In Prairie Roadbuilders Limited v. Flatiron-Dragados-Aecon-Lafarge, A Joint Venture, 2019 ABQB 934, Mr. Justice James T. Eamon held that interpretation of an industry standard form contract promised no precedential value due to extensive negotiated changes which had resulted in an “awkward hybrid” and that resolution of the parties’ dispute depended on key portions drafted by the parties. Eamon J. comments also on the role of “boilerplate” and further held that the issues submitted to the arbitrator qualified as discrete questions of law and, having already been referred to and determined in arbitration, could not be re-submitted on appeal to the court under section 44(3) of Alberta’s Arbitration Act, RSA 2000, c A-43.
Flatiron-Dragados-Aecon-Lafarge, A Joint Venture (“FDAL”), as contractor of a design build road construction project, entered into a subcontract with Prairie Roadbuilders Limited (“Prairie”) for earthmoving work, traffic and erosion control and flagging. Disputes arose regarding their respective rights and obligations under the subcontract including whether FDAL wrongfully terminated the subcontract and whether Prairie breached it.
The parties undertook arbitration. The arbitrator issued an award determining that Prairie had breached the subcontract and awarding damages in favour of FDAL.
Prairie applied to the Alberta Court of Queen’s Bench under section 44(2) of the Arbitration Act for leave to appeal the award on questions of law. Prairie argued that the arbitrator had erred in his conclusions about the meaning of the standard form subcontract and that its interpretation qualified as a question of law eligible for appeal. FDAL objected, arguing that the questions did not qualify under section 44(2) and that the parties had referred any questions of law to the arbitrator, thereby barring an appeal by section 44(3).
The subcontract did not provide for appeals so section 44(2) applied. Such appeals were limited to questions of law regarding which the court was satisfied justified an appeal due to the importance to the parties of the matters at stake and the determination of which would significantly affect the rights of the parties.
Prairie’s questions raised in appeal involved contractual interpretation which Eamon J. noted the courts had held usually involve questions of mixed fact and law, being “an exercise in which the principles of contractual interpretation are applied to the words of the written contract, considered in light of the factual matrix”. See Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 (CanLII), [2014] 2 SCR 633 and Teal Cedar Products Ltd. v. British Columbia, 2017 SCC 32 (CanLII), [2017] 1 SCR 688.
Eamon J. considered that Prairie sought the benefit of an exception to the rule, identified in Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37 (CanLII), [2016] 2 SCR 23, para. 24, that interpretation of a standard form contract raised questions of law:
“[24] I would recognize an exception to this Court’s holding in Sattva that contractual interpretation is a question of mixed fact and law subject to deferential review on appeal. In my view, where an appeal involves the interpretation of a standard form contract, the interpretation at issue is of precedential value, and there is no meaningful factual matrix that is specific to the parties to assist the interpretation process, this interpretation is better characterized as a question of law subject to correctness review.”
The Supreme Court in Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co. sought to distinguish the type of contract considered in Sattva Capital Corp. v. Creston Moly Corp., namely a complex commercial agreement negotiated by and between sophisticated parties, from a standard form contract presented as a no-choice, “take it or leave it” . See the list of cases cited at paras 22-23 of Sattva Capital Corp. v. Creston Moly Corp.
FDAL relied on ASC (AB) Facility Inc v. Man-Shield (Alta) Construction, 2018 ABQB 130, para. 11 (appeal dismissed, ASC (AB) Facility Inc v. Man-Shield (Alta) Construction, 2019 ABCA 379) which expressly distanced a Canadian Construction Documents Committee (“CCDC”) contract from a consumer-oriented standard form contract.
