Alberta – “Participating in” not same as “taking a step in” an arbitration – #745

In Dow Chemical Canada ULC v NOVA Chemicals Corporation, 2023 ABKB 215,  Justice Wooley dismissed an application by Dow Chemical Canada ULC (“Dow”) for an order declaring the invalidity of the arbitration pursuant to Section 47 of the Arbitration Act to enjoin an arbitration between the parties. That provision requires that the  party seeking the order has “not participated in the arbitration.”  The Court found that Dow did participate in the arbitration and the case provides a useful framework for what it means to “participate” in an arbitration.

The case arises from a long-simmering dispute between Plaintiff Dow and Defendant NOVA Chemicals Corporation (“NOVA”) concerning the respective obligations of the parties regarding the co-ownership and operation of E3, an ethylene plant at a NOVA facility in Joffre, Alberta. The parties continue to litigate these issues in Court.

Dow and NOVA also disagreed about how to develop budgets for E3, which gave rise to the application in this case. This has meant that E3 has operated for several years without an approved budget. The parties’ Operating Services Agreement (“OSA”), which governs E3’s operations, provides that budget disputes will be arbitrated. Section 9.3 of the OSA provides: 

“If as a result of a dispute between the Co-owners, the budget has not been approved by the Management Committee by the date upon which it is to become effective, such dispute shall be referred to arbitration under Article 19 for resolution.” 

In April 2022, NOVA initiated an arbitration, seeking an order directing Dow to approve the 2022 Budget. Over the next few months, the parties conferred about empanelling an arbitration tribunal and attended a case management conference at which they each summarized their position on the merits of the case. Only later, in October 2022, did Dow write a letter to the Tribunal raising its jurisdiction to hear the dispute, noting that NOVA’s request to arbitrate raised “threshold questions of arbitrability.”  

At a further case management conference in November 2022, Dow asked the Tribunal to take no further steps in the proceedings. The Tribunal rejected this request, holding: 

“We decline Dow’s request for the following reasons: (i) the Tribunal has jurisdiction to determine its own jurisdiction (Arbitration Act, s. 17), (ii) the arbitration agreement reflects the agreement of the parties that any arbitration is to be expeditiously resolved (section 19.3(e) of the OSA), (iii) the Tribunal has an obligation to move the arbitration forward efficiently, and (iv) we see no prejudice to Dow in moving forward with the arbitration, as it has recorded its jurisdictional objection, and can now seek to have its jurisdictional objection determined by the Tribunal and, in the meantime, to participate actively in the arbitration without prejudice to that objection.”

The Tribunal also noted arbitral tribunals are competent to determine their own jurisdiction as a preliminary matter or part of a final award.  

In December 2022, Dow filed its application for a declaration of invalidity of the arbitration. It sought a declaration that Articles 9.3(b) and 19 of the OSA did not apply to the budget disagreement, and an injunction prohibiting the continuation of the arbitration. Dow relied on Section 47 of the Arbitration Act RSA 2000, c A-43, which states:

“(1) At any stage during or after an arbitration on the application of a party who has not participated in the arbitration, the court may grant a declaration that the arbitration is invalid because

(d) the arbitration agreement does not apply to the matter in dispute.

(2) When the court grants the declaration it may also grant an injunction prohibiting the commencement or continuation of the arbitration”. [Emphasis added]

Issue 1: What do the words “not participated in the arbitration” mean? – Dow argued that a party can only have “participated” in an arbitration where it took one of the steps enumerated in the Arbitration Act such as submitting a statement or attending a merits hearing. NOVA argued that a party will have crossed this threshold where it participated in a) appointing a tribunal b) a case management conference and c) did so without objecting to the tribunal’s jurisdiction. 

Justice Wooley began her analysis by reviewing the law governing judicial oversight of an arbitrator’s jurisdiction. These principles include that parties must abide by valid arbitration agreements and that generally, arbitrators should resolve challenges to their jurisdiction pursuant to the competence-competence principle.

Next, Justice Wooley reviewed authorities bearing on Section 47 of the Arbitration Act. From this review, she extracted general principles, including: 

“[95]           …[I]n at least two cases, Eyelet and Electek, judges held that the competence-competence principle applies to a judge’s determination of whether, pursuant to s. 47 (Ontario’s s. 48), to assess jurisdiction and enjoin arbitration proceedings…

[97]         … [R]elying on Sovarex [SA v Romero Alvarez SA, [2011] EWHC 1661 (Comm)], the determination of whether a party has participated in a proceeding must be assessed objectively, but depends on the facts of the case (see, relatedly, Peace River at para 97 where the Court held that a determination of whether a party had taken a “step in” court proceedings ought to be assessed objectively).

[98]           [I]n determining whether participation has occurred in a particular case, while commentators generally view s. 47 as an exceptional remedy, available only to a party who has done essentially nothing in response to a notice to arbitrate, courts seem to approach the provision more pragmatically. They take into account whether a party has consistently contested jurisdiction, whether it has engaged with the substance of the matter before the arbitrator, and how far the arbitration has progressed.

