Patel v Patel [2019] EWHC 298 (Ch) (18 February 2019)

B e f o r e :
Philip Marshall QC (sitting as a Deputy Judge of the High Court)
____________________

Between:

DAKSHU PATEL
Appellant
– and –
 
KESHA PATEL
Respondent

____________________

William Webb (instructed by Devonshires Solicitors LLP) for the Claimant
Tim Parker (instructed by Anthony Gold Solicitors) for the Defendant

Hearing date: 7 December 2018
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____________________

Crown Copyright ©

PHILIP MARSHALL QC:

Introduction

    1. This is a challenge to an arbitrator’s award brought by the Claimant, Dr Dakshu Patel, under sections 68 and 69 of the Arbitration Act 1996. The relevant award was delivered by the arbitrator, Mr Nigel Puddicombe, on 31 January 2018 (“the Award’). It determined the extent of the rights of the Claimant and the Defendant, Dr Kesha Patel, to profits under two partnership agreements concerning dental practices in Purley and Mitcham, Surrey.
    2. Although the claim is an arbitration claim, since it involves an appeal under section 69 of the 1996 Act on a question of law arising out of an award, that aspect would normally be heard in public (see Civil Procedure Rules, Part 62.10(3)). Further the parties were in any event content for the entire hearing to be conducted in public. This judgment is therefore also delivered in public.
    3. The proceedings began in the Commercial Court, in the normal way for arbitration claims, but were then transferred to the Chancery Division. This presumably happened because the underlying issues concerned partnership law.
    4. Permission to appeal was granted by Mr Justice Snowden on 20 August 2018. Given the statutory requirements for permission to appeal under section 69(3) of the 1996 Act, Mr Justice Snowden must have been satisfied that, in respect of the section 69 appeal, the decision of the arbitrator on the relevant question of law was obviously wrong (since I do not understand it to have ever been suggested that the question was one of general public importance).

The Dispute

    1. The following facts are largely derived from the Award.
    2. The Claimant and Defendant are dentists and the Defendant was formerly married to the Claimant’s nephew.
    3. In June 2012 they entered into partnership to acquire an ongoing dental practice in Purley (“the Purley Practice”) which was acquired for £289,074 using a loan that the Claimant and his brother-in-law obtained from Barclays Bank, a contribution of £103,718 provided by the Claimant and his brother-in-law and a further contribution of £21,500 provided by the Defendant.
    4. A partnership agreement was entered into on 20 June 2012. This provided that the parties were to share profits and losses equally.
    5. A little over a year later, in November 2013, a further partnership was concluded to acquire a further dental practice in Mitcham (“the Mitcham Practice”) for £518,688. This time the acquisition was funded using a loan obtained by the Claimant and Defendant from Lloyds Bank, £52,290 from the Purley Practice and £85,000 from the Claimant and his family.
    6. A further partnership agreement was executed in respect of this additional practice on 12 November 2013. This agreement again provided for the parties to share profits and losses equally.
    7. It was the intention from the outset that the Claimant would not carry out dental work at either the Purley Practice or the Mitcham Practice but rather that the day to day activities of these practices would be conducted or managed by the Defendant.
    8. In the first two years of the Purley Practice 100% of the profits were in fact allocated to the Defendant. There was no discussion between the parties regarding this. The Claimant simply communicated his decision to the partnership accountant and both parties then signed the Purley Partnership accounts which recorded this allocation of profit.
    9. In January 2015 the Defendant and the Claimant’s nephew separated and divorce and financial remedy proceedings then followed. It was after their estrangement that the next set of Purley Partnership accounts arose for completion. At this point the Claimant refused to allocate all of the profit to the Defendant and the parties could not agree on and sign a set of partnership accounts. It was following the matrimonial proceedings and this accounting dispute that a reference was made to arbitration.
    10. In the arbitration proceedings one of the central issues concerned whether some course of dealing had occurred that had varied the provisions of the partnership agreements and what would in any event be the default position under section 24 of the Partnership Act 1890, regarding the equal allocation of profits and losses. Such course of dealing was said to fall within the provisions for variation of a partnership agreement in section 19 of the 1890 Act.
    11. The Award records what was common ground between the parties in respect of the issue of a course of dealing in the following way (Award, paragraph 46):

“The parties agree that the only course of dealing that could qualify in this dispute are the decisions by the Claimant and the Respondent to allocate to the Respondent all the profits of the Purley Practice (and for part of the later period those of the Mitcham Practice) for the first two financial periods ending on 31 March 2013 and 31 March 2014. This course of dealing was then evidenced by both parties signing the partnership accounts for those two years. The key question is whether that is sufficient in law”.

The Award

    1. In the Award the arbitrator held the shares of profits and losses in the partnership agreement concerning the Purley Practice were held 0% for the Claimant and 100% for the Defendant. From paragraphs 87 and 101 of the Award it is apparent that the arbitrator arrived at this conclusion on the basis that there had been a variation of the written partnership agreement. The variation was said to have arisen through the Claimant instructing the partnership accountant, a Mr Magecha, that the Defendant was to have 100% of the profit in the first two years’ accounts and then signing those accounts. The arbitrator concluded in paragraph 92 of the Award that “the parties did agree to vary the partnership for the Purley Practice and that such agreement can and should be inferred from their course of conduct”.
    2. In relation to the Mitcham Partnership the arbitrator held that the Claimant had a 35% share of the profits and losses and the Defendant a share of 65%. This was also held to be the result of variation of the written partnership agreement. The way in which this came about was explained in paragraphs 74, 76 to 77 and 102 of the Award as follows:

“[74] I have been assisted by what the Claimant and the Respondent admitted under cross-examination on this point. The Claimant accepted that for both practices the Respondent should receive more profit that (sic) he, due to her greater work and contribution to those profits. Conversely, the Respondent accepted that if she were to die having a 100% profit share in the Mitcham Practice, the Claimant would still have to service the bank loan and that he would need a profit share greater than 0% to be able to do so. It is irrelevant that the Claimant has always considered that each practice could be staffed by associates if the need arose, which should enable each to continue and hopefully make a profit. I regard this recent, if somewhat reluctant meeting of minds between the parties as a variation of the partnership agreement, which I should recognise in a meaningful way….

“[76]…I find that the parties have now expressed their agreement that the Claimant should have enough of a profit share to enable him to service the Lloyds loan on his own should the need arise. [Counsel for the Defendant]’s suggestions therefore translate in my view to a share of between 30% and 40% for the Claimant but just in the Mitcham Practice…

[77]…I am satisfied that this range is broadly what the parties now accept and that it is justified due to the factors that I have identified…I have decided to fix the Claimant’s profit share at the mid-point of this bracket”.

    1. It was clear that the variation to the partnership agreement regarding the Mitcham Practice had not come about as a result of the course of dealing that was held to have varied the agreement concerning the Purley Practice. Thus in paragraph 93 of the Award it was said:

“Because the parties and Mr Magecha have always regarded the two partnerships as one business, which as I have stated in my view they should not be, I find that no proper thought was given by the Claimant, the Respondent nor Mr Magecha to whether the Mitcham Practice ought to be included in the course of dealing that I have found applies to the Purley Practice. In my view it should not be included, not least as it would only comprise a single act in a separate course of dealing and as that practice’s accounting period had only run for just over 4 months at 31 March 2014”.

    1. Clarification was sought from the arbitrator pursuant section 57(3)(a) of the Arbitration Act as to the evidence referred to paragraph 74 of the Award that he had identified as containing an acceptance by the Claimant that, for both practices, the Respondent should receive more profit than he did due to her greater work and contribution to profits. The arbitrator responded by identifying the following passage of the Claimant’s evidence:

“Q. If it was not a variation of the agreement, do you agree that Kesha was entitled, following the usual practice in dental surgeries, that she should have her additional endeavour both in clinical work and in the administrative work recognised in the division of the partnership profits?

A. Yes. Yes, and so should mine”

The above passage was followed by the following further evidence:

“Q.If she was receiving more than the partnership agreement reflected, that was as a result of her additional work; is that right?

A. The partnership agreement stipulates as to how the profits need to be distributed on an annual basis.

Q. Yes, but you were not following that. You were going a different way.

A. I chose to give the profits to Kesha for the 2013 and 2014, but not subsequently”.

The Appeal

    1. The Claimant appeals against the determination made in the Award regarding the profits shares in the partnership concerning the Purley Practice under section 69 of the 1996 Act. This is on the basis that the arbitrator erred in law in concluding that the Claimant’s instructions to the partnership accountant that the Defendant was to have 100% of the profit in the first two years accounts and thereafter his execution of those accounts resulted in a variation of the partnership agreement by a course of conduct within the meaning of section 19 of the Partnership Act.
    2. In relation to the determination of the profit shares regarding the Mitcham Practice the Claimant challenges the arbitrator’s decision under both sections 68 and 69 of the Arbitration Act. The contention under section 68 is that the decision was the subject of seriously irregularity. This is because the proposition that the parties had reached agreement on a variation of the partnership agreement in the course of their evidence was never advanced by the Defendant and arose for the first time in the Award. The Claimant contends he was not given a proper opportunity to address the point.
    3. As regards the challenge under section 69, it is contended that the arbitrator erred in law in concluding that the evidence given by the parties could amount to a variation of the partnership agreement affecting the Mitcham practice.

The Purley Practice

    1. Much of the argument of the parties before the arbitrator and before me focussed on the supposed question of how many actions or instances of conduct must exist before there could be a “course of conduct” sufficient to amount to a variation under section 19 of the 1890 Act. However, in my judgment, this is a misconceived approach. The real issue to which section 19 is directed (in common with the law of contract more generally) is whether objectively the parties can be said to have reached a consensus. Where conduct is concerned, for this to result in an agreed variation, it would need objectively to be capable of unambiguous interpretation as evincing an intention to vary the existing contractual terms which was then acceded to. Where only one or a small number of actions are involved it may be more difficult objectively to interpret them as indicating such an unambiguous intention. They are more likely to be capable of a number of interpretations and as having a degree of ambiguity. The true question remains, however, how the relevant act or acts can reasonably be interpreted irrespective of the number involved.
    2. The above approach appears to me to be supported by early partnership cases such as Peat v Smith (1899) 5 TLR 306, where it was observed that one act of great importance might lead to the ambit of a partnership being enlarged, but on the facts the actions focussed upon were reasonably capable of being interpreted as consistent with the existing partnership deed and therefore were held not to have varied it. This approach also appears to be supported by later decisions on general principles of contract law such as Hollier v Rambler Motors (AMC) Ltd. [1971] 2 QB 71. In that case the Court of Appeal rejected the contention that there had been a course of dealing sufficient to import a condition into an oral contract. In doing so Salmon LJ, at 76-77, distinguished cases, such as Hardwick Game Farm v Suffolk Agricultural Poultry Producers Association[1969] 2 AC 31 on the grounds that the conduct in those cases would have left the other party with good cause to assume that they were agreeing to a variation or additional term. Hardwicke Game Farm was described as a “a typical case where a consistent course of dealing between the parties makes it imperative for the court to read into the contract the condition for which the seller was contending. Everything that the buyer had done, or failed to do, would have convinced any ordinary seller that the buyer was agreeing to the terms in question”. In other words the objective impression given by the conduct was clear and unambiguous and supported the variation or incorporation of the term contended for in that case.
    3. The need for the conduct to give a clear and unambiguous impression to any reasonable recipient, is also, in my judgment, supported by more recent decisions such as Joyce v Morrissey [1999] EMLR 233. There Waller LJ, at 244, remarked on the need for conduct of this quality when it was alleged to give rise to a major variation to a contractual right to equal profits in the context of a partnership. The case of Hodson v Hodson [2010] PNLR 8 is also instructive. As Rimer LJ explained at [38] a partner had not released a profit share by giving up her entitlement to profits earned in two accounting periods. This could properly be interpreted as a mere waiver of that entitlement for those periods rather than an agreement to give up the right to share in profits entirely.
    4. Having regard to these principles, in my judgment it is clear that the arbitrator wrongly overlooked the need for clear and unambiguous conduct from which it could reasonably be concluded that there was an intention to vary the partnership agreement governing the Purley Practice. It seems to me that the situation in this case has close parallels to that considered by the Court of Appeal in Hodson v Hodson. The giving up of his profit share by the Claimant in two accounting periods could reasonably be interpreted as no more than a waiver of his entitlement for those two periods rather than the giving up of his rights to share in profits for any longer period. There was no basis for objectively concluding from these actions alone that the partnership agreement was varied by conduct. This is reinforced by the provisions of clause 20 of the written partnership agreement itself, which expressly provides that the failure or delay of a partner in enforcing a term will not affect his right to enforce that term subsequently and that any variation to the agreement ought to be in writing and executed as a deed.
    5. I should add that, had the circumstances warranted the conclusion that the conduct could potentially have given rise to a variation, it would still have been necessary for consideration to have been provided to support it. As explained in Joyce v Morrissey at 244, absent provision for variation in a written partnership agreement, consideration will be needed and will often be provided by an agreement not to terminate the partnership if the new terms are agreed. Here the agreement expressly provided for any variation to be by way of deed. Absent a deed, it would have been necessary to consider whether some other form of variation with consideration such as suggested in Joyce v Morrissey, was viable or whether some other form of consideration could be found. This was not explored by the arbitrator in the Award. However, since this point does not feature in the grounds of challenge in the claim form in these proceedings I say nothing further regarding it.
    6. In these circumstances, in my judgment, the profit shares under the written partnership agreement, requiring equal division, remained unchanged and the arbitrator ought to have so found. The appeal in connection with this aspect under s.69 of the Arbitration Act therefore succeeds.

The Mitcham Practice

    1. The arbitrator appears to have proceeded on the basis that the parties varied the partnership agreement regarding the Mitcham Practice in the course of giving evidence in the arbitral proceedings. On the face of it that is a very surprising conclusion. It is not unusual for a party to make admissions or concessions in the course of his evidence which then affects the assessment of what had occurred in the past or for it to lead to the proceedings being resolved by a subsequent compromise or even by a subsequent discontinuance. However, I have not previously seen a decision in which one party is held to have effectively made an offer to enter into an agreement in the course of evidence which was then accepted by the other party when they came to testify.
    2. Be that as it may, having looked at the passage relied upon by the arbitrator for the purposes of arriving at this conclusion, in my judgment it is obvious that it could not possibly be interpreted as an offer to alter the existing written partnership agreement regarding the Mitcham Practice. The question said to have elicited such a response was qualified with words indicating that the discussion was not directed at a variation of the partnership agreement and the response was at best equivocal as indicating even a concession to the propositions being advanced by counsel for the Defendant regarding the Defendant’s entitlement to a larger share of profits based on the supposed practice of dentists. Further the subsequent evidence indicates that the Claimant was not intending to concede anything regarding his case.
    3. I should add that, having considered the relevant passages of the Defendant’s evidence that I was taken to, I cannot find anything to suggest that she considered that she was accepting an offer to vary the partnership agreement.
    4. For these reasons I conclude that the arbitrator’s conclusions on this issue were also incorrect. There was no conduct or agreement that, as a matter of law, could be said to amount to a variation arising out of the matters identified in the Award in connection with the Mitcham Practice. The provisions for an equal share of profits in that partnership therefore also remained unvaried and the appeal under section 69 of the Arbitration Act therefore succeeds on this aspect also.
    5. This makes it strictly unnecessary to consider the appeal under section 68 of the 1996 Act. However, had it been necessary to do so, I would have concluded that there had been a serious irregularity by the failure of the arbitrator to raise the matter and permit submissions to be made regarding the form of variation he had in mind. To act otherwise did not allow the Claimant a fair opportunity to address a point that was to be taken against him, contrary to section 33 of the Arbitration Act.

Disposal

  1. I raised with counsel for both parties in the course of argument whether they wished me to remit matters for reconsideration to the arbitrator under sections 68(3)and 69(7) of the 1996 Act and they confirmed that they did not. Having concluded that the appeals based on section 69 succeed, I am satisfied that is appropriate for me to vary the Award in paragraph 112 (and all earlier passages supporting the conclusions there stated) so that paragraphs 1 and 2 shall read as follows: “The parties did not vary the written partnership agreements relating to the Purley Practice and the Mitcham Practice and the Claimant and Respondent were entitled to share the profits and losses of the same equally”.
  2. The arbitrator provided a supplementary award regarding costs on 22 February 2018. He awarded costs to both parties in respect of different issues. After setting off the various amounts there was a balance of £35,312.32 to be paid to the Defendant by the Claimant as well as a further sum of £13,440 in respect of the arbitrator’s fees. This allocation of costs in large part followed from the findings in the Award which I have now varied.
  3. I raised with the parties how this supplementary award was to be addressed in the light of the fact that the claim form in these proceedings is directed at the Award rather than the supplementary award on costs. The parties agreed that the claim form should be amended so as to encompass the supplementary award and that permission to appeal should be granted in respect of that award also so that it can be varied in the light of my judgment on the appeal against the Award. I am content to proceed on that basis, granting permission as necessary, and therefore proceed on the basis that the supplementary award is also before me and should also be varied by me rather than remitted.
  4. The basis on which the arbitrator awarded costs against the Claimant rather than in his favour has now gone. Using the figures of recoverable costs found by the arbitrator his supplementary award, the costs award should be varied so that the Claimant recovers 80% of £95,865.72, namely £76,692.57 and the Defendant recovers 10% of £80,353.80, namely £8,035.38. This means that the Defendant must repay any sums she has received from the Claimant and in addition make further payment to the Claimant so that he receives a net balance in his favour of £68,657.19. These figures reflect the way in which the parties put their case before the arbitrator and therefore their level of success. In addition the Defendant should repay the sum of £13,440 paid to her by the Claimant in respect of the arbitrator’s fees. She should then pay an additional sum of 70% of the amount of £28,000 the Claimant paid in respect of the arbitrator’s fees, namely £19,600. This takes account of the separate issues on which the arbitrator held she won or there was no winner and those on which the Claimant has now succeeded as well as the figures approved by the arbitrator.
  5. I will hear further from the parties regarding the costs of these proceedings and any further consequential matters insofar as these cannot be agreed.

Eleni Shipping Ltd v Transgrain Shipping BV EWHC 910 (Comm) (10 April 2019)

B e f o r e :
THE HON. MR JUSTICE POPPLEWELL
____________________

Between:

Eleni Shipping Limited
Claimant
– and –
 
Transgrain Shipping B.V.
Defendant

____________________

Robert Thomas QC (instructed by Watson Farley & Williams LLP) for the Claimant
Thomas Macey-Dare QC (instructed by Clyde & Co LLP) for the Defendant

Hearing dates: 28 March 2019
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Mr Justice Popplewell :

Introduction

    1. This is an appeal under s. 69 of the Arbitration Act 1996 by the Claimant (“the Owners”) against an award dated 19 February 2018, as corrected (“the Award”) by which the majority of the tribunal rejected the bulk of the Owners’ claims against the Defendant (“the Charterers”) arising out of the capture by pirates in the Arabian Sea of their Panamax bulk carrier “ELENI P” (“the Vessel”).

The facts

    1. The following facts are taken from the Award.
    2. Diagram or picture not reproduced in HTML version – see original .rtf file to view diagram or picture]On 8 September 2009 the Owners time chartered the Vessel to Deiulemar Shipping SpA who subsequently sub-chartered the vessel to the Charterers on substantially back to back terms by a time charter on an amended NYPE 1946 form dated 15 October 2009 (“the Charterparty”). The Vessel was delivered into the Charterparty on 29 October 2009, and was due for redelivery thereunder between 20 June 2010 and 20 August 2010. The Charterers in turn sub-sub-chartered her to Vista Shipping Limited on 20 April 2010 for a time charter trip via the Black Sea to the Far East. On 29 April 2010 Vista gave voyage orders under the sub-sub-charter, which also constituted the Charterers’ instructions under the Charterparty, for the Vessel to load a cargo of iron ore at a port in Ukraine for discharge at Xiamen in China. The Vessel was routed via the Suez Canal and the Gulf of Aden. Following completion of transit of the canal on her laden voyage, she sailed through the Gulf of Aden without incident and into the Arabian Sea, but was there attacked and captured by pirates on 12 May 2010 at a position in the Arabian Sea approximately 15.55°N 60.50°E. She was only released by the pirates some seven months later on 11 December 2010. Following visits to Salalah and Fujairah for emergency repairs, bunkering, supplies, crew changes and hull cleaning, she in due course proceeded to China to discharge her cargo and was redelivered under the Charterparty on 18 January 2011.
    3. Diagram or picture not reproduced in HTML version – see original .rtf file to view diagram or picture]The Owners’ claim was for a total of a little over US$5.6 million, the greatest part of which was for hire from the time of the Vessel’s seizure until 25 December 2010 when she was again equidistant from her destination to the point of her capture, an amount exceeding US$ 4.5 million. The majority of the tribunal rejected the Owners’ claim for hire for this period on the grounds that it was excluded by each of two additional typewritten clauses in the Charterparty, clauses 49 and 101.

The Charterparty terms

    1. Clause 4 provided for payment of hire every 15 days in advance. Clause 8 contained the obligation to comply with charterers’ instructions as to employment of the Vessel, qualified by particular trading exclusions enumerated in clause 74 which included “war zones and/or war risk zones declared warlike or unsafe by Owners’ Underwriters.” The Charterparty also contained the Bimco Standard War Risk Clause for Time Charters 2004 (“Conwartime 2004”) which by paragraph (b) entitled the Vessel to refuse to go to any place where in the reasonable judgement of the Master or the Owners it appeared that the Vessel might be exposed to War Risks, which were defined in paragraph (a)(ii) to include acts of piracy.
    2. Clause 15 contained the printed off hire clause modified as follows:

“15. That in the event of the loss of time from deficiency and/or default of Owners’ men or deficiency of stores, fire, breakdown or damages to hull, machinery or equipment, grounding, detention by average accidents to ship or cargo, drydocking for the purpose of examination or painting bottom, or by any other cause preventing the full working of the vessel, the payment of hire shall cease for the time thereby lost and bunker consumed during the period of suspended hire for the Owners’ account (except when caused by the actions of Charterers or their Agents / servants); and if upon the voyage the speed be reduced by defect in or breakdown of any part of her hull, machinery or equipment, the time so lost, and the cost of any extra fuel consumed in consequence thereof, and all extra expenses directly related to loading and discharging and bunkering shall be deducted from the hire. Only amounts not in dispute are allowed to be deducted from the hire. (See Clause 49)”

    1. Clause 49 provided:

“Clause 49 – Capture, Seizure and Arrest

Should the vessel be captures [sic] or seized or detained or arrested by any authority or by any legal process during the currency of this Charter Party, the payment of hire shall be suspended for the actual time lost, unless such capture or seizure or detention or arrest is occasioned by any personal act or omission or default of the Charterers or their agents. Any extra expenses incurred by and/or during the above capture or seizure or detention or arrest shall be for the Owners’ account.

Should the vessel be arrested during the currency of this Charter Party at the suit of any party having or purporting to have a claim against or any interest in the vessel, hire under this Charter Party shall not be payable in respect of any period during which the vessel is not fully at Charterers’ disposal, and any directly related / proven expenses shall be for Owners’ account, unless such arrest is due to action against Charterers or sub-Charterers or their Agents or the Contractors or the cargo Shippers or Consignees, thence hire is payable and Charterers undertake the responsibility to release the vessel by taking appropriate and required measures (issuance of security / etc) as the case maybe or arise.”

    1. Clause 101 provided:

“Clause 101 – Piracy Clause

Charterers are allowed to transit Gulf of Aden any time, all extra war risk premium and/or kidnap and ransom as quoted by vessel’s Underwriters, if any, will be reimbursed by Charterers. Also any additional crew war bonus, if applicable will be reimbursed by Charterers to Owners against relevant bona-fide vouchers. In case vessel should be threatened/kidnapped by reason of piracy, payment of hire shall be suspended. It’s remain understood [sic] that during transit of Gulf of Aden the vessel will follow all procedures as required for such transit including but not limited the instructions as received by the patrolling squad in the area for safe participating to the convoy west or east bound.”

The approach to construction

    1. There is no shortage of recent high authority on the principles applicable to the construction of commercial documents. It includes Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896; Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101; Re Sigma Finance Corp [2010] 1 All ER 571; Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900; Arnold v Britton [2015] AC 1619; and Wood v Capita Insurance Services Ltd [2017] AC 1173.
    2. In The Ocean Neptune [2018] 1 Lloyd’s Rep. 654, I endeavoured to summarise the principles to be derived from those cases as follows. The court’s task is to ascertain the objective meaning of the language which the parties have chosen in which to express their agreement. The court must consider the language used and ascertain what a reasonable person, that is a person who has all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract, would have understood the parties to have meant. The court must consider the contract as a whole and, depending on the nature, formality and quality of drafting of the contract, give more or less weight to elements of the wider context in reaching its view as to the objective meaning of the language used. If there are two possible constructions, the court is entitled to prefer the construction which is consistent with business common sense and to reject the other. Interpretation is a unitary exercise; in striking a balance between the indications given by the language and the implications of the competing constructions, the court must consider the quality of drafting of the clause and it must also be alive to the possibility that one side may have agreed to something which with hindsight did not serve his interest; similarly, the court must not lose sight of the possibility that a provision may be a negotiated compromise or that the negotiators were not able to agree more precise terms. This unitary exercise involves an iterative process by which each suggested interpretation is checked against the provisions of the contract and its commercial consequences are investigated. It does not matter whether the more detailed analysis commences with the factual background and the implications of rival constructions or a close examination of the relevant language in the contract, so long as the court balances the indications given by each.
    3. These principles are applicable to all contracts, including charterparties, but time charters give rise to particular considerations because of the allocation of risk which is inherent in their nature. Under a time charter the risk of delay is fundamentally on the charterer who remains liable to pay hire in all circumstances unless exempt from doing so under an off-hire provision. Accordingly the burden lies on a charterer to bring himself within the plain words of an exception from the obligation to pay hire; and, all other things being equal, doubts as to the meaning of such exceptions are to be resolved in favour of owners. This approach, described as long ago as 1948 as a cardinal rule, has been articulated and applied in many cases both before and since the recent House of Lords and Supreme Court cases on the approach to construction generally: see Royal Greek Government v Ministry of Transport[1959] 1 KB 525 per Bucknill LJ at 529; The Doric Pride [2006] 2 Lloyd’s Rep 175 per Rix LJ at [28]; The Saldanha [2011] 1 Lloyd’s Rep 187 per Gross J at [8]; The Captain Stefanos [2012] 2 Lloyd’s rep 46 per Cooke J at [7]; and The Global Santosh [2014] 2 Lloyd’s Rep 103 per Gross LJ at [28] (unaffected on this point by the appeal to the Supreme Court). This is the fulfilment of recent guidance on the approach to construction of contracts generally because, to adopt the words of Lord Hodge in Wood v Capita at [10], the nature of such contracts requires the court to give weight to such considerations as part of the wider context.

Clause 49

    1. The Owners contended that each of the expressions “capture[d]”, “seized”, “detained” and “arrested” were governed and qualified by the following words “by any authority or any legal process”. The Charterers submitted, and the majority of the tribunal held, that the words “by any authority or any legal process” did not govern or qualify the word “captured”, which was freestanding and covered capture by any cause or protagonist including capture by pirates.
    2. The Owners’ construction of the clause is to be preferred for the following reasons. First and foremost this seems to me to be the clear meaning of the language of the clause, both as a matter of impression and on a more detailed syntactical analysis. The disjunctive categories of the four enumerated off-hire events “capture[d]”, “seized” “detained” and “arrested”, are all separated by the word “or”. That is in itself neutral as to whether the following words “by any authority or any legal process” qualify all four or only the last. However the words which follow those (“during the currency of this charterparty”) undoubtedly govern all four, suggesting that the same applies to the words sandwiched between them. Moreover, if the fourth event (“arrested”) were the only one qualified by the words “by any authority or by any legal process” the latter words would be superfluous. Neither side was able to suggest how a vessel could be arrested other than by one of those two methods. Whilst the presumption against superfluity is not always of significant weight in charterparties, in this instance it would involve surprisingly inept drafting if it had been added immediately after the word arrested to provide a meaningless qualification to it.
    3. Secondly, clause 49 would not sit consistently with clause 15 on the Charterers’ construction because clause 15 treats as an off-hire event a limited type of detention, namely “detention by average accidents to ship or cargo”. This qualification would be rendered inoperative if clause 49 treated any detention as off-hire regardless of cause or nature. Mr Thomas QC’s submission on behalf of the Owners went further and involved the proposition that if clause 49 caused any form of detention to be an off-hire event, the careful enumeration of off-hire events in clause 15 would be overtaken by clause 49. This put the point too high, because clause 15 is concerned with loss of time from off-hire events, which may arise without the vessel being “detained”. But there is force in the submission that it would substantially cut across the careful allocation of risk in clause 15 in many cases, without any apparent commercial rationale for doing so.
    4. Third, the construction contended for by the Charterers would lead to surprising and uncommercial results. The natural meaning of detention of a vessel is anything which prevents its movement, whether physically or in practice, as Mr Macey-Dare QC accepted. Yet if the vessel being “detained” were a freestanding off-hire event under clause 49, unqualified by the act of an authority or legal process, it would cast on to the Owners the risk of loss through a raft of circumstances where the risk is traditionally borne by charterers as part of the inherent nature of a time charter, such as detention of the vessel at a berth as a result of weather or port conditions or congestion. Mindful of the unattractiveness of this conclusion, Mr Macey-Dare argued in the alternative that in clause 49 detention was so qualified, but that capture and seizure were free standing and unqualified off-hire events. But if “detained” as well as “arrested” is qualified by the following words, it is difficult to see any linguistic basis for treating two of the enumerated off-hire events as governed and two not. If the qualifying words apply to more than the immediately preceding off-hire event, arrest, they would as a matter of the natural use of language apply to all of them. Moreover there is in substance little distinction, and a great deal of overlap, between the concepts of capture, seizure and detention. There would seem to be no commercial rationale for treating them differently as off-hire events.
    5. The essential reasoning of the tribunal in reaching the contrary conclusion was expressed in paragraph 47 of the Award in these terms:

“Fundamentally, though, we cannot accept that “captured” is a word that can fairly be read as qualified by “by any authority or by any legal process”. In the context of a charter which clearly anticipates piracy risks and in an age when questions of prize – a concept in which the word “captured” might reasonably be seen as something an “authority” might be involved in – no longer arise, we consider that the word must here be read disjunctively from the causes that follow.”

    1. With real respect for the views of these experienced arbitrators I do not find such reasoning persuasive. It is true that clause 101 recognises the risk of piracy, but it has its own off-hire provision. It therefore affords no guidance to the scope of “capture” as an off-hire event in clause 49. Nor can I accept that “capture” is something which an authority is incapable of carrying out. As a matter of the ordinary use of language, capture does not necessarily connote the use of force. Unoccupied land or undefended goods may be captured. My wife may capture my heart. I see no difficulty as a matter of the ordinary use of language in the concept of a governmental authority or ruler capturing a vessel.
    2. Nor is that an alien concept in charterparties or maritime affairs more generally. In In Re an arbitration between Tonnevold and Finn Friis [1916] 2 KB 551, Scrutton J was concerned with a clause which provided that “no voyage be undertaken and no goods, documents or persons shipped that would involve risk of seizure, capture, repatriation, or penalty by rulers or Governments”. He interpreted the intention of the parties as being that “the shipowner should not be bound to undertake any voyage which would expose him to the risk of having his vessel taken out of his possession “by rulers or Governments” and that when they used the words “seizure” and “capture” they were indicating acts of rulers or Governments which would deprive the owner of his vessel.” Although that case concerned the risk of capture in time of war, it clearly demonstrates that capture is a word which can properly be applied to acts of a governmental authority; and there is no reason to think that it would be inapt in the modern era to provide for capture by such an authority in the context of a long term timecharter permitting worldwide trading. Indeed Clause 28 of the Shelltime 4 Form in current use provides that “No voyage shall be undertaken, nor any goods or cargoes loaded, that would expose the vessel to capture or seizure by rulers or governments”: see The Greek Fighter [2006] 1 Lloyd’s Rep 99; The CV Stealth [2016] 2 Lloyd’s Rep 16. In The Captain Stefanos Cooke J said at [20] that although in the clause he was considering, which was in different terms to clause 49 in this case, the expression “capture/seizure” was not qualified by the subsequent words “by any authority or by any legal process”, it could have been so drafted to make those qualifying words govern “capture/seizure”. He saw no impossibility of a capture by authority or legal process as a matter of the use of language. Further, Merchant Marine Circular MMC-360 issued by the Panama Maritime Authority talks of it “capturing” ships which assist North Korea.
    3. Finally, if I were left in doubt about the construction of clause 49, which I am not, the most that could be said is that it would be capable of bearing either of the meanings for which the parties contend. In those circumstances the doubt would be resolved in favour of the Owners and Charterers would have failed to bring themselves within a clear exception to the obligation to pay hire, in accordance with the principles in Royal Greek Government and the subsequent cases which I have identified above.

Clause 101

    1. The Owners contended that the third sentence put the Vessel off-hire only if the kidnap or threat of kidnap by piracy took place during transit of the Gulf of Aden, which was a finite geographical area capable of identification. The Charterers did not maintain that the third sentence provided for off hire as a result of piracy anywhere in the world. They supported the finding by the majority of the tribunal that the clause was operative if the threat/kidnap took place within the Gulf of Aden, however defined, “or as an immediate consequence of her transiting or being about to transit the Gulf”. Although the majority expressed this as involving either of two alternatives, in essence the former is subsumed by the latter. The rival constructions are therefore whether the threat/kidnap must occur within a geographical area identified as the Gulf of Aden (the Owners’ case) or whether the threat/kidnap must take place as an immediate consequence of the Vessel being required to transit the Gulf of Aden (the Charterers’ case). Both require reading words into the third sentence of clause 101 which is silent as to its scope of application.
    2. The relevant factual background which was known or reasonably available to the parties, was set out in the Award by the majority in the following paragraphs:

(1) In paragraph 29 the majority recorded the Charterers’ argument that there was no defined geographical extent for the Gulf of Aden. Reference was there made to two potential definitions, one being that used by the International Hydrographic Organisation which treated the zone ending at its eastern border at 51.16°E, and another the area used by the Joint War Committee to define for the purpose of war risk insurance what it called the “Gulf of Aden transit area” extending to 57°E. The western borders of the two areas were also significantly different. The capture by pirates in this case took place at 60.50°E, further east in the Arabian sea than would be comprised by either of those two definitions. At paragraph 6 the majority recorded that the capture occurred after “sailing through the Gulf of Aden and into the Arabian Sea without incident”.

(2) In paragraph 34 the majority held that “the expression “Gulf of Aden” has no clear meaning in the context of a charterparty of this kind”. In paragraph 37 they referred to the clause being “concerned with a transit through an area that remains undefined” (their emphasis). In paragraph 41 they described their construction as consistent with the fact that it does not depend upon geographical limits of the Gulf being ascertainable.”

(3) In paragraph 36 the majority found that “it is clear on the evidence that the parties will have known – as indeed the whole shipping community knew at the relevant time – that transiting the Gulf of Aden exposed ships to the risk of piracy not only in whatever might have been understood as the Gulf, but also in the Arabian Sea, on occasions hundreds of miles from the Somali coast; and that the risk of piracy was expanding.

    1. The language of the third sentence is silent as to the ambit of the off-hire provision. Some wording must be read in. There is nothing in the language of the other parts of the clause which provides clear guidance in favour of either of the rival constructions. The first sentence refers to permission to transit Gulf of Aden, which is a process of passing through an area and necessarily involves a sea passage on either side of such area. It is neutral as a pointer towards either place or process. The fourth sentence refers to following procedures “during” transit of the Gulf, which suggests that that sentence is confined in its application to a particular duration and therefore geographical scope. Mr Thomas argued that this was a provision for the benefit of the Owners, providing for the protection of patrolling vessels in the area as the quid pro quo for the Owners being prepared to take the risk of the Vessel being off-hire, and was therefore a powerful pointer to a geographical interpretation of the scope of the third sentence which contained that allocation of risk. He argued that the commercial rationale of the clause was that the Vessel should only be off-hire for so long as the Owners had the protection contemplated by the fourth sentence. However there was no finding by the tribunal of the area in which protection or patrols were available in and around the Gulf of Aden and adjoining Arabian Sea, and no suggestion that the formal convoy route was co-extensive with either the IHO defined area or the JWR Committee defined area, so as to make the protection afforded by the fourth sentence co-terminous with any geographical definition of the area for the purposes of the third sentence. Further, the fourth sentence of the clause is for the Charterers’ protection as much as the Owners’ since the safety of the cargo from piracy is as much a concern as the safety of the Vessel. It is not simply the quid pro quo for the Owners accepting the off-hire risk in the third sentence. The fourth sentence therefore gives no guidance as to the ambit of the off-hire provision in the third sentence.
    2. Against that background the construction adopted by the majority is to be preferred for three reasons.
    3. First, the majority have found that the expression “Gulf of Aden” is not capable of being given a meaning by way of any geographical definition in the context of a time charter of this kind. That is a finding of fact which is not susceptible to challenge on an appeal under s. 69. That is itself fatal to the Owners’ construction. Mr Thomas argued that the fact that there might be two rival contentions as to what geographical area was comprised by “the Gulf of Aden” did not prevent the expression being given a purely geographical interpretation; if it had mattered which was correct the tribunal would have had to decide, but it had not needed to in this case because the seizure took place outside either of the identified areas. However this ignores the finding of the majority that the expression has no geographical meaning for the purpose of a charterparty of this kind. A fair reading of paragraphs 34, 37 and 40 is that the majority found the expression to refer to an area which was unascertainable and incapable of definition in purely geographical terms for the purposes of a clause in a charter of this nature.
    4. Secondly, clause 101 as a whole is concerned with voyages through the Gulf of Aden. Its principal and critical purpose in a term time charter of this nature is to enable the Charterers to trade the Vessel through the Suez canal. The effect of the Conwartime 2004 clause is that but for the liberty conferred by the first sentence of clause 101 the Owners would otherwise be entitled to refuse voyage orders to make a transit of the Gulf of Aden, which would preclude trading between Europe and Asia, without having to go around the Cape of Good Hope. That would make the Vessel significantly less attractive to potential charterers. It was therefore of benefit to the Owners to agree to Gulf of Aden transit as the quid pro quo for the commercial advantage in being able to offer their Vessel for such service, which was no doubt reflected in the other terms including the rate of hire. The clause then allocates risk in relation to such transit by providing that the Charterers are to bear the additional cost in insurance premium and crew war risk bonus; but that the Owners are to bear the risk of loss of time from piracy putting the Vessel off-hire.
    5. The purpose of the third sentence of the clause is to allocate to the Owners the risk of delay from detention by pirates (or the threat thereof) as a consequence of the transit which the first sentence requires the Owners to undertake if given such voyage orders by the Charterers. The findings at paragraph 36 of the Award show that the parties would have regarded that risk as existing beyond what might be understood as the Gulf itself. The natural construction of the allocation of risk in the third sentence against that background is that the Vessel should be off hire if the piracy detains her as an immediate consequence of the transit, rather than by reference to a particular geographical area.
    6. Third, the allocation of risk in the second half of the first sentence (war risk and kidnap and ransom premium) and in the sentence of the clause (crew war bonus) is not defined by reference to a single geographical area. The Joint War Committee is a Lloyd’s Market Association committee comprising representatives who underwrite marine hull war business in the London market. Neither its views nor its terms were said to be of universal application. There was no evidence or finding that extra war risk premium or K & R premium was tied to a single and definable geographical area in all cases. The same is true of crew war bonus. These parts of the clause therefore refer to payments which arise by reason of transit of the Gulf of Aden, and not by reference to a single strictly defined geographical limit which is capable of definition.
    7. Mr Thomas argued that the Charterers’ construction was anomalous because the Vessel might have been captured by pirates in exactly the same spot when making a journey from Dubai or Muscat to east coast Africa, in which case the Vessel would not have been off-hire. I see nothing anomalous in that consequence. The clause is concerned with passages through the Gulf of Aden, and if the Charterers have not given voyage instructions for such a passage, the clause is not engaged because its principal purpose, which is to permit such instructions, is not engaged. Charterers bear the risk of piracy in such circumstances just as they do for piracy anywhere else in the world. Clause 101 carves out a different regime of risk to facilitate Suez canal passage (or Red Sea ports to/from the south) and allocates the piracy risk which is an immediate consequence of that trading route. If the Vessel were ordered to trade from Dubai to east coast Africa through a part of the Arabian Sea carrying a piracy risk, Conwartime 2004 would permit the Owners to refuse such a voyage order, but clause 101 has nothing to say about such circumstances, just as it has nothing to say about allocation of risk anywhere absent a voyage instruction to transit the Gulf of Aden.

Conclusion

  1. The appeal succeeds on clause 49 but fails on clause 101. I will hear the parties on the form of order and costs.

United Food and Commercial Workers, Local 1400 v Affinity Credit Union (28 MARCH 2019)

United Food and Commercial Workers, Local 1400,

Union

– and –

Affinity Credit Union,

Employer

Before: Anne M. Wallace, Q.C., Chair, Catherine Knox, Union Nominee, Laura Sommervill, Employer Nominee

Representing the Union: Dawn McBride

Representing the Employer: John R. Beckman, QC, Charles Reid

Heard at Saskatoon, Saskatchewan: June 13 14 and 15, 2018

Award

  1. Introduction
  2. On March 16, 2017, the United Food and Commercial Workers Union, Local 1400 (“UFCW” or the “Union”) filed a Policy/Group grievance (the “Grievance”) against Affinity Credit Union (“Affinity” or the “Employer”) claiming:

Statement

The employer has non union staff working at the unionized locations, in violation of the CBA and/or any other applicable legislation.

Adjustment

Full redress up to and including general, aggravating and punitive damages.

  1. The Union filed the Grievance pursuant to a Collective Bargaining Agreement (the “CBA”) between the Employer and the Union in force from April 1, 2016 to March 31, 2017. The parties agree this is the relevant CBA.
  2. The parties were unable to resolve the Grievance and the Union referred the Grievance to arbitration. I was appointed to chair the arbitration board (the “Board”). The Union appointed Catherine Knox and the Employer appointed Laura Sommervill.
  3. At the outset, the parties acknowledged the Board has been properly constituted and that we have jurisdiction to hear and determine the Grievance. The parties also agreed to the usual order for exclusion of witnesses.
  4. Dawn McBride represented the Union. John R. Beckman, QC, and Charles Reid represented the Employer.
  5. Union witnesses included:
  6. Lucy Figueredo
  7. Shanon Frain
  8. Brenda Hartley
  9. Megan Smith
  10. Marjorie Huard
  11. Jaclyn Brears
  12. 7.Jolene Tesky
  13. 8.Maryann Mahdavifar
  14. Employer witnesses included:
  15. Lisa Taylor
  16. Lolita Humm

 

  1. The Evidence
  2. Union Evidence

Lucy Figueredo

  1. Lucy Figueredo testified that:
  2. She is the Secretary Treasurer of Local 1400 and has been the Union’s bargaining representative for the unionized employees of Affinity Credit Union.
  3. The CBA applies to all branches of Affinity Credit Union in Saskatoon except the City Centre and St. Mary’s branches. It also applies to Affinity’s rural branches in Warman, Langham, Borden, Waldheim, Martensville and Dalmeny. There are around 115 to 120 employees in the unit. The CBA also contains a long list of positions excluded from the bargaining unit.
  4. Article 13 of the CBA includes a defined system for scheduling of employees.  Article 13.08 provides for two groupings for scheduling, a Saskatoon group and a rural group. Branches schedule the employees to work in accordance with the rules in Article 13.
  5. Figueredo doesn’t think there is a difference in scheduling between full-time and part-time employees. Full-time are guaranteed hours, but “the scheduling applies the same in concept”. Part-time employees have very specific arrangements for scheduling in each branch and then outside the branch if needed to fill in gaps in the schedule. Article 13.08 defines the groups. Article 13.09 is the scheduling process. 13.09 (a), (b) and (c) covers general scheduling. It talks about claiming of hours. If hours are available, employees are allowed to claim those hours within each branch and each grouping. It allows for claiming within your own position first and then within other positions where you previously qualified. Claiming can’t occur before commencement of the schedule. Article 13.09 (f) puts a system in place for employees to claim hours or to be getting hours even outside their own grouping. In concept, city employees could claim work in rural branches and rural could claim for hours in the city.
  6. Article 13.09 (g) deals with hours outside declared availability. They go through a step process. Failing all that, they will schedule within the grouping in reverse seniority and there is a premium attached to taking on those hours. Article 13.09 (h) contains a procedure if the schedule has already been made or commenced and includes another process where they offer work which employees are entitled to refuse. Failing that, they revert back to the four step process in Article 13.09 (g). Article 13.10 talks about a part-time pool. There is a premium if someone has to go to another branch. Article 13.14 includes $5 per day for working Saturday.
  7.   There are a number of places in the CBA where the Union has accommodated the idea there will be a temporary placement. The definitions section defines term employees. Article 8 deals with leave of absence. There is provision for student term employees. Article 10.04 (e) allows for temporary placement for up to six weeks with a possible extension if the Union agrees. Article 10.03 (b) contemplates a temporary position that doesn’t allow for completion of the probationary period. Short term temporary positions have been contemplated in the CBA and allowed. The Appendix has a full list of classifications as they were at the time.
  8. There was an employee named Sarah Clark at Affinity’s Stonebridge Branch. Figueredo doesn’t remember the position Clark held. Affinity terminated Clark’s employment. When that happened, a number of non-union people from other branches came to work at the Union branch. Records show that these employees came from St. Mary’s or City Centre branches or from a listed exclusion.
  9. Figueredo is not aware of the Employer coming to the Union to ask to fill a temporary position or to say they were going to bring in non-union employees.
  10.   There is an elaborate and long list of exclusions in the scope clause. There is a structure that has certified and not certified branches within one grouping as defined in the CBA. Jobs employees do at the non-certified branches are the same as at the certified branches. The classifications are the same. The Union is very conscious of work that either gets distributed out or distributed in. The CBA is full of references that scheduling if needed will be in reverse order of seniority.
  11.   The parties have contemplated how to appropriately schedule without taking work from unionized employees. Article 4.04 talks about limiting what out-of-scope people can do. It talks about not replacing a member of the Union, replacing people who are not getting hours, positions not getting filled. It is a priority for the Union especially since there is a crossover of duties that potentially could be done by out-of-scope. It is important work be done by in-scope employees. The CBA reinforces that. There is a detailed process for scheduling and assigning hours and the ability to create temporary positions for up to six weeks.
  12. Affinity terminated Sarah Clark in November 2016. The CBA allows them to reverse order and schedule assigned hours and they didn’t do that. Two out-of-scope employees were paid double time for work in unionized branches. The Employer could have offered the overtime to Union people.
  13.   Figueredo has never been to the Stonebridge Branch.
  14. In cross-examination:
  15. Figueredo acknowledged that during bargaining the Union had sought to strike out the words “that will either replace a member of the Union or cause such member not to be recalled in the event of layoff” from Article 4.04. Figueredo acknowledged the Union’s intent was to create a full “no contracting out” clause, but that the Employer did not accept the Union’s proposal. The Union has made the same proposal again in the current round of bargaining.
  16. Figueredo agreed that Article 13.09 deals with scheduling of part-time employees, but said from her perspective, even though the title of the article refers to part-time employees, Article 13.09 (g) includes some positions that are full-time.
  17. Figueredo agreed she has never been to the Stonebridge branch and has no personal knowledge of what happens there.
  18. Figueredo acknowledged she is aware of a position called mobile mortgage specialist but that it is not in the Appendix to the CBA and she does not know whether the position is in scope of the unit.
  19. Figueredo said she was not aware that Lisa Taylor is the manager of the Stonebridge branch.
  20. Figueredo said she was not aware whether Union members were offered overtime for the Saturdays at Stonebridge and refused:

I wouldn’t know that. My question is whether all of them were offered it. …I know that members I talked to said they did not get offered overtime. I don’t know of individuals who were offered.