“[11] The CCDC2 is a standard form commercial contract, developed with widespread industry input and designed to balance the interests of the commercial parties. It essentially governs process, while the parties negotiate the substantive terms. They may vary the procedural terms if they wish. Therefore, the CCDC2 is different from the consumer-oriented “take it or leave it” standard form contracts contemplated in Ledcor Construction Ltd v Northbridge Indemnity Insurance Co, 2016 SCC 37 (CanLII) at para 25. See also Sabean v Portage La Prairie Mutual Insurance Co, 2017 SCC 7 (CanLII).”
In that case, in the introductory para., Madam Justice J.A. Antonio explained the consensus behind the CCDC’s work product.
“The CCDC, or Canadian Construction Documents Committee, is a national joint committee responsible for the development, production and review of standard Canadian construction contracts. A prefatory paragraph in the parties’ contract states that the CCDC2 was the product of a consensus-building process aimed at balancing the interests of all parties on a construction project and that it reflects recommended industry practices.”
Prairie countered, arguing that what mattered was the precedential value of the issues considered by having a correct interpretation of the contract.
“[73] Prairie argues that the Ledcor exception applies more widely than traditional consumer-oriented “take it or leave it contracts.” It emphasizes that a decisive factor in determining whether contract interpretation raises questions of law is the precedential value of the issue, that is, whether one expects the determination would have impact beyond the parties to the dispute. Those circumstances engage the role of an appellate court in ensuring consistency of the law.”
Prairie cited examples of standard form contracts to which courts applied a correctness standard of review to contract interpretation or distinguished Sattva Capital Corp. v. Creston Moly Corp. including Vallieres v. Vozniak, 2014 ABCA 290, EnCana Oil & Gas Partnership v. Ardco Services Ltd, 2017 ABCA 401 and Stewart Estate v. TAQA North Ltd, 2015 ABCA 357.
Eamon J. accepted that the cases were consistent with the exception identified in Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co. but he stressed that their consistency lay in the fact that the particular circumstances in each qualified them for the exception and that “the exception is not blindly applied”. Eamon J. reiterated the limits of the exception.
“[77] Consequently, where standard form wording is in issue and the party asserting a correctness standard of review demonstrates that there is no meaningful factual matrix that is specific to the parties to assist the interpretation process, then the interpretation of that contract is a question of law.”
Returning to Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., Eamon J. at para. 79 of his reasons reiterated the purpose of the court’s intervention as ensuring the consistency of the law and providing precedential value for future cases.
The issue then became whether the parties were bound by a subcontract which qualified for the exception.
(i) standard form contract – The parties’ subcontract was based on the Canadian Construction Association’s form CCA 1-2008 Stipulated Price Subcontract. See a commented version of the CCA 1-2008 Stipulated Price Subcontract provided by the National Trade Contractors Coalition of Canada.
Eamon J. expressly noted his acceptance of “Prairie’s assertion that the CCA form is widely used in the construction industry throughout Canada and that arbitral or judicial interpretations of the form are of significant interest to the industry”. That said, Eamon J. also added that whether the case has precedential value “lies in the degree of departure of their subcontract from the CCA form”.
The parties had made substantial changes to the CCA 1-2008 Stipulated Price Subcontract. Eamon J.’s reasons identify many such changes.
“[93] The parties operated in a specific factual matrix while negotiating and modifying what was initially a model form contract. The project was a design build project, the SR2B drawings were only 30% complete when the contract was made, and the parties understood the drawings would evolve during the design build project. The Arbitrator considered there could be design changes that affected quantity only, for which Prairie would be paid a unit rate, and design changes that affected Prairie’s costs, which could require adjustment to unit pricing. He also considered the nature of the project, that it was “a long and complex project, involving a [sic] many interdependent components.”
[94] As to the use of the CCA form, the Arbitrator found that the parties conducted careful negotiations (Arbitration Award at p 2). They made significant modifications to the CCA form (ibid). Large sections of the CCA form were struck out and replaced by 9 pages of substituted provisions (ibid). Inconsistencies crept into the final text (ibid). The contract was an awkward hybrid resulting from using a stipulated sum model for what was, in most essential respects, a unit price contract (ibid). The contract contained a critical cross-reference to a provision which did not exist (Award at p 6).”
