beneficiaries did not know of the trust’s existence. Accordingly, the trust obligation imposed by the bond at least required the trustee to advise the beneficiaries of the bond.
  1. Bird Construction had the obligation to act an honest and reasonably skillful and prudent trustee. Its obligation to disclose the existence of the trust extended “not to ensuring that every potential beneficiary knows of the trust, but only to taking reasonable steps to that end.” The evidence was that Bird had an on-site trailer in which notices were normally posted. The subcontractors were required to attend daily “toolbox meetings” in Bird’s trailer. In these circumstances:

“Bird could have satisfied its duty to inform beneficiaries of the trust by posting a notice of the bond in its on-site trailer. This would have provided a significant portion of potential beneficiaries with notice of the bond’s existence. The cost of doing so would have been negligible to Bird, and this method of notice would not have been otherwise onerous. I note that this method of notice is already statutorily required on public worksites in Alberta: Public Works Act, R.S.A. 2000, c. P-46, s. 17.

This does not mean, however, that taking such steps will always be necessary in order to resist every claim for breach of trust made by a disappointed beneficiary of a labour and material payment bond. It is also possible that some other method of giving notice — had the evidence disclosed it — might have sufficed. To reiterate: the question is not what Bird could have done in this case, but what Bird should reasonably have done in the circumstances of this case to notify beneficiaries such as Valard of the existence of the bond. Here, Bird did nothing. It filed the bond offsite, did not post it, and told nobody about it. In some circumstances (where, for example, the industrial practice is such that the use of labour and material payment bonds to offset the risks arising from unpaid subcontractors are common), it may well be that very little, or even nothing, will be required on the part of a trustee to notify potential beneficiaries of the trust’s existence. In the circumstances of this appeal, however, where the evidence was that labour and material payment bonds were uncommon, something more than nothing was required from Bird to discharge its duty. Bird therefore committed a breach of trust.”

Judges Côté and Karakatsanis dissented from this reasoning of the majority. They held that a trustee under a payment bond does not in general have a proactive duty to take steps to inform potential claimants of a bond’s existence.

However, Justice Côté held that, by reasons of correspondence between Bird and Langford, Bird was put on specific notice of difficulties that Valard was facing in getting paid by Langford.

On August 10, 2009, an employee of Langford sent an email to Bird’s project manager, advising him of a “serious problem” that Langford was having in paying Valard’s invoices. This email was also sent to Valard’s project manager. The email indicated that the owner was refusing to pay any further amount to cover Valard’s invoices. Langford asked Bird for assistance as to how it should proceed. Bird sent a response by email to Langford, but did not copy Valard, indicating that “We would help you if we could, but Suncor was already upset with our last claim.”

Based on this evidence Justice Côté concluded as follows:

“Upon receiving Langford’s email, Bird was informed of “serious problem[s]” between Valard and Langford Electric, and was alive to the very real possibility of Valard not being paid in full for its services — especially since it knew that additional funds from Suncor Energy Inc. would not be forthcoming. Moreover, Bird was expressly asked to advise on how the parties should proceed with their dispute. Valard, as a recipient of the email, had full knowledge of this. Indeed, it was Valard’s issue with the payment offered by Langford up to that point which prompted Langford to email Bird in the first place.

39      As noted above, I accept that a trustee has an equitable obligation to accurately answer all requests from potential claimants for information pertaining to the existence and particulars of any labour and materials payment bond. As I see it, the August 10, 2009 email effectively amounted to such a request. Although the email was not sent by Valard, and did not explicitly raise questions regarding the existence of any bond, I do not see this as particularly significant. In my view, it is not necessary that a potential claimant articulate a particular set of words before being entitled to information about any existing bond from the trustee. ……On the facts of this case, it is sufficient that Langford’s email alerted Bird to the payment problems between Valard and Langford, and ended with a clear request that Bird outline how the parties should proceed with this payment dispute. As one of the recipients of this email (and part of this conversation), Valard was entitled to expect that, if a labour and materials payment bond were available, its existence would have been disclosed by Bird (as trustee/obligee) at this time.