 

Shannon Frain

  1. Shannon Frain testified:
  2. Frain works at Affinity’s Contact Centre as an Inbound Team Lead. She was a Financial Service Rep (“FSR”) at City Centre when she worked at Stonebridge.
  3. An FSR opens accounts for members, both personal and business, completes term deposits for members but not mutual funds. She also helps with estate accounts. She interviews and sets up accounts. She also follows up with business accounts if they need cheques or anything like that. She answers customer questions and teaches them on-line banking. With respect to lending, the FSR can do a line of credit up to $2,500 and take MasterCard applications.
  4. City Centre did not have an Associate position. They have a Member Service Rep (“MSR”) position. Frain doesn’t know the difference between the two positions.

I assumed we were similar. Joel and Eileen [Associates at Stonebridge] would ask me for help whenever they had to do a GIC or open an account. Their role was our MSR teller role combined with the FSR.

  1. The MSR is a teller who takes cheques and assists at the ATM. They show people how to use the app. They give cash. They refer customers to FSRs or lenders if they need anything like that.
  2. Frain was in her fourth year with Affinity. She started at River Heights as a pool teller for different branches and then became permanent in City Centre branch. She took an FSR positon 18 months later and then just recently moved to the management as team lead at the contact centre. She has Union and non-union employees under her. The contact centre is unionized but smaller locations are not certified.
  3.   Frain was sent to Stonebridge a couple times in February 2017, specifically February 21 and 28. She also worked March 12 for the full day and March 28 from 9:00 a.m. to 12:00 noon. Frain believes she was scheduled because employees received an email asking if they were willing to help out because Joel and Eileen needed some time off. Frain said she would help out and then she was scheduled for when she didn’t have appointments. Frain thinks the email came from Denise Robert who was manager at City Centre. She doesn’t recall who were all in the group that received the email. She is not sure if it included just City Centre employees or other branches as well.
  4. At the time Frain was scheduled to work at City Centre from 9 to 5 on Monday, Tuesday, Wednesday and Friday and from 9 to 6 on Thursday. She was not scheduled for Saturdays or Sundays. When she worked at Stonebridge, she did not receive any additional pay and did not receive any premium. She just worked there instead of at City Centre. She did some of her City Centre work when she was at Stonebridge.
  5. The Stonebridge branch has machines for cash called a TCR. They don’t have cash drawers. They have super-ATMs and they can give you 20s, 50s or 100s. If a member wants to make a deposit, you assist them if they don’t know how to use the TCR. If they want to deposit and not have a hold, you could take the hold off because the machine does an automatic hold. You help people with the banking app. If someone needs to open account, you help them. You could replace an ATM card. The position is a teller and FSR combined. If someone wanted to borrow money they would do the same as if in any branch. You would refer them to a lender and set up an appointment for whichever branch is most convenient for them. If they had a relationship with a lender already, you could look up the schedule and put them in. If they needed something right away, you could put out a call to the reps and they could go to the SKYPE room and deal with it. Frain has opened accounts that way too. She could make bank drafts. If someone wanted an RRSP, that would have be done by SKYPE. If someone wanted mutual funds, that needs an investment specialist, so you set it up for the best time and location for what the customer wants.
  6.   When she worked at Stonebridge, Frain did both FSR and MSR work. The regular employees who worked at Stonebridge, Joel and Eileen, were called Associates. Frain thinks that when she worked at Stonebridge, they were short because Joel was going on vacation. She didn’t work with Joel. She worked with Eileen.
  7.   When they were short-staffed in her branch, the FSRs took turns and worked as tellers. It wasn’t working extra hours. It was just occupying a different seat. Sometimes when they were short-staffed, Affinity brought in people from other branches. Frain recalls people from Broadway branch coming.
  8. Frain was not aware of how scheduling of part-time employees is done.
  9. Frain never worked at other Union branches except those shifts at Stonebridge. She didn’t need training for Stonebridge.
  10. 11.In cross-examination, Frain said she thought the Stonebridge branch was open from 9 to 6 on Saturdays. She also confirmed that she has seen Union members working at non-union branches.

Brenda Hartley       

  1. Brenda Hartley testified:
  2. Hartley has been with Affinity as a lender since 1997. She works at St. Mary’s branch. The position has had different names including Relationship Banking Officer and Personal Banker.  In her position she is responsible for consumer loans, mortgages, and small commercial loans up to a little over $100,000.
  3. Hartley went to work at Stonebridge branch as a “fill-in” because they were short-staffed:

With me being a lender, it would kind of be nice if I went over there in case someone happened to walk in. Sometimes the reps would SKYPE into a lender to see if someone was available. There is a room there to do that. …but I was doing other things over there. At lunch and so on, if staff were on lunch, I would help with members that came in.

  1. Hartley worked at Stonebridge on January 30, 2017 from 10 to 6 [actually February 6, 2017]. She was there because they were short-staffed. Eileen was off work that day. She came to work there because an email came to say Stonebridge was short staff and would someone like to volunteer to go there. Hartley told her supervisor if they couldn’t find anybody, she would go there and fill in. She does not remember who sent the email but it was to a group of people.
  2. Hartley normally works Monday to Friday 9 to 5 and Thursday til 6. When she worked at Stonebridge, she brought work with her and also did work at Stonebridge. When there was a member in the branch, she helped them out and didn’t do her own work.
  3. Hartley worked at Stonebridge part of the day on February 24, 2017. She assumes it was because Eileen was off work. She started work at 2 p.m.. She also worked on March 10 when Eileen was on vacation and March 17 when Eileen left early. She did not receive any different pay or premiums.
  4.   Hartley has never worked at any Union branches other than Stonebridge. While at Stonebridge, she helped members if they had questions about their accounts or wanted to make bill payments. Sometimes they wanted a manager’s trust cheque. She helped people with deposits and withdrawals on the machines or if they needed a new ATM card. She did some lending work while she was there.
  5. When they were short-staffed at St. Mary’s branch, what happened depended on the department.

We don’t have a teller pool anymore and they weren’t allowed to come to our branch.

Lauren Loehndorf

  1. Lauren Loehndorf testified that:
  2. Loehndorf is a Personal Banker (Relationship Banking Officer) at Affinity’s City Centre Branch. She had been there for three years. Before that, she worked at every Union branch in Saskatoon until she landed at City Centre.
  3. She has worked at Stonebridge Branch, but has not worked at any other Union branch while at City Centre. Loehndorf’s manager, Lee Spencer, asked her if she would be willing to work at Stonebridge. She doesn’t recall if the call was to everyone. It was by email. Stonebridge was short and needed assistance in helping members.

I was going over to do the work for the person I was replacing which was also in my job description – other work as assigned.

  1. While she was at Stonebridge, Loehndorf did some or her own home branch work as well. She assisted members as needed. She helped them with the ATMs, answered questions they had and provided any assistance they needed. She did not receive any extra pay or overtime. She worked February 8, 2017 replacing Eileen who was on training. She also worked on February 10 and February 15. She didn’t work any times other than those on the schedule. [Records also show she also worked January 5 and 6.]

Megan Smith

  1. Megan Smith testified:
  2. As of June 11, 2016, Smith was a Mobile Mortgage Specialist which is an out-of-scope position with Affinity. Her office was downtown but she worked at all locations when she did that job.
  3. Smith worked at the Stonebridge branch in 2016, replacing a staff shortage, but while she was at Stonebridge, she did her own job there. She was helping out, but she had a laptop and a phone and she just set up to do her work there.
  4. Smith doesn’t remember how she got scheduled. She assumes she volunteered. She doesn’t recall how she was told of the need, but thinks it came from the branch managers. Smith worked December 22 and December 23, 2016 when Joel was on vacation and December 28 and 29 when Chris was on vacation. Others took the lead on the work, and Smith just kind of helped. She was there so they could have the doors open. Smith has worked at Affinity for ten years and has done seven different roles. She didn’t need any additional training to help out at Stonebridge. She couldn’t have done all the duties Joel was doing, but she was there to help. She had been trained as an MSR and FSR but there were different processes and things changed quickly.
  5. Smith is employed by Affinity to help members with mortgages. Her office is at City Centre but she goes where it is most convenient for the member. She also works out of regular business hours. Smith never provided coverage for absent employees at any branches other than at Stonebridge.

Marjorie Huard

  1. Marjorie Huard testified:
  2. Huard is an Investment Specialist with Affinity. She specializes in investments “on book”, both registered and non-registered, as well as mutual funds.  She has been with Affinity for 35 years. She started as a file clerk, was a teller for seven years, then an FSR seven years, an RBO for over ten years and now an Investment Specialist since 1997. She worked at the Main branch but when it closed, she moved to the Westview branch. She works Monday to Friday 9 to 5 and a late shift every second Thursday.
  3. When they are short-staffed at Westview, they bring people from other branches. Huardf is not sure exactly how it works because she works in an office.
  4. Before 2017, they would send out an email in the morning or contact Human Resources and let them know they were short-staffed. If part-time staff were available they would get them or see if another branch could spare people. Huard was not aware of Affinity bringing in any non-union staff. Since 2017, Huard has noticed that they have non-union staff in their branch whether for MSR or FSR coverage. She has also seen an Investment Specialist, Irwin, who worked at City Centre do appointments in Fairhaven.
  5. Huard has not been offered shifts at other branches. She did not receive any requests to cover shifts from January to March 2017. She did not receive any email messages asking if she was available to work shifts or overtime at another branch.          That is something she might have considered doing. She would not have gone to take her own work to another branch. If you go to work at another branch, there is a premium for that. Huard is qualified to do MRS work. She has never been offered to cover any MSR shifts.
  6. Huard never received any email message about availability to work shifts at Stonebridge. She is not aware of what process was followed because she was not included in the process.
  7.   There are part-time MSRs the Westview branch. Huard is not aware of the names of those persons because they have changed due to a lot of new job postings and she doesn’t have a chance to keep up with them. She thinks there are two part-time MSRs. There are no part-time FSRs at Westview.
  8. In cross-examination:
  9. Huard said she was qualified as an FSR, but that she has been in the Investment Specialist position for a very long time. She thinks it has been at least seven years since she made an ATM card and probably three years since she did a bank draft. She does not have any limits to be able to do loans at this time. The last time she opened a personal account was about a year ago and a business account five or six years ago. She has printed cheques, but has not done a cheque order.
  10. Huard acknowledged that she was a Union representative on the bargaining committee that negotiated the CBA. She acknowledged there was a proposal to change Article 4.04, but couldn’t say whether it was a Union or Employer proposal. Upon being shown the proposal document showing it was a Union proposal, Huard still said she did not recall.
  11. Huard acknowledged that she was aware that certified staff go to non-certified branches to work from time to time. She does not know whether any Westview staff have gone to a non-certified location to help out. She said she was not aware of who makes the decision as to who is going to be available because she has never gotten any emails. She agreed she doesn’t know how the process works.
  12. 17.In re-examination, Huard said that when a certified employee goes to a non-certified branch, there is a premium. She recalls that at one time Shane from Broadway branch went to City Centre Branch and Huard talked to him and made sure he got his premium.

Jaclyn Brears

  1. Jaclyn Brears testified:
  2. Brears is a Personal Banker at the Broadway branch. She has been an MSR, FSR and an RBO which is the new Personal Banker. She has also been an Investment Specialist. She has worked as an MSR at most of the unionised city branches as well as Warman and Martensville. She was an FSR at Dalmeny and Westview and an RBO at Westview. She has never worked at Stonebridge.
  3. In 2017 Brears was a full-time RBO at Westview working Monday to Friday. She did not receive any emails about shifts available at Stonebridge or the opportunity to work overtime on Saturday. Her manager never came to her to ask about her availability. There were part-time MSRs and FSRs at Westview at the time as well.
  4. Brears has covered at other branches when they have been short-staffed. She has filled overtime shifts at the 8th Street Branch a couple of times when she was an MSR. When she was at a rural branch, she offered to fill in at a city branch, but the shifts were filled by more senior people.
  5. Brears is aware of what staff do at Stonebridge and she feels she could do their job because the Associate is a grade 4 position in the pay structure and Brears is a grade 5.  They did account openings which FSRs do which Brears previously did. Grade 5 is primarily Investment Specialists and RBOs. They had only grade 4s at Stonebridge. Associates help members with ATMs. They open accounts which FSRs did at grade 3. They did some small lending, like line of credit and small consumer loans and credit cards. The FSR would have only been able to do a small line and credit card, but not consumer lending. They would assist if the member needed Investment Specialist help, and would set them up with SKYPE with someone at another branch. Brears knows how to open accounts and do small lending.
  6. In cross-examination:
  7. Asked if she had personal knowledge of the process for asking for assistance from other branches, Brears said her understanding is that when the manager needs a shift filled, a big email goes to the managers and then the manager fills it. Brears said that in the past when she saw shifts requested, they sent it to all MSRs regardless of whether they were available. It would be overtime shifts they were asking for.
  8. When counsel suggested it was the manager’s decision whether to allow staff to take shifts at a different branch, Brears said:

I guess if they want to allow the staff their rights. If it was on the employee’s day off, that would be the employee’s choice. I think under the CBA it would be branch requests for help rather than offering additional requests for staff.

  1. When counsel suggested it is the manager’s decision as to whether they have excess capacity, Brears said:

If it is the employee’s regular shift – and if it is overtime then they have to offer it. If it was a regular scheduled shift, the manager would choose. That’s their branch requirements.

Jolene Tesky

  1. Jolene Tesky testified:
  2. Tesky has, since 2014, worked at the Martensville branch of Affinity as an MSR. She works full-time Tuesday to Saturday. She is a front-line staff doing member deposits and withdrawals, day to day banking, wires, answering calls, and making calls. She is essentially a teller.
  3. Tesky worked one shift at Stonebridge branch in February of 2017. She worked ten to six. She greeted members, showed them how to use ILTs, dealt with emails and made calls she needed to make. It is different at Stonebridge because they don’t have cash. There are no wickets or cash drawers. They have ILTs. You assist people on how to use those. If they have a question you help. Staff have computers from which they can make bill payments, but there is no cash between the member and the staff.
  4. With respect to filling shifts:

We get emails sent to us that show unfilled shifts for all branches. You can request to fill the unfilled shifts and then you get an email back stating if you were the person successful in getting one of those shifts. You have been scheduled at whichever branch at which ever time. I put my name in, but city staff get first dibs.

  1. Tesky does not recall whether she put in for any of the shifts at Stonebridge in February of 2017. She thinks she was available to work.

I don’t recall if I put in for these – not every time, just sometimes, after Christmas sometimes it’s nice to work an extra shift, but I don’t remember if I did or not.

  1. The Employer has never ordered Tesky to work in reverse seniority.
  2. 21.In cross-examination, Tesky could not recall the specific dates on which she responded to any request for help at another branch. If she said she was available and someone more senior wanted the shift, then she didn’t get the shift. When she worked in the City Centre branch, when she put her name in, she always got a shift. In Martensville there were two issues. The shifts in the city were first offered to city employees and then the most senior person got the call.

Maryum Mahdavifar

  1. Maryum Mahdavifar testified:
  2. Mahdavifar has worked as an FSR at the Fairhaven, Westview and 8th Street branches of Affinity. She had set days at each of Westview and Fairhaven branches and sometimes went back and forth. She worked five days, but was considered part-time because she was part-time at each branch. She never worked at any other branches when she was scheduled to work at Fairhaven and Westview.
  3. She started working with Affinity in February 2016 and got a 36 hour guarantee in September 2016. One month she was scheduled for 36 hours, but quite a few months she wasn’t scheduled 36 hours. She ended up getting a cheque for the lost hours.
  4. Mahdavifar recalls getting an email about work at Stonebridge for March 2017. She didn’t find any for January or February, but she found an email dated February 21, 2017 from Denise Robert:

There are several shifts available for the March schedule. Please note that for Stonebridge shifts preference will be given to a FSR or RBO however if none volunteer a MSR may be scheduled.

OT/DT will be offered on all shifts below:

[shifts are listed]

If you are already scheduled to work 5 days in a week you will not be able to work on your day of rest, unless double-time is offered. Please let me know if you are able to work any of the above shifts by the end of the day Thursday, February 23rd.

Thank you for your consideration.

  1. Stonebridge had Saturdays and one Monday on the list. Mahdavifar didn’t ask to work any of the Saturday shifts because Saturday is already a regular day of work for her. Mahdavifar responded that she could work Monday March 27 but that it would be overtime. Mahdavifar did not get the overtime shift. If she had been offered it, she would have worked that shift.
  2. Denise Robert used to be at City Centre, but now she is Mahdavifar’s manager at Fairhaven. She had team lead at Fairhaven. Sarah Kudeba was   Mahdavifar’s manager at Westview.
  3.   Since March and April of 2017, Mahdavifar has not seen any offers of shifts at Stonebridge. She just filled in once in February or March 2018 for someone when they were short by moving over to Stonebridge on a regular day of work.

I usually signed up if I didn’t have any other plans going on. I am assuming more senior people got the shifts.

  1. In cross-examination:
  2. Mahdavifar confirmed that the cheque she received was to compensate her for her 36 hour minimum and that during the time in question she was working five days a week. She was fully booked in terms of days, but just hadn’t been assigned the full 36 hours.
  3. Mahdavifar acknowledged that the email from Denise Robert was sent to managers and assistant managers, not to all employees. Mahdavifar’s manager, Sarah Kudeba, then forwarded the email to Mahdavifar and another employee to see if they were interested.
  4. Mahdavifar acknowledged that as of March 27, 2017, she was working five days a week and getting appropriate hours. She was already booked to work on all the other days that were listed.
  1. Employer Evidence

Lisa Taylor

  1. Lisa Taylor testified:
  2. Taylor has been employed with Affinity for 19 years. She started in the MSR role and worked her way through FSR, RBO, teller manager, contact centre manager, and lending manager to her current role of Advice Centre Manager which is Branch Manager. At the time of the events in question, Taylor was managing Broadway, Aberdeen and Stonebridge branches. Aberdeen is not certified. The other two are.
  3. Around the end of November, 2016, Sarah Clark ceased employment with Affinity. Clark had been at the Stonebridge branch and this left the branch short an Associate position because Clark was no longer there to cover shifts. Affinity created a posting to fill the position Clark had left with close date December 7, 2016. Eileen Dureault was the successful candidate and she started in the position on January 11, 2017.
  4. When Stonebridge was short-staffed:

How I did the scheduling at Stonebridge for Associates was first go to Joel who is an Associate and ask – this is for December — and ask if he wanted to work any of his days of rest for double time. Once I knew what he would be willing to work and not willing, I knew I needed an employee comparable to an Associate position which is an RBO. Then I sent an email to all managers within Saskatoon and rural to see if they had availability to help me fill the unfilled shifts at Stonebridge. Once that came back, if I didn’t have coverage, I would go to an FSR and then an MSR. …From the perspective of other branches, when they send staff over to help, they have to look at their staffing complement at the time before they can share their staff. …

I have to back up a sec. Prior to me going to the other branches, I knew Megan Smith the Mobile Mortgage Specialist. She had volunteered to come out to branches, so I would ask her to come to Stonebridge prior to sending to branches, knowing Megan at Stonebridge didn’t affect other branch complements or their growth – their targets. During the last two weeks in December, the branches would not have availability to send extra staff as this is prime vacation time.

  1. Chris Hoffo was the successful applicant for an MSR position at River Heights branch. He was an MSR trainee at Stonebridge.  He was new to the organization and they placed him at Stonebridge. When Hoffo left, Affinity posted for a part-time Associate position at Stonebridge with closing date March 15, 2017. They didn’t receive any applicants for that position. As far as Taylor knows, no one from the Union applied for the position.
  2. Affinity’s schedules show that:
  3. During the first week of January 2017, Eileen had not started the position yet, so Taylor needed help for a second person at Stonebridge. Hoffo was working in Aberdeen on January 5 and 6, 2017. He was a certified Union member working at a non-union site. On January 10 and January 13, Hoffo also worked at Aberdeen.
  4. Cammy Charles is a certified employee who came to Stonebridge to help on January 31, February 3 and February 7.

                              iii.   On February 8, a non-certified employee Lauren came in to cover because Eileen was doing lender training. Megan Smith covered for Joel because he left at 1:45. Smith covered the afternoon. On February 14, Smith came to cover in the morning because Eileen’s shift started at noon. Taylor does not recall why Lauren was there on February 15th because it looks from the schedule that Eileen and Joel were both there. On February 17, Smith came in the afternoon because Joel’s shift ended. On February 21 and 24, Smith and Hartley covered.

  1.  On March 4, non-certified employee Paige covered for Joel. Certified employee Cammy covered for some of the shifts. Kristie, a certified employee, covered on March 1. Joel would work one month Tuesday to Saturday and Eileen Monday to Friday. Taylor would ask if they wanted to pick the Friday or Saturday for double time. She only went to the managers or to Megan if Joel and Eileen declined to work. Eileen did not want the shifts on March 4 or 11. Taylor was looking for an RBO to cover and if not, then an FSR and then an MSR. If two RBOs said they wanted the shift, then the most senior person got it.
  2.   If she received an email asking if she had staff to spare, she would look at her schedule and see if she had the capacity to send someone. She assumes when she sent the message, the managers looked at their situations to see whether they had any extra staff to spare. If so, they will then ask staff if they would like to volunteer.

25. In cross-examination:

  1. Taylor confirmed that the schedule the Employer had provided was the schedule made up for Stonebridge for them to know who was going to be working. If there was a change in the middle of the month due a staff that might have been scheduled to come and needed to be elsewhere, it could be swapped out. Taylor was not sure whether the schedule provided was a master schedule.
  2. Taylor said for Stonebridge, Taylor would start scheduling about the middle of the month prior, so for January she started to do schedule around December 15. The December schedule would be done in November.
  3. Taylor confirmed that she scheduled Megan Smith for days in December without consulting the managers. She just asked Smith if she would be able to work. Smith worked four shifts in December 2016 and a certified employee named Terrance worked four shifts.
  4. Taylor confirmed that she made the April 2017 schedule in March 2017. By this point, Dureault had filled the full-time position but the part-time position had not yet been filled. Asked why in April there was no-one scheduled who was from the non-union side and what process she followed for April, Taylor said:

If you look in January, February, March, …I was asking others so often for help. I knew we had to look at a different way to schedule where there wouldn’t be so much impact on other branches. I spoke to Eileen and Joel and I would ask them if they wanted double time on the times they were off and we spoke about instead of them working a seven hour day, they will work the entire day, so there was not someone leaving at noon where I would ask for help. Both Eileen and Joel are working from 8:45 or 9 to 6 with the exception of two Fridays. Then I went to Megan to see if she was available because of her position and her ability to work at any branch. If Megan was not able to work, I would send an email to all managers with shifts I needed help with. In April, they sent me who could work and that is who I scheduled.

Those scheduled during April included:

  1. Elena, an FSR or MSR at that time from either Broadway or River Heights;
  2. Julie, an RBO at 8th Street;
  3. Winnie, an FSR at 8th Street
  4.   Kim, an RBO at 8th Street;
  5. Kristie, an MSR Broadway;
  6. Julie, an RBO at 8th Street;
  7. Lee, an RBO at 8th Street;
  8. Jenissa, an FSR at River Heights.
  1.   Taylor confirmed that she was prepared to offer overtime to workers at Stonebridge. For Stonebridge, Taylor would send an email to branch managers and put in the shifts she was looking to fill. She doesn’t recall whether the email referred to overtime or double time. Nobody got paid overtime other than the Associates who actually worked at Stonebridge. Taylor understood no other employee received overtime whether certified or not certified.
  2. When Taylor sent the requests to managers, she would schedule whoever was sent back to her. The managers sent who was available to work and she put them in the schedule. She was not made aware of all the people who would want any of the shifts.
  3. At the suggestion she was told to schedule out-of-scope employees, Taylor said:

When I would send the email to the branch managers asking for help on a day, they would reply with who they are able to send. That’s how I put them in the schedule. If an in-scope person would put in for double time, I would schedule an in scope person first if I was aware.

  1.   At the suggestion that her email appears to call for double and overtime for RBOs and FSRs only, Taylor said:

This does state at Stonebridge preference will be given to RBOs and FSRs.

  1.   Asked why she would not extend the overtime to all Union employees who could do the work, Taylor said:

The reason I would ask for an RBO is because RBOs can do all the current duties of an Associate. The FSR could not do all the duties of an Associate. An Investment Specialist could not do all the duties of an Associate, or the MSR. I know for a fact that FSRs cannot do consumer lending, MSR’s cannot do consumer lending and investment specialists cannot do consumer lending.

  1. Asked if she expects managers to communicate with employees, Taylor said she would expect that managers if they had capacity to help would give the email to their employees.

My process was I emailed the branch managers and told them shifts I needed help with. I can’t speak on their behalf. I would send to staff and see if they are available on days they are not working. On days they are already scheduled at my branch, it would be my decision on whether I could help out another branch.

  1.   Taylor confirmed that in this instance, she sent an email to all managers and she got no reply offering a Union person in the RBO position. The next process would be to go to the FSR if the manager said an FSR was available. If there was a Union and non-union person available, Taylor would pick the Union person.
  2. Taylor said she does not know whether the branch managers sent her request on to all employees.
  3. Taylor confirmed that the Saturday shifts at Stonebridge would have been double time or overtime depending on the employee and the Monday shift could be overtime or double time as well. The Tuesday to Friday shifts would never be double time or overtime unless someone was currently working a full shift somewhere else and then came over to Stonebridge for an hour or something.
  4. Taylor confirmed she offered the shifts to Joel and Eileen and then sent the email to all managers saying she needed help.
  5. Asked why she sent Hoffo to Aberdeen, Taylor said:

I honestly was looking after Aberdeen Stonebridge and Broadway. I knew in Aberdeen I would need help and he was a trainee MSR who was willing to go out there and it was an MSR position in Aberdeen he was filling.

  1. Taylor confirmed that she then filled Hoffo’s position with an out-of-scope employee Lauren who was an RBO. Her call for coverage at Stonebridge was for an RBO.
  2.  Taylor confirmed that she prepared the schedules and that there is no process for approval of the schedules before they are finalized.
  3. On questions from the panel, Taylor confirmed that her process was to first offer the shifts to Eileen and Joel, then ask Megan Smith if she was available and then go to the branch managers. She did not expect the Branch managers to create overtime situations in their own branches. The branch manager would decide who could come and for what dates. Taylor sent the email to the branch managers for all branches including certified and non-certified. If both certified and non-certified could help Taylor for the same day, she chose the certified employee to do the coverage. The RBOs were not offered any overtime because they are full-time employees.

It is the double time shifts on Monday or Saturday if they want to work double time. If somebody comes back and there isn’t someone who can work, I don’t go and talk to all the other employees to see if they were offered double or overtime. I leave that to the manager. The RBO is the first person I ask because they can do all the duties of the Associate.

Lolita Humm

  1. Lolita Humm testified:
  2. She has been with Affinity since 1989. She started work as a teller. She worked in the Contact Centre and in 1996 moved to management as a Personnel Manager responsible for scheduling, recruitment, payroll, and benefits. Her role then evolved to labour relations lead. Humm was on the negotiating committee for the CBA. When the testified, the parties were in negotiations again with no new agreement yet.
  3. During the last round of  bargaining, the Union proposed to amend Article 4.04 to remove some of the words so the clause just said the “Employer shall not permit any person excluded from the scope of Agreement to do work.” The Employer did not agree to this proposal.
  4. Article 13.01 of the CBA sets out that the basic work week is 36 hours and talks about employees not working more than five days in a week, with two consecutive days of rest. Article 13.02 deals with rest periods and 13.03 deals with lunch breaks. Article 13.04 deals with fixed schedules and guarantee hours positions. Six day branches can have a rotation. They can waive the two consecutive days off. Part-time employees can work a maximum of two Saturday/Monday combinations. This is different from full-time. It talks about branches that have a fixed schedule that includes Saturdays.
  5. Article 13.07 is scheduling. Regular hours are posted seven calendar days before the new schedule. There are at least four weeks in a schedule. There are five weeks in the schedule four times a year.
  6. Article 13.08 deals with part-time groupings. There were two groupings, one for Saskatoon and one for rural. Article 13.09 is specific to part-time employees. It talks about how they declare their availability once a year. They can change it once during the year. What that means is that they can say how many days they are available to work – two days, three days, four days.  Based on availability, they are scheduled in a branch first by position in accordance with seniority.
  7.   Article 13.09(d) deals with the situation where they haven’t met availability. This is the process used to fill part-time availability. The senior part-time employee can claim days from the more junior. There is a process there for that where there is excess of availability. When they don’t have availability met, if someone is available for five days and their days haven’t been met, they only have three days at their branch, they can pick up a shift at another branch, by seniority by position first. If their availability hasn’t been met, Affinity can also “mandatory you in and say you have to go and work.” That is under 13.09(g) and is done in reverse seniority order. If someone has to go to another branch, they get the $10, but they don’t get it if it is in the schedule.
  8. Article 13.09(h) talks about branch requests for part-time employees after commencement of the schedule. Article 13.10 was negotiated so Affinity is able to force employees to move to a different location. They go to the part-time pool schedule for requests looking for MSRs or FSRs. Management determines whether the request will be filled. They contact all branches within the grouping to see if they can assist. Then if the branch is able to provide assistance they ask for volunteers and if no one volunteers they can force someone to go to another location. In this case, they receive $8.
  9. Overtime is covered in Article 13.11. This is when an employee is not advised prior to leaving and is called back. They get paid three hours. It also deals with staying after regular hours. Double rate applies if the employee works on a day of rest. Employees can refuse overtime and double time.
  10.   Humm received the Stonebridge schedules for December 2016 to April 2017 from the manager and added colouring to show when certified and non-certified employees worked. In December, the employee Terrence was scheduled to work at the Broadway branch but he was moved to Stonebridge for the days shown in the schedule. Most of the employees were already scheduled to work and were just moved to a different location for the days shown in the schedule. The exception was some days in March when Affinity paid some double time. These included March 11, March 18, March 25 and April 1. Employees shown in the schedule as Brenda, Lisa, Megan, Shannon and Lauren did not receive overtime or double time. Union members Chris and Joel, who were Stonebridge staff, were paid overtime for the times they worked overtime. Humm is not sure whether the employee Janissa was paid double time because if she was scheduled at her own location for the Saturday that she worked, she would not get double time.
  11.   No member of the Union was replaced in the scheduling process. No member of the Union was not recalled

28. In cross-examination:

  1. Humm agreed that Article 13.09(g) deals with situations where part-time employees have not had their availability met. In these circumstances, Affinity goes through steps where they don’t ask the managers about availability, they ask the part-time employees if they want to volunteer. If the staffing requirements not met, then managers can reverse order mandatory the employees to work. The article says the Employer must do the reverse order scheduling for all part-time employees who have under 36 hours.

They would mandatory in your part-time for the shifts that were required, on the part-time schedule yes.

  1. When counsel suggested this is not what Taylor did at Stonebridge, Humm said that Taylor wasn’t dealing with a situation occurring after the schedule had commenced. She was dealing with scheduling in the first instance.

She followed the process for after the schedule is created. When she was creating the schedule, she doesn’t ask employees if they want to work the extra hours. She doesn’t reverse order seniority anybody. …

I don’t agree that that is not the proper process. This scheduling language talks about part-time employees. She testified she knew there wouldn’t be anyone available to help. She didn’t take steps.

  1. With respect to the person who hadn’t received the full 36 hours per week, Humm said that this person had been booked for five days a week, but she just wasn’t getting her hours in the week. The employee wasn’t able to volunteer for available shifts because she was already working five days a week. She would not have been able to just to go Stonebridge for one hour because she was missing one hour. She was a guaranteed hour employee. Payroll noticed that she had not been paid for 36 hours because she wasn’t consistently getting 36 hours a week, so they corrected that and paid the employee for the hours.
  2. Humm confirmed that she did not approve the Stonebridge schedule.
  3. With respect to positions at Stonebridge, Humm confirmed that Joel is an Associate, Eileen is an Associate, Chris was an MSR trainee, and Sarah Clark was an Associate. The Associate position was created for Stonebridge given the “small footprint that we had there and staffing needs”. The Associate, unlike the FSR, can do small lines of credit.
  4.   Humm re-confirmed that if Janissa didn’t receive overtime for the Saturday she worked it was because she was already scheduled to work a regular day on the Saturday at her own branch.
  5. Humm confirmed she was the chief negotiator for Affinity in the last bargaining. She believes Article 4.04 has been in the CBA since it first came into existence. Affinity has never agreed to change the language of Article 4.04. Asked if there were discussions at the negotiating table about what Article 4.04 means, Humm said there was no discussion or agreement at the table about the Union’s request for a change to the article and there was no discussion about the interpretation of Article 4.04.
  6. Asked if she knows how many fixed schedule and guaranteed hour positions there are in the union branches, Humm said she doesn’t do the scheduling, but she would guess maybe ten to fifteen, although she doesn’t know if that is right.

III.           Positions of Parties

  1. The Union submits:
  2. This is a “contracting in” case where Affinity has contracted in non-bargaining unit members to work alongside union members. The starting point for the analysis is the CBA and whether or not its terms expressly speak to the issue at hand.
  3. The Employer’s scheduling of bargaining unit work violated the CBA in several respects:
  4. It violated the scheduling provisions in Article 13.09;
  5. It violated Article 4.04 by having out-of-scope employees doing bargaining unit work; and

                              iii.   The scheduling procedure the Employer used violates the integrity of the                                                  bargaining unit.

  1. Article 4.04 is explicit that no out-of-scope employee is to do work to any extent that would replace a member of the Union. Here bargaining unit work was given to out-of-scope employees. They replaced workers that were off work and they replaced workers that would have been available to do the work or who would, by the terms of the CBA, have been scheduled to do the work in reverse order of seniority. Article 4.04 contemplates a violation for work to “any extent” that replaces Union members.
  2. The evidence establishes that proper procedures were not followed and the Union employees from branches other than Stonebridge were denied the opportunity to volunteer for additional work; and if no volunteers, bargaining unit employees would have done the work by forced reverse order scheduling. There is also evidence to establish that unionized employees were not scheduled according to their full availability.
  3. The Employer failed to adduce any evidence of past practice that out-of-scope employees ever did this bargaining unit work. The Employer’s evidence was to the contrary, that the out-of-scope employees who replaced workers at Stonebridge had never done such bargaining unit work at a unionized branch before the timeframe in question.  At least one part-time unionized employee, Maryum Mahdavifar, was denied employment because she was not scheduled for her full availability and was never approached to pick up hours available at Stonebridge.
  4.   The words in Article 4.04 are restrictive of management. The parties used the word “replace” which means, “to use in substitution for” rather than “displace” which means “to remove; to physically move out”.
  5. The Employer therefore acted improperly by assigning bargaining unit work to out-of-scope employees.
  6. If the board finds an ambiguity or absence of explicitness in the CBA, then the board must ask whether the Employer’s assignment of bargaining unit work to out-of-scope employees impaired or undermined the integrity of the bargaining unit. This is a contextual analysis and the board should look to several guiding principles in making its decision:
  7. A purposive approach to interpretation is preferred;
  8. Does the individual perform bargaining unit work to such an extent as to bring them within the bargaining unit?

                              iii.   When bargaining unit work is available, it should generally be assigned to a                                              member of the bargaining unit;

  1.                              The quantity and duties of work assigned are relevant including the frequency, volume and regularity of the performance of the work over a reasonable period of time;
  2.                                 The Employer must assign the work in good faith, and neither arbitrarily nor discriminatorily.
  3.   The board must look at the CBA language around seniority, job posting, movement within the branches and, in particular, the scheduling language which shows that the Employer has violated the terms of the CBA and has acted arbitrarily and in a way that seriously impacts the bargaining unit.
  4.   The Employer is obligated to fill the available shifts at Stonebridge at the time of scheduling as per Article 13.09 of the CBA. The Employer is obligated to fill the part-time employees whose availability has not been met, if all part-time people are scheduled fully according to their availability and there is still staff requirements, the Employer is obligated to go to the employees in the order set out in Article 13.09(g) and offer these employees the opportunity to work these additional hours if they are not otherwise scheduled. These steps require the Employer to reach out to the otherwise committed employees (fixed schedule and guaranteed hour) and to the rural group. The Employer did not take any of these steps.
  5. The Employer decided to unilaterally totally ignore the scheduling procedures. The Employer’s resort, in the first instance (as Lisa Taylor did in December 2016), or any instance, to using out-of-scope employees is not allowed. The out-of-scope employees are not part of the scheduling process in Article 13. The Employer cannot ignore the mandatory process and simply choose to fill with out-of-scope employees.
  6.   An aggravating factor is that the Employer goes so far as to move out-of-scope employees who are scheduled and working full-time from their positions – a process that is allowed in the CBA (although discretionary on the part of the Employer) for the unionized employees (i.e., full-time unionized employees who testified that they would have been willing to go over and work at Stonebridge – Marjorie Huard and Jaclyn Brears). The Employer did not offer this to unionized employees, but offered it to non-unionized employees.
  7. There are several clauses in the CBA that would have allowed the Employer to move full-time unionized employees who were already scheduled in other branches to Stonebridge. Article 10.01(c) reserves the right to the Employer to move employees when it is beneficial to operations. Article 10.04(a) speaks to when an employee is temporarily appointed to fill a position of one full day or more. Article 10.04(b) specifically speaks to the Employer’s ability to send unionized employees temporarily to the non-certified branches and the requirement to pay the employee a premium when they do. There is no language for the reverse situation of sending a non-union employee to a union site.
  8. There are two periods when staffing requirements are set: one when the schedule is being done and the other after the schedule has commenced and staff shortages come up. Article 13.10 contains the process to deal with immediate staff needs after the schedule has commenced. It requires the Employer to look first to the part-time pool and then to contact the branches within the groupings to see if employees can assist. Article 13.10 speaks to “employee volunteers”, not just part-time employees and again speaks to mandatory scheduling in reverse order of seniority. This is the process Lisa Taylor followed when she created the Stonebridge schedule and it is the wrong process. The second process only applies after the schedule has been commenced and it is meant to address staff shortages that occur after employees are scheduled, for instance when an employee is ill. The filling of these staffing needs does go to the branch managers unlike the earlier process that requires the individual employees be asked. The branch manager decides whether they can spare an employee and if they can but there are no volunteers, then the Employer is entitled to force an employee to do the work. A premium is paid as a result.
  9. The relevant provision of the CBA is expressly and sufficiently clear so as to indicate that the Employer acted in contravention of its meaning and/or spirit. In the alternative, the Employer’s assignment of bargaining unit work to out-of-scope employees impaired and undermined the integrity of the collective bargaining unit.
  10. The Union seeks:
  11. A declaration that the Employer acted improperly in assigning bargaining unit work to out-of-scope employees in the manner alleged;
  12. A cease and desist order that prevents the Employer from continuing to assign bargaining unit work to out-of-scope employees in the manner alleged; and

                              iii.   Compensation to be paid to the Union forthwith in the amount of the dues to which the Union would have been entitled should the Employer not have acted improperly in the manner alleged.

  1. In support of its arguments, the Union relies on the following authorities:
  2. Brown, D.J.M. & Beatty, D.M. (Eds.)(2006), Canadian Labour Arbitration, 4th ed. Toronto: Canada Law Book, 5:1400;
  3. Drug City – Orangeville (Kent Drugs Ltd.) v. R.W.D.S.U., Local 414, 1984 CarswellOnt 2415, 15 L.A.C. (3d) 368;
  4. Electric Reduction Co. of Canada Ltd. v. O.P.E.I.U., 1973 CarswellQue 244, 3 L.A.C. (2d) 87;
  5. Essar Steel Algoma Inc. v. U.S.W., Local 2251, 2012 CarswellOnt 1902, [2012] O.L.A.A. No. 59, 109 C.L.A.S. 239, 216 L.A.C. (4th) 14;
  6. U.S.W.A., Local 1817 v. Fittings Ltd., 1960 CarswellOnt 228, [1960] O.L.A.A. No. 3, 10 L.A.C. 294
  7. FortisBC Ltd. and IBEW, Local 213, Re, 2013 CarswellBC 3443, [2013] B.C.W.L.D. 9578;
  8. Grande Prairie General & Auxiliary Nursing Home District No. 14 v. U.N.A., Local 37, 1996 CarswellAlta 1170, 45 C.L.A.S. 48, 57 L.A.C. (4th) 173;
  9. Irwin Toy Ltd. v. U.S.W.A., 1982 CarswellOnt 2526, [1982] O.L.A.A. No. 2, 6 L.A.C. (3d) 328;
  10. Ivaco Rolling Mills v. U.S.W.A., Local 87941997 CarswellOnt 5651, 49 C.L.A.S. 385, 67 L.A.C. (4th) 66;
  11. Mitchnick, M.G., Etherington, B., & Bohuslawsky, B. (2002), Leading Cases on Labour Arbitration, 2nd ed. Toronto: Lancaster House (loose leaf);
  12. O.P.S.E.U. v. Municipal Property Assessment Corp., 2002 CarswellOnt 5474, 109 L.A.C. (4th) 385, 70 C.L.A.S. 155;
  13. North West Co. v. R.W.D.S.U., Local 468, 1996 CarswellMan 632, [1996] M.G.A.D. No. 61, 44 C.L.A.S. 534, 57 L.A.C. (4th) 158;
  14. F.F.A.W.-C.A.W. v. Ocean Choice International LP, 2011 CarswellNfld 403, 108 C.L.A.S. 234, 213 L.A.C. (4th) 58;
  15. Snyder, R.M., ed. Palmer & Snyder, Collective Agreement Arbitration in Canada, 6th ed., Markham, ON: LexisNexis Canada, 2013;
  16. 15930 Fraser Highway Ltd. and UFCW, Local 1518 (Roastery), Re, 2014 CarswellBC 3393, 247 L.A.C. (4th) 175;
  17. Merriam –Webster Dictionary – definition of “replace”.
  18. Merriam –Webster Dictionary – definition of “displace”.
  19. We will refer to these authorities to the extent necessary for this award.
  20. The Employer submits:
  21. The premise of placing non-certified employees into certified positions begins by drawing parallels to situations where an employer engages independent contractors in a unionized environment. Arbitrators have often treated the assignment of bargaining unit work to employees excluded from the scope of an agreement in the same way they treat subcontracting. In the absence of express language in a collective agreement to the contrary, employers are not fettered in their ability to assign work to employees who fall out-of-scope. That is not to say that an employer can schedule non-unionized employees into unionized positions arbitrarily. Such scheduling must be done in good faith, for valid business purposes, and in a manner that is not discriminatory or arbitrary. As part of management’s rights, an employer may contract out work to persons not in the bargaining unit unless the collective agreement specifically states otherwise.
  22. The CBA in this case does not limit Affinity’s ability to fill positions with non-certified employees. Affinity made the scheduling in good faith and for sound business reasons.  Clear language in the CBA is required to prohibit “contracting out”. Affinity was not “contracting out” per se because employees who were scheduled to work at Stonebridge were Affinity employees. However, the principle is the same; that is, that Affinity is well within its rights under the CBA to enter into contracts. No non-certified employee replaced a member of the Union or caused a Union member not to be recalled.
  23. The Union is bound by the Grievance which claims the Employer has non-Union staff working at the unionised locations. The Union’s case before the board claims issues with respect to scheduling. There is no evidence that anyone assigned to work at Stonebridge replaced a Union member or that Affinity failed to have someone recalled after layoff. Humm testified to this and she was not challenged. The CBA does not contain any provision that prohibits non-union staff from working in the bargaining unit. Article 13.09 is irrelevant to this case because Affinity was not scheduling part-time employees. There is also no evidence that the requirements for part-time employees exceeded their declared availability.
  24. In support of its arguments, the Employer relies on the following authorities:
  25. Cambrian College and OPSEU, Local 655 (Staffing Cambrian Programs), Re, 2015 CarswellOnt 15116, 124 C.L.A.S. 239, 262 L.A.C. (4th) 343;
  26. Ottawa Citizen and Ottawa Newspaper Guild, Re2014 CarswellOnt 17340, 121 C.L.A.S. 95, 248 L.A.C. (4th) 91;
  27. SKD Manufacturing Division v. C.A.W., Local 89, 1988 CarswellOnt 3852, 33 L.A.C. (3d) 381, 8 C.L.A.S. 67;
  28. Canadian Labour Arbitration, supra, 5:1340; 5:1310.
  29. We will refer to these authorities to the extent necessary for this award.
  1. The Collective Agreement
  2. Article 2 of the CBA defines the scope of the CBA. The CBA covers all Affinity’s employees (subject to a long list of exclusions) employed in Saskatoon, Warman, Langham, Borden, Waldheim, Martensville and Dalmeny except all employees at the St. Mary’s and City Centre Branches in Saskatoon. The parties refer to the St. Mary’s and City Branches as “non-union” or “non-certified” branches.
  3. Article 4.01 says:
4.01 The Employer recognizes the Union as the sole collective bargaining agency for the employees covered by this Agreement, and hereby consents and agrees to negotiate with the Union, or its designated bargaining representatives, on all matters relating to rates of pay, hours of work and other working conditions.
  1. Article 4.04 which is central to this dispute reads:
4.04 The Employer shall not permit any person excluded from the scope of this Agreement to do work to any extent that will either replace a member of the Union or cause such member not to be recalled in the event of layoff.
  1. Article 5 deals with management rights:
5.01 Subject to the provisions of this Agreement, it is the exclusive right and function of the Employer to manage and direct its operations and affairs in all respects, and without limiting or restricting this right and function:

(a)   To maintain order, discipline and efficiency, and to establish, set out and enforce reasonable rules and regulations to be observed by employees;

(b)   To hire, direct, promote, demote, transfer, discipline, suspend, and discharge employees, and to increase and decrease working forces, provided that a claim of discriminatory action in respect to the foregoing may become the subject of a grievance and be dealt with as hereinbefore provided.

