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.

Background

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.”

Discussion

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

www.heintzmanadr.com

www.constructionlawcanada.com

 

                 

 

Notice Commencing Several Arbitrations Held Not To Be Totally Invalid By B.C. Court

In South Coast British Columbia Transportation Authority v. BMT Fleet Technology Ltd.

2017 CarswellBC 2587, 2017 BCSC 1683, the British Columbia Supreme Court recently held that a single notice purporting to commence several arbitrations against several respondents was procedural invalid. However, the notice was not totally void and could be amended by the applicant to provide for several arbitrations and thereby correct the procedural irregularity.

In view of the absence in most arbitration statutes of the right to consolidate arbitral proceedings, this decision is important as it allows an apparently invalid commencement of arbitral proceedings to stand in a corrected form. Whether this decision has any application to arbitrations outside British Columbia, or to an ad hoc arbitration, are issues to be considered.

Background

South Coast British Columbia Transportation Authority (known as, and referred to in this article as, TransLink) entered into two separate contracts with a ship architect, a contract with a ship consultant and a contract with a shipyard for the design and construction of a new ferry. Each contract contained a clause requiring arbitration of any disputes under the British Columbia Arbitration Act.

On April 1, 2011, TransLink delivered a Notice to Arbitrate to the British Columbia International Commercial Arbitration Centre (“BCICAC”). The notice purported to commence one arbitration proceeding under all the contracts against each of the architect, consultant and shipyard. TransLink paid a fee of $1,680 ($1,500 plus H.S.T.), the fee to be paid for one arbitration proceeding for a claim over $50,000. The Notice identified each respondent and the respective contracts with TransLink, set forth the relevant provisions of each contract and separately identified each cause of action and remedy being sought against each party.

BCICAC opened File No. DCA-1313 and wrote to the parties notifying them of the arbitration, stating in part “We acknowledge receipt of a Notice to Arbitrate (the “Notice”) . . . on behalf of . . . TransLink . . . received at this office on April 1, 2011. This arbitration is deemed to have commenced on April 4, 2011.”

Then counsel for the shipyard telephoned BCICAC to raise concerns about the propriety of a single arbitration proceeding against multiple parties under multiple contracts. TransLink advised BCICAC that the Notice to Arbitrate “may have been irregular”. BCICAC suspended the Arbitration until they “have had the opportunity to discuss the form of the Notice further with counsel”. Various correspondence was exchanged and then in May 2011, BCICAC advised TransLink that if it decided to proceed with arbitration, separate Notices to Arbitrate would have to be filed with the BCICAC since the respondents were not bound by the same arbitration agreement.

The parties participated in an unsuccessful mediation of their differences, and in April 2016, TransLink issued and served a Notice to Appoint an Arbitrator, to which the respondents replied, amongst other things, that the issue of the propriety of the commencement of the arbitral proceeding against several respondents under several arbitration agreements would have to be addressed.  Then in February 2017, TransLink’s new counsel wrote to counsel for the ship architect and consultant acknowledging that the Notice to Appoint an Arbitrator dated April 19, 2016 is “arguably irregular”, but stated that three contracts had been effectively commenced, one involving the ship architect and the other two involving the consultant. TransLink issued a new and separate Notice to Appoint an Arbitrator under each contract. TransLink’s counsel requested that BCICAC File No. DCA-1313 be administratively restructured to reflect separate arbitrations for each of the three contracts in issue, and provided BCICAC with an additional fee of $3,150 plus GST for two additional arbitrations. TransLink did not seek to maintain an arbitration against the shipyard.

TransLink then applied to the B.C. court for a declaration that an arbitration proceeding against each of the ship architect and the consultant had been effectively commenced, and for an order that a specified individual be appointed as arbitrator for each arbitration.

British Columbia Arbitration Act and BCICAC Rules

Like most of the arbitral statutes in Canada, the B.C. Arbitration Act (section 21) empowers the court to consolidate two or more arbitrations if, among other conditions, “all parties to those agreements agree on the appointment of the arbitrator and the steps to be taken to consolidate the disputes into the one arbitration.”

Unlike most other provincial arbitral statutes, the B.C. Act (section 22) provides that unless the parties to an arbitration otherwise agree, the domestic rules of the BCICAC apply to arbitrations governed by that Act, unless those rules are inconsistent with another governing arbitral statute or the B.C. Act. .

The BCICAC rules provide for the payment of fees upon the commencement of an arbitration and state (in rule 10) that “the arbitration is deemed to have commenced when the Arbitration Notice or Joint Submission has been filed with the Centre and the commencement fee paid. The Centre shall notify the parties when an arbitration has commenced.”

Decision of the B.C. Supreme Court

The B.C. Supreme Court held that the Notice to Arbitrate contained all of the information required by the rules of the BCICAC relating to the commencement of an arbitration: the names of the parties and their addresses for delivery; a brief statement of the matter in dispute; the remedies sought; a precise estimate of the amount claimed; and the number of arbitrators proposed.

The court found that “the respondents clearly understood the nature and substance of the specific claims being made against them, the contractual provisions being relied upon, the remedy being sought, and the fact that a request for arbitration was being made in respect to those claims. Had TransLink photocopied the Notice to Arbitrate and filed the same document four times (including in respect of the claim against Victoria Shipyards), there could be no dispute that it was fully compliant.” The parties had “adopted arbitration as the means by which their disputes would be resolved and must now be content with the informalities of the arbitration process.”

The court noted that BCICAC accepted the fee that accompanied the Notice to Arbitrate, stated that the arbitration was deemed to have been commenced and had not returned the funds. The court held that “BCICAC’s deeming that the arbitration proceedings had commenced is analogous to the court registry having accepted a civil action for filing. The matter of the payment of a fee is for the BCICAC to address and administer. It is not a matter between TransLink and the respondents, and does not prejudice the respondents in any way. The payment of the incorrect fee can hardly be described as a fundamental breach of the parties’ contracts or going to the substance or “root” of the parties’ rights inter se.”

Accordingly, the court found that “TransLink’s April 1, 2011 Notice to Arbitrate, although an irregularity, was effective to commence four separate arbitration proceedings”, two against the ship architect and one each against the consultant and shipyard.

The court also held that the irregularity in the appointment of the arbitrator had been remedied by TransLink by its issuance of separate notices of appointment in February, 2017. The language of Section 17 of the B.C. Arbitration Act was mandatory and required the court to appoint an arbitrator if the arbitrator was not appointed by the parties. Accordingly, the court appointed the arbitrator nominated by TransLink for each of the arbitrations.

Discussion

This decision deals with the classic problem faced by arbitration in construction projects. There is an arbitration agreement in each of the contracts between the owner and various participants in the project (say, the contractor and the consultant). There is also an arbitration agreement in each of the contracts between the various other participants in the project (say, the subcontractors, suppliers, etc). Standard arbitral law requires that there be separate arbitrations for each of these arbitration agreements, even though that will result in much greater time, inconvenience and the expense of multiple arbitrations instead of one consolidated arbitration, and with the possibility of inconsistent decisions.

The solution to this problem is not the one first adopted by TransLink, namely, the issuance of one Notice to Arbitrate under four contracts. Ultimately, TransLink did not gain consolidation of the arbitrations. Indeed, it was fortunate to end up with a court decision that validated the commencement of the arbitrations, and divided them into separate arbitrations. So TransLink was back to where it would have been had it commenced separate arbitrations.

Although the decision in this case seems fair, an appellate court might not uphold it having regard to section 21 of the B.C. Act. That section only contemplates the consolidation of multiple arbitrations with the parties’ consent. Accordingly, it might be read, by inference, as prohibiting the commencement of multiple arbitration by one commencement document. In addition, this decision might also not apply in the case of an ad hoc arbitration conducted under an arbitration agreement which is not subject to the auspices or rules of an arbitral tribunal.

The fact that the notice was accepted by BCICAC, that BCICAC stated that an arbitral proceeding was deemed to have been commenced, and that the BCICAC rules deem the proceeding to have been commenced, were key factors in the court’s decision. In effect, the court held that the fault was that of BCICAC, if there was “fault”, in accepting the single Notice of Arbitration in respect of several arbitrations, and that if there was something ineffective about that notice, then it was BCICAC that should not have accepted it. Having accepted the notice, separate effective arbitrations against each of the respondents had been commenced. The joinder of those arbitrations was an irregularity which could be cured.

The arbitration agreement contained in most Canadian building contracts provide for ad hoc arbitration, not arbitration conducted under the auspices of an arbitral institute, such as the BCICAC, ADRIC, ICC, LCIA or ICDR. Thus, the arbitration clause in the CCDC contracts does not name an institute under which the arbitration is to be conducted. If the arbitration is not conducted under the auspices of an arbitral institution, the authority of the ad hoc arbitrator to decide that multiple arbitrations were commenced by one notice to arbitration seems more doubtful.

If an arbitration is commenced under the auspices of an arbitral institution other than BCICAC, the institution’s rules may not state that an arbitration is “deemed to have commenced” when an Notice to Arbitrate is received by the institution, and the facts may not otherwise satisfy a court that multiple valid arbitrations were commenced against multiple parties just because the institution accepted the notice of arbitration and stated that an arbitration proceeding has commenced.

The better solution for the multiple arbitration problem is to deal with it up-front in the arbitration agreement in each of the contracts between the owner and other parties, such as in main contract between the owner and the general contractor and in the contract between the owner and the consultant.

That arbitration agreement can provide that each party agrees to participate in, and agrees to a consolidation of the disputes into one arbitration before one arbitral tribunal in respect of all contracts on the project. The owner and general contractor can then ensure that this sort of wording is incorporated into subcontracts through an “incorporation by reference” clause in the general contract requiring that the provisions of that contract are to be incorporated into each subcontract, and for the contractor to ensure that that occurs. That “incorporation by reference” clause may appear in either the arbitration agreement itself, or may be applicable to all the parts of the general contract that are to be incorporated into the subcontracts.

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

South Coast British Columbia Transportation Authority v. BMT Fleet Technology Ltd.

2017 CarswellBC 2587, 2017 BCSC 1683

Building contract – arbitration – commencement of arbitration – consolidation of arbitrations

Thomas G. Heintzman O.C., Q.C., LL.D. (ontHon.), FCIArb              January 18, 2018

www.heintzmanadr.com

www.constructionlawcanada.com

 

What Does A “Right To Appeal In Accordance With The Provisions Of The Arbitration Act” Mean?

This question seems very straightforward, but when the Arbitration Act provides several rights of appeal, depending on what the parties have or have not agreed upon, then which of those rights of appeal apply? Only the right to appeal that applies if the parties have not agreed to further rights of appeal? Or, all the rights of appeal as if the parties had agreed to them?

In 6524443 Canada Inc. v. Toronto (City), 2017 CarswellOnt 9006, 2017 ONCA 486, the Ontario Court of Appeal has held that it is the former, and that by these words the parties do not engage the appeal rights that they could have engaged by specific agreement.

The Ontario Arbitration Act, 1991 (the present Act)

Section 45(1) of the Ontario Arbitration Act, 1991 provides that, if the arbitration agreement does not deal with appeals on questions of law, a party may appeal an award to the court on a question of law with leave, which the court shall grant only if it is satisfied that (a) the importance to the parties of the matters at stake in the arbitration justifies an appeal; and (b) determination of the question of law at issue will significantly affect the rights of the parties.

In addition, the present Act allows the parties to agree to appeals on questions of law, fact or mixed fact and law: sections 45(2) and (3). The lead-in to both those sub-sections states: “If the arbitration agreement so provides….”

To which rights of appeal did the parties agree to: the 45(1) rights (that is, on questions of law with leave); or the section 45(2) and (3) rights (that is, on questions of law, fact or mixed fact and law, without the necessity of leave)?

