Mary Carter Decision Upheld By The Supreme Court Of Canada

In my article of April 2011, I reported about the decision in Aecon Buildings v. Stephenson Engineering Limited.  In that decision, the Ontario Court of Appeal stayed an owner’s claim because of the non-disclosure of a Mary Carter agreement. The Supreme Court of Canada has recently dismissed an application for leave to appeal from that decision.  Accordingly, the ruling by the Court of Appeal will stand as good law across Canada on this issue.

Background to the Supreme Court’s Decision:

The City of Brampton had been sued by Aecon.  The City then sued the consultant, blaming it for the problem giving rise to Aecon’s claim. In turn, the consultant claimed over against the sub-consultant.

Before instituting its claim against the consultant, the City had effectively settled the claim against it by Aecon.  This sort of settlement, in which the settling parties continue as parties to the action, is known as a Mary Carter agreement.  The City did not disclose to the consultant that it had previously settled with Aecon. The City proceeded with its claim over against the consultant within the context of an apparently continuing claim against it by Aecon. The settlement agreement was only disclosed when it was discovered by the consultant who then demanded that it be produced.

The Ontario Court of Appeal held that the non-disclosure of the settlement agreement was an abuse of process and stayed the City’s claim against the consultant.  As a consequence, the claim by the consultant against the sub-consultant was also stayed.

The City of Brampton sought leave to appeal to the Supreme Court of Canada from the decision of the Ontario Court of Appeal.  On June 30, 2011, the Supreme Court dismissed the application.  As is usual, the Supreme Court gave no reason for its decision.

However, this is one of the rare occasions in which the reasoning of the Supreme Court can be discerned.  That is because of a decision which the Court released on June 23, 2011:  Aecon Buildings, a Division of Aecon Construction Group Inc. v. Stephenson Engineering Limited, 2011 SCC 33.

In that decision, a panel of the Court denied a motion of the City to admit further evidence about the importance of the proposed appeal.  The City wanted that evidence before the Court due to a requirement in section 43 of the Supreme Court of Canada Act that any application for leave to appeal in a civil case must demonstrate that the proposed appeal raises a matter of public importance.

The City’s proposed evidence consisted of a number of articles written about the Court of Appeal’s decision.  In those articles, the authors spoke about the importance of that decision to the ongoing conduct of actions in which Mary Carter agreements are made.  However, the Supreme Court held that the articles did not address an issue of real importance.  It said: “Here, however, the issues are straightforward.  Must the Mary Carter-type agreement be disclosed immediately and if it isn’t what are the consequences?”

Justice Binnie answers the “importance” question:

Justice Binnie was a member of the panel and wrote the decision denying leave to admit this further evidence on the application.  He answered the “importance” question as follows:

“I think “immediate disclosure” is self-explanatory.  Its application in a particular case will be fact dependent.  Here, as stated, the applicant never did volunteer disclosure of the existence of the agreement to the parties or to the court. The Court of Appeal decided that in the circumstances a stay of proceedings was warranted.  The procedural point about how a party goes about disclosing the existence of such an agreement to the court (were they to decide to do so) is not something that raises a legal issue of public importance for this Court.”

As a further indication of the narrowness of the issue sought to be raised in its Court, the panel further observed:

“Nobody expresses any doubt that the rule stated by the Court of Appeal is consistent with its past authority, or suggests that the remedy for abuse of process was not, as a matter of law, available.”

While the panel of the Court said that “whether the rule itself raises a legal question of public importance is for the leave panel to decide,” the die had been cast in the Court’s decision on the motion to admit further evidence.  The court’s decision to dismiss the application for leave to appeal was a predictable result of the Court’s view of the narrowness and lack of importance of the issue.

As a result, the comments in my article of April 3, 2011 are now under-lined:

“This decision is a reminder of the drastic remedies available to the Courts if litigation is conducted unfairly” and the parties must be scrupulous to ensure that Mary Carter and other similar agreements affecting the conduct of litigation are immediately disclosed.

The irony, of course, is that the settlement of disputes is itself of public value, especially in the field of construction law.  Settlements allow the parties to reduce their risks and avoid the expenditure of money on litigation, and they save the public resources spent on courts.  Construction disputes frequently arise from good faith differences of opinion about the meaning of building contacts and about events during tenders and on the job site.  These differences are part of the cost of doing business and the parties owe it to themselves to make every reasonable effort to settle and not prolong their differences.

