How Many Times Can A Contractor Sue The Owner Under The Same Construction Contract?

Can a contractor bring several claims against the owner arising from the same building contract?  Multiple proceedings arising from the same contract certainly seem like a waste of time and money.

And even if the contractor can do so, can those claims be asserted first in arbitration and then in court litigation?  Once again, different proceedings before different tribunals seem abusive.

The Alberta Court of Appeal recently held that multiple proceedings by the contractor are justified in some circumstances.  In Hnataik v. Assured Developments Ltd, the Court held that the contractor could sue the owner after bringing an arbitration claim against the owner.  The Court allowed the court claim to proceed because that claim was different than the claim in the prior arbitration and was not reasonably known to the contractor at the time when the pleadings were delivered and evidence was led in the arbitration.

The Background

 The Hnatiuks hired Assured to build them a new house.  In 2004, the Hnatiuks sued Assured alleging a fireplace problem and other related problems. Assured brought a motion to stay the action, asserting that the claim must be arbitrated under the provincial New Home Warranty Program. The motion was not heard and the parties proceeded straight to arbitration, and the action was left in abeyance.

After the evidence was heard and during the final argument in the arbitration, the Hnatiuks became aware of mould problems in the house.   On May 15, 2006, the arbitrator rendered his decision in the Hnatiuks’ favour.

On May 29, 2006 the Hnatiuks commenced a new action based on the mould problem.  Assured delivered a Statement of Defence asserting that the Hnatiuks were obliged to arbitrate their claim and then brought a motion to stay the action but did not proceed with that motion. The Hnatuiks’ action proceeded through discovery to trial.  At the opening of trial, the trial judge raised the issue of whether the action was barred by the prior arbitration.  He decided that it was and dismissed the action based on res judicata and abuse of process.  On appeal, the Court of Appeal reversed that decision.

The Court of Appeal decided that res judicata and related doctrines did not apply for three reasons.

First, the subject matter of the arbitration claim (faulty fireplace and related issues) was not the same as the subsequent court action (mould). On this basis, the Court held that “res judicata is not made out.”  The Court said that:

“causes of action are specific…If someone sues over a particular breach of contract and then later the defendant commits a second but different breach of contract, nothing forbids a second suit over that new breach….If a building contractor twice sets fires in the same building, working under the same ongoing maintenance contract, would that be the same cause of action?  Even if the fires were five years apart?  Surely not.”

Second, issue estoppel did not apply because the issue decided in the arbitration (relating to a faulty fireplace) was not the same as the issue in the subsequent action (mould).  The Court of Appeal said: “[Assured] seems not to suggest any arbitration finding contrary to some significant fact now alleged by the plaintiffs. It lists other claims, but they are plainly different. ”

Third, the Court of Appeal held that, while res judicata and related doctrines would preclude the Hnatiuks from bringing an action based on a claim which they ought to have asserted in the arbitration, there was no evidence that established that they ought to have included the mould claim in the prior arbitration.  That issue required the Court to analyze the arbitration proceedings. The Court said the following:

“The trial judge found that the plaintiffs probably saw mould by the close of argument in the arbitration.  But there is no evidence that its extent, cause or significance could be reasonably appreciated then…..It may be that the arbitrator could have consented to stop the arbitration, add new envelope items to the submission, hold a new hearing on them and then adjudicate on all items.  But the parties agreed he did not have to.”

The Court of Appeal also noted that including the mould claim might cause real problems under the provincial scheme in which claim was being arbitrated:

Adding a whole new set of claims to the arbitration could be troublesome to the arbitrator.  There would be money problems. The New Home Warranty Program….calls for a time estimate, and for a deposit toward the arbitrator’s fees….And of course it calls for pleadings… And there would be time problems in adding a large new claim at a later stage.  The program imposes a 30-day time limit after conclusion of the hearing for the arbitrator to deliver his award and account.  The power to amend the award is narrow…. So adding a big new claim to the arbitration, after the end of the evidence would be difficult.  It might well not be possible without the consent of both parties. The defendant builder never suggested that it would have consented, and indeed hints that it would not have.”

In colourful words, the Court of Appeal then said:

“We cannot see any advantage in trying to hitch such a trailer to that van, especially as it is probable that the trailer would have been far bigger and slower than the van.”

The Court of Appeal then drew a line in the sand, saying that the time for a new issue to be raised in the arbitration was at the time of pleadings or at the latest, at the close of evidence. In the present circumstances, there was no basis to conclude that the Hnatiuks ought to have raised the mould issue by either of those stages of the arbitration.

