Alberta – court orders which advanced arbitration set aside due to irregular service outside of jurisdiction – #232

In Acciona Infrastructure Canada Inc v. Posco Daewoo Corporation, 2019 ABCA 241, Alberta’s Court of Appeal set aside ex parte orders which validated ex juris service, appointed arbitrators and consolidated arbitrations due to Plaintiff’s non-compliance with the Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters and service ex juris under Alberta Rules of Court, Alta Reg 124/2010.  Acknowledging Plaintiff’s frustration with Defendant’s procedural responses and the practical effect of adding to the delays, the Court declined to retroactively validate irregular service due to significant deficiencies in service.

The City of Edmonton (“City”) signed a prime contract with Acciona Infrastructure Canada Inc. and Mastec Canada Inc., operating as Acciona/Pacer Joint Venture (“Joint Venture”) for the construction of the Walterdale Bridge, characterized as “stunning” by Mr. Justice Thomas Wakeling J.A. in his concurring reasons.  Respondents subcontracted with Posco Daewoo Corporation (“Daweoo”), based in South Korea, for the manufacture and supply of structural steel components for the bridge work (“Subcontract”).

The Subcontract provided for arbitration conducted in English in Calgary “in accordance with the Arbitration Act of Alberta”.  See para. 3 of the reasons for the full text of the undertaking to arbitrate.

Further to disputes regarding their respective rights and obligations under the Subcontract, the Joint Venture issued a November 17, 2016 Notice to Submit Disputes to Arbitration (“JV Notice”).  The JV Notice set out the specific matters in dispute and stated the following:

34. All of the conditions to arbitrate under the Subcontract Agreement have been met by APJV. APJV hereby demands that this matter be referred to arbitration pursuant to General Condition 8.2 and Special Condition 11 of the Subcontract Agreement and Section 23(1) of the Arbitration Act.

The Joint Venture identified its Canadian counsel for the arbitration and contacted a Korean law firm which acknowledged that it was Daewoo’s legal representative and identified a Canadian law firm in Calgary that had been retained by Daewoo.  Though the Joint Venture identified an arbitrator to serve as a single arbitrator, Daewoo alleged that, in the circumstances, the JV Notice was invalid because it purported to commence a domestic arbitration under Alberta’s Arbitration Act, RSA 2000, c A-43 (“AA”) rather than the International Commercial Arbitration Act, RSA 2000, c I-5 (“ICAA”).

The Joint Venture advised that it was prepared to acquiesce in applying the ICAA and nominated its arbitrator, inviting Daewoo to nominate its arbitrator so that the nominees could appoint the chair. Daewoo refused, stating that no valid arbitration was underway.  Daewoo asserted that the JV Notice was defective and had commenced a domestic arbitration and not an international arbitration.

On May 30, 2017, the Joint Venture issued an Originating Application seeking the appointment of arbitrators under the ICAA.  The Joint Venture served copies on the Korean and the Canadian law firms which each responded by stating that they were not authorized to accept service on behalf of Daewoo.

The Joint Venture then proceeded with serving the Originating Application on Daewoo under the Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters (“Hague Convention”) but it did not apply for an order for service ex juris under Rule 11.25(2)(b) of the Alberta Rules of Court, Alta Reg 124/2010 (“Rules”).

Daewoo served its own Notice to Arbitrate on June 6, 2017 specifying that, despite the reference to the domestic AA, the arbitration would be conducted under the ICAA.

On June 9, 2017, the Joint Venture received notice that the Central Authority of Korea under the Hague Convention had received the Originating Application but did not receive confirmation of actual service before the Joint Venture applied to the Alberta courts for an order validating service and an order appointing arbitrators.

Despite notice to Daewoo’s Korean and Canadian lawyers, no counsel appeared on Daewoo’s behalf at the hearing in chambers on July 5, 2017 at which time the Joint Venture’s applications proceeded ex parte.  The chambers judge granted an order validating service of the Originating Application and appointing three (3) arbitrators.  Another chambers judge issued an order on July 20, 2017 consolidating the arbitration initiated by the Joint Venture and the arbitration initiated by Daewoo.