5.02 The Employer agrees, that in exercising its management rights, it shall act in good faith and shall not evade, alter or encroach upon any of the specific provisions of this Agreement. The Employer will not, in exercising its rights under this Article or under any other provision of the Agreement, discriminate against any employee because of such employee’s activity in or for the Union.
  1. The CBA has provisions with respect to Union Security (Article 6), Dues Checkoff (Article 7) and Seniority (Article 9).
  2. Article 10 deals with Promotions, Vacancies and Transfers, including the following:
10.01 (a)   All vacancies and new positions within the scope of this Agreement shall be posted electronically on the employer’s internal website, and all employees shall be allowed four (4) consecutive working days (excluding Saturdays) in which to make written application for such vacancies or new positions.  …

(b)   …

(c)   Further to the above, the Employer reserves the right to move its work force when such moves are beneficial to the operations of the Employer, and are not against the will of the employee(s). No employee shall be discriminated against as a result of a refusal to accept such a move, and such refusal will not be considered in respect to future job opportunities.

(d)   …

10.04 (a)     When an employee is temporarily appointed by the Employer to fill a position, for one (1) full day or more, which is either in a classification paying a higher rate of pay, or in a classification similar to the employee’s present classification but at another branch, such employee shall receive the rate for the classification outlined in Appendix A of the job being filled, or an additional ten dollars ($10.00) per day, (whichever is greater).

(b)     When an employee is temporarily appointed by the Employer to fill a position, for one (1) full day or more, which is either in a classification paying a higher rate of pay, or in a classification similar to the employee’s present classification but at a non-certified location, such employee shall receive the rate for the classification outlined in Appendix A of the job being filled, or an additional eleven dollars ($11.00) per day, (whichever is greater).

(c)     If any employee is temporarily required to fill a position paying a lower rate of pay, the rate of pay shall not be reduced.

(d)     …

(e)     Positions can be filled temporarily for periods up to but not exceeding six (6) weeks, with up to one (1) additional month if the Union agrees. The Employer shall notify the Union of temporary appointments which exceed one (1) month.

10.08 (a)   The Employer will maintain as many full-time positions as possible; however, it is agreed that part-time employees will be required to supplement full-time staff. In no event shall a combination of part-time and/or casual employees fill a full-time position that can be filled by a full-time person, unless a full-time person is not available. No full-time employee shall be required to change to part-time employment status except through the exercise of seniority.

(b)   It is agreed that the Employer will not recruit from outside for additional part-time employees, unless the availability of employees as per Article 13 is insufficient to handle the work to be performed.

  1. Article 13 covers Hours of Work and Overtime. Relevant portions include:
13.01 Hours of Work

(a)   The basic work week shall be thirty-six (36) hours per week, not to exceed eight (8) hours per day and may be accomplished as an average over a four (4) week period. The scheduling of the employee’s work day within these hours will be done by the Employer; this includes such things as lunch periods, rest periods and special work sessions.

(b)   A week shall mean the period between midnight on a Saturday and midnight on the Saturday immediately following.

(c)   Employees shall not be required to work more than five (5) days in any one (1) week.

(d)   Employees shall be entitled to two (2) consecutive days of rest, one (1) of which shall be Sunday wherever possible. However, employees may waive their entitlement to two (2) consecutive days of rest by notifying the Employer of the waiver of entitlement or reinstatement of entitlement fifteen (15) days prior to January 1.  Employees may further notify the Employer of the waiver of entitlement or reinstatement of entitlement once per calendar year at their discretion. The employee must provide the Employer with fifteen (15) days notice of this change, prior to the next calendar month.

(e)   …

13.04 Fixed Schedules and Guaranteed Hour Positions

(a)   The Employer agrees that it may, through attrition or newly created positions, create up to twenty-eight (28) fixed schedule and guaranteed hour positions and up to eight (8) fixed Saturday and/or Saturday/Monday positions in the bargaining unit. Employees occupying these positions will not be able to claim days or have their days claimed in accordance with Article 13.09.

(b)   Job share positions…

13.07 Scheduling

(a)   Regular hours shall be scheduled and posted seven (7) calendar days prior to the new schedule starting. The Employer shall give an employee at least one (1) week’s notice of a change in the employee’s work schedule.

(b)   The schedule will be no less than four (4) weeks and all hours worked in excess of the regular hours shall be considered as overtime and paid for at the rate of one and one-half (1 ½) times the regular rate for the first three (3) hours and double time thereafter for any one (1) day. It is further agreed that an employee’s regularly scheduled hours will not be changed for the purpose of avoiding payment of overtime.

(c)   Part-time schedules may be amended not less than one (1) week in advance to include any additional hours required for branch operations, upon the approval of the employee involved. These additional hours will be interpreted to be regular hours provided they do not exceed the regular hours worked per day.

(d)   Employees shall not be scheduled for less than four (4) hours in any one (1) day.

13.08 Part-time Groupings

There will be two (2) groupings of part-time scheduling which will be separate and distinct for the purpose of scheduling hours, claiming and mandatory days.

(a)   Saskatoon Group will refer to all locations in Saskatoon that are within the scope of this agreement.

(b)   Rural Group will refer to Borden, Dalmeny, Martensville, Langham, Waldheim, and Warman.

Part-time employees are required to refer to their own home branch grouping for scheduling requirements.

13.09 Scheduling of Part-time

The scheduling of part-time employees will occur on the following basis:

(a)   Employees will submit a written declaration of availability, specifying the number of days per week that they are available to work. This submission shall be made fifteen (15) working days prior to January 1. Employees may further change their availability once per calendar year at their discretion. The employee must provide the Employer fifteen (15) working days notice of this change, prior to the next schedule going into effect. The minimum declared availability shall be one (1) day per week. There shall be no six (6) or (7) day declared availability.

(b)   For the purpose of part-time scheduling, Statutory Holidays(s) as listed in Article 14.01 shall not count as a day(s) towards the employee’s availability.

(c)   Based upon their declaration of availability, employees will be scheduled, within their branch and position, in accordance with seniority and as per Article 13.07.

(d)   Any unscheduled days of declared availability following the scheduling as per Article 13.09(c) shall be assigned to a central “pool” for each grouping as per Article 13.08. These “pool” days shall be scheduled, in accordance with seniority, at any branch within the respective grouping, when required for branch operations. Employees’ “pool” days shall be scheduled first within their own position. Remaining days of declared availability will be scheduled, as required by branch operations, by seniority, in other positions in which the employee has qualified in accordance with Article 10.03.

(e)   Employees may not restrict their availability by named day or branch, except for bona fide medical reasons pertaining to themselves, their spouse or their dependent children under the age of eighteen (18).

 

(f)     Claiming

For employees who have unscheduled day(s) of availability after Article 13.09(c) and Article 13.09(d) the employer will automatically claim the scheduled day(s) from the most junior employee(s) within their grouping in Article 13.08. This claiming shall occur within the employee’s position first, and second, within other positions in which the employee has previously qualified. Such claiming must occur prior to the commencement of the schedule. Claimed days may not exceed declared availability. Employees may volunteer for unscheduled day(s) of declared availability outside their grouping by advising their manager ten (10) working days prior to the next schedule going into effect.

(g)   Branch requests(s) that exceed declared availability during the scheduling process

Should Branch requirements for part-time employees exceed the declared availability of employees within the Branch and within central “pools” as per Article 13.09(d), employees shall be scheduled to satisfy these  requirements on the following basis:

1)     Ask employees from the branch requiring additional help in accordance with seniority, on a voluntary down basis within their position. Employees shall be entitled to refuse this additional work.

2)     Ask other part-time employees within their grouping as per Article 13.08, in accordance with seniority who are not scheduled, first within the position required, and second, within other positions in which the employee has previously qualified. Employees shall be entitled to refuse this additional work.

3)     Ask Student term employee(s), fixed schedule or guaranteed hour positions within their grouping as per Article 13.08, in accordance with seniority, first within the position required and second, within other positions in which the employee has previously qualified. Employees shall be entitled to refuse this additional work.

4)     Ask part-time employees outside their grouping as per Article 13.08, in accordance with seniority who are not scheduled, first within the position required and second, within other positions in which the employee has previously qualified. Employees shall be entitled to refuse this additional work.

If Branch requirements have not been met following the scheduling as per Article 13.09(g), employees shall be required to accept the additional work scheduled within their grouping as per Article 13.08, in a reverse seniority order, first within their position and second, within other positions in which they have qualified. If the scheduling in accordance with Article 13.09(g) requires an employee to work in a Branch other than their own, the employee will receive a premium of ten dollars ($10.00) per day or mileage according to the mileage policy (whichever is greater).

(h)   Branch request(s) after the commencement of the schedule

Once scheduling has been completed and additional scheduling is required following the commencement of a scheduling period, part-time employees will be offered additional hours on the following basis and in the following order within their grouping in Article 13.08:

(1)   Ask employees on the basis of seniority whose availability has not been met and is not already scheduled on the day the additional staffing is required, first within the position required and second, within other positions in which the employee has previously qualified. Employees shall be entitled to refuse this additional work.

(2)   Ask employees as outlined in Article 13.09(g) (1) to (4).

(i)     Employees shall receive the rate of pay for the position in which they are working.

13.10 Immediate Staff Coverage After The Commencement of The Schedule

In the event that there is an immediate requirement for staff at a location on any particular day after the schedule is in place, the following procedure shall be followed:

(1)   The Employer will review the part-time schedule for unscheduled staff within their grouping, in a similar position and from that grouping call in whomever is available by seniority. Management will determine whether or not to fill the request.

(2)   Contact all branches within the grouping as per Article 13.08 to inquire as to whether or not they are able to assist the branch where the shortage occurred.

(3)   If a branch or branches are able to accommodate the request, the staff in a similar position required to be filled will be asked and selected by seniority. If no employee(s) volunteer, then the most junior employee (within a similar position) working that day, who has passed their probationary period, shall be required to travel to the other branch within their grouping as per Article 13.08.

(4)   The Employee who fulfills the request will receive a premium of eight dollars ($8.00) per day or mileage according to the mileage policy (whichever is greater).

13.11 Overtime

(a)   An employee who is not advised prior to leaving work and is called back to work, or requested to perform work by management outside their scheduled hours and not continuous with regular working hours, either before or after, shall receive not less than three (3) hours work or three (3) hours pay at the applicable overtime rate.

(b)   When overtime is scheduled to be worked consecutively with the regular hours of work, the employee shall be entitled to a twenty (20) minute rest period before commencing overtime, provided such overtime shall be scheduled to be at least two (2) hours in duration. If, however, the majority of employees who are working overtime so request, they shall be allowed a lunch period not to exceed one (1) hour before commending overtime provided the overtime scheduled to be worked is two (2) hours or longer. Such lunch period shall be without pay. Lunch shall be supplied by the Employer.

(c)   Double the regular rate of pay shall be paid for all hours worked on an employee’s days or part days of rest.

(d)   All overtime in excess of one-half (1/2) hour per day shall be voluntary, except in cases where work cannot logically be carried over to the next working day. 

  1. The Issues
  2. The issues in this case are:
  3.   Did the Employer assign non-union staff to work at unionized locations in violation of Article 4.04 of the CBA?
  4.   If the Employer did violate Article 4.04, what is the appropriate remedy?
  1. Analysis

Onus and Standard of Proof

  1. The Union bears the onus of proving, on a balance or probabilities, that the Employer breached the Collective Agreement; however, this is only in terms of establishing the facts on which the breach is alleged. The standard of proof with respect to factual matters is balance of probabilities. Interpretation of the CBA is a matter of law.

Authorities  Cited by the Parties

  1. Both parties referred the board to authorities dealing with “contracting out” and “contracting in”. The Union refers to Palmer, at para 14.118:

The Ontario Court of Appeal has recently differentiated between contracting out and contracting in [Ontario Hydro Ltd. [2007] OJ 1424, para 36]:

“Contracting out” is said to involve a situation where an “integral function or a whole operation of the business of the employer is assigned to an independent contractor”; the work is often done off site and, where done at the same location as the bargaining unit employees, usually involves work of a different nature even though it is bargaining unit work; the independent contractor controls the work, and the employer has “effectively abdicated” the work to the outside contractor. “Contracting in”, on the other hand, involves a situation where non-bargaining unit personnel are brought into the workplace to work alongside bargaining unit employees, performing the same work as those employees under the same supervision and utilizing the same materials and equipment provided by the employer; the way in which the bargaining unit and non-bargaining unit employees work is “virtually indistinguishable”. [citations omitted] These and otherarbitral decisions all emphasize that contracting in is “inherently destructive of the bargaining relationship” and generally contrary to the obligations undertaken by the employer in a collective agreement.

  1. The Employer refers toCambrian College, supra, for the well-established principle of arbitral jurisprudence that as part of its management rights an employer may contract out work to persons not in the bargaining unit unless the collective agreement specifically states otherwise.
  2. The Employer points us to Brown & Beatty at 5:1340:

Arbitrators have further circumscribed the employer’s right to contract out certain work by requiring that it be done in good faith and for sound business reasons. However, if the employer’s actions meet this implied requirement of good faith, in the absence of specific language in the agreement to the contrary, subcontracting or franchising will be upheld even to the extent of wholly displacing the bargaining unit. Indeed, even where the agreement expressly limits the ability of an employer to contract out, this may not apply to emergency situations where bargaining unit employees are unavailable to do the work. As well, where there is a change in the business arrangement as, for example, where a retailer has refused to continue purchasing products directly from an employer, this arrangement may not be viewed as an instance of contracting out, nor will it where the disputed practice involves a commercial agreement for the sale of an asset. [footnotes omitted]

  1. And also at 5:1310:

A determination that certain tasks fall within the class of work normally performed by bargaining unit employees does not imply that the employees have a proprietary right to that work. To the contrary, in the absence of specific language in the collective agreement providing otherwise, it is now universally accepted that bargaining unit work may be subcontracted to non-employees, as long as the subcontracting is genuine and not done in bad faith. Whatever the view may have been in the earlier awards, it is now settled that to prohibit subcontracting, the agreement must expressly so provide. As one arbitrator has said:

The wide notoriety given to labour’s protests against this practice, the almost equally wide notoriety, especially amongst experienced labour and management representatives, of the overwhelming trend of decisions, must mean that there was known to these parties at the time they negotiated the collective agreement the strong probability that an arbitrator would not find any implicit limitation on management’s right to contract out. It was one thing to imply such a limitation in the early years of this controversy when one could not speak with any clear certainty about the expectations of the parties; then, one might impose upon them the objective implications of the language of the agreement. It is quite another thing to attribute intentions and undertakings to them today, when they are aware, as a practical matter, of the need to specifically prohibit contracting out if they are to persuade an arbitrator of their intention to do so.

Indeed, against that arbitral presumption, even a provision that “the company will not permit any person not covered by this agreement to do any tasks or duties covered under this agreement” has been held to be too ambiguous to restrict contracting out, in that it is generally assumed that the word “person” is intended to refer to non-bargaining unit employees such as forepersons. However, another arbitrator has held that a letter of understanding stipulating that it was the “policy” of the employer not to contract out was tantamount to a mutual agreement not to do so.

In any event, where the agreement limits the circumstances in which contracting out is permitted, questions can arise as to the meaning of such a provision including whether in fact there was contracting out or whether the requisite conditions to do so exist. Thus, for example, where the limit was expressed in terms of whether it was “practicable”, evidence was required of the differential cost advantages of contracting the work out. Where the agreement contained an exemption for “ad hoc use of agency or registered nurses for single shift coverage of vacancies due to illness, or leaves of absence”, such a provision has been held to bar the creation of a “parallel contingent workforce”. As well, an arbitrator may be required to determine if such contracting was “necessary”. Furthermore, it will be necessary to establish the causal connection where contracting is prohibited only when it would lead to a layoff. However, where there is an express prohibition against contracting out if layoffs would result, a massive change in the technology of performing bargaining unit work will not justify such layoffs. As well, even a two- to three-year delay in contracting out following an intra-corporate transfer of work may still be found to violate the collective agreement’s prohibition on contracting out of production work. [footnotes omitted]

  1. These authorities are only helpful to the extent they outline general principles in cases where an employer has contracted out work or has used non-union employees in the workplace, described by Palmer as contracting in. The general principle is that every employer is entitled to manage its workforce as it sees fit subject only to any restrictions found in the collective agreement.
  2. This case can be described as a contracting in case. We must therefore look to the CBA to see whether the CBA in some way prohibits the Employer from using non-union employees in the manner in which the Employer did so in this case.

 

Did the Employer assign non-union staff to work at unionized locations in violation of Article 4.04 of the CBA?

  1. The Grievance claims that, in violation of the CBA and/or any other applicable legislation, the Employer has non-union staff working at unionized locations. The Employer did not seek particulars with respect to the Union’s claim. The Union’s overall claim in this hearing is that the Employer violated Articles 4.04 and 13.09 of the CBA when the Employer scheduled non-union employees to work at the unionized Stonebridge branch in December 2016 and January, February and March 2017.
  2. Unless the CBA restricts the Employer in some way, the Employer has the right to manage and direct its operations in all respects. That includes the Employer’s right to decide how it will schedule its employees for work.
  3. The Union witness Figueredo and the Employer witness Humm each gave their personal views about how Article 13 of the CBA works with respect to scheduling, but it is this board’s responsibility to interpret and apply the CBA based on the words the parties used in the CBA.
  4. Article 13.07 requires the Employer to schedule and post regular hours seven days in advance of the start of each new schedule. The article sets out some requirements the Employer must follow which are largely irrelevant to this case. It also says employees shall not be scheduled for less than four hours in any one day. Article 10.01(c) reserves the right to the Employer to move its work force when such moves are beneficial to the operations of the Employer and are not against the will of the employee. Article 10.04 contemplates temporary transfers. These can be for more or less than one day, but if for one day or more, there are consequences under Article 10.04. There is nothing in the CBA that restricts the Employer from transferring employees, with their consent, to cover business needs in another branch. The Employer is entitled to transfer employees as it sees fit and must only notify the Union of temporary appointments that exceed one month (Article 10.04(e)).
  5. Stonebridge is a small Affinity branch that is open six days a week, closed on Sundays. From the schedules provided, the Employer ordinarily schedules two people to work each day while during some short periods there is only one person working. The usual staff complement at Stonebridge appears to be two full-time staff plus one part-time staff guaranteed to work Mondays and Saturdays and two other days of the week.
  6. Affinity terminated the employment of one of the full-time staff, Sarah Clark, on November 21, 2016, leaving a staff shortage at Stonebridge. Affinity advertised for this position and the successful candidate, Eileen Dureault, started work on January 11, 2017. The part-time employee, Chris Hoffo, an MSR trainee, left Stonebridge at the end of January 2017. Affinity advertised for this position, but had difficulty filling the position.
  7. To deal with the staffing shortage at Stonebridge, Manager Lisa Taylor canvassed other branch managers to see if they were in a position to spare any employees to come to work shifts at Stonebridge. In any case where a branch manager could spare an employee and the employee was willing to fill in at Stonebridge, Taylor scheduled that employee to work a shift or shifts at Stonebridge. Some of the employees were from unionized branches and some were from non-union branches.
  8. Leaving aside for the moment the question of whether the Employer ran afoul of the CBA by scheduling non-union employees to work at Stonebridge, we see nothing in the CBA to restrict the Employer, as part of the scheduling process, from in the first instance filling shifts at any of its branches with employees from other unionized branches. In effect, the Employer is temporarily transferring the employee from one branch to another with the employee’s consent. Moving employees around to meet business needs is something the Employer is entitled to do as part of the scheduling processbefore the Employer determines whether there are requests for employees that exceed the declared availability of part-time employees and Article 13.09(g) is triggered.
  9. We have therefore concluded that the Employer’s general approach to scheduling by looking at possible transfers to cover required shifts before going to Article 13.09 does not violate Article 13 of the CBA.
  10. The Union made other arguments suggesting violations of Article 13.09, but we decline to address those. Even if the way in which Lisa Taylor and Affinity management went about scheduling at Stonebridge violated Article 13 in other respects not related to the use of non-union employees, the Union did not grieve those alleged breaches. The only issue before us is whether the Employer breached the CBA by reaching out to and scheduling non-union employees to cover shifts at Stonebridge. That involves interpretation of Article 4.04 which we will repeat here for ease of reference:
4.04 The Employer shall not permit any person excluded from the scope of this Agreement to do work to any extent that will either replace a member of the Union or cause such member not to be recalled in the event of layoff.
  1. There is no question the employees from the non-union branches who worked at Stonebridge branch during the four months in question are “persons excluded from the scope of” the CBA. The question is whether these persons were permitted to “do work to any extent” that replaced a member of the Union.
  2. Without going into detail with respect to the Union’s arguments with respect to the integrity of the bargaining unit, the board is satisfied that, looking at the CBA as a whole, the parties intended Article 4.04 to ensure that the Employer would not assign bargaining unit work to out-of-scope employees in the two circumstances outlined in Article 4.04.
  3. The Union points out that the words “to any extent” were considered inDrug City, supra, in the context of a contracting out case where the following appeared in the collective agreement:

The Company shall not contract out work normally performed by members of the bargaining unit to any extent where as a direct result of the performance of such work bargaining unit members are denied employment.

  1. The board in that case found (at para 11) that by using the words “to any extent” the parties were concerned about any amount of sub-contracting, not just sub-contracting that would cause (in that case) part-time employees to become redundant.
  2. The Union points out that the word “replace” is defined as “in substitution for” and that in its plain and ordinary meaning the Employer replaced a Union member’s shift with a non-union employee.
  3. In the case at Stonebridge, the work to be done at Stonebridge was bargaining unit work that would normally have been done by bargaining unit employees. For some of the shifts, out-of-scope employees were used to staff those in-scope positions. If out-of-scope employees had not been used, then Affinity would have had to follow the processes in the CBA, and in particular Article 13.09, to schedule bargaining unit employees to work those shifts, ultimately requiring in scope employees to work those shifts in reverse order of seniority if necessary. In effect, then, the non-union employees replaced members of the Union when they were scheduled to work at Stonebridge.
  4. The Employer suggests that since there was no incumbent in the position being staffed, there was no Union member to be replaced. Had the Employer not used the non-union employees, however, there would have been a Union member working those shifts. In that sense, there is no question the Union member was replaced. To suggest otherwise would mean that the Employer could avoid using Union employees by not filling bargaining unit positions and then filling the resulting vacant shifts with non-union employees. This cannot be what the parties intended.
  5. We have concluded that unless the Employer exhausts all the steps in Article 13.09 and there was still no qualified bargaining unit employee available to work, the Employer cannot place an out-of-scope employee in a bargaining unit position. To do so the Employer will be replacing a member of the Union in violation of Article 4.04. To be clear, if during the scheduling process the Employer has shifts to fill in a unionized branch:
  6. In the first instance, there is nothing in the CBA to prevent the Employer from first filling shifts at any of its branches with employees from other unionized branches. This can be done before the Employer determines whether there are requests for employees that exceed the declared availability of part-time employees;
  7. If, after the Employer has exhausted possibilities to fill shifts with employees from other unionized branches, there are still shifts that need to be filled, the Employer must then follow the process under Article 13.09 to attempt to fill those shifts with qualified unionized employees.
  8. If, after exhausting all the steps in Article 13.09, the Employer still has shifts to fill and there are no unionized employees available to fill those shifts, the Employer is entitled to fill those shifts with non-union employees.

If the Employer did violate Article 4.04, what is the appropriate remedy?

  1. The Union seeks three things by way of remedy:
  2. A declaration that the Employer acted improperly in assigning bargaining unit work to out-of-scope employees in the manner alleged;
  3. A cease and desist order that prevents the Employer from continuing to assign bargaining unit work to out-of-scope employees in the manner alleged; and
  4. Compensation to be paid to the Union forthwith in the amount of the dues to which the Union would have been entitled should the Employer not have acted improperly in the manner alleged.
  5. The board is prepared to provide the parties with the following declaration:

The Employer breached Article 4.04 of the CBA when, in December 2016 and January, February and March of 2017, the Employer permitted persons excluded from the scope of the CBA to do work at its Stonebridge branch that replaced members of the Union.

  1. Ordinarily a cease and desist order, if indeed this board would have the power to make one, would be reserved for situations where a party is engaging in a continuing breach of the collective agreement. There is no evidence before us that what occurred at Stonebridge branch is something the Employer had done previously or has done since. Indeed, the only evidence before us is that after the Union filed the Grievance in March of 2017, the Stonebridge schedule for April 2017 and following did not include any non-union employees. We are also satisfied that,  in filling the shifts at the Stonebridge branch the way they did, the Employer’s management personnel were not setting out to undermine the Union, but rather were somewhat struggling in their efforts to make sure they had the necessary coverage because of the staff shortages at that branch. Unfortunately in doing so, they ran afoul of the CBA. In these circumstances, it would not be appropriate for this board to order the Employer to cease and desist doing something the Employer is not doing.
  2. With respect to Union dues to which the Union might have been entitled but for the breach, the Union has provided no evidence to establish this loss. The board does not know whether, had the Employer scheduled only Union employees at Stonebridge, those employees would nevertheless have been persons transferred from other branches.
  3. The Union says there is evidence that at least one part-time Union employee was denied employment because of what the Employer did. Maryum Mahdavifar testified that she was guaranteed 36 hours a week which was made up of part-time jobs at each of two branches. For some reason, the Employer had not been scheduling Mahdavifar to work the full 36 hours she was guaranteed. As a result, the Employer paid Mahdavifar for the hours she wasn’t scheduled. Mahdavifar acknowledged that while she hadn’t been scheduled for the full 36 hours, she was scheduled to work five days each week and that the shortage of hours was quite small. In accordance with Article 13.07(d), the Employer cannot schedule anyone for less than four hours in a day. The Union has therefore not established that the Employer’s method of scheduling at Stonebridge denied Mahdavifar any shifts because she could not have taken any shifts in the first place.
  4. Otherwise, without evidence of the specific number of shifts, the amount of the Union dues that would have been paid and the basis for them, it is not possible for us to determine what amounts, if any, the Union may have lost for Union dues. We therefore decline to make any order for payment of Union dues.

VII.  Conclusion

  1. In conclusion the board allows the Grievance in part and we hereby declare that:

The Employer breached Article 4.04 of the CBA when, in December 2016 and January, February and March of 2017, the Employer permitted persons excluded from the scope of the CBA to do work at its Stonebridge branch that replaced members of the Union.

 

Dated March 28, 2019.

A v B [2019] EWHC 275 (Comm)

Neutral Citation Number: [2019] EWHC 275 (Comm)
Case No: CL-2017-000792

IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS
OF ENGLAND AND WALES
COMMERCIAL COURT (QBD)

Royal Courts of Justice, Rolls Building
Fetter Lane, London, EC4A 1NL
15/02/2019

B e f o r e :

MRS JUSTICE MOULDER
____________________

Between:

A

Claimant
– and –

 
B
Defendant

____________________

Mr N Tse and Mr R Thukral (instructed by Brown Rudnick LLP) for the Claimant
Mr R Diwan QC (instructed by Reynolds Porter Chamberlain) for the Defendant
Hearing date: 25 January 2019 

____________________

HTML VERSION OF JUDGMENT
____________________

Crown Copyright ©

Mrs Justice Moulder :

    1. This is the judgment of the court on the defendant’s application dated 26 November 2018 by which it sought an order to declare inadmissible certain paragraphs of the expert report dated 28 September 2018 of Professor Gaillard and paragraph 17 of the joint expert report dated 14 January 2019.
    2. In support of its application the defendant relies on the fourth witness statement of Mr Jeremy James Drew dated 26 November 2018.
    3. In response the claimant has filed the third witness statement of Mr Ravinder Kumar Thukral dated 10 December 2018.
    4. On 25 January 2019 the court dismissed the claimant’s application dated 25 October 2018, seeking responses to its requests for clarification from the defendant’s expert, M. Honlet. The reasons were set out in the court’s judgment delivered on 25 January 2019.
    5. The application arises within proceedings before the English Court concerning the defendant’s challenge to the claimant’s claim for recognition and enforcement of an arbitral award dated 11 September 2017 (ICC 20958). By that award the claimant was awarded damages for alleged breach of a franchise development agreement, the “FDA”, dated 16 July 2001. Clause 14 of the FDA contains an arbitration clause including provision for the arbitration to conducted in Paris. Clause 15 of the FDA provided for the agreement to be governed by English law.
    6. The Tribunal concluded that the defendant, KFG, became an additional party to the FDA by novation, and became a party to the arbitration agreement by French law principles, principally the performance of the FDA. KFG now resists recognition and enforcement of the award in the English proceedings brought by the claimant under s.103 of the Arbitration Act 1996 which enacts enacting Art.5(1)(a) of the New York Convention.
    7. KFG’s case is that the law that governs whether KFG became a party to the arbitration agreement is the law governing the transfer of the FDA, and even if this is not the case the validity of the arbitration agreement is governed by English law.
    8. The claimant says that the law governing the transfer of the arbitration agreement is the law governing the validity of the arbitration agreement and French law applies.
    9. KFG has also brought French annulment proceedings pursuant to Art.1520 of the French Civil Code, and the claimant has sought, by an application in March 2018, for an adjournment of the English proceedings under S103 before the English Courts pending the outcome of the French proceedings seeking annulment.
    10. At a CMC Teare J made an order dated 15 June 2018. He directed a hearing to deal firstly with the claimant’s application for an adjournment and security, and secondly to try certain identified preliminary issues in respect of the s.103 challenge. That hearing has now been fixed for March 2019.
    11. Pursuant to Art.5(1)(a) of the New York Convention as enacted in s.103(2) it is provided that recognition or enforcement of an award may be refused if the party is under an incapacity or the arbitration agreement is not valid under the law to which the parties subjected it or the law of the country where the award was made.
    12. In summary on this application counsel for the defendant submitted that:

i) the sections of the report which deal with questions of construction or the application of the law to the facts are inadmissible;ii) the section which deals with Article 5 of the New York Convention cuts across arguments that the defendant will make at the March hearing;

iii) the authority of Rogers v Hoyle [2014] EWCA Civ 257 is to be distinguished.

    1. In Rogers v Hoyle the claimants, who were the executors of the deceased’s will, brought a claim in negligence against the pilot of a bi-plane in which the deceased had been a passenger, alleging that he had lost control of the plane while executing an aerobatic loop for which he had insufficient training and experience. The claimants gave notice of their intention to rely on a report produced by the Department of Transport’s Air Accident Investigation Branch (“AAIB”). The defendant applied (i) for a declaration that the report was inadmissible because of the rule that the findings of courts, other tribunals and inquiries were inadmissible in subsequent proceedings and it was wrong to allow expert opinion evidence which did not comply with the provisions of CPR Pt 35.1 , or (ii) alternatively, for the court to exercise its discretion to exclude the report from evidence pursuant to CPR r 32.1(2) . The judge refused the application, holding that the whole AAIB report was admissible as evidence in the proceedings, with it being a matter for the trial judge to make use of the report as he thought fit.
    2. On appeal the appeal was dismissed: the Court of Appeal distinguished Hollington v F Hewthorn & Co Ltd [1943] KB 587 and held that the rule that the findings of courts, tribunals and inquiries were inadmissible in subsequent proceedings did not apply to the AAIB report. The report contained various statements of opinion on causation of the accident and Christopher Clarke LJ giving the judgment of the court, with which the other judges agreed, stated that the AAIB appeared to be a body with the requisite special expertise to express an opinion based on the facts as it understood, or assumed, them to be.
    3. He said in this context:

“53. In so far as an expert’s report does no more than opine on facts which require no expertise of his to evaluate, it is inadmissible and should be given no weight on that account. But, as the judge also observed, there is nothing to be gained, except in very clear cases, from excluding or excising opinions in this category. I agree with what he said in para 117 of his judgment:

“Such an exercise is unnecessary and disproportionate especially when such statements are intertwined with others which reflect genuine expertise and there is no clear dividing line between them. In such circumstances, the proper course is for the whole document to be before the court and for the judge at trial to take account of the report only to the extent that it reflects expertise and to disregard it in so far as it does not. As Thomas LJ trenchantly observed in Secretary of State for Business Enterprise and Regulatory Reform v Aaron [2009] Bus LR 809 , para 39: ‘It is my experience that many experts report views on matters on which it is for the court to make its decision and not for an expert to express a view. No modern or sensible management of a case requires putting the parties to the expense of excision; a judge simply ignores that which is inadmissible’.

54. The judge concluded that the whole of the report was admissible, it being a matter for the trial judge to make use of the report as he or she thought fit. Even if he had concluded that it contained some inadmissible material he would not have thought it sensible to engage in an editing exercise. The trial judge should see the whole report and leave out of account any part of it that was inadmissible.

55. Subject to the second and third grounds of appeal, I agree with this conclusion. It is not apparent to me that any part of the report should be regarded as simply expressing an opinion on matters of fact (as opposed to recording evidence) in relation to which the expertise of the AAIB has no relevance. But even if any part of the report was (or proves on close analysis hereafter) to have that character, the correct approach is as outlined by the judge.”

    1. In Moylett v Geldof [2018] EWHC 893 (Ch) Carr J dealt with the admissibility of parts of the claimant’s expert report and the objection that the report went beyond what was permissible for an expert by expressing an opinion on the ultimate question in the proceedings. Carr J, having cited paras 52-55 of the judgment of Christopher Clarke LJ in Rogers v Hoyle said at [4]:

“The ultimate message from that decision is that it is much preferable for the court, rather than picking through expert reports, seeking to excise individual sentences and engaging in an editing exercise, to allow the trial judge to consider the report in its entirety, assuming that it is genuine expert evidence, and to attach such weight as it sees fit at the trial to those passages in the report.”

    1. It was submitted for the defendant that it is incorrect to rely on these authorities for the following reasons:

i) The evidence of Professor Gaillard is prejudicial;ii) There is no room for doubt in this case as to admissibility and this stems from the instructions given;

iii) Rogers v Hoyle was concerned with an expert report which was outside CPR 35 and was concerned with the rule in Hollington;

iv) The decision in Rogers v Hoyle made sense because the report was addressing causation not foreign law and it was pragmatic to allow the physical report from an independent organisation rather than remove parts of it;

v) In Rogers v Hoyle the AAIB report was admissible and the application therefore was to exclude it and thus it was a completely different situation.

Discussion

    1. I shall deal first with the submission for the defendant that Rogers v Hoyle was concerned with an expert report which was outside CPR 35 and was concerned with the rule in Hollington.
    2. It seems to me clear from the passages cited above that the principle to be derived from Rogers v Hoyle is not limited to consideration of the rule in Hollington but clearly stated that there is nothing to be gained, except in very clear cases, from excluding or excising opinions where the expert’s report opines on inadmissible matters; such an exercise is unnecessary and disproportionate.
    3. As is also clear in my view from the judgment, the proper course is for the whole document to be before the court and for the judge at trial to take account of the report only to the extent that it reflects expertise and to disregard it in so far as it does not.
    4. I see no reason to limit the ambit of the principle in Rogers v Hoyle to expert reports which fall outside CPR35 and no basis in the judgment to draw such a distinction in this regard. As acknowledged in Rogers v Hoyle an expert report under CPR 35 is just dealing with a particular category of expert reports. It was submitted that the point concerning the scope of the principle in Rogers v Hoyle was not argued before Carr J but for the reasons just given, in my view Carr J was correct to regard the decision of the Court of Appeal as of wider application.
    5. I was referred to Hollander on Documentary Evidence (13th Ed.) at 31-09:

“Hoyle is an important commonsense judgment, sweeping away historic and unnecessary restrictions on admissibility and treating all matters as going to weight and for the trial judge to evaluate.”

    1. For the defendant it was submitted that this observation should be read as referring to the rule in Hollington. In my view the sentence is of wider application. The context of the statement in 31-09 is that Hollander refers in 31.08 to the argument advanced in Hoyle that the CPR 35 was an exclusive code for the admission of expert evidence at trial and the finding of Christopher Clarke LJ that the AAIB report did not fall within CPR Pt 35 but that CPR Pt 35 was not an exclusive code regulating the admission of expert evidence. In my view therefore the view expressed in Hollander at 31-09 was not referring to the rule in Hollington and provides support for this court’s conclusion on the correct approach to be taken to the defendant’s application in the light of Hoyle.
    2. It was also submitted for the defendant that the AAIB report was admissible and the application therefore before the court in Rogers v Hoyle was to exclude the report and thus it was a completely different situation from the present one.
    3. In my view it is clear from paragraphs 54 and 55 of the judgment in Hoyle that this is not a valid distinction to draw:

“…Even if he had concluded that it contained some inadmissible material he would not have thought it sensible to engage in an editing exercise. The trial judge should see the whole report and leave out of account any part of it that was inadmissible.

“…even if any part of the report was (or proves on close analysis hereafter) to [be simply expressing an opinion on matters of fact], the correct approach is as outlined by the judge.”

    1. Counsel for the defendant submitted that in this case there is no room for doubt as to admissibility and this stems from the instructions given. Counsel for the defendant submitted that certain sections of the report (paras 44-49, 55 and 56) are pure application of the law to the facts and therefore inadmissible; further that the analysis of the facts is incorrect in relation to certain payments made by the defendant as demonstrated by the evidence of Mr Drew in his second witness statement.
    2. Although the dicta of Christopher Clarke LJ appear to leave open the possibility of excising inadmissible evidence in a clear case, the court has to weigh whether this is in fact the correct course, even to those sections of the report which the defendant says are clearly inadmissible. I concur with the conclusion of Carr J in Geldof at [4] that the “ultimate message” from Rogers v Hoyle is that it is much preferable for the court, rather than picking through expert reports, seeking to excise individual sentences and engaging in an editing exercise, to allow the trial judge to consider the report in its entirety. I accept that Carr J did in Geldof determine the question of admissibility insofar as it related to the reliance by the expert on the opinions of two musicians, however as to the “ultimate conclusion” of the expert, namely whether it was more likely that the first defendant or the claimant composed the relevant music, Carr J stated at [8]:

“…it might have been preferable if he had said that his conclusions were based on whether a pianist or guitarist composed the music. However, I do not think that it is appropriate or necessary for me at this stage, or at all, to exclude this evidence. It is Mr Protheroe’s opinion, no doubt sincerely held, and it seems to me appropriate that he should express himself as he wishes to do so. What weight is to be attached to it, as I have said, is a matter for the trial..”

    1. In my view in the circumstances of this case the defendant has not established any real prejudice to the defendant which would result from the reports going in their entirety to the judge at the March hearing. The defendant seeks an order requiring Professor Gaillard to reissue his report with the relevant paragraphs removed. This would be contrary to the approach stated in Rogers v Hoyle that no modern or sensible management of a case requires putting the parties to the expense of excision; a judge simply ignores that which is inadmissible.
    2. Further this is a case where the experts have produced a joint report which addresses the individual reports and in which M. Honlet has stated his position in response to the opinions expressed by Professor Gaillard. For example, to the conclusion of Professor Gaillard at para 49 of his report, M. Honlet states in the joint report that this cannot be reached without a complete understanding of the facts and M Honlet further states this is a question of the application of the law to the facts.
    3. Whilst therefore the defendant seeks to remove certain passages of the joint report in which M. Honlet makes these observations (paras 22, 27, 28 and 29) as a consequence of its application to remove paragraphs from the underlying report of Professor Gaillard, it seems to me that the experts have been able to produce a joint report and the more appropriate course is to allow the joint report to stand in its entirety and allow the court at the March hearing to consider the expert reports including the joint report. Given the fact that these areas are addressed expressly by M Honlet in the joint report is difficult to see any real prejudice which would arise from this course and why the experts should be put to the time and expense of reissuing the joint report.
    4. Insofar as there are matters in the report of Professor Gaillard which the claimant submits have a bearing on the determination of the adjournment application, the judge at the March hearing will have the advantage of being addressed on the merits of the application for the adjournment in its entirety. It seems to me unnecessary and undesirable for this court to pre-empt that decision in any way by considering the submissions on behalf of the claimant as to the absence of direct authority as a matter of French law on the position under French law and thus the relevance of the evidence of Professor Gaillard in this regard.
    5. It was submitted for the defendant that as in Geldof, having heard the submissions on admissibility, this court should rule on the question. To the extent that any argument is advanced on wasted costs if the matter is not determined now, it seems to me that the defendant chose to bring its application, it was opposed by the claimant on the basis that it was premature and contrary to the authorities and the defendant nevertheless chose to pursue the application. In any event as noted above it is open to the defendant to deploy the same arguments at the March hearing as it has made before this court so any work in preparation for the hearing of the application will not be lost. Further on the question of costs any order to excise sections of the report would itself have costs as the defendant’s application would, if granted, require both the report and the joint report to be amended and the defendant has not shown why such costs need to be incurred.
    6. Finally as to the submission on behalf of the defendant that the evidence of Professor Gaillard is prejudicial. It was submitted for the defendant that the opinions expressed by Professor Gaillard in relation to the interpretation of Article V of the New York Convention (paras 18-24 of his report) cut across the submissions that counsel would intend to make at the March hearing, in particular whether there can be said to be an implied choice of law. Counsel for the defendant submitted that the report of Professor Gaillard was a prejudicial opinion from a jurist known in the area which was being used in an inadmissible and prejudicial way to try and support the other side’s case.
    7. However in my view, even if the relevant passages are not excised from the report, the defendant is not precluded from advancing its submissions in March and to the extent counsel is successful in persuading the judge at that hearing that the opinions of Professor Gaillard in this regard are inadmissible, that judge is well able to disregard such opinions in reaching his conclusion. To infer that the defendant is prejudiced by the inclusion of these particular opinions would be to infer that the judge at the March hearing was unable to put such opinions on one side and disregard them if in fact they are held to be inadmissible. There is no basis for this court to conclude that a judge in the Commercial Court cannot form a view on the evidence, having heard submissions and in so doing, disregard inadmissible evidence.

Conclusion

  1. For all these reasons therefore the defendant’s application is dismissed.

Ironwood Developments Ltd. v Great Pacific Industries Inc., 2019 BCSC 482

IN THE SUPREME COURT OF BRITISH COLUMBIA

IRONWOOD DEVELOPMENTS LTD.
(Petitioner)

V

GREAT PACIFIC INDUSTRIES INC.
(Respondent)

Introduction

[1]           The petitioner, Ironwood Developments Ltd. (“Ironwood”), applies for leave to appeal the arbitration award of Gary Snarch (“arbitrator”) dated December 13, 2018. The petitioner also seeks an order granting the appeal and amending the award.

