In Orica Canada Inc v ARVOS GmbH, 2024 ABKB 97, the Court applied, and possibly expanded, the exception to the competence-competence principle that allows a Court to resolve a jurisdictional claim if there is a real prospect that referring the issue to arbitration would mean that it is never resolved. The Court also determined that, in an action between two parties without an arbitration agreement, where the defendant raises claims against a third party subject to an arbitration agreement, those third party claims cannot be included in the action and must be determined by arbitration, even if they are related to the issues between the plaintiff and defendant in the main action. However, any third party claims that are not subject to the arbitration agreement can proceed in the action.
Background to dispute – Orica Canada Inc. and Orica International PTE Ltd. (“Orica”, or “the Plaintiff”) commenced an action against ARVOS GmbH (“ARVOS”, or the “Defendant”) with respect to issues relating to the fabrication and assembly of equipment that had been provided by the Defendant and purchased by the Plaintiff’s Australian affiliate, and then installed at an ammonium nitrate plant in Alberta. The Defendant contracted with that Australian affiliate (who was not a party to this action), but not with the Plaintiff itself.
The Defendant filed a Third Party Claim against Arsopi, Industries Metalurgicas Arlindo S. Pinho, S.A. and Arsopi-Industrial Metalurgicas Arlindo S. Pinho, LDS (collectively, “Arsopi”, or “the Third Party”), which was the manufacturer of that equipment.
The Defendant and the Third Party were parties to a Purchase Order and attached Purchasing Conditions relating to the Defendant’s purchase of equipment. The Purchasing Conditions contained a dispute resolution clause requiring “all disputes arising out of or in connection with the Contract” to be resolved by way of arbitration seated in Germany.
The Defendant’s Third Party Claim included (a) a Tort-Feasors Act claim for contribution and indemnity for any losses or damages suffered by the Plaintiff, which were caused or contributed to by the Third Party, as a result of an alleged duty of care owed by the Third Party to the Plaintiff, which the Defendant alleged was breached (the “TFA Claim”); (b) a tort claim between the Defendant and Third Party based on a breach of the duty of care as between the Defendant and the Third Party (the “Tort Claim”); and (c) a breach of contract claim by the Defendant against the Third Party arising out of the Purchase Order and Purchasing Conditions (the “Contract Claim”).
The Third Party brought an application to stay the Third Party Claim against it, but argued that the Third Party Claim should be struck, not stayed, as it was hopeless and out of time.
The stay application – This post focuses on the Court’s decision on two key issues: (i) the Court’s jurisdiction to determine the stay application; and (ii) whether the Third Party Claim was captured by the dispute resolution clause in the Purchasing Conditions between the Defendant and the Third Party.
(a) Jurisdictional challenge and competence-competence: First, the Court considered whether it had jurisdiction to determine the stay application, or if the application should be heard at first instance by an arbitrator in Germany. The Third Party (which had brought the stay application) asserted that the application should be heard by an arbitrator.
The Court relied on Peace River Hydro Partners v Petrowest Corp., 2022 SCC 41 [“Peace River”] at para 42, which sets out the exception that allows a jurisdictional challenge to be resolved by a Court:
“… if the challenge involves pure questions of law, or questions of mixed fact and law requiring only superficial consideration of the evidentiary record. This exception is justified by the particular expertise that courts have in deciding such questions. Further, it allows a legal argument relating to the arbitrator’s jurisdiction “to be resolved once and for all, and also allows the parties to avoid duplication of a strictly legal debate.”
The Court also noted another exception discussed in Uber Technologies Inc. v Heller, 2020 SCC 16 [“Uber”] at paras 38-44:
“… a court should not refer a bona fide challenge to an arbitrator’s jurisdiction to the arbitrator if there is a real prospect that doing so would result in the challenge never being resolved. In these circumstances, a court may resolve whether the arbitrator has jurisdiction over the dispute and, in so doing, may thoroughly analyze the issues and record.”
The Court found that this was a case in which the jurisdictional challenge was a pure question of law, or mixed fact and law requiring only a superficial consideration of the facts. The Court also found that there was a real prospect that, if the challenge was referred to the arbitrator, the challenge may never be resolved as a result of the passage of the limitations period under German law. As a result, the Court declined to stay the Third Party Claim on the basis of the competence-competence principle.
In addition, while the Court did not determine the issue on this basis, the Court was critical of the fact that the Third Party had brought the stay application before the Alberta courts, but then, after choosing that venue, argued that the Court did not have jurisdiction to hear the application.
(b) Application of the Dispute Resolution Clause: Second, the Court analyzed whether the three issues in the Third Party Claim should be stayed in favour of arbitration.
With respect to the TFA Claim, the Court found that this was not captured by the dispute resolution clause in the Purchase Order, as it reflected a claim as between the Plaintiff and the Defendant, and had arisen by operation of the Tort-Feasors Act and the common law, and not by operation of the Purchase Order or Purchasing Conditions. As a result, the TFA Claim was not subject to the dispute resolution clause in those Purchasing Conditions. However, the Court found that both the Tort Claim and the Contract Claim were clearly within the scope of the dispute resolution clause in the Purchasing Conditions and were to be arbitrated.
Therefore, the Court stayed the Third Party Claim with respect to the Tort Claim and the Contract Claim, but not the TFA Claim. The TFA Claim would continue in the Alberta Courts.
The Court then analyzed whether the Tort Claim and Contract Claim should be struck. The Court found that, under German limitations law, the Defendant would very likely be time-barred from commencing an arbitration against the Third Party. However, the Court declined to strike the claim, as that relief had not been properly pleaded by the Defendant.
Contributor’s Notes
This case highlights a rarely-applied exception to the competence-competence principle, allowing a jurisdictional challenge to be resolved by the Court if there is a real prospect that referring the question to arbitration would result in the challenge never being resolved. In Uber, this exception applied where arbitration was not accessible because of (in part) prohibitive arbitrator fees. This exception has not previously been applied in circumstances where the claim was out of time. Did the Court in Orica expand the Uber exception?
Further, this case serves as a reminder that third party claims captured by arbitration clauses, even if related to the claims between the plaintiff and defendant, must be determined by arbitration. It also shows the consequences of bringing a claim in the wrong forum – in many cases, this may result in parallel arbitration proceedings, but here, as a result of the passage of the German limitation period, the Defendants’ Tort Claim and Contract Claim against the Third Party were likely time-barred.