The Saskatchewan Court of Appeal has recently released an interesting decision dealing with arbitration and court proceedings arising from a construction contract. In Saskatchewan Power Corp. v. Alberici Western Constructors, Ltd., 2016 CarswellSask 186, 2016, the court held that the arbitration clause of the main contract between the owner and the contractor should be enforced even though there was court litigation involving subcontractors. Accordingly, the Court of Appeal upheld the stay of the court action, even though the action had originally been commenced by the same party which now wanted it stayed, the contractor.

In the course of its decision, the Saskatchewan Court of Appeal set forth a number of principles that will be useful to remember when, as may often happen in construction disputes, arbitration and court proceeds are commenced among the various parties involved in the building project.

Background

Saskatchewan Power (the owner), entered a construction contract with the Alberici Western and Balzers Canada, (the contractor) (AB Western). The contract contained an arbitration clause. AB Western entered into a number of subcontracts. The relevant subcontracts required, in the event that there were disputes between the parties to the subcontract, that the subcontractors participate in arbitration with the owner or delay the subcontract dispute resolution process until the dispute resolution procedures under the main contract were completed.

AB Western serve a notice of arbitration under the main contract with the owner and, as a matter of caution, issued a statement of claim as well. AB Western said that it intended to proceed with the arbitration and had only commenced the action in case there were any issues falling outside the arbitration and to protect against limitation issues. In the action against SaskPower, AB Western also joined two subcontractors as defendants.

SaskPower served a Defence and counterclaim in AB Western’s action. SaskPower asserted that third-party claims falling outside the scope of the arbitration clause would have to be pursued through the courts, with the result that there would be a multiplicity of proceedings if the arbitration proceeded.

AB Western applied to stay its own court action so the arbitration could proceed. SaskPower applied to stay the arbitration on the ground that the arbitration would result in multiplicity of proceedings. SaskPower said that there were as many as 15 separate entities that might be involved in the litigation, and that all the disputes should be decided in the one court action.

The application judge agreed with AB Western’s position, stayed the action commenced by AB Western and dismissed SaskPower’s application to stay the arbitration. SaskPower appealed and the Saskatchewan court of Appeal dismissed the appeal.

The Saskatchewan Court of Appeal’s decision

There are many elements to the Court of Appeal’s decision. It may be easiest to set them forth in numerical propositions:

  1. The Court of Appeal held that AB Western’s application to stay the action was the most relevant application because if it were dismissed, the arbitration would be stayed automatically. As the court said:

“…as per s. 8(4) of the Arbitration Act, no arbitration of a dispute may be commenced if a court refuses to stay litigation relating to a matter subject to arbitration. In other words, if the stay of AB Western’s action ordered by the Chambers judge is set aside, then SaskPower does not have to be concerned about its application to stay the arbitration. The arbitration will be stayed automatically by virtue of s. 8(4).”

  1. Section 8 of the Saskatchewan Arbitration Act did not preclude the application being made by AB Western to stay its own action. Section 8 says that a motion to stay an action brought by one party to an arbitration agreement may be made “on the motion of another party to the arbitration agreement.” (underlining added) While this wording might seem to preclude AB Western from seeking to stay its own action, it was entitled to bring its application under section 37 of the Saskatchewan Queen’s Bench Act which states as follows:

37(1) Nothing in this Act prevents a judge from directing a stay of proceedings in any action or matter before the court if the judge considers it appropriate.

(2) Any person, whether a party or not to an action or matter, may apply to the court for a stay of proceedings, either generally or to the extent that may be necessary for the purposes of justice, if the person may be entitled to enforce a judgment, rule or order, and the proceedings in the action or matter or a part of the proceedings may have been taken contrary to that judgment, rule or order.

(3) On an application pursuant to subsection (2), a judge shall make any order that the judge considers appropriate.

  1. In considering the exercise of the discretion under section 37, the Court of Appeal    agreed with the application judge:

– that the factors in section 8 of the Arbitration Act were “helpful, if not mandatory.”

– that the two step approach to the stay application set out in Ontario Justice Lederer’s 2004 decision in Farris v. Staubach Ontario Inc. was not necessarily applicable. The two Saskatchewan cases that had referred to Farris did not hold it up “as being descriptive of the only way the merits of an application for a stay can be assessed” and one of those decisions questioned its applicability to a motion to stay a party’s own action.

– that the application should be guided by the principles underlying the Arbitration Act.