[2]           The respondent is Great Pacific Industries Inc., now Save-On-Foods Limited Partnership (“Save-On-Foods”). Ironwood leases a commercial property in the shopping plaza it owns to Save-On-Foods.

[3]           The commercial lease between the parties expired in July 2018. A dispute arose regarding its renewal. The parties could not agree upon the minimum rent payable by Save-On-Foods to Ironwood and entered into an arbitration agreement to settle the issue. In making his decision, the arbitrator had to consider a comparable property lease to determine the Net Effective Rental (“NER”) rate.

[4]           The petitioner says that the arbitrator erred by failing to consider the specific terms of the comparable property’s lease in reaching his conclusion on its NER rate. The petitioner argues that this error is a pure question of law for which leave to appeal should be granted.

Issues

[5]           There are two issues in this appeal. First, should leave be granted? I must determine whether there is a pure question of law which would permit an appeal, or whether it is a question of mixed fact and law to which an appeal is not available under the Arbitration Act, R.S.B.C. 1996, c. 55 (“Arbitration Act”). Second, if leave is granted, should the appeal be considered on its merits?

[6]           If I am unwilling to consider the appeal on its merits, the petitioner requests that I remit the matter back to the arbitrator with my determination on the question of law.

Background Facts

Overview

[7]           The premises in question is a 35,514 square foot commercial property
(the “premises”) operating as a Save-On-Foods grocery store. It is located in the Ironwood Plaza Shopping Centre at 3000-11666 Steveston Highway, Richmond, BC.

[8]           The parties entered into a commercial lease on July 4, 1998 for a 20-year term, whereby Save‑On‑Foods leased the property from Ironwood to operate a retail grocery store.

[9]           Section 20.1 of the lease grants the respondent the option to renew the lease for two successive terms of five years each. Save-On-Foods exercised this option to renew the lease past the initial 20-year term through to 2023. The minimum rent to be paid is governed by s. 20.2, which sets out how to determine the rental value. It provides that if the parties cannot agree on the minimum rent, the dispute will be resolved by an arbitrator under the Arbitration Act.

[10]        The parties submitted their dispute regarding the minimum rent to the arbitrator. He rendered his decision on December 13, 2018. He determined that the appropriate rent was one that landed between the two parties’ respective positions. He quantified the minimum rent as $27.00 per square foot per annum.

The Arbitration Award

[11]        The arbitrator provided background on the property and the following overview:

The Arbitration is to determine the Minimum Rent (as that term is defined in the Lease) for the five year renewal term commencing on June 7, 2018 (the “Effective Date of Renewal”) by analysing the current market rental value for premises comparable to the Subject Property in size, age, and use in the Richmond area. The tenant has exercised the five year renewal option.

The… NER for the subject property from 2014 to 2018 was $14.50 per square foot per annum, a stepped rent that was negotiated in 1998.

The Landlord’s position is that the NER for the Subject Property as of the Effective Date of Renewal is $33 per square foot per annum and the Tenant’s position is that the NER value is $22 per square foot per annum.

[12]        The arbitrator was presented with two expert appraisal reports that canvassed the rental rates of a number of comparable properties. After making appropriate qualitative adjustments, meaning adjustments for factors such as store size, location, and ease of access and quantitative adjustments, meaning a time adjustment for rents negotiated in years past, these experts offered their opinions on the fair market rent for the premises.

[13]        The arbitrator identified two issues: 1) the applicability of the quantitative adjustments used by the experts and 2) the applicability of the qualitative adjustments used by the experts.

[14]        Each expert relied on a number of comparable properties in coming to their opinion. Both experts relied on another Save-On-Foods located at 3471 Moncton Street, Richmond, BC (“Moncton Street”). The respondent’s expert alone relied on a different Save-On-Foods located in the Terra Nova Shopping Centre at 3673 Westminster Highway, Richmond, BC (“Terra Nova”).

[15]        The arbitrator concluded that he could only rely on these two comparable properties to determine the minimum rent for the premises.

[16]        The arbitrator found that he did not need to engage in a quantitative adjustment, because the leases for the two comparable properties were renewed in the current time period. He held that applying qualitative adjustments, to both Terra Nova and Moncton Street was more reliable in determining minimum rent.

[17]        The Terra Nova tenant agreed to spend $1.5 million in renovations for its store during the term of its comparable lease. Whether or not this expenditure should be factored into Terra Nova’s NER rate was a primary issue at arbitration.

[18]        On the first day of the hearing the arbitrator asked whether all or any portion of the $1.5 million should be added to Terra Nova’s average rent of $21.20 per square foot per annum. Save-On-Foods took the position that it should not be factored into the NER rate, whereas Ironwood said the opposite.

[19]        Save-On-Foods produced the Terra Nova lease and modification of lease agreements at the arbitration. Mr. Picard, Vice President of Real Estate for Save-On-Foods, was permitted to testify regarding the $1.5 million renovation. He testified that the money had not yet been spent at Terra Nova, but the project would be a “refresh”. This meant that the money would not be spent on improving the landlord’s asset, but on fixtures Terra Nova would remove at the end of the lease (such as interior signage and décor). Save-On-Foods argued these fixtures would be “tenant’s trade fixtures” as defined in article 10.2 of the Terra Nova lease.

[20]        Ironwood’s position was that the $1.5 million expenditure was a direct financial benefit to the landlord and would consequently affect the NER rate for the ten-year renewal term. Ironwood sought and obtained leave to recall its expert, Mr. Wong, to respond to Mr. Picard’s testimony. The arbitrator summarized his evidence at para. 66 as follows:

…Mr. Wong’s evidence was that, if the $1.5 million were not considered Tenant’s Trade Fixtures as defined under the lease (i.e. could not be taken out by the tenant at the end of the lease term), the NER amortized over the 10 year renewal term would be $27.20 per square foot per annum (as opposed to $21.20). Alternatively, and at a minimum, counsel argued that it must have played a role in determining the rent, especially when one considers Article 3.2(b) of the Terra Nova lease which references the percentage rent to which the landlord is entitled…

[21]        At para. 70, the arbitrator stated that a great deal of time in closing submissions was spent on the interpretation of articles 1.1(z) and 10.2 of the Terra Nova lease, the tenant’s trade fixtures, and their effect on s. 5(a) of the modification of lease. At para. 72, he queried what effect Terra Nova not doing the refresh would have on the five-year renewal term beginning in 2019.

[22]        The arbitrator reproduced several sections of the modification of lease agreement. He did not reproduce s. 6, which refers to what occurs if the tenant does not complete the $1.5 million renovation.

[23]         Sections 4 to 6 of the modification of lease agreement provide:

4.   The Minimum Rent payable (per annum) during the renewed portion of the Term will be the amount determined by multiplying the Ground Floor Area by the following amounts:

(a)         for the period of May 16, 2019 to May 15, 2021: $20.00 per square foot;

(b)         for the period of May 16, 2021 to May 15, 2024: $22.00 per square foot;

(c)         for the period of May 16, 2024 to May 15, 2026: $25.00 per square foot; and

(d)         for the period of May 16, 2026 to May 15, 2029: $27.00 per square foot.

5.

(a)         The Tenant shall perform a renovation of the Leased Premises (the “Renovation”), which Renovation must be undertaken in accordance with the terms and conditions of the Lease (including but not limited to Paragraph 10.1 of the Lease). The Renovation shall be completed by no later than December 31, 2020 (the “Deadline”). The Tenant hereby agrees that the Renovation shall be completed by the Tenant: (i) at its sole cost and expenses; (ii) in accordance with all applicable laws and the applicable provisions of the Lease; (iii) in a good and workmanlike manner; and (iv) shall constitute an investment by the Tenant directly into the Leased Premises of not less than One Million Five Hundred Thousand Dollars ($1,500,000.00), excluding applicable taxes (the “Threshold”).

(b)         The Tenant will (using commercially reasonable efforts) provide the Landlord, on a prompt and timely basis after completion of the Renovation, a letter (the “Letter”) [confirming the completion and actual costs of the renovation]…

6.   Notwithstanding anything to the contrary contained in the Lease or this Agreement, if Landlord proves in a court of competent jurisdiction that Tenant has failed to provide the Letter on a prompt and timely basis after completion of the Renovation in accordance with Paragraph 5(b) above, then:

(b)         The Tenant shall be deemed to have exercised its first option to renew the Term of the Lease, leaving Tenant with only one remaining option to renew the Term of the Lease for a term of 5 years;

(c)         Paragraph 3 of this Agreement shall be deleted and replaced with the following:

“3.     Pursuant to Paragraph 20.1 of the Lease, the Tenant hereby notifies the Landlord that the Tenant is exercising the first option to renew the Term of the Lease, as stated in Paragraph 20.1 of the Lease, for total additional period of five (5) years (commencing May 16, 2019, through to and including May 15, 2024) and the Landlord hereby acknowledges having received from the Tenant the notice required pursuant to Paragraph 20.1 of the Lease. For clarity, subsequent to the aforementioned exercise, one option to renew this Lease for an additional term of 5 years remains.”

(d)   Paragraph 4 of this Agreement shall be deleted and replaced with the following:

“4.     The Minimum Rent payable (per annum) during the renewed portion of the Term will be the amount determined by multiplying the Ground Floor Area by the following amounts:

(a)     for the period of May 16, 2019 to May 15, 2021: $20.00 per square foot; and

(b)     for the period of May 16, 2021 to May 15, 2024: $22.00 per square foot.”

[24]        The arbitrator set out Save-On-Foods’ submissions regarding the effect on the five-year renewal if the tenant did not do the refresh at Terra Nova. Referring to s. 6 of the modification of lease agreement, Save-On-Foods stated that the consequence would be that the Terra Nova tenant would be deemed to have exercised its first option to renew the term, leaving only one remaining option to renew for a term of five years. The tenant would lose the additional ten years to which it would be entitled to renew if it carried out the refresh. The tenant would also lose the set rental rates for years six through ten. However, the rental rates for years one through five would remain unaffected.

[25]        At para. 74 the arbitrator stated, “I agree with this position”. The arbitrator noted that the issue was not whether the $1.5 million expenditure would provide value to the landlord, but what NER rate the Terra Nova tenant must pay during the relevant period. He concluded the NER rate for Terra Nova is $21.20 per square foot per annum.

[26]        The arbitrator ruled that the minimum rent for the premises is $27.00 per square foot per annum. He reached this figure by presumably adding $5.80, due to other positive qualitative adjustments, to the Terra Nova rent of $21.20. In coming to this conclusion, the arbitrator did not factor in the $1.5 million expenditure, or lack thereof.

Position of the Parties

Petitioner

[27]        The petitioner argued that the arbitrator had to determine the proper NER rate for Terra Nova in order to use it as a comparable when determining the premises’ rent. Ironwood relies on The Appraisal of Real Estate, 3rd Canadian Edition (Appraisal Institute of Canada) at p. 20.10, an authoritative appraisals text. This text describes the NER rate and its importance as follows:

Effective Rent

In markets where concessions take the form of free rent, above–market tenant improvements or atypical allowances, an appraiser must quantify the true effective rent. Effective rent (or actual occupancy cost) is an analytical tool used to compare leases with different provisions and develop an estimate of market rent. Effective rent may be defined as the total of base rent, or minimum rent stipulated in a lease, over the specified lease term minus rent concessions, e.g., free rent, excessive tenant improvements, moving allowances, lease buyouts, cash allowances, and other leasing incentives. Effective rent may be calculated in several different ways.

[28]        The petitioner took a similar position at the hearing to the one it took at arbitration. Ironwood argued that the $1.5 million renovation expenditure must be amortized over Terra Nova’s ten-year rental term in calculating the NER rate because the renovation is mandatory and is a “reverse tenant inducement”. Such an inducement requires the tenant to incur an expense for the landlord’s benefit. This results in Terra Nova’s proper NER rate being $27.20 per square foot per annum.

[29]        Ironwood argued that pursuant to s. 5(b) of the modification of lease agreement, the Terra Nova tenant must send a letter to its landlord confirming completion of the renovation. The petitioner argued that before s. 6 becomes operative, the tenant must have both failed to complete the renovation and failed to send the confirmation letter.

[30]        Ironwood took the position that if s. 6 became operative, it would remove rights from the tenant. However due to the word “notwithstanding” found in that section, if the renovation was not completed and the letter was not sent, the Terra Nova landlord retained all other rights under the lease such as the ability to terminate for breach of contract.

[31]        Ironwood argued that leave should be granted under s. 31 of the Arbitration Act because the arbitrator made an error of law by failing to consider the specific terms of the Terra Nova lease modification agreement upon which he based his award. Ironwood argues the legal test for contractual interpretation requires the adjudicator to consider the precise words used in the contract and ensure that all its terms are given meaning.

[32]        Had the arbitrator considered the specific terms, particularly s. 6, he would have determined that the renovation was mandatory and factored the $1.5 million into Terra Nova’s NER rate. Instead, according to the petitioner, the arbitrator relied on a summary of the lease modification agreement provided by Save-On-Foods. The petitioner argued that the failure to consider the actual words of the contract constitutes a pure error of law: Robb v. Walker2015 BCCA 117(CanLII) at para. 53 (Chiasson J.A. dissenting on analysis and outcome); and Arbutus Bay Estates Ltd. v. Canada (Attorney General)2017 BCCA 374 (CanLII)at paras. 27 to 32.

[33]        The petitioner argued that leave should be granted pursuant to s. 31(2)(a) of the Arbitration Act, which provides that the court may grant leave where “the importance of the result of the arbitration to the parties justifies the intervention of the court and the determination of the point of law may prevent a miscarriage of justice”. The petitioner agreed the other two considerations under ss. 31(2)(b) and (c) of the Arbitration Act do not apply.

[34]         The petitioner argued that the issue is important in terms of principle and money, with the result depriving the petitioner of $890,000 over the five-year renewal period.

[35]        Ironwood requested that I allow the appeal, find that the NER rate for Terra Nova is $27.20, and add $5.80 for qualitative adjustments. This would amend the minimum rent for the premises to $33 per square foot per annum for the lease renewal period of June 8, 2018 to June 7, 2023.

Respondent

[36]        Save-On-Foods argued that leave to appeal should not be granted because this is a question of mixed fact and law. Pursuant to the Arbitration Act, leave to appeal can only be granted for pure questions of law.

[37]        In addition, the respondent argued that leave to appeal under the Arbitration Act is discretionary. It should only be exercised when the party meets the tests under s. 31(2)(a), (b), or (c). Here it has not done so.

[38]        In the alternative, the respondent argued that if it is a pure question of law, the standard of review is reasonableness.

[39]        Save-On-Foods argued that the arbitrator did consider the wording of the lease modification agreement and the effect of s. 6. Counsel argued that while the renovation was a contractual term, the agreement contemplates the tenant not conducting the renovation and the repercussions that would flow from such an outcome. These repercussions do not affect the rent for the relevant years for the comparable, those being the five years of the first renewal.

[40]        Save-on-Foods argued that the arbitrator determined that the consequences for failing to complete the renovation were as set out in s. 6. The arbitrator agreed with the respondent that the tenant would be deemed to have exercised its first option to renew the term, leaving it with only one remaining option to renew for a further five years. In addition, the Terra Nova tenant would lose its guaranteed rental rates for years six through ten. The respondent argued that this is a reasonable interpretation of the lease modification agreement.

Legal Framework

Leave to Appeal

[41]        Section 31 of the Arbitration Act provides a narrow right of appeal for arbitral decisions. Appeals of arbitration awards are only done by consent of the parties or if the court grants leave to appeal. In determining whether to grant leave to appeal, s. 31(2)(a) of the Arbitration Act requires the court to consider the importance of the results of the arbitration to the parties and whether the determination of a point of law may prevent a miscarriage of justice. Issues of public importance to some class or body of persons are also considered but are not relevant here. Leave is discretionary.

[42]        There are principled reasons for this narrow right of appeal. As stated by Chief Justice Bauman in Boxer Capital Corporation v. JEL Investments Ltd., 2015 BCCA 24 (CanLII) at para. 3, “commercial arbitration is intended to provide a speedy and, in the vast majority of cases, final determination of the issue or issues between the parties.” At para. 6, he stated “parties are afforded such narrow scope to appeal arbitral awards because arbitration is intended to be ‘an alternate dispute mechanism rather than ‘one more layer of litigation’” (emphasis in original.).

[43]        Recently, the Supreme Court of Canada specifically commented on the BC Arbitration Act. In Teal Cedar Products Ltd. v. British Columbia2017 SCC 32 (CanLII) [Teal], Gascon J., writing for the majority, held:

[1]        In British Columbia, the scope of appellate intervention in commercial arbitration is narrow in two key ways. First, there is limited jurisdiction for appellate review of arbitration awards because that jurisdiction is statutorily limited to questions of law. Second, even where such jurisdiction exists, our Court recently held that a deferential standard of review – reasonableness – “almost always” applies to arbitration awards. Together, limited jurisdiction and deferential review advance the central aims of commercial arbitration: efficiency and finality.

[References omitted.]

[44]        Only questions of law are reviewable under the Arbitration Act. This is complicated by the fact that questions of law are difficult to distinguish from non-reviewable questions of mixed fact and law.

[45]        In Housen v. Nikolaisen, 2002 SCC 33 (CanLII), a case regarding statutory interpretation, the Supreme Court of Canada determined that there is a true “question of law” only where a question of law, or a legal principle, is “extricable” from the question of mixed fact and law:

[36]      To summarize, a finding of negligence by a trial judge involves applying a legal standard to a set of facts, and thus is a question of mixed fact and law. Matters of mixed fact and law lie along a spectrum. Where, for instance, an error with respect to a finding of negligence can be attributed to the application of an incorrect standard, a failure to consider a required element of a legal test, or similar error in principle, such an error can be characterized as an error of law, subject to a standard of correctness. Appellate courts must be cautious, however, in finding that a trial judge erred in law in his or her determination of negligence, as it is often difficult to extricate the legal questions from the factual. It is for this reason that these matters are referred to as questions of “mixed law and fact”. Where the legal principle is not readily extricable, then the matter is one of “mixed law and fact” and is subject to a more stringent standard. The general rule, as stated in [Jaegli Enterprises Ltd. v. Taylor1981 CanLII 26 (SCC), [1981] 2 S.C.R. 2], is that, where the issue on appeal involves the trial judge’s interpretation of the evidence as a whole, it should not be overturned absent palpable and overriding error.

[46]        Contractual interpretation was traditionally considered a question of law. However in 2014, the Supreme Court of Canada held in Sattva Capital Corp. v. Creston Moly Corp.2014 SCC 53 (CanLII) [Sattva] that the Court changed the landscape regarding commercial arbitrations and determined that interpretation of a contract is a matter of mixed fact and law. This new approach to contractual interpretation recognized that the interpretive process is set within a factual matrix.

[47]        In Sattva, the Court further held that contractual interpretation should not be “dominated by technical rules of construction.” Adjudicators must “read the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances, known to the parties at the time of formation of the contract”: para. 47.

[48]        I set out a key passage from this seminal decision describing one of the underlying reasons for determining that contractual interpretation involves questions of mixed fact and law:

[51]      … One central purpose of drawing a distinction between questions of law and those of mixed fact and law is to limit the intervention of appellate courts to cases where the results can be expected to have an impact beyond the parties to the particular dispute. It reflects the role of courts of appeal in ensuring the consistency of the law, rather than in providing a new forum for parties to continue their private litigation. For this reason, [Canada (Director of Investigation and Research) v. Southam Inc.1997 CanLII 385 (SCC), [1997] 1 S.C.R. 748] identified the degree of generality (or “precedential value”) as the key difference between a question of law and a question of mixed fact and law. The more narrow the rule, the less useful will be the intervention of the court of appeal…

[49]        Justice Warren succinctly summarized the principles from Sattva in Conmac Enterprises Ltd. v. 0928818 B.C. Ltd., 2018 BCSC 360 (CanLII) as follows:

[42]      In Sattva, the Supreme Court of Canada directed a new approach to the legal characterization of questions of contractual interpretation, which had historically been considered questions of law. At para. 49, the Court in Sattva explained that the goal of contractual interpretation is fact specific; specifically, to ascertain the objective intent of the parties through the application of legal principles of interpretation. The Court concluded, at para. 50, that questions of contractual interpretation are questions of mixed fact and law because contractual interpretation is an exercise in which the legal principles of interpretation are applied to the words of the written contract, considered in light of the factual matrix. At para. 53, the Court recognized that it may be possible to identify an extricable question of law from within what is initially characterized as a question of mixed fact and law, and identified legal errors made in the course of contractual interpretation as including the application of an incorrect principle, the failure to consider a required element of a legal test, or the failure to consider a relevant factor. However, at paras. 54 and 55, the Court cautioned against finding an extricable question of law too readily and observed that, because of the close relationship between the selection and application of principles of contractual interpretation and the ultimate construction of the contract, the circumstances in which a question of law can be extricated from the interpretation process will be rare.

[50]        Justice Rothstein, writing for the Court in Sattva, reasoned that an appeal from an arbitral award is different from a judicial review of a statutory tribunal decision. Under the Arbitration Act, parties generally choose to submit their dispute to arbitration and they select their arbitrator. Moreover, while the Dunsmuir v. New Brunswick, 2008 SCC 9 (CanLII) framework for judicial review affords deference to the factual findings of administrative tribunals, the Arbitration Act“forbids review of an arbitrator’s factual findings”: Sattva at para. 104.

[51]        In Sattva, the Supreme Court of Canada was clear that leave to appeal should not be granted for broad unspecified inquiries into an arbitral award. As the BC Court of Appeal has articulated, leave to appeal should only be granted where there is a question of law that can be clearly perceived and delineated: Hayes Forest Services Limited v. Weyerhaeuser Company Limited2008 BCCA 31 (CanLII) at para. 45; and Elk Valley Coal Partnership v. Westshore Terminals Ltd.2008 BCCA 154 (CanLII) at para. 17.

[52]        These are the legal principles that I must apply to the case before me.

Analysis

Leave to Appeal

[53]        The first issue in this petition is whether leave to appeal should be granted. I must only consider the second issue, whether the appeal should be considered on its merits, if I decide the first in the affirmative.

[54]        The Arbitration Act does not act like a privative clause, which signals deference in the context of judicial reviews of statutory tribunals. The Arbitration Act places a jurisdictional bar on questions of mixed fact and law. It is absolute. Even where factual findings are erroneous, they cannot be reviewed: Sattva at paras. 42, 104; Teal at paras. 41-42; and Richmont Mines Inc. v. Teck Resources Limited2018 BCCA 452 (CanLII) [Richmont] at paras. 9 and 66.

[55]        Since Sattva, it is more difficult for parties to obtain leave to appeal on questions of contractual interpretation. At the leave stage, the petitioner must demonstrate an arguable case that the arbitrator made an extricable and identifiable error of pure law which affected the outcome of the award. Otherwise, this Court has no jurisdiction to consider the appeal.

[56]        Contractual interpretation is typically a question of mixed fact and law. Only if the arbitrator was addressing the wrong test or failed to consider relevant legislation would it rise to a question of law. For example, in The Crestmark Developments Limited Partnership v. Greata Ranch Developments Limited Partnership, 2018 BCSC 932 (CanLII) [Crestmark], the court held the arbitrator’s failure to refer to relevant provisions of the BC Partnership Act to be an error of law.

[57]        Ironwood took the view that because the arbitrator did not set out s. 6 of the lease modification agreement, he must not have reviewed the lease’s actual words. Instead the arbitrator relied on a summary of the lease agreement prepared by counsel for the respondent. Ironwood argued that failing to consider the actual words of a contract constitutes a pure error of law.

[58]        Save-On-Foods argued that the arbitrator looked at the surrounding circumstances as set out in paras. 122-124 of its closing submissions before the arbitrator. The surrounding circumstances were the modification of lease agreement was signed on that basis. The Terra Nova tenant would invest $1.5 million on a refresh for its store in exchange for a longer lease term to realize its return. However, the two additional optional terms to renew the lease would be lost and the lease would revert back to the original if the tenant did not do the renovation.

[59]        According to Save-On-Foods, nothing about the agreed upon renovation affected the rent paid during the first five years of the renewal term.

[60]        The arbitrator did not set out the wording in s. 6 of the lease modification agreement. After setting out Save-On-Foods’ position regarding s. 6, the arbitrator stated:

[74]      I agree with this position. Whether the $1.5 million expenditure will provide value to the landlord (which may very well be the case given the landlord’s entitlement to 1% of the gross sales over a certain threshold and the fact that a more attractive Plaza would, presumably, draw in more customers) is not the issue. What is to be determined is the effective rental rate to be paid by the tenant during the relevant period. It is clear from the modification of the lease that there would be no impact on the rent that Save‑On‑Foods would pay for the first five years of this renewal term if it did not proceed with the $1.5 million renovation. There are only repercussions for further renewals.

[61]        The arbitrator explicitly refers to the “modification of the lease” in para. 74, which indicates that he reviewed the language of the lease. Even without this wording, I could not assume that the arbitrator did not review the lease modification agreement, a document central to the dispute. He was clearly alive to the issue regarding the agreement and raised it with the parties on the first day of the hearing.

[62]        After raising the issue, the arbitrator permitted additional viva voce evidence from Mr. Picard and Mr. Wong on the issue of the $1.5 million renovation and the negotiation of the lease modification agreement. Based on the language of the agreement, including ss. 4 and 6, as well as the testimony regarding the surrounding circumstances, he accepted the respondent’s position.

[63]        It would have been preferable for the arbitrator to set out all the relevant portions of the lease modification agreement prior to accepting the respondent’s position. However not setting out the words of the contract, or setting out every detail of testimony, does not establish that the arbitrator did not consider all of the relevant factors. There is no obligation that an adjudicator refer to all evidence, all arguments, or every case to which he or she is referred in making a decision: Newfoundland and Labrador Nurses’ Union v. Newfoundland and Labrador (Treasury Board)2011 SCC 62 (CanLII) at paras. 14 and 16; and Heintzman and Goldsmith on Canadian Building Contracts, 5th Edition at 11 s. 11(b)(ii).

[64]        Here it is clear that the arbitrator addressed this argument and meaning of s. 6. There was no error of law.

[65]        Ironwood also argued that the words of the contract cannot be interpreted the way the arbitrator did, therefore there was a legal error. Save-On-Foods argued that the petitioner is “putting the cart before the horse”. By this it means the petitioner disagreed with the outcome of the arbitration award and then worked backwards to find the legal error: Richmont at para. 61.

[66]        Whether or not the petitioner “put the cart before the horse”, both parties relied on their respective witnesses to provide the context in which the language was negotiated. Mr. Wong testified that this type of language is characterized as a reverse tenant inducement. Mr. Picard testified regarding the actual negotiations that led to the language and its ultimate consequences. This is evidence of the factual matrix of the case.

[67]        The following comments in Teal are instructive:

[45]      Courts should, however, exercise caution in identifying extricable questions of law because mixed questions, by definition, involve aspects of law. The motivations for counsel to strategically frame a mixed question as a legal question – for example, to gain jurisdiction in appeals from arbitration awards or a favourable standard of review in appeals from civil litigation judgments – are transparent (Sattva, at para. 54; Southam, at para. 36). A narrow scope for extricable questions of law is consistent with finality in commercial arbitration and, more broadly, with deference to factual findings. Courts must be vigilant in distinguishing between a party alleging that a legal test may have been altered in the course of its application (an extricable question of law; Sattva, at para. 53), and a party alleging that a legal test, which was unaltered, should have, when applied, resulted in a different outcome (a mixed question).

[68]        A recent case, Crestmark is also instructive. Crestmark involved the question of whether interest was payable on a loan between business partners. Leave to appeal was granted on a question of statutory interpretation. With respect to interpreting the contract, the petitioner argued that the arbitrator erred by failing to take into account an express provision of the partnership agreement. This, it argued, was a question of law. Justice Crossin rejected the petitioner’s argument, stating at para. 124, “I have concluded, properly construed, this is a question of contractual interpretation and Crestmark has not identified a question of law arising from this determination.”

[69]        The petitioner argued that a proper interpretation of the lease modification agreement would have rendered a different result. Even assuming that the petitioner has correctly identified an error in the arbitrator’s reasoning, it cannot be extricated from the factual matrix of the case. The analysis involved fact specific valuations in the context of a lease modification agreement.

[70]        In Ironwood’s closing submissions before the arbitrator it acknowledged that testimony and emails containing earlier drafts of the Terra Nova modification of lease were “objective evidence” of the factual matrix. For example, the petitioner stated “the only objective evidence we have of the circumstances surrounding the lease modification agreement are the emails and draft agreement found at exhibits 14, a, b and c. From the emails we can see that the parties had turned their minds to how the $1.5 million Renovation requirement would work and how it should be worded.”

[71]        By the petitioner’s own admission, the interpretation of this contract is question of mixed fact and law. The legal interpretation cannot be divorced from its factual matrix.

[72]        I decline to grant the petitioner leave to appeal the arbitrator’s decision.

No Arguable Case

[73]        In the event that I am wrong regarding whether leave should be granted, to consider the appeal I would have to be satisfied that the ground of appeal has arguable merit.

[74]        The standard of review of an arbitrator’s decision is almost always the deferential standard of reasonableness: Sattva at para. 75; and Teal at para. 74. Therefore Ironwood must demonstrate that the arbitrator’s interpretation of the lease was not one that was reasonably available to him and that this error affected the result of the award.

[75]        Both parties spent a great deal of time on the interpretation of Terra Nova’s lease modification agreement. As already stated, the key issue between the parties was whether the Terra Nova tenant’s rent was impacted by the $1.5 million renovation term.

[76]        The difference between their two positions is that the petitioner argued that the mandatory $1.5 million renovation must be factored into the NER rate. The respondent argued that the renovation affects the future options for renewal, but does not affect the rental rates for years one through five. Years one through five are the only relevant years in the Terra Nova lease to be used as the comparable rent.

[77]        The arbitrator accepted the respondent’s interpretation based on his understanding of the meaning of ss. 4 and 6 of the lease modification agreement, as well as the contract as a whole. This interpretation is not unreasonable. As is often stated, there are matters about which reasonable people can disagree.

[78]        The following passage from Teal is apt:

[64]      Whether the arbitrator failed to apply the foregoing principle raises a legal question. That said, merely raising a legal question does not exhaust the requirements for jurisdiction under s. 31 of the Arbitration Act. To grant leave on such a question of law, the court must be satisfied that the ground of appeal has “arguable merit” (Sattva, at para. 74; Arbitration Act, s. 31(2)(a)). In my view, if the Court of Appeal on remand had properly conducted a “preliminary examination of the question of law” in light of the reasonableness standard to be applied (Sattva, at paras. 74-75 and 106), it would have concluded that there is no arguable merit to this alleged legal error. The arbitrator‘s interpretation was rooted in the words of the contract, not overwhelmed by them. While the arbitrator may have placed significant weight on the factual matrix when interpreting the meaning of “compensation”, there is no arguable merit to the claim that he interpreted that matrix isolated from the contract’s words so as to effectively create a new agreement (Sattva, at para. 57; Hall, at pp. 33-34).

[79]        Inherent in the petitioner’s argument is the view that there is only one possible way to interpret this contract. This has been repeatedly rejected by the courts. As stated by Rothstein J. in Sattva, “ascertaining contractual intention can be difficult when looking at words on their own, because words alone do not have an immutable or absolute meaning”: para. 47.

[80]        Given my decision regarding leave, I need not address the merits of the appeal. If I am wrong, there is no arguable merit to the appeal.

[81]        The application for leave to appeal is dismissed.

TELUS Communications Inc. v. Wellman, 2019 SCC 19

SUPREME COURT OF CANADA

TELUS Communications Inc.
Appellant

and

Avraham Wellman
Respondent

– and –

Attorney General of British Columbia, ADR Chambers Inc., Canadian Chamber of Commerce, Public Interest Advocacy Centre, Consumers Council of Canada, Canadian Federation of Independent Business, Samuelson-Glushko Canadian Internet Policy and Public Interest Clinic and Consumers’ Association of Canada
Interveners

 

ON APPEAL FROM THE COURT OF APPEAL FOR ONTARIO

                    Civil procedure — Stay — Class actions — Consumer and non‑consumer claims — Arbitration clause — Customer filing class action for damages alleging cell phone service provider engaged in deceptive practices — Class consisting of both consumers and non‑consumers — Cell phone service provider’s standard terms and conditions containing mandatory arbitration clause — Arbitration clause invalidated by provincial consumer protection legislation with respect to claims by consumers — Cell phone service provider relying on arbitration clause to seek stay of proceedings with respect to non‑consumers’ claims — Whether provincial statute governing arbitration grants court discretion to refuse to stay non‑consumers’ claims — Arbitration Act, 1991, S.O. 1991, c. 17, s. 7— Consumer Protection Act, 2002, S.O. 2002, c. 30, Sched. A.

                    W filed a proposed class action for damages against TELUS on behalf of about two million Ontario residents who entered into mobile phone service contracts with TELUS during a specified timeframe. The class consists of both consumers and non‑consumers (business customers). W alleges that TELUS engaged in an undisclosed practice of rounding up calls to the next minute such that customers were overcharged and were not provided the number of minutes to which they were entitled. The standard terms and conditions of the service contracts included an arbitration clause stipulating that all claims arising out of or in relation to the contract, apart from the collection of accounts, must be determined through mediation and, failing that, arbitration. This clause was invalidated by the Consumer Protection Act to the extent that it would otherwise prevent class members who qualify as consumers from pursuing their claims in court. However, since the business customers do not benefit from this protection, TELUS sought to have the proceeding stayed with respect to the business customer claims, relying on the arbitration clause. The motions judge dismissed TELUS’s motion for a stay and certified the action. She held that s. 7(5) of the Arbitration Act, 1991 grants the courts discretion to refuse a stay where it would not be reasonable to separate the matters dealt with in the arbitration agreement from the other matters, thereby allowing all of the matters to proceed in court. She was of the view that this discretion may be exercised to allow non‑consumer claims that are otherwise subject to an arbitration clause to participate in a class action, where it is reasonable to do so. The Court of Appeal dismissed TELUS’s appeal.

                    Held (Wagner C.J. and Abella, Karakatsanis and Martin JJ. dissenting): The appeal should be allowed and the claims of the business customers stayed.

                    Per Moldaver, Gascon, Côté, Brown and Rowe JJ.: Section 7(5) of the Arbitration Act, 1991 does not grant the court discretion to refuse to stay claims that are dealt with in an arbitration agreement. The protections afforded by the Consumer Protection Act allow the consumers to pursue their claims in court, but the business customers remain bound by the arbitration agreements into which they entered. Accordingly, the latter are exposed to a stay under s. 7(1)of the Arbitration Act, 1991. Since the only potential exception to the general rule under s. 7(1) relied on by W does not apply, the business customer claims should be stayed.

                    In keeping with the modern approach that sees arbitration as an autonomous, self‑contained, self‑sufficient process pursuant to which the parties agree to have their disputes resolved by an arbitrator, not by the courts, s. 6 of the Arbitration Act, 1991 signals that courts are generally to take a hands off approach to matters governed by that statute. Section 7(1) of the Arbitration Act, 1991 establishes the general rule that where a party to an arbitration agreement commences a proceeding in respect of a matter dealt with in the agreement, the court shall, on the motion of another party to the agreement, stay the court proceeding in favour of arbitration. This general rule reaffirms the concept of party autonomy and upholds the policy underlying the Arbitration Act, 1991 that parties to a valid arbitration agreement should abide by their agreement. Section 7(2) lists five exceptions to the general rule under s. 7(1) where it would be either unfair or impractical to refer the matter to arbitration. Section 7(5) provides a further exception to the general rule under s. 7(1) and consists of two main components. First, paragraphs 7(5)(a) and (b) set out two preconditions. The first precondition is met if the agreement deals with only some of the matters in respect of which the proceeding was commenced. That is, the proceeding must involve at least one matter that is dealt with in the arbitration agreement and at least one matter that is not dealt with in the arbitration agreement. The second precondition is met if it is reasonable to separate the matters dealt with in the agreement from the other matters. Second, if both preconditions are satisfied, then instead of ordering a full stay, the court may allow the matters that are not dealt with in the arbitration agreement to proceed in court, though it must nonetheless stay the court proceeding in respect of the matters that are dealt with in the agreement. If the preconditions are not met, then the discretionary exception under s. 7(5) is not triggered as s. 7(5) can have effect only if the two preconditions are satisfied. At that point, unless one of the exceptions listed in s. 7(2) applies, the general rule under s. 7(1) would apply, meaning that the proceeding must be stayed.

                    Policy considerations cannot be permitted to distort the actual words of the statute, read harmoniously with the scheme of the statute, its object, and the intention of the legislature, so as to make s. 7(5) say something it does not. While policy analysis has a legitimate role in the interpretive process, the responsibility for setting policy in a parliamentary democracy rests with the legislature, not with the courts. This is particularly so given that the Ontario legislature has already spoken to some of these policy concerns by shielding consumers from the potentially harsh results of enforcing arbitration agreements contained in consumer agreements, which often take the form of standard form contracts, through the Consumer Protection Act. The legislature made a careful policy choice to exempt consumers — and only consumers — from the ordinary enforcement of arbitration agreements. That choice must be respected, not undermined by reading s. 7(5) in a way that permits courts to treat consumers and non‑consumers as one and the same.

                    While there can be no doubt as to the importance of promoting access to justice, this objective cannot, absent express direction from the legislature, be permitted to overwhelm the other important objectives pursued by the Arbitration Act, 1991. To do so would undermine the legislature’s stated objective of ensuring parties to a valid arbitration agreement abide by their agreement, reduce the degree of certainty and predictability associated with arbitration agreements, and weaken the concept of party autonomy in the commercial setting. It would expand the opportunities for parties to a valid arbitration agreement to avoid their agreement and seek relief in court. Furthermore, this case is not about debating the merits and demerits of enforcing arbitration clauses contained in standard from contracts. Rather, it is about the proper interpretation of s. 7(5) of the Arbitration Act, 1991. And, while distinguishing between consumers and non‑consumers may be a difficult exercise in certain cases, that difficulty does not bear on the proper interpretation of s. 7(5). Sorting between consumers and non‑consumers may be cumbersome in certain cases, but this inconvenience does not permit the court to re‑cast the legislation as it sees fit in order to avoid such difficulties. Permitting non‑consumers to tag along with consumers on the basis that it would be cumbersome to sort between the two would also allow commercial entities to find the inside of a courtroom despite having agreed to arbitration, even where the arbitration agreement was fully negotiated. This would reduce the degree of certainty and predictability associated with arbitration agreements and permit parties to those agreements to piggyback onto the claims of others. Lastly, where the application of an Ontario statute, properly interpreted, leads to a multiplicity of proceedings, the court must give effect to the will of the legislature. Section 7(5) of the Arbitration Act, 1991 expressly contemplates bifurcation of proceedings, as it permits the court to order a partial stay, thereby potentially resulting in concurrent arbitration and court adjudication.

                    The sole matter at issue in the proceeding commenced by W is alleged overbilling. This matter is dealt with in the arbitration agreements into which the consumers and business customers entered. Therefore, because there is at least one matter in the proceeding that is dealt with in the arbitration agreements, the general rule under s. 7(1) of the Arbitration Act, 1991 would ordinarily require a stay of the proceeding as a whole, leaving both consumers and business customers locked out of court. But, s. 7(5) of the Consumer Protection Act renders the arbitration agreements entered into by the consumers invalid to the extent that they would otherwise prevent the consumers from commencing or joining a class action of the kind commenced by W. The business customers, however, do not qualify as consumers and as such they cannot invoke the protections that the consumers enjoy.

                    The only potential exception to s. 7(1) of the Arbitration Act, 1991 sought to be invoked on behalf of the business customers in this case, the partial stay provision under s. 7(5), offers no assistance. This is because the sole matter at issue in the proceeding is dealt with in the arbitration agreements into which the consumers and business customers entered, such that the first precondition set out in s. 7(5)(a) is not met. Consequently, the general rule under s. 7(1) is left intact insofar as the business customers are concerned and the proceeding must be stayed. However, this stay must be restricted to the parties who are legally bound by an arbitration agreement — namely, TELUS and the business customers. In sum, the motions judge and the Court of Appeal erred in law by interpreting s. 7(5) of the Arbitration Act, 1991 incorrectly and refusing to order a stay that, under s. 7(1), was mandatory. Section 7(5) of the Arbitration Act, 1991 does not permit the court to ignore a valid and binding arbitration agreement.

                    Per Wagner C.J. and AbellaKarakatsanis and Martin JJ. (dissenting): The appeal should be dismissed. Where a proceeding includes matters covered by an arbitration agreement and other matters that are not, s. 7(5) of the Arbitration Act, 1991 gives a judge discretion to allow the entire proceeding to continue in court, even if some parties would otherwise be subject to an arbitration clause.

                    Section 7(5) of the Arbitration Act, 1991 reflects an explicit legislative intention to override an otherwise applicable arbitration clause. The words of the provision state that “the court may stay the proceeding with respect to the matters dealt with in the arbitration agreement and allow it to continue with respect to other matters”. This means that the court can either stay the arbitrable matters before it or allow them to proceed. Logically, a discretionary ability to grant a partial stay also includes the power to refuse a partial stay. The only interpretation that gives meaningful effect to the discretionary language of s. 7(5) is one that confers on judges the ability to allow both arbitrable and non‑arbitrable disputes to proceed in court. An assertion that a court can never stay arbitrable matters under s. 7(5) renders the opening phrase — “may stay the proceeding with respect to the matters dealt with in the arbitration agreement” — superfluous. By interpreting the provision to apply only to non‑arbitrable matters, s. 7(5) adds nothing to a judge’s existing discretion.

                    Ontario’s Arbitration Act, 1991 was enacted to allow parties to design their own settlement processes and resolve their disputes outside the courts. It anticipated two or more parties freely negotiating their arbitral process. To ensure expedient resolution and lower litigation costs, the Arbitration Act, 1991 limited court intervention in arbitrable disputes. But it also gave judges discretion to permit court proceedings in certain limited circumstances, such as where the arbitration agreement was manifestly unfair. Where a proceeding includes both matters covered by an arbitration agreement and other matters that are not, s. 7(5)gives a judge discretion to allow the entire proceeding to continue in court, even if some parties would otherwise be subject to an arbitration clause. Since 2002, the Ontario Court of Appeal has interpreted s. 7(5) as granting the discretion to stay matters that would otherwise be subject to arbitration. Similarly, for nearly a decade, the Ontario Court of Appeal has interpreted s. 7(5) as permitting otherwise arbitrable matters to be joined with class actions in the public interests of avoiding duplicative proceedings, increased costs, and the risk of inconsistent results. This interpretation aligns with the text and scheme of the provisions and is consistent not only with the purposes motivating the enactment of the Arbitration Act, 1991 but also with the purpose of s. 7(5) itself.

                    The overall purpose of the Arbitration Act, 1991 was to promote access to justice. Its chosen means of achieving that goal was to promote accessibility by giving parties the choice of resolving disputes outside the court system. The reason for creating this option was a recognition that the court system could be costly and slow. The courts’ discretion to intervene in arbitrable matters was therefore narrowed to further the goals of expedient dispute resolution.

                    Arbitration was intended to be a means by which parties on a relatively equal bargaining footing chose to design an alternative dispute mechanism. One cannot talk about “equal bargaining power” and “party autonomy” if the very nature of the contract reveals that one party has exclusive contractual authority. Parties to mandatory individual arbitration clauses cannot reasonably be said to have “come to the table” and bargained, since there is no bargaining table. That individuals and companies sign these contracts is a function not of bargaining choices, but of an absence of choice. All of TELUS’s clients — both business and consumer — signed the same, non‑negotiable standard form agreement. TELUS’s individualized arbitration clause effectively precludes access to justice for business clients when a low‑value claim does not justify the expense. And its mandatory nature illustrates that the animating rationales of party autonomy and freedom of contract are nowhere to be seen.

                    By inserting the reasonableness requirement in s. 7(5)(b) of the Arbitration Act, 1991, the provincial legislature clearly contemplated that in certain circumstances, it would be unreasonable to separate the matters dealt with in the arbitration agreement from the other matters. The availability of judicial discretion in s. 7(5) does not require judges to allow a class action including arbitrable claims to proceed: it simply lets them decide when it is reasonable to do so. Eliminating judicial discretion, on the other hand, effectively eliminates access to justice. In this light, s. 7(5) must be interpreted to give judges the discretion to refuse to stay arbitrable claims if it is unreasonable to separate them from non‑arbitrable claims. This interpretation applies with equal force whether the proceeding is between two or more named parties, or is a class action. An interpretation of s. 7(5) of the Arbitration Act, 1991 which permits otherwise arbitrable matters to be joined with class actions in the public interest of avoiding duplicative proceedings, increased costs, and the risk of inconsistent results aligns with the text and scheme of the provisions and is consistent not only with the purposes motivating the enactment of the Arbitration Act, 1991 but also with the purpose of s. 7(5) itself.

                    TELUS’s interpretation would result in costly and time‑consuming factual inquiries on how to divide the arbitrable and non‑arbitrable claims even where the substance of both claims is identical, as in this case. Both parties acknowledged the potential difficulties associated with drawing the line between a “consumer” as defined by the Consumer Protection Act, who is exempt from arbitration, and a business customer, who is not. This distinction may be especially difficult to determine for those individuals who use their cell phone for both personal and business purposes. For these individuals, determining whether they fall within the scope of the exception in the Consumer Protection Act adds unnecessary complexity.

