Though she acknowledged that a particular notice provision in the parties’ subcontract “would arguably provide a complete defence”, Madam Justice Johnna C. Kubik in TR Canada Inc v. Cahill Industrial Limited, 2021 ABQB 274 held that the arbitral tribunal committed no breach of procedural fairness or rule of natural justice when it barred a party from relying on that provision for its defence. Kubik J. held that the ICC Rules of Arbitration “empower the tribunal to establish the process by which the dispute will be presented and heard, including with respect to the timing for filing pleadings, the hearing of evidence and the timing of submissions”. Dismissing leave to appeal the ICC tribunal’s award under section 44 of the Arbitration Act, RSA 2000, c A-43, Kubik J. held that the tribunal had “applied its own procedural rules to the record of proceedings, and exercised its discretion, within the powers conferred on it, to bar the defence raised”. Kubik J. accepted that the tribunal was authorized to concluded that failure to plead the notice provisions was “prejudicial to the other party, depriving it of the opportunity to advance responsive evidence and argument.
TR Canada Inc. (“TR”) and Cahill Industrial Limited (“Cahill”) entered into a subcontract (“Subcontract”) regarding an August 2014 main contract granted to TR as general contractor for work on a cogeneration facility. Under the main contract, TR undertook to construct two (2) gas turbine generators and two (2) heat recovery steam generators for interconnection to the local electrical system. TR purchased the equipment and subcontracted some of the work to Cahill.
Disputes arose over coordination and sequencing of the work with subcontractors and changes/additions to the scope of work. As agreed under the Subcontract, disputes were subject to resolution by arbitration and TR and Cahill engaged in arbitration.
Kubik J. noted that the arbitration was “facilitated pursuant to the ICC Articles and Rules” with a three (3) member tribunal and resulted in a June 23, 2020 award (“Award”). (For the most recent version of the International Chamber of Commerce’s ICC Rules of Arbitration, see ICC Rules of Arbitration, updated with effect as of January 1, 2021 (“ICC Rules”)).
The Award ordered TR to pay Cahill damages in the amount of $17,908,267.25 plus GST and interest arising from the tribunal’s determination that TR breached the Subcontract. The amount reflected costs associated with delays, extra expense incurred completing the work, productivity loss, and indirect costs for extended time on the work site.
TR sought leave to appeal.
Kubik J. stated that section 44 of the Arbitration Act, RSA 2000, c A-43 governed TR’s application for leave to appeal the Award which issued from the ICC tribunal. Citing the text of section 44, Kubik J. noted that it limited appeals on questions of law to those “which are of sufficient import to the parties to justify an appeal, and the determination of which will significantly impact the rights of the parties”. A threshold determination under section 44 involves determining that the question proposed on appeal qualified as a question of law.
Referring to Beta Management Inc v Edmonton (City), 2017 ABQB 571, Kubik J. excerpted the following passage.
“[24] A question of law is a question about a decision-maker’s appreciation of a legal test, rule, or standard. For an applicant to raise a question of law, there must be a foundation for concluding that the decision-maker erred in identifying or articulating a material legal test. Legal error would occur if a decision-maker expressly articulated a test incorrectly. A “covert” error would occur if a decision-maker expressly articulated a test correctly but in its application of the test demonstrated that it had altered the test – i.e., the test articulated and the test applied were not the same and the test applied was the wrong test. Legal error would occur if a decision-maker failed to consider evidence a legal test required it to consider. Legal error would also occur if a decision-maker made a factual finding based on no supporting evidence. In effect, such an error would alter the legal test by omitting the need for evidence supporting one or more of its elements. Further, legal error would occur if there were only a “modicum” of evidence of a fact-in-issue contrasted with a large amount of evidence to the contrary. In this instance too, there would be an alteration of the legal test through omission of the need for a proper evidential finding supporting one or more of the elements of the test. See Canada (Director of Investigation and Research) v Southam Inc, [1997] 1 SCR 748, 1997 CanLII 385 (SCC), Iacobucci J at para 35 (CanLII); Concord Pacific Alberta Properties at para 15; Eau Claire Market Inc v Calgary (City), 2015 ABQB 131, Millar J at para 10; [Edmonton (City) v. Alberta (City of Edmonton Composite Assessment Review Board), 2012 ABQB 171] at para 11; Canada Safeway at para 18; Edmonton (City) v Alberta (City of Edmonton Composite Assessment Review Board), 2012 ABQB 118, Sulyma J at para 71 [Earle M. Jorgenson]”.
Kubik J. added references to guidance set out in 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 para. 52.
Subsequent to the oral hearing before her the Supreme Court of Canada released its reasons in Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, 2021 SCC 7. She invited and received submissions but determined that it did not have relevance.
The grounds of appeal involved three (3) alleged errors: changes to the work, notice provisions and findings regarding liability, causation and damages.
(i) changes to the work – Kubik J. disagreed that the ground qualified as a question of law.
“[22] The tribunal’s decision was based on their factual findings, the application of legal principles relating to formation of a contract, including authority and consideration, and having regard to the context of the subcontract governing the party’s relationship. This was an exercise of mixed fact and law, and no extricable legal error arises on the record”.
(ii) notice provisions – The Subcontract contained notice provisions, including clause 16.6 which Kubik J. observed “would arguably provide a complete defence”. Kubik J. recorded the tribunal’s determination that, notwithstanding the presence of clause 16.6 in the Subcontract, TR had not pleaded it and was prohibited from relying on it.
