Alberta – signature of submission agreement qualifies as commencement of arbitration – #082

In brief reasons, Alberta’s Court of Appeal in Inter Pipeline Ltd v Rural Road Construction Ltd, 2018 ABCA 184 upheld Madam Justice C. Dario’s decision in Inter Pipeline Ltd v Rural Road Construction Ltd, 2017 ABQB 811 to consider parties’ signature of a post-dispute submission agreement as sufficient to serve as notice of commencement of arbitration.  The Court was careful, if not emphatic, to note that the “conclusions are based on the unique facts of this case and on those specific facts there is clear evidentiary basis to support the chambers judge’s findings”.   

Inter Pipeline Ltd. (“Inter Pipeline”) and Rural Road Construction (“Rural Road”) were not bound by any underlying contract.  Their agreement to arbitrate was negotiated independent  of any concurrent or pre-existing commercial relationship and signed only after a dispute arose because of overlapping activities on the same land.

Inter Pipeline had undertaken to construct a pipeline.  To do so, it negotiated right of way agreements with several land owners.  Rural Road held a lease with one of those landowners allowing Rural Road to extract sand fill from its land.  That lease was registered against title to that land covered by one of the right of way agreements.

In June 2014, Inter Pipeline commenced stripping and grading activities which Rural Road considered as interference with its sand fill extraction rights.  Rural Road instituted court litigation seeking injunctive relief which would have, if granted, effectively stopped Inter Pipeline’s work.

Instead of proceeding to a court hearing and a decision on the injunction, Inter Pipeline and Rural Road entered into a December 5, 2014 agreement by which they agreed that their dispute would be resolved by arbitration (the “Agreement”).  The Agreement was preceded by a release by Rural Road on December 1, 2014 and followed by a discontinuance of the court litigation on December 3, 2014.

Despite letters sent by Inter Pipeline and by Rural Road for different reasons at sparse intervals, no activity took place to engage in the arbitral process before activity in late February 2017 at which time Rural Road announced its desire to proceed with the arbitration.  Faced with no response by Inter Pipeline, Rural Road applied February 21, 2017 to the court to have an arbitrator appointed.

Inter Pipeline responded by applying for a declaration that Rural Road could not proceed with arbitration (as well as litigation) because of the two (2) year limitation period in section 3(1) of Alberta’s Limitations Act, RSA 2000, c L-12 and the equivalent period applicable pursuant to section 51(1) of the Arbitration Act, RSA 2000, c A-43.  The latter provides:

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.

In the alternative, Inter Pipeline sought (a) summary judgment on the same basis or (b) a declaration that the arbitration was invalid and an injunction under section 47 of the Arbitration Act prohibiting the commencement of the arbitration.

Rural Road raised three grounds to contest Inter Pipeline’s application, the key two being that: (a) the court lacked jurisdiction to decide if the limitation period had expired; and, (b) the arbitration had commenced at the time the parties entered into their agreement to arbitrate.  Rural Road argued, the limitation period had not expired prior to its court application to appoint an arbitrator.

Regarding Dario J.’s jurisdiction, Rural Road argued that whether its claim was statute-barred should be determined by the arbitrator, once appointed, rather than the court.  It relied on EPCOR Power L.P. v. Petrobank Energy and Resources Ltd., 2010 ABCA 378 which upheld the decision in first instance refusing to find the dispute was statute-barred and that arbitration was precluded.

In reply, Inter Pipeline argued that the court did have jurisdiction to make the determination, relying on Suncor Energy Products Inc. v. Howe-Baker Engineers, Ltd., 2010 ABQB 310 paras 19-21 and Autoweld Systems Limited v. CRC-Evans Pipeline International, Inc., 2009 ABCA 366 .  The latter held that “we are satisfied that the very existence, as opposed to the scope, of the arbitration clause falls within the exception in Dell Computer Corp. v. Union des consommateurs, 2007 SCC 34 (CanLII), [2007] 2 S.C.R. 801 at para. 84. Where there is a pure question of law on a threshold issue the chambers judge is not compelled to send it to the arbitrator”.

Dario J. determined that the issue before her was a pure question of law and that she could determine it given that only limited facts were required for her to do so.

