Alberta –Stay of Arbitration Granted Where Potential For “Forensic Prejudice” – #785

In Dow Chemical Canada ULC v Nova Chemicals Corporation, 2023 ABCA 217, the Appellant Dow Chemical Canada ULC (“Dow”) obtained leave to appeal a decision of a lower court, which declined to make a declaration of invalidity of the arbitration or grant an injunction prohibiting the continuation of the arbitration pursuant to section Section 47 of the Arbitration Act, RSA 2000, c A-43. In Dow Chemical Canada ULC v Nova Chemicals Corporation, 2023 ABCA 262, a single judge of the Alberta Court of Appeal ordered a limited stay of the ongoing arbitration until a panel of the Court could decide the appeal. In that context, the judge found that “forensic prejudice” was sufficient to obtain the limited stay of arbitration. This referred not to prejudice to the applicant, but to the possibility that if Dow were correct that the arbitration were invalid, it might “embarrass the justice system” to allow the arbitration to proceed when it should not have.

The dispute – The dispute arose in the context of a long history of litigation between Appellant/Respondent in arbitration Dow and Respondent/Claimant in arbitration Nova Chemicals Corporation (“NOVA”) over the co-ownership and operation of E3, an ethylene plant at a NOVA facility. The parties disagreed about various issues, including how to develop budgets for E3. 

The arbitration – In April 2022, NOVA served Dow with a notice to arbitrate, seeking an order directing Dow to approve the 2022 Budget.

During the spring and summer of 2022, the parties took steps to appoint an arbitral tribunal and attended a case management meeting, during which they outlined their respective positions on the budget disagreement. However, in October 2022, Dow advised the tribunal that the 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 pending a resolution of those questions. 

In November 2022, the tribunal issued a procedural order dismissing Dow’s request, and holding that Dow would not be prejudiced by participating actively in the arbitration until its jurisdictional objection was decided.

The request for a declaration of invalidity of the arbitration – In December 2022, Dow filed an application before the Alberta Court of King’s Bench seeking a declaration that the arbitration provisions of the parties’ contract 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:

47(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”

In April 2023, the Court of King’s Bench dismissed Bow’s application. That decision is summarized in Arbitration Matters’ case note #745: “Participating in” not same as “taking a step in” an arbitration”. The Court identified a series of factors to take into consideration when deciding whether a party has participated in an arbitration within the meaning of Section 47 and therefore cannot obtain relief. Applying those factors, the Court found that Dow had, in fact, participated in the arbitration and that Dow’s jurisdictional objections raised a question of mixed fact and law that must be first resolved by the tribunal under the competence-competence principle.

Application for leave to appeal – In July 2023, Dow obtained leave to appeal the lower Court’s decision (2023 ABCA 217). The Court noted that there is little case law with respect to s. 47 or its Canadian equivalents and that no previous case had set out a generally applicable test for deciding whether a party has participated or taken part in an arbitration. It found that, “[w]hile the facts in this case may be unusual, section 47 addresses the interaction between litigation and arbitration and would be an opportunity for this court to ensure the proper interpretation of the Arbitration Act.” The Court therefore granted leave to appeal on the following questions: (a) Did the chambers judge err in the test for the interpretation of “has not participated in the arbitration” in section 47 of the Arbitration Act? and (b) Did the chambers judge err in applying the competence-competence principle to section 47?

Stay application pending appeal – Dow then applied to a single judge of the Alberta Court of Appeal for an order staying the arbitration pending the appeal from the lower Court’s decision (scheduled to be heard in November 2023). Dow relied on rule 14.37(1) of the Alberta Rules of Court, Alta Reg 124/2010, which provides:

“14.37(1) Unless an enactment or these rules otherwise require, a single appeal judge may hear and decide any application incidental to an appeal, including those that could have been decided by a case management officer” 

On September 19, 2023, a judge of the Court of Appeal allowed Dow’s application and issued a limited stay of the arbitraton until a panel of the Court could decide whether to grant an injunction prohibiting the continuation of the arbitration pursuant to s. 47.

The judge found that he had jurisdiction to grant a stay of the arbitration until a panel of the Court of Appeal could decide the matter. He further found that the application for a stay was not moot, despite the fact that the arbitration had been ongoing for some time and that the hearing before the panel of the Court of Appeal was scheduled to be heard in three months’ time, because there was a risk of “forensic prejudice”:

“[38] The question on mootness however is still further addressed by Dow on a basis that they have certain statutory and forensic rights that they are concerned about possible damage to. They have indicated in fact in their brief that they are worried about not only the interests of Dow in particular but also the administration of justice more generally and the functioning of the Court of Appeal as well in a sense that they do not think that an artificial deadline for the Court of Appeal is desirable thing. I appreciate the sympathy.

[39] And they also suggest that there is no harm to anyone but there is some harm to their statutory rights and… that they should be able to benefit from those statutory rights especially having now obtained permission to appeal to this Court…

[40] This form of ‘forensic prejudice’ as irreparable harm is the better word for it as opposed to a ‘financial prejudice’. I have to say that point raises a certain conundrum in the sense that it has not been suggested that in fact there is any real evidential problem for anybody in the forensic sense – for example as if some sort of privilege or some other procedural right is going to be lost… It seems to be that essentially the main concern about the ‘forensic prejudice’ is whether as indicated in some of the two cases that were cited by Dow that it might embarrass the justice system to have certain things happen and certain types of evidence flow and so forth when they should not have happened at all.

The judge applied the test in RJR-MacDonald Inc v Canada (AG), [1994] 1 S.C.R. 311 and granted the stay of the arbitration on a limited basis until the hearing of the appeal. He found that there was an arguable case in light of the decision to grant leave to appeal, and that there was “a form of irreparable harm of a forensic nature that could occur as a result of [his] not granting a stay” (para. 46). 

Contributor’s Notes: 

The judge’s decision was an interim decision designed to preserve the appeal panel’s jurisdiction to decide whether the arbitration should be stayed pending the disposition of the appeal. His reliance on a “forensic prejudice” appears novel and may have been justified in that particular context. It will be interesting to see whether the appeal panel will accept that such a prejudice is sufficient to establish that Dow will suffer irreparable harm if it is forced to continue to participate in the arbitration until the Court of Appeal has rendered its decision.