Babcock Marine (Clyde) Ltd v HS Barrier Coatings Ltd [2019] EWHC 1659

Neutral Citation Number: [2019] EWHC 1659 (TCC)
Case No: HT-2019-000131

IN THE HIGH COURT OF JUSTICE
BUSINESS & PROPERTY COURTS OF ENGLAND AND WALES
TECHNOLOGY AND CONSTRUCTION COURT (QBD)

Royal Courts of Justice
Strand, London, WC2A 2LL
28/06/2019

B e f o r e :

MRS JUSTICE O’FARRELL DBE
____________________

Between:

BABCOCK MARINE (CLYDE) LIMITED
Claimant
– and –
 
HS BARRIER COATINGS LIMITED
Defendant

____________________

Ms Gaynor Chambers (instructed by Osborne Clarke LLP) for the Claimant
Ms Jennifer Jones (instructed by Hill Dickinson LLP) for the Defendant

Hearing dates: 18th June 2019
____________________

HTML VERSION OF JUDGMENT APPROVED
____________________

Crown Copyright ©

 

Mrs Justice O’Farrell:

    1. The following matters are before the court:

i) the defendant’s application for relief from sanctions and an extension of time for service of its Part 11 application contesting the jurisdiction of the court;

ii) the defendant’s application for the claim form to be set aside or for proceedings to be stayed pursuant to CPR 11(6) on the ground that the Courts of England and Wales do not have, or should not exercise, jurisdiction to determine the dispute;

iii) the claimant’s application for further directions, if appropriate, in the adjudication enforcement proceedings.

The Contract

    1. By a contract dated 15 December 2014 (“the Contract”), the claimant (“Babcock”) engaged the defendant (“HSBC”) to carry out ship lift docking cradle re-preservation works at Her Majesty’s Naval Base Clyde (“HMNB Clyde”).
    2. The Contract was based on the NEC 3 Engineering and Construction Short Contract (June 2005), subject to amendment by the parties.
    3. The total price for the works was £800,000. Clauses 50 and 51 (as amended by clause Z12) and the Contract Data provide for periodic payments to be made to HSBC against assessments made on the last Monday of each month and for such payments to be made by Babcock within 30 days of the assessment.
    4. Clause 93 (as amended by clause Z 17) provides for a tiered dispute resolution process:

“A dispute arising under or in connection with this contract is notified to the Employer’s and Contractor’s commercial management organisations who shall use all reasonable endeavours to resolve through negotiation. If the dispute is not resolved within three days the matter shall be escalated to commercial senior management who shall have 3 days to resolve. If the dispute is not resolved the matter shall be escalated to commercial directors, who shall have 3 days to resolve. If resolution fails, the dispute shall be decided by the Adjudicator in accordance with clauses 93.2, 93.3, 93.4 (and 94.1 if specified in the Contract Data).”

    1. Clause 94.1 provides for the parties to refer a dispute to adjudication at any time, where the United Kingdom Housing Grants, Construction and Regeneration Act 1996 (“the 1996 Act”) applies. The Contract Data provides that the 1996 Act applies.
    2. The Contract Data further provides that:

“The Adjudicator is to be agreed by both parties or upon failure to be appointed by the chairman of the institute of arbitrators …

The Adjudicator nominating body is The Chartered Institute of Arbitrators (Scottish Branch).”

    1. Clause 93.2 (1) provides:

“The Parties appoint the adjudicator under the NEC Adjudicator’s Contract current at the starting date. The adjudicator acts impartially and decides the dispute as an independent adjudicator and not as an arbitrator.”

    1. Clause 93.3(8) provides:

“The Adjudicator’s decision is binding on the Parties unless and until revised by the tribunal and is enforceable as a matter of contractual obligation between the Parties and not as an arbitral award. The adjudicator’s decision is final and binding if neither Party has notified the other within the times required by this contract that he intends to refer the matter to the tribunal.”

    1. Clause 93.4 states:

“A Party may refer a dispute to the tribunal if

  • the party is dissatisfied with the Adjudicator’s decision
  • the Adjudicator did not notify a decision within the time allowed and a new adjudicator has not been chosen,

except that neither Party may refer a dispute to the tribunal unless they have notified the other Party of their intention to do so not more than four weeks after the end of the time allowed for the Adjudicator’s decision.”

    1. The Contract Data provides that:

“The tribunal is Arbitration.

If the tribunal is arbitration, the arbitration procedure is in accordance with the Scottish Arbitration Code, prepared by the Scottish Council for International Arbitration, The Chartered Institute of Arbitrators (Scottish Branch).”

    1. Clause 12 (as amended by clause Z18) states:

“12.1 This contract is governed by the law and statutes of the country where the site is.

12.2 No change to this contract, unless provided for by the conditions of contract, has effect unless it has been agreed, confirmed in writing and signed by the Parties.

12.3 This contract is the entire agreement between the Parties.…”

    1. The site is identified in the Contract Data as HMNB Clyde, which is located in Scotland.
    2. Clause Z2.1 states:

“In the event of any discrepancy in the contract the documentation shall take precedence in descending order as listed:

(a) Additional conditions

(b) Conditions of contract, NEC 3 Engineering and Construction Short Contract (June 2005)

(c) Contract Data

(d) Employer’s Invitation to Tender

(e) Contractor’s Tender Submission

(f) Any other documents forming part of the contract.”

The Variation Agreement

    1. By an agreement dated 22 December 2016, signed and dated by the parties (“the Variation Agreement”), the parties agreed to revise the contract value to £1,070,056.11.
    2. The Variation Agreement includes the following terms:

“This revised value, less the provisional sum, relates to the following:

“1) Full and final settlement of any claims relating to this contract in [its] present form with the sole exclusion of the extra over cost of treating the 6no. large Strongbacks. For the avoidance of doubt, claims for additional costs can only be made for events which may occur in the future, in accordance with the provisions of the NEC Short Contract dated 1st December 2014 which may lead to a Compensation Event.”

5) Confirmation of agreement to the original Contract dated 1 December 2014 and full acceptance of the terms and conditions contained therein.

Application for payment shall be submitted by the 15th of each month…”

“This agreement shall be governed by and construed in accordance with the Laws of Scotland and any dispute which may arise between the parties concerning this agreement shall be determined by the Courts of Scotland in line with the original Contract dated 1 December 2014.”

The dispute

    1. On 15 June 2018 Babcock served a notice of termination on HSBC.
    2. On 21 June 2018 HSBC applied for a termination payment in the sum of £967,549.42 plus VAT.
    3. On 19 July 2019 Babcock certified £NIL in respect of the termination assessment and made no payment.
    4. On 10 September 2018, HSBC notified Babcock that it intended to refer the dispute to adjudication. Mr Donny Mackinnon was appointed as the adjudicator. The Scheme for Construction Contracts (Scotland) Regulations 1998 (as amended by the 2011 Regulations) (“the Scottish Scheme”) applied to the extent that the terms of the contract did not comply with the 1996 Act.
    5. On 14 November 2018 the adjudicator issued his decision (“the First Adjudication Decision”), deciding that HSBC was entitled to the sum claimed in full plus interest and fees by reason of Babcock’s failure to issue a valid pay less notice. On 3 December 2018 the First Adjudication Decision was amended in respect of interest awarded.
    6. Babcock paid the sum awarded to HSBC in accordance with the First Adjudication Decision.
    7. Both parties issued notices of dissatisfaction in respect of the First Adjudication Decision.
    8. On 7 February 2019 Babcock notified HSBC that it intended to refer to adjudication the dispute concerning the true value of the works. Mr Len Bunton was appointed as the adjudicator. The Scottish Scheme applied to the extent that the terms of the contract did not comply with the 1996 Act.
    9. On 22 March 2019 the adjudicator issued his decision (“the Second Adjudication Decision”), deciding that the gross valuation of the works as at termination was £1,524,420.58 and directing that HSBC should pay to Babcock the sum of £613,338.03 (inclusive of VAT) plus interest and fees. Both parties also served notices of dissatisfaction in relation to this Decision.
    10. HSBC failed to pay the sum awarded pursuant to the Second Adjudication Decision and wishes to challenge the validity of the same on grounds that the adjudicator failed to give reasons for his decision and failed to consider a defence advanced by HSBC.

The proceedings

    1. On 17 April 2019 Babcock issued these proceedings to enforce the Second Adjudication Decision in the sum of £613,338.09 together with the adjudicator’s fees and interest.
    2. On 2 May 2019 Fraser J issued directions in the enforcement proceedings, including an oral hearing on 24 June 2019 for Babcock’s summary judgement application.
    3. On 14 May 2019 HSBC acknowledged service, stating that it wished to contest jurisdiction.
    4. On 29 May 2019 HSBC issued an application seeking to set aside service of the claim form and particulars of claim, alternatively staying the proceedings based on a jurisdictional challenge.
    5. On 7 June 2019 Pepperall J issued directions in respect of the jurisdictional challenge, including a hearing on 18 June 2019.
    6. Both parties recognised that there was insufficient time between this hearing and 24 June 2019 for evidence to be served in the adjudication enforcement application. Therefore, that date was vacated and a provisional alternative date for that hearing has been fixed for 26 July 2019, subject to the Court’s decision on jurisdiction.

Relief from sanctions

    1. CPR 11(1) provides that a defendant who wishes to dispute the court’s jurisdiction to try a claim may apply to the court for an order declaring that it has no such jurisdiction. CPR 11(2) provides that the defendant must first file an acknowledgement of service. CPR 11(4) provides that an application challenging jurisdiction must be made within 14 days after filing an acknowledgement of service. CPR 11(5) provides that if a defendant does not make an application within the 14 day period, he is to be treated as having accepted that the court has jurisdiction to try the claim.
    2. It is common ground that in this case the acknowledgement of service was filed on 14 May 2019. Therefore, the jurisdictional challenge application should have been filed by 28 May 2019. The application was issued on 29 May 2019, one day late.
    3. On 29 May 2019 HSBC applied for relief from sanctions pursuant to CPR 3.9.
    4. The test applicable in respect of an application for relief from sanctions is well-established and set out in the Court of Appeal decision in Denton v TH White Ltd [2014] EWCA Civ 906.
    5. In this case the failure to comply with CPR 11(4) was neither serious nor significant, given the short period of delay. The reason for the default was solicitor error. The circumstances of the case that the court should consider in order to deal justly with the application include the lack of any prejudice to Babcock, the absence of any impact on the conduct of the litigation and the disproportionate effect on HSBC’s case of refusing relief by precluding any challenge to jurisdiction. Quite properly, the application is not opposed by Babcock. In those circumstances, the court grants HSBC’s application for relief from sanctions and extends the time for issuing the application to challenge jurisdiction to 29 May 2019.

Legislative framework

    1. The Civil Jurisdiction and Judgments Act 1982 (“the 1982 Act”) contains provisions for the jurisdiction of courts and tribunals in the United Kingdom. The principle purpose of the 1982 Act is to give effect to the 1968 Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters, now the recast Brussels I Regulation (“the Regulation”). However, it also provides for the allocation of civil jurisdiction as between different jurisdictions within the UK.
    2. These proceedings concern civil and commercial matters in respect of which the domicile of the parties, the site and the place of performance of the contract are all within the UK. There is no international element. There is no issue of jurisdiction between the courts of the UK and any other EU member state. Therefore, the Regulation is not engaged.
    3. The issue between the parties is the internal allocation of the claim between the courts of Scotland and the courts of England and Wales.
    4. Section 16 of the 1982 Act provides that the rules for the allocation of jurisdiction of proceedings within the UK to the courts in each part of the UK are set out in Schedule 4 to the 1982 Act.
    5. Rule 1 of Schedule 4 enshrines the principle that courts of the defendant’s domicile have jurisdiction:

“Subject to the rules of this Schedule, persons domiciled in a part of the United Kingdom shall be sued in the courts of that part.”

    1. Rule 2 of Schedule 4 provides for exceptions to that general rule:

“Persons domiciled in a part of the United Kingdom may be sued in the courts of another part of the United Kingdom only by virtue of rules 3 to 13 of this Schedule.”

    1. Rule 3 of Schedule 4 confers special jurisdiction in relation to contract claims and other specified matters:

“A person domiciled in a part of the United Kingdom may, in another part of the United Kingdom, be sued –

(a) in matters relating to a contract, in the courts for the place of performance of the obligation in question…”

    1. Rule 12(1) of Schedule 4 recognises and gives effect to agreements on jurisdiction by the parties:

“If the parties have agreed that a court or the courts of a part of the United Kingdom are to have jurisdiction to settle any disputes which have arisen or which may arise in connection with a particular legal relationship, and, apart from this Schedule, the agreement would be effective to confer jurisdiction under the law of that part, that court or those courts shall have jurisdiction.”

    1. Section 49 of the 1982 Act preserves the doctrine of forum non conveniens in internal UK domestic cases (as jurisdiction in such cases is not determined by the Conventions):

“Nothing in this act shall prevent any court in the United Kingdom from staying, sisting, striking out or dismissing any proceedings before it, on the grounds of forum non conveniens or otherwise, where to do so is not inconsistent with the 1968 Convention or, as the case may be, the Lugano Convention or the 2005 Hague Convention.”

Summary of the parties’ positions

    1. HSBC’s position is that the English Courts do not have, or should not exercise, jurisdiction in respect of this matter on the following grounds:

i) the Variation Agreement incorporated a choice of court clause into the Contract, namely, the Scottish courts, and that choice of jurisdiction should be respected in accordance with rule 12(1) of Schedule 4;

ii) alternatively, the place of performance, whether performance of the underlying contractual obligations or payment of the adjudication award, was Scotland, giving the Scottish courts special jurisdiction in accordance with rule 3(a) of Schedule 4;

iii) alternatively, this court should stay the current proceedings on the ground that the Scottish courts are the most appropriate forum for resolution of this matter.

    1. Babcock’s position is that the Court should refuse a stay and determine the adjudication enforcement application on the following grounds:

i) the choice of court clause in the Variation Agreement conflicts with the arbitration agreement in the Contract, which has priority; in any event the choice of court clause is limited to disputes under the Variation Agreement and does not apply to adjudication enforcement;

ii) Rules 12 and 3 of Schedule 4 do not displace Rule 1 and the Court should not interfere with Babcock’s choice to sue HSBC in its place of domicile;

iii) the Court’s discretion should be exercised in favour of Babcock and no stay should be imposed.

Jurisdiction clause

    1. The Contract provides for a disputes resolution regime that includes: (a) adjudication in accordance with the 1996 Act and (b) arbitration in accordance with the Arbitration (Scotland) Act 2010 and the Scottish Arbitration Code. Subject to the Variation Agreement, the Contract does not contain a choice of court clause that is alternative or supplementary to those provisions.
    2. Ms Jones, counsel for HSBC, submits that the Variation Agreement constituted an effective variation to the contract, which served both to vary the contract sum and payment provisions and also to incorporate a choice of court clause, no court having been chosen in the original contract. There is no inconsistency between the choice of the Scottish Courts in the Variation Agreement and the arbitration agreement in the Contract. The two provisions can and do operate comfortably together. Arbitration remains the chosen means of final dispute resolution. The insertion of the choice of court clause gives the Scottish courts supervisory jurisdiction over any arbitration in accordance with the Arbitration (Scotland) Act 2010. The choice of court clause applies to adjudication enforcement; the adjudication provisions in the 1996 Act do not override the jurisdiction provisions in the 1982 Act.
    3. Ms Chambers, counsel for Babcock, submits that there was no variation to the Contract to incorporate a choice of court clause. The purported choice of the Scottish Courts in the Variation Agreement is inconsistent with the arbitration agreement in the Contract. That discrepancy is resolved by clause Z2.1 which provides that the Contract Data (containing the arbitration agreement) takes precedence over the Variation Agreement (containing the choice of court clause). At best, the choice of court clause is limited to the Variation Agreement and does not affect any dispute in respect of the Contract. In any event, an express jurisdiction clause providing for the final settlement of disputes in the courts of another country would not preclude the English Court from enforcing an adjudication decision which is binding on an interim basis.
    4. The principles applicable to the interpretation of contracts are now well-established and set out in Arnold v Britton [2015] UKSC 36 at paragraphs [15] – [20] and Wood v Capita Insurance Services Ltd [2017] UKSC 24 at paragraphs [10] – [13]. It is unnecessary to repeat those passages in this judgment.
    5. On a proper construction of the document dated 22 December 2016, it was a variation to the Contract. It is clear from the face of the document that the primary purpose of the agreement was the settlement of claims made by HSBC then outstanding. However, it is also clear that the settlement of those claims gave rise to an agreed revised contract price such that it amended the Contract. The words: “This revised value … relates to … Confirmation of agreement to the original Contract dated 1 December 2014 and full acceptance of the terms and conditions contained therein” indicate that the revised Contract Price should apply to, and be subject to, the other terms of the original Contract. Further, the Variation Agreement also changed the payment terms under the Contract. The formal requirements for a variation in clause 12.2 were satisfied. Thus, it amounted to a contract variation and must be construed as part of the amended Contract.
    6. The words used in the disputed clause in the Variation Agreement are:

i) “this agreement shall be governed by and construed in accordance with the Laws of Scotland”

ii) “any dispute which may arise between the parties concerning this agreement”

iii) “shall be determined by the Courts of Scotland”

iv) “in line with the original Contract dated 1 December 2014.”

    1. There is no difficulty with the first part of the clause. It confirms the proper law of the Variation Agreement as Scottish law in line with the proper law of the original Contract.
    2. The plain and natural meaning of the second phrase “any dispute which may arise between the parties concerning this agreement” is that it covers disputes as to the interpretation of the Variation Agreement together with other disputes that are, or may be, affected by the terms of the Variation Agreement. This would include a dispute as to the termination valuation that raised issues regarding the scope of the settled claims.
    3. Such dispute resolution clauses must be construed widely and generously with the presumption that parties acting commercially intend that similar claims should be the subject of consistent jurisdiction clauses: Premium Nafta Products Ltd v Fili Shipping Company Ltd [2007] UKHL 40 per Lord Hoffmann at paragraphs [6] – [13].
    4. I reject Babcock’s narrower interpretation that the clause was limited to disputes directly under the Variation Agreement. Such interpretation would be inconsistent with the express words used, “concerning this agreement”, and could give rise to procedural and substantive difficulties. The narrow interpretation would mean that any dispute as to the scope or impact of the Variation Agreement arising during a termination account arbitration would fall within the scope of the choice of court clause and require separate litigation to determine the question. Not only would this result in disruption, delay and additional cost to the parties but could result in inconsistent findings in arbitration and litigation. It is unlikely that the parties intended that consequence.
    5. The third phrase of the clause is a clear jurisdictional choice of the Scottish Courts. This raises the potential difficulty of a conflict between the choice of court clause in the Variation Agreement and arbitration in the original Contract. I reject Babcock’s submission that this apparent discrepancy could be dealt with by the order of priority set out in Clause Z2.1 because the clear intention of the parties in executing the Variation Agreement was to vary the Contract. Therefore, if and to the extent that there is a conflict between the choice of court provision and the arbitration provision, both provisions are contained in the Contract Data, as amended by the Variation Agreement.
    6. One potential solution would be to read the choice of law clause in the Variation Agreement as substituting litigation in the Scottish Courts in place of arbitration. It could be argued that the Variation Agreement was a clear intention to change the terms of the Contract and sets out the final position of the parties as to jurisdiction. However, such a dramatic departure from the detailed dispute resolution regime set out in the original Contract would require very clear words deleting the arbitration agreement. Such clear words are not found in the Variation Agreement. Indeed, the last part of the clause: “in line with the original Contract dated 1 December 2014” indicates that the parties did not intend to change the original dispute resolution provisions, including the arbitration agreement. Rather, it indicates that the parties understood that the choice of court clause could be operated with the other dispute resolution provisions in the original Contract.
    7. On balance, therefore, I accept Ms Jones’ submission that the choice of law clause in the Variation Agreement is intended to sit alongside the adjudication provisions and the arbitration agreement in the Contract. It is applicable to supplemental, supervisory and enforcement matters in respect of those procedures. The choice of court clause in the Variation Agreement must be read subject to the dispute resolution provisions in the other parts of the Contract.

Entitlement to adjudication enforcement

    1. Babcock’s case is that the Scottish choice of court clause does not affect the English Court’s right to enforce the adjudication decision. Ms Chambers submits that adjudication is a sui generis system of dispute resolution which is in many respects unique. The primary aim of adjudication is the swift temporary resolution of the question of the dispute pending the final determination of the issues between them. In adjudication the need to have the right answer is subordinate to the need to have a swift answer and the courts have laid down special procedures to achieve that result: South Coast Construction Ltd v Iversen Road [2017] EWHC 61 (TCC) per Coulson J (as he then was) at paragraphs [19] and [27] – [30]:

“…a party such as the claimant, who has a decision in its favour from an adjudicator, is in a much better position than most to argue that the court should exercise its discretion to continue to an enforcement hearing.”

    1. Reliance is placed on the obiter comments of HHJ Kirkham in Comsite Projects Limited v Andritz AG [2003] EWHC 958 (TCC), in which the English Court enforced an adjudication decision despite the existence of an Austrian jurisdiction clause, at paragraph [21]:

“I accept [Comsite’s] submission that, even if the Austrian court did have exclusive jurisdiction, that would not prevent the English court from exercising jurisdiction to enforce the decisions of an adjudicator, or to decide matters relating to the enforcement of such a decision, such decisions being of a temporary nature… Ultimately, a dispute may be determined by arbitration, but that does not prevent enforcement of the temporary decision of an adjudicator … whilst ultimately the Austrian court may be the appropriate forum in which the substantive dispute or disputes between Comsite and AAG should be settled (to adopt the wording of article 23) that does not prevent the English court enforcing the temporary decision of an adjudicator properly made in relation to the Building Services sub-contract. The agreement that the Austrian court have jurisdiction is not undermined or ignored by the conclusion that the interim decision of an adjudicator can be enforced by an English court. Enforcement of such a decision is without prejudice to the final merits and determination by the Austrian court. The agreement that the Austrian court have jurisdiction does not prevent the court considering this part 8 application by Comsite…”

    1. Ms Jones submits that the 1996 Act does not displace the 1982 Act. Effect should be given to the Scottish jurisdiction clause. Reliance is placed on the decision of Lord Bannatyne in BN Rendering Ltd v Everwarm Ltd [2018] CSOH 45, a case in which the Scottish Court stayed adjudication enforcement proceedings in recognition of an express exclusive jurisdiction clause in favour of the English Courts:

“[13] … In Ballast Plc Burrell Co (Construction Management) Ltd [2001] SLT 1039. Lord Reed noted:

“It appears from the cases cited to me that different views have been taken as to the appropriate legal framework within which to address the issues raised by adjudicators’ decisions: in particular whether the adjudicator is to be regarded as a decision-maker, albeit one whose statutory powers and duties have been clothed in contractual form (the approach adopted by Lord Macfadyen in Homer Burgess Ltd Chirex (Annan) Ltd, as I understand his opinion), or whether adjudication should be regarded as a contractual procedure (as Dyson J appears to have regarded it in, for example, Macob Civil Engineering Ltd Morrison Construction Ltd [1999] BLR 93).”

Lord Reed decided to approach the issues raised by adjudication within a contractual framework; noted that his contractual approach differed to that adopted by Lord Macfadyen in Homer Burgess; and thus did not treat the adjudicator as a “statutory decision maker”. At paragraph 29 Lord Reed explained that the adjudication process flowed from the parties’ contract and was subject to the express and implied terms of the contract:

“Each party to the contract is therefore to be regarded as having a contractual right to refer a dispute to adjudication; and each party equally has a contractual duty to comply with the adjudicator’s decision. These rights and duties only exist, however, within limits which are set by the terms of the contract. The right to refer a dispute, for example, is confined to disputes arising under the contract: paragraph 1(1) of the Scheme. Since adjudication has a contractual basis, the construction and effect of paragraph 23(2), and in particular words – ‘The decision of the adjudicator shall be binding on the parties, and they shall comply with it’ – depends on the construction of the express and implied terms of the contract.”

[77] …Both companies are domiciled in Scotland and the effect of the clause is that both companies will have to raise court actions in England (as the defender has presently done). Thus the effect of the clause is equal on both parties. It was argued that in the circumstances of the present case the pursuer is the party who has been successful at the adjudication and it will now have to raise an action in England. However, I do not see how this imposes any extra obligations on the pursuer. An action to enforce the decision of the adjudicator can be raised as easily in England as in Scotland. It was argued by Mr Massaro that the unfairness of this in the circumstances of enforcement of an adjudication decision was illustrated by a scenario where the country to which jurisdiction had been prorogated did not have a knowledge of the 1996 Act and did not appreciate its nature. This does not assist the pursuer’s argument. The English court has a full understanding of adjudication.

[78] The final argument advanced by the pursuer in support of its construction was based on this: adjudication is a sui generis system of dispute resolution created by section 108 of the 1996 Act. It is thus statutorily based and is conceived in the benefit of contractors such as the pursuer. Thus it is not covered by the clause.

[79] The above argument is I believe misconceived. The right to go to adjudication is a contractual right in terms of clause 8. In my judgement it cannot be looked upon as being independent and separate from the contract from which it arises. It is not a standalone right. I accept the analysis of the structure of adjudication as set out by Lord Reed in Ballast plc v Burrell Co.”

    1. There is nothing in the 1996 Act that prevents parties to construction contracts, which relate to the carrying out of construction operations in England, Wales or Scotland, from agreeing foreign jurisdiction clauses. If the requirements of section 108 of the 1996 Act are not satisfied, section 114(4) provides that the statutory scheme, including provision for adjudication enforcement, is implied. Those implied terms must be interpreted in accordance with the proper law of the contract on the same basis as any other terms of the contract.
    2. An interesting issue may arise where there is a tension between the statutory right to adjudicate a dispute under the 1996 Act and a conflicting regime imposed by choice of law or jurisdiction provisions agreed by the parties. However, that does not arise in this case. It is not suggested by HSBC that the dispute resolution provisions mandate arbitration or litigation in another jurisdiction so as to disapply the 1996 Act and preclude Babcock from seeking to enforce the Second Adjudication Decision. It is common ground that the 1996 Act is applicable and Babcock is entitled to seek to enforce the adjudication decision in the UK. The issue is whether Babcock should bring those adjudication enforcement proceedings in England or in Scotland.
    3. In summary, I find that the Variation Agreement expressed the parties’ intention that, subject to the other dispute resolution provisions, including adjudication and arbitration, disputes would be determined by the Scottish Courts. The Contract, as amended by the Variation Agreement, contains a valid choice of court provision in respect of the Scottish Courts.

Schedule 4 to the 1982 Act

    1. Schedule 4 is based on, but does not replicate, the provisions of the Regulation. The Court is required to have regard to the EU rulings and jurisprudence on interpretation but is not bound by them.
    2. Rule 1 provides that a defendant shall be sued in his place of domicile. HSBC is domiciled in England. This gives the English court jurisdiction but it is made subject to the other rules in Schedule 4.
    3. Rule 2 provides that rules 3 to 13 may give a court jurisdiction.
    4. Rule 3(a) provides that the place of performance may give jurisdiction. The place of performance is Scotland.
    5. Rule 12 provides that where the parties have an agreed jurisdiction clause, that court shall have jurisdiction. The choice of court clause in the Variation Agreement gives the Scottish Courts jurisdiction.
    6. Schedule 4 provides gateways for the courts within the UK to have jurisdiction. None of the above rules in Schedule 4 is stated to be overriding or gives exclusive jurisdiction to any part of the UK. This can be contrasted with the position under the Regulation, where a jurisdiction clause in the prescribed form confers exclusive jurisdiction. Rule 11 of Schedule 4 confers exclusive jurisdiction in respect of specified types of proceedings but does not include the matters in rules 1, 3 or 12.
    7. Babcock has established a right to sue HSBC in England as the place of the defendant’s domicile. However, schedule 4 is subject to section 49 of the 1982 Act, which preserves the discretion of the English Court to stay proceedings in favour of a more suitable alternative jurisdiction. HSBC’s case is that Scotland is the most appropriate forum.

Forum non conveniens

    1. The relevant principles for the exercise of such discretion are set out in Spiliada Maritime Corporation v Consulex Ltd [1987] AC 460 (HL) per Lord Goff at pp.476 – 478:

“In my opinion, having regard to the authorities (including in particular the Scottish authorities), the law can at present be summarised as follows.

(a) The basic principle is that a stay will only be granted on the ground of forum non conveniens where the court is satisfied that there is some other available forum, having competent jurisdiction, which is the appropriate forum for the trial of the action, i.e. in which the case may be tried more suitably for the interests of all the parties and the ends of justice.

(b) … in general the burden of proof rests on the defendant to persuade the court to exercise its discretion to grant a stay…

(c) The question being whether there is some other forum which is the appropriate forum for the trial of the action, it is pertinent to ask whether the fact that the plaintiff has, ex hypothesi, founded jurisdiction as of right in accordance with the law of this country, of itself gives the plaintiff an advantage in the sense that the English court will not lightly disturb jurisdiction so established … In my opinion, the burden resting on the defendant is not just to show that England is not the natural or appropriate forum for the trial, but to establish that there is another available forum which is clearly or distinctly more appropriate than the English forum…

(d) Since the question is whether there exists some other forum which is clearly more appropriate for the trial of the action, the court will look first to see what factors there are which point in the direction of another forum… to adopt the expression used by my noble and learned friend, Lord Keith of Kinkel, in The Abidin Daver [1984] A.C. 398, 415, when he referred to the “natural forum” as being “that with which the action had the most real and substantial connection.” So it is for connecting factors in this sense that the court must first look; and these will include not only factors affecting convenience or expense (such as availability of witnesses), but also other factors such as the law governing the relevant transaction (as to which see Crédit Chimique v. James Scott Engineering Group Ltd., 1982 S.L.T. 131), and the places where the parties respectively reside or carry on business.

(e) If the court concludes at that stage that there is no other available forum which is clearly more appropriate for the trial of the action, it will ordinarily refuse a stay …

(f) If however the court concludes at that stage that there is some other available forum which prima facie is clearly more appropriate for the trial of the action, it will ordinarily grant a stay unless there are circumstances by reason of which justice requires that a stay should nevertheless not be granted. In this enquiry, the court will consider all the circumstances of the case, including circumstances which go beyond those taken into account when considering connecting factors with other jurisdictions… “

  1. Both the Scottish and English Courts are competent jurisdictions for the proceedings.
  2. The burden rests on HSBC to persuade the Court that the case may be tried more suitably in Scotland for the interests of both parties.
  3. Babcock has established an entitlement to issue the proceedings in the English Court based on HSBC’s domicile in England. The Court will not lightly disturb that choice of forum and HSBC must establish that there is another forum which is clearly or distinctly more appropriate than the English forum.
  4. Factors pointing in the direction of Scotland as the more appropriate forum are that the project is in Scotland, the place of performance is Scotland, the parties have chosen Scottish Law and the parties have chosen the Scottish Courts. Of significance in this case, the adjudication rules are set out in the Contract to which Scottish Law applies, supplemented where necessary by the Scottish Scheme. Although the English Court could receive evidence as to the relevant provisions and principles of law, it would be more appropriate for the Scottish Court, familiar with its own rules and caselaw, to decide such matters.
  5. I recognise that this application by HSBC has already caused unsatisfactory delay to these proceedings but there is provision for expedited determinations of adjudication enforcement hearings in Scotland.
  6. Taking into account all the circumstances of the case, Scotland is the most appropriate forum to determine the adjudication enforcement proceedings.
  7. For the above reasons, the Court will grant HSBC’s application to stay the current adjudication enforcement proceedings.

Tulip Bay Pty Ltd v Structural Monitoring Systems Ltd [2019] WASC 223 (27 June 2019)

SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL (ARBITRATION LIST)

TULIP BAY PTY LTD
(Plaintiff)

V

STRUCTURAL MONITORING SYSTEMS LTD
(Defendant)

CORAM: Kenneth Martin J
HEARD: 13 June 2019
FILE NO: ARB 1 of 2019
CATCHWORDS: Arbitration – Failure by party to nominate their choice of arbitrator to panel of three – Court asked to appoint – Discretionary considerations – Urgency and expertise
Costs – Whether to lift scale limits – Considerations of urgency, importance and assistance of the court required – Scale lifted as to rate and amount

 

KENNETH MARTIN J:

(This judgment was delivered extemporaneously on 13 June 2019 and has been edited from the transcript.)

Introduction

  1. I have reached a decision in relation to the relief sought by the plaintiff applicant, Tulip Bay Pty Ltd (‘Tulip Bay’), in respect of its originating application or originating summons, filed on 23 May 2019. Tulip Bay seeks that the court appoint an arbitrator in circumstances of – I use a loose term – the dysfunctionality of a clause in its Technology Agreement with the defendant, Structural Monitoring Systems Ltd (SMS) as regards the opposed appointment of an arbitrator to a panel of three.
  2. I am asked to act pursuant to s 11(4)(a) of the Commercial Arbitration Act 2012 (WA), which provides for the appointment of arbitrators by a court in certain circumstances. Specifically, it says:

Where, under an appointment procedure agreed on by the parties –

(a) a party fails to act as required under the procedure; or

(b) the parties, or 2 or more arbitrators, are unable to reach an agreement expected of them under the procedure; or

(c) a third party, including an institution, fails to perform any function entrusted to it under the procedure,

any party may request the Court to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment.

  1. But I should first observe, while I am in that legislative neighbourhood, that s 11(6) of the Commercial Arbitration Act says:

The Court, in appointing an arbitrator, is to have due regard to any qualifications required of the arbitrator by the agreement of the parties and to such considerations as are likely to secure the appointment of an independent and impartial arbitrator.

  1. The parties have put a considerable amount of material before me including, on behalf of Tulip Bay, Mr Shane Michael Gray’s affidavit sworn 23 May 2019 and then a further affidavit of Mr Matthew James Keating sworn 7 June 2019. Tulip Bay filed written submissions in support of its application on 23 May 2019.
  2. In response, and by way of contending that, in fact, I ought not to make any orders today other than programming orders to a special appointment some time off so that the matters in ostensible dispute over the nomination of an arbitrator can be argued even further (on the basis of future receipt of even further evidence), SMS filed the affidavit of Mr Alan Phillip Rumsley sworn 12 June 2019. Also received were the written submissions of the defendant which were only just filed this morning.

The arbitration agreement and the parties’ positions

  1. The relevant arbitration clause within the parties’ written agreement (being the Technology Agreement see Mr Rumsley’s affidavit APR1) of 29 November 1999 says this:
    1. ARBITRATION

17.1 Except as otherwise expressly provided in this Deed, any dispute, controversy or claim arising out of, in relation to or in connection with this Deed or anything done or omitted to be done under this Deed, including (without limitation) any dispute as to the construction, interpretation, enforceability or breach of this Deed, shall be exclusively and finally settled by arbitration and any party may submit such a dispute, controversy or claim to arbitration.

17.2 A single arbitrator shall be appointed by unanimous consent of the parties. If, within fourteen (14) days of the submission of a notice of arbitration (“Submission Date”) the parties cannot reach agreement on an arbitrator, the arbitration shall be heard and determined by three (3) arbitrators. The parties on each side of the dispute, controversy or claim shall appoint an arbitrator of its or their choice within thirty (30) days of the Submission Date. Within sixty (60) days of the Submission Date, the arbitrators appointed by the Parties shall in turn appoint a presiding arbitrator. If a party refuses to appoint an arbitrator within thirty (30) days of the Submission Date, or if the arbitrators appointed by the parties cannot reach agreement on a presiding arbitrator within sixty (60) of the Submission Date, the President of the Australian Institute of Arbitration may be requested by any party to make such appointment.

17.3 Unless otherwise agreed in writing by the parties to the arbitration proceedings:

17.3.1 the arbitration proceedings shall be held in Perth;

17.3.2 each arbitrator shall be and remain at all times wholly independent and impartial and shall not have any financial interest in the outcome of the dispute, controversy or claim;

17.3.3 where there is more than one arbitrator, all decisions and awards shall be made by majority vote of the arbitrators;

17.3.4 the arbitration proceedings shall be conducted in accordance with the Commercial Arbitration Act 1985 (WA); and

17.3.5 the party initiating the arbitration shall give a copy of the request for arbitration to each other party to this Deed.

  1. The essential position is that Tulip Bay is pressing to receive what it claims as due to it as minimum royalties payments from SMS, pursuant to the Technology Agreement, of $617,844.57. This amount is sought as the minimum amount of royalties said to be due pursuant to cl 2.4 of the Technology Agreement across six successive financial years, ie, from 30 June 2013 through to 30 June 2018.
  2. Tulip Bay, as applicant in seeking its disputed moneys from SMS, gave a notice of arbitration to SMS on 12 April 2019 – by reference to the terms of cl 17 of the Technology Agreement. As seen, the way the clause works allows SMS 30 days after receiving that notice to nominate its own arbitrator. In other words, absent agreement upon the parties using only one arbitrator (which needs to be unanimous), then by cl 17.2, each party to a relevant dispute must nominate their own arbitrator. Those two arbitrators then, in turn, get together to appoint a third arbitrator, who would be the presiding arbitrator in the panel.
  3. Back on 12 April 2019, Tulip Bay nominated the Hon John Chaney SC, a former justice of this court, as its arbitrator. But SMS did not nominate anyone within that 30day time frame, or at all. Prima facie, it had 30 days to do so concluding 12 May 2019 – a date now long gone.
  4. There has followed a series of correspondence passing back and forth between the parties through their legal representatives. Many submissions have been put by SMS objecting, in effect, against various aspects of Tulip Bay’s attempt to ultimately engage a panel of three arbitrators, so as to proceed with what would be a further arbitration between these same parties.

History of the parties’ arbitration

  1. I have been taken, as background to the current application, to the reasons for decision in this court by former Chief Justice W Martin under Structural Monitoring Systems Ltd v Tulip Bay Pty Ltd [2017] WASC 379, dealing with ramifications or challenges arising in a previous arbitration between the parties conducted by their arbitrators Hannan, Clifford and Lord. See also the Court of Appeal’s reasons provided to me affirming that first instance decision: Structural Monitoring Systems Ltd v Tulip Bay Pty Ltd [2019] WASCA 16.
  2. In very short summary, the opposing arguments which have been put by Mr Rumsley for SMS, by his written submissions, which I have considered closely, would seek to raise matters about a potential abuse of process or Anshun estoppel arguments: see Port of Melbourne Authority v Anshun Pty Ltd [1981] HCA 45;(1981) 147 CLR 589. These claims arise by reference to what is contended to have been a prior opportunity (not taken up) for Tulip Bay to have pursued some of the present unpaid royalty claims for payments – by way of an amendment to the Tulip Bay counterclaim in the earlier arbitral proceedings.
  3. To that end, I was taken to provisions within – and schedules to – the reasons for decision in the earlier arbitration reasons, by reference to Mr Keating’s affidavit at pages 46, 55, 73,74 and 105.
  4. However, the basal difficulty that I hold over SMS’s objection submission is that the foreshadowed Anshun estoppel arguments or, indeed, even a higher level abuse of (arbitral) process argument, would still seem to me to fall within the province of a freshly appointed arbitral panel to consider and to resolve as a matter of jurisdiction. The merit or otherwise of such arguments would need then to be holistically evaluated by that panel by reference to all relevant underlying circumstances said to arise.

Disposition Section 11(4) considerations

  1. From a jurisdictional perspective, an arbitral panel of three once appointed, as is now sought by Tulip Bay, is, on my assessment, perfectly capable of ultimately determining the merits or demerits of all SMS’s foreshadowed arguments over royalty payment claims being not pressed for by counterclaim in the earlier arbitration and whether that should constitute either a basis for Tulip Bay being barred from presently proceeding with such a claim again in a further arbitration. These foreshadowed SMS arguments at present seem broadly to present as Anshun estoppel arguments. The full parameters of that doctrine, particularly as regards its intersections as between litigation and arbitration, on my assessment, are yet to be fully worked out. It is clear, however, that every situation is unique and requires its own bespoke evaluation.
  2. What is also presently crystal clear is that an Anshun estoppel argument, in terms of its merits or demerits, is perfectly capable of being determined by a fresh arbitral panel. Such assertions do not, therefore, constitute any jurisdictional obstacle to impede this court from assisting today on the request made on behalf of Tulip Bay via s 11(4)(a) of the Commercial Arbitration Act.
  3. First, I am satisfied as regards the request for arbitrator appointment assistance that the contractual machinery the parties set down under cl 17 of the Technology Agreement to resolve a deadlock regarding a party’s failure to appoint an arbitrator in circumstances where three arbitrators are required has broken down.
  4. Factually, it was wholly unchallenged before me that the issue with the roadblock clearing appointment mechanism the parties specified by their cl 17, namely, to delegate to the President of the Australian Institute of Arbitrators, is dysfunctional because is that no such institute exists presently. Moreover, it is questionable whether such an institute ever existed even when the parties’ Technology Agreement was consummated as at 29 November 1999.
  5. That being the case, the chosen cl 17 arbitral appointment deadlock breaking mechanism, in circumstances where SMS has to date declined to nominate anyone as its second arbitrator to a panel, has thereby thwarted the event of two respectively nominated arbitrators getting together to themselves appoint a third presiding arbitrator, under cl 17.2. The resultant arbitral appointment stalemate situation engages against the power of this court to assist the parties in that dysfunctional stalemate situation when requested by the appointment of an arbitrator, by s 11 of the Commercial Arbitration Act.
  6. I am satisfied then that Tulip Bay may in these circumstances viably request the court to take the necessary measures in order to assist the parties to proceed with their arbitration. I render that observation in circumstances where it is plain that their arbitration bargain, the subject of cl 17 of their Technology Agreement, gives primacy to the medium of arbitration as their chosen mechanism of dispute resolution.
  7. Moreover, the parties’ choice and submission to the process of arbitration under cl 17 (and, indeed, by the same parties under a very similar cl 19 in a predecessor agreement) was made in the widest possible terms concerning what genre of dispute between them could be referred. To that end, I refer within cl 17(1), its textual reference to

… any dispute, controversy or claim arising out of, in relation to or in connection with this Deed or anything done or omitted to be done under this Deed including (without limitation)…

and the clause continues, as earlier seen.