Having reviewed the changes made by the parties, Eamon J. declined to consider the final result as qualifying as a standard form contract.
“[111] However, the subcontract is so heavily negotiated and contains so many intertwined custom provisions, that the exception in Ledcor does not apply and an appeal does not present any prospect of a decision having precedential value.”
Independent of the above, Eamon J. at paras 122-131 determined that determination of the questions of law would not significantly affect the parties’ rights as required by section 44(2.1)(b). The question of law was immaterial, Eamon J. held at para. 124, because “there is no hope that it would affect the damages award against Prairie”.
(ii) Section 44(3) – Section 44(3) bars an appeal if the parties expressly referred a question of law to the arbitrator. Eamon J. applied two (2) principles.
First, the questions are those in the notice of arbitration. Arguments of law raised incidentally during the arbitral proceeding would not qualify as such questions and would not bar appeals.
“I would not consider the legal arguments which invariably find their way into the pleadings following a reference to arbitration to be an express reference under subsection 44(3). Parties are entitled to argue law in arbitration proceedings; indeed, the arbitrator is expected to apply the law (Act, section 31) and would expect to hear the parties on what the law is and how it should be applied. The mere reference to a legal issue in a pleading, just as in a subsequent written or oral argument in the arbitration, is not a reference of that issue to arbitration. If it were, subsection 44(3) would gut subsection 44(2) of any application.”
Second, he adopted the narrow view of section 44(3) that requires parties to identify and refer a discrete legal issue before it becomes a bar. See Capital Power Corporation v. Lehigh Hanson Materials Limited, 2013 ABQB 413, para. 44, Contract Policy Committee v. FortisAlberta Inc., 2012 ABQB 653, Driscoll v. Hautz, 2017 ABQB 168, KBR Industrial Canada Co v Air Liquide Global E&C Solutions Canada LP, 2018 ABQB 257 and Alberta Medical Association v. Alberta Health Services, 2019 ABQB 82, paras 57-62.
Though the initial notice of arbitration did not submit questions of law, the supplemental notice was “drastically different” and raised a series of questions listed at para. 135 of the reasons. Eamon J. held that the questions were “cast in a manner very similar” to those in Contract Policy Committee v. FortisAlberta Inc. regarding which the court had found them to be questions of law barring an appeal.
urbitral note – Eamon J. noted at paras 77-78 that the case raised an “interesting issue”, whether the exception applied to contracts which incorporate standard language or “boilerplate” and which can be read independent of custom content. At para. 98, Eamon J. appears to answer that issue and identify the limits of such boilerplate to raise portions of the contract to standard form and within reach of the exception:
“It is not enough to argue that the parties left remnants of a model form in their contract. It remained open to the Arbitrator to conclude that the parties, objectively speaking, intended that their contract language, taken from whatever source and interpreted in the context of the whole contract and the factual matrix, would serve their needs.”
On the scope of section 44(3), KBR Industrial Canada Co v. Air Liquide Global E&C Solutions Canada LP at para. 66 accepted that such questions included those posed by the arbitral tribunal:
“[66] In enacting s 44(3), the Legislature clearly intended to forestall appeals to the courts when the parties choose arbitration as their dispute resolution process and thoroughly canvass identifiable legal issues before the arbitrator. The sole question of law that I have identified in this leave application was raised in the pleadings. This alone is not sufficient to meet the narrow approach to s 44(3). However, the question of law, how to interpret the OLL and set-off provisions in the context of the whole Contract, was expressly before the Panel and thoroughly canvassed by the parties and the Panel. While the process was initiated by the Panel, and not the Parties, it is in the context of the pleadings raising the same issue. I find that these two factors combined, are sufficient to find that s 44(3) applies. Therefore, in this case, on these facts, leave to appeal must be denied because of s 44(3).”