40      Rather than doing so, Bird removed Valard from the email chain and informed Langford that additional funds from Suncor would not be forthcoming. It is my view that, by failing to notify Valard of the L&M Bond’s existence upon receiving what effectively amounted to a request for guidance as to how this payment dispute could be resolved and with knowledge that additional money from Suncor was unavailable, Bird breached the equitable duty it owed to Valard. Valard was entitled to assume that this request would have triggered a duty on the part of the trustee to advise it of any available bond, and that it therefore did not need to make any further requests in this regard.” (emphasis added)

Accordingly, Justice Côté agreed with the majority that the appeal should be allowed.

Justice Karakatsanis held that nothing in the facts of this case activated Bird’s duty to inform Valard of the existence of the bond. Accordingly, she would have dismissed the appeal.


This decision is obviously of great importance to the law relating to labour and material payment bonds on construction projects.

There are two specific factual bases upon which the duty to disclose the existence of a payment bond was found to exist in the present case:

  • According to the majority, because the “construction project” was not the sort of project upon which payment bonds are normally used, then the duty to disclose the bond arose in this case. The legal principle behind that decision is much broader: the duty arises wherever it could be said to be to the “unreasonable disadvantage” of the beneficiary not to be informed of the trust’s existence. But the majority declined to define what other circumstances would trigger that duty to disclose.
  • According to Justice Côté, because Bird received notice (from Langford) of the difficulty that Valard was having getting paid by Langford, it had a duty to respond to Valard and advise Valard of the existence of the bond.

The importance of Justice Côté’s decision is apparent. She agreed with Justice Karakatsanis that generally there is no duty on the contractor to advise the sub-subcontractor of the existence of the bond. But she found that such a duty was triggered when the contractor learned of a sub-subcontractor’s difficulty in getting paid, even though that information was not received from the sub-subcontractor (and indeed in this case, it was received from the defaulting subcontractor!). So the duty found by Justice Côté can arise even if the use of payment bonds on such a construction project is common. In effect, Justice Côté’s decision has a much broader application to construction projects than that of the majority.

The majority of the Supreme Court would seemingly agree with Justice Côté’s approach since the “unreasonable disadvantage” to the sub-subcontractor in not being advised of the bond is much more obvious when the sub-subcontractor is having difficulty getting paid by the subcontractor, and the contractor knows that.

If one combines these two elements of the Valard decision, then it may be highly risky for an owner or contractor which is a trustee under a payment bond not to take steps to alert the beneficiaries of the existence of the bond. Applying the majority’s decision, the circumstances in any particular case may amount to an “unreasonable disadvantage” to the beneficiaries, thereby triggering the duty to disclose. Applying Justice Côté’s reasoning, some email, job minute or other event may later be found to have been sufficient notice to the trustee to trigger the duty to disclose the bond. Both these elements are pretty indefinite, which may make the risk of non-disclosure of the bond too high.

If this is so, then owners and contractors who are trustees under payment bonds may start posting notice of the bonds on the site or otherwise take steps to bring the bonds to the attention of subcontractors and sub-subcontractors, simply in order not to run the risk that the Valard decision will be used against them. The Valard decision may change the whole industry landscape by changing the conduct of owners and contractors.

Another issue is: can the ruling in Valard be avoided by re-wording the bond? For instance:

  1. If the owner or contractor under the bond is not named as a trustee, will the result in Valard apply?

The trusteeship role of the owner and contractor under a payment bond is intended to avoid the rule under common law that a third party cannot enforce a contract. And so the owner or contractor is a party to the bond as a trustee for the beneficiaries. But can the structure of the bond be changed so that this trusteeship role is done away with and yet the bond can be enforced by the beneficiaries? There are other forms of payment bonds in which the owner or contractor is not shown as a trustee, but rather as an agent. But the law of agency may raise the same duty of disclosure as the law of trusts. In any event, bonding companies, owners and contractors may be considering ways in which bonds may be re-structured to avoid the result of the Valard decision.