This question becomes more important since the decision of the Supreme Court of Canada in Creston Moly Corp. v. Sattva Capital Corp., (2014), 2014 SCC 53, 2014 CarswellBC 2267. In that decision, the Supreme Court held that, except in the exceptional case where a question of pure law arises, the interpretation of a contract is a question of mixed fact and law. Therefore, if section 45(1) applies, and if no pure question of law arises, an appeal cannot be taken from an arbitral award interpreting a contact.

Interestingly, the Arbitrations Act, R.S.O 1970 contained broad rights of appeal.  As the motion judge noted:

  “The 1970 Act provided for full rights of appeal. It did not differentiate between appeals on questions of law, fact or mixed fact and law. Section 16(1) of the 1970 Act reads: Where it is agreed by the terms of the submission that there may be an appeal from the award, an appeal lies to the Divisional Court.”

The Appeal Rights In The Agreements

The present case arose from a lease under which the renewal rent was to be set by arbitration if the parties could not agree on the amount of the renewal rent. The parties entered into two contracts affecting the rights of appeal. In the lease the appeal rights were described as follows:

“The decision of the arbitrators shall be subject to appeal in accordance with the provisions of The Arbitrations Act, R.S.O. 1970, as amended, or any successor Act.”

Then, after the arbitration had been launched, and for the purposes of the arbitration itself, they entered into another agreement which stated:

“The decision of the arbitrators shall be subject to appeal in accordance with the provisions of the Arbitration Act, 1991, S.O. 1991, c. 17 as amended, or any successor Act.”

The Decision Of The Superior Court Of Justice

After the arbitrator’s award, the numbered company (referred to in the judgments as Brookfield) appealed the award to the Ontario Superior Court of Justice. Brookfield filed affidavit evidence to argue that broader rights of appeal had been agreed between the parties, and the City filed evidence in response. The motion judge refused to consider the affidavit evidence, and held that: the arbitration agreement was a stand-alone agreement that provided only for appeals on questions of law, with leave; even if the lease were considered, it did not provide for broader rights of appeal; and that Brookfield’s notice of appeal raised only questions of fact or mixed fact and law. The appeal was accordingly quashed.

The Decision Of The Ontario Court Of Appeal

The Ontario Court of Appeal dismissed the appeal. It held as follows:

  1. The motion judge’s decision was reviewable on a standard of reasonableness. It involved the interpretation of the relevant arbitration statutes, which did not involve an “extricable” legal issue to be reviewed on a standard of correctness.
  1. The motion judge correctly refused to consider the affidavit evidence. That evidence really concerned the parties’ respective negotiation stances, not their mutual commercial objectives. The subjective intentions or objectives of each party were not helpful in interpreting the appeal provisions.
  1. The motion judge reasonably concluded that the second arbitration agreement was intended to be a stand-alone agreement governing the arbitration and the appeal rights from the award. The Court of Appeal said:

“The Lease provisions concerning arbitration are very brief, consisting of four clauses. The parties chose to enter into a detailed Arbitration Agreement, which included a comprehensive procedure for the arbitration, that in certain respects differs from what was provided for under the Lease (for example, in the manner of appointment of the arbitrators). There is no reason to conclude that, having set out in some detail the procedure for the arbitration, including addressing an appeal from the Award, the parties assumed that any provision of the Lease respecting the arbitration would continue to apply, especially where inconsistent with the Arbitration Agreement. And there is no merit to the appellant’s argument that, because the Arbitration Agreement referred to article 1(d) of the Lease, it must have intended the arbitration to be governed by the terms of the Lease. This is simply a recital of the circumstances in which the arbitration is taking place — “for the determination of Fair Market Rental for the Second Rental Period as those terms are defined in the Lease”. We agree with the motion judge that “there is no need to refer back to the Lease in order to interpret any of the terms of the Arbitration Agreement”.” (underlining added)

  1. Even if the arbitration provisions of the lease were considered, the motion judge conclusion was reasonable. The lease referred to the arbitral award being “subject to appeal in accordance with the provisions of [the 1970 Act], or any successor Act” ). As the Court of Appeal said:

“By its terms the Lease anticipated an appeal would be governed by the arbitration legislation in force at the time of the arbitration. We see no merit in the appellant’s argument that the reference to the 1970 Act addressed substantive rights to appeal an arbitrator’s award, while “any successor Act” would only apply to the arbitration procedure. Both the Lease and the Arbitration Agreement provide for the parties’ appeal rights to be governed by the 1991 Act.”

  1. The wording of both appeal provisions did not include any further rights of appeal than an appeal on a question of law with leave. For any further rights of appeal to exist:

requires the agreement to specify whether the parties have the right to appeal questions of law, fact or mixed fact and law, failing which they are entitled to appeal only on questions of law, with leave”. The parties chose to enter into the Arbitration Agreement which included a specific appeal provision that referenced the 1991 Act, without saying anything more.” (underlining added)

Discussion

This decision raises a number of interesting issues:

  1. The Court of Appeal’s interpretation of section 45 of the present Act seems logical, but it also seems to contravene one rule of contractual interpretation.

One fundamental rule of contractual interpretation is the rule against tautology. Every provision in a contract is intended to be effective. Here, the appeal provision in each of the agreements is rendered ineffective by the courts’ interpretation. If those provisions did not exist, the parties would have the right to seek leave to appeal on a question of law, the very right that the parties have been found to have agreed to by those provisions. In the result, the appeal provisions are of no use or effect.

  1. The Court of Appeal discounted the fact that the lease referred to the 1970 version of the arbitral statute. The Court of Appeal has held that the parties intended that the wording of the arbitral statute from time to time in force would apply to any arbitration under the lease. That is obviously so, but one might have thought that in interpreting the wording of appeal provisions in both the lease and the arbitration agreement, one should have regard to the fact that under the original lease and the arbitral statute then applicable, there were full rights of appeal.

The combined effect of a rule of contractual interpretation (the rule against tautology) and the history of the Arbitration(s) Act were not sufficient to overcome what the Court of Appeal found to be the plain meaning of the arbitration agreements.

In the result, the Court of Appeal has decided that, under the present Act the parties must specifically state that there is to be a right of appeal (not just an appeal with leave) and specifically state that the right of appeal is on questions of fact, law and mixed fact and law, if that is what the parties intend.

Again, there is a lesson to be learned. When an arbitral agreement refers to the arbitral statute “or successor statute” or words to that effect, any time the arbitral statute is changed, so is the arbitral agreement. With impending amendments to the Arbitration Act, 1991 on the horizon, practitioners should be examining arbitral agreements carefully, as they may be about to be amended by statute.

  1. When an arbitration appointment agreement is entered into for the purpose of a specific arbitration, the parties do not usually intend to amend the arbitral rights under their original commercial agreement. They think that they are just making specific arrangements between themselves and with the arbitrator respecting that arbitral appointment and that arbitration. In that arbitration appointment agreement, they may insert a reference to the contemporary arbitral statute as a matter of rote. But this case tells us that, by inserting that reference, the parties are over-ruling and replacing the arbitration agreement in that commercial agreement.

So the parties should be very careful to consider how that arbitral appointment agreement may later be seen to affect the arbitral appeal rights, and indeed all other rights, in the original commercial agreement.

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

6524443 Canada Inc. v. Toronto (City), 2017 CarswellOnt 9006, 2017 ONCA 486

Arbitration – appeal – arbitral appointment agreements – appeals on questions of law, fact, and mixed fact and law

Thomas G. Heintzman O.C., Q.C., LL.D(Hon.), FCIArb                       July 23, 2017

www.heintzmanadr.com

www.constructionlawcanada.com

 

 

When Does An Arbitral Award Contain An Appealable Question Of Law?

The Supreme Court of Canada has recently re-examined the issue of whether a statutory and contractual interpretation by an arbitral tribunal may be appealed. The court re-iterated the principle that arbitral awards are not appealable on a question of law when in reality the question is one of mixed fact and law. On this basis, in Teal Cedar Products Ltd. v. British Columbia, 2017 CarswellBC 1648, 2017 SCC 32, the Supreme Court re-instated an arbitral award which had been set aside in whole or in part, by the courts of British Columbia.

In doing so, the court re-affirmed its previous decision in Sattva Capital Corp. v. Creston Moly Corp., [2014] 2 S.C.R. 633 to the effect that, unless a discrete question of law arises, the interpretation of a contract is a question of mixed fact and law, not a question of law, and that an arbitral award interpreting a contract cannot be appealed to the courts if the right of appeal is only on a question of law.

I reviewed the Sattva decision in an article dated August 10, 2014 and the decision of the British Columbia Court of Appeal in Teal in an article dated July 7, 2015

The Issues

Teal held a license to harvest timber on provincial Crown land. The province then reduced the amount of Teal’s allowable harvest. The parties were able to settle the amount of Teal’s compensation for its loss of harvesting rights (the Rights Compensation) but were unable to agree on the compensation for the improvements Teal had allegedly made to Crown land (the Improvements Compensation). The parties agreed to arbitrate the amount of Improvement Compensation to which Teal was entitled. The arbitrator made an award in Teal’s favour and the province appealed.

The issues upon which the arbitral award was appealed were as follows:

  1. Did the arbitrator err in selecting a valuation method that was allegedly inconsistent with the governing statute, the Revitalization Act?
  2. Did the arbitrator err in his interpretation of the contract between the parties, especially in resorting to the factual matrix to interpret an amended settlement agreement between the parties in light of the negotiations between the parties?
  3. Did the arbitrator err in denying compensation to Teal Cedar relating to the improvements associated with one of its licences because it never lost access to those improvements?

The Decision Of The Majority Of The Supreme Court Of Canada

The nine-member court was divided 5-4 in this appeal. The majority held as follows with respect to these questions:

  1. This question was a question of law. Accordingly it could be appealed under the British Columbia Arbitration Act. However, the arbitrator applied the plain meaning of the statute prescribing that valuation and reasonably selected a suitable valuation method. Accordingly, his award was valid and could not be set aside.
  2. This question was either a question of mixed fact and law, or was without reviewable error as it was based on the wording of the contract interpreted in light of the factual matrix. In either case it was not appealable to the courts since section 31 of the B.C. Arbitration Act limits appeals to questions of law.
  3. This question was one of mixed fact and law and not reviewable under the B.C. Arbitration Act.

The four judges who dissented held that the arbitrator erred on Question 1. They held that Teal was entitled to compensation only for its limited interest in the improvements.  Teal, as a licence holder, did not own the improvements, which belonged to the Crown. The arbitrator selected a valuation method — the cost savings approach —, which failed to consider that Teal had only a limited interest in the improvements as a licence holder and was therefore not entitled to compensation on that basis under the Act.

In arriving at its conclusions, the majority of the court provided some further explanations and clarifications of its historic decision in Sattva. Here are three addition principles that can be extracted from Teal and added to the principles arising from Sattva:

  1. Alteration Of A Legal Test Raises A Legal Question.

If, in the course of the application of a legal principle, the underlying legal test has been altered, then a legal question arises. “For example, if a party alleges that a judge (or arbitrator) while applying a legal test failed to consider a required element of that test,” –for example, if “the correct test requires him or her to consider A, B, C, and D, but in fact the decision-maker considers only A, B, and C” – then a question of law arises. “If the correct test requires him or her to consider D as well, then the decision-maker has in effect applied the wrong law, and so has made an error of law.”

This situation is an example of an “extricable question of law” which under Sattva is reviewable as a question of law, but the alleged error is hidden or “covert” in the arbitrator’s award. The legal issues or tests are “implicit to their application of the test rather than explicit in their description of the test.”

  1. Statutory interpretation is normally a legal question and contractual interpretation is normally a question of mixed fact and law.

As explained in Sattva, “contractual interpretation remains a mixed question, not a legal question, as it involves applying contractual law (principles of contract law) to contractual facts (the contract itself and its factual matrix)”. But statutory interpretation is a matter of law.

