Alberta – concurrent liability in tort and contract possible but insufficient to avoid agreement to arbitrate – #159

In Edmonton (City) v. Amec Foster Wheeler Americas Limited, 2019 ABQB 24, Master W. Scott Schlosser resisted a plaintiff’s attempt to narrow the arbitration clause to cover only contractual claims and allow its litigation in tort to escape a stay. Acknowledging plaintiff’s resourceful argument, Master Schlosser still held that the overlap between particulars of negligence and contract was too great and permitting plaintiff to choose tort over contract would allow it to escape the consequences of its own arbitration agreement.

City of Edmonton (the “City”) contracted with Mobile Augers and Research Ltd. (“Mobile”) to provide labour, materials and equipment required to provide soil drilling and investigation services on an” if, as and when basis” by the City’s transportation operations branch. The work was to be performed in accordance with tender documents which included an arbitration agreement.

34. Dispute Resolution. If any disputes arise under the Contract and the parties are not able to resolve it, the parties shall appoint a single arbitrator to conduct an arbitration in accordance with the Arbitration Act which arbitration will be final and binding on the parties. All costs associated with the appointment of the arbitrator shall be shared equally unless the arbitrator determines otherwise.

In March 2014, the City contacted Mobile perform drilling services related to helping the City prepare to modify its tunnel boring machine (“TBM”). Mobile sent a drilling crew and a rig to the site on April 14, 2014. The crew and rig left the site on May 13, 2014.

On May 14, 2014, an entire section of the tunnel sloughed and buried the entire inside of the TBM and half the tunnel. Mobile invoiced the City for its work and was paid. The City never contacted Mobile until May 4, 2016 when it sued just before the second anniversary of the accident. Claiming $16.5 million in damages, the City alleged that “bad work” by Mobile had caused the tunnel to be buried and, in the alternative, that Mobile had failed to warn it that this result might happened. No activity occurred in the litigation other than an amendment on June 26, 2017.

Mobile applied to strike the action filed by the City. The City’s action had already been discontinued against the other named defendant, Amec Foster Wheeler Americas Limited. Mobile argued that no arbitration proceedings had been initiated by either side and that Mobile and the City “are now well beyond the time limit”, set by the Limitations Act, RSA 2000, c L-12, incorporated by section 51(1) of the Arbitration Act, RSA 2000, c A-43, “for an arbitration to be commenced”.

51(1) The law with respect to limitation periods applies to an arbitration as if the arbitration were an action and a matter in dispute in the arbitration were a cause of action.

The City argued that its action was in tort and not contract. It admitted that its action in contract was caught by the arbitration clause but that the clause was “narrow” and did not cover tort claims. Its argument gave fresh breath to some older, once familiar arguments based on “arising under” as opposed to “in connection with” and “related to”.

[6] The City argues that this arbitration clause is narrower than some others referred to in the decided cases (though it is the same as the clause in Lafarge, 2015 ABCA 376 (CanLII)).  Although it contains the words ‘arising under the contract’ it does not contain words such as: ‘in connection with this agreement’ or ‘arising out of, or related to the agreement’, as some others do. Accordingly, the City argues that the narrower wording of this arbitration clause restricts it to purely contractual disputes. Anything that can be characterized a tort, for example, would be outside of the ambit of the agreement, and that part of the action should be permitted to proceed. The City concedes that all of the contract claims are caught by the clause and should be extinguished.”

The City argued that particulars of its negligence claims may have been “inartfully pleaded” but were distinct from the contractual recourse.

[12] In essence, the Plaintiff would like to escape the consequences of its own arbitration clause by characterizing its claim as a tort; notwithstanding an almost complete overlap with duties that are equally well described as being implied contractual terms. All of the contract duties are implied rather than explicit terms. From a theoretical perspective, whether these duties and obligations are implied in contract, or imposed by the common law, in tort, they arise from the same exercise. There are no other extenuating factors.”

The City had the fortune to be heard by Master Schlosser who was open to the idea of concurrent liability and willing to fully consider its application to the City’s argument, introducing his analysis with the observation that he had “long been interested in issues of concurrent liability“.   Though an older view held that contract left no room for a cause of action in tort, Master Schlosser did cite an extensive excerpt of Central Trust Co. v. Rafuse, [1986] 2 SCR 147, 1986 CanLII 29 paras 48-54 as an opening for if and when concurrent liability may exist.

(In the reasons, it is worth noting that, at para. 5, Master Schlosser listed the authorities submitted by the City, by Mobile and by the Court.  Central Trust Co. v. Rafuse was only cited by the Court.)

Despite being open to the possibility, on the facts before him, Master Schlosser was unable to accept the City’s distinctions to escape the application of the contract and its agreement to arbitrate disputes “arising under” it. The tort duty arose from the same source as the contract. Though the two different sources of liability entailed differences in legal burdens, burdens of proof and damage measurements, “those differences were not enough to escape the operation of the arbitration clause”.

[15] Concurrent liability in contract and tort can be available in circumstances such as these. The Central Trust case says that a litigant can choose the cause of action that best suits them in respect to any legal consequence (there a limitation.). But, in my view, the answer to this case lies in the third point set out by the Supreme Court above. There can be no parity if the contract contains an exclusion, or a limitation of liability. To put it in the language of Anns, an exclusion clause might be, in itself, a reason to negative or limit a duty in tort, or, otherwise, to excuse a breach.

[16] Even if we were to ignore the choice of words in the pleadings that cite the contract as the source of the defendants’ duties, there is virtually a complete overlap between the particulars of negligence and the implied terms said to be breached. Permitting the Plaintiff to choose tort over the contract would enable it to escape the arbitration clause, which is, in effect, a contractual limitation, in terms of venue and jurisdiction.

[17] I acknowledge that the City’s argument is resourceful but it really amounts to asking that it be permitted to do indirectly what it cannot do directly. No arbitration was commenced within the applicable limitation (eg. [HOOPP Realty Inc. v A.G. Clark Holdings Ltd., 2014 ABCA 20], [Lafarge Canada Inc. v Edmonton (City), 2013 ABCA 376] (CA) and [Edmonton (City) v Lafarge Canada Inc, 2015 ABQB 56] (QB)). There are no extenuating factors like waiver, delay, or attornment to consider.

Master Schlosser also expressed doubt whether a court, after a limitation period had lapsed, had jurisdiction to consider a stay under section 7(5) of the Arbitration Act.

Master Schlosser granted Mobile and dismissed the City’s action.