  1. It is apparent that, objectively assessed, the breadth of that language shows the parties’ bargain for submission of disputes, controversies and claims was in the broadest terms.
  2. Mr Keating, by his oral submissions on behalf of Tulip Bay, helpfully took me to various provisions of the Commercial Arbitration Act, which all point to or encapsulate the underlying policy importance of holding parties to their arbitration bargain. Many prior judgments of this court have addressed that topic. The underlying international convention is given effect to by Western Australia and, as well, the various other States and, indeed, the Commonwealth of Australia all seeking, in effect, to together enshrine through that counterpart legislation across this nation a regime that holds parties to that international convention that gives primacy to arbitral bargains. That is a significant policy consideration.
  3. A further significant underlying policy consideration is that arbitral bargains when sought to be engaged need to be implemented speedily. The pathway to an arbitral resolution must not be allowed to be obstructed by delays or technical roadblocks as one too frequently encounters within litigation. The local legislation carries a clear policy objective within the Commercial Arbitration Act that where courts are called upon for assistance to engage the arbitral process, there is a need for courts to do everything reasonably feasible to assist the parties to uphold and pursue their arbitral bargains and to make sure that an arbitration can proceed not only fairly, but efficiently.
  4. Consequently then, notwithstanding that my consideration of the materials that have just been put before me by SMS (through Mr Rumsley via his affidavit), none of that can inhibit the assistance relief presently sought. I do emphasise, of course, that I am not expressing any views about the merits of SMS’s Anshun estoppel or abuse of process concerns. Those arguments if pursued by SMS will be for the arbitral panel once engaged to rule upon and resolve. That panel might even resolve (theoretically) to make a reference back to a court over a particular issue or issues if seen as problematic, assuming there is consent to that end and the court agrees to take it up. I say nothing more about that. But the relevant provision in the Commercial Arbitration Act I was taken to by Mr Keating in argument (s 27J) indicates that is a possibility.

Section 11(6) considerations

  1. The remaining question then, in circumstances where I assess this to be a matter of some urgency, is to consider s 11(6) of the Commercial Arbitration Act in terms of the actual appointment by this court of a second arbitrator – in circumstances where two arbitrators, once engaged, will then appoint a third presiding arbitrator under this bargain.
  2. Tulip Bay, has suggested that Mr Scott Ellis, a well-qualified local barrister who has conducted many arbitrations, be appointed, effectively as the second arbitrator to join the Hon John Chaney SC in the panel. They together then would appoint the third arbitrator, as envisaged.
  3. Correspondingly, SMS, as a default option submission has said through Mr Rumsley’s affidavit that if the court is minded to assist the parties by nominating another arbitrator today (as it is) then SMS points to a need, in the present dispute, for a patent attorney or someone holding scientific experience to be engaged within the panel. To that end, SMS identified through an appendage to Mr Rumsley’s affidavit a patent attorney with Wrays, a Mr Todd Shand, as a more appropriate appointee to the panel. Appended APR7 to Mr Rumsley’s affidavit are Mr Shand’s qualifications, industry practice areas, educational background and professional affiliations.
  4. Mr Shand, on paper, holds impressive qualifications in science, including an honours degree in chemistry. He holds a Diploma of Intellectual Property Practice and also holds a Bachelor of Laws from the University of Western Australia. The material before me also indicates his extensive engagement with patent litigation and his collaborations in his fields over the years in respect of complicated scientific issues.
  5. The question for me then, now that I have reached the position that I have, is to weigh the choice, by reference to s 11(6), as between Mr Ellis as a well-known and well-respected barrister over many years, to join the Hon John Chaney SC – or whether it is more appropriate under present circumstances to appoint Mr Shand, who I am told from the bar table by Mr Rumsley (without objection from Tulip Bay) is available to take such an appointment if the court is so minded to order to that end.
  6. I re-emphasise again that s 11(6) speaks of the court having due regard to any qualifications required of an arbitrator by the agreement of the parties and to such considerations as are likely to secure the appointment of an independent and impartial arbitrator.
  7. Here then, I am strongly influenced by the fact that it seems that an ultimate panel of three arbitrators that needs to be eventually engaged would undoubtedly benefit from holding a combination of expertise, not just legal expertise towards interpreting the provisions of a commercial contract, but also some specialist patent familiarity expertise and as well a level of specialist scientific knowledge – in order to potentially engage across all dimensions of the foreshadowed arguments in the forthcoming dispute. The disputes to be resolved here may be over whether there is a sufficient nexus as between a patent or patents (including to patents now expired), or a nexus to one or more products said to have been derived by reference to work done, in reference to patents or to expired patents – evaluated by the panel for the purposes of a triggering (or not) of the underlying legal obligation to render a royalty payment to Tulip Bay under cl 2.4 of the Technology Agreement.
  8. It seems to me, in the end, that a combination of diverse expertise is desirable in this arbitral panel. There is already the significant legal expertise delivered through the existing appointment of the Hon John Chaney SC, as regards contractual construction and interpretation issues. Bearing in mind the foreshadowed patent lapse arguments and product nexus considerations which may arise in the overall consideration concerning products and the other scientific considerations which could arise in the overall evaluation, I am, with no disrespect to Mr Ellis, presently more persuaded, particularly by reference to s 11(6), to accept SMS’s fall-back request and so, to appoint Mr Todd Shand as the second arbitrator. He then, in conjunction with the Hon John Chaney SC, will decide upon who that panel’s third arbitrator should be. Those circumstances should assist to break the presently existing deadlock between the parties – as regards them getting on with the resolution of their disputes under arbitration, which to date has unnecessarily been held up since April this year on a basis of the parties’ inability to date to yet constitute a panel of three arbitrators.

Costs

  1. As regards to costs, the ordinary order, in terms of the successful party receiving their costs of a contested application, should be made and, indeed, that orthodox costs outcome was not really opposed in principle by Mr Rumsley for SMS.
  2. The only costs related question in dispute was whether the scale limits made otherwise applicable in the circumstances towards a taxation conducted by the plaintiff, if necessary, ought be lifted or not. In my view, they should.
  3. I reach that position by reference to the urgency of the matter, the importance of the matter to the parties – which was demonstrable – the need for appointment assistance of the court that has been called upon to render via s 11, to effectively resolve an obstacle to the enforcement of the parties’ arbitral bargain and a very significant amount of documentary material that I needed to urgently consider over previous days and, indeed, this morning – in terms of evaluating what in more usual circumstances would have been a fairly straightforward situation where parties ask the count to appoint their arbitrator.
  4. I am also satisfied that it is not appropriate under present circumstances for there to be an indemnity cost award as Tulip Bay sought. But I do assess that the voluminous nature of the submitted materials and the urgent circumstances in which they needed to be considered, together persuade me that s 280(2) of the Legal Profession Act 2008 (WA) is met here, in terms of special circumstances being established justifying the scale limits (the otherwise applicable scale limits) being lifted both as to rate and total amount.
  5. Of course, in saying all that, any ensuing costs exercise is completely one for the taxing officer to evaluate, assuming the parties cannot agree on their costs as, indeed, they sensibly should. But if they cannot, and if a taxation has to be conducted, then I am only preserving a potential for Tulip Bay, if appropriate, to not be constrained by the scale – under circumstances where a taxing officer might come to a view that those limits are not sufficient in order for justice to be done in the circumstances as regards a taxed costs award.
  6. I have been satisfied then that there is material before me of voluminous content that persuades me that the scale limits may not be sufficient in order to provide appropriately just costs compensation. I say no more about it than that, other than the fact that the potentiality persuades me a special order should be made.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

CA

Research Associate/Orderly to the Honourable Justice Martin

27 JUNE 2019

 

Leeds Standard Condominium Corp. No. 41 v. Fuller, 2019 ONSC 3900

CITATION: Leeds Standard Condominium Corp. No. 41 v. Fuller, 2019 ONSC 3900

COURT FILE NO.: CV-18-600425

DATE: 20190624

ONTARIO

SUPERIOR COURT OF JUSTICE

 

BETWEEN: )

)

 
Leeds Standard Condominium Corporation No. 41,

 

Plaintiff

 

– and –

 

Simon Fuller, Tall Ships Landing Developments Inc., and the Corporation of the City of Brockville

)

) )

) )

) )

) ))

Antoni Casalinuovo, for the Plaintiff

 

 

 

 

 

Nadia Authier, for the Defendants
  )  
Defendants )  
  ) HEARD: April 26, 2019

REASONS FOR DECISION

NISHIKAWA J.

Overview

[1]               The Tall Ships Landing Development is located at 15 St. Andrew Street, Brockville, Ontario (the “Development”).  The Development consists of a residential condominium, commercial and restaurant space, a marina, parking, and a maritime experiential learning centre known as the Aquaterium.  Only Phase 1 of the Development has been completed.  Construction of Phase 2 and Phase 3 has not yet commenced.  As detailed further below, the parties have become embroiled in litigation.

[2]               The Defendants, Tall Ships Landing Developments Inc. (“TSL”) and Simon Fuller, (together, the Defendants) bring this motion to stay the proceeding commenced by the Plaintiff, Leeds Standard Condominium Corporation (“LSCC 41”), in favour of arbitration.  In the alternative, the Defendants seek to strike portions of the Statement of Claim (the “Claim”) as frivolous, vexatious and an abuse of process or seek further particulars.

[3]               LSCC 41 brings a cross-motion to convert an application that it previously commenced into an action and to consolidate it with this action.

[4]               The Defendant, the City of Brockville (the “City”), takes no position on the motions.

[5]               For the reasons that follow, I grant the Defendants’ motion to stay the proceeding.  As the action is stayed, it is not necessary to rule on the Defendants’ motion to strike or for further particulars, or LSCC 41’s motion to convert and to consolidate.

Factual Background

The Parties

[6]               The Plaintiff, LSCC 41, is a condominium corporation created on December 9, 2014.

[7]               The Defendant, TSL, is the owner and developer of the Development.  TSL was the declarant of the condominium and continues to own a number of residential units, which it is marketing for sale.

[8]               The Defendant, Mr. Fuller, is the President of TSL and was a director of LSCC 41 from December 2014 until April 2018 when he was disqualified from continuing to serve on the Board by a by-law passed by the Board.

[9]               The Defendant City is the owner of the Aquaterium, a marine-themed park located at the development.

The Relevant Agreements

[10]           The parties entered into two separate agreements registered on title relating to the joint use and sharing of costs for certain facilities, improvements and amenities.

The Shared Amenities Agreement

[11]           The Shared Amenities Agreement (the “SAA”) provides for the mutual use and cost sharing of the Shared Amenity Areas located in the Development, which include guest suites, hot pools, a swimming pool, fitness room, outdoor terrace, washroom and change facilities, among other things.  The parties to the SAA are LSCC 41, on behalf of the residential unit owners, and TSL, as owner of the amenity structure and owner of the Phase 2 and 3 lands.

The Shared Facilities Agreement

[12]           The Shared Facilities Agreement (the “SFA”) provides for the sharing and use of the infrastructure, excluding the Shared Amenity Areas.  The parties to the SFA are LSCC 41, TSL as the Amenity Owner, TSL as the Retail Owner, TSL as the Marina Owner, TSL as the Retained Lands Owner, and the City as the Aquaterium Owner.  Leeds Standard Condominium Corporation No. 42 (“LSCC 42”) is also a party to the SFA, on behalf of the owners of the parking units at the development.

[13]           The SFA allocates the costs for shared building services and facilities to one or more of the parties based on calculations set out in the SFA.

[14]           Both agreements contain the identical dispute resolution clause (the “ADR Clause”).  Section 18.1 of the SAA and SAA requires the parties to use their best efforts to resolve any disputes between them and to resort to legal proceedings “only as a last resort.”  Section 18.2 states:

Whenever ADR is permitted or required under this Agreement and the Act, ADR proceedings may be commenced by the parties in accordance with the following principles and procedures:

(a) If the parties, with or without the assistance of legal counsel as set forth in 18.1 above, are unable to resolve the questions or matter in dispute through good faith negotiations, (as provided in Section 132 of the Condominium Act, 1998 as applicable), the parties shall, within thirty (30) days thereafter, select a mediator qualified by education and training to assist the parties in dealing with the particular questions or matter in dispute, and the parties shall attempt to mediate their differences, and the mediator shall confer with the parties and endeavour to obtain a settlement with respect to the disagreement submitted to mediation. The parties shall initially share equally in the costs of a mediator, however, the settlement shall specify the share of the mediator’s fees and expenses that each party is required to pay. Upon obtaining a settlement between and among the parties with respect to the disagreement submitted to mediation, the mediator shall make a written record of the settlement which shall form part of the agreement or matter that was the subject of the mediation.

(b) If good faith negotiations and the mediation process as described in Sections 18.2(a) hereof are exhausted, and the parties are still unable to resolve the question or matter in dispute within thirty (30) days after the mediator delivers a notice to the parties stating that the mediation has failed, the parties agree to submit the question or matter in dispute for resolution by a single arbitrator whose appointment is agreed upon by the parties, and the decision of the arbitrator shall be binding upon the parties hereto, and no legal recourse shall be exercised by either party hereto with respect to the question or matter in dispute until the ADR has been completed.

(c) The parties shall meet and attempt to appoint a single arbitrator who is well qualified with education and training to pass upon the particular question or matter in dispute. In the event that the parties are unable to agree upon a single arbitrator, each party shall appoint one arbitrator within seven (7) days of the meeting and notify the other party.

The arbitrators so appointed shall, within seven (7) days of the appointment of the last arbitrator so appointed, choose a single arbitrator who is qualified by education and training to pass upon the particular question or matter in dispute. If either party neglects or refuses to name an arbitrator within seven (7) days of being requested to do so by the other party, the arbitrator named by the first party shall proceed to resolve the dispute in accordance with Arbitrations Act 1991 (Ontario) and the parties agree that the arbitrator’s decision shall be final and shall not be subject to appeal by any party other than on a question of law in accordance with Subsection 45(2) of the Arbitrations Act, 1991 or pursuant to a specific ground for appeal or for setting aside the arbitrator’s award pursuant to Section 46 of the Arbitrations Act, 1991.

(d) The decisions and reasons of the arbitrator shall be made within thirty (30) days after the hearing of the question or matter in dispute, and the decisions and reasons shall be drawn up in writing and signed by the arbitrator who shall also be entitled to award costs of the ADR. The compensation and expenses of the arbitrator shall initially be paid in equal proportions by each party, subject to the final outcome and any award being made as to costs of the ADR.

Where ADR is required by this Agreement, commencement and completion of such ADR in accordance with this Agreement shall be a condition precedent to the commencement of an action at law or in equity in respect of the question or matter in dispute being arbitrated.

The Proceedings

The SAA Application

[15]           On September 14, 2016, LSCC 41 issued a Notice of Application (Court File No. CV-16-5604585, the “SAA Application”) pursuant to ss. 113 and 135 of the Condominium Act, 1998, S.O. 1998, c. 19 (the “Condominium Act”), seeking various relief against TSL in connection with the SAA, including its termination.  In the SAA Application, LSCC 41 alleges that the SAA is oppressive, unfairly prejudicial and unfairly disregarded the interests of LSCC 41.

[16]           TSL was not aware of the SAA Application until a reference to it appeared on a status certificate requested for a unit in the condominium.  TSL was not served with the SAA Application until February 2017.  LSCC 41 has not pursued the SAA Application, despite TSL’s requests that it do so.  In July 2018, LSCC 41 brought a motion to strike the SAA Application for delay, but later adjourned the motion sine die.

[17]           In the spring of 2017, LSCC 41, at Mr. Fuller’s initiative, struck a task force or committee (the “Task Force”) to discuss and address disputes that had arisen among TSL as Amenity Owner and the unit owners of LSCC 41.  The parties dispute the scope of the Task Force’s mandate.  LSCC 41’s position is that the Task Force’s purpose was to resolve issues relating to both the SAA and the SFA.  However, the documents generally refer to it as the “SAA Task Force” and pertain to potential amendments to the SAA.  The Task Force was ultimately unsuccessful at achieving a resolution and was eventually disbanded in the fall of 2017.

[18]           LSCC 41 seeks to convert the SAA Application into an action and consolidate it with this proceeding.

The Action

[19]           LSCC 41 then commenced this Action in June 2018 (the “Action”).  In the Statement of Claim, LSCC 41 seeks a declaration that the Defendants are or threaten to be oppressive, unfairly prejudicial and/or unfairly disregard the interests of LSCC 41.  LSCC 41 also seeks, among other things, damages for breaches of contract and “duty of care”, disclosure of documents, and the renegotiation of the SFA and SAA.

[20]           The Defendants served a demand for particulars, to which LSCC 41 responded in September 2018.  The Defendants are not satisfied with LSCC 41’s response and have also brought a motion to strike the Action as frivolous, vexatious and an abuse of process or for further particulars.

The Brockville Application

[21]           On December 6, 2018, TSL commenced an oppression application against LSCC 41 in Brockville, seeking a declaration that the property manager was properly retained.  TSL also sought mandatory orders for the transfer of information required for the operation and maintenance of the SFA and for LSCC 41 to pay its share of the expenses, among other things (the “Brockville Application.”)  In the Brockville Application, it was LSCC 41 who brought a motion to stay the application in favour of arbitration, arguing that the dispute fell within the scope of the ADR Clause.  The parties subsequently resolved the issue of the appointment of the property manager.  The balance of the Brockville Application was stayed by Mew J. on April 24, 2019:  Tall Ships Landing Developments v. Leeds Standard Condominium Corporation No. 41, 2019 ONSC 2600 (CanLII).

Issues

[22]           The motion and cross-motion raise the following issues:

(a)               Should this court stay this Action in favour of arbitration?

(b)               If the Action is not stayed:

(i)                 Should the Claim should be struck as frivolous, vexatious and/or an abuse of process or should LSCC 41 be required to provide further and better particulars?

(ii)               Should this court dismiss the Action as duplicative of the SAA Application or stay the Action in favour of the SAA Application?

(iii)            Should this court strike LSCC 41’s claim for damages for diminution in value of the units?

(c)               Should the SAA Application be converted into an action?

(d)               If so, should the SAA Application as converted be consolidated with this Action?

Analysis

Should the Action be Stayed in Favour of Arbitration?

[23]           The general power of a court to stay a proceeding is provided for by s. 106 of the Courts of Justice Act, R.S.O. 1990, c. C.43.  Furthermore, r. 21.01(3) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, permits a defendant to move for a stay of proceedings where the court has no jurisdiction over the subject matter of an action or where there is another proceeding pending between the same parties in respect of the same subject matter.

[24]           Section 7 of the Arbitration Act, S.O. 1991, c. 17 (the “Arbitration Act”), states:

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.

[25]           The Court of Appeal has articulated a five-part framework to consider a motion to stay a court proceeding on the basis of an arbitration clause:

(i)                 Is there an arbitration agreement?

(ii)               What is the subject matter of the dispute?

(iii)            What is the scope of the arbitration agreement?

(iv)            Does the dispute arguably fall within the scope of the arbitration agreement?

(v)               Are there grounds on which the court should refuse to stay the action?

Haas v. Gunasekaram, 2016 ONCA 744 (CanLII), 62 B.L.R. (5th) 1 at para. 17.

[26]           The Arbitration Act operates to limit the court’s intervention and signals that courts are to take a “hands off approach” to matters governed by the Arbitration Act:  TELUS Communications Inc. v. Wellman, 2019 SCC 19 (CanLII), at para. 56.

[27]           As the Defendants note, courts strongly favour the enforcement of arbitration agreements, particularly where the scope of an arbitration clause is broad and comprehensive, as it is here:  Haas, at para. 40.  Where the parties have employed broad wording, arbitration clauses are interpreted generously so as to favour arbitration over litigation:  Dancap Productions Inc. v. Key Brand Entertainment Inc.¸ 2009 ONCA 135 (CanLII), 55 B.L.R. (4th) 1 at para. 38, Mantini v. Smith Lyons LLP, (2003) 2003 CanLII 20875 (ON CA), 64 O.R. (3d) 505 (C.A.).

[28]           This court must also be mindful of the “competence-competence principle,” pursuant to which, in any case involving an arbitration clause, a challenge to the arbitrator’s jurisdiction must be resolved first by the arbitrator:  Dell Computer Corp. v. Union des consommateurs2007 SCC 34 (CanLII), [2007] 2 S.C.R. 801 at para. 84.  The Court of Appeal has similarly stated that “where it is unclear if the arbitrator has jurisdiction, it is preferable to leave the issue to the arbitrator”:  Ciano Trading & Services C.T. & S.R.L. v. Skylink Aviation Inc., 2015 ONCA 89 (CanLII) at para. 7.

[29]           The exception to the competence-competence principle is where a “challenge to the arbitrator’s jurisdiction is based solely on a question of law, or one of mixed fact and law that requires for its disposition only superficial consideration of the documentary evidence in the record”: Dell Computer, at para. 84.  See also Seidel v. Telus Communications Inc., 2011 SCC 15 (CanLII), [2011] 1 S.C.R. 531, at para. 4.

Does the Dispute Fall Within the Scope of the Arbitration Clauses?

[30]           Section 132 of the Condominium Act requires the parties to submit disputes between them to mediation and arbitration.  The purpose of this provision is to enable disputes arising within a condominium community to be resolved through the more informal processes of mediation and arbitration:  McKinstry v. York Condominium Corp. No. 472, 2003 CanLII 22436 (ON SC), 2003 CarswellOnt 4948 (S.C.J.), at para. 19.

[31]           Where the agreement in issue contains its own dispute resolution clause, the court must first assess the subject matter of the dispute and the scope of the contractual arbitration clause.

[32]           LSCC 41 characterizes the dispute as arising from TSL’s oppressive conduct.  LSCC 41 submits that the dispute falls outside the scope of the dispute resolution clause because s. 135 of the Condominium Act permits a party to commence an action for oppression in the Superior Court.  TSL characterizes the dispute as contractual, arguing that all of LSCC 41’s complaints are ultimately about cost sharing under the Agreements.

[33]           In my view, Mew J.’s analysis in the Brockville Application is equally applicable here.  In that case, Mew J. stated as follows:

  •                  In determining whether to grant a stay, the question is whether it is at least arguable that the dispute is arbitrable;
  •                  Where the essence of the dispute is the oppression remedy, which, under s. 135 of the Condominium Act, falls within the exclusive jurisdiction of this court, a stay in favour of arbitration proceedings would be inappropriate; and
  •                  On the other hand, courts should guard against allowing the mere invocation of an oppression remedy under s. 135 to avoid the consequence of an arbitration clause in an agreement.

Tall Ships Landing, 2019 ONSC 2600 (CanLII), at paras. 26-28 (internal quotations and citations omitted).  See also, Metropolitan Toronto Condominium Corporation No. 965 v. Metropolitan Toronto Condominium Corporation No. 1031, 2014 ONSC 5362 (CanLII), at paras. 18-20 [“MTCC 965”].

[34]           In order to determine whether the subject matter of the dispute falls within the scope of the arbitration clause, a court must determine the “pith and substance” of the subject matter of the dispute:  Haas, at para. 21.  In the Brockville Application, Mew J. found that the pith and substance of the proceeding related to issues of compliance or noncompliance with the SFA.

[35]           In this case, I find that the pith and substance of the dispute relates either to the Defendants’ alleged non-compliance with the SFA and SAA, or to the fairness of the terms of the SFA.  The bulk of the allegations in the Claim relate to breach of contract.  LSCC 41 disagrees with the allocation of its proportionate share of the Shared Facilities costs, a matter that is governed by the SFA and therefore falling within the scope of the ADR Clause.  Schedules “C” and “D” of the SFA address the allocation of shared costs and provide the parties with a right to request a review of the cost sharing formulas.  The schedules further state that: “[t]he resolution of disputes with respect to the cost sharing shall be in accordance with the mediation and arbitration provisions of this Agreement.”  On cross-examination, the President of LSCC 41, Doug Bellevue, admitted that LSCC 41 had not requested a review of the cost sharing allocations pursuant to this provision and that it was using this Action to do so.

[36]           The remaining allegations in the Claim relate to the fairness of the terms of the SFA and SAA.  Under the “Oppression” heading, LSCC 41 alleges that “the manner in which both agreements are drafted and have been carried out amounts to a clear breach of section 135 of the Act” and that certain obligations in the SFA “are drafted in such a way that is clearly oppressive against LSCC 41[.]”  On cross-examination, Mr. Bellevue, stated that the “agreement is oppressive and abusive, it’s one-sided, and it’s to the benefit of the developer, to Mr. Fuller.”

[37]           To the extent that the dispute relates to the fairness of the SFA, LSCC 41 ought to have brought an application under s. 113 of the Condominium Act, which permits any party to an agreement for mutual use, provision or maintenance, or the cost-sharing of facilities or services, to make an application to the Superior Court within one year of the turnover meeting.  While LSCC 41 commenced an application in relation to the SAA, LSCC 41 brought no application in relation to the SFA within the required time period.  In fact, LSCC 41’s counsel stated in the spring of 2017 that LSCC 41 had no issues with the SFA and that it would not be bringing an application.

[38]           In Simcoe Vacant Land Condo. Corp. No. 272 v. Blue Shores Developments Ltd., 2014 ONSC 187 (CanLII), aff’d 2015 ONCA 378 (CanLII), Morgan J. found that the agreement at issue was an agreement for the “the mutual use, provision or maintenance or the cost-sharing of facilities or services”, as described in s. 113 of the Condominium Act.  Pursuant to s. 113, a legal challenge to the terms of the agreement had to be commenced within 12 months of the turnover meeting for any of the Applicant condominium corporations.  Accordingly, Morgan J. held that any claim relating to the fees charged by Blue Shores had to be framed as a claim for breach of the provisions of the agreement rather than as a challenge to the terms of the agreement itself.

[39]           In Toronto Standard Condominium Corporation No. 1628 v. Toronto Standard Condominium Corporation No. 1636, 2019 ONSC 1827 (CanLII), Sossin J. dismissed the defendants’ motion to stay an oppression application on the basis that the applicant was challenging the legal effect of the agreement itself, which the applicant alleged resulted in a disproportionate burden, and not just the interpretation of the agreement apportioning the costs of common facilities.  In that case, however, it does not appear that s. 113 of the Condominium Act was raised.  In addition, as there were two parties who were not parties to the agreement at issue, creating uncertainty about the arbitrator’s jurisdiction to order relief against them.

[40]           To the extent that LSCC 41’s claims relate to the fairness of the terms of the SFA and SAA, it was required to proceed under s. 113 of the Condominium Act.  While LSCC 41 properly commenced an application in relation to the SAA, it failed to commence an application to challenge the SFA within the required time.

[41]           While LSCC 41 alleges oppressive conduct by TSL and Mr. Fuller, other than its complaints about the effect of the SFA’s terms, it has failed to particularize oppressive conduct by the Defendants.

[42]           The relief sought by LSCC 41 in this Action further demonstrates that the dispute relates to compliance with the SFA and SAA or to the fairness of the terms of the SFA.  LSCC 41 seeks damages for:  overpayment of expenses in relation to the SFA and SAA; the increased amount of LSCC 41’s proportionate share of costs due to the delay in development of the other phases; breaches of contract and duty of care; and oppression in connection with LSCC 41’s desire to renegotiate the allocation of shared costs under the SFA.  Moreover, LSCC 41 seeks an order requiring that the parties to the SFA and SAA meet and confer for the purposes of negotiating two new agreements within six months of such order, failing which their dispute must be submitted to arbitration in accordance with s. 132 of the Condominium Act.  This suggests that LSCC 41’s issues are with the terms of the SAA and SFA, which should have been the subject of an application under s. 113, or with the Defendants compliance with those terms, which would fall within the scope of the ADR Clause.

[43]           The fact that LSCC 41 seeks an order compelling arbitration in the event that renegotiation fails is an acknowledgement by LSCC 41 that arbitration would be a more appropriate way to resolve the parties’ dispute.  To allow the parties to proceed with this Action only to submit the dispute to arbitration at a later stage would not be an inefficient allocation of judicial resources.  It is also worth noting that in the Brockville Application, LSCC took the opposite position, that the matters raised by TSL were not oppression and should be submitted to arbitration.

[44]           Finally, I reject LSCC 41’s argument that the Task Force struck in the spring of 2017 fulfilled the requirements of the ADR Clause.  While Mr. Bellevue and Paul Bennett, a member of the Task Force appointed by TSL, stated that the parties agreed that the Task Force fulfilled the ADR requirements of the Agreements, at no time was the ADR Clause invoked by any party.  LSCC 41 acknowledged that it has failed to comply with any of the preconditions to commencing an action required by the ADR Clause, such as the appointment of a technical consultant, mediation and arbitration.  The ADR Clause states that ADR in accordance with the clause is a condition precedent to commencing an action.

Are there Grounds to Refuse a Stay?

[45]           Subsection 7(5) of the Arbitration Act anticipates that when an action contains claims that are subject to an arbitration claim and claims that are not, the court may grant a partial stay, but only where it is reasonable to separate the matters dealt with in the agreement from other matters.  When a partial stay is not reasonable, the proceedings will not be bifurcated:  Wellman v. Telus Communications Co., 2017 ONCA 433 (CanLII), 138 O.R. (3d) 109.

[46]           In this case, there are no grounds on which to grant a partial stay.  All of the parties to this action, other than Mr. Fuller, are parties to the SFA.  Mr. Fuller has indicated that he will attorn to the jurisdiction of the arbitrator.  If anything, the circumstances support the granting of a stay, since the Brockville Application has also been stayed in favour of arbitration, and it would be more efficient and productive to have the parties’ disputes, which arise from the same two agreements, determined together.

[47]           Accordingly, I find that it is at least arguable that the dispute falls within the scope of the ADR clause and it should be left to the arbitral tribunal to determine its jurisdiction to hear LSCC 41’s claims.  As there are no grounds upon which to refuse a stay, the motion to stay the proceeding is granted.

Motion to Strike

[48]           As I have found that the action should be stayed in favour of arbitration, it is not necessary or appropriate for me to rule on the Defendants’ motion to strike or the motion for particulars, which were raised in the alternative.

[49]           TSL submits that I could also exercise my discretion to order that the SAA Application be stayed in favour of arbitration.  However, TSL did not bring a motion to stay the SAA Application, which TSL acknowledges was properly commenced under s. 113 of the Condominium Act.  At the hearing, LSCC 41 characterized the SAA Application as a “springboard” to this Action and argued that it is intertwined with the issues in this Action.  It may well be that it would be more efficient and productive to address the issues in dispute in the SAA Application, some of which overlap with this Action, along with the matters proceeding to arbitration.  Nonetheless, the SAA Application is not before me and I decline to make an order regarding the SAA Application.

Motion to Convert and Consolidate

[50]           While LSCC 41 commenced the SAA Application as an application pursuant to s. 113 of the Condominium Act, and then separately commenced this Action, it now seeks to convert the SAA Application into an action and to consolidate it with this proceeding.  LSCC 41 has inexplicably brought its motion to convert the SAA Application in this Action and not in the SAA Application.

[51]           LSCC 41’s motion to convert the SAA Application into an action was a preliminary step to consolidating it with this Action.  As I have determined it appropriate to stay the Action, it is not necessary to determine the motion to convert the SAA Application into an action.

[52]           I note, however, that s. 113 of the Condominium Act specifically provides for a proceeding to be commenced by application to provide an efficient manner to resolve mutual use and cost-sharing agreements.  Where an application is statutorily authorized, there is a prima facie right to proceed by application.  The court should not convert a statutorily prescribed application into an action unless material facts are in dispute and the court cannot properly resolve the material facts without the benefit of a trial:  Sekhon v. Aerocar Limousine Services Co-operative Ltd., 2013 ONSC 542 (CanLII), at para. 49.

Conclusion

[53]           Based on the foregoing, the Defendants’ motion to stay the proceeding in favour of arbitration is granted with costs to the Defendants.

Costs

[54]           Counsel for both parties submitted costs outlines at the hearing. As both parties had made offers to settle the motion, I did not review the cost outlines or offers until after making a determination on the motions.  The Defendants’ partial indemnity costs total $48,399.63.  The Plaintiff’s partial indemnity costs total $23,870.83.  Both amounts include HST and disbursements.

[55]            Pursuant to the Courts of Justice Act, s. 131(1), the Court has broad discretion when determining the issue of costs.  The overall objective of fixing costs is to fix an amount that is fair and reasonable for the unsuccessful party to pay in the circumstances, rather than an amount fixed by actual costs incurred by the successful litigant:  Boucher v. Public Accountants Council for the Province of Ontario (2004), 2004 CanLII 14579 (ON CA), 71 O.R. (3d) 291 (C.A.).  Rule 57.01(1) of the Rules of Civil Procedure sets out the factors to be considered by the court when determining the issue of costs.

[56]           I have considered these factors, as well as the principle of proportionality in R. 1.01(1.1) of the Rules of Civil Procedure, while keeping in mind that the court should seek to balance the indemnity principle with the fundamental objective of access to justice.  Both parties sought various relief in their motions.  The Defendants were successful on the motion to stay.  The issues were important to both parties, because of the amounts claimed by the Plaintiff in the Action.  Both parties’ counsel spent considerable time on the motions, producing voluminous records and conducting cross-examinations.  As Mew J. noted in the Brockville Application, some of this material could be used in the arbitration.  It strikes me that the parties ought to have been able to resolve some of the issues on this motion.  The multiplicity of proceedings between the parties and the acrimonious relationship between them is concerning and not in keeping with the statutory scheme or the ADR Clause in their agreements.

[57]           In respect of the Defendants’ offer to settle, in Davies v. Clarington (Municipality) (2009), 100 O.R. (3d) 66 (C.A.), 2009 ONCA 722 (CanLII), at para. 40, the Court of Appeal stated, in the context of a defendant’s offer: “Apart from the operation of Rule 49.10, elevated costs should only be awarded on a clear finding of reprehensible conduct on the part of the party against which the cost award is being made.”  (Emphasis in original).  See also: Mabe Canada Inc. v United Floor Ltd., 2016 ONSC 5794 (CanLII); Shewchuk v Blackmont Capital Inc.; 2015 ONSC 7861 (CanLII); Harte-Eichmanis v. Fernandes, 2012 ONSC 2079 (CanLII).  I have found no reprehensible behavior in the conduct of the proceeding that would warrant substantial indemnity costs from the date of the Defendants’ offer, which was only made on April 15, 2019.

[58]           Based on the foregoing, I fix total costs on a partial indemnity basis at $35,000.00, inclusive of disbursements and HST.  This includes costs incurred in the preparation of the costs submissions.

NISHIKAWA J.

Date:  June 24, 2019

 

Evans v Mattamy Homes Limited, 2019 ONSC 3883

CITATION: Evans v Mattamy Homes Limited 2019 ONSC 3883

         COURT FILE NO.: CV-18-597180

MOTION HEARD: 20190515

SUPERIOR COURT OF JUSTICE – ONTARIO

RE:                 Claudia Evans, Kamalnain Bindri, Manoj Arora, Bholanathsingh Ramnarain, Tianxiao Li, also known as Tim Li, Yezijin Qi, Qing Ye, Veena Kapoor Khatri,  Rakibul Hasan, Ning Xu, Sima Annan, Rajesh Pattni, Kiran Pattni, Huai Zhong Yuan, Mini Weng, Shawn Lao, Muhammad Shahid, Xiao Long Wang, Mustafa Ahmed Khan, Naurren Khan, Monir Iskarous, Naseem Qadir, Ning Li, also known as Brian Li, Karran Singh, Sonia Chandani Singh, Vikas Sachdeva,  Balwinder Kaur, Shahini Khan, Asif Khan,  Muneeza Masood, Syed Masood Hussain, Xiang Liu and Priyanka Kumar, Plaintiffs

AND:

Mattamy Homes Limited and Mattamy (Preserve) Limited, Defendants

BEFORE:      Master Jolley
HEARD:        15 May 2019

 

REASONS FOR DECISION

  1.            Introduction

[1]               The defendants seek an order staying this action pursuant to subsection 7(1) of the Arbitration Act, 1991, S.O. 1991, c.17 (the “Act”).  The parties agree that the nature of the dispute falls within the challenged arbitration agreement.  However, the plaintiffs argue that the arbitration agreement is invalid as unconscionable and obtained as a result of undue influence and that the court should therefore exercise its discretion to refuse the stay pursuant to subsection 7(2) of the Act.

[2]               In February and March 2017, the plaintiffs entered into agreements with the defendants (hereinafter “Mattamy”) for the purchase and sale of pre-construction homes scheduled to close in April 2018.  Most of the plaintiffs did not close and on 3 May 2018 they commenced this action against Mattamy claiming rescission of the agreements or damages in the alternative.  They allege that Mattamy exercised undue influence over them through unfair sales methods and other tactics to induce them to enter into the agreements.  They also argue that there was an inequality of bargaining power between them and Mattamy and that Mattamy took advantage of its position of dominance, resulting in the plaintiffs entering into grossly improvident and unfair agreements of purchase and sale, which they now allege are unconscionable.

[3]               These issues concerning the validity of the agreements of purchase and sale remain to be decided as part of the ultimate hearing of this dispute and are not before me.   The narrow issue before me is whether the plaintiffs’ disputes will be dealt with by arbitration or by litigation.  That will turn on whether the arbitration agreement is itself invalid.

[4]               For the reasons set out below, the defendants’ motion is granted and the action stayed.

  1.            Summary of the Law

[5]               The relevant sections of the Act are as follows:

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.

7(2) However, the court may refuse to stay the proceeding in any of the following cases:

  1. The arbitration agreement is invalid.

[6]               In summary, a stay of an action is mandatory unless one of the exceptions in subsection 7(2) of the Act applies, in which case the court has discretion to refuse the stay.

[7]               The enactment of the Act in 1991 represented a policy shift that encouraged parties to resort to arbitration where they had contractually agreed to do so by directing the court generally not to intervene and by establishing a presumptive stay of court proceedings in favour of arbitration (Ontario Hydro v. Denison Mines Ltd. 1992 Carswell Ont 3497, referenced in Telus Communications Inc. v. Wellman 2019 SCC 19 (CanLII) (“Wellman”) at paragraph 49).  The plaintiffs do not challenge the legislative policy but argue that it is premised on there being a valid agreement to arbitrate to which the parties should be held.  The plaintiffs have the onus under subsection 7(2) of demonstrating that the arbitration provision is unconscionable or procured as a result of undue influence and therefore invalid, and of demonstrating that the court should exercise its discretion to refuse to stay the action as a result.

  1.            Overview

[8]               In February and March 2017 the plaintiffs attended at a sales site operated by Mattamy in Oakville and signed pre-construction agreements of purchase and sale for new homes.  Each of the agreements of purchase and sale contained the following arbitration clause (the “Arbitration Agreement”):

“The Purchaser and the Vendor agree that any claim, dispute, or controversy (whether in contract, tort, or otherwise, whether pre-existing, present or future, and including statutory, common law, intentional tort and equitable claims) that the Vendor may have against the Purchaser or that the Purchaser may have against the Vendor, its agents, employees, principals, successors, assigns, affiliates arising from or relating to this Agreement, its interpretation, or the breach, termination or validity thereof, the relationships which result from this Agreement (including, to the full extent permitted by applicable law, relationships with third parties who are not signatories to this Agreement), the Purchaser’s purchase or use of the Real Property and/or the Dwelling or related purchase or the subdivision services (and any of the foregoing being a “Claim”) SHALL BE RESOLVED EXCLUSIVELY AND FINALLY BY BINDING ARBITRATION pursuant to the Arbitrations Act, 1991 (Ontario), as amended or replaced from time to time.  Such arbitration shall be the exclusive forum for the resolution of any Claim by the Purchaser against the Vendor, and the Purchaser hereby agrees that it will not bring or participate in a Claim in any court whether directly, indirectly, by counterclaim or otherwise.  In addition, THE PURCHASER SHALL NOT BE ENTITLED TO JOIN OR CONSOLIDATE CLAIMS BY OTHER PURCHASERS, OR ARBITRATE A CLAIM AS A REPRESENTATIVE OF A CLASS ACTION OR PARTICIPATE AS A MEMBER OF ANY CLASS ACTION WITH RESPECT TO ANY CLAIM.”

[9]               The plaintiffs’ position is that the agreements of purchase and sale and the Arbitration Agreement are unconscionable and were obtained by Mattamy as a result of undue influence.

  1.            Unconscionability

[10]           Wellman, supra at paragraph 85 stated in obiter,

“… Mr. Wellman has not argued, either before this Court or in 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 subsection 7(2)2 of the Act.”

[11]           What is required to prove that a standard form arbitration agreement is unconscionable and therefore invalid?  The court in Huras v Primerica Financial Services Ltd. 2000 Carswell Ont 1429 (“Huras”), quoting from Harry v. Kreutziger (1978) 1978 CanLII 393 (BC CA), 95 D.L.R. (3d) 231 (B.C.C.A.), held that the single question is whether the transaction, seen as a whole, is sufficiently divergent from community standards of commercial morality that it should be rescinded.

[12]           The existence of a standard form contract and inequality of bargaining power are not uncommon and, by themselves, do not render an arbitration provision contained in the standard form agreement unconscionable. (See paragraph 18, infra and Huras, supra at paragraph 39).

[13]           In Heller v. Uber Technologies Inc. 2019 ONCA 1 (CanLII), leave to appeal granted 2019 CanLII 45261 (SCC) (“Uber”), Heller brought a proposed class proceeding on behalf of Uber drivers alleging that he and his proposed class members were employees of Uber and subject to the provisions of the Employment Standards Act, 2000. Uber brought a motion to stay the proceeding on the basis of an arbitration agreement entered into by it and the drivers.  The plaintiff argued, first, that the clause was illegal as it amounted to an illegal contracting out of the Employment Standards Act and, second, that it was unconscionable.