TR argued that this decision qualified as an issue of procedural fairness and therefore a question of law. TR added that it had pleaded clause 16 in general and that 16.6 was included as an integral part requiring the tribunal to interpret it as a whole as required by Sattva Capital Corp. v. Creston Moly Corp. Cahill countered, arguing that the tribunal was “entitled to control its own process” and therefore committed no breach of procedural fairness or natural justice.
“[27] The tribunal’s review of the history of the proceedings found that TR had not plead reliance on Clause 16.6 as a defence to Cahill’s claims in any of its pleadings, and only raised the issue mid-oral hearing, and subsequently in its closing submissions. The tribunal was satisfied that failure to plead Clause 16.6 was prejudicial to Cahill, in that it deprived them of the opportunity to advance responsive evidence and argument. Further, the tribunal found that TR could have sought an amendment to its pleadings at an early stage and having failed to do so was barred from relying on Clause 16.6.
[28] In its ruling in relation to Clause 16.6, the tribunal relied on Article 22(4) of the ICC Rules. Article 22(4) provides that: “In all cases, the arbitral tribunal shall act fairly and impartially and ensure that each party has a reasonable opportunity to present its case.” This procedure is in keeping with the provisions of the Arbitration Act, most notably, sections 19 – 25 which frame the requirements of procedural fairness and empower the tribunal to control its own procedure. Specifically, s. 25(4) authorizes a tribunal to disallow any changes to the parties position statements, if those changes are unduly delayed. The case law recognizes that tribunals are entitled to control their own procedure, subject to rules of natural justice and procedural fairness: Sharma v Edmonton (Police Service), 2019 ABCA 501”.
Kubik J. held that the tribunal committed no breach of procedural fairness or rule of natural justice and that the ICC Rules “empower the tribunal to establish the process by which the dispute will be presented and heard, including with respect to the timing for filing pleadings, the hearing of evidence and the timing of submissions”. Reviewing the timeline for the procedural submissions, Kubik J. dismissed TR’s arguments, holding that the tribunal had “applied its own procedural rules to the record of proceedings, and exercised its discretion, within the powers conferred on it, to bar the defence raised”.
Kubik J. also referred to the autonomy of the parties to hold them to their bargain.
“[29] The parties are sophisticated commercial construction entities which sought to resolve their dispute utilizing final and binding arbitration. In submitting to arbitration, facilitated by the ICC, they accepted that the arbitration process would be administered by the ICC and governed by its rules. Where such rules were silent and the parties could not agree on the rules to apply, the arbitral tribunal has the jurisdiction to settle the rules: ICC Rules, Article 10, Article 19”.
Kubik J. also considered and dismissed TR’s argument that the tribunal had misinterpreted the Subcontract’s clause 16.3. She determined that the tribunal did apply the principles of contractual interpretation and had not committed any error of law.
(iii) liability, causation, damages – TR argued that the tribunal’s award suffered from three (3) errors: failure to identify how TR breached the Subcontract; failure to reference any evidence of causation; and, misapplication of the Total Cost methodology. Kubik J. explained that methodology as one which “explicitly provides for the application of a reduction to damages where part of the loss is related to the claimant’s own conduct or factors not causally connected to the breach”. See also paras 40-42.
Kubik J. noted Cahill’s argument pointing to sources of the tribunal’s reasoning and stated that at review of the Award confirmed that necessary determinations had been made.
urbitral notes – First, article 35 para. 6 of the ICC rules entitled “Notification, Deposit and Enforceability of the Award” provide the following:
“Every award shall be binding on the parties. By submitting the dispute to arbitration under the Rules, the parties undertake to carry out any award without delay and shall be deemed to have waived their right to any form of recourse insofar as such waiver can validly be made”.
Second, see the earlier Arbitration Matters note “Alberta – Court of Appeal reiterates policy underlying lack of appeals in arbitration matters absent agreement – #053”. An application for leave gave the Court of Appeal in Rusnak v. Canyon Spring Master Builder Inc, 2018 ABCA 2 an opportunity to reiterate the policy behind the lack of an appeal. Applicants sought to appeal a special chambers judge’s refusal to grant them leave to appeal a final award. In refusing leave, the Court of Appeal stated that the lack of an appeal was based on a policy decision which favoured streamlining the dispute resolution process.
Third, see also “Alberta – legislative rule “unique” to Alberta applied to refuse leave to appeal extricable question of law in multimillion dollar dispute – #058”. In KBR Industrial Canada Co v. Air Liquide Global E&C Solutions Canada LP, 2018 ABQB 257, Alberta’s Court of Queen’s Bench refused leave to appeal a final award by application of the “unique” section 44(3) of Alberta’s Arbitration Act, RSA 2000, c A-43 which stipulates that a party may not appeal a question of law which the parties expressly referred to the arbitral tribunal for decision. In denying leave to appeal, Madam Justice Ritu Khullar added that, in the alternative, if she were mistaken, then that question did not meet the threshold set by section 44(2.1). The latter limits leave to appeal on a question of law only if the court is satisfied that (a) the importance to the parties of the matters at stake in the arbitration justifies an appeal, and (b) the determination of the question of law at issue will significantly affect the rights of the parties.