So far as abuse of process, the Court of Appeal held that the application of that doctrine required that the questions in both proceedings be the same; and/or that the plaintiffs’ second action be in the nature of misconduct, lack of diligence or harassment.  The Court found none of those ingredients in the present case.

Finally, the Court of Appeal held that Assured had waived or acquiesced in the second claim being brought by way of action and not by arbitration.  While Assured pleaded that the second claim ought to have been included in the prior arbitration and served a motion to stay that action, it did not proceed with that motion and fully participated in the action.  The Court of Appeal held that Assured had “plainly” waived its right to arbitration and attorned to the jurisdiction of the court.  Moreover, under section 7 of the Alberta Arbitration Act (the Act), the court’s duty to stay the action based on an arbitration agreement does not apply if the defendant’s stay motion is “brought with undue delay.”  Here, Assured never in fact brought such a motion and the raising of the arbitration issue at trial amounted to “gross” delay.


This decision raises many issues relating to whether contractors can bring multiple claims against owners arising out of the same building project.  Contractors may want to tuck this decision away and rely on it in a variety of situations because, on its face, the decision could countenance multiple claims by contractors before multiple adjudicators arising from the same building contract.

However, a wise reading of this decision would give it a narrow application, and indeed raise serious issues for contractors.  If the issue raised in the second proceeding is the same as the issue raised in the first proceeding, then the contractor may not be able to raise the same issue in two proceedings.  If the same factual issue arises twice during a building project under the same contract, then the decision in the first proceeding may bind the parties if a second proceeding is commenced, and the contractor may be obliged to make every effort to bring the second claim within the first proceeding.

Clearly, there are two inter-related factors at work here: how similar are the two issues; and how much did the contractor know about the second issue when the first issue was being adjudicated.  In this case, the Court of Appeal found that these issues were at one extreme end of the spectrum: the two issues were very different, and the contractor knew little or nothing about the second issue when the first issue was being arbitrated .  If these factors were different, then the contractor could well be barred by the determination in the first proceeding.

Two other aspects of the decision of the Court of Appeal’s decision do raise questions.

First, the Court said that “it is far from clear” that res judicata is as readily applied to arbitral decisions as to court decisions, and that in any event “the court has a discretion not to find or enforce res judicata flowing from a tribunal’s decision.”  These remarks will be troubling to all those who maintain that the arbitral regime is not a second-class dispute resolution system and that the arbitration process should be fully supported by judicial decisions.

Second, the builder’s reliance on section 7 of the Act and “undue delay” raises the question of the proper purpose of that section.  Its apparent purpose is to deal with an existing and future proceedings and to permit a court proceeding to go forward if a stay motion is not brought expeditiously.  It seems to have nothing to do with past proceedings and the application of res judicata and related principles arising from a past decision.  Put in another way, if res judicata does apply but the question is whether those principles can be waived and have been waived, then that question does not seem to be answered by resorting to section 7.

In the result, the Hnatiuk decision contains a potpourri of issues that contractors and owners may resort to when multiple proceedings arise from the same building contract.  The decision provides us with circumstances in which multiple claims by the contractor were allowed.  It also provides a useful spectrum of conduct or events which may influence or determine whether multiple claims will be permitted in the future.  And it raises questions about how supportive the courts will be in giving effect to arbitral decisions based upon res judicata and related principles.

Hnatiuk v. Assured Developments Ltd.                                                                                                                                                                 

 Building contracts  –  arbitration  –  stay of arbitration  –  res judicata

Thomas G. Heintzman O.C., Q.C., FCIArb                                                                                 June 10, 2012


When Is An Arbitration An International Commercial Arbitration?

Is an arbitration between two domestic companies arising from a contract for a shipment between two foreign countries an “international commercial arbitration” for the purposes of the UNCITRAL Model Rules, particularly if the arbitral agreement requires arbitration in a foreign location?  And if it is, does the domestic court have any residual discretion to stay the arbitration and allow the court action to proceed?

Those are the important issues which the Superior court of Ontario faced in Star Tropical Import &Export Limited v. International Management Consortium Ltd.

The facts in this case raised a conflict between the court’s sense of fairness, and the rigidity and almost total absence of discretion in the Model Rules.  How should a court resolve this conflict?

The two agreements in question were made in Canada between two companies carrying on business in Ontario. The agreements provided for the receipt of sugar in Brazil and the delivery of the sugar in Ghana.  The first contract dated November 2006 required all disputes to be settled in Paris or Zurich by arbitration under ICC Rules. The second agreement dated April 2007 stated that it replaced the first agreement and provided for arbitration under the “Refined Sugar Association” rules.  Those rules stated that disputes were to be resolved by arbitration to be held in London, U.K.