But if they do settle, then they owe a duty to the court system to disclose the settlement.  Otherwise, the justice system cannot properly function.  Since the judge has no independent power or authority to inquire into the events, the justice system depends upon the adversarial system to arrive at the just result.  If some of the apparent adversaries are no longer true adversaries, then that fact must be disclosed to the court.

Construction Law – Settlement – Agreement – Litigation – Champertous – Abuse of Process:

Aecon Buildings, A Division of Aecon Construction Group Inc. v. Stephenson Engineering Limited (SCC Judgments in Leave Applications, June 30, 2011, No. 34112)

Thomas G. Heintzman, O.C., Q.C.                                                                                                                           September 25, 2011

Have You Chosen The Right Forum For A Construction Arbitration?

Construction Law –Arbitration – Appeal – Quebec  – Civil Procedure

My article on May 24, 2011, on Arbitration Appeal Rights:  Think About Them Before Signing A Contract, dealt with the rights of appeal from arbitration awards. That blog made reference to the appeal rights from arbitration awards in most Canadian provinces, but did not deal with the province of Quebec. This blog will address the appeal rights in Quebec.

In Quebec, the rights arising from an arbitration award are found in Book VII of the Code of Civil Procedure.  The Code provides for arbitration awards to be registered (“homologated”) in the Superior Court by way of a motion to the court. The court can only refuse to homologate the award upon certain specific grounds, including invalidity of the arbitration agreement, procedural irregularity, jurisdictional grounds, the dispute is not subject to arbitration under Quebec law or the award is contrary to public order. Article 946.2 states that a court examining a motion for homologation cannot inquire into the merits of the award.

Article 947 states that the only possible recourse against an arbitral award is by way of an application for annulment. The grounds for annulling an arbitral award effectively reflect the same grounds upon which the court may refuse to homologate an award.

So, in these ways, the Code states that an arbitration award cannot be appealed nor the merits of the award questioned.  Article 940 states that these provisions of the Code, among others, are peremptory and not subject to agreement otherwise by the parties.

Similarly, a court considering an application for recognition and enforcement to homologate a foreign arbitration award cannot enquire into the merits of the dispute.

Foreign, international and domestic arbitrations are all dealt with under the same regime in Book VII of the Code.  In essence, all arbitration awards are not subject to appeal, are all subject to similar homologation procedures and all may be attacked on the grounds reflecting the grounds for homologation.

This review of Quebec Arbitral law leads nicely to a comparison of the appeal rights from international arbitral awards in the United Kingdom.  There, as in Quebec, domestic and international arbitrations are dealt with under one statutory regime, the U.K. Arbitrations Act, 1996.  But the effect has been the opposite, so far as appeal rights are concerned.  The U.K. Act permits the court to grant leave to appeal.  That appeal right is derived from statutory provisions which originally related to domestic arbitrations.   However, in Shell Egypt West Manala et al v. Dana Gas Egypt Ltd, [2009] EWHC 2097, [2010] EWHC 465, the English court granted leave to appeal from an international arbitral award conducted under the UNCITRAL rules.  Those rules provide that arbitral awards are “final and binding”.  The English court held that those words were insufficient to preclude the appeal rights under the U.K. Arbitration Act, 1996.

Returning to the Canadian landscape, there are in essence four appeal regimes relating to arbitral awards.  The most common regime relating to domestic arbitral awards is found in Alberta, Saskatchewan, Manitoba, Ontario, New Brunswick and Nova Scotia. That regime generally provides (with some variations) for an appeal to the provincial superior court with leave of that court, or if the parties have so agreed, on matters of fact, law and mixed fact and law.  In those jurisdictions, a further appeal to the provincial appeal court, or an appeal of a decision relating to an application to set aside the award or declare it invalid, is only permitted with leave.

The second regime provides for no appeal rights from arbitral awards, but imposes no specific limit on appeals from other decisions of the superior court relating to arbitral awards (such as setting aside, or declaring invalid, arbitral awards, or relating to homologation in Quebec).  That regime applies to all provincial regimes relating to international commercial arbitrations, and to domestic awards in Quebec and Newfoundland and Labrador.

The third regime is found in Prince Edward Island where, if the parties consent to an appeal in their arbitration agreement, the appeal is directly to the Appeal Division.

The forth regime is found in British Columbia, where the parties may provide for, or the court may permit by way of leave, an appeal on a question of law.