  1. Can the duty found to exist in Valard be negated in the bond itself? Can the bond validly state that there is no duty on the trustee to advise the beneficiary of the bond? If the existence of the duty is based upon an implied duty, can the implied duty be over-ruled by an express statement to the contrary?

Or is this duty to inform of the existence of the bond part of the fundamental nature of trusteeship, such that it cannot be over-ruled, especially without the knowledge and consent of the beneficiaries? Can the right of the beneficiary to know of the bond be eliminated by the wording of the bond which they don’t even know exists?

There is much to think about as the full implications of the Valard decision are analyzed.

See Heintzman and Goldsmith on Canadian Building Contracts (5th ed.), chapter 15, part 6.

Labour and material payment bonds – duty to disclose existence of the bond to beneficiaries

Valard Construction Ltd. v. Bird Construction Co., 2018 CarswellAlta 261, 2018 SCC 8

Thomas G. Heintzman O.C., Q.C., LLD (Hon.)                                          April 23, 2018

One Arbitration Under Two Separate Arbitration Agreements Held To Be Invalid

In A v B, [2017] EWHC 3417 (Comm), the High Court of Justice of England and Wales has recently held that an arbitrator in an arbitration commenced by a single request to arbitrate did not have jurisdiction to decide disputes under multiple arbitration agreements.

What makes this decision so important and interesting is that the British Columbia Supreme Court recently arrived at a somewhat different result. As I reported in my article posted on January 2018, in South Coast British Columbia Transportation Authority v. BMT Fleet Technology Ltd. 2017 CarswellBC 2587, 2017 BCSC 1683, the B.C. Supreme Court held that a single Notice to Arbitrate to initiate an arbitration under several arbitration agreements was not totally invalid. The court held that disputes under multiple arbitration agreements could not, absent the parties’ consent, be resolved in a single arbitration, but that the arbitral authority (the British Columbia International Commercial Arbitration Centre (BCICAC)) had the authority to separate the disputes into separate arbitrations which could validly proceed.

The question of whether there can be a single notice to arbitration under multiple arbitration agreements is of fundamental importance to construction law. This is because, in a single construction project, there are usually multiple building contracts. Each contract may contain its own arbitration clause. Disputes under these contracts usually involve basically the same facts, and over-lapping parties. A single notice to arbitrate reflects the reality of the single construction project. But the issue still arises as to whether arbitral statutes, arbitral agreements and the rules of arbitral authorities allow a single notice arbitrate to be issued under several arbitration agreements, and if so, whether the arbitrator under that single notice to arbitrate may decide disputes under those multiple arbitration agreements.

In A v B, the English court held that a single notice to arbitrate under several arbitration agreements was invalid and the arbitrator had no authority to decide disputes under several arbitration agreements. Let’s explore the basis upon which that decision was arrived and then consider the differences, if any between the decision in that case and the B.C. Supreme Court in South Coast, and whether these two decisions can be reconciled.


B sold two consignments of crude oil to A pursuant to two separate contracts. Each contract was governed by English law and contained an arbitration clause requiring arbitration pursuant to the rules and procedures of the London Court of International Arbitration (LCIA). Each contract also incorporated B’s General Terms and Conditions, including an LCIA arbitration clause.

These consignments were re-sold by A to a third part C under separate contracts which mirrored (save for a mark- up) the contracts between A and B, including the incorporation of LCIA arbitration clauses.

On September 23, 2016 B commenced one LCIA arbitration against A, claiming that A had failed to pay the price due under the two contracts. B delivered a single Request for Arbitration and paid a single registration fee to the LCIA. B claimed the purchase price under both contracts with A.

On October 31, 2016 A served its response to the Request denying liability and stating that the Response should not be construed as submission to the arbitral tribunal’s jurisdiction to hear the claim as currently formulated; and reserving A’s rights to challenge the jurisdiction of the LCIA and any arbitral tribunal appointed. A included similar statements and reservations in its correspondence with the LCIA and the arbitral tribunal which was appointed by the LCIA.