[14]           The agreement between Uber and its drivers contained the following arbitration clause:

“Governing Law; Arbitration.  Except as otherwise set forth in this Agreement, this Agreement shall be exclusively governed by and construed in accordance with the laws of The Netherlands, excluding its rules on conflicts of laws. … Any dispute, conflict or controversy howsoever arising out of or broadly in connection with or relating to this Agreement, including those relating to its validity, its construction or its enforceability, shall be first mandatorily submitted to mediation proceedings under the International Chamber of Commerce Mediation Rules (“ICC Mediation Rules”).  If such dispute has not been settled within sixty (60) days after a request for mediation has been submitted under such ICC Mediation Rules, such dispute can be referred to and shall be exclusively and finally resolved by arbitration under the Rules of Arbitration of the International Chamber of Commerce (“ICC Arbitration Rules”). … The dispute shall be resolved by one (1) arbitrator appointed in accordance with the ICC Rules.  The place of arbitration shall be Amsterdam, The Netherlands….”

[15]           The evidence before the Uber court was that the up-front administrative/filing-related costs for a driver to participate in the ICC mediation-arbitration process mandated by the arbitration clause was USD $14,500. This did not include the costs of travel to Amsterdam, accommodation and retaining counsel to participate in the arbitration.  The court contrasted these costs with Heller’s claim for minimum wage, overtime and vacation pay brought by a person earning $400-$600 per week.

[16]           After finding that the arbitration clause was invalid as constituting a contracting out of the provisions of the Employment Standards Act, 2000, the court went on to consider in the alternative whether the clause was invalid on the basis of unconscionability.  An agreement must be more than foolhardy, burdensome, undesirable or improvident to be held to be unconscionable (Titus v. William F. Cooke Enterprises Inc. 2007 ONCA 573 (CanLII) at paragraph 36).  Counsel are agreed that the following four part test must be met to prove unconscionability:

  1. A grossly unfair and improvident transaction;
  2. A victim’s lack of independent legal advice or other suitable advice;
  3. An overwhelming imbalance in bargaining power caused by the victim’s ignorance  of business, illiteracy, ignorance of the language of the bargain, blindness, deafness, illness, senility, or other similar disability; and
  4. The other party’s knowingly taking advantage of this vulnerability.

[17]           I have considered each of these elements in the context of the Arbitration Agreement between the plaintiffs and Mattamy.

Element 1: Does the Arbitration Agreement represent a grossly unfair and improvident transaction?

[18]           The plaintiffs argue that the Arbitration Agreement was not brought to their attention but was embedded in a standard form contract, which was not open for negotiation in any event.  Addressing arbitration agreements in standard form contracts, the majority in Wellman, supra, stated at paragraph 84:

“while my colleagues maintain that the Act was designed with “freely negotiate[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.”

[19]           In considering arbitration agreements in the context of real estate transactions, I note that the Consumer Protection Act, 2002, S.O. 2002 c.30, Sch. A was enacted to provide that arbitration agreements contained in certain types of consumer contracts would not be binding on consumers.  However, the legislature in section 2(f) of that Act specifically excluded real estate transactions from that exception.  In doing so, one can infer that the legislature endorsed arbitration as an appropriate dispute resolution forum in the context of real estate transactions.

[20]           Of further support is the similar policy decision of the legislature made in respect of the adjudication of disputes concerning the construction of new homes.  The Ontario New Home Warranties Plan Act, R.S.O. 1990, c.O.31, subsection 17(4) provides that:

“Every agreement between a vendor and prospective owner shall be deemed to contain a written agreement to submit present or future differences to arbitration, subject to appeal to the Divisional Court, and the Arbitration Act, 1991 applies.”

[21]           In Huras, supra, the plaintiff commenced a class proceeding claiming damages as a result of the defendant’s failure to pay minimum wage to class members during their sales representative training period.  Having found a standard form contract and unequal bargaining power insufficient to render the arbitration agreement unconscionable, the court reviewed the additional factors required.  It found the arbitration provision to be one-sided.  The arbitration clause gave Primerica but not the plaintiffs the option of commencing legal proceedings without having to resort to arbitration.  The court stated that:

“I infer from the evidentiary record that the individual claims of the plaintiff and similarly-situated class members would be for very small amounts of money, probably a few hundred dollars each….  Very few, if any, of the putative class members would even consider proceeding to an arbitration of a dispute with Primerica given the cost of paying for one’s own arbitrator in the first instance and the risk of substantial costs in the event of failure.  The arbitration clause mandates a three person arbitration panel.  There are cost sanctions if the plaintiff is unsuccessful at arbitration.” (see paragraphs 40-42).

[22]           The court concluded that the arbitration provision would have the opposite effect of the purpose of arbitration, namely to resolve disputes expeditiously and cost effectively.  It stated that:

“Thus, the provision inhibits and effectively frustrates aggrieved individuals from being able to obtain any resolution of disputes through a neutral, independent adjudicator….  The existence of the arbitration clause in Primerica’s contractual documents gives a superficial appearance of fairness to the unsophisticated.  In reality, the arbitration clause serves to prevent any resolution of a dispute other than upon the terms dictated by Primerica.  The existence of the arbitration clause is unfair.  It would be perverse and in conflict with the normative purposes of an arbitration clause to enforce the one at hand.  The arbitration clause in the case at hand, if enforceable, would defeat the public policy inherent in the [Class Proceedings Act]. (paragraphs 43, 45)”

[23]           Following similar reasoning, the Court of Appeal in Uber found that arbitration agreement represented a substantially improvident or unfair bargain, holding at paragraph 68:

“It requires an individual with a small claim to incur the significant costs of arbitrating that claim under the provisions of the ICC Rules, the fees for which are out of all proportion to the amount that may be involved.  And the individual has to incur those costs up-front.  Uber’s submission that the individual might recover those costs, if successful, does not change the impact that flows from the fact that these costs must be paid up-front.  Further, it should be self-evident that Uber is much better positioned to incur the costs associated with the arbitration procedure that it has chosen and imposed on its drivers.  Additionally, the Arbitration Clause requires each claimant to individually arbitrate his/her claim and to do so in Uber’s home jurisdiction, which is otherwise completely unconnected to where the drivers live, and to where they perform their duties.  Still further, it requires the rights of the drivers to be determined in accordance with the laws of the Netherlands, not the laws of Ontario, and the drivers are given no information as to what the laws of the Netherlands are.”

[24]           The facts in Uber and Huras are markedly different from the facts before me.  Unlike Huras and Uber, the plaintiffs’ claims are substantial.  The purchase price set out in the 25 agreements of purchase and sale range from $1,152,990 to $2,230,990, prior to upgrades, with the average price being roughly $1,500,000.  The damages claimed in the statement of claim are $50,000,000, in addition to punitive and aggravated damages claims of $10,000,000 each.  I do not find that requiring these plaintiffs to have their dispute determined by arbitration in Ontario under the provisions of the Act represents a substantially improvident or unfair bargain.

[25]           As to the improvidence of the Arbitration Agreement, the plaintiffs’ main argument is that it removes from them the right to have their cases heard together, which would be a substantial costs savings.  The court was persuaded by this factor, among others, in Huras.  There, the court stated at paragraphs 4 and 49:

“In the situation at hand the arbitration provision would require each claimant to pursue her/his own arbitration notwithstanding that the grievance advanced involves issues that prima facie are common to all grievors.  The central issue in the class proceeding is whether or not Primerica is obliged by statute to pay the minimum wage during the training period of the class members….  I conclude from the evidentiary record that the sole and real purpose of the arbitration clause in the case at hand is to prevent a resolution of disputes with Primerica and its sales representatives other than on terms dictated by Primerica.  In my view, and I so find, the arbitration clause is unconscionable and, accordingly, void.”

[26]           The facts before me are not analogous to Huras or Uber where the plaintiffs were either all subject to the provisions of the Employment Standards Act or were all not.  Here each plaintiff alleges undue influence.  Each plaintiff will likely be required to separately testify about the circumstances of his or her attendance at the sales site, the choice of home, the presentation of the agreement of purchase and sale and their individual discussions with the Mattamy sales representatives before, during and after the signing of the agreement.  Their cases may not all rise and fall together.  An arbitrator may find undue influence was applied in one case and not in another.

[27]           Further, given the size of each plaintiff’s claim in this instance, unlike the case of Huras or Uber, I do not find that requiring the plaintiffs to try their cases separately makes the Arbitration Agreement a substantially improvident or substantially unfair bargain.

[28]           There is little evidence before me about the costs of an arbitration in Ontario, other than evidence from Evans and the plaintiff Kiran Pattni (“Pattni”) about what their counsel told them about the costs of arbitration vs litigation.  Evans deposed that the cost of arbitration would deter her from pursuing her claim. Pattni deposed that the financial burden of proceeding civilly would make it difficult for her to pursue her claim.  The information in her affidavit was that it would likely cost twice as much to arbitrate as to pursue a civil claim because being part of a group allows the plaintiffs to share the costs of various steps in the litigation process, which would not be possible in private arbitrations.  Mattamy attempted to question Evans about this portion of her affidavit, but privilege was claimed over the advice she was given.  I do not put much weight on this assertion, given the inability of Mattamy to cross examine Evans on the statement.  It is further weakened by my finding that the plaintiffs’ claims turn on their own unique facts and likely need to be individually proven in any event.

[29]           In summary, I do not find on these facts that the Arbitration Agreement represents a grossly unfair or improvident transaction.

Element 2 – Did the plaintiffs obtain independent legal advice or other suitable advice?

[30]           The evidence on the motion was that the plaintiffs were advised in numerous emails or brochures in advance of attending at the site and, again at the site, that “All Purchases Are Firm & Legally Binding” once they were signed.  This was contrasted with sales releases from earlier years where the agreements of purchase and sale were conditional for a period of time that allowed the purchasers to obtain legal advice before they became “Firm & Legally Binding”.

[31]           Mattamy provided brochures, floor plans, site plans, pricing information, deposit structures and payment information with the pre-sale registration and sales event invitations and again at the sales site.  However, a copy of the agreement of purchase and sale was not on display in the sales tent when the plaintiffs purchased their homes.  The plaintiff Naseem Qadir (“Qadir”) testified that he tried to get a copy of the agreement of purchase and sale in 2017 before the sales date but the sales centre was always closed.  Mattamy tendered evidence that template copies of the agreements of purchase and sale were available upon request at any time after the registration process opened.  Mattamy’s sales representative deposed that copies were available to all staff and would be provided at the sales centre, if requested.  This is confirmed by the experience of the plaintiff Muhammad Shahid (“Shahid”), discussed below.

[32]           The court in Uber also found there was no evidence that Heller had obtained any legal or other advice prior to entering into the services agreement nor was it realistic to expect that he would have.  It also held that he had no reasonable prospect of being able to negotiate any of the terms of the agreement, even if had obtained legal advice. In this instance, Mattamy admitted that if a purchaser wanted a lot in the first quarter of 2017, he or she would have to execute the agreement of purchase and sale in the sales centre and the terms were not negotiable.

[33]           On the issue of the ability to obtain legal advice, the evidence before me was that none of the plaintiffs had a lawyer attend with them at the sales site to review the Arbitration Agreement before they signed it.  There was contradictory evidence as to whether a lawyer would be allowed to attend and review the agreement with his or her client.  While Evans deposed that she was not permitted to have a lawyer with her in the sales centre, Mattamy’s deponent stated that potential purchasers are not restricted as to who may accompany them to the sales centre and lawyers do attend the sales event with prospective purchasers from time to time.   To the best of the deponent’s recollection, Evans did not request to have a lawyer present.  Had she asked, she would have been permitted to have a lawyer attend with her.  Evans further deposed that she was told that if she wanted to take the time to review the agreement of purchase and sale, she would have to step aside and risk losing the lot she had selected.  Mattamy disputed this evidence, stating that once a prospective purchaser selected a lot, Mattamy would not offer that lot to others as long as a sale was in progress.

[34]           Pattni deposed that she asked to consult a lawyer before signing the agreement of purchase and sale and was told that there was no time and she would lose her lot if she consulted a lawyer.  Again, Mattamy disputed this version of events.  The Mattamy sales representative who worked with the Pattnis stated that she spent two hours with them and had no recollection of them asking during that time if they could consult a lawyer.   Shahid also stated that he was told that he had to sign the agreement right then and could not have a lawyer review it.

[35]           It can be said that none of the plaintiffs obtained independent legal advice or other suitable advice on the Arbitration Agreement in the 2017 agreements of purchase and sale before signing them. However, I do not find that to be conclusive on this issue as some of the plaintiffs obtained legal advice historically on this exact Arbitration Agreement with Mattamy.

[36]           By way of example, Evans signed an agreement of purchase and sale with Mattamy in 2013, which contained the same Arbitration Agreement.  Evans had a lawyer review that agreement of purchase and sale and, after review, raised no issue that the Arbitration Agreement represented a grossly unfair or improvident bargain or otherwise objected to it.  Evans deposed that she was unaware that the 2017 agreement of purchase and sale contained the Arbitration Agreement as she was not given an opportunity to read the agreement before she signed it.  However, she also deposed that she was told the agreement she was signing was the same as the 2013 agreement.  If this statement is true, then Evans would have been aware that the 2017 agreement of purchase and sale contained the Arbitration Agreement.

[37]           I find it is a reasonable assumption that had Evans taken the agreement of purchase and sale to a lawyer in 2017 and asked him or her to comment on the Arbitration Agreement, Evans would have raised no objection to the clause with Mattamy, consistent with her behaviour in 2013.  I also find it a reasonable inference that Evans would not have terminated the agreement of purchase and sale on the basis that it contained the Arbitration Agreement, as she had already accepted an agreement with the same term in 2013.

[38]           This was also the case for Shahid.  He purchased a Mattamy pre-construction home in 2010.  The agreement of purchase and sale was conditional for a five day period and contained the same Arbitration Agreement as in the 2017 agreement in question.  Shahid took the 2010 agreement to a lawyer for review and, after receiving legal advice, was satisfied that the agreement was acceptable.  Shahid closed that house purchase in December 2011 and immediately resold it.

[39]           In February 2014 Shahid bought a second pre-construction Mattamy home.  This agreement did not have a five day conditional period, so Shahid went to the Mattamy sales centre in advance of his purchase and obtained a copy of the agreement, which included the Arbitration Agreement, in order to obtain legal advice on it.  After obtaining that advice, Shahid signed the agreement of purchase and sale and purchased the property, which closed in or around January 2015.

[40]           The plaintiff Qadir purchased both a Mattamy pre-construction condominium and a Mattamy pre-construction townhouse in 2010.  Both agreements contained the Arbitration Agreement.  Qadir did not obtain legal advice on either 2010 agreement and it is a reasonable assumption that he would not have done so in this instance even had he had the agreement in advance or seen that it contained the Arbitration Agreement.

[41]           In summary, of the five plaintiffs about whom evidence was tendered on this motion, two obtained legal advice on this exact Arbitration Agreement when it was contained in earlier agreements of purchase and sale they had signed with Mattamy.  One had the opportunity to obtain legal advice on the Arbitration Agreement on two earlier occasions and never did.  There is no information from plaintiff Asif Khan (“Khan”) on this issue and Pattni indicated that she was told she would lose her chosen lot if she took the time to obtain legal advice.  I find some of the plaintiffs then had legal advice on the Arbitration Agreement.  For those who did not obtain legal advice, the evidence of Shahid demonstrated that legal advice could have been obtained in advance of signing the Arbitration Agreement.

Element 3 – Was there an overwhelming imbalance in bargaining power caused by the victim’s ignorance of business, illiteracy, ignorance of the language of the bargain, blindness, deafness, illness, senility, or other similar disability?

[42]           Uber acknowledged that there was a significant inequality of bargaining power between it and Heller.  This was also found to be the case in Huras.  Unlike Uber, there is no evidence of ignorance of business, illiteracy or disability on the part of the plaintiffs as it pertains to the Arbitration Agreement.  To the extent the plaintiffs allege ignorance of the language of the bargain, at least Evans and Shahid had actual legal advice on the Arbitration Agreement historically.  As for an overwhelming imbalance in bargaining power, the most that can be said is that the plaintiffs wanted to purchase properties being sold by Mattamy, of which there were a finite number and which were subject to ongoing sales efforts to other prospective purchasers.

[43]           In the months after signing the Arbitration Agreement, no plaintiff alleged that he or she did not understand the Arbitration Agreement or suffered from a disability that demonstrated there was an overwhelming imbalance of bargaining power.  For instance, in Rajesh Pattni’s email of 1 March 2017 asking Mattamy to release him from the agreement on personal grounds, he acknowledged that he fully understood that the deal was firm and binding upon signing, and requested the “release on an exception and compassion basis, as the onus is 100% on you to allow it or not.”  Neither here nor in his subsequent emails of 18 December 2017 and 3 January 2018 requesting concessions with regard to the house purchase did Pattni raise any issue with respect to the Arbitration Agreement.

[44]           Khan wrote a similar email to Mattamy on 1 December 2017 asking for a solution concerning the purchase by him and his wife, the plaintiff Shahina Khan.  In that email, he stated: “Whilst I fully respect the position Mattamy is in, and realize that closing my home is the responsibility solely of myself and my wife, I feel we are at a cross roads with regards to the decisions we need to continue to make.”

[45]           While Khan and others complained about the changes in the Canadian housing market, it is instructive for the purposes of this motion that when the plaintiffs contacted Mattamy to attempt to be released from their agreements of purchase and sale, none of them took the position that the Arbitration Agreement was a grossly unfair bargain or that they had been ignorant of what the Arbitration Agreement meant.

[46]           In summary, I find with respect to the Arbitration Agreement, there was no overwhelming imbalance of bargaining power caused by the plaintiffs’ ignorance of business, illiteracy, ignorance of the language of the bargain, blindness, deafness, illness, senility or other similar disability.

Element 4 – Did Mattamy knowingly take advantage of the plaintiffs’ vulnerability? 

[47]           The Uber court held that, given the answer to the first three elements, it could be safely concluded that Uber chose the Arbitration Clause in order to favour itself and thus take advantage of its drivers, who were clearly vulnerable to the market strength of Uber.  It found a reasonable inference that Uber did so knowingly and intentionally.

[48]           On this motion, at least, there is no evidence that the plaintiffs were vulnerable in relation to their signing the Arbitration Agreement and no evidence that Mattamy took advantage of any vulnerability.

  1.              Undue Influence

[49]           The plaintiffs allege that Mattamy exerted undue influence in the manner in which it induced the plaintiffs to execute the Arbitration Agreement.

[50]           To succeed on such a claim, the plaintiffs must demonstrate that they were coerced by Mattamy or that Mattamy abused its power to compel the plaintiffs to sign the Arbitration Agreement.  They must show they had “no realistic alternative” but to submit to this coercion.  Further, even if the plaintiffs meet this high hurdle, the defendants argue that relief is not available to them because most, if not all, of the plaintiffs affirmed the Arbitration Agreement at a time when they were no longer under undue influence by signing various amending and upgrade agreements with Mattamy, each of which by its terms affirmed the original Arbitration Agreement. (see Royal Bank v. 131864 Ontario Ltd. 2003 Carswell Ont 3290, affirmed 2003 CarswellOnt 3239 (C.A.) If a plaintiff establishes circumstances to trigger the presumption of undue influence, the defendant may show that no actual influence was deployed.

[51]           The Supreme Court in Geffen v. Goodman Estate 1991 CanLII 69 (SCC), [1991] 2 S.C.R. 353 set out the test for undue influence as follows:

“It seems to me rather that when one speaks of “influence” one is really referring to the ability of one person to dominate the will of another, whether through manipulation, coercion, or outright but subtle abuse of power….  When dealing with commercial transactions, I believe that the plaintiff should be obliged to show, in addition to the required relationship between the parties, that the contract worked unfairness either in the sense that he or she was unduly disadvantaged by it or that the defendant was unduly benefited by it.  From the court’s point of view this added requirement is justified when dealing with commercial transactions because, as already mentioned, a court of equity, even while tempering the harshness of the common law, must accord some degree of deference to the principle of freedom of contract and the inviolability of bargains.  Moreover, it can be assumed in the vast majority of commercial transactions that parties act in pursuance of their own self-interest.”

[52]           What is the evidence of such undue influence by Mattamy over the plaintiffs with respect to the signing of the Arbitration Agreement? Evans deposed that she was “forced to sign [it] in a pressure-packed environment with no time to actually review the agreement.  The sales representatives did not draw my attention to the clause concerning resolution of disputes, let alone any terms of the agreement.”

[53]           The plaintiffs argue that the pressure in relation to the Arbitration Agreement stems from the fact that they were obliged to pick a lot and give their deposit cheques before they were even able to see the agreement of purchase and sale with the Arbitration Agreement.  They were also told that they would miss their chance to get into the market if they did not buy during that release, as the prices had escalated from the first release to the second and were expected to increase again for the third release. Pattni deposed that “Had I been aware at the sales centre that the agreement of purchase and sale was a firm contract, I likely would not have entered into the agreement at that time.  I already felt uncomfortable making a decision on an almost two million dollar purchase in a matter of minutes but felt that I had to in order to be able to purchase a house in the Preserve.” Mattamy denies these allegations but takes the position that, even if they were true, this “pressure” was market driven and caused by the plaintiffs’ desire to purchase a home, not by pressure brought to bear by Mattamy, as it had significant demand for its homes at that time.

[54]           I note that both Evans and Pattni were aware of the dynamics of the sales office as both attended on Day 1 and were not reached and chose to come back on Day 2 and participate in the sale process.

[55]           For the reasons noted above, and in relation to the Arbitration Agreement only, the plaintiffs have not demonstrated that they were dominated by the will of Mattamy and that the Arbitration Agreement worked an undue disadvantage on them.  Further, there is no evidence that any of the plaintiffs objected to the Arbitration Agreement once they were removed from the scene that caused the alleged undue influence.

Conclusion

[56]           Mattamy is presumptively entitled to a stay.  I find the plaintiffs have not demonstrated that the Arbitration Agreement is invalid, either as a result of unconscionability or undue influence.  Having not come within the exception set out in subsection 7(2) of the Act, there is no discretion to refuse the stay.

Costs

[57]           The parties have agreed that the unsuccessful party shall pay costs to the successful party in the amount of $35,000.  As the defendants have succeeded on their motion to stay this action, the plaintiffs shall pay the defendants the sum of $35,000 within 30 days of the release of this decision.

Master Jolley

Date: 21 June 2019

Stantec New Zealand Ltd v Fiji Roads Authority [2018] FJHC 867; HBC324.2016, HBC227.2017

IN THE HIGH COURT OF FIJI AT SUVA

CIVIL JURISDICTION

 

Civil Action No. HBC 324 of 2016

 

BETWEEN

 

STANTEC NEW ZEALAND LIMITED (NZBN 9429040356297) a company incorporated in

New Zealand and having its place of business as Kadavu House Level 2, 414

Victoria Parade, Suva and having a local agent MWH.

 

PLAINTIFF

 

AND

 

FIJI ROADS AUTHORITY a statutory body established under the

Fiji Roads Authority Decree No.2 of 2012 as amended of

Fiji Development Bank Building Level 4, 360

Victoria Parade, Suva.

 

DEFENDANT

 

Civil Action No. HBC 227 of 2017

 

BETWEEN

 

FIJI ROADS AUTHORITY a statutory body established under the

Fiji Roads Authority Decree No.2 of 2012 as amended of

Fiji Development Bank Building Level 4, 360

Victoria Parade, Suva.

 

PLAINTIFF

 

AND

 

STANTEC NEW ZEALAND LIMITED (NZBN 9429040356297) a company incorporated in

New Zealand and having its place of business as Kadavu House Level 2, 414

Victoria Parade, Suva and having a local agent MWH.

 

FIRST DEFENDANT

 

AND

 

MICHAEL STWPHEN RUDGE of B41/10 Ebor St. Te Aro, Wellington,

New Zealand.

 

SECOND DEFENDANT

 

AND

 

BRUCE BUXTON of 324 Brighton Road, Waldronville, Dunedin 9018,

New Zealand.

THIRD DEFENDANT

 

AND

 

ANDREW MACNIVEN CASELEY of Apartment li, Montreaux Apartments,

164 The terrace, Wellington, New Zealand.

 

FOURTH DEFENDANT

 

COUNSEL : Mr R. Craig with Mr K. Skiba and Mr D. Bullock for the

Plaintiff in HBC 324 of 2017 and for the Defendants in HBC

227 of 2017.

Mr D. Sharma for the Defendant in HBC 324 of 2016 and

For the Plaintiff in HBC 227 of 2017.

 

DATE OF HEARING : 02nd August, 2018

 

DATE OF RULING : 14th September, 2018

 

RULING

 

[1] The court heard simultaneously the following applications of the parties to the above two connected matters;

  1. Application of the defendant in HBC 324 of 2016 for an order that the Originating Summons filed on 23rd December, 2016 be heard partly on oral evidence and partly on affidavit evidence and for leave to cross-examine the 2nd and 4th defendants in HBC 227 of 2017.
  2. Application for leave to amend the summons for stay application of the defendants in HBC 227 of 2017 filed on 08th December, 2017.
  3. Application of the plaintiff in HBC 324 of 2016 to cross-examine the defendant’s witnesses, John Hutchinson and Rodney Bridges at the hearing on 9th and 10th April, 2018.
  4. Application for leave to adduce evidence of the 2nd and the 4th defendants in HBC 227 of 2017 on 09th and 10th April, 2018, required for cross-examination.

[2] The defendant in HBC 324 of 2016 filed summons on 23rd February, 2016 pursuant to Order 28 Rule 5(3) of the High Court Rules 1988, seeking inter alia, the following orders:

An order that the plaintiff’s originating summons filed on 23 December 2016 be heard partly on oral evidence and partly on affidavit evidence.

An order that the plaintiff’s witnesses, Mr Andrew Macniven Caseley and Mr Micheal Stephen Rudge, who have sworn and/or affirmed affidavits in these proceedings in support of the Originating Summons be required for cross-examination at the hearing of the originating summons.

[3] The plaintiff in HBC 324 of 2016 filed a notice of motion pursuant to Order 39 Rule 1(1) of the High Court Rules 1988, on 14th March, 2018 seeking the following order:

That, in the event that this Honourable Court requires the plaintiff’s witnesses Andrew Nacniven Caseley and Michael Stephen Rudge for cross-examination (as per Order (b) of the defendant’s Summons dated 23 February 2018) leave be granted to Michael Stephen Rudge and Andrew Macniven Caseley to adduce evidence required for cross-examination by the defendant to be given by Skype mode for and on behalf of the plaintiff during the hearing of the Originating Summons filed on 23 December 2016 scheduled for 09 and 10 April 2018.

[4] The plaintiff in HBC 324 of 2016 filed Originating Summons seeking inter alia, the following reliefs:

The plaintiff instituted these proceedings by originating summons seeking the following:

(a) A declaration that clause 10 of the agreement for the provision of road management services in Fiji between the Plaintiff and the Defendant dated 27th January, 2012 (Agreement):

i. continued in effect after termination of that Agreement; and

ii. continues to bind the defendant.

(b) A declaration that the Plaintiff is entitled to submit the dispute (as defined in the Affidavit in support of the Originating Summons) for mediation as required by clause 10.2 of the Agreement;

(c) By reason of the matters referred to in (a) and (b) above an order for specific performance of clause 10.2 of the Agreement, namely, the selection of a mediator of the Dispute by Chief Justice of Fiji; and

(d) Costs.

[5] The question for determination here is whether the court needs oral testimony of the witnesses who have affirmed the affidavits filed in this this application. For that the court must look carefully at clause 10 of the agreement between the parties. The construction or interpretation of the agreement has to be done at the hearing of the substantive matter because the reliefs prayed for by the plaintiff in HBC 324 of 2016 depend, as I have already said in my ruling delivered on 26th April, 2017, on the application for striking out, entirely on the construction of the relevant clauses of the agreement. However, to arrive at a finding whether it is required for the parties to cross-examine the persons who have affirmed the affidavits, the court must to a certain extent, consider what the parties are expected to do once the agreement is terminated.

Clause 10.1, 10.2 and 10.4 provide as follows:

10.1 In the event that any dispute or difference of any kind between the parties in connection with or arising out of this agreement arises (“Dispute”), the parties will attempt in good faith to settle such dispute by mutual discussion between the chief executive officers of each party held within 20 business days (or 10 business days if the Dispute relates to an invoice) after the date that the disputing party gives notice of the dispute to the other party identifying the dispute in reasonable detail and requesting consultations between the parties to resolve the Dispute.

10.2 If, at the end of such 20 business day (or, 10 business day) period, the Dispute is not resolved, either party may submit the Dispute for mediation. If the parties cannot agree a mediator within 5 business days of the submission of the dispute for mediation, a mediator will be chosen by the Chief Justice of Fiji. The mediator shall fix the time, place and procedure for mediation but in any event, the mediation shall commence within 10 business days of appointment of the mediator.

10.4 If the dispute cannot be resolved within 15 business days of the commencement of mediation (or within any extended time agreed to in writing between the parties), the mediation shall cease and either party may submit the Dispute for Arbitration in accordance with the then existing rules and regulations of the Rules of conciliation and the Arbitration of the International Chamber of Commerce. Judgment upon the Arbitrator’s award shall be final and binding and may be enforced by any court of competent jurisdiction. The prevailing party in any action arising under this Contract shall be entitled to its costs of litigation, including reasonable legal fees.

[6] The main issue for determination at the hearing of the substantive mater is whether the above clause survives after the termination of the agreement and if so whether the court has power under said clause 10 of the to compel the parties to refer their dispute for mediation.

[7] The learned counsel for the defendant in HBC 324 of 2016 submitted that the witnesses sought to be cross-examined have not acted in good faith and they have to be cross-examined to ascertain whether there is sufficient compliance clause 10.1.

[8] However, in my ruling dated 26th April, 2017, I have already decided that oral testimony is not required to determine the issues raised in the Originating Summons. Paragraph 7 of my ruling reads as follows:

In my view the reliefs prayed for by the plaintiff in its originating summons depend entirely on the interpretation of the terms of the agreement. The entire mater revolves around the question whether Clause 10 of the agreement continues to be in force and continues to bind the defendant even after the termination of the agreement. I do not see any reason why the court needs oral testimony of the witnesses to make finding on that question.

[9] The defendant sought leave to appeal against the ruling which was refused by me. There is no reason for me to deviate from my earlier finding on the same question. If I go any further I will be making findings on the substantive issues of the matter. For these reasons refused the application of the defendant to cross-examine Mr Andrew Macniven Caseley and Mr Micheal Stephen Rudge at the hearing of the substantive matter. Since the court has decided to refuse the application of the defendant to cross-examine the persons who affirmed the affidavits relied on by the plaintiffs the question whether the plaintiffs should be given leave to cross-examine the persons who affirmed the affidavits relied on by the defendant does not arise for consideration since the defendant sought leave to cross-examine them only in the event the court grants leave to the defendant to cross-examine the persons affirmed the affidavit relied on by the plaintiff.

[10] The Defendants in HBC 227 of 2017 filed summons on 12th September, 2017 seeking leave to stay the proceedings pursuant to section 5 of the Arbitration Act 1965. On 08th December, 2017 the defendants filed summons seeking leave to amend the above application for stay, with an affidavit in support of the summons. On 09th March, 2018 on behalf of the defendants further affidavit was filed with amended summons for stay. In that the defendants are seeking to rely alternatively, on the provisions of the International Arbitration Act 2017.

[11] It is at this stage important to consider the purpose for which this Act has been enacted. An act to make provision for the conduct of international arbitrations based on the model law adopted by the United Nations Commission on International Trade Law on international commercial arbitration and to give effect to the New York convention on the recognition and enforcement of foreign arbitral awards and for related matters.

[12] Section 57 of the International Arbitration Act 2017 provides:

The Arbitration Act 1965 is amended after section 1 by inserting the following new section—

1A. This Act applies to any arbitration where the place of arbitration is Fiji and to the extent that the International Arbitration Act 2017 does not apply.”

[13] The legislature has very clearly identified the matters which should be governed by the provisions of the International Arbitration Act 2017. It is common ground that the dispute between the parties to this action is in relation to an agreement entered into locally. Therefore, the dispute, which the defendants are seeking to refer to an arbitration, is governed by the provision of the Arbitration Act 1965 and therefore, the International Arbitration Act 2017 has no application to the matter before this court. The amendment sought by the defendants is, for these reasons, liable to be refused.

[14] For the reasons aforementioned the court makes the following orders:

  1. The application made by summons filed on 08th December, 2017 is refused.
  2. The application made by summons filed on 12th March, 2013 is refused.
  3. The application made by summons filed on 23rd February, 2018 is refused.
  4. The application made by summons filed on 14th March, 2018 is refused.
  5. Parties to bear their own costs of these applications.

Lyone Seneviratne

JUDGE

Rinehart v Rinehart [2019] NSWSC 759 (21 June 2019)

Supreme Court
New South Wales

 

Hearing Date(s):
20 May 2019
Decision Date:
21 June 2019
Jurisdiction:
Equity
Before:
Ward CJ in Eq
Decision:
(1) Set aside the subpoena issued by the plaintiff on 18 October 2018 to the Proper Officer of the Commonwealth Bank of Australia.

(2) Set aside the notice to produce issued by the plaintiff on 18 October 2018 to the second defendant.

(3) Order the plaintiff to pay the costs of the respective applications by each of the first defendant and CEF Pty Ltd to set aside the subpoena addressed to the Proper Officer of the Commonwealth Bank of Australia as well as the costs of the application by the second defendant to set aside the notice to produce served on it.

JUDGMENT

  1. HER HONOUR: Before me for hearing on 20 May 2019 were various notices of motion going to issues that may broadly be described as disputes in relation to the production, or access to and use, of documents sought by the plaintiff (Bianca Rinehart), whether in her personal capacity or in her capacity as trustee of the Hope Margaret Hancock Trust (the HMH Trust), in advance of the hearing of an application that the plaintiff has brought (and which has been listed, together with other interlocutory motions by various of the parties, for hearing in July this year) seeking leave pursuant to s 247A of the Corporations Act 2001 (Cth) (Corporations Act) to inspect books and records of the second defendant, Hancock Prospecting Pty Ltd (HPPL).
  2. The present applications are but part of the ongoing litigious saga involving the first defendant (Gina Rinehart), one or more of her children and companies or entities associated with her. In these reasons I will refer to the family members, for convenience, by their first names.
  3. The background to the present applications is set out in an earlier decision in these proceedings (Rinehart v Rinehart [2018] NSWSC 1102), to which I will refer as the subpoena judgment, in which I made orders setting aside (in whole or in part) a number of subpoenas that had then been issued by Bianca to third parties, relevantly including CEF Pty Ltd (CEF), the trustee of the CEF Trust. It will be necessary in due course to refer to some of the conclusions I reached on that occasion (which were scrutinised by the parties in no little measure on the hearing of the present applications). Suffice it at this stage to note that part of the defendants’ present complaint is, in effect, that the issue by Bianca (since the 2018 subpoena decision) of a subpoena to the Commonwealth Bank of Australia (CBA) (the CBA subpoena) and a notice to produce to HPPL (the HPPL notice to produce) involved an impermissible attempt by Bianca to re-litigate issues that were determined last year in the subpoena judgment. Bianca does not accept that such criticism is warranted and maintains, instead, that the basis for the issue of the CBA subpoena and HPPL notice to produce arises out of the material produced in answer to the earlier subpoenas (in the form in which they had been confined by the orders made by me in 2018). Indeed, Bianca in turn accuses the defendants of seeking to re-litigate one of the issues determined last year in the subpoena judgment, namely as to the abuse of process complaint that had been made by the defendants in relation to the issue of the subpoenas the subject of that decision, relying on the decision in Tyco Australia Pty Ltd v Leighton Contractors Pty Ltd(2005) 142 FCR 428; [2005] FCAFC 115 (Tyco) (as to which I will say further in due course).

Background

  1. Although the background to the present applications is largely as outlined in the subpoena judgment, for ease of reference I will here repeat certain of the background there set out.
  2. The substantive dispute between the parties to these proceedings is the claim by Bianca against her mother, Gina, and others for declaratory and other relief in relation to alleged oppressive conduct, breach of directors’ duties and breach of contract in relation to matters occurring with respect to, among other things, the payment (or non-payment) of dividends by HPPL. The proceedings were commenced by statement of claim filed on 21 March 2017 (following the receipt by Bianca of judicial advice given by Rein J in 2017 to the effect that she would be justified in so acting – see Bianca Hope Rinehart as trustee of The Hope Margaret Hancock Trust [2017] NSWSC 282).
  3. In her statement of claim, Bianca makes various allegations against HPPL and its directors, including: allegations of breach of directors’ duties by Gina (see Part C of the statement of claim at [626]-[631]) as well as allegations that others of the individual defendants were involved, within the meaning of s 79 of the Corporations Act, in certain of the alleged contraventions by Gina (see [632]-[633]). In July 2019, together with other applications, Bianca’s application for leave pursuant to s 237 of the Corporations Act to bring derivative proceedings on behalf of HPPL against the directors for the alleged breaches of duty will be heard.
  4. Bianca alleges (at [630] of the statement of claim) that Gina breached her duties as a director by exercising her powers and/or duties as a director or officer of HPPL to cause HPPL to enter into contracts and to pay out its corporate funds: otherwise than in good faith in the best interests of HPPL as a whole; improperly to gain an advantage for herself; improperly to cause a detriment to HPPL; other than for a proper purpose; and without the degree of care and diligence that a reasonable person would exercise if he or she was a director or officer of HPPL in HPPL’s circumstances and held the offices and had the responsibilities that Gina had.
  5. The alleged conduct on which the allegation at [630] of the statement of claim is based is pleaded at [219], [353]-[354], [359]-[360], [366]-[369] and [379]-[380] of the statement of claim. When the matter was before me last year Counsel appearing for Gina (Mr Bova), who again appears for Gina on the present applications, emphasised that there is no allegation in the statement of claim that the HPPL directors breached their statutory or general law duties in causing HPPL to make any donations or sponsorship payments.
  6. As part of the relief claimed in the statement of claim (at [680]), an order is sought that Gina swear or affirm an affidavit setting out the matters listed at [680.6]-[680.21]. That relief is claimed by reason of the matters pleaded at [680.1]-[680.5], including: at [680.1], that Gina caused HPPL to misuse its corporate funds (as alleged at [630]); at [680.2], the oppressive conduct of HPPL’s affairs in relation to that misuse of funds (as alleged at [658]-[660]); and, at [680.4]-[680.5], that Bianca has sought information that would enable her to determine whether “such costs” (seemingly referring to the costs referred to at [680.3]) and other information as to the expenses of HPPL and has not received substantive responses to all of those requests.
  7. Part of the information sought to be provided on affidavit by Gina, pursuant to the relief sought at [680] of the statement of claim, is the following:

680.16 The identity of the entities that have received sponsorship and donations from HPPL Group companies in respect of FY 14, FY 15 and FY 16.

680.17 The basis on which GHR [Gina] considered it was in the best interests of HPPL for those amounts to be paid.

680.18 Whether GHR knew the purpose for which the sponsorship and donation funds would ultimately be directed when she decided to cause HPPL to disburse those funds.

680.19 The ultimate purpose for which the sponsorship and donation funds will be used.

680.20 The cause of HPPL’s significant increase in sponsorship and donation expenses from FY 13 to FY 16.

  1. In the subpoena judgment, I concluded, among other things, that the subpoena issued by Bianca on 10 April 2018 to CEF should be set aside, except insofar as it compelled the production of documents created or received between 10 July 2014 to date recording any payment or donation of money made by HPPL or any of its subsidiaries and the production of a copy of any trust deed or document establishing the CEF Trust or variation thereof, as operative or extant during the period from 10 July 2014 to 30 June 2017. I extended the time for compliance by CEF with the subpoena addressed to it (as confined by the orders I had made narrowing the scope of those subpoenas) for a period from 14 days from the date of those orders; and I made confidentiality orders in relation to the documents to be produced in compliance with those orders.
  2. Relevantly (not least because I was taken more than once during submissions on the present applications to what I had there said), I repeat here the following from the subpoena judgment:

126. If limited to documents that it is reasonably likely would establish the fact of what I have referred to as the making of the impugned payments (including the actual individual or entity by whom they were made and in what amounts at what times, say) the subpoenas would in my view be supported by a legitimate forensic purpose (and this was in effect conceded by Mr Bova, although he maintains that they are, in that event, not necessary as Bianca has already been provided with that information – a submission not accepted by Bianca at least in relation to some of the information she has sought). Similarly, insofar as the CEF subpoena seeks documentation recording the terms of the CEF Trust, I consider that a legitimate forensic purpose has been established in that any such documentation is likely materially to assist in determining the strength of the case for investigation of any breach of directors’ duties in the making of any such payment (and hence would go to the discretion whether to grant the relief sought).

  1. Pausing here, HPPL argues that if one is looking to whether or not there is a case for investigation as to a breach of directors’ duties in making the impugned payments to CEF, then one need go no further than to identify the fact of the payment(s) and the terms of the CEF Trust Deed (which clearly set out the purposes of the CEF Trust); and that it does not matter if there is or may have been a breach by CEF as trustee in the subsequent use of those funds (see T 30.7ff). In other words, HPPL argues that there is no need (and hence no legitimate forensic purpose) for Bianca now to seek documents to investigate the ultimate application of the funds donated to CEF (i.e., as to the recipient of the moneys or any terms on which the moneys were paid). There is considerable force to that submission.
  2. Returning to the subpoena judgment, I went on to say:

127. In contradistinction, a subpoena seeking to establish, from documents in the hands of the recipients, the purpose of the donor in making those payments seems to me to be quite another matter. It seems to me to be no more than speculation to suggest that documents in the hands of subpoena recipients (the donees or intended donee, in the case of Mr Joyce) would shed light on (or materially assist Bianca to determine) HPPL’s purpose in making the donations or payments in question. …

128. Thus, while I accept that there may be a legitimate forensic purpose in seeking some documentation in relation to the impugned payments, I consider that the ambit of the documents sought by each of the subpoenas goes well beyond that purpose. Moreover, the argument that material produced in answer to the subpoenas calling for the “purpose” or “terms” of the payments might strengthen the case for investigation into the making of the payments by HPPL and therefore go to the question of discretion (the second purpose articulated as supporting the subpoenas) is problematic in circumstances where it is mere speculation that there is any material that would be likely to do so.