This review of appeal rights in Canada underscores the point which was made in my article of May 24, 2011.  The parties to a construction contract which contains an arbitration clause should carefully consider the rights of appeal before they sign the contract.  If the arbitration involves a serious issue of law, or if there are other good reasons to do so, consider whether to include a right of appeal.  As importantly, insert into the contract an arbitral law that allows for an appeal. The law of neighbouring provinces – for instance, Ontario and Quebec – are completely different so far as appeals are concerned. So choosing the appropriate arbitral regime is crucial.

Construction Law- Arbitration – Appeal – Quebec – Civil Procedure

Thomas G. Heintzman                                                                                   June 12, 2011

www.constructionlawcanada.com 

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Arbitration Appeal Rights: Think About Them Before Signing A Contract

Owners and contractors will normally insert an arbitration clause into their contract.  When they do so, they rarely consider their rights of appeal from an arbitral award.  The recent decision of the Ontario Court of Appeal in Kingsway Insurance Company v. Gore Mutual Insurance Company provides a good opportunity to develop a strategy towards appeal rights before signing a construction contract containing an arbitration clause.

Under the domestic Ontario Arbitration Act, an appeal of an arbitration award may be taken in two circumstances.  First, if the parties agree, then an appeal may be brought on a matter of law, fact or mixed fact and law.  Otherwise, an appeal may be brought on a matter of law with leave of the Superior Court.  In addition, of course, an application may be brought to set aside the award or for a declaration of the invalidity of the award.

In Kingsway, the Court of Appeal has held that leave to appeal is required before a further appeal may be taken from the Ontario Superior Court to the Court of Appeal for Ontario.  In arriving at this conclusion the Court resolved a statutory conflict.  Section 49 of he Ontario Arbitration Act states that leave to appeal is required from a decision of the Superior Court relating to an appeal to that Court of an arbitral award, or an application to set aside the award or a declaration of invalidity of the award.  However, section 6(1) (b) of the Ontario Courts of Justice Act states that an appeal lies to the Court of Appeal from a final decision of a judge of the Ontario Superior Court.

The Court of Appeal held that these two provisions are in direct conflict and that the conflict must be resolved in favour of the more specific provision in the Arbitration Act, being the Act which specifically governs domestic arbitrations in Ontario.

While Kingsway was not a construction law case, this ruling may be of importance to owners and contractors, particularly if they wish to preserve appeal rights relating to the arbitral decision.  Under Ontario law, the parties may include in their arbitration agreement a full appeal to the Superior Court on matters of law and fact.  If they do so, that is probably because they wish those issues to be dealt with by the Court in the usual way.  They may now be surprised to learn that the normal appeal route is not available to them, and that, despite their agreement and despite the normal situation in civil actions, they are only entitled, as of right, to one level of appeal.

The situation created by section 49 of the Ontario Arbitration Act may be contrasted with the Ontario International Commercial Arbitration Act (“ICAA”).  That Act applies to international arbitrations.  Like the ICAAs of virtually all the other provinces, the Ontario ICAA incorporates the New York UNCITRAL treaty provisions which do not countenance an appeal of the arbitral award.  Likewise, those provisions contain no provisions relating to an appeal from a decision of the Superior Court setting aside, or refusing to set aside, the award.  In these circumstances, the normal provisions of Section 6(1) (b) of the Ontario Courts of Justice Act presumably apply, as presumably would the comparable legislation in the other provinces.  Indeed, there are instances in which appeal courts in Canada have heard appeals from the provincial superior courts dealing with arbitrations under the ICAA statutes, without leave being granted.

Ironically, therefore, the ICAA statutes may allow for appeals as of right from a reviewing judge’s decision in circumstance in which no such appeal as of right exists under the domestic arbitration regime. That would be ironic since ICAA is generally considered to contain an “anti-appeal” regime.

A comparison of domestic arbitration statutes across Canada reveals a somewhat diverse regime with respect to appeals from decisions of reviewing judges.  The statutes in Ontario, Alberta, Saskatchewan, Manitoba, New Brunswick and Nova Scotia generally provide a similar regime. They allow for an appeal from the arbitral award to the Superior Court with leave on a question of law (except in Nova Scotia).  They generally allow the parties to provide in the arbitration agreement for appeals without leave on matters of law, fact and mixed fact and law.  But they also generally provide that any further appeals from the reviewing or appeal decisions of the Superior Court to the Court of Appeal are only with leave.