On August 2, 2017, Daewoo in Korea received service of the Originating Application in accordance with the Hague Convention.  The next day, Daewoo applied to set aside the three (3) July 2019 orders issued by the Alberta courts: validated service, appointed the arbitrators, and consolidated the arbitrations.  The application was unsuccessful – Acciona Infrastructure Canada Inc v. Posco Daewoo Corporation (Daewoo), 2017 ABQB 707 – and Daewoo appealed.

Rules 11.25(2) and 11.26 govern service of commencement documents outside of Alberta and outside of Canada.  Rule 11.25(3) sets out additional criteria regarding what constitutes a “real and substantial connection” with Alberta and Rule 11.27 authorizes the courts to validate “irregular” methods of service.

The three (3) justices in appeal concurred in the result, though Mr. Justice Frans F. Slatter J.A. and Madam Justice Myra B. Bielby J.A. signed the reasons for the majority. Wakeling J.A. provided separate, lengthier reasons at paras 31-191 and significant footnoted material.  The present note focuses on the majority reasons.  Wakeling J.A.’s reasons provide not only a more robust summary of the facts leading up to the disputed service of the Originating Application (paras 36-52) and comments on the preferred approach to service ex juris (paras 140-141) but also observations on the nature of procedure in arbitration (paras 179-182). To distinguish between the separate reasons and the concurring result, this note mentions the majority when identifying the reasons.

The majority recognized that Rule 11.25(2) contains a jurisdictional component.  When a party resists the jurisdiction of the Alberta courts, the courts must consider if there is a “real and substantial connection” to Alberta under Rule 11.25(2)(a).  The applicant seeking authorization for ex juris service ought to demonstrate a “good arguable case”.  See Scott & Associates Engineering Ltd. v. Ghost Pine Windfarm, LP, 2011 ABQB 630.

The majority disputed the chambers judge’s conclusion regarding when Rule 11.25(2) would not apply.  The majority distinguished between a plaintiff’s ex parte application for service ex juris and a defendant’s post-service application to challenge the service ex juris authorized.  Because the application was made ex parte, the majority reframed the issue as one that ought to be determined independent of consent or attornment.  See the nine-step sequence set out in Wenzel Downhole Tools Ltd. v. National Oilwell Varco, Inc., 2008 ABCA 395 at para. 6.

[16] On the application to set aside service the issue of whether the defendant had attorned to the jurisdiction of the court might arise. Allegations that the defendant has attorned, by contract or conduct, can be used as a response to any application to set aside service ex juris, or any application for a ruling that it is inconvenient for the Alberta court to assume jurisdiction. However, the plaintiff’s mere assertion that the court has jurisdiction over the defendant does not justify non-compliance with the threshold requirements in the Rules on service ex juris. In that respect, attornment is a shield not a sword.

The Joint Venture argued that the Court had authority to retroactively validate the service ex juris because the failure to apply for and obtain an order for ex juris service “is a mere irregularity that should be overlooked”.  It further argued that Daewoo’s resistance to engaging in the arbitration, based on Daewoo’s distinctions between the mention of the domestic legislation instead of ICAA, was “faulty”.

The majority appeared to be sympathetic to the practical effect of obliging the Joint Venture to re-apply, remarking that “is unclear what will be accomplished by these proceedings other than further delay”.  That said, the importance of complying with the Hague Convention coupled with the significant deficiencies in the service, prevented the majority from agreeing to retroactively correct the service.

The majority expressly mentioned two (2) considerations motivating its decision not to exercise its discretion to validate service despite irregularities: (i) Joint Venture provided no satisfactory explanation why it did not apply for an order for service ex juris; and, (ii) the order validating service should not have been granted absent proof that service under the Hague Convention had either been accomplished or frustrated.

The majority declined to opine on the other orders made, namely for the appointment of the arbitrators and consolidation of the arbitrations.