She was prepared for being wrong in her interpretation of EPCOR Power L.P. v. Petrobank Energy and Resources Ltd. In an alternative path, she determined that if she did not have jurisdiction, then the arbitrator would.  She then concluded the section and that paragraph with a mention that the “reasons for this conclusion follow”.  That said, the formal disposition of her reasons confirm that she had jurisdiction.

Dario J. analyzed Inter Pipeline’s relief and determined that the entirety of the relief rested on one issue: whether the entering into the arbitration agreement constituted commencement of the arbitration process under Alberta legislation.

[18] All the forms of relief sought by the Applicant are premised on a finding that the arbitration process had not been commenced before the originating application to appoint an arbitrator. Simply put, the issue is whether entering into the arbitration agreement constitutes commencement of the arbitration process. If it does, then arbitration was commenced within the limitation period. If it does not, to the extent that the Respondent’s February 21, 2017, filing of the originating application seeking the appointment of an arbitrator commenced the proceedings (which I find it would have), it was arguably out of time and therefore, subject to equitable relief, the action would likely be statute barred: Limitations Act s. 3(1)(a).

Dario J. undertook a fresh look at section 23(1) of the Arbitration Act at paras 23-28 and 37-40.  To interpret section 23(1), she had to consider the law governing limitation statutes.  At paras 29-36, she first identified the modern approach to statutory interpretation and then applied it to determining the limitation period stipulated by section 31(1) of the Limitations Act and section 51(1) of the Arbitration Act.

Her review of Mayo v. Sousa, 2005 ABQB 845 paras 15-18 distilled four considerations for a modern approach to statutory interpretation of limitation statutes:

[30] Thus, employing the modern approach to statutory interpretation in the context of limitation statutes (or in this case, a limitation provision), the court is to: 1) consider the plain meaning of the statute, 2) if a provision is capable of more than one meaning, consider the legislative intent, and 3) where there is ambiguity, resolve the ambiguity in favor of the party whose rights are being truncated, unless there is a valid policy reason to justify the less favourable limitation period.

Guay v. Wong, 2008 ABQB 638 para. 57 enumerated the objectives of limitations acts and York Condominium Corporation No. 382 v. Jay-M Holdings Limited, 2007 ONCA 49 supported the approach that ambiguity should be resolved in favour of the party whose rights would be “truncated”.

Moving on to identifying what characteristics an action must satisfy to constitute a commencement of arbitration, Dario J. referred to determine that section 23 of the Arbitration Act was “permissive in the sense that the list of ways to commence arbitrations is not exclusive to those mentioned in the section” and that Lafarge Canada Inc. v Edmonton (City), 2013 ABCA 376 underlined that “(f)orm is not important”.  Rather, what matters is a ‘clear and unequivocal’ intention or, as mentioned in Renkinn Developments Inc (Renkinn Developments Ltd) v Stevens, 2016 ABQB 549, “a common theme in the examples given is that there is to be a clear notice of some kind.

Dario J.’s analysis lead her to the following two (2) paragraphs which the Court of Appeal in its own reasons identified as the “crux” of her decision and which merited deference.

[39] By signing the arbitration agreement in this case, the parties acknowledge a claim requiring resolution as between the parties, and agree on how the dispute will proceed. The intention to litigate or arbitrate is clear and unequivocal, and that intention is clearly communicated to the other party. This is not the same as setting out a provision in an arbitration agreement of how the parties will proceed if some future claim is subsequently identified.

 [40] One may argue that this finding could result in the claimant not moving an arbitration forward after the parties enter into arbitration agreements relating to a known dispute (commencing the arbitration proceeding), yet preserving the claim without recourse by the other party. This situation is no different, however, than the situation of a party providing notice demanding arbitration under s. 23(1)(c). The parties to the arbitration agreement have the ability to include in their agreements provisions to ensure the timely progression of the dispute. This is especially true when the arbitration agreement is entered into after the dispute has materialized and the subject matter of the dispute is known.

She concluded her analysis by observing that Inter Pipeline was not left without options if it wanted to advance the arbitration and listed some steps it could take to prosecute the arbitration or raise lack of prosecution before the arbitrator.

Based on the above and the particular facts of the case, Dario J. concluded that by entering into an arbitration agreement after the dispute arose, and specifying the nature of the dispute and the issues to be determined in the arbitration, Rural Road had giving sufficient notice of commencement of arbitration to satisfy section 23(1) of Alberta’s Arbitration Act.