Here, the Court of Appeal’s decision is notable:

“…most importantly, the Chambers judge was entirely correct to let himself be guided largely by the terms of the Arbitration Act in the situation here. The matter before him was not just any application for a stay. It was an application for a stay brought against the close background of the Arbitration Act and brought by a party to an arbitration agreement desirous of moving forward with that proceeding. In these circumstances, it was incumbent on the Chambers judge to ensure his decision fit coherently with both the spirit and the particulars of the Arbitration Act. It would have been a mistake for him to have done otherwise.” (underlining added)

  1. The Court of Appeal held that section 29 of the Queen’s Bench Act did not require a different result. Section 29 reads as follows:

29(1) The court shall grant to the parties to an action or matter all remedies to which the parties appear to be entitled with respect to any legal or equitable claims that they have properly brought forward so that:

(a) all issues in controversy between the parties are determined as completely and finally as possible; and

(b) a multiplicity of legal proceedings concerning the issues is avoided. (underlining added)

While SaskPower argued that section 29 mandated that the judge avoid the multiplicity of proceedings, the Court of Appeal disagreed. The section was directed to remedies, and was not a “generalized and free-standing directive to Queen’s Bench judges telling them, in all contexts, to do whatever is necessary to avoid or eliminate a multiplicity of proceeds.”

Moreover, Section 7 of the Arbitration Act contained the more specific legislative direction. That section states that “No court shall intervene in matters governed by this Act, except for the following purposes…” Multiplicity of proceedings is not one of those purposes. In this situation the particular set for the in section 7 should prevail over the general set forth in section 29. As the Court of Appeal said:

“In other words, notwithstanding s. 29, the Chambers judge’s assessment of the multiplicity of proceedings issue had to fit coherently with the dispute resolution architecture put in place by the Legislature through the terms of the Arbitration Act. As a result, his focus on that Act was entirely appropriate.”

  1. SaskPower relied upon sub-section 7(c) of the Arbitration Act, which states an exception to the “no court interference” rule contained in the initial words of the section. Sub-section 7(c) says that the court can interfere “”to prevent unequal or unfair treatment of parties to arbitration agreements.” SaskPower said that multiplicity of proceedings amounted to such “unfair treatment.” The Saskatchewan Court of Appeal disagreed. It held that sub-section 7(c) is directed toward procedural fairness of the arbitration itself, and with “maintaining the internal integrity of the arbitration process established by the parties.” The court added:

“As a result, a judicial intervention pursuant to s. 7(c) would not normally lead to a permanent stay of an arbitration in favour of proceedings in the courts. Rather, such an intervention would be aimed at dealing with the unequal or unfair treatment in question and getting the arbitral proceedings back on the rails. None of this fits easily with the argument advanced by SaskPower.”

  1. The Court of Appeal made particular reference to the UNCITRAL Model Law on International Commercial Arbitration. It held that while the Model Law did not contain a provision identical to section 7 of Saskatchewan’s domestic Arbitration Act, “nonetheless, the theme of the jurisprudence it has generated is of some assistance here.” After referring to section 8 of the Model law, the Court of Appeal said:

“Overall, the decisions dealing with Article 8 are to the effect that the prospect of a multiplicity of proceedings is not a valid reason for refusing to refer the parties to arbitration. Rather, the clear theme of the case law is that the risk of parallel or overlapping proceedings is not a basis for refusing to refer a dispute to arbitration for the simple reason that the Model Law does not identify it as such.”

  1. The Court of Appeal concluded its judgment with this important statement:

 

At the end of the day, the Arbitration Act is clear. When a claim comes within the terms of an arbitration agreement, a court “shall” stay the action with respect to that claim. The only exceptions are the limited ones enumerated in s. 8(2). This will doubtless sometimes create inefficiencies in resolving disputes where a contract does not include an appropriate multi-party arbitration clause. Costs might be duplicated. There could be a risk of inconsistent findings of fact or law. However, this is the inevitable and foreseeable consequence of the way the Arbitration Act is worded.

Discussion

For those in favour of a court attitude that is supportive of arbitration, this decision will be a useful reference. The decision recognizes the necessity sometimes to start both arbitral and court proceedings as a matter of caution. It facilitates the termination of the court proceedings without penalizing the party who commenced both proceedings, and recognizes that the cases dealing with applications to stay court proceeding brought by a party seeking to avoid an arbitration agreement are less relevant to a stay motion brought by a party who commenced the action for safety sake and seeks to uphold the arbitration agreement.

The decision’s reference to the UNCITRAL Model Law is also interesting. Clearly, the Court of Appeal wished to harmonize the principles of domestic and international commercial arbitration.

See Heintzman and Goldsmith on Canadian Building Contracts, Chapter 11, part 8

Saskatchewan Power Corp. v. Alberici Western Constructors, Ltd., 2016 CarswellSask 186, 2016 SKCA 46

Arbitration – Multiplicity of proceedings – Staying court action or arbitration

Thomas G. Heintzman O.C., Q.C., FCIArb                                 July 24, 2016

www.heintzmanadr.com

www.constructionlawcanada.com