  1. An arbitrator’s legal decision should be reviewed on a standard of reasonableness.

While an appeal of a court’s decision on a question of law should be conducted on the basis of correctness, an appeal of an arbitrator’s award on a question of law – in this case, the interpretation of a statute – should be conducted on the basis of reasonableness, based upon the arbitrator’s presumed special expertise. To do otherwise, and “to weigh an arbitrator’s actual (as opposed to presumed) expertise in every arbitration would require some sort of preliminary assessment of the arbitrator’s level of expertise with a view to establishing the standard of review for every particular hearing — which would be antithetical to the efficiencies meant to be gained through the arbitration process.” Moreover, “in a commercial arbitration context…..from a policy perspective, the deliberate aim is to maximize efficiency and finality.” All of these factors merit deferential review of the arbitrator’s decision.

The arbitrator is presumed to be an expert even though the arbitration process in this case was mandated by statute, not voluntary. If an issue arises in the course of an arbitration that is outside the subject matter of the arbitration, then in that case the presumed expertise of the arbitrator –and the review of the award on a reasonableness basis- might not apply.

This part of the Supreme Court’s decision may come as a surprise. In previous lower court decisions, it has been assumed that errors of law by an arbitral tribunal should be reviewed on a standard of correctness: see, for instance, Denali Construction Inc. v. Tremore Contracting Ltd.,2013 CarswellAlta 898, 2013 ABQB 321, 25 C.L.R. (4th) 54 at paras. 14-16 (Alta Q.B.). The Supreme Court has now said that the standard of reasonableness applies to the review of arbitral awards, even if the question is one of law.

Discussion

The legal principles stated in Teal have clear application to arbitrations arising under building contracts. For example, if the arbitrator is considering a statute such as the Construction Lien Act, his or her interpretation involves a question of law. If the relevant provincial arbitration statute permits an appeal on a question of law, then the arbitrator’s decision on this point is appealable. But in the appeal, the arbitral award will be reviewed on a standard of reasonableness and only set aside if it is unreasonable.

If, on the other hand, the arbitrator is interpreting a building contract, his or her interpretation will usually amount to a question of mixed fact and law, and will not be appealable as a question of law. However if there are several elements involved in a particular issue, and if the arbitrator fails to consider, or mis-applies one of the elements, then according to Teal that failure may give rise to a discrete question of law and be appealable.

Exactly how this element of the Teal and Sattva decisions will work out may be a matter of contention. For example, under GC 10.2.6 of CCDC 2 Stipulated Price Contract, the contractor is required to advise the consultant and obtain direction as required by GC 10.2.5 before performing work which is contrary to law, and if it does not, the contractor is obliged to bear the expense of correcting the work. If, in the absence of some other justification (such as waiver or estoppel), the arbitrator holds that the contractor satisfies this condition by reason of advising the consultant without considering the absence of written directions (or vice versa), is this an error of law, or just an error of mixed fact and law due to the involvement of the surrounding facts?

In any event, all construction law practitioners dealing with arbitrations under building contracts must be familiar with the trilogy of Supreme Court decisions: Sattva, and Teal and Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co, 2016 SCC 37 which apply Sattva.

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

Teal Cedar Products Ltd. v. British Columbia, 2017 CarswellBC 1648, 2017 SCC 32

Building contracts – arbitration – appeal of arbitral awards – questions of law and mixed fact and law

Thomas G. Heintzman O.C., Q.C., LL.D (Hon.), FCIArb                       July 16, 2017

www.heintzmanadr.com

www.constructionlawcanada.com

What Amounts To An Effective Claim Under A Building Contract?

The Ontario Court of Appeal has recently allowed the appeal in the case of Ledore Investments Limited (Ross Steel Fabricators & Contractors) v. Ellis-Don Construction Ltd., 2017 ONCA 518. In doing so, it held that the arbitrator committed no reviewable error in deciding that the correspondence sent by Ellis-Don to its subcontractor did not amount to a claim under the building contract in question.

This is an important decision from a construction law standpoint. Building contracts often contain a clause which provides that claims are released if they are not made during the building project. In the Ellis-Don subcontract, that provision stated that unless a party had made “claims” within a specific number of days from the final completion of the contract, then the right to assert claims under the contract was lost. The arbitrator held that the proper elements of a “claim” were missing in the letter sent by Ellis-Don to the subcontractor. The Court of Appeal held that this decision was not unreasonable and should not be overturned.

Accordingly, parties to building contracts who wish to ensure that they have given a valid “claim” must pay attention to this decision.

The Contract

Article 15 of the subcontract between Ellis-Don and the subcontractor Ross Steel read as follows:

“15.1   As of the date of the final certificate for payment of the prime contract, the contractor expressly waives and releases the subcontractor from all claims against the subcontractor, including without limitation those that might arise from the negligence or breach of this agreement by the subcontractor, except one or more of the following:

(a) those made in writing prior to the date of the final certificate for payment of the prime contract and still unsettled;” [Emphasis added by the court, underlining added by me.]

The Claim Made By Ellis-Don

The letter written by Ellis-Don, upon which it relied as being its claim, read as follows:

“In addition to impacting the schedule, Ross Steel also forced Ellis-Don to expend substantial monies to accelerate the work in an effort to recover the schedule. We are currently assessing the financial impact that Ross Steel’s slippages have had on Ellis-Don and we intend to recover the costs from you.” (underlining added)

The Arbitrator’s Decision

The arbitrator held that this letter did not amount to a “claim’:

“I find that while Ellis-Don may have contemplated a delay claim in January 1999 and may have discussed amongst its own representatives a possible strategy to assert a claim for delay costs in the amount of $400,000, there is no proof that it actually did so. As stated earlier, the intention to claim is not the same as a claim. Further, the failure to advance the delay claim in the August 4, 1999 meeting supports my view that Ellis-Don did not assert a delay claim “in-writing” before the final certificate of completion.” [Emphasis added by the court.]

Appeal Judge’s Decision

Ellis-Don appealed the arbitrator’s decision to the Ontario Superior Court of Justice. That court set aside the arbitrator’s decision, holding that Ellis-Don’s letter was a sufficient “notice of claim” and that all that was required under Article 15.1 was a notice of claim, not a claim:

“…..provisions requiring claims to be made in writing should be treated as provisions requiring written notice of claims, contrary to the approach taken by the arbitrator….In this court’s view, the arbitrator erred in finding that “claims made in writing” should not be treated as provisions requiring written notice of a claim…..the arbitrator misapplied the general principles and considerations established in Doyle to reach his conclusion that Article 15.1(a) had been satisfied but instead fashioned and applied his own test in that regard, contrary to the applied legal principles established. (underlining added)

I reviewed this decision in an article dated December 3, 2016.

The Court Of Appeal’s Decision

First, the Court of Appeal held that the standard of review to be applied to the arbitrator’s decision was reasonableness. Only if the arbitrator’s award was unreasonable should it be set aside.

In a very pithy decision, the Court of Appeal then held that the arbitrator’s decision was reasonable:

“In our view, [the arbitrator’s] interpretation of Article 15.1(a) of the subcontract at paragraphs 52-68 of the award is eminently reasonable. The question of whether Ellis-Don advanced a “claim” for delay in writing within the time permitted under the subcontract is, by its very nature, a question of mixed law and fact. The question required the arbitrator to not only interpret Article 15.1(a), but also to decide whether the language contained in Ellis Don’s January 18, 1999 (or any other letters) was sufficient to constitute a “claim”. This is precisely what the arbitrator did.

The arbitrator was aware of the cases the respondent relies on in this appeal (Ellis-Don put them before him and relied on them in argument). In our view, the arbitrator did not ignore or misperceive them. Indeed, in terms of the principal case relied on by the respondent, Doyle, the arbitrator’s decision is not inconsistent with it; his dichotomy between “intention to make a claim” and “an actual claim” is similar to the distinction in Doyle, at para. 71, between “grumbling display[ing] an intention to claim” and an actual claim.”

Discussion

Where does this decision leave us with respect to whether a letter like Ellis-Don’s amounts to a valid “claim” under a construction contract?

Is the most that we can say that it is reasonable to conclude that such a letter is not a “claim”? If that is so, then another arbitrator might well find that such a letter is a “claim”. Could the reviewing court well find that that decision is not unreasonable?

That is the problem with the review of arbitral awards on the standard of reasonableness. After the court’s review, we know that the arbitral award is or is not unreasonable. We do not know that it is correct or the only conclusion that is possible.

The second issue is: what did the court and arbitrator decide about Ellis-Don’s letter? We know that the letter was held to be an insufficient claim, but do we really know why? Was it because the letter stated an intention to make a claim, not a claim stated in the present tense? Or was it because the letter did not contain sufficient particulars of a claim?

These are very different issues. By way of example, the Court of Appeal recently held that a claim under a construction contract was invalid, despite the finding by the judge of first instance that the claim was valid, because it did not contain sufficient particulars of the claim: Ross-Clair v. Canada (Attorney General), 2016 CarswellOnt 3854, 2016 ONCA 205. I reviewed that decision in an article dated July 10, 2016. In that case, the claim provision required the claimant to provide a “sufficient description of the facts and circumstances of the occurrence that is the subject of the claim to enable the Engineer to determine whether or not the claim is justified.”

A third issue is whether these cases apply to “notice of claim” provisions. Thus, GC 12.2 of the CCDC 2 Stipulated Price Contract states that the contractor and owner waive and release “claims” against each other unless (subject to various exceptions) “Notice in Writing [of the claims] has been received ….no later than the sixth calendar day before the expiry of the lien period…” Does this provision make a distinction between a “Notice” of a claim and a “claim”? Does it do so in order that the claimant be put to a lesser standard of particularity or intention to give notice of, and thereby preserve, a claim? Would the views of the Superior Court judge in the Ellis-Don case be more applicable to a “notice of claim” provision rather than a “claim” provision?

In any event, these two decisions of the Ontario Court of Appeal appear to express a judicial and arbitral tendency toward requiring greater precision, and an express statement of a present claim, in the making of claims under building contracts. Arbitrators and the courts seem to be departing from their previous more laissez faire attitude to those claims, under which if the owner was generally aware of the impending claim, it couldn’t avoid the claim on technical grounds. Now the courts and arbitrators seem to be demanding that the claim be present and clear, and if the wording of the dispute resolution clause demands it, that sufficient particulars of the claim be provided.

See Heintzman and Goldsmith on Canadian Building Contracts, 5th ed., chapter 4 part 3(c), chapter 6 part 9(b)-(e), chapter 7 part 5 and chapter 9 part 4.

Ledore Investments Limited (Ross Steel Fabricators & Contractors) v. Ellis-Don Construction Ltd., 2017 ONCA 518

Building contracts – dispute resolution clauses – arbitration – claim

Thomas G. Heintzman O.C., Q.C., LL.D. (Hon.), FCIArb                           July 9, 2017

www.heintzmanadr.com

www.constructionlawcanada.com

When May An Arbitral Tribunal Correct Its Award?

Arbitrators are mortal. They may make mistakes in issuing their awards. In what circumstances may they correct an award?

The scope of the authority of an arbitral tribunal to alter its award after the issuance of the award has been examined in a recent Scottish case NKT Cables A/S v. SP Power Systems Limited, [2017] CSOH 38. The Scottish court held that the arbitrator did not have the authority to issue an amended award. This decision raises important issues about the authority of an arbitral tribunal to amend its award.

The Theory Behind The Authority To Amend An Arbitral Award

As we will see from the cases and the arbitration statutes, there are two basic theories or justifications underlying the authority of an arbitral tribunal to amend its award. One justification is a narrow one:

an arbitral tribunal should have power to amend patent mistakes in its award, such as an arithmetic or grammatical mistake.

The other theory is that the arbitral tribunal should have power to properly express its substantive intention, and if it has failed to do so in its award, it should be able to amend the award to make that intention clear.

The second theory is controversial because it might be used by the arbitral tribunal to change its award, and such a result is contrary to the finality of arbitral and judicial decisions, and the rule that after making his or her decision, a judge and arbitrator is functus officio, that is, his or her office and function is ended.