Problems with the performance of these contracts ensued.  In October 2007, Star Tropical commenced an action in Ontario against International Project and one of its officers.  In November 2007, International Project wrote to Star Tropical stating its position that the dispute must be resolved by arbitration.  But International Project took no steps to commence arbitration, and delivered no Statement of Defence in the Ontario action.  It consented to several orders reviving the Ontario action when it was struck out for the failure of the parties to advance it.

In November 2010, three years after the action was commenced with no Statement of Defence having been delivered, International Project brought a motion to stay the Ontario action on the basis that the dispute was required to be resolved by arbitration.  In its motion, International Project relied upon the stay provisions of Ontario’s domestic Arbitration Act, 1991.  It did not rely on the Ontario International Commercial Arbitrations Act (ICAA) which incorporates the UNCITRAL Model Rules.

Article 1(3) of the UNCITRAL Model Law states that an arbitration is “international” if:

(a)     at the time of the conclusion of the agreement, the parties had their places of business in different states: or

(b)(i)  the place of arbitration determined in or pursuant to the agreement is outside the    state in which the parties have their places of business; or

(b)(ii)   the place where a substantial part of the commercial relationship is to be performed, or in which the subject matter of the dispute is most closely connected, is a place outside the state in which the parties have their places of business; or

(c)   the parties have agreed that the subject matter of the agreement relates to more than    one country.

The Master of the Ontario Superior Court noted that section 2(3) of ICAA states that, despite Article 1(3) (c) of the Model Code, an arbitration conducted in Ontario between parties having their place of business in Ontario is not international only because the parties have expressly agreed that the subject matter of the agreement relates to more than one country.   While the Master said that section 2(3) helped to answer the question before the court, he did not say how that subsection could apply to the provisions of Article 1(3) other than clause (c).

The court concluded that the agreements did not give rise to “international commercial arbitrations” to which the ICAA and the Model Law applied.  The reasons for so concluding are not entirely clear.  The court appears to have decided that Article 1(3) (a) did not apply since the parties were Ontario corporations.  The Ontario court was clearly concerned about sending two parties off to arbitrate in Europe when they were both located right in Ontario.  However, Article 1(3) (b) (i) apparently applied to the facts because the state where the arbitration was to be held (France or Switzerland, or the U.K. if the second agreement applied) was not the state where the parties carried on business (Ontario or Canada).

This result could be avoided if the court were to hold that, by repeatedly using the plural word “places” in the expression “places of business” in Article 1(3), the Model Rules only intended an arbitration to be “international” if the parties are located in different states.  This conclusion does not seem appropriate since Article 1)3)(a) deals specifically with that situation and therefore the disjunctive provisions of Article 1(3)(b) and (c)  are logically not restricted to that situation.

The court did not expressly address Article 1(3(b)(ii) which also apparently applied.  The receipt (in Brazil) or delivery (in Ghana) of the sugar seems to have been substantial parts of the commercial relationship between the parties.  The states where those activities were to occur were not states in which the parties carried on their business (Ontario, Canada).  Perhaps the court considered that, since there were two places of performance, neither place predominated.  However, Article 1(3) (b) (ii) says “a substantial part of the obligation” not “the substantial part”.  Thus, an agreement may be substantially performed in several places, only one of which need be different than the parties’ place of business.

The court may also have applied a principle analogous to the forum non conveniens rule that the plaintiff’s choice of forum should prevail unless there is some other clearly preferable forum.  But Article 1(3) does not contain that principle.

The court dismissed the application to stay.  In doing so, the court applied the Ontario Arbitration Act, 1991, not the ICAA.  Section 7(2) of the Ontario domestic arbitration statute gives the court a much broader discretion to dismiss the stay motion than does the ICAA, most particularly if the motion is brought with undue delay. That particular ground is not found in the ICAA.

The motion to stay was dismissed for three reasons:

First, the motion to stay was only brought under the domestic Act, not the ICAA.   While the Master himself raised the issue of the ICAA, he appears to have been satisfied, either that the ICAA did not apply due to the factors referred to above, or that since the motion was not brought under the ICAA then he was not obliged to apply that statute.  If so, then his decision will not be applicable in the next case if the stay motion is brought under the ICAA.

Second, the delay of International Project to proceed with the arbitration disentitled it to rely upon the refined sugar association rules and to a stay under section 7(2) of the Ontario Arbitration Act, 1991.  A real question is whether this issue of delay should have been dealt with by the arbitral tribunal or the court.

Third, Star Tropical’s claim against the officer of Project International could not be arbitrated.

