Canada – Arbitration Remains Mandatory Despite Option Given to Only One Party to Waive Arbitration

This article first appeared in Urbas Arbitral, here.

In Malcolm Drilling Company Inc. v. The Graham-Aecon Joint Venture, 2021 BCSC 1136, Madam Justice Shelley C. Fitzpatrick issued a stay of proceedings despite plaintiff’s objection that only defendant had a peremptory right to refuse arbitration in response to plaintiff’s request to arbitrate. Fitzpatrick J. held that arbitration was mandatory if (i) either party requested it and (ii) arbitration was requested by plaintiff and defendant did not exercise its peremptory right to “waive” arbitration. Fitzpatrick J. also cautioned against an uncritical application of the “dated” approach to jurisdictional issues taken by decisions released prior to Seidel v. TELUS Communications Inc., 2011 SCC 15 (CanLII), [2011] 1 SCR 531, noting that “the persuasiveness of those decisions must be viewed with some skepticism given the more modern approach to arbitration”.

By April 27, 2017 contract (“Prime Contract”), Greater Vancouver Sewerage and Drainage District (“Corporation”) retained Graham-Aecon Joint Venture, Graham Infrastructure LP and Aecon Water Infrastructure Inc. (together “Graham”) to undertake certain work on a facility located just south of Vancouver (“Project”).

By August 30, 2017 subcontract (“Subcontract”), Graham retained Malcolm Drilling Company Inc. (“Malcolm”) to supply and install cement deep soil mixing walls and beams for the Project.  Malcolm experienced difficulties in its drilling operations, incurring costs and having to abandon equipment valued in excess of $530,000.00.  Graham compensated Malcolm for the operational costs but not the equipment.

Malcolm initiated an action against Graham on December 17, 2019.  Graham responded on February 10, 2020 with an application to stay under section 15 of B.C.’s former Arbitration Act, RSBC 1996, c 55, now repealed and replaced by the Arbitration Act, SBC 2020, c 2, effective September 1, 2020.

(i) two (2) agreements to arbitrate – Graham’s stay application required Fitzpatrick J. to consider two (2) agreements to arbitrate, one in the Prime Contract and the other in the Subcontract.

(a) Prime Contract’s agreement to arbitrate – The terms of the Prime Contract’s agreement to arbitrate at paragraph (2) required both parties to agree to arbitrate.

2.5.7   Dispute/Claim Resolution

(1) All claims, disputes or Disputed Decisions between the Corporation and the Contractor that are not resolved shall be decided by arbitration if the parties agree, or failing agreement, in a Court of competent jurisdiction within the Province of British Columbia.

(2) In the event that the parties agree to arbitration, pursuant to Section 00500, Clause 2.5.7(1), the arbitration shall be governed by the rules of the British Columbia International Commercial Arbitration Centre, except that the arbitrator or arbitrators shall be agreed upon by the parties, and failing agreement by the parties, shall be appointed by a Court of competent jurisdiction within the Province of British Columbia.

(3) In the event that the parties agree to arbitration, the arbitration shall take place in Vancouver, British Columbia and be governed by the laws of British Columbia”.

The Prime Contract required Graham to ensure that subcontractors agree to be bound by the Prime Contract.

(b) Subcontract’s agreement to arbitrate – The Subcontract between Graham and Malcolm contained different wording.  After identifying the scope of differences subject to the stepped dispute resolution process at section 27, the parties provided as follows if mediation failed to resolve their differences:

(d) Failing agreement as to the appointment of a mediator within thirty (30) days of such dispute arising or failing resolution through mediation and subject to the Contractor’s peremptory rights below, either party shall be entitled to give the other notice of a request to arbitrate.

(e) The arbitration shall be conducted before a single arbitrator, shall take place in the jurisdiction of the place of the Work in accordance with the National Arbitration Rules of the ADR Institute of Canada, Inc. and the decision of the arbitrator will be final and binding upon the parties. The language of the arbitration will be English.

(f) … Where the Prime Contract contemplates dispute resolution by litigation, or where the Contractor otherwise notifies the Subcontractor of its intention that any disputes not resolved following mediation be resolved by litigation, notwithstanding any request for arbitration issued by the Subcontractor, the Contractor shall have a peremptory right to issue written notice to the Subcontractor directing the waiver of arbitration proceedings hereunder, and such dispute will be resolved by litigation”.

