Legal Blog

ARBITRATION (2)

Most, if not all, of the standard CCDC and CCA documents include provisions requiring parties to engage in an alternate dispute resolution process. “Alternate” means an alternative to court litigation – or self-help. The standard provisions reference various escalating procedures: consultant decision, mediation, arbitration. What happens when a party decides that it does not want to waste its time with mediation, but wants to get straight into arbitration? Can it? The question was answered in part in A.G. Clark Holdings Ltd. v. HOOP Realty Inc., a 2013 decision of the Alberta Court of Appeal.

Dispute

An owner and its general entered into a design build contract. It appears that they used CCA 14, but amended a number of its provisions. They certainly amended aspects of GC 8 dealing with the resolution of disputes.

The building was completed in 2000 and, in February 2002, the owner commenced an action against the general alleging breach of contract and negligence arising out of deficiencies in the building’s floor.

The general moved to have the action stayed, relying on the dispute resolution provisions in the contract, which stipulated that unresolved disputes had to be arbitrated. The owner countered that the dispute did not have to be arbitrated because the project consultant was never asked to opine on the dispute and a project mediator was never appointed (and therefore there had been no mediation). The owner argued that these steps were pre-conditions to the arbitration procedure and that, since they were not followed, arbitration was not mandatory.

The motions judge agreed with the owner’s position and allowed the action to continue. The general appealed.

Contract Provisions

The parties left GC 8.1 intact. It reads,

8.1.1 Differences between the parties to the Contract as to the interpretation, application, or administration of the Contract or any failure to agree where agreement between the parties is called for… which are not resolved in the first instance by findings of the Consultant … shall be settled in accordance with the requirements of Part 8 of the General Conditions …

From what we can determine, the parties left most of GC 8.2 intact. However, the parties made one major change to GC 8.2.6 and 8.2.7. They initially read as follows:

8.2.6 By giving a notice in writing to the other party, not later than 10 Working Days after the date of termination of the mediated negotiations under paragraph 8.2.5, either party may refer the dispute to be finally resolved by arbitration…

8.2.7 On expiration of the 10 Working Days, the arbitration agreement under paragraph 8.2.6 is not binding on the parties and, if a notice is not given under paragraph 8.2.6 within the required time, the parties may refer the unresolved dispute to the courts or to any other form of dispute resolution, including arbitration, which they have agreed to use.

The parties changed them to read,

8.2.6 All disputes, claims and differences not settled as herein provided, arising out of or in connection with the Contract or in respect of any defined legal relationship associated with it or derived from it, shall be referred to and finally resolved by arbitration in accordance with the Alberta Arbitration Act. …

Interpretation

The motions judge had, in effect, interpreted GC 8.1.1 to mean that “the parties must initially work with the Consultant on any dispute” and “only those disputes” which were not then resolved must go to arbitration. The judge reasoned that since the consultant never made a decision, the remainder of the dispute resolution provisions simply did not apply. The Court of Appeal disagreed. It held that the interpretation of the motions judge added words into GC 8.1.1 that did not exist and that could not simply be implied.

The Court of Appeal reasoned that it was rational to interpret the agreement to allow two separate routes to arbitration. A party could use the more complicated route of consultant, mediator, and, if ultimately necessary, arbitration or a party could decide to save the time and effort involved in complicated route and go directly to arbitration.

Accordingly, the Court of Appeal overturned the decision of the motions judge. Seemingly, that would mean that the court action would be stayed pending the arbitration, but the court was very terse in its reasons. It merely said that it was returning the matter to the trial division for consideration “of the remaining issues raised by the parties at the special chambers hearing.”

There is no doubt that the reasons for decision answered the question that we initially posed. A party may go straight to arbitration rather than go through the consultant and mediation. Unfortunately, the question is answered only in respect of the exact contract clauses in issue in this case. The basic CCA 14 clause, which is almost identical to the clause in the CCDC contracts, is not the same and, although likely, it may not be interpreted identically to the clause in this case.

Timing

The timing in this matter is not easily understood. The project was built in 2000, the action was commenced in 2002, the general brought its motion in 2011 or 2012, and the appeal was heard January 2013. What went on in the 11 years between the action’s commencement and the appeal? Justice does not move that slowly. However, the parties did. It seems that the parties agreed to mediate in 2006 and 2010, but were unsuccessful in their attempts to resolve the dispute and similarly unsuccessful in moving the action forward at anything other than a snail’s pace.

Strategy

The reasons for decision of the Court of Appeal did not inform the reader of the general’s real motivation for its motion. That motivation was apparent in the reasons for decision in the original motion and in the subsequent proceedings between the parties. The general took the position that, since the owner had not commenced arbitration proceedings within the limitation period set out in the Alberta Limitations Act (the “Act”), the owner had no right to look to the general for any compensation. The Court of Appeal referred this issue to the motions judge.

In his subsequent decision, the motions judge, noting that the Court of Appeal had decided that arbitration was mandatory, held that the owner had not commenced any arbitration proceedings within the limitation period set out in the Act and, therefore, had lost its right to sue the general. The judge dismissed the owner’s action.

The owner was displeased and appealed to the Court of Appeal. The Court again ruled against the owner, this time upholding the motions judge and the dismissal of the owner’s action. The owner, with one last gasp in its doomed fight, moved for leave to appeal the matter to the Supreme Court of Canada. Leave was refused; the war was over.

Written by Jonathan Speigel Jonathan Speigel, the founding partner of Speigel Nichols Fox LLP, leads the litigation and construction practices.

Image courtesy of Flikr, Creative Commons.