  1. Having regard to the breadth of a number of the categories of documents that had been sought under the CEF subpoena I found it difficult not to conclude that there were aspects of the subpoena that amounted to no more than a fishing expedition (see at [134] and [141]).
  2. At [139]-[140], I addressed a complaint by the defendants based on the decision in Tyco that the subpoenas were an abuse of process in that they were an attempt to circumvent the procedures for discovery or preliminary discovery. I was not persuaded that they were, even though I accepted that documents covering the same subject matter might be obtained under the subpoenas as might ultimately be the subject of access orders following the hearing of the s 247A application. I agreed (at [134]) with the observations of Darke J (in Rinehart v Rinehart [2015] NSWSC 205 at [18]) that the mere fact that there is some overlap between what is sought on preliminary discovery and what is sought by subpoena does not mean that the subpoena is necessarily an abuse of process, it being necessary to look at the scope and purpose of the particular subpoena in the context in which it has been issued. Similarly, I agreed (at [134]) with the observation of Darke J at [19] that a party faced with an argument that its foreshadowed claims are merely speculative ought generally be able to make use of interlocutory procedures to assist it to satisfy the test for preliminary discovery. (That said, the circularity of the argument that there is a legitimate forensic purpose to the subpoena in that the documents will be relevant to show why the s 247A application to inspect such documents should succeed was then, and remains, to my mind, a difficult issue – see T 46.2; and on the present applications my concern as to how the use made by the trustee (CEF) of the donated funds would be relevant to the question whether there was an appropriate purpose for the making of the donation in the first place simply highlighted that difficulty as I sought to articulate in the course of oral submissions – see T 46.45.)

Motions now listed before me

  1. Although not all were ultimately contested (the parties for preliminary discovery being able constructively to reach accommodation on at least some aspects of their ongoing disputes), for completeness (and so that it is clear which ones out of the ever mounting list of interlocutory applications have been disposed of) I list (in no particular order) the various notices of motion that were before me for hearing on 20 May 2019, those being as follows.
  2. First, an amended notice of motion filed 31 October 2018 by Bianca, in her personal capacity, seeking a modification (to the extent necessary) of the so-called Harman undertaking in relation to 58 documents produced by HPPL in the 2014 proceedings (the Harman motion). The majority of the 58 documents constitute Excel spreadsheets created by HPPL’s finance department and show, inter alia, trial balances, cash flow projections, royalty payments and dividend payments of HPPL group companies, as well as distributions to or by the HMH Trust. They also include communications between HPPL and its auditor (PricewaterhouseCoopers) in relation to those matters. The Harman motion was determined by the making of consent orders at the outset of the hearing of the remaining contested motions.
  3. Second, a notice of motion filed 19 October 2018 by Bianca, in her capacity as trustee, seeking to set aside a notice to produce served by HPPL that called for the production of Counsel’s opinion and other documents that had been put before Rein J on the judicial advice application (the Judicial Advice motion). The Judicial Advice motion was resolved on the basis that HPPL did not press for production of the documents sought under that notice to produce in light of the position taken by Bianca (said by HPPL to amount to a concession but not conceded by Bianca to be such) that Bianca would not seek to deploy the fact of obtaining judicial advice from Rein J as a factor in favour of the grant of relief under s 247A of the Corporations Act when that application comes before me in July this year (see T 5/6; and Bianca’s written submissions in reply at [9]-[10]) or, indeed, in respect of the motions then to be heard which go beyond the s 247A application (T 6). Hence, the notice to produce served on Bianca by HPPL on 6 September 2018 was set aside, with costs of the notice of motion filed 19 October 2018 reserved. (For completeness, I note that HPPL also indicated an intention to rely on the manner in which this material had been deployed in due course as going to the issue of good faith, but that is not something here to be dealt with.)
  4. Third, an amended notice of motion filed by Gina on 8 April 2019, seeking to set aside the CBA subpoena or, in the alternative, confidentiality orders of the kind previously made so as to preserve the confidentiality of any documents required to be produced under the subpoena pending Gina’s application to stay the proceeding and refer the whole or part of the dispute to arbitration.
  5. Fourth, a notice of motion filed 13 November 2018 by CEF, also seeking to set aside the CBA subpoena.
  6. Fifth, a notice of motion filed 19 November 2018 by HPPL, seeking to set aside a notice to produce served on it by Bianca (the HPPL notice to produce).
  7. The last three notices of motion referred to above were those that were ultimately contested at the interlocutory hearing on 20 May 2019. As noted, confidentiality orders, in the event that access were to be granted to Bianca of the documents sought by the CBA subpoena or HPPL notice to produce, were sought (see T 12ff), reference being made in that regard to the recognition by the High Court in Rinehart v Hancock Prospecting Pty Ltd [2019] HCA 13 at [46] as to the critical object of the arbitration clauses there in contention, namely that:

… a critical object of the Hope Downs Deed was the maintenance of confidentiality about the affairs of the Hancock Group, the trusts, the intra-family dispute and the provisions of the Deeds themselves. This object could not be clearer. Contrary to the submissions for the appellants, the parties were indeed agreeing to avoid public scrutiny. The fact that the claims made by Mr Hancock involve the administration of trusts does not affect the meaning persons in the parties’ position must have understood the arbitral clause to have.

  1. Bianca did not oppose the making of such confidentiality orders and I was satisfied that it was appropriate to do so on the basis that what HPPL and Gina are seeking to enforce (in their motions to be heard in July this year) is what is said is a contractual right (reinforced by the Commercial Arbitration Act 2010 (NSW)), that removes any discretion as to whether this dispute should be heard in open court. Accordingly, on 20 May 2019, at the outset of the hearing of the disputed applications, I made the confidentiality orders sought.

Relevant principles

  1. The parties accepted that the relevant principles, when considering the question of legitimate forensic purpose of a subpoena or, by analogy, a notice to produce issued under r 34.1 of the Uniform Civil Procedure Rules 2005 (NSW), are those which were summarised in the subpoena judgment at [43]-[54]. In summary, for a subpoena (or, by analogy, notice to produce) to have a legitimate forensic purpose, it must be shown that it is likely that the document(s) sought will materially assist on an identified issue, or that there is a reasonable basis beyond speculation that it is likely the documentation will do so (at [43]); and determining whether there is a legitimate forensic purpose requires reference to the particular case, or identified issue, that the documentation sought is reasonably expected to be likely to assist (at [44]).
  2. At [123] of the subpoena judgment, I framed the relevant enquiry as to legitimate forensic purpose as being as to whether “there is a reasonable basis (beyond mere speculation) to believe that the subpoena recipients have in their possession documents that it is likely will materially assist … the determination of the [relevant] issue,” that issue there (as here) being as to whether the application by Bianca for access to the books of HPPL is brought in good faith and for a proper purpose and/or as to the issue as to whether, if the threshold requirement is met, the discretion to grant access should be exercised. I considered that if that were to be established then it would be sufficient to amount to a legitimate forensic purpose for the issue of the subpoenas there under consideration.
  3. It is also accepted by the parties that the onus of establishing a legitimate forensic purpose (and the soundness of the subpoena/notice to produce) is on the party who issued the compulsory process in question (see NSW Commissioner of Police v Tuxford [2002] NSWCA 139 at [29], [39] (Brownie AJA) (Spigelman CJ agreeing at [1], Ipp AJA agreeing at [2]); Kazal v Independent Commission Against Corruption[2018] NSWSC 1370 at [30] (Davies J)).

Applications to set aside CBA subpoena

  1. What is sought by the CBA subpoena is the production of “all statements created, sent or received between 6 August 2014 to date” for a specified CBA bank account in the name of CEF as trustee for the CEF Trust. It covers, therefore, over a four year period from the establishment of the CEF Trust.
  2. It should here be noted that in 2018, by the issue of the subpoena to CEF, Bianca had sought production of “[a]ll documents created or received between 10 July 2014 to date referring to any payment or donation of money made by or on behalf of HPPL or any HPPL Related Party to CEF or any CEF Related Party”. That subpoena was set aside, except relevantly insofar as it compelled production of documents “created or received between 10 July 2014 to date recording any payment or donation of money made by HPPL or any of its subsidiaries”. There is, therefore, an obvious overlap between the documents sought by the CEF subpoena and those sought by the CBA subpoena, although they are by no means co-extensive.
  3. After the subpoena judgment, CEF produced three bank statements from the CBA (one, is said, having been produced in error), those three bank statements being: a bank statement for the period 6 August 2014 to 31 August 2014, showing a credit for “Hancock Pros Donation” of $2.5m on 29 August 2014 (one of the two payments that was recorded in the schedule of donations referred to in the subpoena judgment at [18]); a bank statement for the period 1 August 2016 to 31 August 2016, showing a credit for “Hancock Pros Donation” of $1.5m on 2 August 2016 (the second payment recorded in the said schedule of donations); and a bank statement for the period 1 August 2017 to 31 August 2017, which does not record any payment or donation by HPPL or any of its subsidiaries (and is, thus, said to have been wrongly produced – a case of overproduction, not underproduction as emphasised by HPPL). (In that regard, Bianca refers to the production of the third bank statement both as illustrating the scope for errors of judgment in the identification of documents falling within subpoenas in general (i.e., that as a matter of common experience such errors may be made) and as pointing to deficiencies in CEF’s record-keeping –matters that Bianca says weigh against any suggestion that it is an abuse of process for her to seek the same documents from more than one source – see below at [56].)

Submissions in support of the setting aside of the CBA subpoena

  1. Each of Gina and CEF argues that the CBA subpoena should be set aside. Their submissions in support of that conclusion will be dealt with together and are summarised below.
  2. First, it is submitted that the CBA subpoena involves a fishing expedition, in that there is no evidence of any further payments by HPPL or its subsidiaries beyond those disclosed in the bank statements already produced by CEF (so it is said that Bianca is not at liberty “to drag [the pool] for the purpose of finding out whether there are any [fish] there or not”, to use the wording of the extract set out at [48] of the subpoena judgment from Associated Dominions Assurance Society Pty Ltd v John Fairfax & Sons Pty Ltd (1952) 72 WN (NSW) 250 at 254). It is, thus, submitted that there is no reasonable basis to believe that other bank statements in relation to CEF’s account will materially assist Bianca in establishing that her s 247A application is made in good faith for a proper purpose and that the Court’s discretion should be exercised in her favour in relation to that application.
  3. Second, and related to the first, it is submitted that the subpoena has not been issued for a legitimate forensic purpose because the subpoena is far broader than the limited category of documents described at [126] of the subpoena judgment (see above at [12]) as being supported by a legitimate forensic purpose, namely documents that it is reasonably likely would establish the fact of the making of the impugned payments, including the actual individual or entity by whom the payments were made and in what amounts at what times. (Gina emphasises in this regard that it was not until written submissions on the present application that Bianca (through her legal representatives) articulated any alleged legitimate forensic purpose for the issue of the CBA subpoena. That submission, it seems to me, can only have relevance in relation to any question of costs that arises from the making of the present applications.)
  4. Third, as adverted to earlier, it is submitted that the subpoena is an abuse of process in that it seeks to re-litigate matters determined by the subpoena judgment (which limited production by CEF to documentation in relation to the impugned payments made by HPPL or its subsidiaries, rather than to all payments made by any person to CEF). Reference in this regard is made to Rippon v Chilcotin Pty Ltd (2001) 53 NSWLR 198;[2001] NSWCA 142 (at [30]-[33]; [36]), applied in Howell v O ‘Brien [2009] NSWSC 538 (at [53]). Gina argues that this is particularly so given that the bank account statements being sought from the CBA would be in CEF’s possession, power or control (and noting that CEF has already produced three such statements). In this regard, CEF also refers to the decision of McLelland J, as his Honour then was, in Brimaud v Honeysett Instant Print Pty Ltd (unreported, Supreme Court of NSW, 19 September 1998 at p 4) (Brimaud) and says that, while accepting that the subpoena judgment does not create a res judicata or issue estoppel, the re-litigation of matters that have already been determined (whether on an interlocutory or final basis) falls under the “rubric of vexation and abuse of process”, for the reasons expressed in Brimaud.
  5. CEF further argues that (at least so far as, being a stranger to the litigation, it has been able to ascertain) nothing has changed in the factual substratum of the matter since the subpoena judgment that would constitute a legitimate basis for the issue of the CEF subpoena in the face of the findings in that judgment.
  6. Fourth, CEF argues that the CBA subpoena is not ancillary to the relief sought by Bianca (both the final relief and the relief pursuant to s 247A) but is being used to circumvent the need for such relief (prior to the time at which entitlement to have access to the HPPL books and records has been determined) i.e., as a means of obtaining the documents which constitute the subject matter of the relief (citing Tyco). It is noted that applications for orders under s 247A of the Corporations Act have historically been treated as applications for final relief as, once inspection is given, the application is completely dealt with and the applicant’s statutory right to access documents has been disposed of (see In the matter of Combined Projects (Arncliffe) Pty Ltd [2018] NSWSC 649 at [23]; Frazer v Macquarie Airports Management Ltd [2009] NSWSC 1057 at [54]; and Yara Australia Pty Ltd v Burrup Holdings Limited [2010] FCA 1273 at [108]). CEF argues that the documents sought by way of the CBA subpoena fall within the scope of documents or information sought by way of Bianca’s application under s 247A and says that the vice in the CBA subpoena is that, if documents were to be produced, it would render a portion of the s 247A application otiose. It is said that, by reason of the finality of the relief afforded by s 247A, permitting the subpoena to remain on foot would allow Bianca to obtain final relief by an interlocutory measure (citing Yes Family Pty Ltd v Sphere Healthcare Pty Ltd [2016] NSWSC 393 at [26]- [28]; cf Rinehart v Rinehart [2015] NSWSC 205 at [18]), CEF arguing that the end to which the subpoena is directed is that which arises after the grant of an order under s 247A of the Corporations Act.
  7. CEF complains that the CBA subpoena constitutes an impermissible invasion of CEF’s right to keep private its documents and affairs; and points to the overriding purpose, objects of case management and the requirement that the Court seek to act in accordance with the dictates of justice dealt with in ss 56-58 of the Civil Procedure Act 2005 (NSW)). It argues that the CBA subpoena does not satisfy the “privacy versus forensic utility” balancing test. CEF calls upon the imagery deployed by Moffit P in Waind v Hill and National Employers’ Mutual General Association Ltd [1978] 1 NSWLR 372 (at 382-383) as being apposite to the present application, submitting that the scope of the CBA subpoena is akin to a call upon “a branch of a bank to produce all cheques received by it in a particular year in order to find, if it exists, a cheque of the opponent in a false name”. It is submitted that it is proper to expect that strangers to litigation (such as CEF is) only be required to produce documents that are relevant to the matters in issue in the proceedings; and that the subpoena process should not be treated as an opportunity to engage in a wholesale review of a third party’s business, financial and private affairs.
  8. CEF also points to the observation that it is not the function of the Court to re-draft subpoenas (see Lowery v Insurance Australia Limited [2015] NSWCA 303 at [25]) and argues that the CBA subpoena should, therefore, be set aside in full (rather than, say, confined to a narrower class of documents).

Application to set aside HPPL notice to produce

  1. What is sought by the HPPL notice to produce is the following:

All documents recording communications between the second defendant (HPPL) or any HPPL Representative and CEF Pty Ltd (CEF) or any CEF Representative referring to the establishment, administration and or payment of funds from the CEF Trust created or received during the period 1 July 2014 to 31 December 2014.

  1. (The terms “CEF Representative” and “HPPL Representative” are defined in the subpoena but it is not necessary here to set out those definitions.)

HPPL’s submissions as to the application to set aside the HPPL notice to produce

  1. HPPL argues that the HPPL notice to produce lacks any legitimate forensic purpose and constitutes an abuse of process insofar as it seeks the same documents as the 247A application itself. As to the latter, it is noted that the documents sought by Bianca in the s 247A application were identified (in a letter dated 6 March 2018 from her lawyers) as including documents recording:

4.1 the payment of company funds to third-parties by way of sponsorship or donation during the years ending 30 June 2011 to 30 June 2017 and to date, including the terms on which, or pursuant to which, such funds were paid;

4.2 matters taken into account, consideration, deliberations and/or approval by the directors of the company of each payment of company funds to third-parties by way of sponsorship or donation during the years ending 30 June 2011 to 30 June 2017 and to date … .

  1. HPPL argues that, insofar as the HPPL notice to produce is directed, in part, towards seeking documents that identify how funds donated by HPPL were used by the CEF Trust (i.e., “all documents … referring to … the payment of funds from the CEF Trust”), Bianca has not identified any basis beyond mere speculation on which it could be concluded that documents referring to the payment of money “from the CEF Trust” are likely materially to assist in determining whether a case for investigation exists in relation to HPPL’s donations to the CEF Trust, or in determining the strength of that purported case for investigation.
  2. As to the balance of the documents sought by the HPPL notice to produce (relating to the establishment or administration of the CEF Trust), HPPL notes that these documents are similar to those described at pars 2-4 of the CEF subpoena and points to the observations made in the subpoena judgment to the effect: at [125], that the inference sought to be drawn by Bianca that the donations by HPPL to CEF were a misuse of corporate funds was “based largely on conjecture”; at [128], that “the argument that material produced in answer to the subpoenas calling for the ‘purpose’ or ‘terms’ of the payments might strengthen the case for investigation into the making of the payments by HPPL … is problematic in circumstances where it is mere speculation that there is any material that would be likely to do so”; and, at [138], that it was mere speculation that any of the documents sought by par 3 of the CEF subpoena existed and that this “appears to proceed on an assumption that sponsorship or donation payments might be impressed with some sort of condition as to the use to which the payments be put, or be part of some kind of arrangement in which terms of the payment are specified”.
  3. HPPL submits that the conclusions at [125], [128] and [138] of the subpoena judgment apply equally to the documents sought in the HPPL notice to produce which relate to the establishment or administration of the CEF Trust and that, for the same reasons as set out in the subpoena judgment, these aspects of the HPPL notice to produce are based largely on “conjecture and mere speculation”. It is submitted that nothing about the content of the documents produced in response to the CEF subpoena leads to a departure from those conclusions or elevates Bianca’s allegations above mere speculation.
  4. Reliance is placed upon the observation of Hill J in Tyco (Hely and Conti JJ agreeing) (at [34]) that “it would be clearly an abuse of process for an applicant for pre-action discovery to issue a notice to produce the very documents sought by the application for pre-action discovery” and to the similar observation of Hely J (at [54]). It is submitted that in the present case there is a direct overlap between the documents sought by the HPPL notice to produce (particularly those relating to the establishment or administration of the CEF Trust) and those sought by Bianca’s s 247A application (as identified in subcategories 4.1 and 4.2 of the schedule to the letter dated 6 March 2018, extracted above); and that, therefore, the HPPL notice to produce would circumvent the process for s 247A relief and render such relief otiose (at least in relation to the documents sought by the HPPL notice to produce).
  5. HPPL, thus, submits that, consistent with the reasoning in Tyco, it is an abuse of process for Bianca to issue a notice to produce for the very same documents sought by the s 247A application and that the reservation expressed by Hely J in Tyco does not apply in this case because the notice to produce has been issued to the same entity (HPPL) against whom Bianca seeks s 247A relief.

Bianca’s submissions as to the applications to set aside the CBA subpoena and HPPL Notice to Produce

  1. At the outset, Bianca emphasises that, at the time the subpoena judgment was delivered, she was unaware of the terms of the CEF Trust and of the extent to which HPPL was involved in its establishment; and says that that lack of knowledge as to the purposes of the CEF Trust, and the circumstances in which HPPL had come to make substantial donations to the Trust (and whether HPPL had communicated with the Trust or its representatives prior to making a donation), amounted to one reason why various categories in the CEF subpoena were characterised as speculative (pointing to the subpoena judgment at [124]-[125]).
  2. Bianca says that the production by CEF under the “revised” subpoena (namely, of the trust deed (CEF Trust Deed) and three bank statements) provides materially greater insight into these matters. It is submitted that it is now “tolerably clear” that HPPL was the original benefactor of the CEF Trust and that HPPL had indicated a willingness to donate a “substantial amount of money” to the CEF Trust even before the CEF Trust’s establishment (referring to Recital B of the CEF Trust Deed and to the coincidence of timing between the date of the CEF Trust Deed and the first of the HPPL donations, before which the CEF Trust bank account showed a nil balance). It is submitted that it is also now clear that the purposes of the CEF Trust include several matters “prima facie foreign to the operations of HPPL” (there referring to some of the purposes set out in cl 5 of the CEF Trust Deed, which it is not necessary here to set out).
  3. It is submitted that, in the circumstances, the legitimate forensic purposes identified by Bianca at the time of the subpoena judgment support “a further targeted inquiry into the activities of the Trust and HPPL’s role as the Trust’s original benefactor”. In particular, it is submitted that “it would be curious, if not an obvious breach of duty by the directors of HPPL” for HPPL not to communicate with the settlor about the CEF Trust and its purposes prior to making a foundation donation of $2.5m.
  4. As to the relevance of the purposes of the CEF Trust, Bianca contends (as adverted to above) that certain of these purposes are “prima facie remote from HPPL’s business operations”. Bianca says that she intends to contend, at the hearing of the s 247A application, that the donation of substantial amounts by HPPL to a trust with such purposes is material that supports the need for an investigation into whether breaches of directors’ duties occurred in the making of the payment and thereby is supportive of the fact that the s 274A application is brought by her in good faith and for a proper purpose (and that the Court ought, in the exercise of its discretion, grant the relief sought).
  5. Bianca also points to cl 18.2 of the CEF Trust Deed, which imposes an obligation on the trustee to prepare certain accounting documents promptly after the close of each Accounting Period. Bianca suggests that, insofar as CEF has indicated that it does not possess any documents prepared for the purposes of cl 18.2 (see the email dated 6 August 2018 from CEF’s solicitor to Bianca’s solicitor – Exhibit A), and in circumstances where one would expect a trustee to have its accounts within its possession, custody or control, CEF, as trustee, appears to be in breach of cl 18.2 of the CEF Trust Deed “and has been in breach since its establishment”. (The relevance of that allegation, which CEF made clear it denies, to the present applications is not immediately apparent though, as noted earlier, Bianca points to the alleged deficiencies in CEF’s record-keeping as a matter relevant to refute any suggestion of abuse of process in seeking the same documents from two different sources.)
  6. Bianca also points to HPPL’s refusal to answer a number of questions raised at the 2018 annual general meeting of HPPL (AGM) relating to: the purpose of the CEF Trust; the directors’ understanding as to why funds were advanced to the CEF Trust; the ultimate recipient of the funds and the connections between the CEF Trust and politicians; political parties and lobby groups and whether payments to the CEF Trust were continuing (some of which were tendered over the objection of HPPL), as supporting her contention that there is a legitimate forensic purpose for the seeking of the documents that have now been sought by her. (Pausing here, I note that HPPL says that, bearing in mind that it is a proprietary limited company and not a public company, the AGM is private and that this is “classic intracompany” material. The relevance of those 300 odd questions and answers (only some of which were admitted into evidence) to the present applications is again not readily apparent.)
  7. As to the criticisms made of the CBA subpoena by Gina and CEF, Bianca says the following.
  8. First, Bianca argues that the CBA subpoena does not involve a fishing expedition and does not lack a legitimate forensic purpose (noting the observation of Lindgren J in Trade Practices Commission v CC (NSW) Pty Ltd (No 4) [1995] FCA 1418; (1995) 58 FCR 426 at 437-8) and submitting that, properly understood, a finding of ‘fishing’ amounts to a finding that the subpoena has no legitimate forensic purpose “because the documents are sought to discover if the issuing party has a case, not to support a case that has already been articulated” (and citing Vella v Minister for Immigration and Border Protection [2014] FCA 1177 at [49] per Wigney J, where a connection between the concept of “fishing” and the concept of oppression was recognised). (I interpose here to note that, while a finding of no legitimate forensic purpose makes a conclusion of “fishing” more easy to draw, I do not see the two concepts as synonymous.)
  9. Bianca says that, at the hearing of the challenge to the CEF subpoena last year, she articulated a legitimate forensic purpose in respect of that subpoena (namely, the determination of the issues as to whether the application by her, as trustee, under s 247A is brought in good faith and for a proper purpose and, if so, whether the discretion to grant access should be exercised) and that, having articulated that case, she now seeks to support that case by the CBA subpoena.
  10. Bianca argues that the CEF subpoena, as read down, was not confined to documents recording only those two impugned payments. Further, it is submitted by Bianca that (insofar as it may be implicit in Gina’s submissions that a party is only entitled to issue a subpoena to one party of a bilateral communication), it is not impermissible to seek the same documents from two parties (i.e., CEF as the recipient of the account statements and CBA as the sender of the account statements). Bianca argues that the same subpoena issued to two parties may produce quite different sets of documents (reflective of the fact that a subpoena attaches only to documents in the possession, custody or control of the recipient; and recognising that production under a subpoena is sometimes imperfect). It is submitted that, on Gina’s own case, production by CEF under the CEF subpoena was imperfect (having regard to CEF’s “supposedly” erroneous production of one of the three bank statements in answer to the CEF subpoena); and it is said that it is not unreasonable to think that CBA’s record-keeping and document production protocols will be better than (or at least different from) that of CEF.
  11. Bianca argues that there is no difficulty in the CBA subpoena being directed to the relevant specified account, whether or not it records a payment by HPPL, because it is not unreasonable to think that the fact that a payment was made by HPPL (or a representative of HPPL) will not appear on the face of the account; and hence that CBA, as a third party, cannot be assumed to know the identity of each payer into the account. (In this regard, Bianca says that the fact that CEF itself apparently erred in producing a bank statement on the assumption that it recorded a debit from an HPPL-owned entity is evidence of the difficulties that would attend any such task when conducted by CBA and that it would arguably be oppressive and objectionable to require CBA to make a judgment as to the identity of the payer in respect of each transaction.) Bianca maintains that the CBA subpoena is in a different position to the earlier CEF subpoena (arguing that it is reasonable to think that CEF, as the recipient of the payments, would know which account statements recorded payments that HPPL or its representatives had made to CEF).
  12. Bianca further submits that it is relevant to her case, as trustee, to understand not only the donations made by HPPL and its related entities to the CEF Trust but also the entities or persons to whom funds of the CEF Trust were deployed in furtherance of its purposes (pointing to the evidence at the hearing last year to the effect that the CEF Trust is not registered as a charitable body – referring to the affidavit of her solicitor, Mr Price, of 13 June 2018 at [25]).
  13. Bianca, thus, argues that it can be concluded that the CBA bank statements will materially assist in determining the strength of the case for investigation of any breach of directors’ duties in the making of payments by HPPL to the CEF Trust (and hence would go to the discretion whether to grant the relief sought).
  14. Second, Bianca argues that the CBA subpoena does not attempt to re-litigate matters determined by the subpoena judgment (noting that there was no determination in the subpoena judgment that a subpoena could not be issued covering records of any payments made to CEF, whether or not made by HPPL). As noted above, Bianca points out that the CEF subpoena is in different terms to the CBA subpoena, in that: the former did not cover records of transactions into the CEF account by persons other than HPPL nor did it concern records of expenditure made by CEF as trustee. It is said (and I accept) that the question whether a subpoena covering such transactions was permissible was not decided in the subpoena judgment.
  15. Bianca argues that it is relevant to identify the identity of payees out of the account in order better to understand the nature and activities of a trust to which HPPL has donated such a substantial amount of money. It is said that it cannot be assumed that the statements sought from CBA would be in CEF’s possession, custody or control (arguing that such an assumption would be dependent on an assumption that CEF’s record-keeping and document production “is perfect”; whereas, it is submitted, the facts that CEF does not maintain accounts as required by the CEF Trust Deed and that CEF erred in its production under the subpoena suggest that CEF’s record keeping and document production “are far from perfect”).
  16. Finally, as to CEF’s submission that the CBA subpoena is an abuse of process on the basis that it is a means of obtaining documents which constitute the subject-matter of final relief, Bianca argues that this is a repetition of the Tyco abuse of process argument that was rejected at [134] of the subpoena judgment.
  17. As to the criticisms made by HPPL of the HPPL notice to produce, Bianca responds as follows.
  18. First, it is submitted that the starting point is that it is permissible for Bianca, as trustee, to seek documents recording payments by HPPL to CEF and documents recording the terms of the CEF Trust (on the basis, it is said, that this necessarily follows from the subpoena judgment). Bianca argues that if it is permissible for her, as trustee, to seek those documents, then it must be because it is permissible for the trustee to seek to impugn payments by HPPL to CEF for the broader purpose of demonstrating that the s 247A application is brought in good faith and for a proper purpose (see the subpoena judgment at [123]-[124]).
  19. In this context, it is submitted that the legitimate forensic purposes of the HPPL notice to produce include: to establish the use(s) to which payments made by HPPL to CEF was or were put by CEF and what was known by HPPL from communications with the CEF Trust as to the uses to which payments by HPPL had been and/or would be put; to bolster Bianca’s case that, objectively, there is a case for investigating the donations and sponsorships of HPPL and whether (inter alia) they involved a breach of directors’ duties; and, ultimately, to assist in demonstrating that the s 247A application is brought in good faith and for a proper purpose and that the court’s discretion should be exercised in her favour. It is submitted that the propriety of payments by HPPL to CEF is in issue and that it is permissible for Bianca, as trustee, to bolster her case on the propriety of the payments by seeking documents evidencing the use by CEF of the HPPL moneys and what was known to HPPL on that topic.
  20. Bianca maintains that the forensic purpose of the HPPL notice to produce is not to seek to establish that there was some condition attaching to the use to which CEF could put the HPPL funds (noting that the notice to produce does not seek documents establishing the conditions or terms of the payments from HPPL to CEF, cf par 2 of the CEF subpoena).
  21. It is submitted that it is not “mere speculation” that the documents sought by the HPPL notice to produce exist; rather (as referred to already), that, as a result of production under the CEF subpoena, it may be inferred that: HPPL was centrally involved in the establishment of the CEF Trust; HPPL is at least the original benefactor of the trust, if not the sole benefactor; and HPPL engaged in at least some communications with the settlor or CEF prior to making its “substantial donation”. It is submitted that it would be most surprising had CEF not informed HPPL of matters relating to the establishment of the trust and its intended use of trust moneys (and, indeed, that there would be forensic significance in establishing that, despite HPPL being a substantial donor, HPPL had no records of communications from CEF on the topics covered by the HPPL notice to produce). Insofar as HPPL has declined to answer “basic questions” relating to the subject of the HPPL notice to produce (the AGM questions on this topic), Bianca emphasises that it has not denied the existence of the documents sought by the HPPL notice to produce.
  22. Second, as to the argument on abuse of process relying on the decision of Hely J in Tyco, Bianca again points to the rejection of such an argument in the subpoena judgment at [134]. It is submitted that the documents sought by the HPPL notice to produce do not circumvent or render otiose the relief sought in the s 247A application (for the reasons advanced in the 2018 challenge to the CEF subpoena and summarised at [96]-[97] of the subpoena judgment) and that, even if the HPPL notice to produce had sought a “comprehensive suite of documents” relating to CEF, the relief in the s 247A application would still have utility in respect of all other sponsorships and donations by HPPL.

Determination

  1. At the outset, I consider that there is a very real sense in which the calling for documents as to the “establishment” or “administration” of the CEF Trust or as to payments out of the CEF Trust (as the HPPL notice to produce does and as the assertions as to the legitimate forensic purpose for the CBA subpoena, at least in part, are put), insofar as these are sought to establish the purposes for which the trust was established (or the purposes for which the impugned payments were made by HPPL), does involve the re-litigation of issues that were determined in the subpoena judgment last year (namely, as to whether, assuming for present purposes that a legitimate forensic purpose for seeking those documents were to be established, what is there involved is nevertheless a fishing expedition – see, for example, at [128] of the subpoena judgment).
  2. In other words, what was being sought by the CEF subpoena was documentation said to be likely materially to assist the investigation as to the propriety of the making of donations by HPPL to the CEF Trust and in that context it was postulated that communications in relation to the donations might disclose the purpose of the donations. What here seems to be sought by the HPPL notice to produce (covering similar, if not exactly the same, ground) are communications going to the establishment of the CEF Trust the relevance of which is (again) to the extent that they might disclose (if not a “condition” on the making of the payment, then at least) the purpose for the making of the donation and/or establishment of the CEF Trust. Similarly, the purpose of seeking the bank statements for the CEF Trust account (over an extended period) is to ascertain what use was made of the donated moneys (again, apparently, to shed light on the purpose of the making of the donation(s) in the first place).
  3. I accept that (as is evident from Brimaud) courts should be vigilant to prevent abuses of process by the re-litigation of matters that have already been determined, whether on an interlocutory or final basis. That said, in the present case, I also consider that there is force in the submission by Bianca that circumstances have relevantly changed since the subpoena judgment – in that Bianca now has a copy of the CEF Trust Deed (which contains not only a statement in cl 5 as to the purposes of the CEF Trust but also Recital B, which sets out the circumstances, or at least part of the circumstances, in which the CEF Trust was established). Accordingly, I do not see that the mere fact that Bianca has sought the production of documents going to the same issue as the documents previously sought (but not permitted) under the CEF subpoena necessarily amounts to an abuse of process (though one can see scope for such a finding were there to be a series of incremental applications for documents – the so-called “targeted” further enquiries – arising out of successive invocations of the compulsory processes of the Court in this regard).
  4. Nor, at least in relation to the CBA subpoena, do I accept that there is an abuse of process of the kind considered in Tyco involved in seeking such documents. That is because I do not accept that the seeking of bank statements in order to establish additional donations by HPPL to CEF or payments made by CEF out of those funds would afford to Bianca the very relief sought by her in the s 247A application. I take a different view in relation to the HPPL notice to produce. There, the circularity between the documents sought in the notice to produce and the relief sought in the s 247A application is more marked. HPPL seeks documents going to the establishment and administration of the CEF Trust (and payments out of the CEF Trust) for the very purpose of establishing a case for inspection of books and records of HPPL going to those very same issues. Last year, I considered that there was not a Tyco issue in the invocation of the compulsory subpoena processes of the Court in the context that Bianca was not aware of the purposes of the CEF Trust. That is now no longer the case. Rather, what Bianca seems here to be seeking to do is, in effect, to search for documents to enable the interrogation of those stated purposes in the CEF Trust Deed (and whether those purposes were complied with, whether at the direction of the donor or benefactor or otherwise). I am inclined, therefore, to see the HPPL notice to produce as an abuse of process in that sense. However, it is not necessary to determine the present application in relation to the setting aside of the HPPL notice to produce on that basis (nor does it arise, in my opinion, in relation to the CBA subpoena), because I am of the view that those compulsory processes are, in all the circumstances, a fishing expedition (notwithstanding that I accept that Bianca had a legitimate forensic purpose in invoking them).
  5. As to the CBA subpoena, there is nothing to suggest that any payments, other than the two impugned payments, were made by HPPL. The CEF Trust bank statements in relation to those payments have been produced. The making of any payments by any other entities to CEF as trustee of the CEF Trust does not seem to me to be relevant to any issue in the proceedings. Nor, it seems to me, is the identity of the persons or organisations to whom payments out of the funds comprising those donations were made relevant to whether there was a misuse of corporate funds in the making of the donations in the first place. I consider it to be no more than speculation to consider that any purpose for the making of payments out of the CEF Trust funds would be recorded in the bank statements themselves or that this would illuminate the purpose of the donations (just as I considered it would be mere speculation to suggest that the making of the donations was impressed with a condition as to their use, as I explained in the subpoena judgment – though, as I have noted, Bianca here disavows seeking documents as the conditions or terms of payments). Furthermore, I accept the force of CEF’s submission that it is entitled to privacy in respect of its business affairs and that intrusion into its private affairs (particularly over a four year period) should be permitted only where necessary and for a legitimate forensic purpose.
  6. As to the HPPL notice to produce, the CEF Trust Deed certainly records that a benefactor has expressed the wish to make a (substantial) donation to the CEF Trust but it seems to me to be mere speculation that there are any communications that go beyond this as to the establishment (or subsequent administration) of the CEF Trust itself. Similarly, I consider it to be no more than speculation that there would have been a communication at the time of the establishment of the CEF Trust as to the purpose for which donated funds were to be used (beyond, if at all, the statement of purposes recorded in the CEF Trust Deed). I am not persuaded, particularly in the context where the seeking of documents of this kind will circumvent at least to some degree the contested s 247A application for which purpose the documents are sought, that production of the documents now sought under the HPPL notice to produce should be enforced. To the extent that the documents are sought to bolster a case that can already be made out on the information at hand (as Bianca suggests – though I am here making no finding on that issue), the production of the documents is not necessary; to the extent, on the other hand, that the documents are sought to establish the case for inspection of those same (and other) documents, this highlights the scope for abuse of the Tycokind.
  7. Accordingly, I consider that both the CBA subpoena and the HPPL notice to produce should be set. It follows that in the ordinary course costs will follow the event and I will so order.

Orders

  1. For the above reasons, I order as follows:
      • (1) Set aside the subpoena issued by the plaintiff on 18 October 2018 to the Proper Officer of the Commonwealth Bank of Australia.
      • (2) Set aside the notice to produce issued by the plaintiff on 18 October 2018 to the second defendant.
      (3) Order the plaintiff to pay the costs of the respective applications by each of the first defendant and CEF Pty Ltd to set aside the subpoena addressed to the Proper Officer of the Commonwealth Bank of Australia as well as the costs of the application by the second defendant to set aside the notice to produce served on it.

 

Labourers International Union of North America, Local 615 v Stavco Construction Limited, 2019 NSCA 53

NOVA SCOTIA COURT OF APPEAL

Citation: Labourers International Union of North America, Local 615 v. Stavco Construction Limited, 2019 NSCA 53

Date: 20190619

Docket: CA 476299

Registry: Halifax

Between:

Labourers International Union of North America, Local 615

Appellant

v.

Stavco Construction Limited

Respondent

 

 

Judge: The Honourable Justice Joel E. Fichaud
Appeal Heard: March 20, 2019, in Halifax, Nova Scotia
Subject: Labour arbitration – Judicial review
Summary: An arbitrator awarded damages to a union for the employer’s failure to employ union workers as required by the collective agreement. The dispute occurred in the construction industry. The arbitration was governed by s. 107 in Part II of the Trade Union Act, R.S.N.S. 1989, c. 475.

 

The reviewing judge set aside the arbitrator’s award. The judge faulted the arbitrator’s reliance on hearsay, speculation and opinion evidence, and for making findings not supported by cogent evidence. The judge characterized the arbitrator’s approach as offending procedural fairness to which the judge applied correctness. The judge also said the arbitrator’s damages award was punitive and unreasonable.

 

The Union appealed.

 

Issues: On appeal, the issues were whether: (1) the judge erred by not applying reasonableness to the arbitrator’s fact finding; (2) the arbitrator’s fact finding offended the appropriate standard of review; and (3) the arbitrator’s damages award was punitive and unreasonable.
Result: The Court of Appeal allowed the appeal and restored the arbitration award.

 

(1)     The judge erred by not applying reasonableness. The judicial review challenged the findings of fact in the arbitration award. Those findings were the substance and end product of the arbitration. The reviewing judge was required to apply standard of review analysis and choose between reasonableness and correctness. A labour arbitrator’s evidential rulings, assessment of evidence and fact finding are reviewed for reasonableness.

 

(2)     The arbitrator’s treatment of the evidence and findings of fact were reasonable.

 

(3)     The arbitrator’s damages award applied principles of damages calculation that are established in the authorities. The award was not punitive. The award was reasonable under the standard of review.

This information sheet does not form part of the court’s judgment. Quotes must be from the judgment, not this cover sheet. The full court judgment consists of 27 pages.

 

 

NOVA SCOTIA COURT OF APPEAL

Citation: Labourers International Union of North America, Local 615 v. Stavco Construction Limited2019 NSCA 53

Date: 20190619

Docket: CA 476299

Registry: Halifax

Between:

Labourers International Union of North America, Local 615

Appellant

v.

Stavco Construction Limited

Respondent

 

 

Judges: Farrar, Fichaud and Derrick, JJ.A.
Appeal Heard: March 20, 2019, in Halifax, Nova Scotia
Held: Appeal allowed and application for judicial review dismissed, with costs, per reasons for judgment of Fichaud J.A., Farrar and Derrick JJ.A. concurring
Counsel: Gordon N. Forsyth, Q.C., and Bettina Quistgaard, for the Appellant

Nancy Barteaux, Q.C., Mary B. Rolf and (factum only) Eric Durnford, Q.C. for the Respondent

 

Reasons for judgment

[1]            An arbitrator awarded damages for the employer’s failure to employ union workers as required by the collective agreement’s hiring provisions.

[2]            The dispute occurred in the construction industry. Construction labour arbitrations are governed by s. 107 in Part II of the Trade Union Act. Part II contemplates an expeditious certification, if possible, from paper evidence presented to the Labour Board. Section 107 prescribes an accelerated arbitration, with the award to be issued within 48 hours of the arbitrator’s appointment. The provisions for speedy dispute resolution were enacted to address serious concerns that arose from historical events in Nova Scotia’s construction industry. The arbitrator’s award cited the rationale for these provisions.

[3]            The reviewing judge faulted the arbitrator’s weighing of what the judge termed as hearsay, speculation and opinion evidence. In the judge’s view, there was no cogent evidence to support the arbitrator’s findings and the arbitrator had reversed the burden of proof. The judge characterized that concern as a matter of procedural fairness, to be reviewed for correctness, and set aside the award. The judge also held that the arbitrator’s quantum of damages was punitive and unreasonable.