Statutory Authority In Ontario To Amend An Arbitral Award

Both section 44 of the Ontario Arbitration Act, 1991 (AA) and Article 33 of the Model Law attached to the Ontario International Commercial Arbitration Act (ICAA) contain a “slip or omission” type of power for the arbitral tribunal to amend its decision. The domestic Act contains three powers: in section 44(1), the power to correct typographical errors, errors of calculation and “similar errors” in the award; and in section 44(2), the power to amend the award so as to correct an “injustice caused by an oversight on the part of the arbitral tribunal”. In addition, under section 44(3), the tribunal may “make an additional award to deal with a claim that was presented in the arbitration but omitted from the earlier award.”

Article 33(1)(a) of the Model Law attached to ICAA contains the narrow power to amend the award contained in section 44(1) of the AA. The arbitral tribunal has no broader power without the involvement of one of the parties. Under Article 33(1)(b), if the parties agree, the tribunal may give an interpretation of a specific point or part of the award. Under Article 33(3), if one party applies to the tribunal for such a remedy, the tribunal may “make an additional award as to claims presented in the arbitral proceedings but omitted from the award.”

It should be noted that there may a “slip or omission” provision in the Rules of Civil Procedure governing court orders and judgments. In Ontario, that provision is found in Rule 59.06. One issue is whether the arbitral and judicial “slip or omission” provisions should be similarly interpreted, or whether the judicial rule should be interpreted differently because of the public nature of court proceedings, because of the way that judicial orders and judgments are pronounced, issued and entered, and because judicial orders and judgments are appealable.

The Decision In NKT Cables A/S V. SP Power Systems Limited

NKT applied to court to enforce an adjudication award made under the Housing Grants, Construction and Regeneration Act 1996 in the amount of about £2.1million.  That amount was specified in an amended decision of the Adjudicator.  In the alternative, NKT sought to enforce the Adjudicator’s original decision in the amount of about £1.8 million.

In his Award, the Adjudicator inserted the wrong number for the gross value of the Contract, namely of £9,376,220.72.  In the court proceedings, the parties agreed that this number was a “rogue” figure and could not be derived from any part of the Adjudicator’s award.

After the award was issue, NKT then wrote the Adjudicator, copying SP, pointing out this error and also referring to other amounts which it said were relevant, being amounts for variations and claims (the “Agreed Claims”), and interest (the “Agreed Interest”). In its letter, NKT requested that the Adjudicator issue an amended award “to correct the apparent slip.”

That night, the Adjudicator sent an email to the parties correcting his award, adopting the numbers set forth in NKT’s letter.

In this process, the Adjudicator did not ask for or receive any submissions from SP, which thereafter complained about an absence of natural justice.

The Adjudication regime applicable to this Adjudication contained a “slip or omission” provision, which enabled the Adjudicator to “correct his decision so as to remove a clerical or typographical error arising by accident or omission.” However, the court held that this provision did not, for timing reasons, apply to this Adjudication. Nevertheless the court found that this provision was incorporated into the Adjudication agreement as an implied term.

The court held that, while the Adjudicator had the authority to correct the gross value of the Contract, since both parties agreed that there was an error in its calculation, he had no authority to insert the amounts for the Agreed Claims or Agreed Interest. Those amounts were in contention, were not dealt with in the original award, and the Adjudicator had no jurisdiction to insert them into the award by way of a correction.

The court said:

“In considering whether the amendment to include the Agreed Interest and the Agreed Claims was within the scope of the slip rule, I proceed on the basis that the Agreed Claims and the Agreed Interest were matters that were before the Adjudicator and had been referred to in the submissions or documentation considered by him.  Neither party suggested otherwise.  It would appear that parties expected him to take these two matters into account in any award.  However, neither of these items was referred to in terms in the Original Decision or in the Adjudicator’s calculation of the sum due to the pursuer.  Accordingly, while the Adjudicator accepted that there was an apparent error in omitting these from his calculation, and when reminded of these sought to include them in the Amended Decision, he was not giving effect to his first thought and intention.  The fact that there was no intention to do so that may be discerned from the Original Decision.  The omission was clearly an intra vires error but, in my view, that does not mean it falls within the slip rule.  In other words, in his purported correction to include the Agreed Claims and the Agreed Interest, the Adjudicator was not bearing to be giving effect to his first thoughts and intention, as it was put in Bloor (at page 319)Rather, he was seeking to correct an error which was a true omission, in the sense that on the face of his Decision he had given no thought to these two matters at the time of undertaking his calculation or promulgating his Decision, and, therefore, treatment of these figures did not form part of his first intention when making the Original Decision.  In my view, what the Adjudicator purported to do in redoing his calculation to include the figures for Agreed Claims and Agreed Interest in the Amended Decision was outwith the scope of the slip rule, whether as formulated in regulation 22A or as might be implied in like terms at common law.“ (underlining added)

Discussion

The decision in NKT Cables A/S v. SP Power Systems Limited may be contrasted with a 100 year old decision of the Saskatchewan court in Debret v. Debret, 1917 CarswellSask 123, 10 Sask. L.R. 366.

The parties referred to the Master by way of arbitration certain issues in dispute between them. The parties agreed that the plaintiff was entitled to a 1/6th share of the crop grown in 1916 on the half section in question. The arbitrator’s award did not mention this 1/6th share. After his award was filed the Master issued a statement saying that “On consulting my notes at the time of filing this award I find that I omitted to include in the award a direction that the defendant Lawrence Debret is to deliver to the plaintiff, Mathias Debret, 1-6th of the grain in his possession from the crop of 1916, which appears to be 1,464 bushels of wheat and 1,947 bushels of oats. This was agreed on at the hearing.”

The Saskatchewan court held that, while the functus rule used to be the law, now section 8 of the Saskatchewan Arbitration Act states that the arbitrator has the authority to “correct in an award any clerical mistake or error arising from any accidental slip or omission.” The court stated:

“In my opinion, the failure of the arbitrator to include in his award the 1/6th share of the crop for 1916 was a clerical mistake or error arising from an accidental slip or omission within the meaning of the statute. The subsequent addition of this share to the written award did not necessitate any new determination or judgment on his part as in In re Stringer and Riley Brothers, [1901] 1 Q.B. 105, 70 L.J.K.B. 19, and in those cases where the arbitrator misapprehended the facts and subsequently sought to make a new award upon the true facts. The finding in this case had already been made by the agreement of the parties, but that finding was omitted from the report….I think the arbitrator was entitled to supply the omission.”

Both of these decisions dealt with the attempted correction by the arbitrator/adjudicator of something that did not appear on the face of the original award, that is, to correct an omission. In NKT v. SP, the correction was not allowed, whereas in Debret it was allowed. What is the difference?

It seems that, in NKT v. SP, the Agreed Clams and Agreed Interest, while referred to as ‘Agreed’ were still in substantial dispute as to whether they should be allowed in the award. Moreover, these amounts were necessary ingredients in arriving at the final award. The Adjudicator did not, in his original award, make an explicit decision about how these items should be taken into account, even though the parties expected him to do so. Therefore, his subsequent award was not a correction of his original award but a new award.

In Debret, the fact referred to in the amended award had been agreed to by the parties, both as a fact and that it would be part of the award. Moreover, it appears to have been a discrete item that was not necessary for the calculation of the other elements of the award. Unlike in NKT v SP, there was no decision-making function that the arbitrator had to exercise in relation to this fact. Accordingly, its omission from the award was a true “slip or omission.”

The fact that, in NKT v. SP, the Adjudicator had not referred to the Agreed Claims and Agreed Interest in his original award should not, it is submitted, be dispositive of the issue. Otherwise, an “omission” could never fall within the “slip or omission” provision; and the decision in Debret could not be correct. Rather, the issue is whether the omitted item was in fact disputed or undisputed. Even if agreed upon as to amount, a claim may still be contentious for any number of reasons. But if it is truly undisputed as to fact and as to its proper inclusion in the award, then the “slip or omission” provision should apply to it if the arbitrator fails to refer to it in the award. The decision in NKT v SP seems to be justifiable only on the basis that the Agreed Claims and Agreed Interest were disputed so far as their inclusion in the award.

It is possible to conceive of situations in which even an omission of a disputed issue from the award should be correctible, even under the narrow form of the “slip or omission” provision. If the arbitral tribunal accidentally left out a page of its award on which it dealt with that issue – and can positively demonstrate that this has occurred – it seems that the tribunal should be able to issue a corrected award with that page in it.

A number of issues arise from an Ontario perspective in relation to the NKT decision. Would the “omission” in NKT fall within section 44(2) of the AA as amounting to “an injustice caused by an oversight on the part of the arbitral tribunal” or within section 44(3) as “an additional award to deal with a claim that was presented in the arbitration but omitted from the earlier award”? Or would the omission fall within Article 33(3) of the Model Law, if that Law had applied and NKY had applied to the tribunal for “an additional award as to claims presented in the arbitral proceedings but omitted from the award”?

There are a number of other decisions in Canada dealing with the “slip or omission” section in arbitration statutes. Perhaps the leading case is the decision of the British Columbia Court of Appeal in Westnav Container Services Ltd. v. Freeport Properties Ltd., 2010 CarswellBC 124, 315 D.L.R. (4th) 649, from which leave to appeal to the Supreme Court of Canada was denied. The factual situation in Westnav decision is opposite to that in the NKT v. SP. Instead of remedying an omission, the arbitrator deleted something from the original award.

Freeport subleased land to Westnav. Westnav exercised a right to renew the sublease. The parties agreed to submit the fair market rent to arbitration. In his award, the arbitrator accepted the direct comparison method. In his analysis of the direct comparison approach, the arbitrator mistakenly said the rent for a particular property (the Ewan property) was $4.38 per square foot for the building, whereas that rent represented the rent for both the building and the land.

Westnav applied to the arbitrator for correction of “what appears to be an accidental or arithmetical error” or alternatively for clarification pursuant to s. 27 of the Act. Freeport contended the award should remain as it was. The arbitrator released a corrected award, acknowledged the error, but stated that the decision as to rent was the same. The corrected award deleted the mention of the particular property from the analysis and included fresh passages explaining the original conclusion.

Under section 27(1) of the Commercial Arbitration Act of British Columbia, the arbitrator had the authority to correct: a clerical or typographical error, an accidental error, slip, omission or other similar mistake or an arithmetical error made in a computation.

The British Columbia Court of Appeal held that the arbitrator had done none of these things and had acted without authority. It said:

“The arbitrator deleted, in the discussion as to valuation in his corrected ruling, all reference to one of only two properties he had originally specifically referred to in his comparative analysis….It must be taken by the reference to the Ewen property in para. 90 of the original award that the evidence of this property was material to the decision. It was not open to the arbitrator, in my view, to simply delete all reference to evidence which was sufficiently cogent to him as to comparability that he made prominent mention of it in the original award…Objectively, the appearance is that the arbitrator has changed his mind as to the comparability of the subject property to the Ewen property. I do not understand the arbitrator to deny that he originally considered the Ewen property comparable to the property in issue. If the Ewen property was reasonably comparable, the fact that the rent was for both land and buildings would be relevant to valuation. Nevertheless, it was ignored entirely in the analysis in the corrected award…..I recognize in this unfortunate situation the arbitrator has sought to rescue the arbitration process through his correction ruling. However, and with respect, I have come to the view that in doing so he has stepped outside his jurisdiction. The matter is one of the integrity of the arbitration process. Viewed objectively one may ask whether an objective bystander, reading these awards, could have confidence in the outcome in light of the arbitrator’s silence in the corrected award on the effect of the Ewen property as a comparable on his analysis, given its prominence in the analysis in the original award. I conclude the answer is in the negative. I consider an objective review of the award reveals a correction in reasoning through exclusion from the reasons of a factor previously considered material, creating objectively an impression the corrected award was an alternate explanation for the result rather than clarification of the original reasoning.” (underlining added)

In its decision, the B.C. Court of Appeal referred to the judgment of Sir John Donaldson M.R. in Mutual Shipping Corp. v. Bayshore Shipping Co., [1985] 1 All E.R. 520:

“It is the distinction between having second thoughts or intentions and correcting an award of judgment to give true effect to first thoughts or intentions, which creates the problem. Neither an arbitrator nor a judge can make any claim to infallibility. If he assesses the evidence wrongly or misconstrues or misappreciates the law, the resulting award or judgment will be erroneous, but it cannot be corrected either under s 17 or under Ord 20, r 11. It cannot normally even be corrected under s. 22. The remedy is to appeal, if a right of appeal exists. The skilled arbitrator or judge may be tempted to describe this as an accidental slip, but this is a natural form of self-exculpation. It is not an accidental slip. It is an intended decision which the arbitrator or judge later accepts as having been erroneous.”