                    The purpose of the Arbitration Act, 1991, was to facilitate the ability of parties to negotiate their own process for resolving disputes outside of the courts, on the premise that access to justice had as much to do with access to a result as with access to a judge. To impose arbitration on unwilling parties violates the spirit of the Arbitration Act, 1991 and the arbitral process. This operates as an invisible but formidable barrier to a remedy and presumptively immunizes wrongdoing from accountability contrary to our most fundamental notions of civil justice. Section 7(5)(b) of the Arbitration Act, 1991 gave the motions judge discretion to consider whether it was reasonable to separate the matters dealt with in the agreement (claims of business customers) from the other matters (the consumer claims). The discretion was properly exercised in this case to allow the business claims to be joined with the consumer class action dealing with the same issues.

 

The judgment of Moldaver, Gascon, Côté, Brown and Rowe JJ. was delivered by

                     Moldaver J. —

  1.            Overview

[1]                              This appeal requires the Court to decide what happens when a series of arbitration agreements, the Ontario Arbitration Act, 1991, S.O. 1991, c. 17(“Arbitration Act”), the Consumer Protection Act, 2002, S.O. 2002, c. 30, Sch. A (“Consumer Protection Act”), and a consumer/non-consumer class action collide.

[2]                              This collision occurred when the respondent, Avraham Wellman, filed a proposed class action in Ontario against the appellant, TELUS Communications Inc. (“TELUS”), on behalf of about two million Ontario residents who entered into mobile phone service contracts with the company during a specified timeframe. The class consists of both consumers and non-consumers, the latter being business customers. The action centres on the allegation that TELUS engaged in an undisclosed practice of “rounding up” calls to the next minute such that customers were overcharged and were not provided the number of minutes to which they were entitled.

[3]                              The contracts in question, which were not negotiated, contain standard terms and conditions drafted by TELUS, including an arbitration clause which, broadly speaking, stipulates that all claims arising out of or in relation to the contract, apart from the collection of accounts by TELUS, shall be determined through mediation and, failing that, arbitration.

[4]                              By virtue of the Consumer Protection Act, however, this arbitration clause is invalid to the extent that it would otherwise prevent class members who qualify as “consumers” from commencing or joining a class action of the kind commenced by Mr. Wellman. Indeed, as we shall see, the Consumer Protection Act expressly shields consumers from a stay of proceedings under the Arbitration Act. Consequently, they are free to pursue their claims in court. The business customers, however, do not benefit from these protections. So where does this leave them?

[5]                              The answer, Mr. Wellman says, lies in s. 7(5) of the Arbitration Act which, read alongside s. 7(1), provides as follows:

Stay

(1) If a party to an arbitration agreement commences a proceeding in respect of a matter to be submitted to arbitration under the agreement, the court in which the proceeding is commenced shall, on the motion of another party to the arbitration agreement, stay the proceeding.

. . .

Agreement covering part of dispute

(5) The court may stay the proceeding with respect to the matters dealt with in the arbitration agreement and allow it to continue with respect to other matters if it finds that,

(a) the agreement deals with only some of the matters in respect of which the proceeding was commenced; and

(b) it is reasonable to separate the matters dealt with in the agreement from the other matters.

[6]                              In Mr. Wellman’s submission, s. 7(5) grants the court discretion to allow all of the class members, consumers and business customers alike, to pursue their claims together in court, provided it would not be reasonable to separate their claims. This is so, Mr. Wellman maintains, despite the fact that the business customers contracted to resolve their claims through arbitration and would otherwise be bound by that agreement. The courts below, following Griffin v. Dell Canada Inc., 2010 ONCA 29 (CanLII), 98 O.R. (3d) 481, leave to appeal refused, [2010] 1 S.C.R. viii, agreed with Mr. Wellman.

[7]                              TELUS sees things differently. It contends that under s. 7(5), a court has no authority to refuse to stay claims that are subject to an otherwise valid and enforceable arbitration agreement. Rather, it says that the only exceptions to the general stay provision under s. 7(1) are found in s. 7(2), and unless one of those exceptions applies, claims that are subject to arbitration must be stayed — full stop. It submits that since none of these exceptions applies, the business customer claims must be stayed.

[8]                              For reasons that follow, I am of the view that s. 7(5) of the Arbitration Act does not grant the court discretion to refuse to stay claims that are dealt with in an arbitration agreement. To borrow the language from this Court’s decision in Seidel v. TELUS Communications Inc., 2011 SCC 15 (CanLII), [2011] 1 S.C.R. 531, it is not “a legislative override of the parties’ freedom to choose arbitration” (para. 40). Instead, as I will develop, when the s. 7 framework is considered along with the protections afforded by the Consumer Protection Act, it becomes clear that while the consumers remain free to pursue their claims in court, the business customers do not. Rather, they remain bound by the arbitration agreements into which they entered, thereby leaving them exposed to a stay under s. 7(1) of the Arbitration Act. The only potential exception to s. 7(1) sought to be invoked on behalf of the business customers in this case, the partial stay provision under s. 7(5), offers no assistance. This is because the sole “matter” at issue in the proceeding — alleged overbilling — is dealt with in the arbitration agreements into which the consumers and business customers entered, such that the first precondition set out in s. 7(5)(a) is not met. Consequently, the general rule under s. 7(1) is left intact insofar as the business customers are concerned.

[9]                              I would therefore allow the appeal and stay the business customer claims accordingly.

  1.         Background

A.            TELUS Mobile Phone Service Contracts

[10]                          Mobile phone services arrived in Canada in the mid-1980s. For about a decade, the main service providers, including TELUS, billed customers on a per-minute basis. TELUS then started offering per-second billing but returned to per-minute billing in 2002.

[11]                          Throughout the relevant period, TELUS’s monthly plans included a fixed number of minutes for a set fee, with additional charges for excess usage. For example, TELUS offered a plan giving customers 50 minutes of service plus 50 local minutes for $30, with a charge of 30 cents for each additional local minute. Usage was calculated by rounding up call length to the next minute. So, for example, a call lasting one minute and one second was rounded up to two minutes.

[12]                          Each customer who signed up for a per-minute plan entered into a written contract incorporating TELUS’s standard terms and conditions, including an arbitration clause which, broadly speaking, stipulates that all claims arising out of or in relation to the contract, apart from the collection of accounts by TELUS, must be determined by private and confidential mediation and, failing that, private, confidential, and binding arbitration.

B.            Mr. Wellman’s Class Action

[13]                          In 2006, Mr. Wellman entered into a per-minute plan with TELUS. Years later, he filed a proposed class action in Ontario against TELUS alleging that between 2002 and 2010, TELUS’s standard terms and conditions made no mention of the practice of rounding up. The action consists of some two million Ontario residents who entered into per-minute plans with TELUS between August 2006 and July 2010. Seventy percent of the class members (about 1,400,000) are consumers who purchased plans for personal use, while 30 percent (about 600,000) are non-consumers who purchased plans for business use.

[14]                          Mr. Wellman, who pleads that he qualifies as a consumer, alleges that TELUS’s undisclosed practice of rounding up accelerated the depletion of the fixed number of minutes class members purchased and prematurely subjected them to excess usage charges. Consequently, he says, class members were overcharged and were not provided the number of minutes to which they were entitled. On this basis, he asserts three causes of action: breach of contract, breach of the Consumer Protection Act, and unjust enrichment. He claims $500 million in damages and $20 million in punitive damages on behalf of the class.

[15]                          Mr. Wellman brought a motion to have the action certified as a class action under the Class Proceedings Act, 1992, S.O. 1992, c. 6 (“Class Proceedings Act”). In response, TELUS brought a motion to have the proceeding stayed with respect to the non-consumer claims, relying on the arbitration clause contained in its standard terms and conditions.

III.         Statutory Provisions

[16]                          Two statutes lie at the heart of this appeal: the Arbitration Act and the Consumer Protection Act. The key sections of these two pieces of legislation are set out below. As it happens, there is some overlap in terms of section numbers, so care must be taken to keep in mind which statute is being discussed when a section number is referred to in these reasons.

Arbitration Act, 1991, S.O. 1991, c. 17

Definitions

1 In this Act,

“arbitration agreement” means an agreement by which two or more persons agree to submit to arbitration a dispute that has arisen or may arise between them;

. . .

Court Intervention

Court intervention limited

No court shall intervene in matters governed by this Act, except for the following purposes, in accordance with this Act:

  1. To assist the conducting of arbitrations.
  2. To ensure that arbitrations are conducted in accordance with arbitration agreements.
  3. To prevent unequal or unfair treatment of parties to arbitration agreements.
  4. To enforce awards.

Stay

(1) If a party to an arbitration agreement commences a proceeding in respect of a matter to be submitted to arbitration under the agreement, the court in which the proceeding is commenced shall, on the motion of another party to the arbitration agreement, stay the proceeding.

Exceptions

(2) However, the court may refuse to stay the proceeding in any of the following cases:

  1. A party entered into the arbitration agreement while under a legal incapacity.
  2. The arbitration agreement is invalid.
  3. The subject-matter of the dispute is not capable of being the subject of  arbitration under Ontario law.
  4. The motion was brought with undue delay.
  5. The matter is a proper one for default or summary judgment.

Arbitration may continue

(3) An arbitration of the dispute may be commenced and continued while the motion is before the court.

Effect of refusal to stay

(4) If the court refuses to stay the proceeding,

(a) no arbitration of the dispute shall be commenced; and

(b) an arbitration that has been commenced shall not be continued, and anything done in connection with the arbitration before the court made its decision is without effect.

Agreement covering part of dispute

(5) The court may stay the proceeding with respect to the matters dealt with in the arbitration agreement and allow it to continue with respect to other matters if it finds that,

(a) the agreement deals with only some of the matters in respect of which the proceeding was commenced; and

(b) it is reasonable to separate the matters dealt with in the agreement from the other matters.

No appeal

(6) There is no appeal from the court’s decision.

Consumer Protection Act2002, S.O. 2002, c. 30, Sch. A

No waiver of substantive and procedural rights

(1) The substantive and procedural rights given under this Act apply despite any agreement or waiver to the contrary.

Limitation on effect of term requiring arbitration

(2) Without limiting the generality of subsection (1), any term or acknowledgment in a consumer agreement or a related agreement that requires or has the effect of requiring that disputes arising out of the consumer agreement be submitted to arbitration is invalid insofar as it prevents a consumer from exercising a right to commence an action in the Superior Court of Justice given under this Act.

. . .

Non-application of Arbitration Act, 1991

(5) Subsection 7 (1) of the Arbitration Act, 1991 does not apply in respect of any proceeding to which subsection (2) applies unless, after the dispute arises, the consumer agrees to submit the dispute to arbitration.

Class proceedings

8 (1) A consumer may commence a proceeding on behalf of members of a class under the Class Proceedings Act, 1992 or may become a member of a class in such a proceeding in respect of a dispute arising out of a consumer agreement despite any term or acknowledgment in the consumer agreement or a related agreement that purports to prevent or has the effect of preventing the consumer from commencing or becoming a member of a class proceeding.

  1.      Decisions Below

A.            Ontario Superior Court (Conway J.), 2014 ONSC 3318 (CanLII), 63 C.P.C. (7th) 50

[17]                          Before the motions judge, Conway J., TELUS conceded that s. 7(2) of the Consumer Protection Act shielded the consumers from the effect of the arbitration clause. It maintained, however, that the claims of the business customers, who enjoy no protection under the Consumer Protection Act, had to be stayed because they were subject to a valid and binding arbitration agreement.

[18]                          The motions judge disagreed. Relying on the Ontario Court of Appeal’s decision in Griffin, she held that s. 7(5) of the Arbitration Act grants the courts discretion to refuse a stay where it would not be reasonable to separate the matters dealt with in the arbitration agreement from the other matters, thereby allowing all of the matters to proceed in court. She added that pursuant to Griffin, “this discretion may be exercised to allow non-consumer claims (that are otherwise subject to an arbitration clause) to participate in a class action, where it is reasonable to do so” (para. 89). She rejected TELUS’s contention that Griffin had been overruled by this Court’s decision in Seidel.

[19]                          She then turned to the application of s. 7(5) of the Arbitration Act. She found that it would not be reasonable to separate the consumer claims from the business customer claims, observing that:

  •     the consumer claims represented 70 percent of all claims;
  •     the liability and damage issues for both consumers and business customers were the same;
  •     group arbitration was not permitted for the business customer claims; and
  •     separating the two proceedings could lead to inefficiency, risk inconsistent results, and create a multiplicity of proceedings.

[20]                          Given her finding that it would not be reasonable to separate the consumer claims from the business customer claims, the motions judge declined to stay the business customer claims. Further, she applied the five-part test for certification and concluded that it had been met, certifying the action accordingly. TELUS appealed her dismissal of the stay application.

B.            Ontario Court of Appeal (Weiler, Blair and van Rensburg JJ.A.), 2017 ONCA 433 (CanLII), 138 O.R. (3d) 413

(1)           Majority Reasons (van Rensburg J.A., Weiler J.A. Concurring)

[21]                          Justice van Rensburg, writing for herself and Justice Weiler, stated that the “sole issue” on appeal was whether Griffin had been overtaken by Seidel(para. 97). She answered “no”. She considered that Griffin was “consistent in principle with Seidel but was decided in a different legislative context” (para. 59), adding that “[t]he outcomes in the two cases were driven, not by competing attitudes toward arbitration as a dispute resolution mechanism, but by the specific legislative framework in each jurisdiction respecting arbitration and consumer protection” (para. 60). She reasoned that while Seidel recognizes the value and importance of private arbitration and affirms that arbitration clauses will generally be upheld, Griffin “does not contradict the general principle that contractual arbitration clauses presumptively will be enforced” (para. 62).

[22]                          Having determined that Griffin remained good law, she described the s. 7 regime as follows:

While s. 7(1) of Ontario’s Arbitration Act provides that a court “shall” stay a court proceeding commenced by a party to an arbitration agreement on the motion of another party to the agreement, this is subject to the exceptions set out in s. 7(2). The exceptions confer a discretion on the court to intervene (1) where a party entered into the agreement while under a legal incapacity, (2) where the arbitration agreement is invalid, (3) where the subject matter of the dispute is not capable of being the subject of arbitration under Ontario law, (4) where the motion was brought with undue delay and (5) where the matter is a proper one for default or summary judgment . . . .

Section 7(5) of the Arbitration Act is an extension of the court’s discretion and operates where an action has been commenced and the arbitration agreement covers some, but not all, claims. In such a case, the court may grant a partial stay, but only where it is “reasonable to separate the matters dealt with in the agreement from the other matters”. Section 7(5) anticipates that when an action contains claims that are subject to an arbitration agreement and claims that are not, bifurcated proceedings will result when it is reasonable to impose a partial stay. When a partial stay is not reasonable, the proceedings will not be bifurcated.

In Ontario, accordingly, courts have the discretion to refuse to enforce an arbitration clause that covers some claims in an action when other claims are not subject to domestic arbitration. It is this legislative choice that drives the analysis . . . . [paras. 71-73]

[23]                          She went on to consider two further arguments advanced by TELUS. First, relying on this Court’s decision in Bisaillon v. Concordia University, 2006 SCC 19 (CanLII), [2006] 1 S.C.R. 666, TELUS maintained that the procedural device of a class action proceeding does not alter the parties’ substantive right to choose arbitration. Second, TELUS claimed that s. 7(5) cannot be read as conferring jurisdiction over claims that the parties have agreed to submit to arbitration and that such claims are subject to the mandatory stay under s. 7(1).

[24]                          Justice van Rensburg rejected both of these arguments. She stated that TELUS had misinterpreted Seidel and ignored its main teaching: “. . . the enforceability of an arbitration clause depends on the legislative context and whether the legislature intended to limit the freedom to arbitrate” (para. 81). She added that Seidel did not characterize the issue as one of jurisdiction, nor did it speak in terms of procedural versus substantive rights. Instead, the issue was one of statutory interpretation. She also saw nothing in the Arbitration Act suggesting that an arbitration clause removes or ousts the court’s jurisdiction over a dispute, adding that “injecting the question of jurisdiction into the discussion of whether a partial stay of proceedings can be granted under Ontario’s Arbitration Act is both unnecessary and misleading” (para. 86).

[25]                          In the result, the Court of Appeal dismissed the appeal and upheld the motions judge’s decision to refuse a stay.

(2)           Concurring Reasons (Blair J.A.)

[26]                          In brief concurring reasons, Blair J.A. agreed in the result but arrived at this outcome “on a more restricted basis” (para. 100). He agreed that Griffin had not been overtaken by Seidel and that Griffin was dispositive of the issue before the court. However, he expressed “reservations about the correctness of the decision in Griffin as it relates to a partial stay of the non-consumer claims” (para. 101). In particular, he raised two questions which he said were not addressed in Griffin but which “may warrant further consideration” (para. 103).

[27]                          First, he asked, “as a matter of statutory interpretation, may the words ‘other matters’ in s. 7(5) of the Arbitration Act, 1991 — when considered in the context of s. 7 as a whole and the purposes of that Act — be read in a way that cross-pollinates the partial-refusal-to-stay power from a single arbitration agreement context to other arbitration agreements involving different parties and containing arbitration clauses that are otherwise valid and enforceable? Or do ‘other matters’ refer to other matters arising between the same contracting parties but that are not covered by the arbitration agreement between them?” (para. 104). He observed that s. 7 of the Arbitration Act “appears to address circumstances relating to a single arbitration agreement, and not the interconnection between a number of such agreements involving different parties” (para. 104).

[28]                          Second, he asked, “more generally, ought litigants be entitled to sidestep what would otherwise be substantive and statutory impediments to proceeding in court with an arbitral claim by the simple expedient of adding consumer claims (which cannot be stayed, by virtue of the Consumer Protection Act, to non-consumer claims (which generally are subject to a mandatory stay) and wrapping all claims in the cloak of a class proceeding? Put another way, may the Class Proceedings Act  (a procedural rights statute) be used to override the provisions of the Arbitration Act, 1991 affording contractual parties the right to agree to binding arbitration (a substantive right)?” (para. 105).

  1.         Issue

[29]                          In the context of a proposed consumer/non-consumer class action where only the non-consumer claims are subject to an otherwise valid and binding arbitration agreement, does s. 7(5) of the Arbitration Act grant the court discretion to refuse to stay the non-consumer claims?

  1.      Analysis

A.            Standard of Review

[30]                          The issue on appeal is one of statutory interpretation and is therefore properly characterized as a question of law (see Canadian National Railway Co. v. Canada (Attorney General), 2014 SCC 40 (CanLII), [2014] 2 S.C.R. 135, at para. 33). As such, the standard of review is correctness (see Housen v. Nikolaisen, 2002 SCC 33 (CanLII), [2002] 2 S.C.R. 235, at para. 8).

B.            Key Precedents

[31]                          The two main jurisprudential pillars on which the parties’ arguments rest are Griffin and Seidel. The relationship between these two decisions was at the heart of the courts’ decisions below. Accordingly, as a preliminary matter, it will be useful to provide a brief overview of these two key decisions.

(1)           Griffin

[32]                          Griffin involved a proposed class action brought in Ontario on behalf of purchasers — both consumers and non-consumers — of allegedly defective Dell computers. Dell’s standard form agreement contained a mandatory arbitration clause. The plaintiff brought a motion to certify the action as a class proceeding, to which Dell responded with a motion for a stay under s. 7 of the Arbitration Act. The motions judge refused Dell’s request for a stay and granted certification. Dell appealed.

[33]                          Justice Sharpe, writing for a unanimous five-member panel, dismissed the appeal. First, he held that s. 7(2) of the Consumer Protection Act applied such that the arbitration clause did not bar the consumer claims from proceeding in court. He then considered whether a stay of the non-consumer claims should be granted. He set out the general approach to the enforceability of arbitration agreements as follows:

Contracting parties often specify that any disputes arising from their relationship are to be arbitrated rather than litigated in the courts. When they do, they are ordinarily entitled to have their chosen method of dispute resolution respected by the courts. The modern approach, reflected by [Dell Computer Corp. v. Union des consommateurs, 2007 SCC 34 (CanLII), [2007] 2 S.C.R. 801], is to require parties to adhere to their choice and to view arbitration as an autonomous, self-contained and self-sufficient process, presumptively immune from judicial intervention: [Inforica Inc. v. CGI Information Systems and Management Consultants Inc., 2009 ONCA 642 (CanLII), 97 O.R. (3d) 161], at para. 14. [para. 28]

[34]                          Turning to the relevant statutory provisions, Sharpe J.A. interpreted s. 7(5) of the Arbitration Act as “confer[ring] a discretion to grant a partial stay where an action involves some claims that are subject to an arbitration and some claims that are not” (para. 45). He stated that such an order may be made where it would be reasonable to separate the matters dealt with in the arbitration agreement from the other matters. He also referred to a line of cases in which courts refused a stay and allowed the action to proceed on the basis that only some of the litigants were bound by an arbitration clause and the claims were so closely related that it would be unreasonable to separate them (see Radewych v. Brookfield Homes (Ontario) Ltd., 2007 CanLII 23358 (S.C. J.), aff’d 2007 ONCA 721 (CanLII); Johnston v. Goudie (2006), 2006 CanLII 19931 (ON CA), 212 O.A.C. 79; Penn-Co Construction Canada (2003) Ltd. v. Constance Lake First Nation (2007), 66 C.L.R. (3d) 78 (Ont. S.C.J.) aff’d 2008 ONCA 768 (CanLII), 76 C.L.R. (3d) 1; Frambordeaux Developments Inc. v. Romandale Farms Ltd., 2007 CanLII 55364 (Ont. S.C.J.);  New Era Nutrition Inc. v. Balance Bar Co., 2004 ABCA 280 (CanLII), 357 A.R. 184 (involving a provision in the corresponding Alberta legislation that is equivalent to s. 7(5) of the Arbitration Act)).

[35]                          On the facts, he concluded that it would not be reasonable to separate the consumer claims from the non-consumer claims, noting (among other things) that: (1) 70 percent of the claims were consumer claims and would be litigated in the class proceeding; (2) the liability and damages issues were the same for consumers and non-consumers; and (3) group arbitration was not permitted, so the non-consumer claims would have to be arbitrated on an individual basis. He considered that granting a stay would lead to inefficiency, a potential multiplicity of proceedings, and added cost and delay. He also stressed that it was clear on the record that staying any claims would not result in those claims being arbitrated because, as the motions judge put it, it was “fanciful to think that any claimant could pursue an individual claim in a complex products liability case” (para. 1, citing Griffin v. Dell Canada Inc. (2009), 72 C.P.C. (6th) 158 (Ont. S.C.J), at para. 92). Thus, he stated, “[t]he choice is not between arbitration and class proceeding; the real choice is between clothing Dell with immunity from liability for defective goods sold to non-consumers and giving those purchasers the same day in court afforded to consumers by way of the class proceeding” (para. 57).

[36]                          In the result, the Court of Appeal dismissed the appeal. This Court denied Dell’s application for leave to appeal.

(2)           Seidel

[37]                          Seidel, which came not long after Griffin, involved a proposed class action filed in British Columbia against TELUS. As in the present case, the dispute arose out of mobile phone service contracts containing an arbitration clause. The representative plaintiff, a consumer, asserted a variety of claims, including (but not limited to) statutory causes of action under the B.C. Business Practices and Consumer Protection Act, S.B.C. 2004, c. 2 (“BPCPA”), alleging that TELUS falsely represented to her and other consumers how it calculates air time for billing purposes. Section 172 of the BPCPA contains a remedy whereby a person other than a supplier may bring an action to enforce the statute’s consumer protection standards, while s. 3 stipulates that any agreement between the parties that would waive or release the protections afforded by the BPCPA is void.

[38]                          The plaintiff brought an application to have the action certified as a class proceeding. In response, TELUS applied for a stay, relying on the arbitration clause and s. 15 of the B.C. Commercial Arbitration Act, R.S.B.C. 1996, c. 55 (now the Arbitration Act), which provides that if a party to an arbitration agreement commences proceedings against another party to the agreement in respect of a matter to be submitted to arbitration, then a party to the proceeding may apply for a stay, and the court must grant that stay unless the agreement is void, inoperative, or incapable of being performed.

[39]                          The application judge denied TELUS’s application for a stay, holding that it would be premature to determine whether the action should be stayed before dealing with the certification application. The B.C. Court of Appeal allowed TELUS’s appeal, staying the action in its entirety. The plaintiff appealed.

[40]                          Justice Binnie, writing for a five-justice majority, allowed the appeal in part and lifted the stay in relation to the plaintiff’s claims under s. 172 of the BPCPA. At the outset of his reasons, he described the proper approach to determining the validity and enforceability of arbitration clauses contained in commercial contracts:

The choice to restrict or not to restrict arbitration clauses in consumer contracts is a matter for the legislature.  Absent legislative intervention, the courts will generally give effect to the terms of a commercial contract freely entered into, even a contract of adhesion, including an arbitration clause.  The important question raised by this appeal, however, is whether the BPCPA manifests a legislative intent to intervene in the marketplace to relieve consumers of their contractual commitment to “private and confidential” mediation/arbitration and, if so, under what circumstances.

. . .  Respectfully, I believe the Court’s job is neither to promote nor detract from private and confidential arbitration.  The Court’s job is to give effect to the intent of the legislature as manifested in the provisions of its statutes. [paras. 2-3]

[41]                          Justice Binnie acknowledged that “[t]he virtues of commercial arbitration have been recognized and indeed welcomed by our Court” (para. 23, citing Dell Computer Corp. v. Union des consommateurs, 2007 SCC 34 (CanLII), [2007] 2 S.C.R. 801; Rogers Wireless Inc. v. Muroff, 2007 SCC 35 (CanLII), [2007] 2 S.C.R. 921; BisaillonGreCon Dimter inc. v. J.R. Normand inc., 2005 SCC 46 (CanLII), [2005] 2 S.C.R. 401; Desputeaux v. Éditions Chouette (1987) inc., 2003 SCC 17 (CanLII), [2003] 1 S.C.R. 178). He noted, however, that from the perspective of the BPCPA, private, confidential, and binding arbitrationwould “almost certainly inhibit rather than promote wide publicity (and thus deterrence) of deceptive and/or unconscionable commercial conduct” (para. 24), and several provincial legislatures had intervened by placing limitations on arbitration clauses contained in consumer contracts. Accordingly, he stated, the substantive question on appeal was “whether, as a matter of statutory interpretation, s. 172 of the BPCPA contains such a limitation and, if so, its extent and effect on Ms. Seidel’s action” (para. 26).

[42]                          After performing a textual, contextual, and purposive interpretation of s. 172 of the BPCPA, Binnie J. concluded that the provision “constitutes a legislative override of the parties’ freedom to choose arbitration” (para. 40), emphasizing that it “stands out as a public interest remedy” (para. 36). He observed, however, that this “legislative override” was incomplete — unlike in certain other provinces, “the B.C. legislature sought to ensure only that certain claims proceed to the court system, leaving others to be resolved according to the agreement of the parties” (para. 40). He stressed that it was “incumbent on the courts to give effect to that legislative choice” (para. 40).

[43]                          He further clarified that this result was not inconsistent with Dell and Rogers, where the Court denied an attempt by consumers in Quebec to pursue class actions arising out of product supply contracts in the face of arbitration clauses. In those cases, he said, “[t]he outcome turned on the terms of the Quebec legislation” (para. 41); the B.C. legislation was different and supported a different result. In this regard, he stated that “the relevant teaching of Dell and Rogers Wireless is simply that whether and to what extent the parties’ freedom to arbitrate is limited or curtailed by legislation will depend on a close examination of the law of the forum where the irate consumers have commenced their court case. Dell and Rogers Wireless stand . . . for the enforcement of arbitration clauses absent legislative language to the contrary” (para. 42 (emphasis in original)).

[44]                          In the result, the majority allowed the appeal in part, permitting the plaintiff to pursue her claims under s. 172 of the BPCPA but upholding the stay of her other claims pursuant to s. 15 of the Commercial Arbitration Act. While Binnie J. recognized that this could lead to bifurcated proceedings in the event the claims falling outside the scope of s. 172 proceed to arbitration, he noted that “[s]uch an outcome . . . is consistent with the legislative choice made by British Columbia in drawing the boundaries of s. 172 as narrowly as it did” (para. 50).

[45]                          Justices LeBel and Deschamps, writing on behalf of four dissenting justices, were not persuaded that s. 172 of the BPCPA constituted a legislative override of the parties’ freedom to choose arbitration (para. 161).

[46]                          The central theme emerging from Seidel, consistent with its predecessors Dell and Rogers, is that arbitration clauses, even those contained in adhesion contracts (at para. 2), will generally be enforced “absent legislative language to the contrary” (para. 42 (emphasis deleted)). Accordingly, this Court’s task is to apply the relevant principles of statutory interpretation and determine whether s. 7(5) of the Arbitration Act, which has no equivalent in the B.C. legislation at issue in Seidel, contains language overriding the principle that arbitration clauses will generally be enforced.

C.            Interpretation of Section 7 of the Arbitration Act

[47]                          The proper interpretation of s. 7 of the Arbitration Act falls to be determined by applying the modern approach to statutory interpretation: “. . . the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of the Parliament” (E. A. Driedger, Construction of Statutes (2nd ed. 1983), at p. 87; Bell ExpressVu Limited Partnership v. Rex, 2002 SCC 42(CanLII), [2002] 2 S.C.R. 559, at para. 26). To be clear, while my colleagues Abella and Karakatsanis JJ. maintain that the following analysis “represents the return of textualism” (para. 109), I respectfully disagree. Rather, the approach set out below starts with the purpose and scheme of the Arbitration Act and reads the text of s. 7 in light of its full context, in a way that is both conscious of and consistent with the policy choices made by the legislature in the Arbitration Actitself and in other relevant statutes such as the Consumer Protection Act and the Class Proceedings Act. This is no “return to textualism”; instead, it is a careful reading of the statute, considered in its full context. With that in mind, I turn to the purpose and scheme of the Act.

(1)           Purpose and Scheme of the Arbitration Act

[48]                          Throughout the better part of the 20th century, Canadian courts displayed “overt hostility” to arbitration, treating it as a “second-class method of dispute resolution” (Seidel, at para. 89, per LeBel and Deschamps JJ., dissenting (but not on this point)). Courts guarded their jurisdiction jealously and “did not look with favour upon efforts of the parties to oust it by agreement” (Seidel, at para. 93, citing Re Rootes Motors (Canada) Ltd. and Wm. Halliday Contracting Co., 1952 CanLII 304 (ON SC), [1952] 4 D.L.R. 300 (Ont. H.C.J.), at p. 304). The prevailing view was that only the courts were capable of granting remedies for legal disputes and that, as a result, any agreement by the parties to oust the courts’ jurisdiction was contrary to public policy, regardless of the nature of the substantive legal issues (see Seidel, at para. 96). This judicial hostility, coupled with a lack of modern legislation supporting arbitration, inhibited the growth of arbitration in Canada (see Seidel, at para. 89, citing J. B. Casey and J. Mills, Arbitration Law of Canada: Practice and Procedure (2005), at pp. 2-3).

[49]                          It was against this backdrop that, in 1991, the Ontario legislature enacted the Arbitration Act, which was based on the Uniform Arbitration Act adopted by the Uniform Law Conference of Canada a year earlier (online) (see J. K. McEwan and L. B. Herbst, Commercial Arbitration in Canada: A Guide to Domestic and International Arbitrations (loose-leaf), at pp. 1-9 to 1-15). The purpose and underlying philosophy of the Arbitration Act was discussed by Blair J. (as he then was) in Ontario Hydro v. Denison Mines Ltd.1992 Carswell Ont 3497 (WL Can.) (Gen. Div.):

The Arbitration Act, 1991 came into effect on January 1, 1992. It repealed the former Arbitrations Act, R.S.O. 1980 c.25, and enacted a new regime for the conduct of arbitrations in Ontario . . . . It is designed, in my view, to encourage parties to resort to arbitration as a method of resolving their disputes in commercial and other matters, and to require them to hold to that course once they have agreed to do so.

In this latter respect, the new Act entrenches the primacy of arbitration proceedings over judicial proceedings, once the parties have entered into an arbitration agreement, by directing the court, generally, not to intervene, and by establishing a “presumptive” stay of court proceedings in favour of arbitration. [paras. 8-9]

[50]                          During legislative debate on the bill that later became the Arbitration Act, the Attorney General of Ontario stated that one of the “guiding principles” of the Arbitration Act is that “the parties to a valid arbitration agreement should abide by their agreements” (Legislative Assembly of Ontario, Official Report of Debates (Hansard), 1st Sess., 35th Parl., March 27, 1991, at p. 256). He later emphasized that under the new legislation, “the law and the courts will ensure that the parties stick to their agreement to arbitrate” (Legislative Assembly of Ontario, Official Report of Debates (Hansard), 1st Sess., 35th Parl., November 5, 1991, at p. 3384).

[51]                          Issuing a stay of court proceedings is one of the ways in which courts may give effect to the policy that the parties to a valid arbitration agreement should abide by their agreement. As the authors of Commercial Arbitration in Canada: A Guide to Domestic and International Arbitrations explain, a stay of court proceedings is simply “an indirect method of enforcing an arbitration agreement” (McEwan and Herbst, p. 3-29). They continue:

Traditionally it has been said that the courts will not order specific performance of arbitration agreements, in the sense that they will not order parties to proceed to arbitration. Courts do not compel arbitration; enforcement is negative in that they stay the court proceedings in specified circumstances . . . . A party is refused the alternative of having the disputes settled by a court of law, i.e., that party is left in the position of having no remedy other than to proceed by arbitration. [Footnotes omitted; p. 3-29.]

[52]                          The policy that parties to a valid arbitration agreement should abide by their agreement gives effect to the concept of party autonomy — which, in the arbitration context, stands for the principle that parties should generally be allowed to craft their own dispute resolution mechanism through consensual agreement (see J. B. Casey, Arbitration Law of Canada: Practice and Procedure (3rd ed. 2017), at pp. 49, 51 and 195; Alberta Law Reform Institute, Final Report No. 103, Arbitration Act: Stay and Appeal Issues (2013), at para. 10). Consensual arbitration and party autonomy are inseparable — an arbitration agreement is “a product of party autonomy. . . [and] crystallizes the parties’ consent” to private dispute resolution (M. Pavlović and A. Daimsis, “Arbitration”, in J. C. Kleefeld et al. eds., Dispute Resolution: Readings and Case Studies, (4th ed. 2015), at p. 485). It “is essentially a creature of contract, a contract in which the parties themselves charter a private tribunal for the resolution of their disputes” (Astoria Medical Group v. Health Insurance Plan of Greater New York182 N.E.2d 85 (N.Y. 1962), at p. 87, as quoted in Re Arbitration Act (1964), 47 W.W.R. 544 (Alta. S.C.), at p. 555).

[53]                          Of course, the concept of party autonomy, which is always engaged to at least some extent where arbitration agreements are involved, may speak more or less forcefully depending on the context. For example, party autonomy has weaker force in the context of non-negotiated, “take it or leave it” contracts than it does in the context of fully negotiated agreements. It is not surprising, therefore, that legislatures across Canada have put in place various statutes shielding consumers — the weakest and most vulnerable contracting parties (Dell, at para. 90) — from the potentially harsh results of enforcing arbitration agreements contained in consumer agreements, which often take the form of standard form contracts.

[54]                          That said, in the years since the Arbitration Act was passed, the jurisprudence — both from this Court and from the courts of Ontario — has consistently reaffirmed that courts must show due respect for arbitration agreements and arbitration more broadly, particularly in the commercial setting. For example, in Desputeaux, LeBel J. observed “the trend in the case law and legislation . . . to accept and even encourage the use of civil and commercial arbitration” (para. 38). In Seidel, Binnie J. noted that “[t]he virtues of commercial arbitration have been recognized and indeed welcomed by our Court” (para. 23), and he stated that “absent legislative language to the contrary” (para. 42 (emphasis deleted)), “the courts will generally give effect to the terms of a commercial contract freely entered into, even a contract of adhesion, including an arbitration clause” (para. 2). More recently, the Ontario Court of Appeal observed that “[t]he law favours giving effect to arbitration agreements. This is evident in both legislation and in jurisprudence” (Haas v. Gunasekaram, 2016 ONCA 744 (CanLII), 62 B.L.R. (5th) 1, at para. 10).

[55]                          The policy that parties to a valid arbitration agreement should abide by their agreement goes hand in hand with the principle of limited court intervention in arbitration matters. This latter principle finds expression throughout modern Canadian arbitration legislation (see McEwan and Herbst, at pp. 10-7 to 10-11; Casey, at p. 319) and has been described as a “fundamental principle underlying modern arbitration law” (Alberta Law Reform Institute, at para. 19). This principle is embedded most visibly in ss. 6 and 7 of the Arbitration Act, which are both contained in the part of the Act labelled “Court Intervention”. Section 6 reads:

Court intervention limited

No court shall intervene in matters governed by this Act, except for the following purposes, in accordance with this Act:

  1. To assist the conducting of arbitrations.
  2. To ensure that arbitrations are conducted in accordance with arbitration agreements.
  3. To prevent unequal or unfair treatment of parties to arbitration agreements.
  4. To enforce awards.

[56]                          Stated succinctly, s. 6 signals that courts are generally to take a “hands off” approach to matters governed by the Arbitration Act. This is “in keeping with the modern approach that sees arbitration as an autonomous, self-contained, self-sufficient process pursuant to which the parties agree to have their disputes resolved by an arbitrator, not by the courts” (Inforica Inc. v. CGI Information Systems and Management Consultants Inc., 2009 ONCA 642 (CanLII), 97 O.R. (3d) 161, at para. 14).

[57]                          This brings us to the focal point of this appeal: s. 7 of the Arbitration Act.

(2)           Section 7 of the Arbitration Act

(a)   Text

[58]                          The text of s. 7 of the Arbitration Act, which governs stays, is reproduced above in the “Statutory Provisions” section of these reasons. It is also worth noting that the term “arbitration agreement” is defined in s. 1 as “an agreement by which two or more persons agree to submit to arbitration a dispute that has arisen or may arise between them”. The words “matter” and “proceeding” are left undefined, though “proceeding” is defined in r. 1.03(1) of the Ontario Rules of Civil Procedure, R.R.O. 1990, Reg. 194, as “an action or application”.

(b)  Parties’ Positions

[59]                          TELUS takes the position that s. 7(1) establishes a general rule: if a party to an arbitration agreement commences a proceeding, and one or more of the matters in respect of which the proceeding was commenced is dealt with in the arbitration agreement, then the court shall, on the motion of another party to the agreement, stay the proceeding. TELUS further submits that while s. 7(5) permits the court to allow matters that are not dealt with in the arbitration agreement to proceed in court, it does not grant the court discretion to refuse to stay matters that are dealt with in the agreement — those matters must be stayed. In support of its proposed interpretation, TELUS relies primarily (though not exclusively) on Seidel and Alberici Western Constructors Ltd v. Saskatchewan Power Corp., 2016 SKCA 46 (CanLII), 476 Sask. R. 255 (interpreting an equivalent provision in the corresponding Saskatchewan legislation).

[60]                          By contrast, Mr. Wellman contends that if the arbitration agreement in question deals with only some of the matters in respect of which the proceeding was commenced, and it would not be reasonable to separate the matters dealt with in the arbitration agreement from the other matters, then s. 7(5) grants the court an independent, freestanding discretion that is entirely separate from s. 7(1) and (2) to refuse to stay the matters dealt with in the arbitration agreement. In a nutshell, Mr. Wellman submits that s. 7(5) offers a choice between staying some of the matters (i.e., ordering a partial stay) and staying none ofthe matters (i.e., refusing to order any stay). In support of his proposed interpretation, he relies primarily (though not exclusively) on GriffinNew Era Nutrition (interpreting an equivalent provision in the corresponding Alberta legislation), and Briones v. National Money Mart Co., 2013 MBQB 168 (CanLII), 295 Man R. (2d) 101, aff’d 2014 MBCA 57 (CanLII), 306 Man. R. (2d) 129, leave to appeal refused, [2014] 3 S.C.R. ix (interpreting an equivalent provision in the corresponding Manitoba legislation).

[61]                          Although the parties lock horns over whether s. 7(5) of the Arbitration Act grants the court discretion to refuse to stay claims that are otherwise subject to a valid and binding arbitration agreement, they agree on several key points, including the following:

(1)   arbitration clauses contained in commercial agreements will generally be enforced absent legislative override;

(2)   the business customer claims are dealt with in an arbitration agreement;

(3)   by virtue of the Consumer Protection Act, the consumers are entitled to pursue their claims in court; and

(4)   if the two conditions identified in s. 7(5) of the Arbitration Act are satisfied, then the court may stay the proceeding with respect to the matters dealt with in the arbitration agreement and allow it to continue with respect to other matters.

[62]                          These points of agreement narrow the focus of this appeal, placing it squarely on the following issue: Does s. 7(5) of the Arbitration Act grant the court discretion to refuse to stay the business customer claims? With that in mind, I would interpret s. 7 as follows.

(c)   Section 7 Framework

(i)            Section 7(1) — General Rule

[63]                          First, s. 7(1) establishes a general rule: where a party to an arbitration agreement commences a proceeding in respect of a matter dealt with in the agreement — that is, at least one matter in the proceeding is dealt with in the arbitration agreement — the court “shall”, on the motion of another party to the agreement, stay the court proceeding in favour of arbitration. The use of the word “shall” in s. 7(1) indicates a mandatory obligation (see Haas, at paras. 10-12; see also R. Sullivan, Statutory Interpretation (3rd ed. 2016), at p. 90). This general rule reaffirms the concept of party autonomy and upholds the policy underlying the Arbitration Act that parties to a valid arbitration agreement should abide by their agreement.

[64]                          However, as I will explain, this general rule is not absolute.

(ii)           Section 7(2) — List of Five Exceptions

[65]                          Section 7(2) lists five exceptions to the general rule under s. 7(1). Where any of the following conditions are met, the court “may” refuse to stay the proceeding: (1) a party entered into the arbitration agreement while under a legal incapacity; (2) the arbitration agreement is invalid; (3) the subject-matter of the dispute is not capable of being the subject of arbitration under Ontario law; (4) the motion was brought with undue delay; or (5) the matter is a proper one for default or summary judgment. These are “all cases where it would be either unfair or impractical to refer the matter to arbitration” (MDG Kingston Inc. v. MDG Computers Canada Inc., 2008 ONCA 656 (CanLII), 92 O.R. (3d) 4, at para. 36).

(iii)         Section 7(5) — Partial Stay Provision

[66]                          Section 7(5) provides a further exception to the general rule under s. 7(1). Structurally, s. 7(5) consists of two main components:

(1)    Preconditions  Paragraphs 7(5)(a) and (b) set out two preconditions: (a) “the agreement deals with only some of the matters in respect of which the proceeding was commenced” and (b) “it is reasonable to separate the matters dealt with in the agreement from the other matters”.

(2)   Discretionary exception — If both of these preconditions are satisfied, then the court “may stay the proceeding with respect to the matters dealt with in the arbitration agreement and allow it to continue with respect to other matters”.

[67]                          Starting with the two preconditions, the first precondition is met if “the agreement deals with only some of the matters in respect of which the proceeding was commenced”. Put differently, the proceeding must involve both (1) at least one matter that is dealt with in the arbitration agreement and (2) at least one matter that is not dealt with in the arbitration agreement.

[68]                          The second precondition is met if “it is reasonable to separate the matters dealt with in the agreement from the other matters”. Naturally, the “other matters” to which this precondition refers are the matters that are not dealt with in the arbitration agreement, as there are only two categories of “matters” contemplated by s. 7(5): those that are dealt with in the arbitration agreement, and those that are not.

[69]                          If both preconditions are satisfied, then instead of ordering a full stay, the court “may” allow the matters that are not dealt with in the arbitration agreement to proceed in court, though it must nonetheless stay the court proceeding in respect of the matters that are dealt with in the agreement. To illustrate, where the parties to an arbitration agreement have chosen to include “A” but not “B” in their agreement, s. 7(5) allows the court, where the two preconditions are met, to hear a court proceeding in respect of “B”, despite the fact that the proceeding must be stayed in respect of “A”. Because it gives effect to the parties’ agreement to submit only certain types of disputes to arbitration, this interpretation reaffirms the concept of party autonomy and upholds the policy underlying the Arbitration Act that parties to a valid arbitration agreement should abide by their agreement.

[70]                          However, if the preconditions are not met, then the discretionary exception under s. 7(5) is not triggered. This follows as a matter of logic: s. 7(5) can have effect only “if” the two preconditions are satisfied, so if those preconditions are not met, then s. 7(5) has nothing to say. In those circumstances, unless one of the five exceptions listed in s. 7(2) applies, the general rule under s. 7(1) would apply, meaning that the proceeding must be stayed.

[71]                          This interpretation finds support in the academic/practitioner commentary. In Arbitration Law of Canada: Practice and Procedure, J. B. Casey, commenting on equivalent provisions in the relevant Alberta statute, writes:

Section 7(1) sets out the basic provision that if a party proceeds with the court action with respect to matters governed by an arbitration agreement the court “shall” stay the proceeding. Section 7(5) then grants a partial exception to this general provision by providing that the court may allow proceedings to continue with respect to matters not covered by the arbitration agreement provided it is reasonable to separate those matters from the matters that are covered by the arbitration agreement. Nothing in the words of section 7(5) appears to give the court jurisdiction to allow the entire action to proceed where it is not reasonable to separate the matters in dispute and then say section 7(4) permits a stay of the arbitration.