[4]            The union appeals. The threshold issue is whether the arbitrator’s approach to fact finding was reviewable for procedural fairness or reasonableness. If it is reasonableness – was the arbitrator’s fact finding unreasonable? Lastly, was the arbitrator’s approach to damages unreasonable?

Background

[5]            Local 615 of the Labourers International Union of North America represents labourers in the construction industry on mainland Nova Scotia.

[6]            Stavco Construction Limited is a builder in the commercial sector of the construction industry. In 2016 and 2017, Stavco performed concrete form work for the erection of a high-rise apartment building on Abbington Avenue in Bedford. It built stacked concrete slabs for the floors. The work typically is done by labourers and carpenters.

[7]            When Stavco began the form work, its labourers were not unionized.

[8]            Labour relations in Nova Scotia’s construction industry focuses on craft units. Under Part II (i.e. ss. 92-107) of the Trade Union Act, R.S.N.S. 1989, c. 475, a construction bargaining unit comprises those employees who performed “on site” work in the craft (e.g. as labourers) on the date the application for certification was filed. Labourers International Union of North America, Local 615 v. CanMar Contracting Ltd., 2016 NSCA 40 (CanLII), paras. 73-119, leave to appeal refused [2016] S.C.C.A. No. 358, explained the Act’s approach to construction bargaining units.

[9]            On October 15, 2016, under s. 95(1) of the Act, Local 615 filed an application for certification with the Nova Scotia Labour Board for a bargaining unit of “[a]ll employees of Stavco Construction Limited engaged as Labourers on Mainland Nova Scotia”, excepting foremen, and managerial, confidential or professional employees whom s. 92(e) excludes from the definition of “employee”.

[10]        Regulation 12(1)(a) of the Trade Union Procedures Regulations, N.S. Reg. 101/72 under the Trade Union Act, says that, within five days after receiving an application for certification, the employer shall file with the Labour Board a statutory declaration that lists its employees. Normally the statutory declaration identifies, from the employer’s perspective, the employees in the craft for which the union seeks certification. The purpose of the filing is to enable the Labour Board, from a paper review, to identify the employees who worked on site at the date of the application of certification. Then the Board can establish the bargaining unit and, after examining the union’s membership evidence, quickly determine whether the union has the required level of support for certification under s. 95(3) of the Act.

[11]         Section 95(3) of the Act says that, from the filings: if the Labour Board is not satisfied the Union has the support of 35% of the employees in the unit, the Board is to dismiss the application for certification; if there is 35% to 50%, the Board orders a vote; if over 50%, the Board certifies.

[12]        Stavco’s statutory declaration, dated October 24, 2016, said there were 16 “workers” on site but did not say whether any were labourers.

[13]        From Stavco’s ambiguous statutory declaration, the Labour Board’s paper review could not determine that Stavco had any labourers on site. Consequently, on November 2, 2016, the Board dismissed Local 615’s application without a hearing or vote (Decision LB-1240).

[14]        Section 96(1) of the Act says that, after a dismissal under s. 95(3)(a), upon the Union’s request the Labour Board shall conduct a hearing. Local 615 made the request. A hearing under s. 96(1) is a de novo proceeding where the Board receives evidence and determines whether the union’s membership includes a majority of those employees who, on the day the application for certification was filed, spent most of their time working at the craft for which certification is sought.

[15]        Over four days that ended on June 2, 2017, the three-person Labour Board, chaired by Vice-Chair Augustus Richardson, Q.C., heard the matter. Local 615 offered testimony from two employees who were on site on October 15, 2016, and Local 615’s business manager. Stavco called three witnesses. On June 2, 2017, the Board issued an oral decision, confirmed on June 20, 2017 by a written decision (2017 NSLB 81 (CanLII)). The written decision concluded:

[34]      Based on the above facts and reasoning the Board has concluded that of the 17 employees listed on Schedule “A” a total of 9 should be included in the proposed bargaining unit.

[35]      The Board accordingly revokes the previous dismissal order dated November 2, 2016 (LB-1240). It has examined the Union’s membership status in respect of the nine employees and is satisfied that more than 50% of the members of the proposed bargaining unit are members of the Union. The Union’sapplication for certification is granted, effective November 2, 2016, being the effective date of the Board’s earlier order dismissing the Union’s application.

[emphasis added]

[16]        The retrospective certification follows Labour Board practice. Later (paras. 99-100) I will refer to the rationale for the practice. The Board’s ruling has not been challenged on judicial review.

[17]        Under Part II of the Trade Union Act, ss. 98 and 100, a collective agreement signed by the accredited employers’ organization binds the employers who are union-certified for the sector and in the area that is covered by the accreditation.

[18]        The Construction Labour Relations Association Limited is accredited under s. 97, in Part II of the Act, to represent unionized employers in the commercial sector of Nova Scotia’s construction industry.

[19]        Local 615 and Construction Labour Relations Association Limited are parties to the “Labourers Collective Agreement Mainland Nova Scotia 2015-2018”, dated October 26, 2015, with an effective date of September 9, 2015 and an expiry date of April 30, 2018 (“Collective Agreement”). The project on Abbington Avenue in Bedford is in Mainland Nova Scotia. Consequently, Stavco’s work on that project is subject to the Collective Agreement, according to the Labour Board’s certification order from November 2, 2016.

[20]        The Collective Agreement included the union security and job assignment provisions that are standard in the construction industry:

ARTICLE 2 – RECOGNITION

2.02A  The Employer recognizes the craft jurisdiction of the Union and agrees to assign all work of the Labourers’ trade to the Labourers’ Union Local 615.

ARTICLE 5 – UNION SECURITY

5.01     When employees are required, the Employer shall request the Union to furnish competent and qualified Union Members, and the Union shall supply, when available, competent and qualified Union Members requested. …

The Collective Agreement also set out a hiring and dispatch formula and wage rates and benefits for the union members who are assigned the labourers’ work.

[21]        Local 615 took the position that the Labour Board’s certification bound Stavco to articles 2.02A and 5.01 of the Collective Agreement as of November 2, 2016, the effective date of certification.

[22]        On June 8, 2017, Local 615 filed a grievance against Stavco:

This is a grievance pursuant to s. 107 of the Trade Union Act for Stavco’s failure to follow, since November 2, 2016, the union security and pay and benefit provisions of the Collective Agreement for Mainland Nova Scotia between Local 615 and the Nova Scotia Construction Labour Relations Association Limited.

The Union proposes Don Murray, Q.C., as arbitrator, assuming he can hear the matter in the next two weeks.

[23]        The grievance was filed under s. 107 of the Trade Union Act. Section 107 enacts an expedited process for arbitrations in the construction industry.

107      (3)  When a dispute or difference arises which the parties are unable to resolve, the parties to the dispute or difference shall agree by midnight of the day on which the dispute or difference arises upon the appointment of a single arbitrator to arbitrate the dispute or difference.

(7)  The decision of the arbitrator shall be rendered within forty-eight hours of the time of appointment unless an extension is agreed upon by the parties.

The process of speedy arbitration is the Legislature’s response to historical events in Nova Scotia’s construction industry that I will discuss later (paras. 69-70).

[24]        Local 615 and Stavco did not agree on an arbitrator. On July 11, Local 615 requested the Minister of Labour appoint one. By a letter dated July 24, 2017, under s. 107(4), the Minister’s delegate appointed Mr. Eric K. Slone. Arbitrator Slone held the hearing on July 25, 2017. Section 107(7) of the Act required the arbitrator to issue an award by July 26, 2017, unless the parties agreed to an extension. At the hearing, the parties agreed to extend the time for an award to 4:30 p.m. on July 31, 2017.

[25]        The hearing on July 25 was unrecorded. There is no transcript. The record of evidence is confined to the arbitrator’s reasons and the exhibits.

[26]        Local 615 called three witnesses and tendered a book of documents. Many of the documents came from the Labour Board’s certification hearing.

[27]        Stavco called no witnesses and offered no exhibits.

[28]        Arbitrator Slone’s award dated July 31, 2017 found that Stavco had breached the Collective Agreement:

[79]      There is no doubt that the Employer has breached these articles, and continues to do so. It has failed to recognize the Union and has failed to follow the procedure that sets out how employees are hired, which formula ensures that all work goes to Union members, who may in some instances be persons that the Employer specifically requests. …

[29]        Stavco had employed non-union employees from November 2, 2016 – the Labour Board’s effective date of certification – to July 25, 2017. The arbitrator’s quantum of damages was the amount that Stavco would have paid, but did not, to union labourers during that period.

[30]        The arbitrator found that Stavco required nine labourers during the period and that Local 615 had nine suitable labourers available. For Stavco’s requirement, the arbitrator relied on Stavco’s material, such as payroll records, filed with the Labour Board for the certification hearing, re-tendered by Local 615 at the arbitration, and observational testimony of Local 615 witnesses as to Stavco’s complement of labourers during the project. Nine was the number of labourers in the unit determined by the Labour Board’s certification ruling. For availability, the arbitrator accepted the testimony of Local 615’s business manager, Mr. Franco Callegari, that there were between 40 and 100 union labourers available for work during the period.

[31]        The arbitrator calculated the damages at union rates for nine labourers during the period and ordered Stavco to pay to the Union, in trust for its members, $447,630.02.

[32]        Stavco applied to the Supreme Court of Nova Scotia for judicial review. Justice Heather Robertson heard the application on January 2, 2018 and issued written reasons on April 9, 2018 (2018 NSSC 84 (CanLII)), followed by an Order of October 17, 2018. The judge set aside the award.

[33]        The judge disagreed with both the arbitrator’s findings that (1) Local 615 had nine union labourers available to perform Stavco’s work and (2) Stavco required nine labourers.  In the judge’s view, the arbitrator gave excessive weight to what the judge described as Mr. Callegari’s hearsay, speculation and opinion testimony on availability. The judge faulted the arbitrator for not insisting that Local 615 adduce (1) the best evidence of available union workers – i.e. a written “out of work list” that Mr. Callegari had maintained, and (2) “cogent” evidence that Stavco required nine labourers for the entire period covered by the claim. In the judge’s view, the arbitrator’s approach to fact finding offended procedural fairness which the judge assessed for correctness. She did not perform a standard of review analysis under Dunsmuir v. New Brunswick, 2008 SCC 9 (CanLII), [2008] 1 S.C.R. 190 on that matter.

[34]        The judge also determined that the arbitrator’s damages award was punitive, and therefore unreasonable.

[35]        The judge’s disagreements with the award related to quantum of damages, not to the arbitrator’s ruling that Stavco breached the collective agreement. Nonetheless, the Order set aside the award in its entirety:

NOW THEREFORE IT IS ORDERED that the Arbitration Award herein dated July 31, 2017, of Arbitrator Eric Slone be and the same is hereby set aside with costs to be paid by the Respondent Union to the Applicant in the all inclusive amount of Three Thousand Two Hundred Dollars ($3,200.00).

[36]        On May 14, 2018, Local 615 filed a Notice of Appeal to the Court of Appeal. This Court heard the appeal on March 20, 2019.

Issues

[37]        The Notice of Appeal listed 47 grounds of appeal. The submissions gathered more focus and centered on three issues:

  1.              Did the judge err in her selection of the judicial standard of review?
  2.              Did the arbitrator’s assessment of evidence and his findings offend the appropriate standard of review?
  3.              Did the judge err in her application of the standard of review to the arbitrator’s damages award?

Appellate Standard of Review

[38]        An appeal court determines whether the reviewing judge correctly chose and applied the judicial standard of review. This is an issue of law. If the judge erred, the appeal court applies the appropriate standard: Dr. Q v. College of Physicians and Surgeons of British Columbia, 2003 SCC 19 (CanLII), [2003] 1 S.C.R. 226, paras. 43-44; Labourers v. CanMarsupra, para. 30 and authorities there cited.

[39]         In Agraira v. Canada (Public Safety and Emergency Preparedness), 2013 SCC 36 (CanLII), [2013] 2 S.C.R. 559, Justice LeBel for the Court summarized the appellate approach:

[46]      In Merck Frosst Canada Ltd. v. Canada (Health), 2012 SCC 3 (CanLII), [2012] 1 S.C.R. 23, at para. 247, Deschamps J. aptly described the process as “ ‘step[ping] into the shoes’ of the lower court” such that the “appellate court’s focus is, in effect, on the administrative decision”. [emphasis deleted by LeBel J.]

First Issue – What is the Judicial Standard of Review?

[40]        The reviewing judge characterized the arbitrator’s fact finding as a matter of procedural fairness that she reviewed for correctness.

 

[41]        The judge’s reasons summarized Stavco’s submission:

[24]      With respect to the evidence relied upon by the arbitrator, Stavco says he relied on hearsay, opinion and speculation evidence adduced by the Union instead of the best evidence available, undermining Stavco’s procedural right to meaningful participation.

After reciting Stavco’s particular arguments, the judge said:

[34]      In this case, there is no evidence for the basis of the arbitrator’s conclusions and the arbitrator does appear to have shifted the onus of proof on to Stavco, thus allowing the court to intervene on a standard of correctness.

[55]      I am in agreement with Stavco that they were denied procedural fairness based on the arbitrator’s improper evidentiary rulings. He relied on hearsay evidence and did not hold the Union to account, to provide cogent evidence of the availability of competent and qualified union members. Stavco had no opportunity to meaningfully test this evidence. Nor can the arbitrator merely accept that Stavco’s labour needs remained constant during the period and not require cogent evidence of this fact.

[42]        In my respectful view, the judge erred by applying correctness.

[43]        In Labourers v. CanMarsupra, this Court, citing authority, explained how the reviewing court should approach the choice between procedural fairness and standard of review analysis:

[45]      The judge described the issue as procedural fairness, with no standard of review. 

[46]      In T.G. [Nova Scotia (Community Services) v. T.G., 2012 NSCA 43 (CanLII), leave to appeal refused [2012] S.C.C.A. No. 237], this Court said:

[90]   A court that considers whether a decision maker violated its duty of procedural fairness does not apply a standard of review to the tribunal. The judge is not reviewing the substance of the tribunal’s decision. Rather the judge, at first instance, assesses the tribunal’s process, a topic that lies outside standard of review analysis: Moreau-Bérubé v. New Brunswick (Judicial Council), 2002 SCC 11 (CanLII), [2002] 1 S.C.R. 249, at para. 74, per Arbour J.; C.U.P.E. v. Ontario (Minister of Labour), 2003 SCC 29 (CanLII), [2003] 1 S.C.R. 539, at paras. 100-103, per Binnie J.; Creager v. Nova Scotia (Provincial Dental Board), 2005 NSCA 9 (CanLII), paras. 24-25; Kelly v. Nova Scotia Police Commission, 2006 NSCA 27 (CanLII) [Burt v. Kelly], para. 19; Nova Scotia (Community Services) v. N.N.M., 2008 NSCA 69 (CanLII), para. 39; Allstate Insurance Company v. Nova Scotia (Insurance Review Board), 2009 NSCA 75 (CanLII), para. 11; Communications, Energy and Paperworkers Union of Canada, Local 141 v. Bowater Mersey Paper Co. Ltd., 2010 NSCA 19 (CanLII), paras. 30-31.

[emphasis in T.G.]

[47]      The reason there is no “standard of review” for a matter of procedural fairness is that no tribunal decision is under review. The court is examining how the tribunal acted, not the end product. If, on the other hand, the applicant asks the court to overturn the tribunal’s decision – including one that discusses procedure – a standard of review analysis is needed. The reviewing court must decide whether to apply correctness or reasonableness to the tribunal’s decision. (e.g. Coates [Coates v. Nova Scotia (Labour Board), 2013 NSCA 52 (CanLII)], paras. 43-45).

[emphasis in Labourers v. CanMar]

[48]      The authorities cited by T.G., para. 90, make this clear.

[49]      In C.U.P.E. v. Ontario, Justice Binnie for the majority said:

102   The content of procedural fairness goes to the manner in which the Minister went about making his decision, whereas the standard of review is applied to the end product of his deliberations.

[emphasis in Labourers v. CanMar]

[50]      Similarly, in Kelly, Justice Cromwell said:

[20]      Given that the focus was on the manner in which the decision was made rather than on any particular ruling or decision made by the Board, judicial review in this case ought to have proceeded in two steps. The first addresses the content of the Board’s duty of fairness and the second whether the Board breached that duty. …

[emphasis in Labourers v. CanMar]

[51]      In Creager, paras. 24-25, and Communications, Energy and Paperworkers Union, paras. 30-31, cited by T.G., this Court reiterated the passages from C.U.P.E. or Kelly.

[52]      Here, CanMar objected to the membership cards. The Board’s management conference of June 9, 2014 scheduled the filings of written submissions on the issue. Nobody has suggested the Board unfairly managed the submissions of counsel that preceded the Preliminary Decision. The Board’s Preliminary Decision determined the disputed issue, with written reasons that cited the home legislation and Labour Board authorities. CanMar’s application for judicial reviewchallenged the Board’s Preliminary Decision, i.e. the end product of the preliminary dispute. The judge set aside the Preliminary Decision. This requires the application of a standard of review to the Board’s Preliminary Decision.

[emphasis added]

[53]      Given that the topic involved the Board’s core function of managing a certification application, the standard is reasonableness.

[44]        Nothing has changed. Those principles govern this appeal.

[45]        The award set out the arbitrator’s findings and cited evidence for those findings. The judge determined that the arbitrator’s factual findings were supported by “no evidence”. By this, it is apparent the judge meant no evidence after she had eliminated what she described as hearsay, speculation and opinion. From the premise that there was no evidence, the judge deduced that the arbitrator had shifted the burden of proof, which she characterized as an issue of procedural fairness. That characterization obviated any standard of review analysis and dusted reasonableness off the table. The judge applied correctness.

[46]        That is not how it should be done. Stavco’s application for judicial review challenged the arbitrator’s explicit findings of fact on the merits of the grievance. Those findings, contained in the written award, were the substance and end product of the arbitration. The judge was required to apply Dunsmuir standard of review analysis and choose between reasonableness and correctness. There was no path to correctness with a detour that skirted Dunsmuir.

[47]        Evidential rulings, the assessment of weight and findings of fact are core functions assigned to a labour arbitrator by ss. 43B(2)(a) through (d) and (g) of the Trade Union Act, the arbitrator’s home statute. Those provisions entitle the arbitrator to (1) receive such evidence “as the arbitrator … deems fit, whether the evidence or information is admissible in a court of law or not”, (2) “determine the arbitrator’s … procedure … as the arbitrator… considers appropriate”, (3) “determine all questions of fact or law that arise out of a dispute”, (4) “have regard to the real substance of a matter in dispute between the parties”, and (5) “make such orders … as the arbitrator … considers appropriate to expedite proceedings”.

[48]        A labour arbitrator’s evidential rulings and findings of fact are reviewed for reasonableness, not correctness. This is well-supported by the authorities, including: Dr. Qsupra, para. 34; Dunsmuir, supra, paras. 53 and 68; Nor-Man Regional Health Authority Inc. v. Manitoba Association of Health Care Professionals, 2011 SCC 59 (CanLII), [2011] 3 S.C.R. 616, paras. 36, 38-51; Commission scolaire de Laval v. Syndicat de l’enseignement de la région de Laval, 2016 SCC 8 (CanLII), [2016] 1 S.C.R. 29, paras. 30-33; Egg Films Inc. v. Nova Scotia (Labour Board), 2014 NSCA 33 (CanLII), para. 97, leave to appeal refused [2014] S.C.C.A. No. 242.

[49]        The judge erred by not applying the reasonableness standard to the arbitrator’s findings of fact. I would allow this ground of appeal.

Second Issue – Were the Arbitrator’s Findings Reasonable?

[50]        The test: What is reasonableness?

[51]        The reviewing court, paying “respectful attention” to the arbitrator’s reasoning, asks whether the arbitrator’s analysis is understandable and leads to a conclusion that is permitted by the provisions, principles and policies of the Trade Union ActNewfoundland and Labrador Nurses’ Union v. Newfoundland and Labrador (Treasury Board)[2001] 3 S.C.R. 708, paras. 11, per Abella J. for the Court.

[52]        If the answer is Yes, the court upholds the award and does not ask whether the court would prefer another outcome. Newfoundland and Labrador Nurses’ Union, paras. 11-17; Communications, Energy and Paperworkers Union of Canada, Local 30 v. Irving Pulp & Paper, Ltd., 2013 SCC 34 (CanLII), [2013] 2 S.C.R. 458, para. 54, per Abella J. for the majority; McLean v. British Columbia (Securities Commission), 2013 SCC 67 (CanLII), [2013] 3 S.C.R. 895, paras. 32-33, per Moldaver J. for the majority; Nor-Mansupra, paras. 35-51.

[53]        On the other hand, for an issue of law, “[w]here the ordinary tools of statutory interpretation lead to a single reasonable interpretation and the administrative decision maker adopts a different interpretation, its interpretation will necessarily be unreasonable – no degree of deference can justify its acceptance”: McLean, para. 38.

[54]        In Casino Nova Scotia/Casino Nouvelle Écosse v. Nova Scotia (Labour Relations Board), 2009 NSCA 4 (CanLII), this Court explained when a tribunal’s finding of fact may be set aside as unreasonable:

[44]      A factual challenge on judicial review, under the reasonableness standard, must establish that there was no evidence capable of reasonably supporting the finding: Lester (W.W.) 1978 Ltd. v. UAJAPPI, Local 740, 1990 CanLII 22 (SCC), [1990] 3 S.C.R. 644, at p. 649; Toronto Board of Education v. OSSTF, District 15, 1997 CanLII 378 (SCC), [1997] 1 S.C.R. 487at para. 44-51, 60, 78; Dr. Q, paras. 33-35, 38-41. An applicant for judicial

 

review may be hampered in satisfying his onus for a factual challenge when there is no transcript of the oral testimony to the Board (see Granite Environmental [International Union of Operating Engineers, Local 721 v. Granite Environmental Inc., 2005 NSCA 141 (CanLII)], paras. 85-86). The Board cited evidence that the security officers’ activities involved no meaningful managerial or confidential functions. I refer to my earlier comments on the evidence and the Board’s findings (above, paras. 9-16, 33-38). From the summaries of the evidence in the Board’s decision, the exhibits and examination on the record, in my view, the Board’s findings occupy the range of inferences that may reasonably be drawn from the evidence. The Casino would recalibrate the evidentiary scale. But it is not the reviewing court’s role to reweigh evidence.

[emphasis added]

[55]        Recently, in Canada (Canadian Human Rights Commission) v. Canada (Attorney General), 2018 SCC 31 (CanLII), [2018] 2 S.C.R. 230, Gascon J. for the majority summarized:

[55]      … When applied to a statutory interpretation exercise, reasonableness review recognizes that the delegated decision maker is better situated to understand the policy concerns and context needed to resolve any ambiguities in the statute (McLean, at para. 33). Reviewing courts must also refrain from reweighing and reassessing the evidence considered by the decision maker (Khosa [Canada (Citizenship and Immigration) v. Khosa, 2009 SCC 12 (CanLII), [2009] 1 S.C.R. 339], at para. 64). At its core, reasonableness review recognizes the legitimacy of multiple possible outcomes, even where they are not the court’s preferred solution.

[emphasis added]

[56]        The arbitrator’s award: The reviewing court is to pay “respectful attention” to the arbitrator’s reasons.

[57]        The award summarized the evidence on the two critical issues: Stavco’s requirement for labourers and the availability of union labourers:

[33]      The Union called three witnesses. The Employer called none.

[34]      The first witness called by the Union was Jamie Grant (“Grant”), a labourer who joined the Union in October 2016 during its drive to certify this Employer. …

[35]      He described the bulk of the work he did as labour work, putting in place the forms (for concrete), setting up staging to allow the work to move up floor by floor, laying out the 4×4 sheets of plywood (for the carpenters to affix), lasering them. All of this work was directed to creating the concrete slabs which are the base of each floor. Once the floor slabs are all in place, it would be carpenters and other trades who would put in the elements that make up the outer structure.

[40]      Grant described his usual hours of work as 7:30 a.m. to 5:00 p.m., Monday through Thursday, 7:30 a.m. to 4:00 p.m., Friday, and 7:30 a.m. to noon on Saturdays. This translated to 9 hours paid Monday through Thursday, 8 hours on Friday and 4.5 hours on Saturday, for a total of 48.5 hours. He was paid at the rate of $17.00 per hour, straight time, with no overtime. …

[41]      Grant produced his Record of Employment which verified his hours and pay from June 2016 (when he received his initial pay) to the ending pay period of May 20, 2017. …

[42]      Grant testified that there were “quite a few” labourers on site during this period, though he could not be specific. He was shown a list of names taken from financial records which the Union obtained from the Employer in the Board matter, and was able to identify most of the ones that the Union contends were labourers.

[43]     Grant was cross-examined vigorously on the question of what ability he had to describe the work of others. Mr. Durnford pressed him on the point that he was mostly paying attention to what tasks he had been asked to perform. He stood his ground and stated that he had a pretty good idea of what those all around him were doing. I have no difficulty accepting his evidence that there were at all times between maybe six and ten other labourers doing similar work.

[51]      The Union’s second witness was Troy Colburn, an experienced union organizer who was involved in the certification effort here. He was present throughout the Labour Board proceeding and verified certain documents produced by the Employer in that proceeding, specifically payroll records for the period of August 1, 2016 to March 25, 2017.

[56]      For the period of November 2, 2016 to March 25, 2017, based upon the Employer’s documents produced to the Board, Mr. Colburn identified those people on the payroll who were known or believed to be labourers, and totalled up their hours. For the period March 26, 2017 to July 25, 2017, he extrapolated from the prior period, making the assumption that an average of 9 labourers would have worked those dates. …

[60]      Mr. Colburn also based his assumption on the fact that, prior to the date of the application for certification, he was on site many times and observed the work being done. Since then, he has only observed the work from a distance a few times, and is satisfied that there are still a similar number of labourers on site doing essentially the same work as they had been doing all along.

[61]      The third witness for the Union was Franco Callegari, the business manager of Local 615. He has been in this position for almost two decades.

[62]      He explained how it would have worked if the Employer had been operating under the collective agreement all along. Under the Union Security provisions (Art. 5) the Employer would have had to request the Union to supply qualified workers who were union members. …

[66]      Mr. Calligari [sic Callegari] testified that he maintains an “out-of-work” list of labourers who continue paying their union dues and who are ostensibly available for work, if offered. He could not say exactly how many people were on this list at the relevant times, but he estimated that there would have been as many as 100 and as few as 40 at any given time. As such he was confident that he would have had no trouble supplying the Employer with as many labourers as they could have used at any given time. He allowed for the possibility that some of these individuals may have been working elsewhere, but he would have been informed if they were working as labourers elsewhere under the collective agreement, and the fact that they kept up their union dues suggested to him that they were working at lower paid, likely non-union jobs, and would have made themselves available for a job at union rates. He also testified that, from time to time, if he cannot supply a worker from his own list he can call upon qualified labourers from other locals in the province.

[67]      Mr. Call[e]gari was also cross-examined vigorously on his testimony, but stood firmly by his evidence that he could have fulfilled the Employer’s need for labourers from his list, had such requests come in. In this case, he was never contacted by the Employer during the months either before or after the Labour Board order, to cooperate in any way in the supply of qualified workers.

[58]        To the arbitrator, Stavco submitted that both the list and Mr. Callegari’s testimony were hearsay and that Local 615 should have called as witnesses the employees who would have worked as labourers.

[59]        The arbitrator rejected Stavco’s hearsay submission by finding that Mr. Callegari’s testimony was reliable and, in the circumstances, realistically necessary:

[68]     The Employer called no evidence. I was not asked by the Union to draw any adverse inference from this tactical decision. I will observe, however, that the record before me contains nothing to directly challenge the Union’s evidence. Instead, Mr. Durnford based his arguments on what he submitted was the frailty of the Union’s evidence (some of it being hearsay) and especially what he regarded as the questionable and speculative nature of many of the Union’s assumptions.

[72]     Mr. Durnford argued that much of the Union’s evidence was hearsay. As he well knows, hearsay is not inadmissible in hearings before arbitrators, whose discretion to admit is rooted in the Trade Union Act:

43B (2)  An arbitrator or an arbitration board may

(a)     receive and accept such oral or written evidence and information on oath, by affidavit, or otherwise as the arbitrator [or] arbitration board deems fit, whether the evidence or information is admissible in a court of law or not … .

[73]      In practical terms, this means that hearsay evidence will be received and afforded such weight as the arbitrator sees fit having regard to all of the facts that impact on its inherent reliability.

[74]      Mr. Durnford relied on several B.C. cases which stand for the proposition that hearsay should not be relied upon to establish a “crucial and central fact”: see Health Employers Association of British Columbia v. Hospital Employees’ Union, a 2003 arbitration decision of Arbitrator Hope at p. 17-8. I agree to an extent with this point. Arbitrators must be skeptical of evidence that is secondary in the sense that it is not the best evidence that might have been available. But there also must be some recognition of the fact that sometimes the best evidence available may be characterized as hearsay, to a greater or lesser extent, but is still inherently reliable. The exigencies of an expedited arbitration process may also limit the type of evidence that is available.

[75]     Mr. Durnford characterized much of the Union’s critical evidence as hearsay. In particular he characterized as hearsay Mr. Call[e]gari’s evidence to the effect that he could, at all times, have supplied Union workers. The out of work list, which was not itself introduced into evidence, Mr. Durnford argues, is unreliable hearsay and does not reliably prove that there were people available. Mr. Call[e]gari’s evidence is the best evidence available. It would be unrealistic to expect the Union to call as witnesses the actual labourers who might have been available to do the work. It is Mr. Call[e]gari’s job to know who of his members is available to take on work at any given time, and I found him to be credible on this point. I have no trouble accepting the proposition that there were at all times labourers available, had the Employer called for labourers. I also note that, even if the Union could not supply all of the needs, the Employer would have had the right to name some of its existing employees but still would have had to pay them union rates. I have no difficulty accepting the Union’s position that there were at all times Union members that could have done the work in question, but who were not given the opportunity because the Employer chose to proceed in its non-union ways.

 

[60]        On Stavco’s requirement for labourers, the award found:

[76]      On the evidence before me, I am also fully satisfied that there was at all times throughout the period until March 25, 2017, a crew of anywhere between six and twelve labourers working on this project. This is consistent with the findings of the Labour Board, and fully grounded in the documentary evidence before me.

[77]      The period of March 26, 2017 to July 25, 2017 was calculated on an average of 9 workers, with a balance of journeymen and apprentices. The evidence supporting this assumption is not as solid as for the prior period, which is based on the Employer’s own records, but we do have the evidence of Grant (including his Record of Employment) to establish that work was ongoing at the same pace (at least for him) until he left the Employer just prior to the Labour Board hearing. Mr. Durnford dismisses this projection as mere speculation, but had the Employer wished to demonstrate that such assumption was wrong, it could have come to the hearing prepared with witnesses or documents that showed otherwise.

[61]        From this evidence, the arbitrator found that, for the entire period – November 2, 2016 to July 25, 2017 – Local 615 could have supplied at least nine labourers and Stavco required nine labourers. Those findings were the premise of the arbitrator’s calculation of damages.

[62]        Were those findings reasonable?

[63]        Availability of union labourers: The judge disagreed with the arbitrator’s use of Mr. Callegari’s testimony that there were always at least nine available labourers. The judge’s reasons say:

[38]     Stavco says they take no issue with the admissibility of hearsay evidence, only with the undue weight the arbitrator placed on hearsay evidence. Stavco says Mr. Callegari’s evidence was not necessary because the Union could have simply produced the “out of work” list. …

[45]      In the instant case, the “out of work” list ought to have been produced. The arbitrator relied on Mr. Callegari’s opinion that there would have been out of work labourers available, yet Mr. Callegari was merely opining in this regard and was not testifying as an expert: CJA, Local 27 v. Wasaga Trim Supply (2006) Inc. (2010), 101 CLAS 420, 2010 CarswellOnt 16294. His lay opinion ought to have been accorded little weight.

[64]        Stavco did not suggest to the arbitrator that the list “ought to have been produced”. To the contrary, at the arbitration, Stavco submitted that both Mr. Callegari’s testimony and his list were hearsay, and the only appropriate evidence was testimony of the individual labourers who would have worked on the project (see Award, para. 75). The arbitrator addressed the submission that was made to him. On the judicial review, Stavco recast its submission by contending that the list ought to have been produced. I decline to fault the arbitrator for failing to anticipate Stavco’s refurbished proposition to the reviewing judge: Alberta (Information and Privacy Commissioner) v. Alberta Teachers’ Association, 2011 SCC 61 (CanLII), [2011] 3 S.C.R. 654, paras. 22-26, per Rothstein J. for the majority.  I will confine myself to considering whether the arbitrator unreasonably dealt with Stavco’s submission that Local 615 should have called the employees as witnesses.

[65]        Section 43B(2)(a) of the Trade Union Act authorizes the arbitrator to “accept such oral or written evidence … as the arbitrator … deems fit, whether the evidence or information is admissible in a court of law or not”. As Stavco acknowledged to both the arbitrator and the reviewing judge, Mr. Callegari’s testimony was admissible. The issue was weight. The arbitrator addressed weight by assessing reliability and necessity. In this respect, the arbitrator adapted, to the labour relations climate, the principled exception to the hearsay rule.

[66]        The arbitrator (paras. 74-75) found that Mr. Callegari’s evidence was credible and reliable, and explained his reasons for those findings.

[67]        Then there is necessity or, as the arbitrator termed it, realism. Stavco’s submission was that the only proper evidence would be the testimony of the individual employees on the list.

[68]        This hearing occurred the day after Arbitrator Slone’s appointment. That is standard fare for construction arbitrations, given s. 107(7)’s requirement that the award issue within 48 hours of the arbitrator’s appointment. It was not feasible to expect Local 615 to introduce a multitude of employees as witnesses. The arbitrator (paras. 74-75) cited “the exigencies of an expedited arbitration process” and said such a course would be “unrealistic”.

[69]        The accelerated timeline does not govern Part I arbitrations outside the construction industry. The speedy arbitration under Part II stems from historical events in Nova Scotia’s construction labour relations. In Municipal Contracting Ltd. v. International Union of Operating Engineers, Local 721 (1989), 91 N.S.R. (2d) 16 (C.A.), Clarke C.J.N.S. explained:

[5]        During the mid-1960’s the province became engulfed in a series of disputes in the construction industry which threatened the economic stability of various areas of the province in particular and to some extent, the province in general. In 1967 Mr. I. M. MacKeigan, Q.C. (later Chief Justice of Nova Scotia) was commissioned to inquire into these problems with special emphasis upon the difficulties which were delaying and disrupting the construction of the Deuterium Heavy Water Plant at Glace Bay. He recommended, among others, that separate statutory recognition be given to the construction industry in Nova Scotia and, vital to the issues that prompt this appeal, that a process of “speedy arbitration” to resolve disputes be imposed upon unions and employers. As a result the Legislature enacted a separate certification procedure for the construction industry. Hence the beginning of Part II designed to apply only to the construction industry. The recommendation for “speedy arbitration” was not implemented at that time.

[6]        The problems that made for disputes among the construction trades continued, including jurisdictional disputes over work and rights, employment of non-union labour and related matters. Wildcats, strikes and lockouts were frequent and regular occurrences. This led to the appointment of the late Professor H.D. Woods of McGill to investigate the deteriorating situation. He concluded, as had Commissioner MacKeigan, that the traditional (Part I) method of resolving disputes was inadequate to serve the special circumstances that had developed in the construction industry in Nova Scotia.

[7]        Professor Woods recommended, at pages 101-102 of his report, that the construction industry in Nova Scotia required a separate and special system for the resolution of its grievance disputes … .

[8]       It was in response to these recommendations that the Trade Union Act was amended by S.N.S. 1970-71, c. 5, to provide for an accelerated arbitrationprocedure in the construction industry. The Act was further amended and consolidated in 1972 by c. 19. It is from this brief historical backdrop that Part II entitled Construction Industry Labour Relations achieved its legislative birth and statutory existence.

[70]        Section 107 enacts a policy that, in the reasonable exercise of the arbitrator’s discretion, the arbitrator may prioritize the speedy and final resolution of a construction dispute over fidelity to a time-consuming gold standard of judicial process. The policy extends the directives in ss. 43B(2)(d) and (g) of the Trade Union Act, applying to arbitrations generally, that the arbitrator may “have regard to the real substance of a matter in dispute between the parties” and make orders to “expedite proceedings”.

[71]        A labour arbitrator is entitled to adapt legal principles to the context of labour relations. In Nor-Mansupra, Justice Fish for the Court said:

[5]        Labour arbitrators are not legally bound to apply equitable and common law principles – including estoppel – in the manner of courts of law. Theirs is a different mission, informed by the particular context of labour relations.

[6]        To assist them in the pursuit of that mission, arbitrators are given a broad mandate in adapting the legal principles they find relevant in the grievances of which they are seized. They must, of course, exercise that mandate reasonably, in a manner that is consistent with the objectives and purposes of the statutory scheme, the principles of labour relations, the nature of the collective bargaining process, and the factual matrix of the grievance.

[72]        When considering the criteria for the use of hearsay evidence, a labour  arbitrator reasonably may consider the constraints of the expedited process in s. 107.

[73]        Stavco submitted that Local 615’s only course was to call as witnesses a  procession of employees, instead of offering Mr. Callegari’s evidence (either his list or his testimony). The arbitrator found, reasonably in my view, that Stavco’s submission was “unrealistic”.

[74]        I return to the standard of review.

[75]        A party making a factual challenge under the reasonableness standard “must establish that there was no evidence capable of reasonably supporting the finding” (Casino Nova Scotiasupra, para. 44). Mr. Callegari’s testimony was evidence that reasonably could support the finding.

[76]        As Gascon J., for the majority, said in Canada (Canadian Human Rights Commission) v. Canada (Attorney General)supra, para. 55,“[r]eviewing courts must also refrain from reweighing and reassessing the evidence considered by the decision maker”. That is what the reviewing judge did, without a transcript to assist the endeavour.

[77]        The arbitrator’s finding that Local 615 could supply nine labourers during the period was supported by evidence and was reasonable.

[78]        Stavco’s requirement for labourers: For the period up to March 25, 2017, the arbitrator had Stavco’s payroll documents that Local 615 had obtained from the Labour Board hearing. This was “evidence” for the arbitrator’s finding (Award, para. 76). It is not for the reviewing court to assess the weight of that evidence.

[79]        The dispute involves the period after March 25, 2017.

[80]        Local 615 had the arbitrator issue a subpoena to Stavco for its records after March 25. The subpoena could only be issued after ArbitratorSlone’s appointment. He was appointed on the day before the hearing. Local 615 could not effect service on Stavco in time for the hearing. Stavco did not authorize its counsel to accept service of the subpoena. At the arbitration hearing, Stavco chose not to introduce any evidence. The arbitratorcommented:

[53]      Mr. Colburn also helped to prepare spreadsheets that attempted to quantify the claim for the period up to March 25, 2017 (when Employer documents were available) and the period from March 26, 2017 to the date of the arbitration hearing, for which no Employer documents were available.

[54]      It was noted that the Union had attempted to subpoena documents covering that period, but were unsuccessful in serving the Employer with the subpoenas. This is not surprising given the subpoenas could only be signed once I was appointed as arbitrator, which was less than 24 hours before the hearing. I make no inferences to the effect that the Employer was in any way evading service or trying to obstruct the Union. Section 107 cases simply present unique challenges such as this.

[55]      On the other hand, the Employer knew that this grievance had been filed on June 8, 2017, and could have anticipated what issues would be dealt with at arbitration. It could have come to the hearing prepared to demonstrate the precise number of labourers that it employed at all relevant times. It chose to produce no documents or witnesses.

[81]        Local 615 dealt with Stavco’s post-March 25 requirements with Mr. Colburn’s projection that Stavco continued to require nine labourers. The projection extrapolated Stavco’s work force requirement that was evidenced by its records up to March 25. It was corroborated by Mr. Grant’s testimony that work continued at the same pace (Award, para. 77). The Labour Board had determined that the unit comprised nine labourers.

[82]        The arbitrator acknowledged that the post-March 25 evidence was “not as solid” as the evidence for which Stavco’s records were available, but found it sufficed to infer that Stavco’s requirement remained as before March 25.

[83]        The reviewing judge rejected the arbitrator’s inference, and suggested that the arbitrator had reversed the burden of proof:

[50]      The Union had an obligation to prove its damages and adduce some objective evidence to support its claim for damages, instead of merely guessing at Stavco’s labour needs from March 26 to July 25. This guess was speculation and could not result in a properly drawn inference. I agree that the arbitrator faulted Stavco for its failure to adduce further and better evidence regarding the labour needs during the period from March 26 to July 25, in paras. 55, 71, 77 and 90 of his decision. Stavco was under no legal or evidentiary burden to do so.

[55]      … Nor can the arbitrator merely accept that Stavco’s labour needs remained constant during the period and not require cogent evidence of this fact.”

[84]        With respect, the arbitrator did not fault then punish Stavco by shifting the burden of proof.  Rather, the arbitrator noted that Stavco had adduced no evidential obstacle to an inference that was available from Local 615’s evidence:

[71]      The nature of civil cases and the attendant burden of proof on a balance of probabilities means that an applicant need only show that it is more probable than not that its version is correct. When met with no evidence (such as is the case here) its task is all the easier. [arbitrator’s emphasis]

[85]         “[R]eweighing and reassessing the evidence considered by the decision maker” was not open to the reviewing judge: Canada (Canadian Human Rights Commission) v. Canada (Attorney General)supra, para. 55. The reviewing judge could not overturn the arbitrator’s finding based on the judge’s view that the evidence “could not result in a properly drawn inference”.

[86]        Summary: The arbitrator’s findings as to both the availability of union labourers and Stavco’s requirements were reasonable. I would allow this ground of appeal.

Third Issue – Was the Damages Award Unreasonable?

[87]        The arbitrator assessed damages as the amount that Local 615 members would have earned had Stavco complied with the collective agreement.