A decision which demonstrates a much broader approach to the power to correct the arbitral award is the decision of the Ontario Divisional Court in Canadian Broadcasting Corp. v. Joyce, 1997 CarswellOnt 2861, 34 O.R. (3d) 493. In that case, the arbitrator had held, in his interim decision, that the employee had been terminated for just cause. Then in his final award, the arbitrator found that he had been incorrect, that the job was incapable of performance, and that the employer was 75 percent at fault.

The Divisional court refused to set aside the final award. It held that the fact that the first award was an interim award made no difference: “the mere fact that the award was entitled an interim award does not in itself create an opportunity to later change a finding contained in it.” However, the court adopted the following words of Sopinka J. in Chandler v. Assn. of Architects (Alberta), [1989] 2 S.C.R. 848:

“To this extent, the principle of functus officio applies. It is based, however, on the policy ground which favours finality of proceedings rather than the rule which was developed with respect to formal judgments of a court whose decision was subject to a full appeal. For this reason I am of the opinion that its application must be more flexible and less formalistic in respect to the decisions of Administrative Tribunals which are subject to appeal only on a point of law. Justice may require the reopening of administrative proceedings in order to provide relief which would otherwise be available on appeal.” (underlining added)

The Divisional Court concluded as follows:

“ In his final award, Arbitrator Joyce concluded that the employer was 75 percent at fault and the employee 25 percent at fault and at Pg.35 thereof says,…”I was wrong in my having fallen into the trap of neatly categorizing the dismissal in terms commonly employed when an employee is unable to perform a job in a satisfactory manner.”….I accept that statement of Arbitrator Joyce and conclude that the words relied on by the C.B.C., constituted an error in expressing the manifest intention of Arbitrator Joyce. His manifest intention was to see Mr. Rist compensated for something that was largely not his fault. That is made quite clear in his words both before and after the fateful passage, in his interim conclusion that Mr. Rist should not be reinstated, but should be compensated if he had jurisdiction to do so, and in the fact findings throughout the interim award which led him to that conclusion….I find that Arbitrator Joyce was correct in acknowledging his error, and find that such error falls within the quite narrow ambit of the exception of an error in expressing the manifest intention of the fact finder.” (underlining added)

This decision is a quite remarkable recognition of the arbitrator’s right to change his mind on a central ingredient in the arbitration. Even though the arbitrator had made a key finding – that the dismissal was for cause – the arbitrator was entitled to change that finding because it was incorrectly stated. That approach, clearly, is a different and broader one than that adopted in the previous decisions referred to in this article.

To minimize the chances that the arbitral tribunal may issue an award with a mistake in it, the tribunal may consider issuing the award in draft form. In doing so, it may advise the parties that it will not permit re-argument but will allow the parties to draw any slips or omissions in the draft award to the tribunal’s attention and allow an opportunity to settle the terms of the order contained in the award. This is my practice in issuing awards. This practice depends on the good faith of the parties and assumes that they will not abuse this process by taking ex parte or secret steps to frustrate the settlement, issuance and enforcement of the award.

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

NKT Cables A/S v. SP Power Systems Limited, [2017] CSOH 38

Arbitral awards – functus officio – jurisdiction to correct arbitral awards – slips and omissions            

 

Thomas G. Heintzman O.C., Q.C., LLD (Hon.), FCIArb                             June 5, 2017

www.heintzmanadr.com

www.constructionlawcanada.com

 

 

 

New International Commercial Arbitration Act Enacted In Ontario

On March 22, 2017, a new International Commercial Arbitration Act, 2017 came into force in Ontario (the 2017 ICAA). The 2017 ICAA is contained in Schedule 5 to the Burden Reduction Act, 2017, SO 2017, c. 2.. The 2017 ICCA replaces the existing Ontario International Commercial Arbitration Act, RSO 1990, c I.9 (the Old ICAA).

The 2017 ICAA introduces into Ontario law the UNCITRAL Model Law updated as of July 7, 2006 (Updated Model Law). The Updated Model Law is attached as Schedule 2 to the 2017 ICAA. The 2017 ICAA also makes other amendments to the existing Ontario International Commercial Arbitration Act (Old ICAA).

In addition, a number of other statutes are annexed to Burden Reduction Act, 2017 which affect international dispute resolution, including the International Choice of Court Agreement Convention Act, 2017.

Practitioners involved in arbitration in Ontario should be aware of the changes that are introduced by the 2017 ICAA. Here are some of the more notable changes.

  1. Limitation period

Section 10 of the 2017 ICAA introduces a new ten year limitation period for the recognition and enforcement of international commercial arbitration awards, starting in January 2019. Section 10 states as follows:

“10. No application under the Convention or the Model Law for recognition or enforcement (or both) of an arbitral award shall be made after the later of December 31, 2018 and the tenth anniversary of:

(a)  the date on which the award was made; or

(b)  if proceedings at the place of arbitration to set aside the award were commenced, the date on which the proceedings concluded.”

A similar ten-year limitation period for domestic arbitrations is introduced by section 13 of the 2017 ICAA. Under that section, subsection 52 (3) of the Arbitration Act, 1991 is repealed and the same 10 year limitation period is introduced, commencing in 2019. The commencement of the limitation period is expressed slightly differently, as being:

(a)  the day the award was received; or

(b)  if an application to set aside the award was commenced, the date on which the application was finally determined. (underlining added)

The Old ICAA and the Model Law attached to it do not contain a limitation period. The limitation period for the enforcement of international commercial arbitration awards was settled in Canada in Yugraneft Corp. v. Rexx Management Corp., [2010] 1 S.C.R. 649. In that decision, the Supreme Court of Canada held that the general two-year limitation period in Alberta’s limitation statute applied to such an enforcement in Alberta.

The March 2014 report of the Uniform Law Conference of Canada (ULCC) expressed the view that a two-year limitation period for the enforcement of an arbitral award is too short and not consistent with the limitation periods in other countries. The ULCC report recommended a 10-year period, which has been adopted by the Ontario legislature.

  1. Appeals re Preliminary Decision Declining Jurisdiction

Section 11 of the 2017 ICAA provides for an appeal to the Superior Court in the following words:

(1)  If, pursuant to article 16 (2) of the Model Law, an arbitral tribunal rules on a plea that it does not have jurisdiction, any party may apply to the Superior Court of Justice to decide the matter.

(2)  The court’s decision under subsection (1) is not subject to appeal.

(3)  If the arbitral tribunal rules on the plea as a preliminary question and an application is brought under this section, the proceedings of the arbitral tribunal are not stayed with respect to any other matters to which the arbitration relates and are within its jurisdiction. (underlining added)

Article 16(3) of the Model Law says that if the arbitral tribunal “rules as a preliminary question that it has jurisdiction,” there is an appeal to the court, and that there is no appeal from the court’s decision. The Model Law does not expressly provide for an appeal in the event that the arbitral tribunal decides that it does not have jurisdiction. Section 11 if the 2017 ICAA now provides for an appeal in that situation, but (reflecting the Model Law on this point) there is no appeal from the Superior Court’s decision.

There are several interesting questions about Section 11 and Article 16. First, why did drafters of the Model Law not provide for an appeal if the tribunal declines jurisdiction? According to the March 2014 report of the ULCC, the drafters of the Model Law felt that it was “inappropriate to compel a tribunal to decide matters that it concluded it lacked jurisdiction to decide“ and accordingly gave the court no power to reverse the tribunal’s decision and require it to decide the dispute. The drafters of the Model Law may also have been of the view that a decision by the arbitral tribunal declining jurisdiction is a final award and subject to an application for judicial review of the award under Article 34 of the Model Law. The view that a negative jurisdictional decision is a final award and subject to appeal under Article 34 is apparently shared by Gary Born as expressed in International Commercial Arbitration (2nd ed., 2014, Vol. 1, p. 1104).

If there is a right to review an arbitral award declining jurisdiction, then the normal rights of appeal would presumably apply to that application. The drafters of the Model Law may have decided to provide for an appeal from a decision of an arbitral tribunal accepting jurisdiction because such a decision is an interlocutory, not a final award, and there is no other recourse against such an award.

The Ontario legislature has accepted the recommendation of the ULCC that there should be an appeal if the arbitral tribunal declines jurisdiction. The reasons for the ULCC’s recommendation were that:

  • the international consensus favours allowing appeals from negative rulings;
  • it is unfair and inconsistent to allow appeals from positive rulings without also allowing appeals from negative rulings;
  • denying the opportunity to correct erroneous negative rulings can lead to injustice and frustrate the parties’ intention of avoiding litigation in national courts; and
  • parties may prefer to seat their arbitrations in states that allow appeals from negative rulings.

Section 11(1) of the 2017 ICAA is drafted in a rather ambiguous way. One is left to wonder whether the words “that it does not have jurisdiction” modify the word “plea” or the word “rules”. If the former, then an appeal may be taken whichever way the tribunal rules. If the latter, then an appeal may not be taken if the ruling is that the tribunal does have jurisdiction. Since Article 16 provides for an appeal if the tribunal decides that it has jurisdiction this ambiguity may not be important since on either reading, Section 11(1) provides for an appeal if the tribunal holds that it does not have jurisdiction. It is likely that the 2017 ICAA was drafted to allow for an appeal when the tribunal held that it did not, to fill this loophole in the Model law.

What is the impact of section 11 of the 2017 ICAA? Is an appeal under section 11 the exclusive remedy if the arbitral tribunal declines jurisdiction, in which case there is no appeal from the order of the Superior Court? Or is there a right, under Article 34, to bring an application to the Superior Court to review an arbitral decision declining jurisdiction on the basis that the decision is a final award? If there is a right of review under Article 34, is there a right of appeal from that review notwithstanding section 11(2) of the 2017 ICAA?

The second issue relates to res judicata and issue estoppel. If the arbitral tribunal decides to accept jurisdiction and continue with the hearing, and there is no appeal from that decision, presumably there is no issue res judicata at that point, and the final arbitral award is subject to review on all grounds, including jurisdiction. But if, under Article 16(3) of the Model Law, a party appeals to the court the decision of the arbitral tribunal accepting jurisdiction, is the court’s decision res judicata?  If so, then that factor has a big impact on the decision to appeal to the Superior Court.

Similarly, if the arbitral tribunal declines jurisdiction, an appeal is taken, and the court reverses the arbitral tribunal and sends the matter back to the tribunal, is that decision of the court res judicata? Or is the party objecting to the tribunal’s jurisdiction entitled to raise that objection in a later application to review the final award, or in defence in an application to enforce the final award? Articles 34 and 35 of the Model Law expressly state that lack of jurisdiction is a ground to review, and to refuse the recognition and enforcement of, an arbitral award. In effect, can the jurisdiction of an arbitral tribunal always be raised?

  1. Interim relief

The Updated Model Law contains a much broader power for an arbitral tribunal to grant interim relief. As summarized in the ULCC report:

  • Article 17 of the Updated Model Law re-states the authority of arbitrators to award interim measures and then adds a description of the categories of permissible interim measures.
  • Article 17A sets out the tests that applicants for interim measures must meet. The tests are:

(a) Irreparable Harm that substantially outweighs the harm that is likely to result to the party against whom the measure is directed if the measure is granted; and

(b)  A reasonable possibility that the requesting party will succeed on the merits of the claim. The determination on this possibility is not to affect the discretion of the arbitral tribunal in making any subsequent determination.