Section 7(5) provides that the court may permit those matters not covered by the arbitration agreement to continue to be litigated if it is reasonable to separate those matters from those which are being arbitrated. It does not deal with the reverse situation; that is where the court finds that the matters cannot reasonably be separated. In such a case, it is submitted, the court would stay its own proceedings to await the outcome of the arbitration, and then determine if the court action needed to proceed. [pp. 349-50]

[72]                          The author goes on to state that “section 7(5) does not permit a court action to proceed and allow a valid arbitration to be stayed simply because the court claims appear to overlap with the arbitration claims and cannot reasonably be separated”, adding that “section 7(5) deals with whether or not to permit separate claims not covered by the arbitration agreement to proceed by court action. It does not deal with whether or not the claims covered by the arbitration agreement should be stayed” (pp. 352-53).

[73]                          Mr. Wellman resists this logic. In effect, he submits that s. 7(5) must be read as meaning “may stay, [or may refuse to stay,] the proceeding with respect to the matters dealt with in the arbitration agreement and allow it to continue with respect to other matters”, and s. 7(5)(b) must be understood as authorizing this refusal where “it is [not] reasonable to separate the matters dealt with in the agreement from the other matters”. Respectfully, I cannot accede to this submission. Mr. Wellman’s interpretation reads language into s. 7(5) that simply is not there. Not only that, it reads language into s. 7(5) that is contained elsewhere in the statute — namely, in s. 7(2), which provides that “the court may refuse to stay the proceeding in any of the following cases”. Section 7(2) thus demonstrates that where the legislature intended to authorize the court to refuse a stay, it did so through the words “may refuse to stay”.

[74]                          In addition, I am respectfully of the view that Mr. Wellman’s contention that s. 7(5) is an independent, standalone provision to be read and applied in isolation from s. 7(1) and (2) cannot be sustained. Grammatically, s. 7(5) uses the definite article “the” in referring to “the proceeding”, “the matters”, and “the arbitration agreement”. The only way of identifying “the proceeding”, “the matters”, and “the arbitration agreement” referred to in s. 7(5) is to look to s. 7(1), which uses indefinite articles in referring to “a proceeding”, “a matter”, and “an arbitration agreement”. Hence, there is a logical and necessary link between the two provisions, which belies the argument that s. 7(5) stands on its own.

[75]                          Furthermore, while I agree that s. 7(5) should be read in the context of the statutory scheme as a whole and that s. 6-3 permits the court to intervene “[t]o prevent unequal or unfair treatment of parties to arbitration agreements”, I also note that s. 6 allows such intervention only “in accordance with this Act”. Therefore, even though Mr. Wellman’s interpretation of s. 7(5) would ostensibly give the court greater scope to intervene in an effort to prevent perceived unequal or unfair treatment of parties to arbitration agreements, the words “in accordance with this Act” indicate that s. 6 was not intended to override or change the meaning of other sections of the Arbitration Act.

[76]                          More fundamentally, Mr. Wellman’s interpretation sits at odds with the policy underlying the Arbitration Act that parties to a valid arbitration agreement should abide by their agreement. If accepted, Mr. Wellman’s interpretation would reduce the degree of certainty and predictability associated with arbitration agreements and permit persons who are party to an arbitration agreement to “piggyback” onto the claims of others. Ultimately, this would reduce confidence in the enforcement of arbitration agreements and potentially discourage parties from using arbitration as an efficient, cost-effective means of resolving disputes. Clearly, this was not what the legislature had in mind when it passed the Arbitration Act.

[77]                          Mr. Wellman and various interveners also raise a number of policy concerns that, they say, support their proposed interpretation, including the following:

  •     Access to justice and the courts — Griffin improves access to justice by removing barriers to seeking relief in court.
  •     Abuse of arbitration clauses in adhesion contracts — Large companies with overwhelming bargaining power should not be permitted to include unfair arbitration clauses in their standard form customer contracts and thereby shield themselves from liability by requiring private, individual arbitration for all disputes, even low-value claims that would be uneconomical to pursue through arbitration.
  •     Shrinking class sizes — The interpretation of s. 7(5) outlined above would cut non-consumers out of consumer/non-consumer class actions where an arbitration agreement is present. Consequently, these class actions will shrink in size, making them less economically viable and decreasing the likelihood that they will be brought in the first place.
  •     Multiplicity of proceedings — Griffin enhances the courts’ ability to avoid a multiplicity of proceedings, which raises the risk of inconsistent results, decreases efficiency, and increases overall costs. Further, s. 138 of the Ontario Courts of Justice Act, R.S.O. 1990, c. C. 43 stipulates that courts shall, as far as possible, avoid a multiplicity of proceedings.
  •     Difficulty distinguishing between consumers and non-consumers — Distinguishing between consumers and non-consumers can be challenging, particularly given the rise of “hybrid consumers” and “near consumers”, making it preferable to treat consumers and non-consumers alike.

[78]                          In their interpretation of s. 7(5), my colleagues Abella and Karakatsanis JJ. rely on many of these policy considerations, placing particular emphasis on the importance of promoting access to justice, the difficulty of distinguishing between consumers and non-consumers, and the potential unfairness caused by enforcing arbitration clauses contained in standard form contracts.

[79]                          While I appreciate these concerns, I am respectfully of the view that they cannot be permitted to distort the actual words of the statute, read harmoniously with the scheme of the statute, its object, and the intention of the legislature, so as to make the provision say something it does not. While policy analysis has a legitimate role in the interpretative process (see Sullivan, at pp. 223-50), the responsibility for setting policy in a parliamentary democracy rests with the legislature, not with the courts. The primary role of the courts, in my view, is to interpret and apply those laws according to their terms, provided they are lawfully enacted. It is not the role of this Court to re-write the legislation.

[80]                          This is particularly so given that the Ontario legislature has already spoken to some of these policy concerns by shielding consumers from the potentially harsh results of enforcing arbitration agreements contained in consumer agreements, which often take the form of standard form contracts. The legislature made a careful policy choice to exempt consumers — and only consumers — from the ordinary enforcement of arbitration agreements. That choice must be respected, not undermined by reading s. 7(5) in a way that permits courts to treat consumers and non-consumers as one and the same.

[81]                          Moreover, as I will develop, I respectfully cannot agree with a number of specific points raised by my colleagues relating to the policy considerations outlined above.

[82]                          First, while my colleagues characterize the “overall purpose” of the Arbitration Act as being to “promote access to justice” (para. 137), it is worth reiterating that this policy objective was by no means the legislature’s sole objective in adopting the Act. As indicated, a number of “guiding principles” inform the Arbitration Act, one of which is that “the parties to a valid arbitration agreement should abide by their agreements” (Legislative Assembly of Ontario, March 27, 1991, at p. 256). Similarly, as Blair J. stated in Denison Mines, the Arbitration Act was designed “to encourage parties to resort to arbitration as a method of resolving their disputes in commercial and other matters, and to require them to hold to that course once they have agreed to do so” (para. 8).

[83]                          Hence, while there can be no doubt as to the importance of promoting access to justice (see Hryniak v. Mauldin, 2014 SCC 7 (CanLII), [2014] 1 S.C.R. 87, at para. 1), this objective cannot, absent express direction from the legislature, be permitted to overwhelm the other important objectives pursued by the Arbitration Act, including ensuring that parties to a valid arbitration agreement abide by their agreement. Respectfully, my colleagues’ approach would undermine the legislature’s stated objective of ensuring parties to a valid arbitration agreement abide by their agreement, reduce the degree of certainty and predictability associated with arbitration agreements, and weaken the concept of party autonomy in the commercial setting. It would expand the opportunities for parties to a valid arbitration agreement — even a heavily negotiated one between sophisticated commercial entities — to avoid their agreement and seek relief in court. This would in turn steer parties away from a “good and accessible method of seeking resolution for many kinds of disputes” that “can be more expedient and less costly than going to court” (Legislative Assembly of Ontario, March 27, 1991, at p. 245).

[84]                          Second, my colleagues stress that the Arbitration Act was designed with a “freely negotiated” arbitration agreement in mind (at para. 131), that TELUS’s “standard form contract hardly represents a bargain freely entered into” (para. 160), and that “[t]o impose arbitration on unwilling parties violates the spirit of the Arbitration Act, 1991 and the arbitral process” (para. 167). But with respect, my colleagues lose sight of the issue actually before this Court. This case is not about debating the merits and demerits of enforcing arbitration clauses contained in standard form contracts. Rather, it is about the proper interpretation of s. 7(5) of the Arbitration Act. Moreover, while my colleagues maintain that the Act was designed with “freely negotiat[ed]” arbitration agreements in mind, nothing in the Arbitration Act suggests that standard form arbitration agreements, which are characterized by an absence of meaningful negotiation, are per se unenforceable. Indeed, this Court’s decision in Seidel — as well as its predecessors Dell, Rogers, and Desputeaux — confirm that the starting presumption is the opposite.

[85]                          Furthermore, Mr. Wellman has not argued, either before this Court or the courts below, that the standard form arbitration agreement in question was unconscionable, which if proven would render it invalid and thereby provide a basis for refusing a stay pursuant to s. 7(2)2 of the Arbitration Act. In my view, arguments over any potential unfairness resulting from the enforcement of arbitration clauses contained in standard form contracts are better dealt with directly through the doctrine of unconscionability, which was the approach taken in Heller v. Uber Technologies Inc., 2019 ONCA 1 (CanLII), rather than indirectly by attempting to stretch the language of s. 7(5) to address a perceived problem it was never designed to address.

[86]                          Third, my colleagues underscore the difficulty in distinguishing between consumers and non-consumers, insisting that TELUS’s interpretation of s. 7(5) would render the class certification process “cumbersome” and potentially turn the certification stage into “a search by the defendant of the precise status of each member of the class” (para. 158).

[87]                          While distinguishing between consumers and non-consumers may be a difficult exercise in certain cases, that difficulty does not, in my view, bear on the proper interpretation of s. 7(5). The challenge identified by my colleagues is a product of two factors: (1) the requirement under the Class Proceedings Act that any person seeking to join a class action must pass through an objective class definition; and (2) the legislature’s decision to accord enhanced protections only to “consumers”, which it chose to define in a particular way under the Consumer Protection Act — namely, as “an individual acting for personal, family or household purposes” but not including “a person who is acting for business purposes” (s. 1). While sorting between consumers and non-consumers may be “cumbersome” in certain cases, this inconvenience does not permit the court to re-cast the legislation as it sees fit in order to avoid such difficulties. Instead, the courts must work within the framework established by the legislature, including at the class certification stage.

[88]                          Furthermore, reading s. 7(5) of the Arbitration Act in a way that permits non-consumers to “tag along” with consumers on the basis that it would be “cumbersome” to sort between the two would also allow commercial entities to find the inside of a courtroom despite having agreed to arbitration, even where the arbitration agreement was fully negotiated. Again, this would reduce the degree of certainty and predictability associated with arbitration agreements and permit parties to those agreements to “piggyback” onto the claims of others.

[89]                          It would, of course, be open to the Ontario legislature to respond to the policy concerns outlined above, should it see fit to do so. While I make no comment on the wisdom of any particular reform, a range of responses are theoretically available. To offer just one example, it could amend the Arbitration Act to grant the courts discretion to refuse to stay the proceeding where the arbitration agreement deals with some but not all of the matters in dispute. In this regard, I note that in 2002, the Uniform Arbitration Act (1990), the model legislation on which the Arbitration Act was based, was amended to provide as follows:

7 (1) If a party to an arbitration agreement commences a proceeding in respect of a matter that another party to the arbitration agreement is entitled to submit to arbitration under the agreement, the court in which the proceeding is commenced shall, on the motion of the other party, stay the proceeding.

. . .

(3) Despite subsection (1), where an arbitration agreement deals with one or more but not all of the matters in dispute in respect of which the proceeding was commenced, the court may

(a)   refuse to stay the proceeding, or

(b)   stay the proceeding with respect to the matters in dispute dealt with in the arbitration agreement and allow the proceeding to continue with respect to the other matters in dispute.

(4) In making a decision under subsection (3), the court shall have regard to

(a)   the importance of enforcing arbitration agreements, and

(b)   whether it is reasonable to separate the matters in dispute dealt with in the arbitration agreement from the other matters in dispute. [Emphasis added.]

(Uniform Law Conference of Canada, Arbitration Amendment Act (2002) (online))

[90]                          Lastly, while s. 138 of the Courts of Justice Act stipulates that courts “shall” avoid a multiplicity of proceedings, it tempers this language by indicating that the court must do so only “as far as possible”. Accordingly, where the application of an Ontario statute, properly interpreted, leads to a multiplicity of proceedings, the court must give effect to the will of the legislature, even if the consequence is to potentially create a multiplicity of proceedings. This is consistent with Seidel, where the Court recognized that even where a multiplicity of proceedings could result, the court must nonetheless give effect to the “legislative choice” embodied in the legislation in question (para. 50). Indeed, here, s. 7(5) of the Arbitration Act expressly contemplates bifurcation of proceedings, as it permits the court to order a partial stay, thereby potentially resulting in concurrent arbitration and court adjudication, where the two preconditions outlined in s. 7(5)(a) and (b) are met. In theory, the Arbitration Act could be amended to grant the courts broad discretion to refuse a stay where doing otherwise could result in a multiplicity of proceedings, but the legislature has not taken this step. For these reasons, while a multiplicity of proceedings can cause practical difficulties, this concern cannot be permitted to trump the language of the statute.

(iv)         Section 7(6) — Bar on Appeals

[91]                          Finally, s. 7(6) provides simply that “[t]here is no appeal from the court’s decision”. Given the absence of any qualifying language, s. 7(6) must be taken as referring to a “decision” made under any subsection contained in s. 7. This would include, for example, a decision to stay the proceeding under s. 7(1), a decision to refuse a stay under s. 7(2), or a decision to order a partial stay under s. 7(5).

[92]                          I now turn to the application of this framework.

D.            Application

(1)           The Proceeding

[93]                          The “proceeding” in this case is simply the class action proceeding commenced by Mr. Wellman, who claims to be a “consumer” under the Consumer Protection Act. This proceeding serves as a procedural vehicle through which multiple parties can pursue their individual claims together (see Bisaillon, at para. 17). As indicated, some of these parties are consumers, while others are business customers.

(2)           The Arbitration Agreements

[94]                          This proceeding involves not a single arbitration “agreement”, but rather a constellation of “agreements”, each taking the form of a standard form arbitration clause incorporated into every individual mobile phone service contract between TELUS and each of its customers, consumers and non-consumers alike. Each agreement contains identical terms regarding the types of matters covered by the agreement. Broadly speaking, they stipulate that all claims arising out of or in relation to the contract, apart from the collection of accounts by TELUS, shall be determined through mediation and, failing that, arbitration. In this way, the agreements identify the “matters” in respect of which arbitration is mandatory, as well as the “matters” in respect of which arbitration is not mandatory: disputes over collections are not subject to mandatory arbitration, whereas disputes over any other matter arising out of or in relation to the contract are.

[95]                          This brings us to s. 7 of the Arbitration Act.

(3)           Section 7 of the Arbitration Act

[96]                          Beginning with s. 7(1) of the Arbitration Act, the sole “matter” at issue in the proceeding commenced by Mr. Wellman, who is a party to an arbitration agreement, is alleged overbilling. This matter is dealt with in the arbitration agreements into which the consumers and business customers entered. Therefore, because there is at least one matter in the proceeding that is dealt with in the arbitration agreements, the general rule under s. 7(1) would ordinarily require a stay of the proceeding as a whole, leaving both consumers and business customers locked out of court.

[97]                          But the Consumer Protection Act offers the consumers a key to the courtroom. Section 7(2) of the Consumer Protection Act renders arbitration clauses contained in a “consumer agreement”, defined in s. 1 as an agreement between a “consumer” and a “supplier” in which “the supplier agrees to supply goods or services for payment”, “invalid insofar as it prevents a consumer from exercising a right to commence an action in the Superior Court of Justice given under this Act.” Further, s. 8(1) gives consumers the right to commence a class action, or become members of a class action, in respect of a dispute arising out of a consumer agreement.  Read together, these two provisions render the arbitration agreements entered into by the consumers invalid to the extent that they would otherwise prevent the consumers from commencing or joining a class action of the kind commenced by Mr. Wellman. To this extent, the provisions of the Consumer Protection Act constitute a “legislative override” of the consumer arbitration agreements (Seidel, at para. 40). Moreover, since s. 7(2) of the Consumer Protection Act applies, s. 7(5) of that statute is triggered. That provision stipulates that “subsection 7 (1) of the Arbitration Act, 1991 does not apply in respect of any proceeding to which subsection (2) applies unless, after the dispute arises, the consumer agrees to submit the dispute to arbitration”. In this way, s. 7(5) of the Consumer Protection Act shields the consumers in this case from a stay under s. 7(1) of the Arbitration Act.

[98]                          The business customers, however, do not qualify as “consumers” under the Consumer Protection Act, and as such they cannot invoke the protections that the consumers enjoy under ss. 7(2), 7(5), and 8 of that statute. To be clear, although s. 7(5) of the Consumer Protection Act refers to “any proceeding to which subsection (2) applies”, I am not persuaded that the use of the word “proceeding” shields non-consumers involved in the proceeding from a mandatory stay under s. 7(1) of the Arbitration Act. To reason otherwise would extend the protections of the Consumer Protection Act to persons who are not “consumers” and, in turn, erode the policy underlying the Arbitration Act that parties to a valid arbitration agreement should abide by their agreement. If non-consumers bound by a valid arbitration agreement could do an end run around s. 7(1) of the Arbitration Act simply by joining their claim with that of a consumer and pointing to s. 7(5) of the Consumer Protection Act, then this provision could become a vehicle for “piggybacking” non-consumer claims onto consumer claims. Indeed, if such an interpretation were accepted, a class action proceeding brought on behalf of millions of non-consumers who are each bound by an arbitration agreement would, if certified, be permitted to proceed in court in its entirety so long as a single consumer joined the class. In this way, the inclusion of a single consumer would be enough to open the courthouse doors to all. By contrast, interpreting s. 7(5) of the Consumer Protection Act in a way that restricts its application to consumers leads to a sound result that upholds the legislative objectives underlying both statutes: it preserves the protections afforded solely to “consumers” under the Consumer Protection Act and gives effect to the policy underlying the Arbitration Act that parties to a valid arbitration agreement should abide by their agreement.

[99]                          Having concluded that the business customers cannot avoid a stay under s. 7(1) of the Arbitration Act by turning to the Consumer Protection Act, they are left with only two potential avenues for avoiding a stay: ss. 7(2) and 7(5) of the Arbitration Act. But since Mr. Wellman has not argued that any of the five exceptions listed in s. 7(2) applies, s. 7(5) stands as the business customers’ only possible pathway into court. Yet, as I will explain, that provision has no application on these facts.

[100]                     As indicated, s. 7(5) of the Arbitration Act is engaged only where the two preconditions set out in s. 7(5)(a) and (b) are satisfied. The first precondition is that the proceeding must involve both (1) at least one matter that is dealt with in the arbitration agreement and (2) at least one matter that is not. However, that is not the case here. Instead, as I have explained, the proceeding involves a single matter — alleged overbilling — and that matter is dealt with in the arbitration agreements into which the consumers and business customers entered. As such, the first precondition is not met, so s. 7(5) has nothing to say.

[101]                     To illustrate how s. 7(5) could apply in a dispute between TELUS and its business customers, consider a hypothetical scenario in which the proceeding involves both (1) a claim advanced by business customers over alleged overbilling and (2) a claim advanced by TELUS for the collection of accounts. The former matter is covered by the arbitration agreements, whereas the latter is not. As such, this hypothetical proceeding would meet the first precondition. Hence, if the court were to determine that it would be reasonable to separate the two matters such that the second precondition is also met, then s. 7(5) would permit the court to stay the proceeding in respect of the matter dealt with in the arbitration agreements (i.e., alleged overbilling) and allow the proceeding to continue in respect of the matter not dealt with in the arbitration agreements (i.e., the collection of accounts). Alternatively, if the court were to determine that it would not be reasonable to separate the two matters such that the second precondition is not met, then the general rule under s. 7(1) would apply, meaning the court must stay the proceeding.

[102]                     But since s. 7(5) does not apply in this case, the proceeding must be stayed pursuant to the general rule under s. 7(1). And although the word “proceeding” is used without qualification in s. 7(1), seemingly in the sense of “proceeding as a whole”, I am of the view that the stay in this case must be restricted to the parties who are legally bound by an arbitration agreement — namely, TELUS and the business customers. As indicated, the Consumer Protection Act grants the consumers the right to seek relief in court. The Arbitration Act cannot deprive them of that right. Moreover, taking a purposive approach, a principal object of the s. 7 framework is to ensure parties to a valid arbitration agreement abide by their agreement; it is not to keep parties who either never agreed to or are not bound by an arbitration agreement out of court. The Arbitration Act has no business interfering with these litigants’ procedural or substantive rights, and it certainly has no business denying them the right to seek a remedy in court simply because they happen to be tangentially associated with others who did agree to and are bound by an arbitration agreement.

[103]                     In sum, I conclude that the motions judge and the Court of Appeal erred in law by interpreting s. 7(5) of the Arbitration Act incorrectly and refusing to order a stay that, under s. 7(1), was mandatory. At the end of the day, s. 7(5) does not, in my view, permit the court to ignore a valid and binding arbitration agreement.

(4)           Section 7(6) — Bar on Appeals

[104]                     Finally, I note that the court below did not address the potential application of s. 7(6) of the Arbitration Act, and the matter was discussed only briefly during oral argument before this Court. Neither of the parties has suggested that the s. 7(6) bar applies. In the absence of full submissions, I do not consider it appropriate to make a final ruling on the matter.

VII.      Conclusion

[105]                     In the result, I would allow the appeal and stay the business customer claims. Given this result, TELUS is entitled to its costs in this Court and in the Court of Appeal. However, since TELUS’s motion for a stay was heard together with Mr. Wellman’s successful application for certification, it would not in my view be appropriate to grant TELUS costs in the Superior Court. I would therefore set aside the costs award made by the Superior Court and order that the parties bear their own costs in that court.

The reasons of Wagner C.J. and Abella, Karakatsanis and Martin JJ. were delivered by

                     Abella and Karakatsanis JJ. —

[106]                     This appeal involves a class action against TELUS Communications Inc. The mandatory, non-negotiable contract which all purchasers of TELUS cell phone plans must sign, requires individual arbitration for any claim, and prevents court remedies such as class actions. Legislation in Ontario exempts consumers from the operation of these compulsory arbitration clauses. Businesses, on the other hand, no matter their size, and even if they are pursuing identical claims as consumers, can be caught by the operation of the arbitration clause in the contract. The Ontario courts, however, have recognized the denial of access to justice created by this disparity and have interpreted the Arbitration Act, 1991 in a way that gives a court discretion to redress this anomaly and allow both sets of claimants to access a class action.

[107]                     Statutory interpretation is the art of inferring what words mean. Sometimes the meaning is obvious, either because of the clarity of the language or of its relationship to the legislative context. But sometimes interpreting words literally in isolation, undermines the policy objectives of the statutory scheme. The debate between those who are “textualists” and those who are “intentionalists” was resolved in Canada in 1998 when this Court decided that “there is only one principle or approach, namely, the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament.” We do not just look at the words. Moreover, in Ontario all statutes are to be read in accordance with s. 10 of the Interpretation Act, R.S.O. 1990, c. I. 11 which states that: every Act “shall be deemed to be remedial” and shall “receive such fair, large and liberal construction and interpretation as will best ensure the attainment of the object of the Act according to its true intent, meaning and spirit”.

[108]                     In other words, words matter, policy objectives matter, and consequences matter.

[109]                     The majority’s approach, with respect, in effect represents the return of textualism. The words have been permitted to dominate and extinguish the contextual policy objectives of both the Arbitration Act, 1991, S.O. 1991, c. 17 and the Class Proceedings Act, 1992, S.O. 1992, c. 6, creating a dispute-resolution universe that has the effect of forcing litigants to spend thousands of dollars to resolve a dispute worth a fraction of that cost; denies others meaningful access to a remedy if they are not prepared, or cannot afford to, engage in a cost-benefit losing proposition; and invites the very proliferation of proceedings a class action was invented to avoid. The result of these disincentives is that business consumers will simply not enforce their rights.

[110]                     That is why the Ontario Court of Appeal has consistently interpreted the words of s.7(5) of the Arbitration Act, 1991 in a way that avoids the unpalatable consequences while invigorating the purposes and effective functioning of the relevant legislative schemes. This aligns with the Court’s modern approach to statutory interpretation and should, as a result, be endorsed by this Court.

[111]                     The Ontario Legislature enacted the Arbitration Act, 1991, to allow willing parties to pursue arbitration as an alternate form of dispute resolution. To ensure expedient resolution and lower litigation costs, the Arbitration Act, 1991 limited court intervention in arbitrable disputes. But it also gave judges discretion to permit court proceedings in certain limited circumstances, such as where the arbitration agreement was manifestly unfair.

[112]                      The issue in this appeal is how far that judicial discretion extends under the Arbitration Act, 1991. Specifically, the question is whether s. 7(5) gives judges the discretion to hear parties covered by an arbitration agreement when the same issue is the subject of litigation in the courts. Section 7(5) states:

Agreement covering part of dispute

(5) The court may stay the proceeding with respect to the matters dealt with in the arbitration agreement and allow it to continue with respect to other matters if it finds that,

(a) the agreement deals with only some of the matters in respect of which the proceeding was commenced; and

(b) it is reasonable to separate the matters dealt with in the agreement from the other matters.

[113]                     Since 2002, the Ontario Court of Appeal has interpreted s. 7(5) as granting the discretion to stay matters that would otherwise be subject to arbitration. Similarly, for nearly a decade, the Ontario Court of Appeal has interpreted s. 7(5) as permitting otherwise arbitrable matters to be joined with class actions in the public interests of avoiding duplicative proceedings, increased costs, and the risk of inconsistent results.

[114]                     This interpretation, in our respectful view, aligns with the text and scheme of the provisions and is consistent not only with the purposes motivating the enactment of the Arbitration Act, 1991 but also with the purpose of s. 7(5) itself.

[115]                     Inour view, where a proceeding includes both matters covered by an arbitration agreement and other matters that are not, s. 7(5) gives a judge discretion to allow the entire proceeding to continue in court, even if some parties would otherwise be subject to an arbitration clause.

Background

[116]                     The claim is that TELUS, a Canadian cellular service provider, had for a number of years, and without notifying its customers, rounded the times of cellular phone calls up to the next minute. This resulted in overcharging clients on their monthly bills by small amounts.

[117]                     TELUS used the same standard-form contract for business and consumer clients, who initiated a class action together against TELUS. The named plaintiff in this appeal, Avraham Wellman, is a consumer and the class representative.

[118]                     TELUS’s standard-form contract is non-negotiable. It contains a dispute resolution clause requiring mediation, and failing resolution, arbitration of any disputes other than in respect of the collection of accounts by TELUS. This arbitration clause is inapplicable to consumers because Ontario’s consumer protection legislation renders an arbitration clause in a consumer contract invalid insofar as it prevents a consumer from initiating court proceedings (Consumer Protection Act, 2002, S.O. 2002, c. 30, Sch. A, s. 7).

[119]                     On its face, the arbitration clause is valid for business clients. For this reason, TELUS applied to stay the business clients’ claims and have them struck from the class proceeding, arguing that those claims had to be resolved by arbitration.

[120]                     The provisions of the Arbitration Act, 1991 dealing with stays are found in s. 7, which states:

Stay

7 (1) If a party to an arbitration agreement commences a proceeding in respect of a matter to be submitted to arbitration under the agreement, the court in which the proceeding is commenced shall, on the motion of another party to the arbitration agreement, stay the proceeding.

Exceptions

(2) However, the court may refuse to stay the proceeding in any of the
following cases:

  1. A party entered into the arbitration agreement while under a legal incapacity.
  2. The arbitration agreement is invalid.
  3. The subject-matter of the dispute is not capable of being the subject of arbitration under Ontario law.
  4. The motion was brought with undue delay.
  5. The matter is a proper one for default or summary judgment.

Arbitration may continue

(3) An arbitration of the dispute may be commenced and continued while the motion is before the court.

Effect of refusal to stay

(4) If the court refuses to stay the proceeding,

(a) no arbitration of the dispute shall be commenced; and

(b) an arbitration that has been commenced shall not be continued, and anything done in connection with the arbitration before the court made its decision is without effect.

Agreement covering part of dispute

(5) The court may stay the proceeding with respect to the matters dealt with in the arbitration agreement and allow it to continue with respect to other matters if it finds that,(a) the agreement deals with only some of the matters in respect of which the proceeding was commenced; and

(b) it is reasonable to separate the matters dealt with in the agreement from the other matters.

[121]                     As previously noted, the provision at issue in this appeal is s. 7(5), which Ontario courts have interpreted to allow business clients who would otherwise be bound by an arbitration agreement to join in class proceedings with consumers.

[122]                     Both the motions judge and the majority of the Court of Appeal in this case relied on Griffin v. Dell Canada Inc., 2010 ONCA 29 (CanLII), 98 O.R. (3d) 483, which was decided by a five member panel of the Ontario Court of Appeal. Thaddeus Griffin, who had purchased a Dell notebook computer through his personal business, joined with consumers in a class action alleging deficiencies in Dell’s products. Dell’s standard-form sales agreement contained a clause requiring that all disputes be submitted to arbitration.

[123]                     Dell’s position at the certification stage was that business clients should not be allowed to join consumers in the class action, and their claims should be stayed and directed to individual arbitration. Lax J. held that it was “fanciful to think that any claimant could pursue an individual claim in a complex products liability case” and that enforcing Dell’s arbitration clause would have the effect of immunizing Dell “from accounting to class members for any wrong it may have caused” (Griffin v. Dell Canada Inc. (2009), 72 C.P.C. (6th) 158 (S.C.J.), at paras. 92-93).

[124]                     The Ontario Court of Appeal confirmed the decision to allow Griffin’s claim to proceed in court. It found that s. 7(5) gives a motions judge the discretion to refuse a partial stay where an action involves some claims that are subject to an arbitration agreement and some that are not, because

. . . it would not be reasonable to separate the consumer from the non-consumer claims. We should, therefore, refuse a partial stay and allow all the claims to proceed under the umbrella of the class proceeding.

Granting a stay of the non-consumer claims would lead to inefficiency, a potential multiplicity of proceedings, and added cost and delay. This would be contrary to the Courts of Justice Act, s. 138, which provides that “as far as possible, a multiplicity of legal proceedings shall be avoided”, and contrary to the jurisprudence on the reasonableness of partial stays under s. 7(5) of the Arbitration Act, 1991. [paras. 46-47]

[125]                     A number of cases were relied on to support this interpretation (Radewych v. Brookfield Homes (Ontario) Ltd.[2007] O.J. No. 2483 (QL), 158 A.C.W.S. (3d) 523 (S.C.J.), aff’d 2007 ONCA 721 (CanLII); Johnston v. Goudie (2006), 2006 CanLII 19931 (ON CA), 212 O.A.C. 79, at para. 18; Penn-Co Construction Canada (2003) Ltd. v. Constance Lake First Nation (2007), 66 C.L.R. (3d) 78 (S.C.J.), at para. 31, aff’d 2008 ONCA 768 (CanLII), 76 C.L.R. (3d) 1; Frambordeaux Developments Inc. v. Romandale Farms Ltd.[2007] O.J. No. 4917 (QL), 162 A.C.W.S. (3d) 711 (S.C.J.), at para. 34New Era Nutrition Inc. v. Balance Bar Co., 2004 ABCA 280 (CanLII), 245 D.L.R. (4th) 107, at paras. 37-38.)

[126]                     In the case before us, TELUS brought a similar motion to stay the proceedings with respect to the business customer claims. Conway J. relied on the Ontario Court of Appeal’s decision in Griffin in concluding that s. 7(5) of the Arbitration Act, 1991 expressly grants the court the discretion to determine whether it is reasonable to separate the matters dealt with in an arbitration agreement from other matters in the litigation.  If the court does not consider it reasonable to separate them and refuses a partial stay, all matters could proceed, notwithstanding the arbitration clause.  Pursuant to Griffin, she held that this discretion could be exercised to allow non-consumer claims to be joined with a consumer class action, where it is reasonable to do so. Since there is no group arbitrationpermitted for the non-consumer claims, separating the two proceedings could lead to inefficiency, inconsistent results and a multiplicity of proceedings.

[127]                     TELUS appealed the decision to the Ontario Court of Appeal. Justice van Rensburg, writing for the majority, agreed with the motions judge.

[128]                     TELUS appealed, arguing that Griffin was wrongly decided.

[129]                     Unlike our colleagues, we agree with van Rensburg J.A. and would dismiss the appeal.

Analysis

[130]                     A provision must be assessed in all its textures — language, purpose, effect — to prevent the suffocation of its meaning by a technical literal reading of the words. As Moldaver J. noted in R. v. Alex, 2017 SCC 37 (CanLII), [2017] 1 S.C.R. 967: “[t]his Court has repeatedly observed that plain meaning alone is not determinative and a statutory interpretation analysis is incomplete without considering the context, purpose and relevant legal norms” (para. 31). What is required is an interpretation that is anchored in parliamentary intention, statutory language, jurisprudence, and practice  (Rizzo & Rizzo Shoes, at paras. 20-41). In other words, the interpretation must be “reasonable and just” (Ruth Sullivan, Sullivan on the Construction of Statutes (6th ed. 2014), at § 2.9).

[131]                     Ontario’s Arbitration Act1991 was enacted to allow parties to design their own settlement processes and resolve their disputes outside the courts. It anticipated two or more parties freely negotiating their arbitral process. Prior to the 1991 legislation, judges exercised considerable discretion to stay arbitration proceedings — even where all the parties had agreed to submit their differences to arbitration. The courts’ use of this power was controversial because it was seen to represent judicial interference with the parties’ freedom to contract.

[132]                     Ontario’s Arbitration Act, 1991 was based on the Uniform Arbitration Act (1990) adopted by the Uniform Law Conference of Canada (online), which resulted from the Alberta Law Commission’s 1989 report on the adoption of uniform arbitration legislation. It was modeled, in part, on the Alberta Institute of Law Research and Reform’s 1988 report Proposals for a New Alberta Arbitration Act (Report No. 51). In that report, the Institute recommended a substantial overhaul of the existing legislation. Specifically, the Institute proposed limiting the courts’ ability to refuse to stay litigation where the parties had agreed to arbitrate. The proposal found expression in s. 7(1) of the Arbitration Act1991, which mandates that if a party to an arbitration agreement tries to pursue a remedy to an arbitrable dispute in court, a judge must stay the court proceeding. Limited exceptions to this general rule are found in s. 7(2).

[133]                     The proposal also included, without commentary, a provision giving the court discretion to refuse a stay of litigation if the “arbitration agreement upon which the application is based . . . does not cover the dispute, or . . . does not bind all parties to the dispute” (s. 8(2) (emphasis added)). This provision is the progenitor of s. 7(5) of the current Arbitration Act, 1991.

[134]                     This second proposed provision suggested that courts have discretion to allow court proceedings to go ahead in two circumstances: (1) where an arbitration does not cover all of the issues raised in the dispute, and (2) where both parties and non-parties to an arbitration agreement commence litigation against the same defendant.

[135]                     The policy reasons for these exceptions were the same as those which animated the Arbitration Act, 1991, namely, access to justice, expediency, and limiting the role of the courts to circumstances where their participation would improve efficiency and reduce delay. At the introduction of the Arbitration Act, 1991, the then-Attorney General, Howard Hampton, said:

One of the commitments this government has made to the people of Ontario is to improve access to justice in the province. The fulfilment of this commitment will involve a wide range of programs and policies. It will also include initiatives in law reform to simplify the often intimidating legal system for the use of the public.

In this context I will be introducing today for first reading the Arbitration Act, 1991. Arbitration is a good and accessible method of seeking resolution for many kinds of disputes. It can be more expedient and less costly than going to court. The parties can design their own procedures and select appropriate arbitrators.

. . .

The new statute will make it easier for people to submit private disputes to resolution by arbitration. It will do so in several ways:

First, when people have agreed to go to arbitration, the act will help ensure that all parties abide by this agreement.

Second, the ability of the courts to intervene in an arbitration is spelled out precisely, and as a result, the role of the courts will be constructive and less likely to be used by reluctant parties to delay the proceedings.

(Legislative Assembly of Ontario, Official Report of Debates (Hansard), 1st Sess., 35th Parl., March 27, 1991, at p. 245 (emphasis added).)

[136]                     At First Reading of the Bill the same day, the Attorney General further explained:

The guiding principles of the new Arbitration Act are that the parties to a valid arbitration agreement should abide by their agreements, that they should be free to design the process for their own arbitration as they see fit within the limits of overall fairness, that opportunities for delay should be minimized, and finally that awards made in arbitrations should be readily enforceable and should be reviewable by the courts only for specific defects.

(Legislative Assembly of Ontario, at p. 256 (emphasis added).)

[137]                     These statements outline the guiding rationales of the legislation, as well as the means by which they were intended to be effected. The overall purpose of the Arbitration Act, 1991 was to promote access to justice. Its chosen means of achieving that goal was to promote accessibility by giving parties the choice of resolving disputes outside the court system. The reason for creating this option was a recognition that the court system could be costly and slow. The courts’ discretion to intervene in arbitrable matters was therefore narrowed to further the goals of expedient dispute resolution.

[138]                     The Arbitration Act, 1991 provides a scheme for the effective private arbitration of disputes covered by an arbitration agreement. It sets out default rules governing the conduct of arbitrations and the role of courts in relation to private arbitrations. Various provisions address when judicial intervention is warranted, when judicial support is necessary to give effect to private arbitration processes and awards, and when appeals to the court are required. Broadly speaking, the Arbitration Act, 1991 seeks to facilitate timely and efficient dispute resolution.

[139]                     Ontario courts have, since 1998, consistently highlighted the purposes of the Arbitration Act, 1991 in interpreting s. 7(5) as granting a discretion to override arbitration agreements where it would be unreasonable to separate the arbitrable and non-arbitrable matters. In Rosedale Motors Inc. v. Petro-Canada Inc. (1998), 1998 CanLII 14721 (ON SC), 42 O.R. (3d) 776 (S.C.J.), Rosedale Motors attempted to litigate a number of matters, some of which were governed by an arbitration agreement while others were not. Petro-Canada Inc. sought a stay of the arbitrable matters. Sharpe J. concluded that “[t]he language of the Arbitration Act, 1991, S.O. 1991, c. 17, s. 7(5) supports the existence of a discretion to refuse a stay where it is not reasonable to separate the matters dealt with in the agreement from the other matters in dispute between the parties” (pp. 783-84).

[140]                     The Ontario Court of Appeal adopted this interpretation in Brown v. Murphy (2002), 2002 CanLII 41652 (ON CA), 59 O.R. (3d) 404 (C.A.), and endorsed it in the context of multi-party proceedings in Radewych.

[141]                     The following year, in Penn-Co Construction, the Court of Appeal highlighted the practical necessity of allowing courts to hear broad claims, some of which would otherwise be subject to arbitration proceedings. In that case, Penn-Co had claimed relief against Constance Lake First Nation beyond the scope of what was identified in the agreement as being arbitrable. They had also claimed against several other parties who were not contractually bound by the arbitration clause. Subsequently, Penn-Co tried to enforce the arbitration agreement against some of the parties. The Court of Appeal upheld the motions judge’s ruling that permitting arbitration of some claims and staying the other claims would involve duplication of effort, extra cost and inconvenience, and risk inconsistent results (para. 5).

[142]                     This decision was followed by Griffin, discussed earlier in these reasons, in which the Court of Appeal found that duplication, inefficiency in the litigation process, and correspondingly higher costs — the very problems the Arbitration Act, 1991 sought to solve — were key to determining when the discretion would apply. The court discussed how cumbersome and inefficient it would be to separate the proceedings, pointing out that a consumer class action would take place whether or not the business customers’ claims were joined. The liability and damages issues would be identical. Carving out the business customers’ claims would mean unnecessary duplication and expense. Moreover, individual arbitration would be inefficient, since

[a] partial stay would require an examination of each claim and a determination of whether it was a consumer or non-consumer claim. This is bound to be contentious in the case of many purchasers, as laptop computers are portable and regularly used for a variety of purposes. Dividing the claims as between those to be litigated and those to be arbitrated would be costly and time-consuming. [para. 51]

[143]                     This interpretation of s. 7(5) has been followed by Ontario courts since the Court of Appeal’s decision in Griffin in 2010.

[144]                     Before this Court, Mr. Wellman argues that the Ontario courts have correctly concluded that s. 7(5) applies whenever a court proceeding includes arbitrable and non-arbitrable matters — whether in circumstances where an arbitration agreement does not cover all of the issues put before the court, or when multiple parties commence proceedings, some of whom are bound by arbitration agreements and others not. In either case, Mr. Wellman says, a court has discretion to either allow the entire matter to proceed in court or stay the arbitrable matters so they can be decided by the arbitrator. In deciding whether to grant a partial stay of the arbitrable matters under s. 7(5), the judge must determine whether the arbitrable and non-arbitrable claims can be reasonably separated.

[145]                     TELUS, on the other hand, seeks to overturn Griffin, arguing that s. 7(5) applies only when parties who are bound by an arbitration agreement seek to litigate in the courts and there are some matters that are not specifically referred to in the arbitration agreement. A judge can either allow those specific non-arbitrable matters to continue in court or stay them pending the rest of the arbitration. TELUS submits that s. 7(1) of the Arbitration Act, 1991 entirely precludes courts from hearing any matter covered by an arbitration agreement, and s. 7(5) only gives the court a discretion to decide what to do with the non-arbitrable matters: it can either hold them in abeyance pending the outcome of arbitration or allow them to proceed in court. On TELUS’s reading of the provision, therefore, s. 7(5) does not apply to arbitrable matters, but rather gives courts only the discretion to decide whether to stay non-arbitrable matters.

[146]                     As noted above, s. 7 of the Arbitration Act, 1991 sets out the statutory rules related to stays. Under the default rule in subs. (1), upon request by another party to the arbitration agreement, any proceeding relating to an arbitrable matter shall be stayed. This rule is qualified by the exceptions set out in subs. (2), which include grounds related to undue delay or a judge’s assessment of the merits. If the court refuses to stay the proceeding, subs. (4) renders any arbitration without effect.

[147]                     Section 7(5) addresses situations where the proceeding includes both matters subject to an arbitration agreement and non-arbitrable “other matters,” which are properly before the court. In such cases, subs. (5) permits a judge to partially stay the arbitrable matters while allowing the non-arbitrable matters to proceed if the court is satisfied that (a) the proceeding is “hybrid”; and (b) it is reasonable to separate the matters. The determination of whether it is reasonable to separate the matters governs this latter exercise of discretion.

[148]                     Nothing in the text directs a court to read s. 7(5) (or s. 7 as a whole) on a party-by-party basis, as TELUS urges this Court to do. Rather, the focus of the provision is on “matters in respect of which the proceeding was commenced”. Subsection (5) uses “proceeding” and “other matters” generally and without qualification. The motions judge is required, as a result, to consider “the proceeding” as a whole. TELUS correctly notes that “other matters” in s. 7(5) will, in certain circumstances, refer to disputes between the same parties that fall outside their arbitration agreement. But it does not follow that “other matters” must be read restrictively. “Other matters” simply refers to non-arbitrable disputes, whether they involve parties to the arbitration agreement at issue or individuals who are not subject to the arbitration agreement.

[149]                     The scheme of the Ontario legislation is markedly different from the British Columbia legislation at issue in Seidel v. TELUS Communications, 2011 SCC 15 (CanLII), [2011] 1 S.C.R. 531, a decision TELUS relied on. In that case, Michelle Seidel sought to certify a class action against TELUS for overbilling on cell phone contracts. TELUS sought to stay the proceedings because there was a requirement in the standard form contract that disputes be resolved through individual arbitration. In Seidel, this Court stated that “[a]bsent legislative intervention, the courts will generally give effect to the terms of a commercial contract freely entered into, even a contract of adhesion, including an arbitration clause” (para. 2). Therefore, clear legislative intent is required for a court to entertain otherwise arbitrable matters.

[150]                     Seidel’s direct application to the case before us is blocked by the fact that it involved a completely different legislative framework. Two British Columbia statutes were in issue, the Business Practices and Consumer Protection Act, S.B.C. 2004, c. 2, and B.C.’s Commercial Arbitration Act, R.S.B.C. 1996, c. 55. The Court permitted a consumer claim to proceed in court pursuant to s. 172 of the Business Practices and Consumer Protection Act, even though it was subject to an arbitration agreement. A stay was granted on all other arbitrable claims, based on the mandatory language in s. 15 of B.C.’s Commercial Arbitration Act, which stated:

15 (2) In an application under subsection (1), the court must make an order staying the legal proceedings unless it determines that the arbitration agreement is void, inoperative or incapable of being performed.