On October 31, 2016 A commenced a separate LCIA arbitration against C, mirroring B’s claim against it.

On February 8, 2017, the LCIA appointed the Tribunal for the arbitration between A and B.

On March 23, 2017, C challenged the jurisdiction of the arbitral tribunal in the arbitration between A and C on the grounds that A’s request for arbitration was invalid. That challenge was upheld on 11 May 2017.

On May 24, 2017, A challenged the validity of the B’s Request for Arbitration under both of the crude contracts between A and B. This challenge was made shortly before the date (June 2, 2017) on which A’s Statement of Defence was due in the arbitration. A served its Statement of Defence on that date, reserving its position with respect to the jurisdiction of the arbitral tribunal.

On July 7, 2017, the arbitral tribunal made a partial award in which it dismissed A’s challenge to its jurisdiction on the ground that it was brought too late. The tribunal held that the requirement in the LCIA that a jurisdictional objection be raised “as soon as possible after the matter alleged to be beyond its jurisdiction is raised” meant that A was required to specifically raise its objection based on the “two arbitration agreement” issue at the time of its response to the Request for arbitration. When it raised that objection at the time of filing its Statement of Defence, it was too late.

A then commenced proceedings in court on August 4, 2017 to set aside the arbitral tribunal’s decision.

The Position of the Parties

On the jurisdictional issue, A’s position was that a request for arbitration could only validly encompass a dispute under one arbitration agreement, and that therefore B’s Request for arbitration failed to validly commence an arbitration. A said that there remained the question of whether the Request for arbitration could be amended to refer to only one arbitration agreement, but that in its present form, the Request for arbitration was invalid.

B did not dispute that an arbitration could only encompass a dispute under a single arbitration agreement, but submitted that its request for arbitration validly commenced two arbitrations, one under each contract. B argued that the reference in the LCIA rules to “an arbitration” could encompass two arbitrations, relying on general statute law that states that, in deeds and contracts, the singular includes the plural and vice versa. B relied upon the decision in The Biz, [2011] 1 Lloyd’s Rep. 688 in which it was held that a single notice to arbitrate validly commenced 10 separate arbitrations under 10 bills of lading each of which contained a London arbitration clause.

Decision of the Court

The judge in A v B said that “the approach set out in The Biz is correct and [I] adopt it in full.” However, he went on to hold that The Biz “was a case where no arbitral rules were applicable, let alone the LCIA rules.” He held that the LCIA rules precluded the same result in the present case, for the following reasons:

  1. It was “entirely plain” that the “LCIA Rules treated a single request [to arbitrate] as giving rise to a single arbitration, the payment of fees for one arbitration, and the formation of a single arbitral tribunal.”
  2. In addition, and “perhaps conclusively in this regard, Article 22.1(x) [of the LCIA Rules] gives the arbitral tribunal (once formed) the power to consolidate the arbitration with one or more other arbitrations, but only where all parties agree (reflecting the statutory restriction on consolidation of arbitration proceedings under section 35 of the [English] 1996 Act)”.
  3. In light of these provisions, it was “inconceivable that the LCIA Rules could be read as permitting a party to pay only one fee when commencing multiple arbitrations” and it was “undoubtedly impermissible to read them as giving rise to consolidated proceedings without the consent of all parties.

Accordingly, the English court held that the Request to arbitrate was “an ineffective attempt to refer separate disputes to a single arbitration. It was accordingly invalid.”

The court disagreed with the arbitral tribunal’s finding that the objection to the tribunal’s jurisdiction had been raised too late. In the English Arbitration Act, 1991, the requirement that an objection to jurisdiction must be raised “as soon as possible” applied to jurisdictional objections arising during the course of the arbitration, not to those raised at its inception. As to those latter objections, the English Act plainly required them to be raised by the time of the delivery of the taking of the first step in the proceeding. That wording closely followed the wording of the UNCITRAL Model Law which requires such an objection to be made no later than the delivery of the statement of defence. It was “inconceivable” that the LCIA Rules intended to impose an earlier date than that. “It would entail that a party could lose the most fundamental of objections (such as that it was not party to the relevant agreement or that there was no LCIA arbitration clause in an agreement to which he was a party) without having taken any steps in the arbitration and without even having appointed an arbitrator (a step which would not, in itself, amount to a waiver of the right to object to jurisdiction).”