  • Article 17B empowers the arbitral tribunal to make preliminary orders and the conditions for granting such orders. These orders may be granted ex parte if the tribunal decides that the disclosure of the request for an interim measure will frustrate the purpose of the interim measure.
  • Article 17 C sets forth the specific regime for preliminary orders. While a preliminary order expires twenty days after its issuance, its terms may be adopted or modified in an interim measure. A preliminary order is binding on the parties but not subject to enforcement by a court, and does not constitute an award.
  • Article 17D authorizes arbitrators to modify, suspend or terminate interim measures.
  • Article 17E authorizes arbitrators to require applicants for interim measures to provide security.
  • Article 17F requires prompt disclosure of all material circumstances and of any changes in circumstances that might have a bearing on the interim measure.
  • Article 17G creates a cause of action for damages and costs against parties who obtain interim measure that the tribunal later concludes should not have been granted.
  • Article 17H makes orders or awards for interim measures enforceable in a similar manner to other awards.
  • Article 17I sets out the grounds on which a court may refuse recognition and enforcement of interim measures.
  • Aricle 17J gives the court the same powers regarding interim measures in relation to arbitration proceedings as the court has in relation to court proceedings.

With the 2017 ICAA now in force, Ontario practitioners in the field of international commercial arbitration will have to become familiar with the broader interim relief regime contained in the Updated Model Law.

  1. Written Agreement

Article 7 of the Updated Model Law provides two alternative forms of arbitration agreement that qualify as an “arbitration agreement” under that Law. Option 1 is a written agreement which is of the same nature as the arbitration agreement as defined in the present Model law. Option 2 is a less formal agreement, simply “an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.” Section 5(2) of the 2017 ICAA adopts Option 1, so there is no change in the Ontario law in this respect.

  1. Enforcement of an award

Article 35(2) of the Updated Model Law states that the party relying on an award or seeking to enforce it “shall supply the original award or a copy thereof.” Article 35(2) of the prior Model Law required that party to provide a “duly authenticated original award or a duly certified copy thereof, and the original arbitration agreement….or a duly certified copy thereof.” So, under the Updated Model Law, the party seeking to rely upon the award or enforce it need not, at least in the first instance, provide the arbitration agreement or a copy of it.

Other Statutes annexed to the Burden Reduction Act, 2017

In addition to the 2017 ICAA, there are many other statutes attached to the Burden Reduction Act, 2017, including the International Choice of Court Agreement Convention Act, 2017, the International Electronic Communications Convention Act, 2017, the International Recognition of Trusts Act, 2017 and the International Sale of Goods Act Amendments.

For practitioners involved in international disputes, the International Choice of Court Agreement Convention Act, 2017 is particularly important. That Act adopts the International Choice of Court Agreement Convention. The Convention seeks to put court litigation in a similar position to arbitration, so far as reciprocal enforcement is concerned. Clearly, reciprocal enforcement is one of the great advantages of international arbitration. Those engaged in court litigation have long since wanted court judgments to enjoy the same reciprocity of enforcement.

Reciprocity of enforcement for court judgments is achieved in the Convention by permitting parties to enter into a written “exclusive choice of court agreement” for the purpose of choosing a court to decide disputes “which have arisen or may arise in connection with a particular legal relationship.” If they do, then the selected court may not decline to exercise jurisdiction on the ground that some other court should decide the dispute and, except in limited circumstances, any other court shall decline to decide the dispute. The judgment of the chosen court shall be enforced by the courts in all other signatory countries, and those latter courts shall not review the merits of the dispute or the facts found by the chosen court. A judgment shall be recognised only if it has effect in the State of origin, and shall be enforced only if it is enforceable in the State of origin.

The Convention is subject to a broad exclusion of subject matters, including amongst others: consumer claims; employment contracts including collective agreements; status and legal capacity of natural persons; maintenance and family law matters; wills and succession; insolvency and composition; carriage of passengers and goods; marine pollution, limitation of liability for marine claims, anti- trust; person injury for natural persons; tort claims for damage to tangible person property not arising from contracts; and certain claims relating to intellectual property. By these exclusions, the Convention appears to focus on the court resolution of commercial disputes.

Ontario’s adoption of the International Choice of Court Agreement Convention may well encourage Ontario parties to insert choice of court agreements into their dealings with foreign parties and to rely on that Convention to enforce their rights, and not international arbitration. The difficulty, of course, is in coming to an agreement on a court to settle all claims between the parties. Each party may not want the courts of the other party’s country to decide the disputes between them. So arbitration may still be their preferred option.

See Heintzman and Goldsmith on Canadian Building Contracts, 5th Ed. Chapter 11

Arbitration – International Commercial Arbitration – new legislation

Thomas G. Heintzman O.C., Q.C., LL.D (Hon.), FCIArb                     April 9, 2017

www.heintzmanadr.com

www.constructionlawcanada.com

This article contains Mr. Heintzman’s personal views and does not constitute legal advice. For legal advice, legal counsel should be consulted.

 

 

 

Is A Notice Of Intention To Recover Costs A Proper Notice Of Claim Under A Building Contract?

In Ledore Investments Ltd. v. Ellis-Don Construction Ltd., the Ontario Superior Court has recently held that a letter from a contractor to a subcontractor stating that “we intend to recover these costs from you” was a sufficient notice to the subcontractor to satisfy the notice provision of the building contract. Accordingly, the court set aside an arbitrator’s decision holding that the letter was only a notice of intention to claim, not a notice of claim.

This decision highlights the uncertain state of the law with respect to notices and claims under building contracts. That uncertainty is due to the different circumstances in which such a notice may be given and the different approaches to those circumstances taken by different courts.

Background

Articles 15 of the subcontract between Ellis-Don and Ross Steel stated as follows:

“the contractor [Ellis-Don] expressly waives and releases the subcontractor [Ross Steel] from all claims against the subcontractor, including without limitation those that might arise from the negligence or breach of this agreement by the subcontractor, except one or more of the following:

(a) those made in writing prior to the date of the final certificate for payment of the prime contract and still unsettled. (underlining added)

The letter which Ellis-Don then sent to Ross Steel stated that:

– “there are a number of outstanding issues to be resolved between Ellis-Don and Ross Steel regarding Ross Steel’s performance on this project.” The letter recited a number of alleged defaults by the subcontractor causing the delay of the project. The letter asserted that the subcontractor’s slippages had caused “serious impact on the work of Ellis-Don and other subcontractors and affected the overall completion of the project” and “forced Ellis-Don to expend substantial monies to accelerate the work in an effort to recover the schedule. We are currently assessing the financial impact that Ross Steel’s schedule slippages have had on Ellis-Don and we intend to recover these costs from you.” (underlining added)

– Ellis-Don had received an interim assessment of the liquidated damages by the owner for the late completion of the project, and that these damages “are solely attributable to Ross Steel and on account of this we are withholding the release of any further monies to you at this time.”

Arbitrator’s Decision

The following contents of the arbitrator’s decision are taken from the decision of the court reviewing the arbitrator’s award.

The arbitrator acknowledged that there was considerable judicial authority dealing with the sufficiency of notice of claims under building contracts; and that Ellis-Don’s letter to its subcontractor met the requirements, set forth in those cases, for sufficient written notice of a claim under a construction contract.

However, the arbitrator held that those cases did not apply to the present situation. The arbitrator drew a distinction between provisions requiring written notice of a claim, (to which the Doyle decision, and others following it, applied); and provisions requiring the making of a claim in writing, which in his view Article 15 represented. It was the arbitrator’s view that the first line of cases did not apply to Article 15.

The arbitrator accordingly concluded that there was an absence of any legal authority on the point, and he was obliged to interpret and apply Article 15 as a matter of first impression. He held that the wording of the article required “more than simply notice of an intention”, and that “a demand must be made”, or “a right must be asserted with consequences or relief sought”.

The arbitrator held that Ellis-Don’s letter to Ross Steel failed that test. In his view, the language employed by Ellis-Don in its letters was prospective, and pointed “to an intention to make a claim but not to an actual claim“. [Emphasis added] In finding that Ellis-Don had not satisfied the requirements of Article 15.1 (a), the arbitrator found that Ellis-Don’s letter was merely “notice to Ross Steel of an Ellis-Don intention to make a claim”, and “threatened” and “contemplated” claim that was “never quantified nor pursued”. The arbitrator held that a mere “intention to claim is not the same as a claim”, [emphasis added], and that the Ellis-Don’s letters, even when taken together, did not rise to the level of a ‘claim in writing’ that was still unsettled before the date of the final certificate for payment, as required by Article 15.1.

Court’s Decision

A single judge of the Ontario Superior Court set aside the arbitrator’s award for the following reasons:

  1. The cases, and in particular the decision of the British Columbia Court of Appeal in Doyle Construction Co. v. Carling O’Keefe Breweries of Canada Ltd. [1988 CarswellBC 204, indicated that a notice provision will be satisfied if:
  • The complaint goes beyond “grumblings” to display or indicate an “intention to claim”;
  • The claimant gives some particulars as to what the complaint is, so that the other party has an opportunity to consider its position and the possibility of taking corrective measures; and
  • The complaint is timely; e.g. given “in enough time” to permit the other party to take “guarding measures” if it so desires.
  1. Doyle also provided legal authority for the general proposition that provisions requiring claims to be made in writing should be treated as provisions requiring written notice of claims, contrary to the approach taken by the arbitrator. Accordingly, the arbitrator erred in finding that ‘claims made in writing” should not be treated as provisions requiring written notice of a claim.

The court accordingly set aside the arbitrator’s decision.

Discussion

The decisions of the arbitrator and judge reveal a starkly different approach to notices, and claims under building contracts, and to the effect of decided case law in Canada on these matters. The author understands that this matter is being appealed to the Ontario Court of Appeal where, hopefully, this debate will be clarified.

  1. Is there a difference between notices of occurrences, notices of claims, and claims under building contracts? The arbitrator said yes, and the judge said no:
    1. The arbitrator says that the waiver clause requires the contractor to give notice of a claim; that a claim involves a present statement of a claim that contains the proper elements of a claim; and that a statement of intention to make a claim is not a notice of a claim.
    2. The court says that a claim under a building contract is no different than a notice of occurrence or a notice of a claim; and that a statement of an intention to make a claim is sufficient under either a notice requirement or a claim requirement.

It is interesting to note that the Ontario Court of Appeal just recently dealt with a claim procedure under a contract. In Ross-Clair v. Canada (Attorney General), 2016 CarswellOnt 3854, 2016 ONCA 205, 265 A.C.W.S. (3d) 289, the Ontario Court of Appeal held that the claim was invalid because sufficient particulars of it were not provided. The claim provision in that case related to claims to be filed at the end of the project, and not during the project, similar to the situation in the Ellis-Don case. The Court of Appeal applied very strict requirements for the particulars of a valid claim, requirements would not seem applicable at all to a notice. It does not seem likely that a court would hold a contractor to such a high standard of particulars in a notice situation.

That decision was reviewed by me in an article dated July 10, 2016 on my www.constructionlawcanada website.

  1. Do the prior cases decide this issue? Do they deal with the same clause in the contract?

Before reviewing the cases referred to in the Ellis-Don case, it is well to remember that notice and claims provisions appear in various parts of a building contract. Thus, in the CCDC-2 Stipulated Price Contract, the main notice/claims provisions are as follows:

6.4.1. Changed conditions. Notice in Writing is required of “such conditions” and in no event later than five working days after the first observance of the occurrence.

6.5.4 Delay. No extension of the time for performance may be granted unless a “Notice in Writing” is given within 10 days of the commencement of the delay.

6.6.1. Increase or decrease in (credit against) the cost of the work. If the owner or contractor “intends to make a claim” the claimant must give “timely Notice in Writing” and submit, within a reasonable time, a “detailed account claimed and the grounds upon which the claim is made.”

7.1.2 and 7.2. Default. The notice must be in writing. No period of time is specified in which to give notice.

