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Canada – Trial Judge and Appeal Court Rely on Litigants’ Agreement to Repurpose Arbitral Award Findings of Fact

by Daniel Urbas

January 2021

Daniel Urbas

This article first appeared on Urbas Arbitral, here.

In dismissing the appellant’s claims that the trial judge erred in interpreting a common form of insurance contract used in the construction industry, the Court of Appeal in Sky Clean Energy Ltd. (Sky Solar (Canada) Ltd.) v. Economical Mutual Insurance Company, 2020 ONCA 558 noted that the litigants had agreed that findings of fact made in an arbitration award would bind the trial judge.  Though the plaintiff had unsuccessfully challenged that same award and the defendant had not been a party to the arbitration, both accepted not to relitigate the findings of fact when litigating their own dispute regarding those facts.

Plaintiff Sky Solar (Canada) Ltd. (“Sky Solar”) had challenged, unsuccessfully, a December 10, 2014 award dismissing its claims against Marnoch Electrical Services Inc. (“Marnoch”).  The fuller set of facts and the challenge to the arbitration award are set out in Mr. Justice Glenn A. Hainey’s November 26, 2015 decision in Sky Solar (Canada) Ltd. v Marnoch Electrical Services Inc., 2016 ONSC 1295

Defendant Economical Mutual Insurance Company (“Economical”) had not been a party to that arbitration though it did have a subrogated interest and likely would not realistically challenge facts made against its insured Marnoch. Cavanagh J. at para. 125 recorded Sky Solar’s allegations that in other proceedings Economical pursued subrogated claims in the name of Marnoch to recover costs of the arbitration.

In his trial decision Sky Solar (Canada) Ltd. v. Economical Mutual Insurance Company, 2019 ONSC 4165, Mr. Justice Peter J. Cavanagh recorded Sky Solar’s and Economical’s agreement to reuse at trial those findings of fact made by the arbitrator.  See the earlier Arbitration Matters note “Non-parties to arbitration agree arbitrator’s findings of facts binding for facts common to their litigation

Cavanagh J. at para. 32 confirmed the parties’ agreement for the purposed his own reasons.  “The parties agreed that the findings of fact made by [Arbitrator] in his arbitral award are binding and will not be relitigated in this action”.  Later into his reasons, Cavanagh J. at para. 47 reiterated that agreement and introduced the scope of the findings made in the arbitration.

Both the Sky Solar and Economical rely on the findings made by [Arbitrator] in his arbitral award in an arbitration by Sky Solar against Marnoch for indemnification under the contracts between Sky Solar and Marnoch for all of its losses resulting from the two transformer fires and for alleged breaches of contractual warranties. Sky Solar accepts the factual findings of [Arbitrator] as binding on it in this action”.

At para. 48 of his reasons, Cavanagh J. excerpted the arbitrator’s key findings and at paras 50-51, 76 and 79 flagged specific determinations drawn from the award.

On appeal by Sky Solar, the Court of Appeal in its own reasons merely noted the approach taken by Sky Solar and Economical.  “To simplify the proceedings, the parties agreed that the findings of fact made by the arbitrator would be binding on the trial judge”.  The litigants’ approach drew no more remark than that, indicating the Court’s own acceptance of litigants’ agreements to do so.

When undertaking its own analysis, the Court of Appeal reiterated the facts determined by the arbitrator and summarized by Cavanagh J. in his trial decision.   When introducing its analysis, the Court comment that it would set out the key facts and would do so “borrowing from the arbitrator’s language”.

The Court’s reasons at para. 34 and following analysed the contractual provisions set out in stipulated price contracts based on the Canadian Construction Documents Committee CCDC2 from, with some modifications.

The role of the factual determinations made in the award was simply confirmed and identified at the onset of the Court’s analysis at para. 43.  The Court cited the key determination of fact made in the award and the trial judge’s determination that the burden of fact resting on Sky Solar to prove that its liability fell within the coverage provided by Economical at para. 44.

See paras 57-63 for comments from the Court on the CCDC2 contract and paras 75-98 exploring the courts’ interpretation of “arising out of” and “arising from” in interpreting contractual provisions.

For reasons set out by the Court regarding CCDC2 contracts and interpretation of the insurance coverage, the Court dismissed the appeal.

urbitral notes – First, the reasons demonstrate a ready acceptance both at the trial and appeal level for courts relying on litigants’ agreements to repurpose determinations made in arbitration.  Neither level of the court issued any qualifications on the evidence presented as “binding” on the trial judge. The litigants themselves readily accepted to rely on those findings despite one party having initially challenged those findings and the other not being party to the arbitration.  Their approach no doubt saved extensive costs for the litigants at the trial and endorsed the quality and reliability of the work product which issued from the particular arbitration.