[88]        The reviewing judge said she was applying the reasonableness standard to the damages award. She held that the quantum was unreasonable. Her explanation was:

[56]      Similarly, in the assessment of damages the arbitrator recognized that the employer had to pay twice for the same work, which he justified as being“punitive” and a “penalty”. As there was no evidence that Stavco had not “been entirely honest and accurate in responding to the Certification Application”, the calculation of damages, at most, should have reflected the difference between the non-union and union rates for the individuals employed by Stavco and should not have made an order that effectively led to a double recovery. This was unreasonable.

[emphasis added]

[89]        With respect, the judge failed to apply the proper approach to reasonableness review. Further, she mistook the arbitrator’s reasons. The arbitrator’s reasons, properly understood, reasonably applied the law and policy behind the Trade Union Act.

[90]        Reasonableness requires the reviewing court to consider whether the arbitrator’s approach is a permissible application of the governing legal principles. If it is, the reviewing court must defer, despite that the judge may prefer a different outcome.

[91]        As to the remedy, the arbitrator’s award said:

[80]      The law concerning the remedy for a breach of a union security provision has been settled for some time now, across Canada. The governing line of authority begins with Re Blouin Drywall (1975), 1975 CanLII 707 (ON CA), 57 D.L.R. (3d) 199, a decision of the Ontario Court of Appeal, which upheld the jurisdiction of an arbitrator to award damages for breach of the union security clause of the applicable collective agreement calculated on the basis of wages lost by union members denied the opportunity to perform the subject work. That case was explicitly accepted in Nova Scotia in Re Landing Construction et al(1986), 72 N.S.R. (2d) 26. In Landing, the Nova Scotia Court of Appeal accepted the view of the arbitrator, Nick Scaravelli, a then well-respected arbitrator and later a justice of the Nova Scotia Supreme Court, that the employer in that case, when the certification order became effective, was obligated to dismiss its non-union employees. Having failed to do so, the employer became liable in damages, the measure of which consisted of the losses which union employees suffered as a result of not being hired by the employer. The net effect was that the employer paid twice for the same work, once when it paid its own employees and a second time when it had to pay the union (at collective agreement rates) for the hours that union members would have worked, had the company followed the collective agreement.

[92]        The arbitrator implemented an approach to quantification that was sanctioned by the Ontario Court of Appeal in Blouin Drywall, a ruling that has become the leading Canadian authority on the subject and was adopted by the Supreme Court of Nova Scotia Appeal Division in Landing Construction. The approach is established in labour arbitral jurisprudence.

[93]        The arbitrator held that Stavco breached the collective agreement. Contractual damages are quantified on the expectation premise that the non-breaching party should be placed in the position it would have been in had the breaching party followed the contract. The arbitrator (para. 87) applied that premise, citing judicial authority. The expectation principle is compensatory to the non-breaching party. That the breaching party may end up paying more than it would have, had it complied with the contract, neither jettisons the expectation premise nor renders it punitive.

[94]        Had the judge applied the proper approach to reasonableness, she would have held that the arbitrator’s reliance on these authorities and the expectation principle was permissible.

[95]        The judge said the arbitrator “justified” the quantum “as being ‘punitive’ and ‘a penalty’ ”. With respect, this misstates the arbitrator’s reasoning.

[96]        Stavco submitted to the arbitrator that the quantum was a retrospective  penalty. The arbitrator responded to that submission as follows:

[82]      As I noted in Dalhousie [Re Dalhousie University and International Brotherhood of Electrical Workers, Local 625 (Grievance re allegedly improper use of non-union subcontractor), [2000] N.S.L.A.A. No. 40] and as noted by many others, it is strange that an employer might have to pay twice for the same work. It has already paid its existing employees, and as a result of this grievance may have to pay the Union for all of the hours since November 2, 2016 that the Union members could have worked. It seems on its face to be punitive. But the flip side of the argument is that unless the employer is assessed this “penalty”, the orders of the Labour Board have no teeth and employers can proceed with impunity to defy a certification order, including running out the clock until it no longer has a need for employees working in the applicable trade.

[83]      The Board’s backdating of its order sends a clear message to the Employer. Had it been entirely honest and accurate in responding to the certification application, identifying precisely who were working as labourers on the date in question, and who were not, the issue of whether or not the Union had majority support would have been settled on the spot. Assuming that the Union had requisite support, the Employer would have had to adjust to the fact that it was in a collective bargaining relationship. If not, life would have gone on as before. The Employer should not be allowed to benefit from its own choice to contest the application (in the way it did) and hope to run out the clock and take advantage of some additional weeks or months of paying non-union rates.

[97]        Stavco’s filing with the Labour Board on October 24, 2016 said Stavco had 16 “workers” on October 15 without specifying whether any were labourers. That question-begging reply meant the certification application proceeded to a hearing. Eight months later, at the Labour Board hearing, Stavco had no difficulty identifying its labourers who worked on October 15, 2016. The Board’s Decision says:

[13]      … The Employer’s position was that all 16, or at very least, 14, of the employees were working as labourers.

[98]        Had Stavco identified a number of labourers in its October 24 filing, the Labour Board could have determined the application for certification at that time, either by a certification, a vote or a dismissal. Construction projects have a limited time span before mootness gains a footing. The arbitratorsaid “[t]he Employer should not be allowed to benefit from its own choice to contest the application (in the way it did) and hope to run out the clock …”.

[99]        The arbitrator did not “justify” the damages “as a penalty”. The arbitrator justified the damages because otherwise “the orders of the Labour Board have no teeth and employers can proceed with impunity to defy a certification order, including running out the clock until it no longer has need for employees working in the applicable trade”. The arbitrator’s justification cited labour relations policy that underpins provisions of the Trade Union Act.

[100]   That justification develops the principles that the Labour Board has adopted and this Court has endorsed:

  •                 The arbitrator’s award referred to the Labour Board’s practice of retroactive certifications in these circumstances:

[28]      I do not believe that my purposes as arbitrator are different from the purposes of the Labour Board. Unions do not proceed with a certification application for any purpose other than to impose collective agreement obligations on an employer. A Board order in itself is worthless. What has value is the collective bargaining relationship that is created or recognized by the order. And the effective date is important, in that it may determine whether the order has real monetary value or not.

[29]     So when the Board says that its order is effective November 2, 2016, it is saying in the clearest terms that the Union and the Employer are deemed to have been in a collective bargaining relationship as of November 2, 2016. Were I to act as if those obligations were in some form of suspense until such later date as I might think fair, I would be flying in the face of the Board order, and rendering its provisions toothless to a greater or lesser extent.

  •                 In Labourers v. CanMarsupra, paras. 106-118, this Court concluded that the Labour Board’s practice of retroactive certifications, in such circumstances, reasonably applied labour relations policy:

[117]   The Board’s conclusion, on the scope of its discretion to backdate, is a permissible interpretation of its home statute.

[118]   Did the Board reasonably exercise that discretion? Not backdating would mean that the inaccuracy in CanMar’s initial statutory declaration would delay the certification for eight months. The employees in the unit would be denied the benefit of collective bargaining for that period. That period is significant, given the limited life span of the Harbourview project. The Board reasonably found that outcome would frustrate the objectives of the Trade Union Act.

[101]   A labour arbitrator may craft a remedy to serve the objectives of the labour relations statute. In Nor-Mansupra, Justice Fish for the Court explained:

[45]      … labour arbitrators are authorized by their broad statutory and contractual mandates – and well equipped by their expertise – to adapt the legal and equitable doctrines they find relevant within the contained sphere of arbitral creativity. To this end, they may properly develop doctrines and fashion remedies appropriate in their field, drawing inspiration from general legal principles, the objectives and purposes of the statutory scheme, the principles of labour relations, the nature of the collective bargaining process, and the factual matrix of the grievances of which they are seized.

[46]      This flows from the broad grant of authority vested in labour arbitrators by collective agreements and by statutes such as the [Labour Relations Act of Ontario], which governs here. …

[47]     The broad mandate of arbitrators flows as well from their distinctive role in fostering peace in industrial relations (Toronto (City) Board of Education v. O.S.S.T.F., District 15, 1997 CanLII 378 (SCC), [1997] 1 S.C.R. 487 (“O.S.S.I.F., District 15”)  at para. 36; Parry Sound (District) Social Services Administration Board v. O.P.S.E.U., Local 324, 2003 SCC 42 (CanLII), [2003] 2 S.C.R. 157, at para. 17).

[49]      Labour arbitrators are uniquely placed to respond to the exigencies of the employer-employee relationship. But they require the flexibility to craft appropriate remedial doctrines when the need arises: Rigidity in the dispute resolution process risks not only the disintegration of the relationship, but also industrial discord.

[50]      These are the governing principles of labour arbitration in Canada. …

[51]   Reviewing courts must remain alive to these distinctive features of the collective bargaining relationship, and reserve to arbitrators the right to craft specific remedial doctrines. …

[102]   In this case, the arbitrator’s remedy put “teeth” in the certification process for the construction industry that is enacted by s. 95 of the Trade Union Act. The consideration of that policy reasonably exercised the arbitral function as described in Nor-Man.

[103]   I would allow Local 615’s ground of appeal on damages and would restore the quantum assessed by the arbitrator.

Conclusion

[104]   I would allow the appeal, overturn the Order dated October 17, 2018 of the Supreme Court of Nova Scotia and restore the arbitrator’s award of July 31, 2017.

[105]   I would order Stavco to repay any costs (quantified by the judge’s Order at $3,200 all inclusive) that Stavco has received from Local 615 for the Supreme Court hearing.

[106]   I would order Stavco to pay Local 615 costs of $3,200 all inclusive for the application in the Supreme Court plus costs of $5,000 all inclusive for the appeal.

 

Fichaud J.A.

 

Concurred:

Farrar J.A.

Derrick J.A.

AMC III Purple BV v Amethyst Radiotherapy Ltd [2019] EWHC 1503 (Comm) (14 June 2019)

Neutral Citation Number: [2019] EWHC 1503 (Comm)
Case No: CL-2019-000110

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
14/06/2019

B e f o r e :

MR JUSTICE BUTCHER
____________________

Between:

AMC III PURPLE B.V.
Claimant
– and –
 
AMETHYST RADIOTHERAPY LIMITED
Defendant

____________________

Hannah Brown QC (instructed by Enyo Law LLP) for the Claimant
Alex Barden (instructed by Latham & Watkins (London) LLP) for the Defendant

Hearing dates: 5 June 2019
____________________

HTML VERSION OF JUDGMENT APPROVED
____________________

Crown Copyright ©

Mr Justice Butcher :

Introduction

    1. This is an application by the Claimant, AMC III Purple B.V., for summary judgment in respect of certain aspects of its claim relating to two written agreements under which it lent certain sums to the Defendant, Amethyst Radiotherapy Ltd. Those two agreements are: (i) a mezzanine facility agreement dated 7 May 2014 (the “MFA”), as amended by an addendum dated 21 April 2015; and (ii) a supplemental loan agreement dated 21 April 2015 (the “SLA”).
    2. Specifically, the Claimant contends that it is entitled to summary judgment in relation to:

(i) Its claim for a declaration that there have been “Events of Default” under each of the MFA and the SLA as a consequence of: (a) the Defendant’s failure to pay interest under the MFA on 31 December 2018; (b) the Defendant’s failure to pay interest due under the MFA on 31 March 2019; (c) the Defendant’s failure to repay the principal sum of €4 million that it borrowed under the SLA either by the “Repayment Date” (21 April 2018) or at all; and (d) the Defendant’s failure to pay interest of approximately €1.127 million due under the SLA.

(ii) An order that the Defendant pay sums due to the Claimant in respect of outstanding but unpaid interest under the MFA.

(iii) An order that the Defendant pay the principal and interest outstanding under the SLA.

    1. The Claimant contends that its entitlement to summary judgment can be readily demonstrated by reference to the contractual documents. The Defendant, by contrast, contends that it is important to consider the background to those documents and the relations between the parties in more detail, and that when this is done, it will be seen that the appropriate disposal of the Claimant’s application is that the application for summary judgment should be dismissed. The Defendant has also issued a cross-application for the present proceedings to be stayed pending the outcome of an ICC Arbitration which has been commenced in Cyprus, or alternatively, if the court is minded to order summary judgment in favour of the Claimant, for enforcement of that judgment to be stayed pending the resolution of the ICC Arbitration.

Factual Background

    1. The background to the MFA and the SLA is the subject of a lengthy witness statement of Mr Goldenberg on behalf of the Defendant. The Claimant’s witness statements say that much of the contents of Mr Goldenberg’s witness statement is not accepted but, save in certain limited respects, do not contradict it. Accordingly, I consider that the Defendant has a reasonable prospect of establishing at trial, should there be one, that Mr Goldenberg’s evidence insofar as not contradicted accurately sets out the factual background. I will proceed on this basis, and what follows is a summary of Mr Goldenberg’s factual account.
    2. As described by him, the Defendant is a joint venture company, which was incorporated in Cyprus in 2014 and changed its name to its current name on 18 March 2014. Its original shareholders (the “Original Shareholders”) were a Cypriot company, Panourania Trading Ltd, and an Israeli company, Exclusive Golden Care Limited. The purpose of the Defendant company was to operate radiotherapy centres. The underlying business operations had previously been conducted through three partnerships under Cyprus law. These partnerships transferred all their rights and obligations to the Defendant in May 2014.
    3. By 2013 the Original Shareholders and those that controlled them were looking to expand this business, which already had substantial conventional debt, by way of some sort of long term partnership with an investor. As a result, starting in October 2013, they began discussions with representatives of the Accession Mezzanine Capital Group of companies (the “AMC Group”). Companies in the AMC Group provide mezzanine finance, which may be described as a hybrid of debt and equity.
    4. As a result of these discussions it was agreed that a company in the AMC Group would receive a warrant for 5% equity in the Defendant. It did not pay a commercial price for this, but instead it was agreed that another AMC Group company would provide a €21 million mezzanine facility for seven years. In the contractual documents which were entered into in May 2014, the Claimant was to be the Lender and was to provide the mezzanine facility in three tranches under the MFA, while the equity interest was allotted to a separate entity, namely Accession Mezzanine Capital III LP. This entity was later replaced in the arrangements by Accession Mezzanine Capital III (Jersey) Ltd. I shall refer to both as “the AMC III Fund”. There was also a Shareholders’ Agreement (the “SHA”) governed by Cypriot law. The SHA recorded that the Lender was a wholly owned subsidiary of the AMC III Fund. Under it, furthermore, the Defendant was described as “the JVC”, explicitly indicating, as the Defendant says, the joint venture nature of the arrangement. AMC III Fund had the right to appoint a CFO of the Defendant, and a role in appointing its CEO, as well as being under an obligation to ensure that the Defendant was run in the best interests of the company.
    5. Under the MFA, an “Equity Contribution” was required from the Original Shareholders, which was to made by way of loans from the shareholders or an associated company, Grevanit Ltd, and subordinated to the MFA. The terms of those loans (the “Original Shareholder Loans”) were that they were unsecured, at a 6% interest rate, rising to 8% on default, and were for an initial term of 36 months. Payments under “shareholder loans” were, by clause 21.30 of the MFA, subordinated to the MFA. This was given effect by a Sponsor Undertaking.
    6. The SHA and the MFA contained provisions permitting the AMC Group companies’ interests to be bought out. There was a right to pre-pay the borrowing; and Put and Call Options for the purchase by the Original Shareholders of AMC III Fund’s equity interest based on an agreed formula. In the event of an essential breach of obligations, the innocent party would be entitled to exercise an Early Put/Call Option.
    7. By early 2015 the parties had agreed a detailed Business Plan, involving the construction or acquisition of 13 additional centres by the end of 2018, and adding additional linac (ie linear accelerator) machines to specific existing centres.
    8. In January 2015, there was a meeting in Vienna about how to finance this. The AMC Group was represented by Mr Franz Hörhager and Mr Chris Buckle. Mr Buckle indicated that AMC Group companies would be willing to put in more funds, but were concerned that the Defendant should not become “overleveraged”. As a result it was agreed that a company in the AMC Group would take an additional 15% shareholding at a nominal price. On the Defendant’s evidence, it was agreed that this was in consideration of the making of a loan on substantially the same terms as the Original Shareholder Loans. This was done by way of the €4 million Supplemental Loan entered into on 21 April 2015, and documented in the SLA.
    9. The Defendant’s evidence is that, since those arrangements were put in place, there have been substantial disputes about the running of the Defendant and the utilisation of the funding. In particular, Mr Goldenberg’s evidence is that (i) between January 2016 and July 2016, and from January 2017 to date, AMC III Fund has not appointed a CFO; (ii) AMC III Fund insisted on the replacement of the existing CEO in late 2015, but refused to approve the terms of a new appointment until January 2017; and (iii) AMC III Fund vetoed expenditure on the acquisition and construction of new centres and linacs. According to the Defendant’s evidence, this has greatly stunted the planned expansion of the Defendant.
    10. Discussions have been conducted about an exit for the AMC Group companies, involving the repayment of the lending and a payment for the equity stake. No deal was reached, and by autumn 2018 the Defendant arranged a refinancing which would permit it to pay off the lending and pay an amount in respect of the equity. According to the Defendant’s evidence, however, the relevant AMC Group companies have repeatedly blocked that refinancing.
    11. On 28 December 2018 the Defendant threatened the AMC Group with arbitration. On 15 February 2019 the Defendant sent a “cease and desist” letter to AMC III Fund and to the Claimant, amongst others, intimating formal action. On 19 March 2019 a formal Notice of Dispute under the SHA was sent. Arbitration was commenced by the Defendant and the Original Shareholders against AMC III Fund under the SHA on 9 May 2019.

Summary Judgment: the MFA claims

    1. The Claimant’s application insofar as it relates to the MFA is (i) for a declaration that there have been Events of Default thereunder; and (ii) for unpaid interest under the MFA, the precise details of which I will explain in due course.
    2. The MFA contains the following terms of relevance:

(1) Sums lent under the MFA fall due to be repaid on the Termination Date, to wit 7 May 2021: clause 6.

(2) Clause 22.1 which stipulates that “each of the events or circumstances set out in clause 22 is an Event of Default (save for clause 22.30 (Acceleration))”.

(3) One of the events or circumstances set out in clause 22 is that in clause 22.2, namely when “An Obligor does not pay on the due date any amount payable pursuant to a Finance Document at the place at and in the currency in which it is expressed to be payable unless: (a) its failure to pay is caused by administrative or technical error or a Disruption Event; and (b) payment is made within 2 Business Days of its due date.”

(4) By clause 1.1, a “Finance Document” includes the MFA itself.

(5) By clause 1.6, “A Default (other than an Event of Default) is continuing if it has not been remedied or waived in writing and an Event of Default is continuing if it has not been waived in writing, in each case to the satisfaction of the Lender.”

(6) Pursuant to sub-clause 10.2(a), the Defendant, as Borrower, is obliged to pay interest on sums advanced under the MFA (a) at the rate of the “Cash Pay Margin”, being 7% per annum, (b) on each “Cash Interest Payment Date”, namely 31 March, 30 June, 30 September and 31 December of each year.

(7) Pursuant to sub-clauses 10.3 and 10.5 of the MFA, in the event of non-payment of interest due on a “Cash Interest Payment Date”, interest would accrue at a default rate of 9% per annum, compounded at the end of each “Cash Interest Period”.

(8) By clause 27.6, “All payments to be made by the Borrower under the Finance Documents shall be calculated and be made without (and free and clear of any deduction for) set-off or counterclaim.”

    1. It is common ground between the parties that:

(1) The Defendant failed to pay the sum of €295,544.55 that was – questions of potential set-off apart – due in respect of interest by 31 December 2018;

(2) The Defendant failed to pay the sum of €296,407.07 that was – questions of potential set-off apart – due in respect of interest by 31 March 2019;

(3) The Defendant did pay the sum of €295,544.55 that was due by 31 December 2018, together with further interest due at the default rate pursuant to sub-clauses 10.3 and 10.5 of the MFA, on 1 April 2019.

    1. The sum of €296,407.07 has not been paid. On or about 15 May 2019 the Defendant’s solicitors wrote to the Claimant’s solicitors saying that the Defendant had a sum of about €1 million in an account, which had been advanced under Tranche B of the MFA, and requested authorisation to pay the outstanding interest from this amount. They added: “Plainly, if your client is unwilling to permit our client to make that payment there can be no basis for the complaint of a failure to pay.” On 20 May 2019 the Claimant’s solicitors replied saying that the Defendant could, if it chose to, in fact pay the sum of interest from the amount in the account, though that might be a breach of the MFA because by clause 3.1(b) of the MFA, as amended, the Defendant was to apply all amounts borrowed by it under “Tranche B, towards financing the development of three radiotherapy centres, subject to the Borrower Board of Directors’ approval and [the Claimant’s] consent”. For appropriate consideration to be given to the Defendant’s proposal, the letter continued, certain further information was needed; but the Claimant was not obliged to consent.

The claim for a declaration

    1. I consider that there is no arguable defence to the claim for a declaration that there have been Events of Default under the MFA, in the non-payment of the 4th quarter 2018 and 1st quarter 2019 interest payments on time. Each non-payment constituted an Event of Default. Neither has been waived in writing by the Claimant.
    2. As I understood it, the Defendant raised three issues as defences to this aspect of the claim. I will consider them in turn, but I found that none constituted an arguable defence to the claim in question.
    3. The first was a contention that the Defendant had not been under an obligation to make the interest payments because it was entitled to set off, by way of equitable set-off, various claims which it says that it has against the Claimant for the conduct of the AMC Group which are set out in Section D of its draft Defence and which include failing to put forward appropriately qualified CFOs, failing to approve a CEO, and failing to approve expenditure on projects to expand the Defendant’s business.
    4. The short answer to this is that, even assuming that the Defendant has claims which it can bring of that sort against the Claimant, it is not entitled to set them off against any interest payments falling due under the MFA and not entitled to make a deduction from those payments because of such cross-claims. That is the effect of clause 27.6 of the MFA. The way in which that clause is drafted, in terms of the calculation and making of payments under the Finance Documents, does not lend itself, unlike some other clauses which have been considered in the authorities, to an argument that it is only sums which are “due” against which there can be no set off and if there can be an equitable set-off the sums are not due (see Derham on the Law of Set Off (4th ed) para. 5.99). In any event, I consider that the purpose and effect of clause 27.6 is to preclude the application of an equitable set-off as well as a legal set off. I regard this conclusion to be supported by the decision in Credit Suisse International v Ramot Plana OOD [2010] EWHC 2759 (Comm), which considered a “no-set-off” clause in identical terms to that in the MFA. I also consider that it is supported by the decision of the Court of Appeal in Caterpillar (NI) Ltd v John Holt & Co. (Liverpool) Ltd [2013] EWCA Civ 1232, and in particular Longmore LJ’s analysis at paragraphs [35]-[38] including his dismissal of the argument that the clause which he was considering precluded only legal and not equitable set-offs. As Longmore LJ said: “the average businessman who was told that a clause of this kind applied to legal set-offs but not equitable set-offs would hardly be able to contain his disbelief”. I consider that the clause in the MFA is a clause of the “kind” that Longmore LJ was there referring to.
    5. The second suggested defence is a contention that the Claimant has failed to permit a refinancing of the sums due under the MFA (and SLA), and that as a result it cannot complain of non-payments thereunder. This is not just put as a set-off, and insofar as it is relied on in that way it falls foul of the point which I have considered above, but also as what may be called a Mackay v Dick point, after the well-known case reported at (1881) 6 HL 251. The argument is that the Claimant has effectively prevented performance of the Defendant’s obligations, and in the result cannot complain about their non-fulfilment. In my judgment Ms Brown QC was correct to say that Mackay v Dick, and the principle which is referred to by the name of that case, have no application here. Payment of sums under the MFA is not an obligation which is expressly or impliedly stipulated, or would be expected, to be dependent on cooperation by the lender as to the implementation of alternative financing possibilities for the borrower.
    6. The third suggested defence is that the Claimant has failed to permit the payment of these interest amounts out of the sum which the Defendant holds in its account, as part of the Tranche B drawdown. As to this, it did not appear from the material before me that the Claimant was in a position to prevent the use of those funds; nor that it was asked for agreement to use those funds for the payment of the fourth quarter 2018 interest; nor that there has actually, at least to date, been a refusal by the Claimant to accept that payment of the outstanding interest in respect of the first quarter 2019 from those funds will not be a breach of the MFA. In any event, I do not consider that the Claimant is under any obligation to agree to the use of these funds for the payment of interest under the MFA, given the terms of clause 3.1(b) (as amended).

Money claim for interest under the MFA

    1. As I have already explained, the sum due in respect of interest for the fourth quarter 2018 has now been paid. That does not mean that its non-payment does not constitute an Event of Default, but does mean that there is now no claim for a money judgment in respect for that sum.
    2. The Claimant claims, however, that there should be an order for the payment of the outstanding first quarter 2019 interest. In this regard, it is to be noted that the application for summary judgment does not refer to this amount, as opposed to that in respect of the fourth quarter 2018 which has now been paid. Nevertheless, it was made clear in Mr Twigden’s Second Witness Statement, of 7 May 2019, and in the draft order which was annexed to the Claimant’s Skeleton Argument, that summary judgment was being sought in respect of the amount of the first quarter 2019 interest. I consider that the Defendant knew that that was being sought and has been able to deal with the application for summary judgment in respect of that amount.
    3. I do not consider that there is any arguable defence to the claim for summary judgment in the amount of the outstanding interest relating to the first quarter 2019. I have already explained why I do not consider that there is any arguable defence to the claim that there was an Event of Default constituted by this non-payment. The same reasons explain why there is no defence to the claim for an order to pay the relevant amount.

Summary Judgment: the SLA Claims

    1. The second main aspect of the Claimant’s application for summary judgment is for a money judgment in respect of the principal and interest under the SLA. There is also an application for a declaration that there has been an Event of Default under the SLA.
    2. I have already briefly referred to the circumstances in which the SLA was agreed.
    3. The terms of the SLA include the following:

(1) By clause 2.1, “The [Claimant] will lend to the [Defendant] up to €4,000,000 (the Facility).”

(2) By clause 4.1, “The [Defendant] will repay the loan in full (together with all other amounts due but unpaid under this Agreement) on the date falling 36 months from the date of this Agreement (the Repayment Date).”

(3) By Clause 6:

“6.1 The [Defendant] will pay interest on the Loan at the rate of 6% per annum.

6.3 Interest on the Loan will be paid on the Repayment Date.

6.4 Interest on any unpaid amount will accrue on the same basis but at a rate 2% per annum higher than the rate specified in clause 6.1 above. Unpaid interest will be compounded and added to the Principal Amount.”

(4) By clause 7, which was entitled “Events of Default”

“7.1 Each of the matters listed in the rest of this clause 7 is an event of default (Event of Default)

(a) the [Defendant] fails to pay any amount payable by it under this Agreement in the manner stipulated;

(b) the [Defendant] breaches any term of this Agreement

Consequences of an Event of Default

7.2 If an Event of Default has occurred and is continuing, the [Claimant] may at any time, by giving notice to the [Defendant]:

(a) terminate the Facility (thereby reducing the Facility to zero);

(b) demand repayment of all or any part of the Loan and payment of any other amounts accrued under this Agreement; and/or

(c) declare that all or any part of the Loan is repayable, and any other amounts accrued under the Agreement are repayable, on demand by the [Claimant] at any time.

7.3 Notwithstanding the occurrence of an Event of Default, but without prejudice of (sic) the rights of the [Claimant] under clause 7.2, the [Claimant] agrees that it shall only apply proceeds recovered from the [Defendant] in repayment of the Loan after all amounts outstanding under the EUR 21,000,000 mezzanine facility agreement dated 7 May 2014 between the [Defendant] and the [Claimant] have been repaid in full.”

(5) By clause 8.1: “Each payment to be made by the [Defendant] under this Agreement will be made in full, without any set-off or deduction.”

    1. The following matters are not in issue: (a) no amounts were paid under the SLA by the “Repayment Date” of 21 April 2018; (b) on 23 April 2018 the Claimant served on the Defendant a written notice of demand for repayment of the sums due under the SLA; (c) on 19 June 2018 the Defendant requested an extension of the repayment period under the SLA to 31 July 2018; (d) on 30 August 2018 the Claimant refused that request; (e) there have been no payments of principal or interest under the SLA since then.
    2. The Claimant contends that these facts give rise to what it describes as a straightforward claim, (a) for a declaration that the Defendant’s failures to repay the principal and to pay interest due under the SLA constitute “Events of Default”, and (b) for an order that the Defendant repay the principal of €4 million, together with interest calculated at the rate of 6% prior to the Repayment Date and at 8% after the Repayment Date.
    3. The Defendant resists this claim, and contends that summary judgment should not be entered in respect of either aspect. It raises essentially three points by way of defence to both aspects:

(1) That the SLA was subordinated and postponed to the MFA. It was intended to be an “equity contribution”, subordinated to the MFA in the same way as the Original Shareholder Loans were;

(2) That the Claimant has prevented the proposed refinancing intended by the Defendant and accordingly could not complain that there had not been a repayment under the SLA or payment of interest thereunder;

(3) That the Defendant can set off claims against the Lender for the various matters alleged in Section D of the draft Defence, to which I have already referred in the context of the MFA.

    1. In support of the first of these points, Mr Barden, in helpful and attractive submissions, relied on the background to the conclusion of the SLA, to which I have referred. He relied in particular on the following matters:

(1) That the SLA was intended to provide finance in a context in which it was the AMC Group’s own view, as expressed by Mr Buckle at the January 2015 Vienna meeting, that the Defendant was “overleveraged”.

(2) That in an email sent to individuals who were, amongst other things, representatives of the Defendant, following the Vienna meeting, Mr Buckle stated:

“As discussed, I have summarised below the key terms that we shook hands on. I trust this reflects our discussions.

1. AMC III will invest via its subsidiaries EUR 4 million in a mixture of new ordinary shares and shareholder loans, pro-rata existing shareholders, for a shareholding of 15% and 15% of shareholder loans.”

Though the Claimant had contended that this email was inadmissible, as being part of the negotiations, this was incorrect as it indicated the commercial purpose of the contract.

(3) That the core terms of the SLA matched those of the Original Shareholder Loans.

(4) That the First Addendum to the MFA, executed on the same date as the SLA, provided for the SLA to be “included in the definition of Equity Contribution for the purpose of the Equity Contribution Percentage”, and defined the SLA as the “Subordinated Lender Loan”.

    1. Mr Barden contended that the subordinated and postponed nature of the SLA was borne out by the terms of clause 7.3. That, he contended, provided that the SLA was only repayable when the MFA had been repaid in full. He submitted that it was significant that clause 7.3 was stipulated to be applicable “Notwithstanding the occurrence of an Event of Default”. Further that it was explicable that it was “without prejudice to the rights of the [Claimant] under clause 7.2”, because that allowed the Claimant to trigger clause 6.4 and an increase of the interest rate on unpaid sums from 6% to 8%.
    2. For the Claimant, Ms Brown QC submitted that the words of the SLA were clear. Clause 4 provides that the loan is to be repaid in full on the Repayment Date. Clause 7.3 does not have, and cannot be read as having, the effect for which the Defendant contends. It is expressly stated that it is “without prejudice [to] the rights of the [Claimant] under clause 7.2”, and those rights include the right, upon an Event of Default, to “demand repayment of all or any part of the Loan and payment of any other amounts accrued under this Agreement”. Furthermore, clause 7.3 is expressly predicated on the Claimant being able to recover sums which are due: its wording is that the Claimant agrees only to “apply proceeds recovered from the [Defendant] in repayment of the Loan” after the MFA has been repaid. That indicates that the Claimant can make the recovery, but agrees not to apply the proceeds against the SLA until the MFA had been repaid. At the hearing she suggested that that might work by sums recovered under the SLA, before the MFA has been repaid, being held in a suspense account, and that that would have the advantage of protecting the Claimant in respect of the Defendant’s insolvency.
    3. Ms Brown QC also submitted that the points relied upon by the Defendant in relation to the background to the SLA do not permit or compel a different reading of the terms of the SLA from that which she advocated. Specifically, while objecting to the admissibility of Mr Buckle’s email of 30 January 2015, she also submitted that it did not actually support the construction of the SLA advanced by the Defendant, in that it did not say that the new loan would not be repayable until the MFA was repaid, and in any event it specifically envisaged a process of documentation of the agreement; that there had been such a process, involving lawyers, which had lasted nearly three months; and that the result was the SLA as executed. What had been said prior to that process of drafting and documentation was of little assistance in construing the terms actually used. Further, as to the Addendum to the MFA, it was significant that the amendment which it made to clause 21.30 of the MFA did not refer to the SLA, which could not qualify as a “shareholder loan” as the phrase was there used, as indeed is apparent from the fact that it was treated as separate from the “shareholder loans” in Clause 20.1 of the MFA (as amended by clause 2.3.1 of the Addendum).
    4. In my judgment, the arguments of the Claimant on this point are to be preferred. The terms of the SLA provide for the principal amount to be repayable at the end of 36 months. Under clause 7.2(b), if there is no payment when due, the Claimant has the right to demand payment. That right is specifically stated to be preserved, and not interfered with, by clause 7.3. Furthermore, clause 7.3 cannot, in my judgment, be read, even when considered against the background to which the Defendant has drawn attention, as preventing the Claimant from recovering sums due under the SLA until after the MFA has been repaid. It refers to a postponement of the application of proceeds recovered, not to a postponement of the right to recover. While the precise intention behind clause 7.3 is perhaps debatable, I do not consider that it can be read as preventing recovery under the SLA until the MFA has been repaid.
    5. The second defence raised by the Defendant to the claim under the SLA is that the Claimant has prevented the refinancing, and as a result cannot complain about the failure to pay under the SLA. This argument fails for the same reasons as the similar argument in relation to the MFA fails. It is not an express, nor can it be regarded as an implied term of the SLA that the Claimant as Lender should cooperate to facilitate refinancing, or that in the absence of such cooperation the Lender should not be entitled to claim on the loan agreement.
    6. The third defence is the contention that the Defendant is entitled to set off cross-claims which it has against the Claimant against sums due under the SLA. Once again, I consider that this argument fails for essentially the same reason as the analogous argument in relation to the MFA fails. The SLA contains its own non-set-off clause. It is not in exactly the same terms as that in the MFA, but it provides that there shall not be “any set-off or deduction”. Similar wording was considered in Caterpillar v John Holt, where Longmore LJ said (at [36]) “‘Any’ must mean what it says.” I consider that the effect of the clause used is to prevent an equitable as well as a legal set-off.
    7. In those circumstances I consider that the Claimant is entitled to summary judgment both in respect of its claim for a declaration that the non-payment of the principal and interest under the SLA constituted an Event of Default within the meaning of clause 7.1 thereof and in respect of its money claim for principal and interest due under the SLA.

Cross-application: Case Management Stay

    1. The Defendant applies, by its cross-application, for a stay of the proceedings pending the determination of the ICC arbitration which has been recently commenced. This has been described, by way of shorthand, as a “case management stay”.
    2. There is no dispute that the court has the power to grant such a stay, pursuant to CPR r. 3.1(2)(f) and s. 49(3) Senior Courts Act 1981, even when the parties to the other proceedings are different.
    3. In Reichhold Norway ASA v Goldman Sachs International [2000] 1 WLR 173 it was said that such a stay would only be granted in “rare and compelling circumstances” (per Lord Bingham of Cornhill CJ at 186C).
    4. I do not consider that the present can be said to be a case in which such a stay is appropriate, at least insofar as it is sought to stay the proceedings at the present juncture and thus to prevent the Claimant obtaining summary judgment on the parts of the claim in relation to which it has sought it. The following are relevant considerations in reaching this conclusion.

(1) The Claimant is not a party to the arbitration, and the arbitration cannot, without further agreement between the parties as to the jurisdiction of the arbitrators, determine the Claimant’s claims under the MFA and the SLA.

(2) Both the MFA and the SLA contain exclusive jurisdiction clauses in favour of the courts of England, which are agreed to be “the most appropriate and convenient courts to settle Disputes”. This is a matter of considerable significance, as was the presence of English jurisdiction clauses in Standard Chartered Bank (Hong Kong) Ltd v Independent Power Tanzania Ltd [2016] 1 CLC 750, and Classic Maritime Inc v Lion Diversified Holdings Berhad [2010] 1 Lloyd’s Rep 59. To grant a case management stay would effectively deprive the Claimant of the benefit of these provisions, including the English court’s process of summary judgment, which the Defendant agreed to.

(3) The fact that the Claimant is, in my judgment, entitled to summary judgment, is itself a reason for a refusal of a case management stay: Classic Maritime Inc. v Lion Diversified at [25].

(4) The arbitration has only just been commenced. This is not a case in which there are alternative proceedings which have been significantly progressed.

(5) Insofar as the stay is sought on the basis that the result of the arbitration may be that the Claimant’s claims under the MFA and SLA will “fall away”, this appears to be premised on the assumption that an award may be made in the arbitration which will in effect require the Claimant not to continue with the claims it has made in this action, and that the party bound by the award would be able to prevent the pursuit of such claims. That assumption is questionable, however, not least because the shareholder of the Claimant is at liberty to sell its shareholding, and because the MFA expressly permits the assignment of the loans made thereunder.

    1. I do not rule out that it might be appropriate, once this application for summary judgment is disposed of, for some or all of the remaining aspects of this litigation to be stayed in favour of the arbitration. That possibility is not however a matter on which I have heard any submissions, and I do not need to express any view about it at this juncture.

Cross-application: Stay of Enforcement

    1. The Defendant further seeks, if the court is minded to grant summary judgment in favour of the Claimant, an order staying enforcement of that judgment pending the outcome of the arbitration, on essentially similar grounds to those on which the case management stay is sought.
    2. I did not see how this application can apply to the aspect of the application for summary judgment which seeks the making of declarations.
    3. As to the application that the money judgments to which, as I have found, the Claimant is entitled, should be stayed, what is sought is a stay of the type referred to in and governed by CPR r. 83.7. As indicated in CPR r. 83.7(4) this requires a showing that “there are special circumstances which render it inexpedient to enforce the judgment or order”.
    4. I do not consider that there are special circumstances which render it inexpedient to enforce the order. The Claimant is entitled to summary judgment because there is no issue which requires trial. In the circumstances, the Claimant should be entitled to enforce that judgment. The existence of the ICC arbitration is not a good reason for refusing its enforcement, for essentially the same reasons as I have given in relation to the refusal of a case management stay.

Conclusion

  1. The Claimant is entitled to summary judgment. I trust that the parties will be able to agree the terms of the order, including as to the amounts which are payable. Failing agreement I will determine any issues on paper.

Cockett Marine Oil DMCC v Ing Bank NV & Anor [2019] EWHC 1533 (Comm) (17 June 2019)

Neutral Citation Number: [2019] EWHC 1533 (Comm)
Case Nos: CL-2018-000613 and CL-2018-000614

IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
QUEEN’S BENCH DIVISION
COMMERCIAL COURT

Royal Courts of Justice
Rolls Building, 7 Rolls Buildings
Fetter Lane, London EC4A 1NL
17/06/2019

B e f o r e :

MR. JUSTICE TEARE
____________________

Between:

COCKETT MARINE OlL DMCC
Claimant

-and-

 
(1) ING BANK N.V.
(2) O.W. BUNKER MALTA LIMITED

M/V “ZIEMIA CIESZYNSKA”


Defendants

AND

 
COCKETT MARINE OIL (ASIA) PTE LIMITED
Claimant

– and –

 
(1) ING BANK N.V.
(2) O.W. BUNKER EAST DMCC

MV “MANIFESTO”


Defendants

____________________

Dominic Happé (instructed by Lewis & Co) for the Claimants
Siobán Healy QC and Clara Benn (instructed by Gibson & Co) for the Defendants

Hearing dates: 11 and 12 June 2019 
____________________

HTML VERSION OF JUDGMENT APPROVED
____________________

Crown Copyright ©

Mr. Justice Teare :

    1. This a challenge to two arbitration awards pursuant to section 67 of the Arbitration Act 1996 on the grounds that the arbitral tribunal had no jurisdiction. The tribunal held that it had jurisdiction because the terms of the contract between the parties included a London arbitration clause. The Claimants on this challenge say that the terms of the contract did not include such a clause and so the tribunal lacked the requisite jurisdiction. The Defendants to this challenge seek to uphold the decision of the tribunal that the terms of the contract included a London arbitration clause. The arbitration tribunal considered the matter in comprehensive and fully reasoned awards. But the Arbitration Act 1996 permits there to be a rehearing of the issue and so this court must consider the matter afresh.
    2. The claims sought in the two cases are modest. In the one case the claim was for the sum of $298,526 in respect of the supply of bunkers and in the other case the claim was for the sum of $228,000, also in respect of the supply of bunkers. The bunkers were supplied without complaint and in those circumstances it is puzzling that the Claimants on this challenge wish to incur further legal costs on the question of jurisdiction. The explanation may lie in the complications caused by the collapse of the OW Bunker Group (“OWBG”), which have already engaged the attention of the Supreme Court; see PST Energy 7 ShippING LLC v OW Bunker Malta [2016] UKSC 23. But there appears to be no risk of the Claimants having to bear the costs of the bunkers twice. In the one case I have been told that they have paid the actual or physical supplier of the bunkers but if they are liable to the Defendants also they have the benefit of an indemnity from the supplier. In the other case I have been told that the Defendants have paid the actual or physical supplier. Counsel for those challenging the awards had no instructions as to there being any particular commercial or business reason for incurring the costs of this challenge.

The parties

    1. The parties are (or were) engaged in the supply of bunkers to ships. In the first case Cockett Marine OIL DMCC (“Cockett Dubai”) purchased bunkers from OW Bunker Malta Limited (“OW Bunker Malta”) for supply to the mv ZIEMIA CIESZYNSKA. OW Bunker Malta purchased the bunkers from Eko Marine Fuels. The bunkers were actually supplied to the vessel on 10 October 2014. In the second case Cockett Marine Oil (Asia) PTE Ltd. (“Cockett Asia”) purchased bunkers from OW Bunker Middle East DMCC (“OW Bunker Middle East”) for supply to the mv MANIFESTO. OW Bunker Middle East purchased the bunkers from GS Caltex. The bunkers were actually supplied to the ship on 11 October 2014.

