Alberta – Non-signatory principal bound by its agent’s arbitration agreement – #789

In LAPP Corporation v. Alberta, 2023 ABKB 566, the Court overruled the arbitrator’s decision in which he found that he had no jurisdiction over the Government of Alberta. In a de novo hearing pursuant to s. 17(9) of the Alberta Arbitration Act, R.S.O. 2000, c. A-43, the Court concluded that Alberta was bound by the arbitration agreement included in an Investment Management Agreement (IMA) between three Alberta public pension plans (Funds) and Alberta Investment Management Corporation (AIMCo). AIMCo is a fully state-owned investment management services provider created by the Alberta Investment Management Corporation Act. The Act specifically provides in  Section 3(1) that AIMCo “is for all purposes an agent of the Crown in right of Alberta and may exercise its power and perform its duties and functions only as an agent of the Crown in right of Alberta.” Considering the broad and all-inclusive scope of the provision, the Court found that, while acting within its powers, AIMCo was always acting as Alberta’s agent and never on its own behalf. Alberta, as disclosed principal, was bound by an agreement made by its agent, even though it was not a party to the arbitration agreement.

The Arbitration – The Funds commenced an arbitration against AIMCo for alleged investment losses of approximately $1,333,500,000. The Funds added Alberta as a party to the arbitration. Alberta contested the arbitrator’s jurisdiction because it was not a party to the arbitration agreement and because AIMCo acted in its own right under the IMA. The arbitrator ruled as a preliminary matter that he had no jurisdiction over Alberta because AIMCo “acted on its own behalf” in making the IMA with the Funds.

The Court proceedings – The Funds filed an application under Section 17(9) of the Arbitration Act asking the Court to decide on the arbitrator’s jurisdiction over Alberta. The Parties agreed that such an application is a de novo hearing.

First, the Court examined AIMCo’s powers according to its statute and concluded that AIMCo had the power to contract with third parties. However, the Court also ruled that AIMCo had no power to act otherwise than on behalf of Alberta, its principal. The drafting of the AIMCo Act (Section 3(1)) leaves no place for AIMCo to act on its own behalf. The Court stated:

“[31] Which prompts this question: can AIMCo ever act “on its own behalf” in this sense?

[32] Recall ss. 3(1) of the AIMCo Act:

The Corporation is for all purposes an agent of the Crown in right of Alberta and may exercise its powers and perform its duties and functions only as an agent of the Crown in right of Alberta.

[33] It is hard to see, given that provision, what scope AIMCo has for making any move or taking any step on its own i.e. that is not performed as an agent of the Crown.”

The Court performed a thorough analysis of the applicable case law which led it to the conclusion that AIMCo, acting within the scope of its powers (not contested in the present case), always bound Alberta as its principal. The AIMCo Act contains no exclusions or limitations which would have potentially permitted AIMCo to demonstrate that it acted on its own behalf, and not as Alberta’s agent, within the IMA.

The Court also concluded that Alberta’s power according to the Act to issue directives to AIMCo reinforced the idea that AIMCo was always acting as Alberta’s agent. The Court quoted s. 19 of the AIMCo Act:

[74]….“The Treasury Board may issue directives that must be followed by [AIMCo], the board, or both, in carrying out their powers and duties under this Act and the regulations.”

[75] Whether actual or potential, Alberta’s power here to steer AIMCo’s exercise of its powers and duties squares with AIMCo’s actions, including contractual, being attributed to Alberta.”

Therefore, acting as Alberta’s agent within the IMA, Alberta was bound by the arbitration agreement included therein.

Second, the Court dismissed all Alberta’s secondary arguments, examining them one by one. Alberta presented 10 other arguments:

(1) Alberta was a non-signatory to the IMA. The Court concluded that there was no need for the principal to sign the arbitration agreement itself to be bound.

(2) The Agreement did not contemplate Alberta as a party. The Court disagreed and decided as follows:

“is not necessary since AIMCo is acting as Alberta’s agent ‘for all purposes’ and ‘may exercise its powers and perform its duties and functions only as an agent of the Crown’ i.e. with AIMCo unable to do anything except as a Crown agent. […] As noted above, Alberta, as AIMCo’s principal, is a party, even if not expressly named.”

(3) Crown-agency status means more than simply Crown immunity. The Court ruled that AIMCo, being Alberta’s agent for all purposes and at all times, could not only take the benefits from the Crown immunity without also being responsible for AIMCo’s acts.