British Columbia permits an appeal of the arbitral award to the British Columbia Supreme Court on a question of law either with leave or on consent, but does not deal with further appeals.

Newfoundland and Labrador does not expressly provide for appeals from arbitration awards and establishes no express limit on, and does not address, appeals from orders reviewing and setting aside, or refusing to review and set aside, arbitration awards.

The Prince Edward Island statute contains the novel provision, whereby if the parties provide for an appeal in the arbitration agreement, then the parties have the right to appeal directly from an arbitral award to the Appeal Division.

In these circumstances, owners and contractors who are entering into arbitration agreements should carefully consider their rights of appeal.  Perhaps, rights of appeal are the very last thing they want.  In this case they may wish to specifically state that there are to be no rights of appeal.  In some provinces (like Ontario), the parties can, in the arbitration agreement, entirely contract out of their right to an appeal even with leave, while in other provinces (like Manitoba) they cannot.

But the parties may wish to have full rights of appeal, particularly if there are serious issues of law at stake.  If so, they may want to stipulate that the arbitral law of a specific jurisdiction is to apply to their contract and select one which is the most appeal-friendly.  If this is the case, then Ontario arbitral law may have become less suitable to those parties and more suitable to parties wishing to restrict appeal rights following a hearing before the Superior Court.

See Goldsmith and Heintzman, Canadian Building Contracts (4th ed), Chapter 10

Construction Law – Arbitrations – Contract – Appeals – Civil Procedure

Kingsway Insurance Company v. Gore Mutual Insurance Company 2011 ONCA 87   https://bit.ly/jP4xi7

Thomas G. Heintzman

www.constructionlawcanada.com                                                                           May 24, 2011

Who Knew That Mary Carter Was Involved In Construction Law?

In Aecon Buildings v. Stephenson Engineering Limited, the Ontario Court of Appeal recently dismissed a construction law claim because a Mary Carter agreement was not immediately disclosed.

A Mary Carter agreement is a settlement agreement between a plaintiff and defendant in which the defendant remains an active party to the litigation and the claim also proceeds against other parties.  Since the defendant continues to participate in the action, the appearance is conveyed that the defendant is still liable to the plaintiff, contrary to the reality of the settlement.  For this reason courts have always insisted that a Mary Carter agreement be immediately disclosed to all parties.  But what happens if it isn’t?  The Ontario Court of Appeal faced that situation in this case.

The general contractor, Aecon, sued the owner, the City of Brampton, for damages due to the delay in the construction project.  The City blamed the consultant for the delay.  The consultant blamed the sub-consultants.

Before the action was commenced, Aecon and the City settled Aecon‘s claim on the basis that Aecon would only recover from the City the amount that the City recovered from the consultant.

While the settlement was effectively made before the action was commenced by Aecon against the City, it was reduced to writing the day after that action was commenced.  Once the action was commenced, the City claimed over against the consultant and the consultant claimed over against the sub-consultants.

Aecon and the City remained active parties in the litigation, but the settlement agreement was not immediately disclosed to the consultant or sub-consultants who only discovered it later through other sources and demanded that it be produced.

The Court of Appeal held that the delay in the disclosure of the settlement agreement amounted to an abuse of process, even though the disclosure did occur before the affected parties were required to plead.  The agreement had only been produced several months after its existence was discovered by the consultants and when it was specifically requested.

The Court said that the only way for it to control its own process, in order to ensure that Mary Carter agreements are immediately produced, was to dismiss the City’s claim against the consultant and thereby the further claims by the consultant against the sub-consultants.  Permitting the litigation to proceed without disclosure of the agreement rendered “the process a sham and amounts to a failure of justice” in the Court’s view.

This decision is a reminder of the drastic remedies available to the Courts if litigation is conducted unfairly.  While Mary Carter agreements are most often used in personal injury or medical malpractice actions, they can also be used to settle construction litigation.  When they are, the parties must be scrupulous to ensure that the agreement is immediately disclosed.  Otherwise, any further claims in the action may well be dismissed.

Aecon Buildings v. Stephenson Engineering Limited, 2010 ONCA 898 (CanLII)    https://bit.ly/dPjnqH

Construction Law – Claims – SettlementAgreement – Litigation – Champertous – Abuse of ProcessMotion

www.constructionlawcanada.com                                                    April 3, 2011