The issues

    1. The issues can be shortly expressed.

i) In the first case concerning the supply of bunkers to the mv ZIEMIA CIESZYNSKA the question is whether, when the contract was made, OWBG’s standard terms and conditions, which included the London arbitration clause, were part of the contract either because they were expressly incorporated or because they were incorporated by reason of a course of dealing between OW Bunker Malta and Cockett Dubai.

ii) In the second case concerning the supply of bunkers to the mv MANIFESTO the question is whether, when the contract was made, OWBG’s standard terms and conditions, which included the London arbitration clause, were part of the contract because they were expressly incorporated.

iii) In both cases there is a further question, namely, whether, if the terms and conditions were incorporated, they were varied so as to exclude the London arbitration clause because the actual or physical supplier of the bunkers insisted that its terms, (which did not include a London arbitration clause), govern the contracts between the relevant OWBG entity and the relevant Cockett Marine entity.

iv) Finally, there is a question as to whether, in the event that the arbitrators had jurisdiction, Cockett Marine can challenge their finding that there was a valid assignment of OWBG’s claim to ING Bank. Cockett Marine say they can because the issue goes to the arbitrator’s jurisdiction to make an award against ING Bank. ING Bank and OWBG say that they cannot because the ambit of a challenge to the substantive jurisdiction of the arbitrators under the Arbitration Act 1996 does not extend to such an issue.

OWBG’s 2013 Terms and Conditions

    1. In 2013 OWBG altered their terms and conditions. Prior to 2011 their terms and conditions provided for Danish law and Danish arbitration. Their 2013 terms and conditions provide for English law and London arbitration. OWBG took steps to inform their customers of the change. In view of the number of customers involved they employed an independent company, Concep, to communicate with their customers, rather than perform the task themselves.
    2. There was no evidence from Concep as to the steps they took to inform customers of the change in the terms and conditions. However, OWBG was able to access Concep’s web page and, by use of a password, access information about the “campaign”. That was the method provided by Concep to its customers to enable them to assess the success of the campaign. Evidence of the information available on the web page was given by Mr. Hansen, OWBG’s IT manager. He had had no contact with Concep or with the steps taken to inform customers of the change in terms and conditions. But he was able to access the information held on Concep’s web page and was familiar with the type of technology used by Concep and so could explain the significance of the information. He gave his evidence clearly and fairly. For example, he had no hesitation in accepting the limitations to the evidence he could give. When asked to explain his answers he did so willingly and with comprehensible reasons.
    3. From Concep’s web page it was possible for Mr. Hansen to access a copy of the pro forma email sent to the customers of OWBG in August 2013. It stated as follows:

Please find attached OW Bunker Group Terms and Conditions of Sale for Marine Bunkers Edition 2013 being valid from and including 01.09.2013 and based on which our Group is selling to you.

OW Bunker Group – Terms and Conditions.pdf.

    1. The pro-forma letter was signed by Mr. Mortensen, manager of the Quality Support Department. He also gave evidence and did so with fairness, also accepting without hesitation what he could not speak about. He had not drafted the letter and could not remember it but said that he must have approved it. He explained that OWBG operated two computer systems; one, Saleslogix, which recorded traders’ contacts with customers and, two, Navision, an accounts system used by the finance team.
    2. The information available from Concep revealed, as explained by Mr. Hansen, that the letter of August 2013 was sent to 6,985 recipients whose email addresses were in the Saleslogix system and to 6,229 recipients whose email addresses were in the Navision system. Of the former some 2,543 recipients viewed the email, 777 clicked on the attachment and 219 bounced back. Of the latter some 2,188 recipients replied, 552 clicked on the attachment and 190 bounced back. Mr. Mortensen received no complaints from customers that they could not access the terms and conditions by clicking on the attachment. Mr. Hansen gave evidence that he had (in the course of the preparation of his evidence) clicked on a test email sent to Mr. Anders Fryst of OWBG on 30 August and it gave access to the terms and conditions.
    3. The emails in fact sent to the various Cockett Marine companies are not in evidence. It would appear that they are not available on the Concep web page; otherwise Mr. Hansen would have found them. But the information from Concep indicates that the pro forma letter was sent to the email address of Cockett Dubai and Cockett Asia (the two Cockett Marine companies in these proceedings) on 30 August 2013. The “campaign history” recorded that the Cockett Dubai email address viewed the terms and conditions 22 times and that it had been clicked on twice. Another document (“Concep Send”) indicated that it had been viewed 3 times on 30 August 2013. The campaign history for the Cockett Asia email address recorded that it had been viewed 6 times. Another document (“Stream”) showed that a person operating the Cockett Asia email address viewed it on 2 and 3 September 2013.
    4. Cockett Marine adduced evidence from the two traders involved in this case and from Cockett Marine’s solicitor that the IT department of Cockett Marine had not found a copy of the August 2013 email. However, there was no witness from the IT department and no explanation of the steps taken by the IT department to search for the email in question. There is in fact evidence from the Concep web page that a person operating the email address of Mr. Fletcher, one of those traders, viewed the email on 30 August 2013. When cross-examined he accepted that he might have read the subject line of the email but not the terms and conditions themselves because that was not his role. It was the role of another department.
    5. Counsel for Cockett Marine submitted that the evidence of Mr. Hansen was not reliable because he had not dealt with Concep and was not an expert on their systems. However, the documents he adduced in evidence were obtained from the Concep web page (even if not all of them expressly indicated that they came from Concep web page) and he, as OWBG’s IT manager, was qualified to interrogate the campaign history, the web site being the means provided by Concep to OWBG to learn how the campaigns had fared. Moreover, he himself had clicked on the test email sent to Mr. Fryst. In any event there can be little, if any, doubt as what terms such as “viewed”, “clicked” and “bounced” mean. There was no reason not to accept Mr. Hansen’s evidence.
    6. I am satisfied that that on the balance of probabilities OWBG’s 2013 terms and conditions were brought to the attention of Cockett Marine and in particular to the two Cockett Marine companies involved in these proceedings.
    7. Between September 2013 and October 2014 OWBG alleges that there was a course of dealing between OW Bunkers Malta and Cockett Dubai on the terms of the 2013 terms and conditions. No such allegation is made as to a course of dealing between OW Bunkers Middle East and Cockett Marine Asia (because, as found by the arbitrators, some of the trades involving Cockett Asia had included reference to the 2011 terms and conditions).
    8. Between September 2013 and October 2014 there were 9 sales of bunkers by OW Bunkers Malta and Cockett Dubai. In each of these trades there was a formal “nomination” by Cockett Dubai, which set out the sale and requested a copy of “your latest terms and conditions”. In each case there was also a “Sales Order Confirmation” from OW Bunkers Malta which stated that the order was subject to OWBG’s terms and conditions “which are known to you and remain in your possession” but in case they were not a hyper link was provided so that they could be accessed from OWBG’s website. In 5 of the previous trades the hyper link was in a certain form and in the remaining 4 it was in a slightly different form. Mr. Hansen, as a result of using an archive website called the “Wayback Machine”, has been able to confirm that on 27 November 2014 (less than two months after the bunker supply contracts which have given rise to these proceedings) clicking on the second hyper link would take the user to the 2013 terms and conditions. He could not establish the same with regard to the first hyper link web because, he thought, the first hyper link had not been uploaded onto the web site, whilst the second had been and so could be accessed by the “Wayback Machine”. Although it is possible that there was an error with the first hyper link (which might explain why it was altered) I consider it more likely than not that clicking on the first hyper link would also have taken the user to the 2013 terms and conditions. Mr. Mortensen had occasion to click on the hyper link 5-6 times a year (in the course of his work resolving disputes with customers) and that led him to the 2013 terms and conditions. He could not recall whether he had clicked on the first hyper link but if the first hyper link did not lead the customer to the 2013 terms and conditions Mr. Mortensen would probably have received complaints from customers to that effect and he did not.
    9. In both cases before the court the submission by Cockett Marine is that the contracts for the supply of bunkers were not on OWBG’s 2013 (or any) terms and conditions. This is of course possible but it would be a surprising conclusion to reach for several reasons. First, the unchallenged evidence of Mr. Mortensen, who has long experience of many aspects of the bunker business having worked for OWBG for over 35 years, is that generally the seller’s terms and conditions apply to bunker supply contracts. The exception is where it is specially agreed that the buyer’s or other special terms will apply. Second, Mr. Fletcher, the trader acting for Cockett Dubai, accepted in the arbitration that it may be usual for the seller’s terms to apply at each stage of the contractual chain. Third, Cockett Marine’s standard form of nomination asked for a copy of the seller’s latest terms and conditions, Fourth, given the steps taken by OWBG in August 2013 to inform their customers, including Cockett Marine, that they would now be doing business on the basis of their 2013 terms and conditions, it would be surprising if they chose to do business on the basis of no terms at all.

The exchanges with regard to the supply of bunkers to mv ZIEMIA CIESZYNSKA

    1. It is common ground that on 2 October 2014 OWB Malta agreed to sell and Cockett Dubai agreed to buy a quantity of fuel oil. The email exchanges began at 1238 (or 1538, depending on the time zone) and ended at 1500 (or 1800). Although there was evidence of a telephone call neither party suggests it was of any significance. The email exchanges must be assessed objectively. The subjective or internal views of those involved are not therefore relevant. The email exchanges can be summarised as follows.

i) By an email timed at 1238 (1538) Mr. Fletcher of Cockett Dubai asked Ms. Perimenis of OWB Malta to make an offer for the supply of bunkers of a certain stated quantity and quality.

ii) By an email timed at 1400 (1700) Ms. Perimenis offered to supply the bunkers at certain stated prices and added “Please advise soonest possible since lsfo avails are currently limited”.

iii) By an email timed at 1427 (1727) Mr. Fletcher replied, stating “Despina we confirm our order. Pls send me the agents details asap together with the calling instructions”.

iv) By an email timed at 1456 (1756) Mr. Fletcher sent an email entitled Nomination which stated: “Ref our telecom we are now able to confirm having placed the following nomination”. The prices and specifications were then set out. In addition provisions relating to payment, bunker delivery receipts, sanctions and other matters were set out. At the end of the nomination it stated: “Please send us a copy of your latest terms and conditions of sale”.

v) By an email timed at 1500 (1800) OWB Malta was “pleased to confirm [the order] as per attached Sales Order Confirmation” (the “SOC”). The SOC gave details of the quantity, quality and price of the bunkers and stated that “the sale and delivery of the marine fuels” were subject to the “O.W.Bunker Group’s Terms and Conditions of sale for Marine Bunkers.” It was further stated that: “The acceptance of the marine bunkers by the vessel named above shall be deemed to constitute acceptance of the said general terms applicable to you as “buyer” and to OW Bunker Malta Ltd. as “seller”. The fixed terms and conditions are well known to you and remain in your possession. If this is not the case, the terms can be found under the web address” which was then set out. The email further said: “Any errors or omissions in above Confirmation should be reported immediately.”

    1. As to when the contract was made, Cockett Marine say that the contract was concluded at 1427 (1727), before mention was made of OWBG’s terms and conditions. But OWBG and ING Bank (who claim as assignees of OWBG) say that the contract was not made until 1500 (1800), alternatively on delivery of the bunkers.
    2. Mr. Fletcher gave oral evidence but since neither party relied upon any oral conversations as establishing the contract his evidence did not materially advance the debate. The question of when the contract was made depends upon an objective assessment of the emails.
    3. The offer made by OW Bunker Malta at 1400 (1700) was capable of acceptance. It was suggested that it was not capable of acceptance because of the words “Please advise soonest possible since lsfo avails are currently limited”. However, I consider that those words are simply an encouragement to Cockett Marine not to delay in accepting the offer.
    4. Cockett Dubai’s response at 1427 (1727) was “we confirm our order”. Those words are capable of amounting to an acceptance. But the court cannot overlook the fact that when Cockett Dubai provided their nomination at 1456 (1756) they added additional terms and requested a copy of OWBG’s terms and conditions. This strongly suggests that Cockett Dubai did not regard the parties as having already reached a binding agreement. If they had done so they would not have added additional terms or sought the seller’s terms and conditions. The present case therefore appears to be an example of the type of case, referred to in Chitty on Contracts 33rd ed. paragraph 2-028, where parties continue to negotiate after they appear to have reached agreement. In such a case the court may look at the entire course of the negotiations to decide whether an apparently unqualified acceptance did in fact conclude an agreement. In the present case I am satisfied, by reason of the terms of the nomination at 1456 (1756), that, objectively assessed, the parties had not concluded their agreement at 1427 (1727).
    5. OW Bunker Malta’s SOC was not an unqualified acceptance of the nomination. It added, in addition to OWBG’s standard terms and conditions, a term dealing with samples. So, although expressed as a confirmation of an order, it may well have been, strictly, a counter offer. Its terms provided for acceptance of the standard terms and conditions by conduct, namely, the acceptance of the bunkers by the vessel.
    6. Cockett Dubai were already aware of the 2013 terms and conditions by reason of the August 2013 email but if they were not they were able to access them by clicking on the hyper link in the SOC. As I stated in Impala Warehousing and Logistics v Wanxiang Resources [2015] EWHC 25 (Comm) at paragraph 16: “In this day and age when standard terms are frequently to be found on web-sites I consider that reference to the web-site is a sufficient incorporation of the warehousing terms to be found on the web-site.”
    7. There were no further documentary exchanges and therefore I consider that, in circumstances where OW Bunker Malta’s SOC had expressly identified the conduct which would amount to acceptance, without objection from Cockett Dubai, their counter-offer was accepted by that conduct, namely acceptance of the bunkers. It was submitted that this was an unrealistic and uncommercial conclusion to reach because Cockett Dubai would surely expect to know significantly before delivery of the bunkers that they had secured a contract for the bunkers in question, particularly in circumstances where Cockett Dubai had already committed itself to its buyer. Whilst there is some force in this submission it must also be borne in mind that OW Bunker Malta made clear that acceptance of the bunkers would amount to acceptance of the terms and conditions and that there was no objection to that.
    8. I have therefore concluded that this contract for the supply of bunkers was on OWBG’s 2013 standard terms and conditions. It follows that the arbitration tribunal had jurisdiction to determine the claim referred to it.
    9. It is unnecessary to deal with the alternative argument based upon a course of dealing. I shall therefore deal with it as shortly as I can.
    10. The test to determine whether terms have been incorporated by a course of dealing was summarised in Balmoral Group Ltd. v Borealis [2006] 2 Lloyd’s Reports 629 by Christopher Clarke J. At paragraph 348 he said that the question is whether

“that which each party says and does is such as to lead a reasonable person in their position to believe that those terms were to govern their legal relations”.

    1. At paragraph 352 he noted that in an earlier case the Court of Appeal had identified two tests:

“(a) whether reasonable notice had been given of the forwarder’s conditions and (b) what had each party by his words and conduct led the other party reasonably to believe him to be accepting.”

    1. After considering further authorities he said at paragraph 356 that the authorities showed two things.

“Firstly, at any rate where parties have dealt with each other more than once or twice, it may not be critical to the incorporation of standard terms that those terms be set out in a contractual document, ie one that itself constitutes an offer or its acceptance, or even in a purported record of the contract, nor that the document containing the terms relied on has preceded the making of every contract. Secondly, the sequence of events is important. An invoice following a concluded contract effected by a clear offer on standard terms which are accepted, even if only by delivery, will or may be too late. But, if there has been no reference to rival forms, the appearance of terms on the back of every invoice and the acceptance of delivery of goods without objection may indicate acceptance of the terms.”

    1. These principles were adopted and applied in SKNL (UK) Ltd v Toll Global Forwarding [2013] 2 Lloyd’s Reports 115 at paragraphs 12-13 by Cooke J. There was no suggestion before me that they did not encapsulate the present state of the law on incorporation by a course of dealing.
    2. In the present case there were 9 trades between Cockett Dubai and OW Bunker Malta between September 2013 and October 2014. In each case OW Bunker Malta’s Sales Order Confirmation provided that the sale and delivery of the bunkers was subject to OW Bunker’s terms and conditions and provided a hyper-link which, on the balance of probabilities, directed the user of the hyper link to the 2013 terms and conditions.
    3. A reasonable person viewing those trades, where there was no objection by Cockett Dubai to the trades being on the 2013 standard terms of OW Bunker, would have concluded that those terms were to govern the parties’ relationship.
    4. It is true that there is no evidence that in the previous 9 trades the nomination and sales order confirmation documents were contractual documents. However, for the same reason that they were contractual documents in the case of the mv ZIEMIA CIESZYNSKA, it is likely that they were in those previous 9 trades. But they do not have to be. This is not a dispute between parties’ rival forms and the reference to 2013 terms and conditions in each of 9 previous sales order confirmations without objection is sufficient to indicate acceptance of those terms.
    5. For these reasons I would also have held that the 2013 terms and conditions were incorporated into the 2 October 2014 trade between Cockett Dubai and OE Bunker Malta by the course of dealing between the parties since September 2013.

The exchanges with regard to the supply of bunkers to mv MANIFESTO

    1. The contract for the supply of these bunkers was between Cockett Asia and OW Bunker Middle East. The trader at Cockett Asia was Mr. Shin who gave evidence. He said that in 2014 he did not use emails when trading but used the telephone or a Yahoo instant messaging service. He claimed to have a recollection of the events which led to the trade in question because it was one of the last trades before OWBG became insolvent and the one which had not been paid. Nevertheless, given the number of trades with which he dealt, it seems to me unlikely that he had a detailed recollection of this particular trade and likely that his evidence is a reconstruction of what usually happened, with the assistance of a manuscript document which he said evidenced the deal he made with OW Bunker Middle East and the deal he made with his purchaser.
    2. The manuscript document is entitled CMOK Enquiry/Order sheet. Mr. Shin said that it was prepared by Mr. Kang, his colleague, on his instructions. It bears the date 2 October and identifies the vessel in question as the mv MANIFESTO. The contact is identified as Mr. Coffey and the supplier is identified as OW Bunkers. The agreed price is set out, as is the price which Cockett Asia was to sell on the product. It therefore supports Mr. Shin’s evidence that on 2 October 2013 he:

i) received an enquiry from Mr. Coffey for a quotation for the supply of bunkers to mv MANIFESTO;

ii) obtained a quotation from or on behalf of OW Bunker Middle East;

iii) agreed a slightly higher price with Mr. Coffey to reflect Cockett Asia’s commission; and

iv) accepted OW Bunker’s quotation.

    1. Mr. Shin said that there was no reference made to any terms and conditions. However, on 6 and 7 October 2013 there followed an exchange of a nomination and a sales order confirmation in the same terms as with the other trade to which these proceedings relate. Thus on 6 October Mr. Kang on behalf of Cockett Asia sent to OW Bunkers a nomination which included terms dealing with payment, bunker delivery sheets and sanctions and requested a copy of the seller’s latest terms and conditions and on 7 October 2013 OW Bunker Middle East sent its Sales Order Confirmation which referred to a term relating to samples and to its terms and conditions with a hyper link to the 2013 terms and conditions.
    2. The exchanges on 2, 6 and 7 October 2013 must be considered together and objectively. For the same reasons which I have given in relation to the other trade I consider that the parties continued their negotiations on 6 and 7 October 2013 and that OW Bunkers’ 2013 terms and conditions were accepted by conduct, namely, the acceptance of the bunkers. It follows that the arbitrators had jurisdiction to determine this claim also.

The suggested variation

    1. Clause L4 of the 2013 terms and conditions provided as follows:

“(a) These Terms and Conditions are subject to variation in circumstances where the physical supply of the Bunkers is being undertaken by a third party which insists that the Buyer is also bound by its own terms and conditions. In such circumstances, these Terms and Conditions shall be varied accordingly, and the Buyer shall be deemed to have read and accepted the terms and conditions imposed by the said third party.

(b) Without prejudice or limitation to the generality of the foregoing, in the event that the third party terms include:

……….

(iii) A different law and/or forum section for dispute to be determined then such law selection and/or forum shall be incorporated into these terms and conditions.

(c) It is acknowledged and agreed that the buyer shall not have any rights against the Seller which are greater or more extensive than the rights of the supplier against the aforesaid Third Party.

    1. In the case of the mv ZIEMIA CIESZYNSKA the bunkers were physically supplied by Eko Marine Fuels whose terms provided, in effect, for Greek law and jurisdiction. Clause 1 stated that:

“These general terms and conditions of contract for Marine Fuel (“GTS”) shall apply to all such sales of marine fuel.

Unless otherwise agreed in writing between Seller and Buyer, these GTC, which supersede any earlier GTC issued by Seller, shall override any terms and conditions stipulated, incorporated or referred to by Buyer whether in its order or elsewhere.”

    1. The question raised is whether the effect of clause L4 is to vary OWBG’s 2013 terms and conditions by incorporating the provision in Eko’s terms for Greek law and jurisdiction.
    2. In my judgment there is no such variation. The aim of clause L4, where the bunkers are supplied by a third party and the third party insists that the Buyer, that is, the party who orders bunkers from OWBG, should “also” be bound by the terms and conditions of the third party, is that the terms and conditions of OWBG should be “varied accordingly”. In the present case the third party supplier is Eko. It is true that its terms and conditions provide, in effect, for Greek law and jurisdiction but there is no evidence that it has insisted that the person who has ordered bunkers from its Buyer must “also” be bound by Eko’s terms. Eko has only insisted that OW Bunkers be bound by its terms.
    3. Counsel for Cockett Marine did not accept this analysis. He submitted that the reference to “Buyer” in clause L4 was to “the third party supplier’s buyer”. That person is OW Bunkers. I am unable to accept that submission. First, the terms and conditions unsurprisingly define the Seller as OW Bunkers and the Buyer as meaning, inter alios, the party ordering the bunkers. Second, it would therefore be extremely odd for “the Buyer” in clause L4 to mean OW Bunkers.
    4. Counsel sought to support his construction by saying that it enables OWBG’s position with regard to its purchase and on-sale contracts to be back to back with the third party’s terms and conditions and that the alternative construction made no commercial sense. Again, I am unable to accept that submssion. The object of clause L4 is not to enable OWBG’s position to be back to back with the third party’s terms and conditions. If that had been the intention of OWBG they would not have needed to have their own terms and conditions at all. Rather, the commercial object of clause L4 was, in those circumstances where OWBG’s third party supplier had insisted that its terms should apply not only to OW Bunkers but also to OW Bunkers’ buyer, to provide a mechanism by which OW Bunkers could give effect to that which its third party supplier insisted upon.
    5. Clause L4(c) provides for a form of back to back protection but only, in my judgment, where there has been the requisite “insistence” referred to in clause L4(a).
    6. I therefore do not consider that there has been any variation of the London arbitration clause in the contract between Cockett Dubai and OW Bunker Malta.
    7. Nor do I consider that there has been any variation of the London arbitration clause in the contract between Cockett Asia and OW Bunker Middle East. In that case the third party supplier was GS Caltex. The latter’s terms and conditions provided as follows:

“Unless otherwise agreed to in writing, the following terms and conditions shall be applied to all sales of marine fuels between GS-Caltex Corporation (hereinafter “Seller”) and any Buyer of marine fuels (hereinafter “Buyer”).”

    1. As with Eko’s terms and conditions this does not amount to an insistence that the terms of GS Caltex shall apply not only to the buyer from it, namely, OW Bunkers, but also to the buyer from OW Bunkers. Furthermore, the terms of GS Caltex do not contain a law and jurisdiction clause. There is therefore nothing by which the English law and London arbitration clause in OWBG’s terms and conditions could be “varied accordingly”.

The assignment issue

    1. Before the arbitrators there was a dispute as to whether an assignment in favour of ING Bank was effective to transfer OWBG’s cause of action under the two contracts in question to ING Bank. The tribunal held that it was. Cockett Marine says that that decision was wrong and that ING Bank was therefore not party to the arbitration agreement.
    2. Counsel for ING Bank and OWBG submitted that it was not open to Cockett Marine to take this point on a section 67 challenge to the jurisdiction of the arbitrators.
    3. This point only arises if Cockett Marine fail on their earlier points and the court holds, as it has done, that the two contracts in question contained a London arbitration clause so that the arbitrators had jurisdiction to make an award pursuant to that clause.
    4. A party to arbitral proceedings may challenge an award of the arbitral tribunal as to its substantive jurisdiction; see section 67 of the 1996 Act. “Substantive jurisdiction” is defined by section 30 of the 1996 Act (unless otherwise agreed) as encompassing the following questions

“(a) whether there is a valid arbitration agreement,

(b) whether the tribunal is properly constituted, and

(c) what matters have been submitted to arbitration in accordance with the arbitration agreement.

    1. The challenge in the present case does not concern (b) or (c) above. The question is whether it concerns (a). The phrase “a valid arbitration agreement” must mean, in its context, an arbitration agreement which is valid, that is, one which effectively refers to arbitration the claim which the claimant wishes to bring against the defendant. Where the arbitration agreement is contained within a contract and a person who claims to be an assignee of that contract wishes to arbitrate a claim under that contract the arbitration agreement will only be valid, as between the putative claimant and the defendant, if the alleged assignment is valid and effective. That would suggest that in the present case, even assuming that the bunker supply contracts contained a London arbitration clause, there was an issue as to whether, as between ING Bank and Cockett Marine, there was a valid arbitration agreement.
    2. Counsel for ING Bank and OWBG submitted that this analysis was wrong and that the only question within the substantive jurisdiction of the arbitrator was whether there was a valid arbitration agreement within the bunker supply contracts.
    3. In support of that proposition reliance was placed on the decision of Cooke J. in A v B [2017] 1 Lloyd’s Reports 1. In that case a party to a contract (“A”) which contained a London arbitration clause merged with another entity (“B”) and ceased to exist pursuant to a Scheme of Amalgamation ordered by the Bombay High Court. All of A’s assets and outstanding actions were to be continued by B. B applied to the arbitration tribunal to be substituted as claimant in the arbitration. The tribunal permitted the substitution and awarded a sum of money to it. The other party (“C”) challenged the award on the grounds that the arbitral tribunal lacked jurisdiction to permit the substitution. The argument was that the arbitration had lapsed by reason of the dissolution of A and that there had been no valid notice of assignment before that happened.
    4. This argument failed. As a matter of Indian law the Indian courts were bound to accept the effect of the Scheme and to substitute B for A. An Indian arbitral tribunal would be equally bound; see paragraphs 40-41. The substance of the Scheme had the primary effect of universal succession. It was not an equitable assignment; see paragraphs 44-45. The arbitral tribunal was bound to recognise the effect of the scheme; see paragraph 48.
    5. A fresh argument was raised before the court, namely, that the tribunal lacked the jurisdiction or power to substitute B for A; see paragraph 55. The court held that this was a new ground of objection which C was precluded from taking by reason of section 73 of the 1996 Act; see paragraphs 62-63.
    6. Cooke J. added that the objection could not properly be made under section 67; see paragraph 64. This was “for reasons already given”. Those reasons were set out in paragraphs 56 and 57 where the judge set out section 30 of the Act and said:

“The current challenge is not based upon any decision by the tribunal in any of those three respects and cannot therefore fall within section 67.”

  1. This is the passage upon which counsel for OWBG relies in the present case. But it is clear that “the current challenge” was the new argument that the tribunal lacked power to order substitution. That was not within sections 30 or 67 of the Act. The court did not say that, where the arbitration agreement is contained within a contract and a person who claims to be an assignee of that contract wishes to arbitrate a claim under that contract, the question whether there was a valid assignment is not a dispute as to whether there is a valid arbitration agreement within the meaning of sections 30 and 67 of the 1996 Act. In my judgment such a question is a question whether there is a valid arbitration agreement.
  2. It is therefore necessary to consider the question whether ING Bank was an assignee of OWBG’s rights under the bunker supply contracts. The argument was one of construction of the Omnibus Security Agreement entered into by ING Bank and OWBG on 19 December 2013.
  3. On the same date the parties had entered into a credit facility by which ING Bank made US$700 million available to OWBG. The security for the facility was contained in the Omnibus Security Agreement. Clause 2(3)(a) provided for the assignment to ING Bank of all of OWBG’s “rights, title and interest in respect of the Supply Receivables.” The Supply Receivables were defined as “any amount owing, or to be owed, …………under any Supply Contract.” “Supply Contract” was defined “any one-time contract …..relating to the sale of oil products traded by the Group”.
  4. When OWBG filed for bankruptcy in November 2014 the security became enforceable. No question was raised before me as to the adequacy of the notice of assignment provided by ING Bank to Cockett Marine.
  5. The submission made was that, in circumstances where it has been held by the Supreme Court that OWBG’s supply contracts were not contracts for the sale of goods within the meaning of the Sale of Goods Act (see PST Energy 7 Shipping LLC v OW Bunker Malta [2016] UKSC 23), the assignment cannot have been effective because the assignment applied only to contracts “relating to the sale of oil products traded by the Group”.
  6. This submission has the attraction of beguiling simplicity. However, if it is correct it would mean that ING Bank had no security attaching the sums due to OWBG under its many bunker supply contracts, which would be surprising. The answer to the submission is that the parties to the Omnibus Security Agreement assumed that OWBG’s supply contracts were contracts of sale and intended that the security provisions of the contract applied to them. The same assumption is to be found in OWBG’s standard terms and conditions; see the observation of Males J. at first instance in PST Energy 7 Shipping LLC v OW Bunker Malta [2015] 2 Lloyd’s Reports 563 at paragraph 23 and also the observations of Moore-Bick LJ. in the Court of Appeal in PST Energy 7 Shipping LLC v OW Bunker Malta [2016] 2 WLR 1072 at paragraphs 14 and 17. There is nothing incongruous in the parties to the Omnibus Security Agreement describing OW Bunkers’ supply contracts as contracts of sale; cf Moore-Bick LJ’s comment at paragraph 33. That comment was endorsed by Longmore LJ who said at paragraph 44 that there can be agreements which “may ……be described in commercial terms as contracts for the sale of goods but are contracts to which the 1979 Act does not apply.”
  7. Thus in my judgment the parties to the Omnibus Security Agreement described OWBG’s supply contracts as contracts “relating to the sale of oil products” because in commercial terms they had many of the features or characteristics of a sale, notwithstanding that they were not contracts of sale within the meaning of the Sale of Goods Act because they did not envisage the passing of property before payment was due.
  8. There being a valid assignment in favour of ING Bank there was a valid arbitration agreement between ING Bank and Cockett Marine. It follows that the arbitrators had jurisdiction to make an award in favour of ING Bank.
  9. For all these reasons the challenge to the jurisdiction of the arbitrators must be dismissed.

Acciona Infrastructure Canada Inc v Posco Daewoo Corporation, 2019 ABCA 241

In the Court of Appeal of Alberta

Citation: Acciona Infrastructure Canada Inc v Posco Daewoo Corporation, 2019 ABCA 241

 

Date: 20190612

Docket: 1701-0354-AC

Registry: Calgary

 

 

Between:

Acciona Infrastructure Canada Inc. and Mastec Canada Inc.,

operating as Acciona/Pacer Joint Venture

 

Respondents

Plaintiffs/Respondents

– and –

Posco Daewoo Corporation

 

Appellant

Defendant/Applicant

 

 

 

_______________________________________________________

 

The Court:

The Honourable Mr. Justice Frans Slatter

The Honourable Madam Justice Myra Bielby

The Honourable Mr. Justice Thomas W. Wakeling

_______________________________________________________

 

 

Memorandum of Judgment of the Honourable Mr. Justice Slatter

and the Honourable Madam Justice Bielby

 

Memorandum of Judgment of the Honourable Mr. Justice Wakeling

Concurring in the Result

Appeal from the Order by

The Honourable Mr. Justice A.D. Macleod

Dated the 20th day of November, 2017

Filed on the 2nd day of January, 2018

(2017 ABQB 707 (CanLII), Docket: 1701-07216)

 

_______________________________________________________

 

Memorandum of Judgment

_______________________________________________________

 

 

The Majority:

[1]               There are disputes between the parties arising out of the construction of the Walterdale Bridge in Edmonton. Both parties have submitted those disputes to arbitration. The present appeal concerns collateral disputes about service of legal process, and how the arbitrations should be conducted.

[2]               The respondent Joint Venture became frustrated with the slow pace of the arbitrations, so it issued an Originating Application and obtained ex parte orders for the appointment of arbitrators, an order validating service, and the consolidation of the two arbitrations. The appellant Daewoo unsuccessfully applied to set aside those orders: Acciona Infrastructure Canada Inc. v Posco Daewoo Corp., 2017 ABQB 707 (CanLII). This appeal followed.

Facts

[3]               The respondent Acciona/Pacer Joint Venture contracted with the City of Edmonton to replace the Walterdale Bridge. The Joint Venture subcontracted the supply of the structural steel to Posco Daewoo Corporation, which is based in the Republic of Korea. The subcontract provides:

General Conditions of This Subcontract Agreement

GC 8.2            Negotiation, Mediation And Arbitration

8.2.4   In circumstances other than that provided for in GC 8.2.3 in the case of any dispute between the Contactor and the Subcontractor as to their respective rights and obligations under this Subcontract, either Party, may subject to GC 12.2, at any time prior to six (6) months after completion of the Subcontract Work or cancellation or termination of this Subcontract, give the other Party written notice requesting that the dispute be mediated or arbitrated. The decision to proceed to mediation or arbitration shall be subject to the agreement of both Parties and shall be in accordance with the procedures agreed upon by the Parties, failing which the dispute shall be addressed pursuant to such judicial processes as the circumstances require.

Appendix A – Special Conditions

  1. Dispute Resolution:Further to GC Clause 8.2.4 the Parties shall agree that all disputes or disagreements relating to or arising out of this Subcontract shall be addressed by arbitration conducted in the English language in Calgary, Alberta, in accordance with the Arbitration Act of Alberta. The arbitration award shall be final and binding upon the parties.

GC 10.2   Laws, Notices, Permits, And Fees

10.2.1  This Subcontract shall for all intents and purposes be considered to have been entered into and shall be interpreted in accordance with the laws of Province of Alberta, including the federal laws of Canada applicable therein.

10.2.2  The laws of the Province of Alberta and the federal laws of Canada applicable therein shall govern the Subcontract Work.

The underlying dispute between the parties arises from the words “in accordance with the Arbitration Act of Alberta”, and the procedure to be followed in the arbitration.

[4]               The Notice to Submit Disputes to Arbitration served by the Joint Venture on November 17, 2016 sets out the specific matters in dispute, and states:

  1.    All of the conditions toarbitrate under the Subcontract Agreement have been met by APJV. APJV hereby demands that this matter be referred to arbitration pursuant to General Condition 8.2 and Special Condition 11 of the Subcontract Agreement and Section 23(1) of the Arbitration Act.

The Joint Venture identified Gowling WLG (Canada LLP) as its counsel for the arbitration. Bae, Kim & Lee LLC, a Korean firm, subsequently indicated that it was Daewoo’s legal representative, and later advised that Rose LLP of Calgary had been retained.

[5]               The Joint Venture nominated a possible candidate as a single arbitrator, but Daewoo took the position that the Joint Venture’s arbitration notice was invalid because it purported to commence a domestic arbitration under the Arbitration Act, RSA 2000, c. A-43 whereas under s. 2(1) of that Act the arbitration should be held under the International Commercial Arbitration Act, RSA 2000, c. I-5.

[6]               On June 6, 2017 (about seven months after the Joint Venture served notice to arbitrate), Daewoo issued its own notice to arbitrate. The Daewoo notice to arbitrate specifically recited that even though the subcontract refers to the Alberta Arbitration Act, by operation of law the arbitration would actually be conducted under the International Commercial Arbitration Act.

[7]               The Joint Venture was prepared to acquiesce in using the international arbitration procedure, and so nominated its arbitrator. It invited Daewoo to do the same, with a view to those two nominees selecting the third arbitrator, in accordance with international arbitration procedure. Daewoo refused to participate in what it called a defective arbitration. Daewoo took the position that the Joint Venture had only commenced a “domestic arbitration”, and had never commenced an “international arbitration”, so there was no “valid” arbitration process underway.

[8]               Faced with an apparent stalemate, the Joint Venture issued an Originating Application seeking the appointment of arbitrators. It subsequently obtained orders validating service of the Originating Application, and consolidating the two arbitrations. Those are the orders presently under appeal.

Service of the Originating Application

[9]               In light of Daewoo’s position that it would not participate in the arbitration, on May 30, 2017 the Joint Venture issued the Originating Application seeking the appointment of arbitrators under the International Commercial Arbitration Act. Copies were sent to Bae, Kim & Lee LLC and Rose LLP, but those firms took the position that they were not authorized to accept service. The Joint Venture commenced the process for serving the Originating Application on Daewoo under the Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters, but did not obtain an order for service ex juris under R. 11.25(2)(b).

[10]           The Joint Venture received notice that on June 9, 2017 the Originating Application had been received by the Central Authority of Korea under the Hague Convention. However, prior to receiving confirmation of actual service on Daewoo in Korea, the Joint Venture applied for an order validating service, and an order appointing arbitrators.

[11]           The first two applications were heard in chambers on July 5, 2017. Daewoo, Bae, Kim & Lee LLC and Rose LLP were all given notice of the application (EKE R279). However, given the position taken by Daewoo, no one appeared on its behalf, and the applications proceeded ex parte. The chambers judge granted an order validating service of the Originating Application and appointing three arbitrators. On July 20, 2017 another chambers judge granted an order consolidating the two arbitrations that had been commenced by the parties.

[12]           On August 2, 2017 the Originating Application was served on Daewoo in Korea under the Hague Convention. On August 3, 2017, Daewoo applied to set aside the three orders previously granted: the order validating service, the order appointing arbitrators, and the order consolidating the two arbitrations. Daewoo points out that there are irregularities in the service of the Originating Application:

(a)        the chambers judge was not advised of the status of service under the Hague Convention, and the order validating service was granted about one month before actual service of the Originating Application under the Hague Convention.

(b)        an order for service ex juris had not been obtained.

[13]           Service of commencement documents outside Alberta and outside Canada is governed by R. 11.25(2) and 11.26:

11.25(2) A commencement document may be served outside Canada only if

(a)               a real and substantial connection exists between Alberta and the facts on which a claim in an action is based and the commencement document is accompanied with a document or affidavit that sets out the grounds for service of the document outside Canada,

(b)               the Court, on application supported by an affidavit satisfactory to the Court, permits service outside Canada, and

(c)               the person served with the commencement document is also served with a copy of the order permitting service outside Canada.

11.26(1) Unless the Court otherwise orders, if a document may be served outside Alberta under these rules, the document must be served

(a)   by a method provided by these rules for service of the document in Alberta,

(b)   in accordance with a method of service of documents under the Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters that is allowed by the jurisdiction in which the document is to be served, if the Convention applies, or

(c)   in accordance with the law of the jurisdiction in which the person to be served is located.

Rule 11.25(3) provides further detail about what constitutes a “real and substantial connection” with Alberta. Rule 11.27 empowers the Court to validate irregular methods of service.

[14]           As Daewoo points out, there is a jurisdictional component to R. 11.25(2), as it governs when an Alberta court will impose its jurisdiction over persons who are not served within the jurisdiction. The key requirement is that there must be a “real and substantial connection” to Alberta under R. 11.25(2)(a). Further, the applicant is generally expected to show a “good arguable case”: Scott & Associates Engineering Ltd. v Ghost Pine Windfarm, LP, 2011 ABQB 630 (CanLII), 520 AR 190, 61 Alta LR (5th) 357. There remains, however, an important distinction between jurisdiction and service. Any defendant may voluntarily attorn to the jurisdiction of the Alberta courts, regardless of the regularity of the service of process on it. However, when the defendant resists the jurisdiction of the Alberta courts, then proper service ex juris is the platform on which the court decides if it has and should exercise jurisdiction over the parties and the dispute.

[15]           The chambers judge concluded at para. 14 that R. 11.25(2) does not apply when the court already has jurisdiction over the defendant, in which case an order for service ex juris is not required. While the question of “jurisdiction” might properly arise on an application to set aside service ex juris, attornment or consent to jurisdiction does not override R. 11.25(2). Obtaining an order for service ex juris is an ex parte process. The party issuing the commencement document is required to establish a threshold argument for “jurisdiction” (a “real and substantial connection” to Alberta) as a preliminary step. Once the plaintiff has obtained the order for service ex juris, it can then proceed to serve the defendant, who might then bring an application to set aside that service on the basis that the Alberta court does not have, or should not assume jurisdiction over the dispute. It is at this later stage that the court is best positioned to ensure that it does not “sanction service outside the jurisdiction without careful consideration”: Dreco Energy Services Ltd. v Wenzel Downhole Tools Ltd., 2008 ABCA 395 (CanLII) at para. 6, 440 AR 351, 2 Alta LR (5th) 120.

[16]           On the application to set aside service the issue of whether the defendant had attorned to the jurisdiction of the court might arise. Allegations that the defendant has attorned, by contract or conduct, can be used as a response to any application to set aside service ex juris, or any application for a ruling that it is inconvenient for the Alberta court to assume jurisdiction. However, the plaintiff’s mere assertion that the court has jurisdiction over the defendant does not justify non-compliance with the threshold requirements in the Rules on service ex juris. In that respect, attornment is a shield not a sword.

Retroactive Validation

[17]            The respondent Joint Venture argues that the failure to get an order for service ex juris is a mere irregularity that should be overlooked. It argues that Daewoo is raising procedural irregularities in order to delay the arbitration, and that at the end of the day nothing will be accomplished by setting aside the three orders. There is no doubt that Daewoo, Bae, Kim & Lee LLC and Rose LLP had actual notice of all the proceedings.