Second, in the absence of such agreements, arbitration awards involving other disputes or other parties would not, without more, be binding on a court.  Nonetheless, the courts are still open to acknowledging the strength of the reasoning set out in such awards.  For example, recently in Ulker Holdings Inc. v. AES Engineering Ltd., 2020 BCSC 1823, Madam Justice Francesca V. Marzari observed that an award issuing from an arbitration between other parties on purportedly similar contractual wording was not binding on the courts but the reasoning could still persuade the courts.

[27] Mr. Ulker states that he did not work for O’M Engineering or do work in breach of the Non-Compete Agreement. He says, correctly, that the July 2019 valuation of AES is not evidence that he breached that agreement, or that he (or O’M Engineering) caused a loss to AES.

[28] He also notes that AES brought an arbitration against the principles of O’M Engineering for breach of their shareholder agreement not to compete against AES in 2019. The terms of that non-compete clause are very similar to the language of the Non-Compete Agreement Mr. Ulker signed as part of the Exit Agreement, including the geographic scope clause. [Arbitrator] found that the geographic scope clause of the shareholder agreement was ambiguous and therefore unenforceable. [Arbitrator] also found no evidence that O’M Engineering solicited any AES clients, and AES failed to introduce any evidence of losses caused by O’M Engineering to AES in that arbitration”.  …

[70] While the evidence may establish that Mr. Ulker assisted or advised, or even bid on work, in competition with AES in early 2019 as alleged by AES, it is far from clear at this point that the Non-Compete Agreement is enforceable. At the time it is alleged that Mr. Ulker breached this agreement, AES had paid no consideration for his forbearance from the competition. Furthermore, although the arbitrator’s award in the AES proceeding against O’M Engineering is in no way binding upon a future court, the arbitrator’s determination that the provision dealing with the geographic scope is ambiguous has legal merit in my view”.

 

Daniel Urbas is an experienced litigator, arbitrator and mediator with over 25 years of dispute resolution experience. He has earned a variety of repeat, annual peer recognitions including “Leading Lawyer” in “Commercial Arbitration” in the 2019 edition of the Lexpert ® / American Lawyer Guide to the Leading 500 Lawyers in Canada, “Most Frequently Recommended” in the 2019 edition of The Canadian Legal Lexpert® Directory for Commercial Arbitration, “Thought Leader” in 2019 edition of Who’s Who Legal – Litigation and AV® Preeminent™ by Martindale-Hubbell®.
 

Daniel focuses exclusively on serving as an arbitrator and mediator.  As arbitrator, Daniel serves as a sole arbitrator, as chair or as party-nominated member of three (3) member arbitration tribunals. His appointments have been made by individual parties, by the parties jointly on consent, by court orders and by various administering institutions including ICC, CCAC and IATA.
 

A Fellow of the Chartered Institute of Arbitrators (“CIArb”) based in London, UK, as well as a founding Director of the CIArb’s Canada Branch, Daniel is listed on various rosters including general commercial rosters organized by the ICDR, CIETAC and BCICAC and on more specialized, industry/activity specific rosters such as the Canada Transport Agency’s roster.

 

Daniel’s dispute resolution experience spans a variety of commercial and civil matters, intellectual property (including anti-piracy and anti-counterfeiting litigation) and information technologies, energy (wind, bio), natural resources (mining, forestry, fishing), shareholder disputes, real estate and lease disputes, product liability, construction, distribution and franchise, Aboriginal law matters including treaty and land claims litigation and dispute resolution of agreements relating to governance and natural resource development on native peoples’ territories.

 

He handled trial and appellate advocacy, as well as urgent and extraordinary applications. He has appeared before the provincial and federal courts, including the Supreme Court of Canada, as well as before arbitration tribunals and various administrative tribunals. Fluently bilingual in both English and French with degrees in both Common Law and Civil Law, Daniel is an active member of the Barreau du Québec, the Law Society of Ontario and the Law Society of British Columbia.  At his former national law firm, up until June 2017, Daniel served as Regional Leader of the International Trade Litigation and Arbitration group and Regional Leader of the Intellectual Property Litigation group. Formerly, Daniel was also Regional Leader of the Commercial Litigation group and National Leader of the Intellectual Property Litigation group.



Website: urbas.ca

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