8.2.2. Claims. Notice of dispute must be in writing and given within 15 working days of the receipt of the Consultant’s findings. The responding party has 10 working days to send a reply.

12.2.1.1 and 12.2.3.1 Waiver of claims. “Claims” arising prior to the date of Substantial Completion, are waived and released unless “Notice in Writing of claim” is given prior to the fifth or sixth day after the expiry of the applicable lien period.

12.3.3 Warranty. The owner shall promptly give contractor Notice in Writing of defects and deficiencies.

The first three notices apply during the course of the project. The claims provision applies to the dispute resolution procedures. The waiver and warranty provisions apply at the end of the project. Thus, these provisions apply in different circumstances and may be seen to have different purposes.

The following are the cases referred to in the Ellis-Don decision of the court:

  • Doyle Construction Co. v. Carling O’Keefe Breweries of Canada Ltd.

The plaintiff’s claim was dismissed on several grounds, one of which was that, under the claims procedures of the contract, GC 22.2, “Claims under this General Condition shall be made in writing to the party liable within reasonable time after the first observance of such damage” and the procedures required that there be notice of “any wrongful act or neglect” of the person against whom the claim is made. So, the notice provision in Doyle related to notice during the project, not a notice at the end of the project. In addition, the plaintiff’s claim in Doyle was dismissed because no notice of wrongful act or neglect was identified in any notice. The Doyle case seems very different than the Ellis-Don case on both accounts. Also the judges’ remarks in Doyle on the notice issue may arguably be obiter dicta. In fact, the Doyle judgments appear to be a strong endorsement of the need for the contractor to give effective notice of its claim. In that case the court found that the contractor did give a notice of intent to claim, but that was not sufficient. Justice Locke said:

“The grumblings of this contractor, recorded though they may be in site minutes, display no intention to claim until December 1983. Even then, no claim was actually advanced, but intent was indicated. But no details were given: an owner would be hard put to know exactly what it is to meet, and hence what it is to do. The purpose of the notice is to give the owner an opportunity of considering his position and perhaps taking corrective measures, and he is prejudiced by not being able to do it.” (underlining added)

Northland Kaska Corp. v. Yukon Territory, 2001 CarswellBC 1477.

This was a changed conditions case, not a waiver-at-the-end-of-the-project case, as in Ellis-Don. Under the changed conditions provision, GC 35 of the contract, the contractor was required to give the owner “written notice…as soon as practicable and in any event no later than five Days following the occurrence thereof and shall give MCL subsequent written notice of the termination of any such lease.” Under GC 14, the claims provision, the contractor was required to submit a “Notice of a Claim …..in writing ….within seven Days after the Contractor first becomes aware of the events or circumstances giving rise to such Claim. As soon as practicable thereafter the Contractor shall submit full details of such Claim in order to permit MCL to review and evaluate it.” In holding that the contractor had not satisfied these requirements of the contract, and after quoting the words of Justice Locke referred to above, the court said:

“it is my opinion that any notice of a change in soil conditions must be unequivocal in stating the contractor’s intention that: (1) it has encountered what it considers to be a substantial difference in soil conditions than that indicated in the pre-tender information, or a reasonable assumption as to soil conditions based upon the pre-tender information, as the case may be; and (2) that it intends to make a claim under GC35.2 for any extra expense, loss or damage resulting therefrom. This does not mean that the written notice must be overly detailed, as the extent of the change in soil conditions nor the full impact upon the contractor’s planned schedule and budget might not yet be fully appreciated. However, the notice should contain such particulars so as to enable the owner to appreciate the contractor’s concerns, to consider its position, and to make an informed decision as to how to proceed. Timeliness and certainty of the notice is essential. The contractor may always withdraw its claim if it circumstances warrant, but it should not deprive the owner the opportunity to assess its options in light of the likelihood that contractor will make a claim for extra compensation under GC35.2.” (underlining added)

Bemar Construction (Ontario) Inc. v. Mississauga (City), 2004 CarswellOnt 222 (affirmed in the Ontario Court of Appeal)

Bemar was a delay claim. The contractor, Bemar, sent a letter to the owner stating that it was giving “formal notice that the completion date for said project will be extended accordingly” but did not give notice of any delay claim for damages or compensation. Quoting Justice Locke in Doyle, the court dismissed the delay claim for failure to give proper notice of it.

Technicore Underground Inc. v. Toronto (City), 2011 CarswellOnt 14960

This was an increase-in costs and a claims procedure case. GC 3.14.03 of the contract required the contractor to giveoral notice ….of any situation which may lead to a claim for additional payment immediately upon becoming aware of the situation and shall provide written notice to the Contract Administrator of such situation or of any express intent to claim such payment, within seven days of the commencement of any part of the work which may be affected by the situation or will form part of the claim.” Then, the contractor was required to “submit detailed claims as soon as reasonably possible and in any event no later than 30 Days after the completion of the work affected by the situation.” The detailed claim was required to: identify the items in respect of which the claim arose; state the grounds, contractual or otherwise, upon which the claim is made; and include the Records supporting such claim. The court referred to the Doyle and Bemar decisions and held that the contractor’s claim was limited to those items for which it had given notice during the contract, and could not include claims for which it gave notice three years later.

In all of these cases, the court dismissed the contractor’s claim because of a failure to give proper notice. Two of the cases involved claims procedures, one involved a delay claim and two involved changed condition claims. None were a waiver-at the end-of the contract case, such as Ellis-Don. All of these cases involved specific contractual provisions that influenced the court’s treatment of the notice/claim issue.

Not only do the claims in these cases arise in different circumstances, it is not obvious that they give rise to the three principles that the judge in Ellis-Don stated that they give rise to.

If the Ellis-Don case is appealed to the Ontario Court of Appeal, it is hoped that issues like the following will be considered:

  1. Should the same kind or detail of notice or claim be required for notices arising during the project – such as for delay, changed conditions, increase or decrease in the cost of the project – as opposed to claims in the dispute resolution process or at the end of the project through the waiver/release clause? Should the notice requirements during the project be less onerous than those at the end of the project or in the dispute resolution process, because during the project the parties are busy building the project, and do not have full knowledge of the consequences of the delay, changes or defaults?

Is the arbitrator’s approach more suitable to the waiver-at-the-end-of-the-project situation, which is the situation in Ellis-Don, and the judge’s approach more suitable to the notices given during the course of the project?

  1. Should a “notice of claim” be the same as a “claim”? What degree of “notice” is required for a “notice” or a “notice of claim” or a “claim”? Is it too complicated to have different standards applicable to these three situations? Or were the expressions – “claim” and “notice of claim” and “notice” –intended to be different, and an “notice” or “notice of claim” intended to be a less detailed document, just like, under the Rules of Civil Procedure, a Notice of Claim is less detailed than a Statement of Claim.
  1. What is the fair balance between burdening the claimant with filing a detailed claim and notice, and providing the respondent with reasonable notice of the claim and its repercussions? Should the amount, or lack, of detail that Ellis-Don put in its letter to its subcontractor be more or less important than its use of the word “intention”? And dealing, for instance, with notices in the dispute resolution procedures, is there a good reason to require a claimant in that procedure to provide as much information in its notice of claim as a Statement of Claim in a civil action, especially when the claim may go through a mediation and arbitration process when those details will be dealt with in the dispute resolution process?

See Heintzman and Goldsmith on Canadian Building Contracts, 5th ed., chapter 6, part 9(d), chapter 7, part 5 and chapter 9, part 4.

Ledore Investments Ltd. v. Ellis-Don Construction Ltd., 2016 CarswellOnt 13567, 2016 ONSC 5441

Building contract – claim and notice of claim – waiver of claims at time of completion

Thomas G. Heintzman O.C., Q.C., FCIArb                                   December 3,2016

www.heintzmanadr.com

www.constructionlawcanada.com

This article contains Mr. Heintzman’s personal views and does not constitute legal advice. For legal advice, legal counsel should be consulted.

 

Tort And Fraud Claims Fall Within Arbitration Agreement: Ontario Court Of Appeal

In Haas v. Gunasekaram, 2016 ONCA 744, the Ontario Court of Appeal recently held that claims in tort and fraud, and resulting claims to set aside the agreement between the parties, were within the jurisdiction of the arbitral tribunal under an arbitration agreement. Accordingly, the court action between the parties was stayed.

This decision is important due to the pro-arbitration principles of contractual interpretation which the Court of Appeal adopted, and due to its finding that the claims in tort and fraud – which are often found to fall outside arbitration clauses – were properly within the jurisdiction of the arbitral tribunal.

Background

The four parties to the actions were shareholders in a company which started a restaurant. They entered into a shareholders agreement which contained an arbitration clause. The arbitration clause read as follows:

If at any time during the currency of this Agreement, or after the termination hereof, any dispute, difference or question shall arise, or any failure to agree as specifically hereinabove referred to, shall occur among the parties hereto or certain of them, respecting this Agreement or anything herein contained then every such dispute, difference or question or failure to agree shall be referred to a single arbitrator to be appointed by the parties to the dispute within ten (10) days of such referral… [underlining added.]

The restaurant failed and Mr. Haas brought an action against the other three shareholders claiming that he had been induced to enter into the shareholders’ agreement by fraudulent misrepresentations. The defendants brought a motion to stay the action, submitting that the claim must be dealt by way of arbitration. The judge hearing the motion dismissed it on the ground that Mr. Haas’ claims fell outside the arbitration agreement. The Court of Appeal allowed the appeal.

Decision of the Court of Appeal

The decision of the Court of Appeal contains the following elements:

  1. A broad interpretation should be given to the arbitration agreement. The court said:

    “The law favours giving effect to arbitration agreements. This is evident in both legislation and in jurisprudence……the statutory language in s. 7 of the current Arbitration Act is directory, not equivocal. It strongly favours giving effect to an arbitration agreement. This policy direction is reinforced by s. 17 of the Arbitration Act [which authorizes the arbitral tribunal to rule on its own jurisdiction]….. The same pro-arbitration orientation is found in the jurisprudence….  It is now well-established in Ontario that the court should grant a stay under art. 8(1) of the Model Law where it is ‘arguable’ that the dispute falls within the terms of an arbitration agreement…. [quoting from the decision in Gulf Canada Resources Ltd. v. Arochem International Ltd. (1992), 66 B.C.L.R. (2d) 113 (B.C.C.A.), at paras. 39-40]: ‘Only where it is clear that the dispute is outside the terms of the arbitration agreement or that a party is not a party to the arbitration agreement or that the application is out of time should the court reach any final determination in respect of such matters on an application for a stay of proceedings….Where it is arguable that the dispute falls within the terms of the arbitration agreement or where it is arguable that a party to the legal proceedings is a party to the arbitration agreement then, in my view, the stay should be granted and those matters left to be determined by the arbitral tribunal….’a deferential approach’ allowing the arbitrator to decide whether the dispute is arbitrable, absent a clear case to the contrary, ‘is consistent both with the wording of the legislation and the intention of the parties to review their disputes to arbitration.’”

  2. The court’s review of the misrepresentations alleged by Mr. Haas showed that they largely related to the defendants’ failure to perform their obligations under the shareholders’ agreement. There was only one alleged misrepresentation relating to conduct before the shareholders’ agreement, that the proposed location had a proven track record of successful restaurants. To establish his case, Mr. Haas would be relying on the contractual documents.
  3. The court considered that the arbitration agreement was “broad in scope.” It particularly referred to the words “if any dispute, difference or question shall arise, or any failure to agree as specifically hereinabove referred to, shall occur among the parties hereto or certain of them, respecting this Agreement or anything herein contained.”
  4. The court held that tort claims do not automatically fall outside an arbitration agreement. As long as “either claimant or defendant relies on the existence of a contractual obligation as a necessary element to create the claim, or to defeat it” or “the matter in dispute is referable to theinterpretation or implementation of some provision of the Agreement” or “the claim …relie[s] upon a breach of the contract as the source of the unlawfulness to ground” the claim, then a broadly based arbitration agreement applies. The court also echoed the caution cited in other cases that the court should “be wary of cases in which a party to an arbitration agreement seeks to avoid it by pleading a common law tort”
  5. The court also held that the plaintiff’s claim that fraud vitiated the agreement between the parties did not mean that the arbitral tribunal lacked jurisdiction. It just meant that the tribunal had the authority to decide that issue under section 17 of the Arbitration Act, 1991. That section enacts the competence-competence principle, namely that the arbitral tribunal has authority to decide its jurisdictional competence. In conclusion, the court said:

    “Put simply, in cases involving arbitration agreements, fraud does not necessarily vitiate everything. It is a matter of interpretation. The arbitration agreement in this case contains broad language, referring to “any dispute, difference or question…or any failure to agree…respecting this Agreement or anything herein contained then every such dispute, difference or question or failure to agree shall be referred to a single arbitrator. There is no exclusion for tort claims, misrepresentation or fraud.”