[151]                     The issue in Seidel was whether s. 172 of British Columbia’s consumer protection legislation constituted a legislative override of the arbitration clause at issue. The Court emphasized that the relevant provincial legislation was determinative of whether a court must stay matters covered by an arbitration agreement.

[152]                     Notably, in the legislation at issue in Seidel, there was no analogous provision to s. 7(5) of Ontario’s Arbitration Act, 1991 permitting the exercise of discretion. In fact, unlike B.C.’s arbitration legislation, Ontario’s statute expressly authorizes a discretionary judicial override of arbitration clauses in several circumstances. Section 7(2) contains exceptions similar to those in B.C. but adds discretionary evaluations to determine whether the motion for a stay “was brought with undue delay” and whether “the matter is a proper one for default or summary judgment.” Under both of these latter exceptions, and unlike B.C.’s legislation, a court may override an arbitration clause for reasons unrelated to the clause’s contractual validity.

[153]                     Section 7(5) of the Ontario legislation similarly reflects an explicit legislative intention to override an otherwise applicable arbitration clause. The words of the provision state that “[t]he court may stay the proceeding with respect to the matters dealt with in the arbitration agreement and allow it to continue with respect to other matters . . . .” This means that the court can either stay the arbitrable matters before it or allow them to proceed. Logically, a discretionary ability to grant a partial stay also includes the power to refuse a partial stay. In other words, “may” means “may”.

[154]                     Non-arbitrable disputes, by definition, fall outside an arbitrator’s jurisdiction. Unless the parties agree to arbitrate after the dispute arises, non-arbitrable claims cannot proceed by arbitration. In addition, statutory language is not required for a court to continue hearing a non-arbitrable matter which is properly before it. Therefore, the only interpretation that gives meaningful effect to the discretionary language of s. 7(5) is one that confers on judges the ability to allow both arbitrable and non-arbitrable disputes to proceed in court.

[155]                     TELUS’s assertion that a court can never stay arbitrable matters under s. 7(5) renders the opening phrase — “may stay the proceeding with respect to the matters dealt with in the arbitration agreement” — superfluous. And by interpreting the provision to apply only to non-arbitrable matters, s. 7(5) adds nothing to a judge’s existing discretion: a court already has the ability to stay proceedings “on its own initiative or on motion by any person, whether or not a party, . . . on such terms as are considered just” (Courts of Justice Act, R.S.O. 1990, c. C.43, s. 106).

[156]                     By inserting the reasonableness requirement in s. 7(5)(b), Ontario’s legislature clearly contemplated that in certain circumstances, it would be unreasonable “to separate the matters dealt with in the [arbitration] agreement from the other matters”. However, TELUS’s interpretation would mean that arbitrable and non-arbitrable matters would always be separated, and could never be heard together — hardly an efficient outcome, or one that promotes access to justice.

[157]                     Finally, TELUS’s interpretation would result in costly and time-consuming factual inquiries on how to divide the arbitrable and non-arbitrable claims even where the substance of both claims is identical, as in this case. Both parties acknowledged the potential difficulties associated with drawing the line between a “consumer” as defined by the Consumer Protection Act, who is exempt from arbitration, and a business customer, who is not. This distinction may be especially difficult to determine for those individuals who use their cell phone for both personal and business purposes. For these individuals, determining whether they fall within the scope of the exception in the Consumer Protection Act adds unnecessary complexity.

[158]                      For class actions, the real-world effect of separating out everything subject to an arbitration clause could well turn the certification stage into a search by the defendant of the precise status of each member of the class to determine whether they are in fact business or consumer clients. As the interveners Public Interest Advocacy Centre and Consumers Council of Canada pointed out in their factum, this determination could well result in “an individual fact-finding process”, leading to “confusion [that] would further undermine Ontario’s class actions regime as a viable, procedural access to justice mechanism for consumers” (p. 25). TELUS’s interpretation, in short, not only renders s. 7(5) meaningless, but also undermines the Class Proceedings Act, 1992, by making class certification overly cumbersome.

[159]                     Thus, when s. 7 is read as a whole, it becomes evident that subs. (1) and (5) are complementary, not incompatible. Both provisions align with the purposes of the Arbitration Act, 1991. They both prevent courts from undermining arbitration agreements. At the same time, the legislature also saw fit to include several exceptions in s. 7, exceptions which allow a court to override arbitration clauses in prescribed circumstances when doing so would promote access to justice and the efficient resolution of disputes.

[160]                     TELUS argues that while there may be negative consequences associated with mandatory, individualized arbitration, these consequences are the foreseeable results of bargains into which its clients freely entered. Their position is that freedom of contract requires that parties abide by their agreements, and courts should not re-write bargains. This argument, however, is undermined by the fact that their standard form contract hardly represents a bargain freely entered into — they were non-negotiable compulsory terms that were preconditions to being able to purchase TELUS products.

[161]                     Arbitration was intended to be a means by which parties on a relatively equal bargaining footing chose to design an alternative dispute mechanism. Respecting parties’ autonomy was a key goal of the Arbitration Act, 1991. As Prof. Shelley McGill points out,

The new arbitration policy . . . proceeded from the assumption that sophisticated disputants with relatively equal bargaining power would collaborate to design their own resolution process. Inherent in this policy was the goal of empowering disputants and giving them more control over dispute resolution while facilitating international trade.

(Shelley McGill, “The Conflict Between Consumer Class Actions and Contractual Arbitration Clauses” (2006), 43 Can. Bus. L. J. 359, at p.365 (emphasis added).)

[162]                     The standard terms of TELUS’s contract did not permit group arbitration, but required individualized arbitration proceedings for each complaint. The impact of not permitting group proceedings was discussed by the Court of Appeal in Griffin:

It is important to note . . . that Dell’s arbitration clause not only requires all claims to be arbitrated, but also provides that “[t]he arbitration will be limited solely to the dispute or controversy between Customer and Dell”, thereby precluding the possibility of a class arbitration. I would have found Dell’s position much more persuasive had Dell been prepared to submit to an arbitration that would allow for the efficient adjudication of the claims on a group or class basis. . . . In my view, this provides further evidence . . . that Dell does not genuinely seek to have the claims advanced against it determined by way of arbitration. Dell is simply seeking to exploit the inefficiency of arbitrating individual claims. [Emphasis added; para. 60.]

[163]                     The empirical reality is that the effect of mandatory arbitration clauses is to deny access to justice in the context of low-value claims. As Prof. Cynthia Estlund points out,

. . . the great bulk of disputes that are subject to mandatory arbitration agreements . . . simply evaporate before they are even filed. It is one thing to know that mandatory arbitration draws a thick veil of secrecy over cases that are subject to that process. It is quite another to find that almost nothing lies behind that veil. Mandatory arbitration is less of an “alternative dispute resolution” mechanism than it is a magician’s disappearing trick or a mirage. Metaphors beckon, but I have opted for that of the black hole into which matter collapses and no light escapes.

(Cynthia Estlund, “The Black Hole of Mandatory Arbitration” (2018), 96 N.C. L. Rev. 679, at p. 682.)

[164]                     The Court of Appeal in Griffin recognized this reality when it observed:

The seller’s stated preference for arbitration is often nothing more than a guise to avoid liability for widespread low-value wrongs that cannot be litigated individually but when aggregated form the subject of a viable class proceeding: see Theodore Eisenberg, Geoffrey P. Miller and Emily Sherwin, “Mandatory Arbitration for Customers but not for Peers: A Study of Arbitration Clauses in Consumer and Non-Consumer Contracts” (2008), 92 Judicature 118. [para. 30]

[165]                     All of TELUS’s clients — both businesses and consumers — signed the same, non-negotiable standard form agreement. TELUS’s individualized arbitration clause effectively precludes access to justice for business clients when a low-value claim does not justify the expense. And its mandatory nature, in turn, illustrates that the animating rationales of party autonomy and freedom of contract are nowhere to be seen. As the court in Griffin stated:

Deference to arbitration is largely based on freedom of contract and the value of personal autonomy. How can such values come into play in contracts of adhesion where that autonomy is only exercised by one of the parties? There is no reason to defer to businesses that seek to advance only their own self-interests and evade laws not to their liking.

(para. 30, citing Jonnette Watson Hamilton, “Pre-Dispute Consumer Arbitration Clauses: Denying Access to Justice?” (2006), 51 McGill L.J. 693, at p. 734.)

[166]                     One cannot talk about “equal bargaining power” and “party autonomy” if the very nature of the contract reveals that one party has exclusive contractual authority. Parties to mandatory individual arbitration clauses cannot, therefore, reasonably be said to have “come to the table” and bargained, since there is no bargaining table. That individuals and companies sign these contracts is a function not of bargaining choices, but of an absence of choice.

[167]                     Perhaps the most ironic contradiction of refusing to acknowledge the discretion embodied in s. 7(5) is its corrosive effect on access to justice. The purpose of the Arbitration Act, 1991, was to facilitate the ability of parties to negotiate their own process for resolving disputes outside of the courts, on the premise that access to justice had as much to do with access to a result as with access to a judge. To impose arbitration on unwilling parties violates the spirit of the Arbitration Act, 1991 and the arbitral process. This operates as an invisible but formidable barrier to a remedy and presumptively immunizes wrongdoing from accountability contrary to our most fundamental notions of civil justice.

[168]                     The concurring judge in the Court of Appeal expressed concern that using s. 7(5) to override otherwise valid arbitration clauses could result in sophisticated parties sidestepping arbitration agreements by including a few consumers in a class action alongside numerous business clients. However, experience teaches us that this is anxiety without a cause. There are no known cases where such a ruse has been attempted in Canadian courts. That does not mean it could never happen, but such gossamer speculation cannot drive statutory interpretation.

[169]                     In any event, such concerns are mitigated by the fact that the availability of judicial discretion in s. 7(5) does not require judges to allow a class action including arbitrable claims to proceed: it simply lets them decide when it is reasonable to do so. Eliminating judicial discretion, on the other hand, effectively eliminates access to justice.

[170]                     In this light, s. 7(5) must be interpreted to give judges the discretion to refuse to stay arbitrable claims if it is unreasonable to separate them from non-arbitrable claims. This interpretation applies with equal force whether the proceeding is between two or more named parties, or is a class action.

[171]                     TELUS’s arbitration agreement “deals with only some of the matters in respect of which the proceeding was commenced”, namely, the claims of business customers. The consumer claims are “other matters” which are not subject to arbitration. Therefore, s. 7(5)(b) gave the motions judge discretion to consider whether it was “reasonable to separate the matters dealt with in the agreement [the claims of business customers] from the other matters [the consumer claims]”.

[172]                     In our view, the discretion in this case was properly exercised to allow the business claims to be joined with the consumer class action dealing with the same issues. We would therefore dismiss the appeal.

Alectra Utilities Corporation v. Solar Power Network Inc., 2019 ONCA 254

COURT OF APPEAL FOR ONTARIO

CITATION: Alectra Utilities Corporation v. Solar Power Network Inc., 2019 ONCA 254

DATE: 20190402

DOCKET: C65868 and M49635

Hourigan, Benotto and Huscroft JJ.A.

BETWEEN

Alectra Utilities Corporation

Applicant (Respondent)

and

Solar Power Network Inc.

Respondent (Appellant)

 

Heard: February 22, 2019

On appeal from the order of Justice Herman J. Wilton-Siegel of the Superior Court of Justice, dated August 17, 2018.

 

Huscroft J.A.:

OVERVIEW

[1]      The parties agreed to arbitrate their contractual dispute under the Arbitration Act, 1991, S. O. 1991, C. 17 (“the Arbitration Act, 1991” or “the Act”). Following a seven-day hearing, the arbitrator found that Alectra Utilities Corp. (the respondent) unlawfully terminated its contract with the Solar Power Network Inc. (the appellant) and awarded $12.3 million in damages.

[2]      The arbitrator’s award was supposed to be final: the parties chose not to establish a right of appeal on any basis from the arbitrator’s award. The respondent brought an application to set aside the arbitrator’s award under s. 46(1)3 of the Arbitration Act, 1991, arguing that it was made in excess of the arbitrator’s jurisdiction. The application judge accepted this argument and set aside the award.

[3]      As I will explain, the application judge erred in doing so. The arbitrator’s award must be reinstated.

[4]      I would allow the appeal for the reasons that follow.

BACKGROUND

The Facts

[5]      The facts in this matter may be stated briefly. A fuller recitation of the facts is found in paras. 2-13 of the application judge’s decision. The relevant contractual provisions are set out in an appendix to this decision.

[6]      The parties entered into a purchase and management agreement (the “PAMA”) pursuant to which the respondent was to finance the construction of solar power projects. The projects were to be developed and operated by the appellant pursuant to a provincial program known as the Feed in Tariff program (“the FIT program”). The appellant would apply for contracts from the Ontario government and would earn income by receiving revenue on account of construction and operational and maintenance services, in addition to a share of residual profits.

[7]      On June 29, 2016, the parties were awarded 69 contracts in the fourth round of the FIT program. The respondent proposed to purchase the appellant’s interest in the venture and negotiations went on during the summer of 2016. No agreement was reached. On September 14, 2016 the respondent issued a “Defunct Project Notice” in respect of all 69 contracts, purportedly exercising its discretion to end the agreement. Delivery of the Defunct Project Notice had the effect of terminating the parties’ relationship, thus depriving the appellant of the value of the contracts that they had been awarded.

[8]      The appellant invoked the arbitration clause in the PAMA, challenging the respondent’s right to deliver the Defunct Project Notice and seeking $19.5 million in damages for lost profit for the alleged breach of the PAMA. The respondent counterclaimed for recovery of amounts paid to the appellant.

The arbitrator’s decision

[9]      The arbitrator found that although the respondent had the ability to deliver a Defunct Project Notice “in its sole discretion” under the PAMA, that discretion had to be exercised in good faith. The respondent could not rely on the allegation that certain conditions precedent could not be satisfied because it had not fulfilled its obligation to use commercially reasonable efforts to finalize the required documents. The arbitrator found, further, that the respondent’s statement that the economic return was insufficient was not an honest one, as no attempt had been made to calculate the rate of return, and that the respondent’s assertion that it did not wish to develop the projects was untrue in light of its ongoing negotiations to purchase the appellant’s interest in the projects.

[10]   The arbitrator rejected the respondent’s argument that the appellant was barred by the terms of the PAMA from claiming lost profits as damages. Article 5 of the PAMA required each party to indemnify the other with respect to breaches of covenants, but also provided that the indemnifier shall not be liable for damages for lost profit. The arbitrator found that the appellant’s claim was not for breach of a covenant – it was for improper exercise of the right to issue Defunct Project Notice. The arbitrator concluded that he could award lost profits because the resolution process for indemnity claims under the PAMA was separate from the arbitration process, which contemplated the award of damages without regard to the more limited conception of damages that applied in the indemnity claims resolution process. The arbitrator awarded the appellant $12,337,655 in damages plus interest.

The applications

[11]   The appellant brought an application to enforce the arbitrator’s award under s. 50 of the Arbitration Act, 1991. The respondent brought an application to set aside the award, relying in particular on s. 46(1)3 of the Act. That subsection provides that the court may set aside an arbitration award if:

The award deals with a dispute that the arbitration agreement does not cover or contains a decision on a matter that is beyond the scope of the agreement.

The application judge’s decision

[12]   The application judge noted that the PAMA provided that there was to be no appeal from the determination of an arbitrator to the court. However, he described the issues raised on the application as jurisdictional in nature and stated that interpretation of the PAMA was necessary in order to resolve them. The application judge considered the standard of review under s. 46(1)3. Although he was inclined to the view that the appropriate standard was reasonableness rather than correctness, he found it unnecessary to determine the matter because he would reach the same decision regardless of which standard applied.

[13]   The application judge found that the arbitrator did not exceed his jurisdiction in concluding that the agreement imposed a duty of good faith on the respondent’s exercise of its discretion to issue a Defunct Project Notice. The arbitrator was required to interpret the relevant provision of the PAMA (s. 2.8) in order to determine whether he had jurisdiction to hear the issue, and his interpretation was not only reasonable but also correct.

[14]   However, the application judge concluded that the arbitrator’s determination that he could award damages for loss of profits was unreasonable because it was based on two unreasonable findings. First, the arbitrator unreasonably found that the limitation on damages in s. 5.3(3) of the PAMA did not limit his authority to award damages under the arbitration agreement set out in s.7.1. Second, the arbitrator unreasonably found that the appellant’s claim for breach of the duty of good faith was not a breach of a covenant within s. 5(2) of the PAMA. The application judge outlined his conclusion at paras. 62 and 63 as follows:

[T]he arbitrator’s interpretation of the PAMA to the effect that PowerStream’s [a predecessor of Alectra’s] actions did not constitute a breach of a covenant described by section 5.2(b) of the PAMA to which the provisions of section 5.3(3) applied was unreasonable. Under the PAMA, SPN’s claim falls squarely within the provisions of section 5.2(b) as a claim based on a breach of a covenant on the part of PowerStream contained in the PAMA. While such claim is arbitrable under Article 7, as there is no separate dispute resolution process for claims asserted under sections 5.4 and 5.8, it is subject to the monetary limitations in section 5.3(3).

Accordingly, I conclude that the arbitrator lacked the jurisdiction under the PAMA to award SPN damages for its loss of profits. I therefore also conclude that, in awarding such damages, the arbitrator made a decision on a matter that was beyond the scope of the PAMA for the purposes of s. 46(1)3 of the Act.

The positions of the parties

[15]   The appellant’s principal argument focuses on s. 46(1)3 of the Arbitration Act, 1991, which the appellant says permits intervention by the courts only on jurisdictional issues. The court has to be satisfied as a threshold matter that an application to set aside an award raises a “true question of jurisdiction,” which according to the appellant arises only if the arbitrator exceeds the limits of his decision-making authority.

[16]   The application judge erred, the appellant says, by failing to appreciate the distinction between narrow review on a true question of jurisdiction and a broader review on the merits. As a result, the application judge launched into a review of the merits of the arbitrator’s decision and ended up impermissibly substituting his interpretation of the agreement for that of the arbitrator. This, according to the appellant, had the effect of converting a limited review on a question of true jurisdiction into an appeal on a question of mixed fact and law, an error the appellant submits is dispositive of the appeal.

[17]   The respondent says that determining an arbitrator’s jurisdiction necessarily involves contractual interpretation because the contract is the source of an arbitrator’s jurisdiction. The fact that contractual interpretation is required in order to determine a question of jurisdiction does not turn the inquiry into a review of the arbitrator’s decision on the merits.

[18]   The respondent relies on the decision of this court in Mexico v. Cargill, Incorporated, 2011 ONCA 622 (CanLII), 107 O.R. (3d) 528, for the proposition that the arbitrator had to correctly identify the jurisdictional limits on his ability to award damages. In that case, at para. 52, the court set out the “proper approach” in determining whether an arbitration award goes beyond the scope of a tribunal’s jurisdiction as involving three questions, which the respondent paraphrased as follows:

  1. a)What was the issue that the arbitral tribunal decided?
  2. b)Was that issue within the submission to arbitration?
  3. c)Is there anything in the arbitration agreement, properly interpreted, that precluded the tribunal from making the award?

[19]   The respondent says that, “properly interpreted”, the arbitration agreement in this case was subject to other provisions of the PAMA that not only precluded the arbitrator from determining a dispute arising out of the delivery of a Defunct Project Notice (s. 2.3(8)), but also precluded the award of damages for lost profits in any event (s. 5.3(3)).

DISCUSSION

The role of the court under the Arbitration Act, 1991

[20]   The starting point in exercising the court’s role under the Arbitration Act, 1991 is the recognition that appeals from private arbitration decisions are neither required nor routine. Section 45 of the Act makes clear that the parties are free to establish or to preclude an appeal to the court on a question of law, fact, or a mixed question of law and fact. If the arbitration agreement is silent on this point, an appeal to the court on a question of law lies only with leave, which may be granted only if the court is satisfied that the matter is sufficiently important to justify an appeal and that determination of the question of law at issue will significantly affect the rights of the parties.

[21]   In this case the parties – sophisticated commercial parties represented by counsel – chose not only to resolve their contractual dispute by arbitration rather than litigation, but also to preclude appeals to the court. Section 7.8(1) of the PAMA provides as follows:

There shall be no appeal from the determination of the arbitrator to any court. Judgment upon any award rendered by the Arbitrator may be entered in any court having jurisdiction thereof.

[22]   There is no ambiguity here: there is no appeal to the court, period. The arbitrator’s determination is final and binding.

[23]   Accordingly, the only basis for the respondent to challenge the award was under s. 46(1) of the Arbitration Act, 1991, which authorizes the court to set aside an arbitration award on the limited and specific grounds it enumerates. A court may set aside an arbitration award if:

  1. A party entered into the arbitration agreement while under a legal incapacity.
  2. The arbitration agreement is invalid or has ceased to exist.
  3. The award deals with a dispute that the arbitration agreement does not cover or contains a decision on a matter that is beyond the scope of the agreement.
  4. The composition of the arbitral tribunal was not in accordance with the arbitration agreement or, if the agreement did not deal with that matter, was not in accordance with this Act.
  5. The subject-matter of the dispute is not capable of being the subject of arbitration under Ontario law.
  6. The applicant was not treated equally and fairly, was not given an opportunity to present a case or to respond to another party’s case, or was not given proper notice of the arbitration or of the appointment of an arbitrator.
  7. The procedures followed in the arbitration did not comply with this Act.
  8. An arbitrator has committed a corrupt or fraudulent act or there is a reasonable apprehension of bias.
  9. The award was obtained by fraud.
  10. The award is a family arbitration award that is not enforceable under the Family Law Act.

[24]   These grounds for setting aside an arbitration award are, in general, not concerned with the substance of the parties’ dispute. They concern issues such as the establishment and composition of the arbitration tribunal, compliance with Ontario law, and the requirements of procedural fairness.

[25]   Although the court cannot apply s. 46(1)3 without having regard to an arbitrator’s decision, the court’s authority to set aside an arbitration award under that subsection depends on the mandate the arbitration agreement confers on the arbitrator to resolve a particular dispute. In order to succeed on an application to set aside an arbitration award, an applicant must establish either that the award deals with a dispute that the arbitration agreement does not cover or contains a decision on a matter that is beyond the scope of the arbitration agreement.

[26]   For example, if an arbitration agreement provides that an arbitrator shall resolve a particular question and the arbitrator does so, the court has no authority to set aside the award on the basis that the arbitrator’s decision is unreasonable or incorrect. If, however, in the course of resolving the particular question remitted the arbitrator asks and answers an additional second question, the award may be set aside – not because the arbitrator’s answer to the second question is unreasonable or incorrect, but because the arbitrator had no authority to reach any conclusion on the second question at all.

[27]   In short, s. 46(1)3 requires that arbitrators act within the bounds of the authority granted by the arbitration agreement pursuant to which they are appointed – no less, but no more. Section 46(1)3 is not an alternate appeal route and must not be treated as such.

The concept of jurisdiction

[28]   The parties agree that s. 46(1)3 allows review for jurisdictional error – “true” jurisdictional error, as they describe it – but they disagree on what jurisdictional error is and how it is properly established. There should be no surprise in this. The difficulty in identifying jurisdictional error is well known.

[29]   Jurisdictional error has a long and controversial history in Canadian administrative law that need not be recounted here. Suffice it to say that, historically, the courts often exercised their judicial review authority to interfere in matters that were committed by the legislature to determination by administrative tribunals. In C.U.P.E. v. N.B. Liquor Corporation, 1979 CanLII 23 (SCC), [1979] 2 S.C.R. 227 at p. 233, Dickson J. admonished courts not to do so:

The question of what is and is not jurisdictional is often very difficult to determine. The courts, in my view, should not be alert to brand as jurisdictional, and therefore subject to broader curial review, that which may be doubtfully so.

[30]   But this proved easier said than done, and the concept of jurisdiction has continued to bedevil Canadian law despite Dickson J.’s admonition. That is so because, as Lord Denning explained in Pearlman v Keepers and Governors of Harrow School, [1978] EWCA Civ 5, the distinction between an error that is jurisdictional in nature – which justifies judicial intervention – and an error made within jurisdiction – which does not – is so fine as to be manipulable. The same matter can be characterized as jurisdictional or non-jurisdictional depending on whether one seeks to intervene or defer.

[31]   So it is here.

[32]   The respondent says that the arbitrator had no jurisdiction to award damages for lost profits because the arbitrator’s authority was limited by the terms of the PAMA, which precluded liability for such damages. The appellant says that the arbitration agreement gave the arbitrator jurisdiction to interpret and apply the terms of the PAMA, so whether any terms of the PAMA precluded damages for lost profits was for the arbitrator to determine.

[33]   The problem with the respondent’s argument is plain: given that an arbitrator’s authority stems from the agreement pursuant to which he or she is appointed, any unreasonable or mistaken interpretation of that agreement could be characterized as resulting in an excess or loss of jurisdiction. On this approach, arbitration awards that are not subject to appeal would, nevertheless, be vulnerable to being set aside for jurisdictional error. In effect, arbitrators would have only the jurisdiction to make awards that are reasonable or correct.

[34]   This is not the law in Ontario. The role of courts in addressing claims of jurisdictional error in the context of private arbitration is far more limited than the respondent would have it.

The application judge erred in setting aside the arbitrator’s award

[35]   In order to set aside the arbitrator’s award, the application judge was required to find either that the award dealt with a matter not covered by the arbitration agreement or included a decision on a matter beyond the scope of the agreement. Interpretation of the arbitration agreement, set out in s. 7 of the PAMA, was key to applying s. 46(1)3.

[36]   Section 7.1 provides as follows:

Subject to and in accordance with the provisions of this Article 7, any and all differences, disputes, claims or controversies between the Vendor and the Purchaser arising out of or in any way connected with this Agreement, whether arising before or after the expiration or termination of this Agreement, and including, its negotiation, execution, delivery, enforceability, performance, breach, discharge, interpretation and construction, existence, validity and any damages resulting therefrom or the rights, privileges, duties and obligations of the parties under or in relation to this Agreement (including any dispute as to whether an issue is arbitrable) (a “Dispute”) shall be resolved [sic] the manner described in this Article 7. (emphasis added)

[37]   The terms of s.7.1 are broad and general in nature, and make clear that the arbitrator had the authority to resolve “any and all differences …arising out of or in any way connected with” the agreement, “including … performance, breach … and any damages resulting therefrom”.

[38]   Despite the broad wording of the arbitration agreement in s. 7.1, the application judge proceeded on the basis that the arbitrator’s jurisdiction depended upon the proper interpretation of sections 2 and 5 of the PAMA. The application judge stated, at para. 54, that: “jurisdiction exists only to the extent that such an award would not contravene any other provision of the PAMA.”

[39]   With respect, this is a mistake. It is exactly the problem I outlined above: it is a conclusion that an arbitration award that is not subject to appeal must be set aside because, in essence, the arbitrator had only the jurisdiction to make an award that is reasonable or correct. This mistake renders the application judge’s decision interpreting and applying s. 46(1)3 indistinguishable from the sort of decision that might have been made if the arbitrator’s decision had been subject to a right of appeal. It fails to recognize the distinction between having jurisdiction to award damages and making an error in the exercise of that jurisdiction.

[40]   Neither s. 2 nor s. 5 of the PAMA limited the scope of the arbitrator’s authority in the manner contemplated by s. 46(1)3. The arbitrator did exactly what he was authorized to do by the terms of the arbitration agreement: he resolved the parties’ dispute concerning the alleged breach of their agreement and awarded damages.

[41]   Once the application judge concluded that the arbitrator acted within the authority conferred upon him by the arbitration agreement, his task was at an end. It was for the arbitrator, not the court, to interpret and apply the substantive provisions of the PAMA, and it is of no moment whether the arbitrator did so reasonably or unreasonably, correctly or incorrectly. The decision was the arbitrator’s to make. The application judge’s conclusion that the arbitrator’s interpretation of the agreement was both unreasonable and incorrect had the effect of converting s. 46(1)3 into an appeal on a mixed question of fact and law – an appeal the parties deliberately chose not to establish.

[42]   The application judge’s approach is not mandated by this court’s decision in Cargill, an arbitration under the North American Free Trade Agreement. That case concerned international arbitration, rather than arbitration under the Arbitration Act, 1991, and the court was at pains to emphasize that in determining jurisdictional questions “the court is to avoid a review of the merits” (at para. 53) – the very thing the court failed to do in this case.

[43]   It is important to emphasize that s. 46(1)3 allows only for limited review for jurisdictional error. As this court said in Smyth v. Perth and Smiths Falls District Hospital, 2008 ONCA 794 (CanLII), 92 O.R. (3d) 656, at para. 17, s. 46(1)3 sets out a jurisdictional question that must be answered correctly. It neither requires nor authorizes review of the substance of an arbitrator’s award.

[44]   For greater certainty I would add this: once the jurisdictional question is answered, in the absence of a right of appeal pursuant to s. 45 the court has no authority to go on to review the arbitrator’s award for reasonableness. Smyth is not to be read as authority to the contrary. The basis for the court’s decision is not set out and its comments must be regarded as obiter.

CONCLUSION

[45]   I would allow the appeal and reinstate the arbitrator’s award.

[46]   The appellant is entitled to costs on the appeal, including the leave motion, in the agreed amount of $25,000, and costs of $20,000 on the application, both amounts inclusive of taxes and disbursements.

Released: April 2, 2019 (“C.W.H.”)

 

“Grant Huscroft J.A.”

“I agree. C.W. Hourigan J.A.”

“I agree. M.L. Benotto J.A.”

Cavanaghs of Charleville Ltd. & anor v Fitzpatrick [2019] IEHC 161

[2019] IEHC 161
THE HIGH COURTJUDICIAL REVIEW

2018/848JR

BETWEEN

CAVANAGHS OF CHARLEVILLE LIMITEDAND

HENRY FORD & SON LIMITED

APPLICANTS
ANDJAMES FITZPATRICK

RESPONDENT

JUDGMENT of Mr. Justice Quinn delivered on the 14th day of March, 2019

 

1. This is an application for an order of certiorari quashing an order of the Circuit Court made on 26th July 2018 which refused an application by the Applicants to stay the Respondent’s proceedings against them in the Circuit Court and refused to refer same to arbitration pursuant to Article 8.1. of the Uncitral Model Law on International Commercial Arbitration as it applies in the State pursuant to s.6 of the Arbitration Act 2010.

2. The Applicants seek also an order of mandamus requiring the Circuit Court to refer the proceedings to arbitration pursuant to Article 8.

3. In the Circuit Court proceedings the Respondent claims, inter alia, rescission of a contract entered into with the First Applicant for the purchase of a new Ford Transit Connector motor vehicle on 1/9/2015. The Respondent claims that the vehicle is defective and also claims against both Applicants damages for breach of contract and negligence and against the Second Applicant damages for negligence.

4. The contract between the Respondent and the First Respondent is in the standard form issued by the Society of the Irish Motor Industry (“SIMI”). It contains an arbitration provision in clause 13 in the following terms:-

“Disputes as between the parties to this Agreement shall be referred to Arbitration under the rules of the Chartered Institute of Arbitrators of Ireland and in accordance with the provisions of the Arbitration Act 2010 in the event that:
(a) The customer does not refer the dispute to the SIMI pursuant to clause 12; or

(b) the customer does not accept the recommendation of the SIMI Retail Motor Industry Standards Tribunal; or

(c) the dispute relates to a new vehicle under manufacturer’s warranty.

In the event that the dispute involves a claim for an amount not exceeding €5,000 then, in accordance with the provisions of the Arbitration Act 2010, the customer shall not be bound (unless he or she otherwise agrees that any time after the dispute has arisen) into arbitration”.

5. The respondent claims that on various dates, stated to include 4/10/2016, 31/03/2017 and/or 5/04/2017 he travelled to the First Applicant’s premises in Charleville, County Cork to have parts replaced, with no success in relation to the driver’s door, which continued to allow leakage of water in wet weather. He states that the vehicle was purchased so that it met the requirements for transporting a relative who has a medical condition and that it is unfit for that purpose. He claims that, pending the resolution of the proceedings, he is without a suitable motor vehicle, particularly having regard to his family requirements.

6. On a date unknown in August 2017, the Respondents then solicitors, Carmody & Company, delivered a letter to the Applicants described as “a Letter Commencing Arbitration” and entitled “In the matter of the Arbitration Act 2010 in the matter of an Arbitration between James Fitzpatrick Claimant and Cavanaghs of Charleville Limited and Henry Ford and Son Limited Respondents”.

7. The letter recited the defects complained of and that the driver’s door had not been rectified notwithstanding their client making multiple trips to Charleville. It continued: ” According to the terms and conditions of the contract and in particular Clause 13 thereof, we write to put you on notice that we are now referring the matter to arbitration pursuant to the provisions of the Arbitration Act, 2010″. The letter requested that the Applicants concur in the appointment of an arbitrator and nominated three proposed arbitrators.

8. On 29th August, 2017 the respondent issued proceedings in the Circuit Court against the applicants. They were not served until February 2018.

9. On 30th August, 2017 Messrs James Riordan and Partners Solicitors replied to Messrs Carmody indicating that their clients Henry Ford and Son Limited were taking over the defence of this matter on behalf of themselves and the dealer. They said that their clients were currently investigating the matter and wish to have the vehicle inspected and requested inspection facilities.

10. Messrs Riordan also indicated that they would revert “under separate cover in relation to your proposed arbitrators”.

11. On 21st February, 2018 Messrs Caroline Fanning Solicitors, wrote to JRAP O’Meara Solicitors (formerly James Riordan & Partners) notifying them that they had been instructed to take this matter over and enclosing a Notice of Change of Solicitor. They stated that their instructions were “to proceed to litigate the matter now through the courts”.

12. Under cover of letters dated 27th February, 2018 Messrs Fanning served the Civil Bill on the Applicants.

13. On 5th April, 2018 Messrs JRAP O’Meara wrote to Messrs Fanning enclosing an Entry of Appearance and confirming again that their client Henry Ford and Son Limited are taking over the defence of this case on behalf of themselves and the dealer.

14. Messrs JRAP O’Meara referred to the letter of August, 2017 invoking the arbitration clause, and accepted the nomination of Louise O’Reilly B.L., one of the three arbitrators nominated in the August letter.

15. Messrs O’Meara stated that they were furnishing the Appearance only on the basis that the plaintiffs would agree to stay the proceedings and allow the case to proceed to arbitration as originally requested by the Respondent. They also put Messrs Fanning on notice that unless this was agreed they would apply in the Circuit Court proceedings for a stay of the proceedings and an order to have Louise O’Reilly B.L. appointed as Arbitrator.

16. Further correspondence was exchanged between the solicitors in which there was no agreement as to arbitration. On the 25th May, 2018 the Applicants issued a motion before the Circuit Court seeking to remit the dispute to arbitration and staying the Circuit Court proceedings pending the arbitration.

17. On 26th July, 2018 the Circuit Court heard and refused the Applicant’s application to stay the proceedings and refer them to arbitration.

18. On 17th October, 2018 the Applicants issued an application for leave to apply for judicial review and on 22nd October, 2018 Mr. Justice Noonan granted leave to apply for an order of certiorari quashing the order of the Circuit Court made on 26th July, 2018 and for other orders. 

Arbitration Act 2010 and Uncitral Model Law 
19. Section 6 of the Arbitration Act 2010 adopts into Irish domestic arbitration law, with certain exceptions, the provisions of the Uncitral Model Law on International Commercial Arbitration. Article 8(1) of the Model Law provides as follows:

“(1) A court before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so requests no later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed”.

20. Section 11 of the Arbitration Act 2010 provides as follows:-

“11. There shall be no appeal from –
(a) Any court determination of a stay application, pursuant to Article 8(1) of the Model Law”.

21. In K & J Townhouse Construction Limited v Kildare & Wicklow Education and Training Board [2018] IEHC 770 Barniville J. emphasised the mandatory nature of Article 8 (1) of the Model Law, stating:

“It is well established that when the requirements of Article 8 (1) of the Model Law are met, the court must make the reference to arbitration. It does not have a discretion to do so.”

He cited with approval the following statement of McGovern J. in BAM Building Limited v UCD Property Development Company Limited [2018] IEHC 582, when he stated as follows:

“The courts in this jurisdiction have long been supportive of the arbital process and there is a line of recent authority which clearly establishes that Article 8 of the Model Law does not create a discretion to refer or not to refer a matter to arbitration. If there is an arbitration clause and the dispute is within the scope of the arbitration agreement and there is no finding that the agreement is null and void, inoperative or incapable of being performed then a stay must be granted. See P. Elliott & Company Limited (In Receivership and in Liquidation) v FCC Elliot Construction Limited [2012] IEHC 361; and Go Code Limited v. Capita Business Services Limited [2015] IEHC 673.”

Grounds of this Application 
22. The grounds for this application may be summarised as follows:-

(1) That the Circuit Court Order was based on an error of law and the court failed to apply the correct legal test to the facts before it, in that it did not base its decision on a consideration of whether the arbitration agreement entered into by the parties was null and void, inoperative or incapable of being performed as it was required to do by Article 8(1) of the Model Law.

(2) That in failing to apply the mandatory provisions of Article 8(1) the Circuit Court failed to perform a duty that it was obliged by statute to fulfil.

(3) That in refusing the application the Circuit Court noted and appeared to base its decision upon a claim that the Respondent had been without a car for some time and had a disabled relative to accommodate. It is said that the decision of the Circuit Court was therefore irrational and based on irrelevant consideration.

(4) The Circuit Court’s failure to apply or incorrectly interpret the relevant statutory test for the referral of disputes to arbitration was an error of law so fundamental to the Circuit Court’s consideration of the application before it that it deprived the Circuit Court of jurisdiction to make the order.

23. The applicant refers the court to the chronology of events, both substantive and procedural. The digital audio recording transcript has been exhibited in these proceedings. The DAR runs only to eight pages, and the decision of the judge is recorded at page 7 thereof in one paragraph (the Decision Paragraph):-

“Judge: I am refusing the application to transfer it to arbitration in circumstances where there is – – these people are without a car since 2015, it’s now three years and what I’ll do is I’ll give it a date in November”.

24. The DAR records that at the hearing submissions were made regarding the application of Article 8.1. It was relied on by the Applicants in contending that the proceedings against the First Applicant must be remitted to arbitration. The Respondent submitted that the arbitration clause in the contract was inoperable against him because it had not been brought to the attention of the Respondent. He also submitted that in circumstances where the contract does not govern the determination of the claim against the Second Applicant, the Court should have regard to the fact that a referral to arbitration of the claim against the First Applicant would lead to two separate forums dealing with the same matter, and that the effect would be to lead to further delays.

25. The Respondent also submitted that under Section 32(5) of the Arbitration Act, the court has a discretion to make certain orders as to discontinuance in a case where there exists an arbitration agreement which relates only to part of the matters in dispute.

26. The Applicants submit that although the above and other submissions were made to the Circuit Court judge, the Decision Paragraph, which is the only record of the Court’s reasoning, contains no finding that the arbitration clause was “null and void, inoperative or incapable of being performed”. It submits that the judge therefore had no discretion to refuse to observe the mandatory provision in Article 8(1) to refer the parties to arbitration. The applicant submits that it is clear from the Decision Paragraph that the judge took into account the fact that “these people are without a car since 2015” and thus he was having regard to extraneous matters and not applying the test contained in Article 8.1.

27. The applicant submits that the court in doing so committed an error of law so fundamental to its consideration that it deprived the Circuit Court of jurisdiction to make the order it made. 

Opposition Grounds 
28. The respondent submits the following:-

(1) That the court acted within jurisdiction and accordingly its decision is not amendable to judicial review.

(2) That the Applicant is not prejudiced or disadvantaged by the Order.

(3) That the court did not make an error of law but considered and applied the correct statutory test. It submits:

(a) that Article 8.1 was opened in court and that the Respondent agreed it was the correct test, so the Court was appraised of and applied the test;

(b) that the Respondent’s affidavit had given a reason why the test was satisfied, being that arbitration had been abandoned by the Applicant by reason of delay;

(c) That ” In making his decision the learned Circuit Court judge referred to the fact that the matter had been ongoing for a long time which points to him having accepted the plaintiff’s point that the right to invoke arbitration had been waived or abandoned by reason of delay, thereby causing the arbitration clause to have become null and void, inoperative or incapable of being performed (being the test criteria)”.

29. The Applicant submits that the Respondent is in effect inviting this Court to read into the Decision Paragraph that the Circuit Court in fact made a finding that there was delay on the part of the Applicant of such a degree that it amounted to a finding that the conduct of the Applicant rendered the arbitration clause “null and void, inoperative or incapable of being performed”.

30. The Respondent says that this submission is to require too much of the record of the Circuit Court decision. Its submits that decisions are made every day of the week by judges in the Circuit Court in which they do not give extensive reasoned to judgments and accordingly that the appropriate approach for this court is to take account of the entire of the DAR and note that submissions were made by reference to the Article 8.1 test, and treat the judge as having applied that test, applying also a presumption that the judge did not err.

31. While there is some force in this submission this is not a case in which the learned judge gave no reason at all. The DAR records that the decision was made “in circumstances where there is — these people are without a car since 2015”. 

Judgment 
32. In O’Mahony v Ballagh [2002] I.R. 410 at p. 416 this question was considered by the Supreme Court where Murphy J. said the following:

“I would be very far from suggesting that judges of the District Court should compose extensive judgments to meet some academic standard of excellence. In practice it would be undesirable- and perhaps impossible – to reserve decisions even for a brief period. On the other hand it does seem, and in my view this case illustrates, that every trial judge hearing a case at first instance must give a ruling in such a fashion as to indicate which of the arguments he is accepting and which he is rejecting and, as far as it is practicable in the time available his reasoning for so doing. As I have already said, there is no suggestion that Judge Ballagh conducted the case otherwise than with dignity and propriety. It does seem to me however, that in failing to rule on the arguments made in support of the application for a non-suit he fell “into an unconstitutionality to use the words of Henchy J. in The State (Holland) v Kennedy [1977] I.R. 193 at P. 201.”

33. Whilst in this case the decision was made on a Motion, no doubt in the course of a busy motion list, there was only one test which under Article 8.1. the Court was obliged to apply and it is clear from the DAR that no finding was made by the learned judge by reference to that test. I accept the Applicants’ submission that to read such a finding into the record of the decision is a step too far. In particular no finding was made apportioning as between the parties blame for the delay, let alone that such delay had the effect of triggering the application of the Article 8.1. test. Therefore the Court failed to consider and apply the correct test.

34. The respondent has referred the Court to Section 11(a) of the Arbitration Act, 2010 which provides that there shall be no appeal from any court determination of a stay application under Article 8.1 of the Model Law. It submits that this application is in substance an appeal which Section 11(a) prohibits.

35. The policy of this section is to ensure that matters concerning arbitration do not become protracted within the court system and that after a judge has made a decision under Article 8.1 the dispute should immediately progress to hearing either before an arbitrator or a court as the judge may have decided. The Applicants submit a judicial review is not an appeal. They submit that the prohibition in s. 11 renders it all the more important that a judge considering an application under Article 8.1. must act within his jurisdiction and apply himself to the test contained in Article 8.1. They submit that unless the judge has made a clear finding that the relevant arbitration agreement has become “null and void, inoperative or incapable of being performed”, he must, if he was to continue acting within his jurisdiction, remit the matter to arbitration.

36. I do not believe that Section 11 (a) of the Act of 2010 can be applied to preclude judicial review. It is precisely because there is no remedy of appeal that this court must be vigilant to ascertain whether the judge made an error so fundamental that, as it was put by Henchy J. in the State (Holland) v. Kennedy (26th April, 1977) where the court may:-

“fail to stay within the bounds of the jurisdiction conferred on it by statute. It is an error of the latter kind that prevents the impugned order in this case from being held to have been made within jurisdiction.”

37. In Clare County Council v. Kenny [2008] IEHC 177 MacMenamin J. adopted with approval the judgment of McMahon J. in the State (Cork Council Council) v. Fawsitt in which it was stated:-

“A court or tribunal exceeds its jurisdiction if it addresses itself to the wrong question, takes irrelevant considerations into account or if it makes an Order without deciding the issues which it is required to decide before an Order can validly be made.”

38. In this case the learned Circuit Court judge did not address himself to the test in Article 8.1. and took into account the extraneous consideration that the Respondent was without a car for a period of 3 years. In so doing he clearly failed to remain within jurisdiction, in the sense considered inThe State (Holland) v Kennedy and in The State (Cork City Council) v Fawsitt.

39. The Applicant seeks also an order of mandamus requiring the Circuit Court to refer the matter to arbitration pursuant to Artilce 8.1. In my view that is not an appropriate order for this court to make, as to do so would be to substitute its own finding on the merits of the application, applying the statutory test to the facts of this case. A determination of the application to remit to arbitration will require full consideration by the Circuit Court of the evidence before it in that context. For example, the Respondent swore in his replying affidavit to the motion to remit, that he had no recollection of signing the SIMI standard form contract. At the hearing of the motion, his counsel submitted that whilst no allegation of fraud was being made, the fact that the arbitration clause was not drawn to the attention of the Respondent had the consequence of rendering the clause “inoperative”. Similarly, if any question of delay is to inform the court in its application of the statutory test, submission and possibly evidence will need to be presented. These are only some of the considerations which may inform the court as to the application of the Article 8.1. test. In these circumstances the appropriate course now is for the application to remit to be determined by the Circuit Court applying the statutory test. This should be capable of determination at the earliest available occasion in the Circuit Court.