If it had been necessary for him to decide the issue, the English judge said that he would have held that the provision in the English Arbitration Act, 1991 as to the time limit within which to raise a jurisdictional objection prevailed over any shorter time limit imposed by the LCIA Rules.

The court concluded as follows: “I find that the Request was invalid, with the result that the Tribunal did not have jurisdiction to make the Award. I further find that A has not lost the right to challenge the Tribunal’s jurisdiction as it objected not later than the time for its Statement of Defence.”


There are many important aspects of this decision. I will not address the second issue – whether the LCIA Rules could validly, or did, impose a shorter time limit for objection than that contained in the applicable arbitration statute. That issue is itself worthy of further analysis. It is interesting that the English Court would have held that the LCIA Rules relating to raising jurisdictional objects were trumped by the provisions of the English Arbitration Act, 1991, yet it held that the LCIA rules were effective to preclude the single arbitration of disputes under more than one arbitration agreement.

Rather, this discussion will focus on the English Court’s finding that the Request for arbitration was “invalid” and the arbitral tribunal did not have jurisdiction because the Request included disputes relating to more than one arbitration agreement. This decision seems to be at odds with the decision of the B.C. Supreme Court in the South Coast decision. There, the B.C. court held that the initiation, by one originating document, of an arbitration proceeding relating to several arbitration agreements was substantively valid, but procedurally invalid, and the arbitral authority (BCICAC) had jurisdiction under its rules to correct that invalidity by allowing the claimant to pay the fees for multiple arbitrations and file requests for the appointment of arbitrators for each of the three arbitrations encompassed in the original originating document. I refer readers to my article dated January 18, 2018 for a fuller discussion of the South Coast decision.

In A v B, neither of the parties (and in particular, B, the claimant) sought to correct the alleged invalidity by asking the LCIA to divide the file into separate arbitrations, and by paying the fees for separate arbitrations. Nor did either party submit to the court that the original Request for arbitration should be preserved in this fashion. Accordingly, the court in A v B did not decide whether the LCIA (or the arbitral tribunal appointed by the LCIA) would have had the authority to effectively sub-divide the original Request for arbitration into separate arbitrations.

The issue of whether a single request for arbitration can validly commence one arbitration under several arbitration agreements is not an academic exercise. It may be crucial for limitations purposes. If the single request for arbitration is entirely invalid, then a limitation period may be missed.

What then can be made of these three decisions: A v. B, The Biz and South Coast? Are they reconcilable on the question of whether a single request for arbitration of disputes under several arbitration agreements is substantively valid or invalid? Let me take a stab at trying to reconcile them by proposing the following principles:

  1. If the provisions of the applicable arbitration agreements and arbitral statute do not otherwise provide, a single notice requesting arbitration under several arbitration agreements is substantively valid to commence separate arbitrations under each agreement, provided that the notice contains all the facts, allegations and other elements required to assert separate claims under each arbitration agreement.

Each of these three decisions seems to be consistent with this principle. This principle seems to be what the courts in South Coast and The Biz decided. The court in A v B accepted that principle as correct, but held that the single request to arbitrate in that case was invalid due to the provisions of the LCIA Rules.

  1. The Rules of an arbitral authority or an arbitration agreement may prohibit or allow a single request for arbitration to initiate arbitration under multiple arbitration agreements. Upon objection from the respondent, the arbitral authority or tribunal is required to sub-divide the disputes into separate arbitrations on a timely basis.