(4) Subsection 3(2) AIMCo Act presumes Crown rights and obligations. Section 3 (2) of the IMA reads as follows:

“An action or other legal proceeding in respect of a right or obligation acquired or incurred by the Corporation on behalf of the Crown in right of Alberta, whether in the name of the Corporation or in the name of the Crown in right of Alberta, may be brought or taken by or against the Corporation in the name of the Corporation.”

The Court concluded that because AIMCo cannot act without being Alberta’s agent, all legal proceedings to enforce AIMCo’s rights or obligations are also Alberta’s rights and obligations.

(5) The IMA had no third party beneficiaries’ clause. Section 14.2 of the IMA provides that it is to the exclusive benefit of the parties. The Court ruled that this section was of no help to Alberta because it refers to third parties. As a principal of AIMCo, Alberta is not a third party. 

(6)  AIMCo had “all necessary powers” according to the IMA. Section 8.1 of the IMA provided that AIMCo had all necessary powers and capacity to perform its duty under the agreement. The Court concluded that this section did not eliminate AIMCo’s agent/principal relationship with Alberta.

(7) The dispute-resolution terms refer to the “Parties”. The Court ruled that, “as explained above, everything AIMCo agreed to in the contracts was on behalf of Alberta, including these provisions”.

(8) Proceedings Against the Crown Act prevents the Funds from bringing proceedings against Alberta arguments premature. Section 3 of the Proceedings Against the Crown Act states as follows:

Except as otherwise provided in this Act, nothing in this Act (c) subjects the Crown to proceedings under this Act in respect of a cause of action that is enforceable against a corporation or other agency owned or controlled by the Crown […]” 

The Court found this argument to be premature because it addressed the merits of the dispute and not the arbitrator’s jurisdiction over Alberta as a party to the arbitration.

(9) No material distinction between “commercial” and “government” agents. Alberta argued that its relationship with AIMCo had distinct consequences when AIMCo was acting in a commercial context than in a government context. Because of AIMCo’s agent status “for all purposes” and at all times, the Court did not recognise any differences between a commercial and a government context with respect to Alberta’s potential liability.

(10) Contracts here do not and cannot oust AIMCO’s Crown-agent status. Alberta argued that its obligations according to its relationship with AIMCo shall be examined in light of the IMA wording. The Court concluded that the wording of the contract cannot modify AIMCo’s agent status as established in its governing statute.

Lastly, after reviewing several Acts concerning government entities and the treatment of their agent/principal relationship with the Crown, the Court concluded as follows:

“[106] Alberta chose the closest connection possible, making AIMCo an agent of the Crown for all purposes, stipulating that it ‘may exercise its powers and perform its duties and functions only as an agent of the Crown …’, and not carving out any exceptions.”

Therefore, the Court ruled that the arbitration shall proceed with Alberta as a necessary and proper party.

Contributor’s Notes:

First, this is a reminder that arbitration agreements are contracts and that determinations about who are the proper parties to an arbitration agreement – even where are parties are not signatories – are to be made using contract interpretation and, in this case, agency law principles. Here, the Court analyzed the implication of a principal/agent relationship within the context of an arbitration agreement. AIMCo was, because of the relevant legislation, the agent of a known principal. There are many situations in which we can imagine that the principal may not be known to the party contracting with the agent or that the principal may not know about all the details of every contract its agent has entered into, including the application of an arbitration agreement. These cases will require an analysis of the scope of the agent’s authority.

Here, Alberta argued that it was a third party to the relationship and a non-signatory to the relevant contract. The issue of when non-signatories to arbitration agreements will be bound has been a recurring subject Arbitration Matters has covered in the past few years, particularly because of cases in Québec, which have bound third parties to arbitration, where the parties and the disputes are “intertwined”. See for example Kwon v. Vanwest, 2021 BCSC 545 and related Case Note B.C. – non-parties to agreement to arbitrate granted stay of counterclaim along with plaintiff – #459 and Sigma Consulting Inc. v. Ostara Nutrient Recovery Technologies Inc., 2023 BCSC 100 and related Case Note B.C. – Recent shift towards competence-competence in arbitration clause interpretation? – #714. Québec clearly leads the trend with several examples of “closely related” parties and disputes which would allow third party to be bound by an arbitration agreement. See my 2022 Hot Topic Case Note : Marie-Claude’s 2022 Hot Topic: Binding non-signatories – A new trend arising in Québec? – #697.