Discussion

The Court of Appeal’s finding that the arbitration agreement was a “broad” one is useful to those relying on arbitration agreements. The court might have taken a different view. The word “arise” is not as broad as, say, “relating to”, and the words “respecting this Agreement or anything herein contained” could arguably limit the arbitration to contractual disputes, and nothing more. Nevertheless, the court held that these words established a “broad” arbitration clause.

The Court of Appeal’s conclusion that tort and fraud claims fall within the arbitration clause – at least to the extent of the arbitral tribunal’s entitlement to first determine whether they do – is very significant. This decision effectively over-rules or calls into question prior lower court decisions that, in less arbitration-friendly days, held to the contrary.

The key to the decision is, of course, the competence-competence principle. Once the tort and fraud claims arguably fall within the arbitration agreement, then the court must allow the arbitral tribunal to first decide whether they do or not. At that point, the court’s work is done, until the tribunal makes a decision on that issue which is brought back to the court for review. It is the direction of the legislature in section 17 of the Act – adopting the competence-competence principle –and the obligation of the court to apply that principle that results in the modern “hands off” attitude of courts toward arbitration. That attitude is one of the defining elements of the modern law of arbitration.

See Heintzman and Goldsmith on Canadian Building Contracts, 5th ed., chapter 11, parts 7 and 8.
Haas v. Gunasekaram, 2016 ONCA 744

Arbitration – jurisdiction of the arbitral tribunal – competence-competence – stay of court proceedings

Thomas G. Heintzman O.C., Q.C., FCIArb                                      October 23, 2016

www.heintzmanadr.com
www.constructionlawcanada.com

This article contains Mr. Heintzman’s personal views and does not constitute legal advice. For legal advice, legal counsel should be consulted.

Multiplicity Of Litigation Is Not A Sufficient Reason To Stay An Arbitration

The Saskatchewan Court of Appeal has recently released an interesting decision dealing with arbitration and court proceedings arising from a construction contract. In Saskatchewan Power Corp. v. Alberici Western Constructors, Ltd., 2016 CarswellSask 186, 2016, the court held that the arbitration clause of the main contract between the owner and the contractor should be enforced even though there was court litigation involving subcontractors. Accordingly, the Court of Appeal upheld the stay of the court action, even though the action had originally been commenced by the same party which now wanted it stayed, the contractor.

In the course of its decision, the Saskatchewan Court of Appeal set forth a number of principles that will be useful to remember when, as may often happen in construction disputes, arbitration and court proceeds are commenced among the various parties involved in the building project.

Background

Saskatchewan Power (the owner), entered a construction contract with the Alberici Western and Balzers Canada, (the contractor) (AB Western). The contract contained an arbitration clause. AB Western entered into a number of subcontracts. The relevant subcontracts required, in the event that there were disputes between the parties to the subcontract, that the subcontractors participate in arbitration with the owner or delay the subcontract dispute resolution process until the dispute resolution procedures under the main contract were completed.

AB Western serve a notice of arbitration under the main contract with the owner and, as a matter of caution, issued a statement of claim as well. AB Western said that it intended to proceed with the arbitration and had only commenced the action in case there were any issues falling outside the arbitration and to protect against limitation issues. In the action against SaskPower, AB Western also joined two subcontractors as defendants.

SaskPower served a Defence and counterclaim in AB Western’s action. SaskPower asserted that third-party claims falling outside the scope of the arbitration clause would have to be pursued through the courts, with the result that there would be a multiplicity of proceedings if the arbitration proceeded.

AB Western applied to stay its own court action so the arbitration could proceed. SaskPower applied to stay the arbitration on the ground that the arbitration would result in multiplicity of proceedings. SaskPower said that there were as many as 15 separate entities that might be involved in the litigation, and that all the disputes should be decided in the one court action.

The application judge agreed with AB Western’s position, stayed the action commenced by AB Western and dismissed SaskPower’s application to stay the arbitration. SaskPower appealed and the Saskatchewan court of Appeal dismissed the appeal.

The Saskatchewan Court of Appeal’s decision

There are many elements to the Court of Appeal’s decision. It may be easiest to set them forth in numerical propositions:

  1. The Court of Appeal held that AB Western’s application to stay the action was the most relevant application because if it were dismissed, the arbitration would be stayed automatically. As the court said:

“…as per s. 8(4) of the Arbitration Act, no arbitration of a dispute may be commenced if a court refuses to stay litigation relating to a matter subject to arbitration. In other words, if the stay of AB Western’s action ordered by the Chambers judge is set aside, then SaskPower does not have to be concerned about its application to stay the arbitration. The arbitration will be stayed automatically by virtue of s. 8(4).”

  1. Section 8 of the Saskatchewan Arbitration Act did not preclude the application being made by AB Western to stay its own action. Section 8 says that a motion to stay an action brought by one party to an arbitration agreement may be made “on the motion of another party to the arbitration agreement.” (underlining added) While this wording might seem to preclude AB Western from seeking to stay its own action, it was entitled to bring its application under section 37 of the Saskatchewan Queen’s Bench Act which states as follows:

37(1) Nothing in this Act prevents a judge from directing a stay of proceedings in any action or matter before the court if the judge considers it appropriate.

(2) Any person, whether a party or not to an action or matter, may apply to the court for a stay of proceedings, either generally or to the extent that may be necessary for the purposes of justice, if the person may be entitled to enforce a judgment, rule or order, and the proceedings in the action or matter or a part of the proceedings may have been taken contrary to that judgment, rule or order.

(3) On an application pursuant to subsection (2), a judge shall make any order that the judge considers appropriate.

  1. In considering the exercise of the discretion under section 37, the Court of Appeal    agreed with the application judge:

– that the factors in section 8 of the Arbitration Act were “helpful, if not mandatory.”

– that the two step approach to the stay application set out in Ontario Justice Lederer’s 2004 decision in Farris v. Staubach Ontario Inc. was not necessarily applicable. The two Saskatchewan cases that had referred to Farris did not hold it up “as being descriptive of the only way the merits of an application for a stay can be assessed” and one of those decisions questioned its applicability to a motion to stay a party’s own action.

– that the application should be guided by the principles underlying the Arbitration Act.

Here, the Court of Appeal’s decision is notable:

“…most importantly, the Chambers judge was entirely correct to let himself be guided largely by the terms of the Arbitration Act in the situation here. The matter before him was not just any application for a stay. It was an application for a stay brought against the close background of the Arbitration Act and brought by a party to an arbitration agreement desirous of moving forward with that proceeding. In these circumstances, it was incumbent on the Chambers judge to ensure his decision fit coherently with both the spirit and the particulars of the Arbitration Act. It would have been a mistake for him to have done otherwise.” (underlining added)

  1. The Court of Appeal held that section 29 of the Queen’s Bench Act did not require a different result. Section 29 reads as follows:

29(1) The court shall grant to the parties to an action or matter all remedies to which the parties appear to be entitled with respect to any legal or equitable claims that they have properly brought forward so that:

(a) all issues in controversy between the parties are determined as completely and finally as possible; and

(b) a multiplicity of legal proceedings concerning the issues is avoided. (underlining added)

While SaskPower argued that section 29 mandated that the judge avoid the multiplicity of proceedings, the Court of Appeal disagreed. The section was directed to remedies, and was not a “generalized and free-standing directive to Queen’s Bench judges telling them, in all contexts, to do whatever is necessary to avoid or eliminate a multiplicity of proceeds.”

Moreover, Section 7 of the Arbitration Act contained the more specific legislative direction. That section states that “No court shall intervene in matters governed by this Act, except for the following purposes…” Multiplicity of proceedings is not one of those purposes. In this situation the particular set for the in section 7 should prevail over the general set forth in section 29. As the Court of Appeal said:

“In other words, notwithstanding s. 29, the Chambers judge’s assessment of the multiplicity of proceedings issue had to fit coherently with the dispute resolution architecture put in place by the Legislature through the terms of the Arbitration Act. As a result, his focus on that Act was entirely appropriate.”

  1. SaskPower relied upon sub-section 7(c) of the Arbitration Act, which states an exception to the “no court interference” rule contained in the initial words of the section. Sub-section 7(c) says that the court can interfere “”to prevent unequal or unfair treatment of parties to arbitration agreements.” SaskPower said that multiplicity of proceedings amounted to such “unfair treatment.” The Saskatchewan Court of Appeal disagreed. It held that sub-section 7(c) is directed toward procedural fairness of the arbitration itself, and with “maintaining the internal integrity of the arbitration process established by the parties.” The court added:

“As a result, a judicial intervention pursuant to s. 7(c) would not normally lead to a permanent stay of an arbitration in favour of proceedings in the courts. Rather, such an intervention would be aimed at dealing with the unequal or unfair treatment in question and getting the arbitral proceedings back on the rails. None of this fits easily with the argument advanced by SaskPower.”

  1. The Court of Appeal made particular reference to the UNCITRAL Model Law on International Commercial Arbitration. It held that while the Model Law did not contain a provision identical to section 7 of Saskatchewan’s domestic Arbitration Act, “nonetheless, the theme of the jurisprudence it has generated is of some assistance here.” After referring to section 8 of the Model law, the Court of Appeal said:

“Overall, the decisions dealing with Article 8 are to the effect that the prospect of a multiplicity of proceedings is not a valid reason for refusing to refer the parties to arbitration. Rather, the clear theme of the case law is that the risk of parallel or overlapping proceedings is not a basis for refusing to refer a dispute to arbitration for the simple reason that the Model Law does not identify it as such.”

  1. The Court of Appeal concluded its judgment with this important statement:

At the end of the day, the Arbitration Act is clear. When a claim comes within the terms of an arbitration agreement, a court “shall” stay the action with respect to that claim. The only exceptions are the limited ones enumerated in s. 8(2). This will doubtless sometimes create inefficiencies in resolving disputes where a contract does not include an appropriate multi-party arbitration clause. Costs might be duplicated. There could be a risk of inconsistent findings of fact or law. However, this is the inevitable and foreseeable consequence of the way the Arbitration Act is worded.

Discussion

For those in favour of a court attitude that is supportive of arbitration, this decision will be a useful reference. The decision recognizes the necessity sometimes to start both arbitral and court proceedings as a matter of caution. It facilitates the termination of the court proceedings without penalizing the party who commenced both proceedings, and recognizes that the cases dealing with applications to stay court proceeding brought by a party seeking to avoid an arbitration agreement are less relevant to a stay motion brought by a party who commenced the action for safety sake and seeks to uphold the arbitration agreement.

The decision’s reference to the UNCITRAL Model Law is also interesting. Clearly, the Court of Appeal wished to harmonize the principles of domestic and international commercial arbitration.

See Heintzman and Goldsmith on Canadian Building Contracts, Chapter 11, part 8

Saskatchewan Power Corp. v. Alberici Western Constructors, Ltd., 2016 CarswellSask 186, 2016 SKCA 46

Arbitration – Multiplicity of proceedings – Staying court action or arbitration

Thomas G. Heintzman O.C., Q.C., FCIArb                                 July 24, 2016

www.heintzmanadr.com

www.constructionlawcanada.com