Note that the Prime Contract provided for arbitration administered by BCICAC, now Vancouver International Arbitration Centre as of September 1, 2020) while the Subcontract provided for arbitration administered by the ADR Institute of Canada Inc.

Fitzpatrick J. identified a single issue for her to decide on the stay application: do the terms of the Subcontract’s dispute resolution require Malcolm to engage in arbitration if Graham wishes to do so? “Malcolm says no; Graham says yes”.

(ii) key principles and case law – At paras 9-19, Fitzpatrick J. set out the applicable provisions of the former Arbitration Act as well as referencing key case law on how to approach interpretation of parties’ agreements.  After referring to the definition of “arbitration agreement” as section of the Arbitration Act and reproducing section 15, Fitzpatrick J. then referred to Prince George (City of) v. A.L. Sims & Sons Ltd., 1995 CanLII 2487 (BC CA) as the source for the three (3) components required for application of section 15(1):

[22] There are three prerequisites to the application of s.15.  They are:

(a) the applicant must show that a party to an arbitration agreement has commenced legal proceedings against another party to the agreement;

(b) the legal proceedings must be in respect of a matter agreed to be submitted to arbitration; and

(c) the application must be brought timely, i.e. before the applicant takes a step in the proceeding”.

See also Gulf Canada Resources Ltd. v. Arochem International Ltd., 1992 CanLII 4033 (BC CA).

With reference to Hayes Forest Services Limited v. Teal Cedar Products Ltd., 2008 BCCA 283, Fitzpatrick J. added that, unless the agreement to arbitrate is void, inoperative or incapable of being performed, a stay order is mandatory one all three (3) components were established.

Fitzpatrick J. specified that an agreement to arbitrate must be mandatory or binding.  She recorded the parties’ agreement that the arbitration process in the Prime Contract was “only permissive and not mandatory” and therefore “no arbitration agreement exists and s. 15 is not engaged at all”.  See Bryndan Holdings Inc. v. Gastronomia Enterprises Ltd., 2003 SKQB 121 para. 7. 

Fitzpatrick J. qualified that statement with reference to J. Brian Casey, Arbitration Law of Canada: Practice and Procedure, 3rd ed. (Huntington, NY: Juris, 2017) p. 124, specifying that recourse to arbitration may be at the option of only one (1) of the parties. “The fact that only one of the parties has the option to compel arbitration does not mean that an agreement is not an arbitration agreement”.

Fitzpatrick J. outlined the parties’ competing positions on the agreement to arbitrate in the Subcontract.

[19] Malcolm argues that the terms of the Subcontract are such that the agreement only permits resolving disputes by arbitration, assuming both parties agree. Malcolm further argues that it is clear, and inarguable, that the Subcontract does not require arbitration. Graham argues that it is clear, or at least arguable, that the language in the agreement is mandatory, an arbitration agreement exists and a stay of proceedings must be entered”.

Fitzpatrick J. adopted the “arguable case test” most recently stated in Clayworth v. Octaform Systems Inc., 2020 BCCA 117 paras 22-25, to determine whether an agreement to arbitrate qualified under section 15(1) for a stay of proceedings and for referral to the arbitrator. (For the earlier Arbitration Matters note on C v. O, see “B.C. – a stay is not a dismissal – #315”. B.C.’s Court of Appeal held that interpretation of the scope of an agreement to arbitrate is a question of mixed fact and law, not a question of law.  As such, the courts are to apply the “arguable case test” whereby jurisdictional issues relating to the scope of the arbitration agreement are to be resolved in first instance by the arbitrator.)

For more cases on application of the “arguable case test”, see also Prince George (City of) v. A.L. Sims & Sons Ltd., 1995 CanLII 2487 (BC CA)St. Pierre v. Chriscan Enterprises Ltd., 2011 BCCA 97 and Sum Trade Corp. v. Agricom International Inc., 2018 BCCA 379. (For the earlier Arbitration Matters note on Sum Trade Corp. v. Agricom International Inc., see “B.C. – Court of Appeal reasserts need for only an “arguable case” to justify stay of proceedings – #125”.  B.C.’s Court of Appeal upheld a stay of  court litigation in favour of arbitration, reiterating that, unless a party “clearly” establishes that it is not a party to an arbitration agreement, then the other party seeking a stay need only have an “arguable case” that the prerequisites under section 8(2) of B.C.’s International Commercial Arbitration Act, RSBC 1996, c 233 have been met.  The Court noted that, over the years, the prima facie or “arguable case” analysis had been extended from cases involving the validity of arbitration clauses to cases concerning the applicability of such clauses. The Court also cautioned that earlier judicial comments regarding arbitration must be read in light of the increased deference now applied by the courts.)