40. I shall therefore make an order of certiorari quashing the order of the Circuit Court made on the 26th of July, 2018 and remit the matter to the Circuit Court for determination of the application to refer the proceedings to arbitration.. Subject to that application being heard and pending its determination, I shall extend the stay on the Circuit Court proceedings ordered by Noonan J. on the 22nd of October, 2018.

MSI Methylation Sciences, Inc. v Quark Ventures Inc., 2019 BCSC 440

IN THE SUPREME COURT OF BRITISH COLUMBIA

MSI Methylation Sciences, Inc.

(Petitioner)

And:

Quark Venture Inc.

(Respondent)

– and –

Docket: S189143

Registry: Vancouver

Between:

Quark Venture Inc.

(Petitioner)

And:

MSI Methylation Sciences, Inc.

(Respondent)

Before: The Honourable Madam Justice Adair

Reasons for Judgment

 

1.         Introduction

[1]           In June 2018, following a nine-day arbitration hearing, MSI Methylation Sciences, Inc. (“MSI”) was awarded damages of US$20 million against Quark Venture Inc. (“Quark”) for breach of contract (the “Award”).  A further, supplementary award issued in September 2018 dealt with the currency of the Award, interest and costs.

[2]           Quark now applies to set aside the Award on the basis that the arbitrator committed arbitral error and, alternatively, for leave to appeal what it says are certain questions of law arising out of the Award.  Quark’s application is brought pursuant to sections 30 and 31 of the Arbitration Act, R.S.B.C. 1996, c. 55.

[3]           MSI opposes Quark’s application.

[4]           In addition, MSI has brought an application for leave to enforce the Award, pursuant to s. 29 of the Arbitration Act, and for related relief if any of the relief Quark is seeking is granted, including an order that Quark post security in the full amount of the Award.  Quark opposes MSI’s application.

[5]           For the reasons that follow, I have concluded that Quark’s application must be dismissed, and MSI’s application should be granted.

2.         Background

(a)      The Investment Agreement between MSI and Quark

[6]           MSI is a clinical-stage pharmaceutical company.  Quark invests in life sciences as well as clean and advanced technology.

[7]           MSI was developing a proprietary formulation, “MSI-195,” of S-adenosyl methionine, for the purpose of treating major depressive disorder, when the parties entered into negotiations for the investment in MSI by Quark.

[8]           In September 2016, MSI and Quark entered into what is referred to in the Award as the “Investment Agreement.”  The Investment Agreement provided for the investment by Quark in MSI of up to US$30 million, and (among other things) that:

(a)      MSI agreed to issue treasury shares giving Quark a majority interest in MSI;

(b)      Quark agreed to provide funds to MSI in four “tranches” (approximately US$1 million (the “First Tranche”), US$4 million (the “Second Tranche”), US$11 million (the “Third Tranche”) and US$14 million (the “Fourth Tranche”), respectively), on the terms and conditions set out in the Investment Agreement; and

(c)        MSI agreed to spend those funds in accordance with a specified budget to complete a clinical study.

[9]           The First Tranche of US$1 million was funded by Quark on September 30, 2016.

[10]        In late November 2016, the parties’ representatives met at Quark’s offices to discuss the closing of the Second Tranche (US$4 million).  At that meeting, Quark’s representatives told MSI’s representatives that there would be no further investment in MSI.  No further funds were advanced by Quark under the Investment Agreement.

(b)      The Arbitration

[11]        On March 16, 2017, MSI commenced the arbitration (the “Arbitration”).  In its arbitration notice, MSI alleged that Quark had breached the Investment Agreement by failing to close on the Second Tranche, and it described the value of its claim as US$29 million.  MSI sought an order for specific performance of the Investment Agreement.  Subsequently, it also sought damages in lieu of specific performance or, alternatively, common law damages for breach of contract.

[12]        The parties agreed on the appointment of Mr. J. Kenneth McEwan, Q.C., as arbitrator (the “Arbitrator”).  He was selected as a person who was familiar with contract law, venture capital, private equity and private placement in the field of Life Sciences.

[13]        In 2017, the Arbitrator held several procedural meetings with parties’ counsel.  Cross-applications for summary relief and for discovery were brought by MSI and Quark, respectively.  The applications were heard by the Arbitrator in the latter part of 2017.  In its motion for summary relief, MSI sought a “partial award” granting specific performance and damages, or, alternatively, an award granting summary judgment on its claim.  MSI submitted that it was seeking specific performance because it would be difficult to accurately quantify its damages for breach of contract, as the assessment would require a quantification of the “opportunity cost of not having a successful Phase 2 Clinical Trial” and would be much greater than the US$30 million required to be paid by Quark under the Investment Agreement.

[14]        The cross-applications were largely dismissed by the Arbitrator.

[15]        The Arbitration hearing took place on April 2-7 and 9-11, 2018.  Evidence in chief was given by affidavit and witness statements, and witnesses were then cross-examined.  Closing submissions began on April 10, and continued on April 11.  Counsel for MSI did not provide a written argument, but did provide a written outline of his submissions.  On the other hand, counsel for Quark provided written closing submissions.  The parties’ counsel also delivered oral argument over the two days.

[16]        At the hearing, MSI did not pursue a claim for specific performance of the Investment Agreement.  However, with respect to damages, MSI’s counsel advised at the beginning of his oral closing submissions that MSI was seeking damages in lieu of specific performance, or, alternatively, common law damages for breach of contract.  On the topic of quantum, MSI’s counsel submitted that MSI was entitled in either case to the “full value” of the Investment Agreement plus an amount for Quark’s delay.  MSI’s counsel submitted further that, whether damages were assessed in equity or at common law, the amount should be the same, namely US$29 million plus an amount for the time lost.  MSI’s position was that there should be no discount from the $29 million on account of contingencies.

[17]        In submissions, and with respect to common law damages, counsel for MSI argued that MSI was entitled to the amount of money that would bring it to the position it would have been in had the contract been performed, and damages for loss of profits.  Counsel for MSI submitted that the parties would reasonably have contemplated damages for breach of contract at US$29 million.  He argued that MSI was entitled to the value of the investment in MSI that Quark committed to make, which was US$29 million paid in “tranches.”  MSI’s counsel submitted that Quark’s breach in failing to close the Second Tranche impaired MSI’s ability to meet the milestones of the Third and Fourth Tranches, and that Quark could not rely on its own behaviour (that is, its breach in failing to pay the Second Tranche) to force a material adverse change as justification for not closing on the Third and Fourth Tranches.

[18]        Before concluding his submissions in chief, and after a short break, MSI’s counsel advised that MSI was withdrawing its claim for damages in lieu of specific performance because of legal theoretic difficulties, particularly with respect to the Third and Fourth Tranches and the jurisdiction of the Arbitrator.  MSI’s counsel advised that MSI was proceeding with damages for breach of contract and for lost opportunity.

[19]        Counsel for Quark then began his closing submissions.  With respect to damages, Quark argued that the entire foundation of MSI’s claim of loss was exaggerated and ill-conceived.  Quark submitted that MSI had not shown or proved any loss of any kind, let alone a loss in an amount ranging from US$4 million to US$29 million, or any loss of profit.  Quark argued that, “[e]ven if a claim for ‘loss of opportunity’ might possibly lie,” there was no evidence to support it, since MSI was required to establish that, “having regard for the contingencies that bear on whether, had the opportunity not been lost, a financial advantage would actually have been realized” (citing Olive Hospitality Inc. v. Woo2007 BCCA 355 (CanLII), at para. 14, and Mickelson v. Borden Ladner Gervais LLP2018 BCSC 348 (CanLII)).  Quark also cited the trial judgment in Graybriar Industries Ltd. v. Davis & Co.1990 CanLII 1572 (B.C.S.C.) (in turn citing an Ontario Court of Appeal decision) for the proposition that:  “Speculative and fanciful possibilities unsupported by expert or other cogent evidence can be removed from the consideration of the trier of fact and should be ignored, whereas substantial possibilities based on such expert or cogent evidence must be considered.”  Quark submitted that there was no such evidence, and nothing to support any claims with respect to the Third and Fourth Tranches.

3.         The Award

[20]        The Award was issued on June 21, 2018.

[21]        The Arbitrator found that, on November 30, 2016, Quark failed to make the payment that was then due in respect of the Second Tranche.

[22]        Beginning at para. 89 of the Award, the Arbitrator set out certain provisions of the Investment Agreement that he considered arose most directly in relation to the parties’ arguments relating to the interpretation of the Agreement.  He cited and relied on the principles applicable to the interpretation of contracts – particularly commercial agreements – described in Sattva Capital Corp. v. Creston Moly Corp.2014 SCC 53 (CanLII).

[23]        The Arbitrator then turned to his analysis and interpretation of the Investment Agreement.  He wrote at paras. 91-92:

91.      The context most material to the Investment Agreement and the issues that have been raised includes . . . that MSI was raising funds both for the conduct of a phase IIB clinical study and for working capital during the currency of that study.  The budget appended as Schedule “A” to the Investment Agreement reflects the use of proceeds to accomplish that end.  . . .

92.      From a contractual perspective, it is to be understood that MSI required the full US$30 million investment to achieve these commercial objectives, which were also the objectives of the Investment Agreement.  Correspondingly, it was necessary to that commercial purpose that the funds be used to that end, and not simply be dedicated to working capital generally, such that the opportunity to move to the next approval phase, and ultimately an FDA-approved drug, was maximized.

[24]        The Arbitrator noted (Award, para. 93) that there were no milestones set out in the Investment Agreement as a pre-condition to the Second Tranche, as distinct from the First, Third and Fourth Tranches.  The Arbitrator did not accept Quark’s argument that it had an untrammeled right not to proceed with funding, or a right simply to abandon the Investment Agreement prior to or at the time of the Second Tranche coming due.  He concluded that this was inconsistent with the surrounding context in which the Investment Agreement was made.  It would have denied to MSI the security of a funding commitment and undermined the intended purpose of the transaction, “which was to complete a further phase II study, in the hope of moving the product further in the approval process” (Award, para. 104).

[25]        In the result, the Arbitrator found (Award, para. 106) that, in failing to proceed with the Second Tranche of funding, Quark breached the Investment Agreement.

[26]        The Arbitrator then turned to remedy.

[27]        The Arbitrator found (Award, para. 109) that there was nothing in the Investment Agreement that precluded MSI from availing itself of the ordinary remedies for breach of contract.  He noted (Award, para. 111), that MSI initially claimed, but ultimately abandoned, its claim for specific performance of the Investment Agreement, and, at the hearing, sought damages in lieu of specific performance or, alternatively, common law damages.

[28]        With respect to damages in lieu of specific performance, the Arbitrator was not persuaded that either specific performance, or damages in lieu thereof, would have been appropriate (Award, para. 112).  The Arbitrator concluded (Award, para. 113) that MSI was entitled to common law damages for breach of contract, and that its damages were to be assessed as of the date of the breach, which was November 30, 2016.

[29]        The Arbitrator then turned to the assessment of damages.  It is here that Quark says the Arbitrator committed arbitral error, and also made errors of law.

[30]        The Arbitrator wrote, beginning at para. 114:

Measure of Damages

114.     The general rule is that a plaintiff is entitled to expectation damages for breach of contract:

The case is governed by the general rule applicable to all breaches of contract, and laid down as follows by Parke B. in Robinson v. Harman (1846) [1 Ex. 850, at p. 855].

The rule of the common law is, that where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed.

(Haack v. Martin1927 CanLII 57 (SCC), [1927] S,C.R. 413per Rinfret J., at p. 416, quoted in Bank of America Canada v. Mutual Trust Co.2002 SCC 43 (CanLII)).

115.     Expectation damages are assessed from the plaintiff’s perspective.  The court must determine the value of the promise to the plaintiff at the time the obligation was to have been performed (Bank of America Canada v. Mutual Trust Co.2002 SCC 43 (CanLII)).

116.     In this case, the value of the promise must be considered as at the date the second tranche payment was due (November 30, 2016).  The promise that was given through the Investment Agreement was the opportunity to receive US$30 million in exchange for an issuance of shares from treasury.  As at the intended date of the second tranche payment (November 30, 2016), MSI had received US$1 million and was unconditionally entitled to receive another US$4 million.

117.     The balance of the US$29 million (i.e. US$25 million) was not an amount to which MSI was unconditionally entitled.  It was entitled only to the opportunity to receive that amount if, inter alia, certain milestones were met.

118.     The approach to assessment of lost opportunities was addressed by the Court of Appeal in Pacific Destination Properties Inc. v. Granville West Capital Corp.1999 BCCA 115 (CanLII), (“Pacific Destination Properties”) at para. 55:

In Bradshaw Construction Ltd. v. Bank of Nova Scotia (1992), 1992 CanLII 4038 (BC CA), 73 B.C.L.R. (2d) 212 (C.A.) this Court considered the principles applicable to damages, including a claim of loss of opportunity. At pages 228-229, the court referred to the following as a correct statement of the applicable law for loss of opportunity (as set out by the trial judge):

When deciding whether the plaintiff suffered any damages as a consequence of the actions of the defendant, Bradshaw must prove the existence of a loss on a balance of probabilities.  It has done so.  But when it comes to assessing the actual amount of the loss the standard of proof is not so strict.

Determining the amount of damages in these circumstances is largely a matter of assessing the strength and weaknesses of various possibilities.  It is much like measuring the amount of a past or future loss of income in a personal injury action.  The more certain the possibility of the loss the greater the award; the less certain the possibility the smaller the award.  When looking at events that may have taken place but for a certain event, it is impossible to say what would have probably happened when the event came about, because one does not know the nature of the circumstances at the relevant time when the event might have occurred.  The best that can be estimated are the possibilities, not the probabilities.

119.     In this case, MSI was to meet certain milestones prior to the third and fourth tranches coming due.  Quark retained an entitlement not to proceed with the third and fourth tranches in the event of a material adverse change to the financial position, business, assets or prospects of MSI or its subsidiary, or dissatisfaction with legal documentation.  Its rights in that regard, while expressly “in its sole discretion” were necessarily constrained.  At minimum, its ability to rely on the existence of a material adverse change or defect in legal documentation were subject to its duty of honest performance, informed by good faith (Bhasin v. Hrynew2014 SCC 71 (CanLII) at para. 93).

120.     Accordingly, while also taking into account the other contingencies potentially at play, the primary question is what the likelihood is that both of the following would have occurred:

a.         MSI would have met the milestones; and

b.         Quark would not (in honest performance of its contractual obligations) have exercised its right to claim a material adverse change or defect in legal documentation.

121.     Neither party led evidence or made substantive argument with respect to the appropriate discount to the value of MSI’s opportunity on the basis of future contingencies.

122.     As in Pacific Destination Properties, I consider the prospect that the milestones would have been met without any good faith exercise by Quark of its ability to claim a material adverse change or defect in legal documentation, or other condition precedent left unmet, to be “probable”.  As in Pacific Destination Properties, I nonetheless discount the likelihood of the third and fourth tranches being paid by approximately one-third (in this case 36%) to adjust for all uncertainties and negative contingencies.

123.     Accordingly, I find that as at November 30, 2016, the value of the promise made to MSI was US$4 million plus US$16 million, or US$20 million.

124.     I recognize that the proper measure of contractual damages is what the plaintiff was entitled to from the defendant, less whatever the plaintiff has retained as a result of the breach that it would not have retained if the contract had been carried out.

125.     In this case, the value of what MSI has retained (shares in treasury), while potentially significant to others, is zero to the company itself.  Shares in treasury are not an asset of the corporation.  They are ownership pieces of the corporation. They represent value to potential shareholders and, when issued, can impact value to existing shareholders.  But to the company, they do not have value.

126.     Accordingly, the value of MSI’ s damages is not properly discounted by the fact that it has not been required to issue shares as it would have been if the Investment Agreement had been carried through.

[31]        The Arbitrator gave the parties leave to make submissions concerning currency and the application of the Foreign Money Claims Act, R.S.B.C. 1996, c. 155, interest and costs.  Following submissions, those matters were dealt with in a supplementary award dated September 12, 2018 (the “Supplementary Award”).

4.         Discussion and analysis

[32]        I will first discuss Quark’s application to have the Award set aside on grounds of arbitral error.  I will then turn to Quark’s application for leave to appeal.  Finally, I will address MSI’s application for leave to enforce the Award.

(a)      Has Quark shown the Arbitrator committed arbitral error?

[33]         Section 30 of the Arbitration Act empowers the Court to set aside or remit an award if the arbitrator has committed an arbitral error:

Court may set aside award

30        (1)        If . . .  an arbitrator has committed an arbitral error, the court may

(a) set aside the award, or

(b) remit the award to the arbitrator for reconsideration.

(2)        The court may refuse to set aside an award on the grounds of arbitral error if

(a) the error consists of a defect in form or a technical irregularity, and

(b) the refusal would not constitute a substantial wrong or miscarriage of justice.

(3)        Except as provided in section 31, the court must not set aside or remit an award on the grounds of an error of fact or law on the face of the award.

. . .

[34]        This power is discretionary.

[35]        “Arbitral error” is defined (in s. 1 of the Arbitration Act) in relevant part as follows:

arbitral error means an error that is made by an arbitrator in the course of an arbitration and that consists of one or more of the following:

. . .

(d)        failure to observe the rules of natural justice;

[36]        Quark says that the Arbitrator failed to observe the rules of natural justice, and thereby committed arbitral error, by basing the Award on an approach to damages that was not advanced by the parties and on which the parties were not given an opportunity to make submissions.

[37]        Quark says that, in particular, the Arbitrator adopted his own theory of damages and proceeded on the basis that damages should be assessed on the same basis as if Quark’s breach in failing to pay the Second Tranche amounted to an accepted repudiation of the Investment Agreement – a position never taken by either MSI or Quark.  In doing so, Quark says that, without seeking any submissions from the parties on these issues, the Arbitrator unilaterally concluded that:

(a)      MSI’s damages assessed as of November 30, 2016 should include the subsequent loss of opportunity to receive the Third and Fourth Tranches and damages should be assessed in accordance with a case that was not cited by either party (namely, Pacific Destination Properties Inc. v. Granville West Capital Corp.1999 BCCA 115 (CanLII));

(b)      the appropriate discount to apply under the Arbitrator‘s loss of opportunity theory of MSI’s damages was 36%; and

(c)        there was zero cost to MSI in issuing treasury shares, meaning MSI’s damages should not be reduced to take into account the fact that it never issued treasury shares in exchange for the funding, as contemplated under the Investment Agreement.

[38]        Quark says that, of the cases relied on by the Arbitrator with respect to damages assessment, only one was cited by either party, and at no time did the Arbitrator seek submissions from the parties on the cases he relied on.  Quark says that the Arbitrator was under a duty (consistent with the requirements of natural justice) to determine the Arbitration on the basis of the cases which had been advanced by each party, and of which each party had notice.  Quark says further that the parties are entitled to assume that the Arbitrator will base the Award solely on the evidence and argument presented by them prior to the making of the Award.

[39]        Quark argues that this case has parallels to Hawkeye Power Corporation v. Sigma Engineering Ltd.2012 BCCA 414 (CanLII).  In that case, a new trial was ordered on appeal, on the basis that trial judge had decided the case on an interpretation of the contract that was not put to parties, and that was neither pleaded nor argued.  Quark says that, in this case, the Arbitrator committed the same breach of natural justice as in Hawkeye, by proceeding on the damages theory that MSI lost the opportunity to receive the Third and Fourth Tranches, without giving Quark the opportunity to make submissions on that point.  Quark argues that fairness concerns such as those raised in Hawkeye are heightened in the arbitration context, where appeals of an award are limited to questions of law alone.

[40]        Quark says that, in addition, in assessing damages the Arbitrator did not address in any way Quark’s position that MSI had failed to show any loss.  Quark says further that, to the extent a loss of opportunity approach was correct, the Arbitrator ignored the evidence before him that the Third Tranche in fact did not close, and that the conditions precedent for its closing had not been satisfied.

[41]        In Quark’s submission, the Arbitrator was obligated to deal with these essential issues raised by Quark in relation to MSI’s claim for damages, and a failure to do so amounts to a failure to observe the rules of natural justice and, therefore, arbitral error.

[42]        Quark says that these arbitral errors are more than defects in form or technical irregularities, and refusing to set aside the Award would constitute a substantial wrong or miscarriage of justice.  Quark argues that these arbitral errors go to the heart of the Award, forming a critical component of the Arbitrator’s assessment of damages.  This assessment, which Quark says was made in a vacuum of submissions and evidence, would leave MSI in a better position than it would have been in had the Investment Agreement been performed, as MSI was awarded the majority of the proceeds (US$20 million) available under the Investment Agreement, without taking into account either MSI’s concomitant obligation to spend the proceeds only on the clinical study or the consideration that MSI owed to Quark under the Investment Agreement.

[43]        On the other hand, MSI says that the claim of arbitral error is unfounded and is, if anything, simply another means by which Quark seeks to express its unhappiness with the substantive outcome reflected in the Award.  MSI says that this is not a permissible use of s. 30 of the Arbitration Act.  MSI says that the Arbitrator acted in accordance with the requirements of natural justice and no relief under s. 30 can be justified.

[44]        MSI says that, on the record, it is clear that the Arbitrator, throughout his involvement, was sensitive to procedural fairness issues.  During closing submissions, the Arbitrator frequently asked questions and engaged in discussion with counsel.  MSI says that the Arbitrator and counsel for the parties had several exchanges during closing submissions regarding the method by which damages would be calculated (or assessed).

[45]        MSI says that Quark is now attempting, by asserting arbitral error, to revive opportunities to argue about damages that it declined to use fully during the hearing of the Arbitration.  MSI says that damages as a whole did not occupy a large portion of Quark’s closing submissions.  Rather Quark’s primary focus was on the argument that Quark had not breached the Investment Agreement and was, therefore, not liable.

[46]        MSI says that assessing damages on the basis of loss of opportunity to receive the Third and Fourth Tranches was in fact argued before the Arbitrator.  MSI framed its submissions in relation to that opportunity, and, in its closing brief of authorities, Quark in fact included a number of cases (for example, Olive HospitalityMickelsonGraybriar and Trinden Enterprises Ltd. v. Ramsay2009 BCCA 125 (CanLII)) in which the topic of damages for loss of opportunity was discussed.  The Arbitrator engaged in discussion with MSI’s counsel on those points.

[47]        What then are the requirements for “natural justice” in the arbitration context?

[48]        As D. Smith J.A. observed in 0927613 B.C. Ltd. v. 0941187 B.C. Ltd.2015 BCCA 457 (CanLII), at paras. 59-60:

[59]      Natural justice requirements in arbitration have been broadly stated to require the arbitrator to act in good faith (or stated otherwise to be unbiased), fairly listen to both sides, and to give a fair opportunity to those who are parties to make representations, including to correct or to contradict any relevant statement prejudicial to their view.  [citations omitted]

[60]      Natural justice will require an arbitrator to act with procedural fairness, the requirements of which will depend on the subject-matter of the dispute, the circumstances of each case, the nature of the inquiry, and the rules under which the parties have agreed to arbitrate their dispute.  [citations omitted] The duty of fairness is not a “one size fits all” requirement but is molded by the circumstances of each case. Its most basic requirement is “simple fairness” or “fair play in action”.  See Canada (Attorney General) v. Mavi2011 SCC 30 (CanLII) at para. 42Ridge v. Baldwin[1962] 1 All E.R. 834 (C.A.) at 850, Harman L.J., cited in Kane at 1113.

[49]        In my view, there was no failure by the Arbitrator to observe the rules of natural justice, and Quark has failed to demonstrate any arbitralerror in that respect.

[50]        The record submitted on the applications before me make it clear that the Arbitrator, throughout his involvement, was sensitive to issues concerning procedural fairness.  There can be no doubt that both sides were given a fair opportunity to present their respective cases.

[51]        I would not give effect to Quark’s complaint that the Arbitrator based the Award on an approach to damages that was not advanced by the parties and on which the parties were not given the opportunity to make submissions.  In my view, the opposite is true.  The record before me supports the conclusion that MSI framed its submissions concerning damages based on an entitlement to receive the value of the Investment Agreement (namely, US$29 million) paid in tranches, including compensation for the loss of the opportunity to receive the Third and Fourth Tranches.  MSI made submissions that Quark could not rely on its own behaviour (that is, the failure to close on the Second Tranche, thereby impairing MSI’s ability to meet the Third and Fourth Tranche milestones) to limit MSI’s damages.  Quark provided authorities to the Arbitrator on loss of opportunity and addressed the point directly in it closing submissions.  That Quark chose not to develop the point more fully in closing submissions, and (for example) make submissions addressing more explicitly an appropriate contingency deduction in the context of loss of opportunity, does not create a breach of natural justice and arbitral error.

[52]        Quark asserts that the Arbitrator committed arbitral error by relying on Pacific Destination Properties, a case that neither party cited to him and on which neither party had an opportunity to make submissions.  However, it is not an error or a breach of natural justice for an arbitrator (or a judge) to rely on case authorities not cited by counsel:  see, for example, ICBC v. Patko2008 BCCA 65 (CanLII) at para. 37.  Although it is improper for a judge to decide a case on issues that were not argued, a judge is entitled to seek assistance on the issues argued beyond the authorities counsel provides:  ICBC v. Patko, at para. 37.  In my view, the same principle applies to the Arbitrator, who was selected (in part) because of his expertise in contract law.

[53]        The legal principles discussed in paras. 114-115 and 118 of the Award were not obscure legal points that were raised for the first time in the Award or that the parties (specifically Quark) had no opportunity to address.  Rather, they were well established.  The theory that there could be entitlement to contract damages based on loss of opportunity was not a theory that the Arbitrator created on his own, divorced from cases and arguments presented to him at the Arbitration hearing.  The law discussed in Pacific Destination Properties fell within the law as stated in the authorities that the parties had squarely put before the Arbitrator.

[54]        The very well-known case of Hadley v. Baxendale (1854), 9 Ex. 341156 E.R. 145, is cited in Pacific Destination Properties (at para. 44) for the proposition that the damages which the innocent party ought to receive in respect of breach of contract are those which may fairly and reasonably be considered either arising naturally from the breach of it or as may reasonably be supposed to have been in the contemplation of the parties, at the time they made the contract, as the probable result of the breach of it.  The same principle was cited by counsel for MSI in closing argument.  In Trinden, one of the authorities in Quark’s brief of authorities, Saunders J.A. noted (at para. 23) that “[C]ompensation for loss of opportunity . . . is no more than the application of Hadley v. Baxendale. . .”.  The propositions stated in paras. 48 and 49 of Pacific Destination to the effect that a person cannot take advantage of its own wrong were also well-established, and advanced in closing argument by counsel for MSI in support of an assessment of damages at US$29 million.

[55]        The assessment of damages based on a loss of opportunity, with respect to which a contingency deduction may be appropriate, was also a concept discussed in the authorities provided by Quark to the Arbitrator.  It was not a breach of natural justice for the Arbitrator to consider and apply this concept in his assessment of MSI’s damages.

[56]        In my view, this case does not find a parallel in Hawkeye.  On the contrary, as of closing submissions, there could have been little doubt about MSI’s position that its damages should be assessed on the basis of what it asserted was the value of the Investment Agreement (that is, US$29 million), and the issues addressed by the Arbitrator in the Award concerning the assessment of damages were the subject of both submissions and authorities placed before him in closing arguments.

[57]        I would also not give effect to Quark’s argument that the Arbitrator committed arbitral error by not expressly addressing all of Quark’s submissions on damages in the Award.  Like a trial judge, while an arbitrator must give comprehensible reasons for the arbitrator’s decision, the arbitrator is not required to refer to all the arguments, provisions or jurisprudence or to make specific findings on each constituent element, for the decision to be reasonable:  see Sattva, at para. 75.  In my view, the Arbitrator met the standard that applies.

[58]        Accordingly, I dismiss this part of Quark’s petition.

(b)      Should leave to appeal be granted under s. 31 of the Arbitration Act?

(i)         Introduction

[59]        Section 31 of the Arbitration Act allows for appeals to the Court on questions of law arising from an arbitral award if the court grants leave, and provides in relevant part:

Appeal to the court

31        (1)        A party to an arbitration, other than an arbitration in respect of a family law dispute, may appeal to the court on any question of law arising out of the award if

. . .

(b) the court grants leave to appeal.

(2)        In an application for leave under subsection (1) (b), the court may grant leave if it determines that

(a) the importance of the result of the arbitration to the parties justifies the intervention of the court and the determination of the point of law may prevent a miscarriage of justice,

(b) the point of law is of importance to some class or body of persons of which the applicant is a member, or

(c) the point of law is of general or public importance.

(3)        If the court grants leave to appeal under subsection (2), it may attach conditions to the order granting leave that it considers just.

. . .

[60]        In the event that a question of law is properly identified, the court must still make the determination required in s. 31(2) of the Arbitration Act and identify a ground that supports the granting of leave to appeal.

[61]        Here, Quark relies on s. 31(2)(a).

[62]        What must be shown in that respect is discussed in Sattva, at paras. 68 and following.  In order to rise to the level of a miscarriage of justice for the purposes of s. 31(2)(a), an alleged legal error must pertain to a material issue in the dispute which, if decided differently, would affect the result of the case.  According to this standard, a determination of a point of law “may prevent a miscarriage of justice” only where the appeal itself has some possibility of succeeding.  An appeal with no chance of success will not meet the threshold of “may prevent a miscarriage of justice” because there would be no chance that the outcome of the appeal would cause a change in the final result of the case.  At the leave stage, it is not appropriate to consider the full merits of a case and make a final determination regarding whether an error of law was made.  However, some preliminary consideration of the question of law is necessary to determine whether the appeal has the potential to succeed and thus to change the result in the case.  The appropriate threshold for assessing the legal question at issue under s. 31(2) is whether it has arguable merit or a reasonable prospect of success.  Assessing whether the issue raised by an application for leave to appeal has arguable merit must be done in light of the standard of review on which the merits of the appeal will be judged.  This requires a preliminary assessment of the applicable standard of review.  Except in rare cases (none of which apply here), reasonableness will almost always apply to commercial arbitrations conducted pursuant to the Arbitration Act.

[63]        Statutory limitations on the scope of appellate review of arbitration awards are “absolute,” and the test for leave to appeal is not easily met:  see Sattva, at para. 104; and 0927613 B.C. Ltd., at para. 7.  Such limitations reflect the policy objectives of only allowing limited judicial intervention in respect of arbitrationdecisions and the importance of judicial restraint in the review of arbitral awards, at least in the commercial context:  see Boxer Capital Corporation v. JEL Investments Ltd.2015 BCCA 24 (CanLII), at paras. 3-6.  A finding that the questions proposed by Quark on its application for leave are not questions of law would wholly dispose of the issue of the courts’ jurisdiction to review those questions:  see Teal Cedar Products Ltd. v. British Columbia2017 SCC 32(CanLII), at para. 42.

[64]        In Teal Cedar Products, the Supreme Court of Canada clarified the approach to identifying a question of law for the purposes of granting leave under s. 31of the Arbitration Act.  Gascon J. (for the majority) wrote, at paras. 43-47:

[43]      The process for characterizing a question as one of three principal types — legal, factual, or mixed — is also well-established in the jurisprudence (Canada (Director of Investigation and Research) v. Southam Inc.1997 CanLII 385 (SCC), [1997] 1 S.C.R. 748, at para. 35).  In particular, it is not disputed that legal questions are questions “about what the correct legal test is” (Sattva, at para. 49, quoting Southam, at para. 35); factual questions are questions “about what actually took place between the parties” (Southam, at para. 35; Sattva, at para. 58); and mixed questions are questions about “whether the facts satisfy the legal tests” or, in other words, they involve “applying a legal standard to a set of facts” (Southam, at para. 35; Sattva, at para. 49, quoting Housen v. Nikolaisen2002 SCC 33 (CanLII), [2002] 2 S.C.R. 235).

[44]      That said, while the application of a legal test to a set of facts is a mixed question, if, in the course of that application, the underlying legal test may have 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, that party alleges that the judge (or arbitrator), in effect, deleted that element from the test and thus altered the legal test.  As the Court explained in Southam, at para. 39:

. . . if a decision-maker says that 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 the outcome is as if he or she had applied a law that required consideration of only A, B, and C. 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.

Such an allegation ultimately challenges whether the judge (or arbitrator) relied on the correct legal test, thus raising a question of law (Sattva, at para. 53; Housen, at paras. 31 and 34-35).  Accordingly, such a legal question, if alleged in the context of a dispute under the Arbitration Act, and assuming the other jurisdictional requirements of that Act are met, is open to appellate review.  These “extricable questions of law” are better understood as a covert form of legal question — where a judge’s (or arbitrator’s) legal test is implicit to their application of the test rather than explicit in their description of the test — than as a fourth and distinct category of questions.

[45]      Courts should, however, exercise caution in identifying extricable questions of law because mixed questions, by definition, involve aspects of law.  The motivations for counsel to strategically frame a mixed question as a legal question — for example, to gain jurisdiction in appeals from arbitration awards or a favourable standard of review in appeals from civil litigation judgments — are transparent (Sattva, at para. 54; Southam, at para. 36).  A narrow scope for extricable questions of law is consistent with finality in commercial arbitration and, more broadly, with deference to factual findings.  Courts must be vigilant in distinguishing between a party alleging that a legal test may have been altered in the course of its application (an extricable question of law; Sattva, at para. 53), and a party alleging that a legal test, which was unaltered, should have, when applied, resulted in a different outcome (a mixed question).

[46]      From this standpoint, the characterization of a question on review as a mixed question rather than as a legal question has vastly different consequences in appeals from arbitration awards and civil litigation judgments.  The identification of a mixed question when appealing an arbitration award defeats a court’s appellate review jurisdiction (Arbitration Act, s. 31; Sattva, at para. 104).  . . .

[47]      . . . In consequence, characterizing the nature of the specific question before the court requires delicate consideration of the narrow issue actually in dispute.  . . .

[65]        Quark says that the following questions of law arise out of the Award:

(1)      the Arbitrator erred in law by holding that MSI’s expectation damages for breach of contract should be assessed by reference to the amounts to be paid by Quark under the Investment Agreement rather than by reference to the loss to MSI of not obtaining the clinical study data that MSI would have obtained had the Investment Agreement been performed;

(2)      the Arbitrator erred in law by holding that damages assessed as of November 30, 2016, for breach of Quark’s failure to pay the Second Tranche include damages for the Third and Fourth Tranches despite the Investment Agreement remaining open and requiring continuing performance by both parties; and

(3)      the Arbitrator erred in law by holding that MSI’s damages should be assessed without taking into account MSI’s retention of the treasury shares that it would have been required to issue to Quark had the Investment Agreement been performed.

[66]        Quark says further that the threshold under s. 31(2)(a) of the Arbitration Act for leave to appeal is met.  Quark says that the result of the Arbitration – an award of damages of US$20 million – is of undeniable importance to the parties and justifies the intervention of the court.  In addition, Quark says that each of its proposed questions of law may prevent a miscarriage of justice as each is of arguable merit.

[67]        MSI says that none of Quark’s questions is a question of law.  Rather, in MSI’s submission, the questions are factual, or (at best) ones of mixed fact and law.  MSI says further that none of the questions arises out of the Award.  Rather, in MSI’s submission they arise out of Quark’s mischaracterization of what the Arbitrator did.  Finally, MSI says that, even if one or more of Quark’s questions were a question of law, the court should not grant leave.  This is because Quark has failed to show both that the importance of the result to the parties justifies the intervention of the court, and that the appeal has arguable merit in the light of the applicable standard of review, which is reasonableness.

[68]        I turn then to consider each of Quark’s proposed questions, which (for convenience) I have slightly paraphrased in the headings below.

(ii)        Q. 1:  the Arbitrator erred in law by basing MSI’s expectation damages on the amounts payable under the Investment Agreement instead of on what MSI would have received had the Agreement been performed

[69]        With respect to its first proposed question, Quark says that the Arbitrator correctly stated the legal test governing the assessment of damages for breach of contract, namely, that the innocent party should be placed, as far as money can do so, in the same position as it would have been in had the contract been performed.  However, Quark says that in assessing MSI’s damages, the Arbitrator considered only Quark’s obligations under the Investment Agreement and failed to consider the effect of MSI performing its own obligations under the Agreement (for example, to carry out the clinical trial), which would have consumed all of the funding.  Therefore, Quark says, although the Arbitrator identified the correct legal test, he failed (in the manner described in para. 44 of Teal Cedar Products) to apply all of the elements of that test.  As a result, Quark says, the Arbitrator erred in law.

[70]        In response, MSI says that the proposed question is not a question of law at all, but a question of fact, or, at most, a question of mixed fact and law.  That is because the assessment of damages generally raises matters of mixed fact and law, or of fact alone, and Quark’s proposed question squarely engages the assessment of damages.  MSI says that there is no dispute concerning the legal test for contract damages.  This was the test set out in para. 114 of the Award.  MSI says that the only question, therefore, is what did the Arbitrator do in applying this legal test to the facts, which is (at best for Quark) a question of mixed fact and law, and not subject to appeal.

[71]        MSI says further that the proposed question does not arise out of the Award.  Rather, it assumes that the Arbitrator did not take into account the loss to MSI of not obtaining the clinical study data that MSI would have obtained had the Investment Agreement been performed.  However, MSI says that this assumption is not borne out by the Award.  MSI says that, in assessing damages, the Arbitrator expressly took into account contingencies that included whether MSI would have met the milestones for the Third and Fourth Tranches, as well as other contingencies potentially at play (see Award, para. 120).  Moreover, MSI says that the Arbitrator was alive to Quark’s points, including that, in its view, the opportunity to invest in MSI did not have value (see Award, para. 130).

[72]        In my view, Quark’s first proposed question does not state a question of law.  It is, at best, a question of mixed fact and law concerning how the Arbitrator, who was clearly aware of the correct legal test, as well as the nature and object of the Investment Agreement, carried out the assessment of contract damages based on the facts.

(iii)      Q. 2:  the Arbitrator erred in law by assessing MSI’s damages as of November 30, 2016 to include damages for the Third and Fourth Tranches

[73]        With respect to its second proposed question, Quark says that MSI’s claim for specific performance (or damages in lieu thereof) constituted an election to affirm the Investment Agreement and keep the contract alive.  Quark says that, while at the Arbitration hearing, MSI abandoned its claim for specific performance, it never abandoned its claim for damages in lieu thereof.  However, Quark says (citing Dosanjh v. Liang2015 BCCA 18 (CanLII), at paras. 53-54) that such damages are awarded only in cases where specific performance is available, that is, in cases where the contract has not been terminated.

[74]        Quark says that the Arbitrator found that damages in lieu of specific performance were not appropriate, but not that they were unavailable because there had been an accepted repudiation of the Investment Agreement, which there had not been.  Quark says that there was no basis for the Arbitrator to assess damages as though there had been an accepted repudiation (based on Quark’s breach in failing to pay the Second Tranche), and the issue of whether or not Quark breached an obligation to pay the Third and Fourth Tranches was not properly before the Arbitrator.

[75]        MSI says that the second proposed question does not raise a question of law.  Rather, MSI says that it embeds within it a host of issues of fact or mixed fact and law, including whether a repudiation is required in the circumstances (since there was a breach of the obligation to pay the Second Tranche, not merely an anticipatory breach), and, if there was a repudiation, whether it was accepted.  Moreover, MSI says that the loss of opportunity itself is strongly factual.  Whether the Arbitrator erred by characterizing MSI’s potential receipt of funds under the Third or Fourth Tranches as an opportunity that was lost by virtue of Quark’s failure to pay the Second Tranche (and therefore a breach of the Investment Agreement) is a question of fact, or, at most, mixed fact and law.

[76]        MSI says further that this proposed question does not arise out of the Award, and misconceives the context before the Arbitrator.  MSI says that the proposed question is based on at least two erroneous premises:  first, that a repudiation by Quark and acceptance by MSI were required for the Arbitrator to award damages for loss of opportunity in relation to the Third and Fourth Tranches; and, second, that there was no accepted repudiation and no basis for the Arbitrator to assess damages as though there had been.

[77]        In my view, this question is, again, not a question of law, but is (at best) a question of mixed fact and law concerning how the Arbitrator assessed damages.  In addition, it misinterprets how the Arbitrator assessed damages, and is not a question that arises out of the Award.

[78]        The Arbitrator assessed MSI’s damages arising out of the breach of contract (the failure to pay the Second Tranche) to include loss of the opportunity to receive the Third and Fourth Tranches.  MSI was entitled to a remedy in damages for the breach of the Investment Agreement found by the Arbitrator.  The failure by Quark to proceed with the Second Tranche of funding was not merely an anticipatory breach; it was an actual breach of the parties’ contract.  Contrary to how the second proposed question is framed, damages were not assessed to “include damages” for the Third and Fourth Tranches.  Rather, damages were assessed based on the loss of the opportunity to receive the Third and Fourth Tranches, arising from the actual breach.  Moreover, by the end of MSI’s closing submissions, MSI was not seeking damages in lieu of specific performance, but common law damages for breach of contract.  That is how damages were assessed by the Arbitrator.

(iv)      Q. 3:  the Arbitrator erred in law by declining to take the shares that MSI would have issued under the Investment Agreement into account in assessing MSI’s damages

[79]        Quark says that, in assessing damages, the Arbitrator contravened the principle that a claimant is not entitled to recover the entirety of what it bargained for without giving up anything in return, as it cannot be placed in a better position than it would have been in had the contract been performed.  Quark says that the Arbitrator erred in law by holding that MSI’s damages should not be discounted by the treasury shares that it retained as a result of Quark’s breach.  Quark says that, contrary to the Arbitrator’s conclusion that the unissued MSI shares have no value, there is indeed value in the shares MSI has retained because, without diluting its shareholders, it can issue the shares to new purchasers for its own benefit.  This gives rise to double recovery.

[80]        MSI says that this question is a question of fact, or, at most, a question of mixed fact and law.  The Arbitrator identified the correct legal test (see Award, para. 124).  MSI says that the Arbitrator did not deduct a value for the shares because he found as a fact that they did not have value to MSI:  see Award, paras. 125-126.  This is not open to challenge on an appeal under s. 31.

[81]        I agree with MSI.  Quark’s third proposed question does not identify a question of law.  Rather, it seeks to challenge a finding of fact made by the Arbitrator.  The Arbitrator identified the correct legal test.  He did not “decline” to take the shares into account.  Rather, he found as a fact that the shares had no value.

(v)      Conclusion

[82]        Given my conclusions that none of the three questions proposed by Quark is a question of law, I do not intend to discuss whether Quark could nevertheless have demonstrated what is required under s. 31(2)(a) of the Arbitration Act, assuming it had identified a question of law.

[83]        Quark’s application for leave to appeal is dismissed.

(c)      MSI’s petition for enforcement of the Award

[84]        With respect to enforcement of the Award, MSI relies on s. 29 of the Arbitration Act, which provides:

Enforcement of an award

29        (1)        With leave of the court, an award may be enforced in the same manner as a judgment or order of the court to the same effect, and judgment may be entered in the terms of the award.

            . . .

[85]        The fact that leave is required makes it clear that an award is not entitled to automatic status as a judgment of the court.  Rather, the court must exercise its supervisory power in determining whether it is appropriate to permit an award to be enforced as a judgment of the court.  See Bekar v. TD Evergreen2006 BCCA 266 (CanLII), at paras. 37-38.  The application for leave may be adjourned, or leave may be refused, if:  the award is not “perfected,” such as where there are outstanding issues between the parties that the arbitrator had indicated he or she will or must address; if proper processes were not followed in obtaining the award; or where the award is still subject to appeal.  See Bekar, at para. 38; and The Owners, Strata Plan BCS 3165 v. KBK No. 11 Ventures Ltd.2014 BCSC 2276 (CanLII), at para. 96

[86]        An application under s. 29 is not a hearing of the merits of the arbitrated dispute.  See:  J. Brian Casey, Arbitration Law of Canada:  Practice and Procedure, 3rd ed. (New York:  JurisNet, 2017), at p. 534.

[87]        As the Supplementary Award addressed the remaining issues outstanding, the Award has been perfected.  I have rejected Quark’s arguments concerning arbitral error, and I have concluded that Quark has not identified any question of law that would justify leave being granted under s. 31 of the Arbitration Act.

[88]        No grounds have been established on which leave to enforce either the Award or the Second Award should be refused.  Accordingly, I grant leave, pursuant to s. 29 of the Arbitration Act, to enforce both the Award and the Supplementary Award.

5.         Summary and disposition

[89]        In summary, I make the following orders:

(a)      Quark’s petition is dismissed, with costs on Scale B;

(b)      with respect to MSI’s petition:

(i)         MSI is granted leave to enforce the Award and the Supplementary Award (collectively, the “Awards”) in the same manner as a judgment of this court;

(ii)        Quark shall pay to MSI the amount of Canadian currency necessary to purchase the following amounts of U.S. currency at a chartered bank located in B.C. at the close of business on the conversion date, being the last day before the day on which a payment pursuant to this order is made:

(A)      US$20,000,000;

(B)      US$80,066.67;

(C)      post-Awards interest in an amount calculated up to the date of this order pursuant to the Court Order Interest Act, R.S.B.C. 1996, c. 79;

(D)      post-judgment interest in an amount calculated commencing on the date of this order under the Foreign Money Claims Regulation, B.C. Reg. 165/96; and

(iii)      Quark shall pay costs of the proceeding to MSI on Scale B.