[18]            The Joint Venture argues that this Court should retroactively grant an order for service ex juris. It says that one could easily have been obtained. There is clearly a real and substantial connection between the arbitration and Alberta, it has a strong case that arbitration has been commenced and Daewoo has refused to participate, and there is no prejudice to Daewoo. Daewoo argues that the Rules do not permit retroactive validation of service without an order for service ex juris, because R. 11.25(2)(c) requires service of the order with the commencement document.

[19]           The applicant has a “good arguable case” to support service ex juris. As previously noted, Daewoo takes the position that the Joint Venture’s notice to arbitrate is fatally flawed because it only commences a “domestic arbitration”, whereas in law the Joint Venture should have commenced an “international arbitration”. As a result, Daewoo takes the position that it does not have to participate in the Joint Venture’s arbitration at all, because there is no valid arbitration process underway.

[20]           The Joint Venture argues that the premise of Daewoo’s argument is faulty. The Joint Venture only had to commence an “arbitration under the subcontract”, which it did. It does not have to overtly commence either a “domestic arbitration” or an “international arbitration”. Clause 34 of the Joint Venture’s notice to arbitrate clearly put Daewoo on notice that a dispute under the subcontract was being put to arbitration. The law and procedure that applies is implicit in the process, and any dispute about it could have been resolved by the arbitrators. There is nothing in the Subcontract, the Arbitration Act, or the International Commercial Arbitration Act that requires a party to specify what “type” of arbitration is being triggered.

[21]           In any event, the Joint Venture points out there is no authority presented for the proposition that a notice to arbitrate that recites the exact provisions of the Subcontract, including the reference to the Arbitration Act, can possibly be invalid for that reason.

[22]           The parties debated whether the Court has jurisdiction to cure irregularities in service ex juris. In this case, however, the deficiencies in the service are substantive, and would preclude the exercise of any such discretion. No satisfactory explanation has been given for why the Joint Venture did not apply for an order for service ex juris. Another problem is that the order validating service should not have been granted without proof that service under the Hague Convention had either been accomplished, or frustrated within the meaning of article 15 of the Convention. Given all of the deficiencies in service, this is not an appropriate situation in which the Court might validate service despite the irregularities. The order validating service must be set aside. Absent service, the orders appointing arbitrators and consolidating the two arbitrations cannot stand.

[23]           The Joint Venture’s arguments have practical merit. It is unclear what will be accomplished by these proceedings other than further delay. Nevertheless, the importance of compliance with the Hague Convention and the significance of the deficiencies in service preclude retroactive correction in this case, even if that is possible.

[24]           In the absence of proper service, it is not open to this Court to express opinions on other issues such as the appointment of arbitrators, or consolidation of the arbitrations.

Conclusion

[25]           In conclusion, the appeal is allowed, and the orders validating service, appointing arbitrators, and consolidating the two arbitrations are set aside. If Daewoo persists in refusing to respond to the notice to arbitrate issued by the Joint Venture, the Joint Venture will have to re-serve the Originating Application in accordance with the Rules of Court and the Hague Convention.

[26]           The presumption is that the successful party is entitled to costs of the appeal: R. 14.88(1). There are, however, special circumstances at play.

[27]           The Joint Venture argues that Daewoo has suffered no prejudice and is just delaying the arbitration with technical arguments. The chambers judge made findings of fact on that issue, advising Daewoo to “stop playing procedural tag and get to what is important”, and observing that Daewoo was not “interested in straightening anything out”. The chambers judge’s findings of fact are entitled to deference and will not be overturned absent palpable and overriding error. There is no reviewable error in these findings.

[28]           Daewoo asserts that the Joint Venture’s arbitration is fatally flawed, yet has obstructed any effort to have that issue resolved. The Joint Venture’s notice to arbitrate is apparently effective to engage that process. While its notice to arbitrate might benefit from some amendment, there is no apparent reason for the Joint Venture to issue any further or different notice to arbitrate. The Joint Venture is prepared to proceed under the international regime. Any issues about the pleadings or the procedure can be resolved by the arbitrators. It is only a matter of time before the validity of the Joint Venture’s arbitration is decided, but instead of allowing the arbitrators to examine that issue Daewoo has obstructed the arbitration proceedings.

[29]           The only reason the Originating Notice was issued in the first place was because of Daewoo’s refusal to put the validity of the Joint Venture’s arbitration notice before the arbitrators. Daewoo is entitled to insist on proper service under the Rules and the Hague Convention. But it cannot expect to receive costs if, in the absence of any prejudice, it raises technical arguments that only serve to delay proceedings that were commenced to prevent delay in other proceedings.

[30]           As a result, neither party is entitled to costs of this appeal or the chambers proceedings that led up to it.

Appeal heard on May 7, 2019

 

Memorandum filed at Calgary, Alberta

this 12th day of June, 2019

Slatter J.A.

Bielby J.A.

 

 

Wakeling J.A. (concurring in the result):

I.                  Introduction

[31]           The parties played key roles in the construction of Edmonton’s stunning Walterdale Bridge.

[32]           The respondents, Canadian corporations, were the general contractor. The appellant, a Korean business, was a subcontractor. The subcontractor fabricated and supplied the structural steel components for the project.

[33]           Some disputes arose from the subcontract that are the subject of two arbitrations – one submitted by the respondents and one by the appellant.

[34]           The appellant challenges the validity of the respondents’ service of a commencement document and the consequential ex parte orders appointing arbitrators and consolidating the arbitrations.

[35]           These orders must be set aside.

II.               Questions Presented

[36]           On November 17, 2016 the respondents forwarded a Notice to Submit Disputes to Arbitration to the appellant at its Korean headquarters. The arbitration notice stated that it was a demand for arbitration under the subcontract. It tracked the language of special condition 11 of the subcontract and referred to Alberta’s Arbitration Act.

[37]           In a January 26, 2017 letter the appellant’s Korean counsel informed the respondents’ counsel that it may direct “all communication intended for Posco Daewoo in relation to the arbitration … to our attention”.

[38]           On April 21, 2017 the respondents’ counsel notified the appellant’s Korean counsel that they appointed Stephen Morrison as an arbitrator and reminded Korean counsel that its client had thirty days to appoint a second arbitrator. Counsel stated that the respondents would “seek the court’s assistance” if the appellant failed to act.

[39]           On May 1, 2017 the respondents’ counsel asked the appellant’s Korean counsel whether it or Canadian counsel would “accept service with respect to any required application to complete the arbitration panel in this matter”.

[40]           Sixteen days later the appellant’s Koran counsel responded stating that neither firm was “in a position to accept … service”.

[41]           Thirty days passed without the appellant appointing a second arbitrator.

[42]           On May 30, 2017 the respondents, by way of an originating application returnable July 5, 2017, applied to the Court of Queen’s Bench for an order under the International Commercial Arbitration Act appointing two arbitrators to the arbitration panel.

[43]           They emailed the originating application to appellant’s Canadian and Korean legal counsel. They did not mail or email it to the appellant.

[44]           The respondents did not follow the procedure under r. 11.25(2) of the Alberta Rules of Court and secure judicial permission for the service of a commencement document outside Canada.

[45]           On June 2, 2017 the respondents’ counsel submitted a request to the Republic of Korea’s National Court under the Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters – the Hague Convention – to serve the originating application on the appellant in Korea.

[46]           On June 6, 2017 the appellant emailed its own Notice to Arbitrate to the respondents. Like the respondents’ arbitration notice, the appellant claims it has a dispute arising under the subcontract and relies on special condition 11. Unlike the respondents’ arbitration notice, the appellant’s arbitration notice asserts that “the dispute shall be resolved pursuant to the International Commercial Arbitration Act … and not under the domestic Arbitration Act”.

[47]           On June 23, 2017 the respondents applied for an order validating the service of the respondents’ originating application.

[48]           On July 4, 2017 the respondents filed an application returnable July 14, 2017 seeking an order consolidating the arbitrations commenced by each of the respondents and the appellant and an order validating service of the July 4, 2017 application.

[49]           On July 5, 2017 Justice Mahoney issued two ex parte orders. The first appointed two persons to the arbitration panel hearing the respondents’ arbitration notice.It gave the parties fourteen days to vary the panel’s composition by mutual agreement. The second order, under r. 11.27 of the Alberta Rules of Court, validated the respondents’ service of their originating application on the appellant.

[50]           On July 20, 2017 Justice Hollins, under s. 8(1) of the International Commercial Arbitration Act, in an ex parte order, consolidated the arbitrations commenced by the respondents on November 17, 2016 and the appellant on June 6, 2017. The order also provided for the composition of the arbitration panel hearing the two arbitrations.

[51]           On August 2, 2017 Korea’s central authority under the Hague Convention delivered the originating application to the appellant.

[52]           The next day the appellant applied for an order setting aside the three ex parte orders.

[53]           On November 20, 2017 Justice Macleod dismissed the appellant’s application and confirmed the challenged orders.

[54]           This is the order the appellant challenges.

[55]           This appeal presents three principal issues

A.        Service of the Commencement Document Outside Canada

[56]           Rule 11.25(2)(b) of the Alberta Rules of Court declares that “[a] commencement document may be served outside Canada only if … the Court, on application … permits service outside Canada … .”

[57]           Rule 11.26(1)(b) stipulates that if the Hague Convention applies the method of service for service outside Canada must be in accordance with the Hague Convention.

[58]           Did the respondents comply with rr. 11.25(2) and 11.26(1) and effect service of their originating application on the appellant?

[59]           Is r. 11.25(2) mandatory? Did the respondents have to comply with r. 11.25(2) and secure judicial permission for service outside Canada of their originating application before requesting Korea’s central authority to serve their originating application on the appellant under the Hague Convention?

[60]           Did the respondents serve the appellant in a manner compliant with r. 11.26(1)(b) of the Alberta Rules of Court and the Hague Convention?

[61]           What manner of service accords with the Hague Convention?

[62]           Did the respondents serve the appellant in a manner contemplated by the Hague Convention?

[63]           If not, may the Court validate the method of service the respondents say is good enough – emailing the commencement document to the appellant’s Korean and Canadian counsel?

[64]           What validation rules have the potential to assist the respondents?

[65]           Is it r. 1.5, the general curative provision?

[66]           Or is it r. 11.27? This rule focuses on validating a manner of service not in compliance with the Alberta Rules of Court

[67]           Is r. 11.27 available to validate service outside Canada that is not in accord with the Hague Convention only in exceptional circumstances?

[68]           Did the respondents otherwise comply with r. 11.27(1)? Did they satisfy the Court that the method of service used brought or was likely to have brought the originating application to the attention of the appellant?

[69]           If only r. 11.27 applies, did Justice Mahoney err in invoking it?

B.        Appointment of Arbitrators

[70]           Article 11(3) of the Model Law on International Commercial Arbitration authorizes a court to appoint a second arbitrator to the panel if a party to the arbitration fails to do so within thirty days of a request to do so from the other party. If the first and second arbitrators fail to agree on a third arbitrator within thirty days of their appointment, the court has the authority to appoint the third arbitrator.

[71]           Did Justice Mahoney have the authority on July 5, 2017 to appoint a second arbitrator because the appellant had failed to appoint an arbitrator within the thirty-day window?

[72]           Did Justice Mahoney have the authority on July 5, 2017 to appoint the third member of the arbitration panel? Should the third arbitrator have been appointed only after thirty days had elapsed since the appointment of the second arbitrator? Does article 11(3) of the Model Law not expressly state that a court may appoint only one arbitrator at a time?

[73]           Was Justice Mahoney premature in his appointment of a third arbitrator?

C.        Consolidation of Arbitrations

[74]           Section 8(1) of the International Commercial Arbitration Act allows the Court of Queen’s Bench to consolidate two or more arbitration proceedings “on the application of the parties to 2 or more arbitration proceedings”.

[75]           Does the phrase “the parties to 2 or more proceedings” mean all the parties involved in two or more arbitrations or is it enough if the party making the application is a party in all the arbitrations the party asks to be consolidated?

[76]           It is necessary to examine the entire International Commercial Arbitration Act and its sister enactment, the Arbitration Act, in order to determine whether the enactments’ use of the singular and plural forms are consistent. When does the plural include the singular or the singular include the plural?

[77]           Is there any policy reason that would justify the conclusion that “the parties” means only one party?

[78]           Arbitration accords the disputants autonomy. Should the arbitrations they initiate be consolidated only if all participants agree?

[79]           Did Justice Hollins have the power to order ex parte the consolidation of the arbitrations commenced by the respondents and the appellant?

D.        Final Question

[80]           If the respondents failed to effect valid service, or if they did, and neither of Justices Mahoney and Hollins had authority to make their orders, should Justice Macleod have set aside the ex parte orders as the appellant requested?

III.            Brief Answers

A.        Service of the Commencement Document Outside Canada

[81]           The respondents failed to serve the appellant with their commencement document in compliance with rr. 11.25(2) and 11.26(1)(b) of the Alberta Rules of Court and the Hague Convention.

1.         Rule 11.25(2)(b) of the Alberta Rules of Court

[82]           Rule 11.25(2)(b) is a mandatory provision. A party that wishes to serve a commencement document outside Canada must secure judicial permission to do so.

[83]           The respondents did not even apply for judicial permission to serve their commencement document on the appellant in Korea.

[84]           The respondents have not complied with r. 11.25(2)(b).

2.         Article 15(2) of the Hague Convention

[85]           The Hague Convention obliges each contracting state to designate a central authority with responsibility for receiving requests for service from other contracting states and arranging for the service of those documents.

[86]           Article 6 directs a central authority that has effected service to provide the applicant with a certificate of service.

[87]           Article 15(2) recognizes that on some occasions, notwithstanding the failure of the central authority to deliver a certificate of service to the applicant and the failure of the other party to appear before the court in the forum state, the court in the forum state may give judgment against the absent defendant. This provision allows a contracting state to declare that a judge of the contracting state may give judgment against the absent defendant if the commencement document was properly submitted to the central authority, “a period of time not less than six months, considered adequate by the judge in the particular case, has elapsed since the date of transmission of the documents” and the applicant has made “every reasonable effort … to obtain … [a certificate of service] through the competent authorities of the state addressed”.

[88]           The respondents cannot bring themselves within Article 15(2). They applied for a validation-of-service order twenty-one days after they transmitted their request for service assistance to Korea’s central authority. Justice Mahoney granted it a little more than one month after the respondents submitted their request for service to the Republic of Korea’s central authority. Article 15(2) expressly specifies that the period between the transmission of the service request and the effective validation date must be not less than six months and a judge must be satisfied the period is adequate.

[89]           It is obvious that the respondents have not complied with Article 15(2) of the Hague Convention.

3.         There Is No Curative Provision in the Alberta Rules of Court that Assists the Respondents

[90]           Rule 1.5, the general curative provision, does not apply to noncompliance with r. 11.25(2)(b) and irregular methods or manners of service.

[91]           Rule 11.27 does. It specifically focuses on noncompliant methods or manners of service.

[92]           But r. 11.27 does not assist the respondents.

[93]           This is so for two reasons.

[94]           First, r. 11.27 does not empower a court to validate noncompliance with r. 11.25(2)(b). It authorizes a court “to make an order validating the service of a document served … outside Alberta in a manner that is not specified by these rules … .” An order under r. 11.25(2)(b) cannot be characterized as a manner-of-service order contemplated by r. 11.27(1).

[95]           Second, a court acting under r. 11.27 may only validate a manner or method of service that is not compliant with Article 15 of the Hague Convention in extraordinary circumstances. An onerous standard is required to reflect the fact that sovereign states generally regard service not in accord with Article 15 as a trespass on their sovereign jurisdiction.

[96]           The respondents have not identified any facts that may be characterized as an extraordinary circumstance. A delay of six or more months in establishing the arbitraltribunal, while regrettable, is not harmful to the respondents’ interests.

[97]           As a result, Justice Mahoney erred in validating the respondents’ service.

B.        Other Issues

[98]           This determination makes it unnecessary to answer the other two queries.

C.        Conclusion

[99]           Justice Macleod should have set aside the challenged orders.

IV.            Statement of Facts

[100]      The City of Edmonton entered into a prime contract with the respondents for the construction of the new Walterdale Bridge.

[101]      The respondents subsequently entered into a subcontract with the appellant for the fabrication and supply of the structural steel components for the project. Special condition 11 of the subcontract stated that “the Parties shall agree that all disputes or disagreements relating to or arising out of this Subcontract shall be addressed by arbitration, conducted in the English language in Calgary, Alberta, in accordance with the Arbitration Act of Alberta”.

[102]      Disputes between the respondents and the appellant arose.

[103]      On March 16, 2016 the appellant and the respondents entered into a standstill agreement with respect to the disputes under the subcontract. A term of the standstill agreement states that “[t]his Agreement is governed by the laws of Canada and Alberta, and each of the Parties irrevocably and unconditionally submits and attorns to the exclusive jurisdiction of the courts of the Province of Alberta to determine all issues … arising from this Agreement”.

[104]      In an October 17, 2016 letter the respondents notified the appellant that they terminated the standstill agreement effective November 17, 2016.

[105]      On November 17, 2016 the respondents emailed a Notice to Submit Disputes to Arbitration to the appellant at its Korean head office. Part of the notice reads as follows: “All of the conditions to arbitrate under the Subcontract Agreement have been met by … [the respondents. The respondents] hereby demand … that this matter be referred to arbitration pursuant to General Condition 8.2 and Special Condition 11 of the Subcontract Agreement and Section 23(1) of the Arbitration Act”.

[106]      In a January 13, 2017 letter the respondents notified a Korean law firm that Gowling WLG (Canada) LLP were their legal counsel with respect to the arbitration and asked the Korean law firm to identify the appellant’s “designated legal representative”.

[107]      The Korean law firm replied to Gowlings on January 26, 2017. It stated that it would be “acting as Posco Daewoo’s designated legal representative in this arbitration” and asked the respondents to direct “all communication intended for Posco Daewoo in relation to the arbitration to … [its] attention”.

[108]      On March 23, 2017 counsel for the appellant and the respondents spoke by telephone. The appellant’s Korean counsel advised the respondents’ counsel that the appellant had retained Rose LLP as Canadian counsel. During this telephone conversation Korean counsel informed Gowlings that the appellant took the position that the respondents’ arbitration notice was improper because it referred to Alberta’s Arbitration Act and not the International Commercial Arbitration Act.

[109]      In a March 30, 2017 letter Gowlings informed Rose LLP that the respondents were willing to proceed under the International Commercial Arbitration Act and were prepared to agree to having a single arbitrator hear the arbitration.

[110]      On April 7, 2017 lawyers from Rose LLP and Gowlings spoke by telephone. Appellant’s counsel stated that his client wished to have a three-person arbitration panel. Respondents’ counsel agreed to a three-person panel.

[111]      In an April 21, 2017 letter Gowlings informed the appellant’s Korean counsel that the respondents appointed Stephen Morrison as an arbitrator and “call[ed] upon … [the appellant] to appoint an arbitrator within 30 days, failing which … [the respondents] will seek the court’s assistance”.

[112]      There was no response from either the appellant’s Canadian or Korean counsel.

[113]      In a May 1, 2017 email letter to the appellant’s Korean counsel Gowlings asked whether “your firm or Rose LLP will accept service with respect to any required application to complete the arbitration panel in this matter”.

[114]      Korean counsel replied on May 17, 2017: “neither our firm … nor Rose LLP is in a position to accept such service”.

[115]      Nonetheless, on May 30, 2017, Gowlings emailed the respondents’ originating application to the appellant’s Canadian and Korean counsel.  The law firm did not mail or email the originating application to the appellant at its Korean mailing address.

[116]      On June 6, 2017 the appellant’s Korean counsel emailed to Gowlings the appellant’s Notice of Arbitration, paragraph 10 of which states that “Daewoo, by this Notice of Arbitration, commences arbitration proceedings against … [the respondents] pursuant to the International Act and General Condition 8.2 and Special Condition 11 of the Subcontract”.

[117]      In subsequent correspondence the appellant’s Korean counsel again stated that “[w]e are not authorized to accept service on behalf of Daewoo of any court applications filed by … [the respondents] with the Alberta courts”.

[118]      On July 4, 2017 the respondents applied for an order consolidating the arbitration notices submitted by each of the appellant and the respondents.

[119]      The Court of Queen’s Bench, in orders issued July 5 and 20, 2017, validated service of the originating application, appointed two persons to the arbitration panel hearing the respondents’ arbitration and consolidated the two arbitrations.

[120]      The appellant moved to have these orders set aside.

[121]      Justice Macleod declined to do so. He concluded that the appellant had attorned to the jurisdiction of the Court of Queen’s Bench and that the respondents did not have to comply with r. 11.25 of the Alberta Rules of Court and secure prior judicial permission. He adjudged that “it was entirely appropriate for this Court to validate service under r 11.27”. In addition, he concluded that the appointment-of-two-arbitrators and consolidation orders were valid.

[122]      Justice Macleod also concluded that the respondents had properly issued its arbitration notice. It tracked the language in special condition 11 of the subcontract agreement. He noted that the effect of s. 2(1)(b) of the Arbitration Act  and the International Commercial Arbitration Act  probably was that “the latter prevails”. But, he noted, this did not make the respondents’ notice to submit a nullity.

V.               Applicable Court Rules and Statutory, Hague Convention and Subcontract Provisions

A.        Alberta Rules of Court

[123]      Parts of rr. 1.5, 11.16, 11.25, 11.26 and 11.27 of the Alberta Rules of Court are reproduced below:

1.5(1) If a person contravenes or does not comply with any procedural requirement, or if there is an irregularity in a commencement document, pleading, document, affidavit or prescribed form, a party may apply to the Court

(a)   to cure the contravention, non-compliance or irregularity …

11.16(1) If a lawyer acts for a person in an action and the person must be served with a commencement document, the lawyer may, in writing, accept service on behalf of the person.

(2) Service is effected under this rule on the date service of the commencement document is accepted in writing by the lawyer.

11.25(2) A commencement document may be served outside Canada only if

(a)   a real and substantial connection exists between Alberta and the facts on which a claim in an action is based and the commencement document is accompanied with a document or affidavit that sets out the grounds for service of the document outside Canada, and

(b)   the Court, on application supported by an affidavit satisfactory to the Court, permits service outside Canada, and

(c)   the person served with the commencement document is also served with a copy of the order permitting service outside Canada.

11.26(1) Unless the Court otherwise orders, if a document may be served outside Alberta under these rules, the document must be served

(a)   by a method provided by these rules for service of the document in Alberta,

(b)   in accordance with a method of service of documents under the Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters that is allowed by the jurisdiction in which the document is to be served, if the Convention applies, or

(c)   in accordance with the law of the jurisdiction in which the person to be served is located.

(2)        Service is effected under this rule,

(d)   if the document is served under the Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters, on the date service is effected under the Convention … .

11.27(1) On application, the Court may make an order validating the service of a document served inside or outside Alberta in a manner that is not specified by these rules if the Court is satisfied that the method of service used brought or was likely to have brought the document to the attention of the person to be served.

(3) If service is validated by the Court under this rule, service is effected on the date specified in the order.

(4) Subrules (1) to (3) apply despite

(b)   the fact that the Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters applies to service of the document.

B.        Alberta Legislation

            1.         Arbitration Act

[124]      Parts of ss. 1, 2, 3 and 6 of the Arbitration Act are as follows:

1(1) In this Act,

(a)   ‘arbitration agreement’ means, subject to subsections (2) and (3), an agreement or part of an agreement by which 2 or more persons agree to submit a matter in dispute to arbitration … .

(2) If the parties to an arbitration agreement make a further agreement in connection with the arbitration, it is deemed to form part of the arbitration agreement.

2(1) This Act applies to an arbitration conducted under an arbitration agreement … unless

(b)   Part 2 of the International Commercial Arbitration Act applies to the arbitration.

  1. The parties to anarbitration agreement may agree, expressly or by implication, to vary or exclude any provision of this Act except sections 5(2), 19, 39, 44(2), 45, 47 and 49.

  1. No court may intervene in matters governed by this Act, except for the following purposes as provided by this Act:

(a)   to assist the arbitration process;

(b)   to ensure that an arbitration is carried on in accordance with the arbitration agreement … .

2.         International Commercial Arbitration Act

[125]      The important segments of the International Commercial Arbitration Act are reproduced below:

1(1)  In this Act,

(b)   ‘International Law’ means the Model Law on International Commercial Arbitration adopted by the United Nations Commission on International Trade Law on June 21, 1985, as set out in Schedule 2.

4(1) Subject to this Act, the International Law applies in the Province.

8(1) The Court of Queen’s Bench, on application of the parties to 2 or more arbitration proceedings, may order

(a)   the arbitration proceedings to be consolidated, on terms it considers just,

(b)   the arbitration proceedings to be heard at the same time, or one immediately after another, or

(c)   any of the arbitration proceedings to be stayed until after the determination of any other of them.

(2) Where the Court orders arbitration proceedings to be consolidated pursuant to subsection (1)(a) and all the parties to the consolidated arbitration proceedings are in agreement as to the choice of the arbitral tribunal for that arbitration proceeding, the arbitral tribunal shall be appointed by the Court, but if all the parties cannot agree, the Court may appoint the arbitral tribunal for that arbitration proceeding.

9(1) The functions referred to in article 6 of the International Law shall be performed by the Court of Queen’s Bench.

Schedule 2

 

UNCITRAL MODEL LAW ON INTERNATIONAL

COMMERCIAL ARBITRATION

Article 1.   Scope of application

(1) This Law applies to international commercial arbitration … .

(3) An arbitration is international if:

(a)   the parties to an arbitration agreement have, at the time of the conclusion of that agreement, their places of business in different States.

Article 7.   Definition and form of arbitration agreement

(1) ‘Arbitration agreement’ is an agreement by the parties to submit to arbitration all or certain disputes which have arisen … between them in respect of a defined legal relationship, whether contractual or not. An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.

(2) The arbitration agreement shall be in writing. …

Article 11.  Appointment of arbitrators

(2) The parties are free to agree on a procedure of appointing the arbitrator or arbitrators, subject to the provisions of paragraphs (4) and (5) of this article.

(3) Failing such agreement,

(a)   in an arbitration with three arbitrators, each party shall appoint one arbitrator, and the two arbitrators thus appointed shall appoint the third arbitrator; if a party fails to appoint the arbitrator within thirty days of receipt of a request to do so from the other party, or if the two arbitrators fail to agree on the third arbitrator within thirty days of their appointment, the appointment shall be made, upon request of a party, by the court or other authority specified in article 6.

C.        Hague Convention Terms

[126]      Parts of Articles 1 and 15 of the Hague Convention are as follows:

Article 1

The present Convention shall apply in all cases, in civil or commercial matters, where there is occasion to transmit a judicial … document for service abroad.

Article 15

(2) Each Contracting State shall be free to declare that the judge, notwithstanding the provisions of the first paragraph of this Article, may give judgment even if no certificate of service or delivery has been received, if all the following conditions are fulfilled –

(a)   the document was transmitted by one of the methods provided for in this Convention,

(b)   a period of time of not less than six months, considered adequate by the judge in the particular case, has elapsed since the date of transmission of the document,

(c)   no certificate of any kind has been received, even though every reasonable effort has been made to obtain it through the competent authorities of the State addressed.

(3) Notwithstanding the provisions of the preceding paragraphs the judge may order, in case of urgency, any provisional or protective measures.

D.        Subcontract Terms

[127]      General conditions 8.2.4, 10.2.1 and 10.2.2 of the subcontract are as follows:

8.2.4 … [I]n the case of any dispute between the Contractor and the Subcontractor as to their respective rights and obligations under this Subcontract, either Part may, subject to GC 12.2, at any time prior to six … months after completion of the Subcontract Work or cancellation or termination of this Subcontract, give the other Party written notice requesting that the dispute be mediated or arbitrated. The decision to proceed to mediation or arbitration shall be subject to the agreement of both parties and shall be in accordance with the procedures agreed upon by the Parties, failing which the dispute shall be addressed pursuant to such judicial processes as the circumstances require.

10.2.1 This Subcontract shall for all intents and purposes be considered to have been entered into and shall be interpreted in accordance with the laws of the Province of Alberta, including the federal laws of Canada applicable therein.

10.2.2 The laws of the Province of Alberta and the federal laws of Canada applicable therein shall govern the contract work.

[128]      Special condition 11 of the subcontract is in this form:

  1. Dispute Resolution: Further to GC Clause 8.2.4, the Parties shall agree that all disputes or disagreements relating to or arising out of this Subcontract shall be addressed byarbitrationconducted in the English language in Calgary, Alberta, in accordance with the Arbitration Act of Alberta. The arbitration award shall be final and binding upon the parties.

VI.            Analysis

A.        The Respondents Failed To Properly Serve Their Originating Application on the Appellant

[129]      The fact that the appellant and the respondents have agreed to submit to the jurisdiction of the Court of Queen’s Bench of Alberta for the limited purpose of assisting the arbitration process in which they are both engaged does not relieve either side of the obligation to comply with the service segments of the Alberta Rules of Court if they choose to invoke the court’s assistance.

[130]      The respondents failed to properly serve their originating application on the appellant.

[131]      Rule 11.26(1) of the Alberta Rules of Court provides that there are three methods of effecting service.

1.         There Is No Mode-of-Service Term in the Subcontract and the Appellant’s Counsel Did Not Agree To Accept Service of the Originating Application

[132]      The first is “a method provided by these rules for service of the document in Alberta”.

[133]      Two rules merit mention.

[134]      Rule 11.3(1) of the Alberta Rules of Court allows contracting parties to agree on the mode of service. The subcontract does not contain a mode-of-service term. This rule does not assist the respondents.

[135]      Rule 11.16 of the Alberta Rules of Court allows for service on the other side’s lawyer if the lawyer agrees in writing to accept service of a commencement document on behalf of a client.

[136]      Arguably, the appellant’s Korean counsel had agreed to do so in its January 26, 2017 letter to Gowlings: “all communications intended for Posco Daewoo in relation to the arbitration should be directed to our attention”.

[137]      Whatever the legal effect of this January 26, 2017 letter was, subsequent correspondence between the lawyers made it clear that neither the appellant’s Korean nor Canadian counsel were in a “position to accept such service”.

[138]      The respondents’ delivery of their originating application to the appellant’s Korean and Canadian lawyers was not good service under rr. 11.16 and 11.26(1)(a) of the Alberta Rules of Court.

2.         The Respondents Did Not Secure Prior Judicial Approval for Service Ex Juris Under Rule 11.25(2)(b)

[139]      Rule 11.25(2)(b) of the Alberta Rules of Court unequivocally declares that a party seeking to serve a commencement document outside Canada must have prior judicial permission. The case law could not be clearer.

[140]      The respondents did not even apply for a service ex juris order.

[141]      The respondents should have applied for judicial permission to serve the appellant in Korea and forwarded to Korea’s central authority under the Hague Convention the appropriate documents with a request that it serve them on the appellant. In deciding what the return date should be, counsel may wish to take into account information provided by the Korean National Court Administration. Korea’s central authority reports that in 2012 it received 604 requests for service and that approximately one-third were served in less than two months and approximately two-thirds were executed in less than four months. This necessitates delay. But service of the respondents’ originating application was not an urgent matter.

3.         The Respondents Did Not Attempt To Serve the Appellant in Accordance with Korean Law

[142]      Rule 11.26(1)(c) provides a third option. A party may serve a commencement document “in accordance with the law of the jurisdiction in which the person to be served is located”.

[143]      The respondents did not attempt to serve the appellant in accordance with Korean law.

4.         The Respondents Cannot Short-Circuit Rule 11.25(2) by Relying on Rule 11.27

[144]      There is a fourth option outside r. 11.26(1) that merits consideration.

[145]      Rule 11.27 of the Alberta Rules of Court reads, in part, as follows:

11.27(1) On application, the Court may make an order validating the service of a document served inside or outside Alberta in a manner that is not specified by these rules if the Court is satisfied that the method of service used brought or was likely to have brought the document to the attention of the person to be served.

(4) Subrules (1) to (3) apply despite

(b) the fact that the Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters applies to service of the document.

[146]      These parts of r. 11.27 incorporate two important principles.

[147]      First, r. 11.27(1) declares that the court may validate a method or manner of service other than the methods of service specified in the Alberta Rules of Court if the Court is satisfied that “the method of service used brought or was likely to have brought the document to the attention of the person to be served”.

[148]      Second, r. 11.27(4) states that a court may validate a method or manner for service outside Canada other than the methods for service catalogued in the Hague Convention.

[149]      Neither of these principles allows a court to dispense with the need for the moving party to comply with r. 11.25(2)(b) of the Alberta Rules of Court and secure judicial permission to serve the nonmoving party outside Canada. The requirement for prior judicial approval is not a method or manner of service. A court may validate a noncompliant method of service only for a moving party that has a service ex juris order in its back pocket.

[150]      In order to appreciate what a noncompliant method of service under the Hague Convention is one must understand what a compliant method of service under the Hague Convention is.

[151]      Given that r. 11.26(1)(b) of the Alberta Rules of Court provides that service outside Canada must be “in accordance with the method of service of documents under the Hague Convention … that is allowed by the jurisdiction in which the document is to be served”, it is essential to read the Hague Convention to extract permissible methods of service.

[152]      Before undertaking that task, it is important to observe that r. 11.26(1)(b) reflects a central aspect of the Hague Convention. While it is the forum state that determines when service ex juris is required, once that determination has been made service ex juris must be effected in accordance with the Hague Convention.

[153]      The Hague Convention obliges a contracting state to designate a central authority with a mandate to accept requests for service from other contracting states, serve the judicial document requested and provide the applicant with a certificate of service.

[154]      Article 15(2) of the Hague Convention allows a judge in a contracting state to give judgment against an absent defendant if the central authority does not provide a certificate of service within “a period of time of not less than six months, considered adequate by the judge in the particular case, … since the date of transmission of the document” and the applicant has made “every reasonable effort to obtain it through the competent authorities of the State addressed”.

[155]      This authority is not available to courts in a contracting state unless a contracting state declares its intention to authorize a judge to give judgment under the terms set out in article 15(2).

[156]      Canada has made this declaration.

[157]      As a result, the Court of Queen’s Bench may give judgment – in effect validate service outside Canada – if a central authority fails to provide a certificate of service within a period of not less than six months to be determined by it – the judge of the forum state – and the applicant has made “every reasonable effort … to obtain it”.

[158]      Article 15(3) provides that a “judge [of the forum state] may order, in case of urgency, any provisional or protective measures”. This may be another road to service ex juris validation.

[159]      To summarize, service outside Canada is compliant with the Hague Convention if the central authority provides a certificate of service or does not in a period not less than six months to be approved by a judge in the forum state in spite of the reasonable best efforts of the applicant. As well, a judge may allow service outside Canada for urgent protective or provisional measures.

[160]      Metcalfe Estate v. Yamaha Motor Canada provides an example of noncompliant service. The plaintiff secured prior judicial approval for service ex juris under the Hague Convention. Instead of sending the commencement documents to the Japanese central authority for service under the Hague Convention the plaintiff retained Japanese counsel. Japanese counsel forwarded the commencement documents by registered mail to the Japanese businesses at their Japanese addresses with a request that they accept service. They declined to do so.

[161]      Rules 11.27(1) allows a court to validate a noncompliant method or manner of service outside Canada under the Hague Convention. This would capture service that is not recorded in a certificate of service and does not comply with the terms of article 15(2) or 15(3) of the Hague Convention.

[162]      But it should do so only in extraordinary circumstances.

[163]      Under international and common law a state’s law is without force beyond its territorial boundaries. The territorial principle also applies to a court’s process.

[164]      A Canadian court must exercise its service ex juris function “with caution and a bias against invading the sovereignty of a foreign state”.

[165]      Rule 11.27 does not assist the respondents because they never secured prior judicial permission to serve the appellant in Korea.

[166]      Even if the respondents had prior judicial permission, r. 11.27 would not help them. Extraordinary circumstances do not exist here. Expedition was not needed here to protect the respondents’ interests.

[167]      The respondents have another problem.

[168]      They have not satisfied me that they have brought or likely have brought their originating application to the appellant’s attention.

[169]      They have brought the originating application to the attention of the appellant’s Korean and Canadian lawyers. But that is not good enough.

[170]      The respondents did not forward the originating application to the appellant’s head office in Seoul.

[171]      Neither the appellant’s Korean nor Canadian attorneys stated that they forwarded the respondents’ originating application they received by email or registered mail or both to their client. Korean and Canadian counsel simply acknowledged receipt of the email from the respondents’ lawyers.

[172]      Given that Korean and Canadian counsel stated that they were not in a position to accept service, I believe that the likelihood the lawyers forwarded the originating application to their client having been instructed by the client not to accept service is very low.

5.         Rule 1.5 Does Not Assist the Respondents

[173]      Rule 1.5 of the Alberta Rules of Court is the general curative provision. It allows a court to cure noncompliance with a procedural requirement set out in the rules of court.

[174]      Unlike r. 1.5, r. 11.27 focuses specifically on noncompliant methods or manners of service.

[175]      Rule 11.27 is the exclusive statement of the circumstances under which a noncompliant method of service outside Canada may be validated. In other words, even though the text of both rr. 1.5 and 11.27 is broad enough to apply to applications to validate a noncompliant method of service outside Canada, only r. 11.27 applies because its scope is restricted to noncompliant methods of service ex juris and it constitutes an exhaustive standard for assessment of a validation application relating to methods of service. Rule 1.5, in spite of its broad terms, does not apply to noncompliant methods or manners of service outside Canada.

[176]      It makes no sense to apply a general rule as opposed to a specific rule to a fact pattern expressly dealt with by the specific rule. Suppose that parents of a fifteen-year-old daughter, at the start of her grade nine school year, impose a midnight curfew for Friday and Saturday nights and a 11 pm curfew for school nights. The parents, at the request of the teenager, impose a 1 am curfew for the December break. It is obvious that the family understands that the general curfew rule does not apply to the period covered by the special curfew rule.

B.        Justice Macleod Should Have Set Aside the Challenged Ex Parte Orders

[177]      The determination that the respondents did not effect valid service of their originating application means that Justices Mahoney and Hollins had no jurisdiction to appoint arbitrators and consolidate the two arbitrations and that Justice Macleod should have set aside the challenged ex parte orders.

[178]      For this reason, the appeal must be allowed and there is no need to resolve the two other questions posed above.

C.        Next Steps

[179]      The appellant may wish to reconsider the best way to proceed.

[180]      It is obvious to me that the disputes arising under the subcontract, the subject of the two arbitration notices, should be resolved by one arbitration panel. They both relate to the same subcontract. Not only will this save the appellant the costs associated with the need to have its witnesses testify before two different tribunals – and prepare twice, for counsel to present two separate cases and to pay the fees of additional arbitrators, it will reduce the likelihood of inconsistent awards. The appellant will not derive an advantage from this.

[181]      The appellant has stated that it intends to take the position before the arbitration panel hearing the respondents’ claim that the respondents’ arbitration notice is invalid because it makes reference to Alberta’s domestic Arbitration Act and not the provisions of the International Commercial Arbitration Act.

[182]      I recognize that the fate of this argument will be ultimately determined by the arbitration panel that is eventually convened to hear the respondents’ claim. Nonetheless, I offer my evaluation of its merits with the hope that it will cause the appellant to refocus on the plain and obvious meaning of special condition 11 and the considerable commercial value arbitration represents to the appellant. The appellant no doubt agreed to arbitrate its differences with the respondents arising from the subcontract because it wanted a “quick and efficient adjudication and [did] … not want to take the risks of delay and, in too many cases, partiality, in proceedings before a national jurisdiction”.

[183]      Special condition 11 of the subcontract expressly states that any arbitration commenced to resolve differences arising under the subcontract will be governed by Alberta’s Arbitration Act. It makes no reference to the International Commercial Arbitration Act.

[184]      It probably would have been the best course for the respondents in their arbitration notice to have referred to both the Arbitration Act and the International Commercial Arbitration Act and explain why the dual reference was necessary.

[185]      But I fail to see how the respondents’ arbitration notice is deficient in any respect because it tracks the special condition 11 language and refers only to the Arbitration Act. Special condition 11 expressly incorporates the Arbitration Act.

[186]      And s. 3 of the Arbitration Act unequivocally states that “[t]he parties to an arbitration agreement may agree, expressly or by implication, to vary or exclude any provision of this Act except sections 5(2), 19, 39, 44(2), 45, 47 and 59.” It is s. 2(1)(b) that states that the International Commercial Arbitration Act applies to international commercial arbitrations. This is a provision the parties may exclude. They may have been able to adapt to the process under the Arbitration Act.

[187]      Arbitration tribunals do not respond favorably to overly technical arguments that abridge their authority to hear and resolve disputes arising from the disputants’ contractual relationship.

[188]      In any event, the respondents’ arbitration notice is consistent with special condition 11 and makes clear to the appellant the nature of the dispute it invokes special condition 11 to address. The fact that the respondents are prepared to proceed under the International Commercial Arbitration Act, the position that the appellant has adopted, should pave the way for a special condition 11 arbitration proceeding under the aegis of the International Commercial Arbitration Act without further delay.

[189]      If the appellant does not change course and insists that the respondents comply with r. 11.25(2) and apply for service ex juris, the respondents may derive a long-term advantage. Justice O’Connor noted in Volkswagenwerk Aktiengesellschaft v. Schlunk that “parties that comply with the [Hague] Convention ultimately may find it easier to enforce their judgments abroad. … For these reasons, we anticipate that parties may resort to the Convention voluntarily, even in cases that fall outside the scope of its mandatory application”.

VII.         Conclusion

[190]      The appeal is allowed.

[191]      I agree with my colleagues that the appellant and the respondents should bear their own costs in this Court and in the Court of Queen’s Bench.

 

[192]      I acknowledge counsel’s excellent oral and written submissions.

Appeal heard on May 7, 2019

 

Memorandum filed at Calgary, Alberta

this 12th day of June, 2019

 

 

 

Wakeling J.A.

 

 

 

Appearances:

W.P. Foley/N. Tams

            for the Respondents

P.J. Scheibel/J.D. Fraese

            for Appellant