[99]           Finally, none of the cases set out a generally applicable test, or a series of relevant criteria, for deciding whether a party has participated or taken part in an arbitration.”

Justice Wooley disagreed with the “rigid positions” of the parties. Contrary to NOVA’s submissions, a party will not have participated in the arbitration simply by participating in selecting an arbitrator. Dow’s position, on the other hand, conflated the test for “participation” with the test for “taking a step” in a proceeding. Justice Wooley interpreted the word “participation” as follows: 

“The word “participation”, however, means simply “to take part in something”; it connotes less active engagement than the phrase “take a step in”. Dow’s position would make them essentially the same and, in my view, the different language precludes that equivalency.”

While considering whether a party has “participated” in the arbitration will depend on the facts in each case, Justice Wooley summarized the following factors that may bear on this analysis:  

“1.     Was a notice of arbitration served on the objecting party?

2.     Did the notice of arbitration clearly indicate the nature of the dispute, so that the jurisdictional issue was apparent on its face?

3.      Did the objecting party raise any issue with respect to jurisdiction?

4.     What steps did the objecting party take to progress the arbitration, if any? Did any of those steps relate to the substantive issue in dispute? Did any of these steps engage with the arbitrator’s jurisdiction?

5.     How much time elapsed between the objecting party receiving the notice of arbitration, and raising the jurisdictional issue?”

These factors will help a court consider if an objecting party has implicitly or explicitly acknowledged the competence of the arbitrator to determine its jurisdiction, notwithstanding the position of that party. 

Issue 2: Does the competence-competence principle apply to Section 47? – Even if a party has not participated in the arbitration, the court must then consider whether it ought to enjoin the arbitration or refer the matter to the arbitrator, given the competence-competence principle. While Justice Wooley expressed reservations about this given the express statutory provision, she found support in the fact that it applies the same principle in the inverse scenario, namely where a party to an arbitration agreement has commenced an action and the other party seeks relief from the court to stay those proceedings in favour of arbitration.  

Issue 3: Has Dow “not participated in the arbitration” with respect to the budget disagreement? – Justice Wooley  found that Dow had participated in the arbitration. Firstly, NOVA served a notice of arbitration on Dow. Secondly, Dow could understand from the notice of arbitration the matters in dispute. Thirdly, Dow raised no jurisdictional objection for nearly six months after receipt of the notice. Finally, Dow advanced the arbitration;  it appointed its own tribunal member, participated in a case management conference and set out its position on the merits of the claim. In concluding its analysis at para. 115, Justice Wooley  wrote: 

“Dow certainly gave Nova and the Arbitration Tribunal no basis for understanding that it objected to the arbitration, or to the Arbitration Tribunal’s assessment of its own jurisdiction; if anything, its actions communicated that it accepted the authority of the Arbitration Tribunal. It advanced the progress of the arbitration. Its conduct would have been understood by a reasonable person in the position of the Arbitration Tribunal, and Nova, as participation in the arbitration.”

Issue 4: Alternatively, ought the Court to consider Dow’s jurisdictional objection given the competence-competence principle? – Justice Wooley would have still declined Dow’s application to declare the arbitration invalid if she had found that it had not participated in the arbitration. Dow’s jurisdictional objections were grounded in the OSA, which raised a question of mixed fact and law. These questions must first be resolved by the arbitrator unless the factual issues are evident on the record or not disputed. In this case, while the OSA was in evidence, its meaning and the factual matrix surrounding the OSA were contested.   

See update 2023 ABCA 217

Contributor’s Note: 

This case presents an excellent roadmap for parties considering whether to invoke Section 47 of the Arbitration Act. There are several takeaways. 

First, a party that disputes the jurisdiction of the tribunal must register that position immediately. Any delay or preliminary involvement in the proceedings – even if only procedural – risks a finding that the party has “participated” in the arbitration and is barred from relief. A party to an arbitration will not, however, forfeit the right to object to a tribunal’s jurisdiction simply by participating in the appointment of an arbitrator. Section 17(5) of the Arbitration Act, for example, provides that a party which participates in appointing an arbitrator is “not prevented from objecting to the jurisdiction of the arbitral tribunal to conduct the arbitration.”

Second, a party should put its best foot forward in any application to the court. To convince a court that it need not refer the matter to the tribunal to determine its own jurisdiction, the party should have the entire factual record before the court. That way, it can argue that any factual issues are apparent from the record. That said, parties must be circumspect about the chances of such an application succeeding. Beyond establishing that it did not participate in an arbitration, it must also convince a court that it, and not the tribunal, should decide the jurisdictional issues. This will be rare. Indeed, while Justice Wooley recognized that applications to stay court proceedings in favour of arbitration “mirror” these provisions, she did not reference the “arguable case” test; where a party seeking a stay can establish an “arguable case” that the proceedings are “in respect of a matter agreed to be submitted to arbitration”, the court should grant the stay and allow the arbitrator to determine its jurisdiction: Peace River Hydro Partners v Petrowest Corp, 2022 SCC 41 at para. 39. The Court’s logic in this case arguably dictates a parallel application of this test to Section 47.