The Master held that the claim against International Project and the claim against its officer should be heard together by the same tribunal.  Under section 7(5) of the Ontario Act, the court had discretion to allow the two claims to be heard together by dismissing the stay motion.

This third reason is problematic for a number of reasons.  It seems to provide an open invitation to a party to an arbitration agreement to include an officer of the other party as a defendant in an action, in order to avoid arbitration.  The ICAA does not provide an exception to its rules of mandatory arbitration in relation to this circumstance.

This decision represents a classic conflict between the court’s perception of fairness and the strict provisions of the Model Rules.  The Model Rules were expressly drafted to stipulate the specific rules under which an international commercial arbitration is to proceed.  If a motion to stay the action is brought before or at the time of the delivery of the Statement of Defence in the action, then Article 8 of the Model Rules requires the Court to stay the action unless the arbitral agreement is null and void, inoperative or incapable of being performed. As long as the stay motion is brought no later than the deliver of the Statement of Defence, then delay and even egregious delay in advancing the arbitration or bringing the stay motion is not mentioned in the Model Rules as a ground upon which the court can decline to stay the action and force the parties to proceed by way of arbitration.  Nor is the expense and delay of two domestic corporations being forced to arbitrate their dispute in a distant country. These omissions may seem illogical and unfair, but they appear to follow from the Model Rules and, now in Ontario, from the ICAA.

In these circumstances, it is difficult to see how the court can avoid the Model Rules by adopting a discretionary approach to the stay motion.  If the delay in seeking arbitration is to be a factor, that factor is one to be applied by the arbitral tribunal.  The arbitral tribunal can consider the delay and either accept jurisdiction if it decides that it should do so, or dismiss or stay the arbitration and send the dispute back to the court system.  Pursuant to Article 8(2) of the Model Rules, the court can allow this process to unfold by staying the stay motion pending a hearing before the arbitral tribunal.  The primary role of the arbitral tribunal in this situation is consistent with the competence-competence principle now applied by Canadian courts.

In the alternative, the court might apply its own procedural law to the stay motion, found in Ontario in the Courts of Justice Act and the Rules of Civil Procedure.  Both that Act and those Rules contain specific prohibitions against undue delay and in favour of expedition.  If the court were to apply those rules on a motion to stay, then the issue would be:  which should prevail, the ICAA and the Model Rules, or the Courts of Justice Act and the Rules of Civil Procedure?  That is an issue which was not addressed in this case.

Arbitration –  International Commercial Arbitration  –  Stay –  Competence-Competence

Star Tropical Import & Export Limited v. International Management Consortium Ltd., 2011 ONSC 4005 (CanLII)

Thomas G. Heintzman, O.C., Q.C.                                                                   September 18, 2011

Should A Court Or An Arbitral Tribunal Resolve Domain Name Disputes?

The Court of Appeal for Ontario has just released its decision in Tucows.Com Co. v. Lojas Renner S.A.  This decision is a legal landmark in relation to Internet domain names. The Court held that domain names are personal property and may be the subject matter of an action which may be served on a defendant outside Ontario.

This aspect of the decision has been widely reported. But there is another aspect of the decision which is important to the law of arbitration. That issue relates to the proper response by courts when an arbitral tribunal decides not to hear a dispute.  Should the court nevertheless hold that arbitration is preferable to court proceedings and send the dispute back to arbitration?

Tucows is a Canadian company which purchased the domain name “” from Mailbank Inc., the registrant of that domain name, with the International Corporation for Assigned Names and Numbers (ICANN).  Renner is a Brazilian company which carries on business under that name in Brazil and owns the trade mark in that name in Brazil and other countries.

Renner commenced a claim against Tucows under the Uniform Names Dispute Resolution Policy (“UDRP”) maintained by ICANN.  Under the UDRP Rules, Renner selected arbitration through the World Intellectual Property Organization (”WIPO”).  Instead of responding to the arbitration, Tucows commenced an action in the Ontario Superior Court claiming a declaration of its rights in the domain name and that Renner was not entitled to a transfer of the domain name.

Tucows asked the WIPO Administrative Panel to suspend or terminate its proceedings in light of the Ontario action.  That Panel decided to do so.  It ruled that the issues in the Ontario action were substantially identical to the WIPO proceeding. The Panel cited prior decisions in which WIPO panels had deferred to courts.  It noted that there was some conflict in the decisions of past WIPO panels on the issues raised in the proceeding.  It held that a court could better deal with the factual issues and that an “authoritative court decision” on the legal issues would be of assistance.