Fitzpatrick J. then considered “whether or not it is clear, or at least arguable” that the Subcontract could be interpreted as requiring the parties to engage in arbitration. Malcolm conceded that, if the agreement to arbitrate qualified as a mandatory agreement, then the dispute between it and Graham fell within its scope.

In her consideration of case law submitted by Malcolm, Fitzpatrick J. at paras 38-66 took care to distinguish those cases which issued prior to Seidel v. TELUS Communications Inc., 2011 SCC 15, [2011] 1 SCR 531.  “As an initial observation, [Tylon Steepe Homes Ltd. v. Pont, 2009 BCSC 103] was decided in the pre-Seidel period, inviting some caution in discerning any “judicial hostility” toward arbitration as a means of resolving disputes”.

Fitzpatrick J.’s analysis led her to conclude that the agreement to arbitrate set out in the Subcontract was sufficient to justify a stay.

[68] Graham is the only party that is granted the peremptory right in subparagraph (f) of the Dispute Provision to refuse arbitration in the face of Malcom’s request in certain circumstances. I agree with Graham that, if arbitration was not mandatory under the Dispute Provision, that peremptory right would be meaningless. Further, if arbitration was only optional and required the agreement of both parties at the time the dispute arose (as Malcolm contends), there would be no need for a peremptory right at all.

[69] When the Dispute Provision is read in its entire context, the only reasonable interpretation is that arbitration is mandatory if either party requests that method of dispute resolution and, if arbitration is requested by Malcolm, Graham does not exercise its peremptory right under subparagraph (f) to “waive” an arbitration proceeding”.

The parties argued the impact of the Prime Contract on the terms of the Subcontract and Fitzpatrick J., having considered their respective positions, concluded that the parties had knowledge of the Prime Contract but decided to forgo the optional process in the Prime Contract and negotiate a binding agreement to arbitrate in the Subcontract.

Based on her analysis of the terms of the parties’ own agreement in the Subcontract and in light of the case law and Arbitration Act, Fitzpatrick J. concluded that “it is clear, or at least arguable, that the parties agreed to refer this dispute to arbitration and that arbitration is required even if only Graham chooses to invoke that process”.

urbitral notes – First, for a related decision on a unilateral right to engage in arbitration, see the earlier Arbitration Matter note “Québec – arbitration imposed by statute remains consensual if opportunity available to renounce – #204” regarding Boisvert v. Selvaggi, 2019 QCCS 1673. Mr. Justice Kirkland Casgrain dismissed an attempt at judicial review of an award issuing from arbitration imposed by statute.  Relying on the reasoning and result in Conseil d’arbitrage des comptes des avocats du Barreau du Québec v. Marquis, 2011 QCCA 133, Casgrain J. held that such arbitrations remain consensual if the legislation allows opportunity to renounce to its application.  Being consensual, such arbitrations were subject not to judicial review but to annulment proceedings based on limited grounds familiar to practitioners practising international commercial arbitration.

Second, on a related note to revisiting cases with some caution given more recent developments in the case law, such as Seidel v. TELUS Communications Inc., see the earlier Arbitration Matters note “Québec – precedents on attornment re-read in light of newer rules requiring compliance to judicial contract – #434” regarding Bergeron v. 2528-1023 Québec inc., 2021 QCCS 539. Mr. Justice Babak Barin underlined (i) the importance of alternative dispute resolution and (ii) the principles applicable to submission/attornment to the court’s jurisdiction.  Barin J. first drew attention to the primacy given by Code of Civil Procedure, CQLR c C-25.01 to alternative dispute resolution and then commented on the general principles and particular factual elements related to parties attorning to a court’s jurisdiction. Barin J. reconsidered earlier case law which issued before recent court rules updates which now oblige litigants, at the onset of the litigation, to identify their intention to raise declinatory exceptions. His comments suggest that earlier case law must be re-read in light of newer rules requiring parties to commit earlier and clearly to their procedural decisions and to abide by their “judicial contract”. Barin J.’s comments on attornment may assist litigants to determine whether a party has or has not waived the benefit of their agreement to arbitrate. 


Daniel Urbas

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…

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