This principle may be more debatable. Certainly, in South Coast the B.C. Supreme Court applied this principle. It examined the rules of the BCICAC and held that those rules allowed the BCICAC to accept a single request for arbitration and then, when an objection was raised by the respondent, to divide the file into separate arbitrations. While this issue was not squarely addressed in A v B, the fact that the court analyzed the LCIA Rules and held that those Rules precluded a single request for arbitration from having any validity seems to indicate that the court could have come to the opposite conclusion if it had the opposite view of the effect of those Rules.

It is unfortunate that the court in A v B did not have a copy of the decision in South Coast because the B.C. Court analysed the “single fee” issue and still decided that BCICAC Rules allowed the BCICAC to divide the request for arbitration into several arbitrations. Indeed, the BCICAC had subdivided the request for arbitration and received fees for the several sub-divided arbitrations by the time the issue came to court. This fact may distinguish the South Coast decision from the A v B decision.

Also, in South Coast, the B.C. Supreme Court held that, once the BCICAC accepted the single request for arbitration, then by the very wording of its rules, a valid arbitration had been commenced. In effect, the court said that, once having accepted that request and having stated to the parties that an arbitration had been commenced, the BCICAC could not maintain that a valid arbitration had not been commenced and it was the BCICAS’s obligation to figure out what to do next, not the parties’.

Could that submission be made under Rule 1.4 of the LCIA Rules (2014)? That rule states: “The date of receipt by the Registrar of the Request shall be treated as the date upon which the arbitration has commenced for all purposes (the “Commencement Date”), subject to the LCIA’s actual receipt of the registration fee.“  (Underlining added) If the LCIA accepts the Request to arbitrate and appoints the arbitral tribunal, can the LCIA assert to that an arbitration has not been commenced, and if not, can any other party?

  1. Unless the arbitral agreement or the applicable rules of the arbitral authority so provide or the parties agree, the arbitrator does not have authority to conduct a single arbitration in respect of disputes under more than one arbitration agreement.

This principle appears to flow from all three decisions. Indeed, in each of them the parties themselves appear to have conceded that the arbitral tribunal did not have authority to conduct a single arbitration in respect of disputes under several arbitration agreements.

This principle separates the commencement of the arbitration from the conduct of the arbitration. The commencement of the arbitration by one commencing document would be considered to be valid, but the conduct of arbitrations under multiple arbitration agreements by a single arbitral tribunal to be invalid.

If this is the case, instead of saying that “the Request is invalid”, the court in A v B could have said: “The arbitral tribunal has no jurisdiction to conduct a single arbitration in respect of disputes under more than one arbitration agreement.” If it had done so, would that have entitled either the LCIA or the arbitral tribunal to make an order separating the arbitration into two arbitrations, as was done in The Biz and South Coast?

Of course, the jurisdictional objection may be waived, in particular by filing a Statement of Defence in the arbitration without making any objection to the fact that it purports to be an arbitration about disputes arising from more than one arbitration agreement.

  1. There is no point in issuing a single notice or request to arbitrate in respect of disputes under more than one arbitration agreement, unless the arbitral agreement or the rules of the applicable arbitral authority permit, or the parties agree, to a consolidated arbitration hearing.

The lesson from these three cases is that (unless the arbitral rules or arbitration agreement permit arbitration hearings to be held together or consolidated) the issuance of such a single notice or request to arbitrate is futile. If the respondent objects to such a notice or request, then it will only result, at the very best, in the arbitral authority or tribunal ordering that separate arbitrations proceed under each arbitration agreement, putting the parties back to where they would have been if separate notices or requests to arbitrate had been issued. At the worst, it may result, as it did in A v B, in the notice or request being held to be invalid.

See Heintzman and Goldsmith on Canadian Building Contracts (5th ed.), chapter 11, part 4

A v B, [2017] EWHC 3417 (Comm)

Arbitration – Commencement of arbitral proceedings- Single arbitration of disputes under multiple arbitration agreements – Time for objecting to jurisdiction of the arbitral tribunal

Thomas G. Heintzman O.C., Q.C., LL.D. (Hon.)                                April 4, 2018