Renner then brought a motion to stay the Ontario action.  The Superior Court stayed the action, holding that the WIPO proceeding was more suited to the resolution of the dispute and that if the Court accepted jurisdiction it would undermine the administrative process for resolving disputes over domain names.

The Court of Appeal allowed the appeal and permitted the Ontario action to proceed.  The Appeal Court observed that the UDRP Rules do not establish the UDRP procedures as the sole means to resolve disputes over domain names.  Those Rules expressly contemplate parties resolving their dispute in court proceedings.  The Court also noted that ICANN had stated that UDRP procedures are particularly suited to “abusive registration” cases, and not to legitimate trade mark or trade name disputes which are relegated by the UDRP Rules to the courts. The Court of Appeal held that the reasons of the WIPO Administrative panel for declining jurisdiction were reasonable and should be accorded deference.

The Court of Appeal held that Tucows’ claim for a declaration was a sufficient “cause of action” to fall within the Ontario Rules of Civil Procedure allowing service of the Statement of Claim outside Ontario.  The Court also held that the rights to a domain name are personal property because the rights holder “can enforce those rights against all others.”

Besides being a landmark decision relating to the Internet, this decision is also important for arbitration law.  It reminds us to ask two important questions:

First, what is the true nature and purpose of the jurisdiction of the arbitration regime?  Is that regime intended to be exclusive or not?  In the present case, the Court of Appeal was impressed by the ICANN policy that the UDRP Rules and procedures are not intended to be exclusive and are not intended to apply to legitimate trade mark disputes.

The same issue may arise under any contract, including a construction contract. The first question is not necessarily:  Does this dispute fall within the arbitration clause?  The first question may be:  Was this dispute intended to be within the exclusive jurisdiction of the arbitration tribunal?

The second question raised by this decision is:  What is the role of the arbitral tribunal in declining jurisdiction, and what is the appropriate response of the court to such a decision by an arbitral tribunal?

This case was not about whether one of the parties could decline to participate in the arbitration.  This case was about whether the arbitral tribunal could allow a party to do so.

The Supreme Court of Canada has recently adopted the competence-competence principle in relation to the determination of the jurisdiction of an arbitral tribunal: Seidel v. TELUS Communications Inc. 2011 SCC 15; Dell Computer Corp. v. Union des consummateurs (2007), 2 S.C.R. 801.  Under that principle, the arbitral tribunal is competent to rule on its own competence. Accordingly, that tribunal and not the court should first decide on the jurisdiction of the arbitral tribunal unless the jurisdictional issue is essentially a legal one.

In the present case the Court of Appeal held that the arbitral tribunal had the jurisdiction to make a decision to decline jurisdiction.  Having done so, the same competence-competence principle required the court to respect that decision and allow the Ontario action to proceed.

This decision raises two further questions:

First, if the arbitration agreement gives no discretion on the matter, can the arbitral tribunal nevertheless exercise a discretion to decline jurisdiction in favour of the court?  Likely not, since the arbitral tribunal’s declining of jurisdiction would itself amount to a jurisdictional error.

Second, if the WIPO tribunal had decided to the contrary, and insisted on dealing with the dispute, would the Ontario court have respected that decision or would it have allowed the action to proceed?  The likely answer is as follows:

If, after giving full deference to that arbitral decision, the Ontario court had concluded that the tribunal had acted within its jurisdiction, then the court would have upheld it and stayed the Ontario action.

If, on the other hand, the Ontario court had concluded that, having regard to the ICANN regime and the UDRP Rules, the WIPO tribunal had erred in jurisdiction by proceeding with the substantive dispute over trade names, then the Ontario court would likely have held that the Ontario action could proceed alongside the WIPO proceeding.

The same result could occur in any contractual dispute.  If a Canadian court concludes that the arbitral tribunal made a jurisdictional error in accepting jurisdiction over the dispute, then the court might well allow an action to proceed alongside the arbitration.

All of these issues are a consequence of the competence-competence policy adopted by Canadian courts.  Except in instances of pure legal controversy, that policy allows arbitrators, and not the courts, to initially decide the jurisdiction of the arbitral tribunal.  That policy also requires that the courts accord deference to the arbitrators’ jurisdictional decision, whether that decision is to accept or decline jurisdiction.  Implementing that policy, the Court of Appeal held that the decision of the WIPO tribunal to decline jurisdiction in favour of court proceedings should be respected and implemented.

Arbitration  –  Stay of court proceedings –  Exclusive jurisdiction   –  Competence-Competence

Tucows.Com Co. v. Lojas Renner S.A., 2011 ONCA 548

Thomas G. Heintzman, O.C., Q.C.                                                                                August 21, 2011