The B.C. Supreme Court in McHenry Software Inc. v. ARAS 360 Incorporated, 2018 BCSC 586 held that parties could not waive the application of B.C.’s International Commercial Arbitration Act, RSBC 1996, c 233 (“ICAA”) because its application was mandatory. In addition, despite the parties having conducted their entire arbitration according to the Arbitration Act, RSBC 1996, c 55 (“Arbitration Act”), Madam Justice Loryl D. Russell also determined that the party seeking to rely on the ICAA, and its more limited appeal provisions, could not be estopped from doing so as the ICAA was enacted for a public purpose.
The underlying dispute arose in circumstances familiar to dispute resolution practitioners but raised a less common procedural issue once the appeal phase began.
McHenry Software Inc. (“McHenry”) and ARAS 360 Incorporated (“ARAS”) entered into a February, 2010 by which they undertook to integrate their respective software products into a single product (“Agreement”). A dispute arose over payment under the Agreement, which lead McHenry to terminate the Agreement in December, 2011 and initiate arbitration in November 2012. The Agreement contained the following arbitration clause:
“14.3 The parties agree to attempt to resolve all disputes arising out of or in connection with this Agreement, or in respect of any legal relationship associated with it or from it, by mediated negotiation with the assistance of a neutral person appointed by the British Columbia International Commercial Arbitration Centre (the “BCICAC”) administered under its Commercial Mediation Rules.
14.4 If the dispute cannot be settled within 30 days after the mediator has been appointed, or such other period agreed to in writing by the parties, the parties agree to submit any and all disputes between them, to final and binding arbitration before a single arbitrator under the BCICAC’s Domestic Arbitration Rules.”
The Agreement made mention of the BCICAC’s “Domestic Arbitration Rules” (likely a reference to the “Revised Domestic Commercial Arbitration Rules” in effect as of the signature of the Agreement) but no mention of which B.C. arbitration legislation applied: the ICAA or the Arbitration Act.
McHenry’s Notice to Arbitrate mentioned that it was made pursuant to the parties’ Agreement and the “Commercial Arbitration Act”, the name of the B.C. statute in effect until a March 18, 2013 name change to its current “Arbitration Act”. The arbitrator circulated an Agreement to Arbitrate in which “the parties agree that their (A)rbitration is pursuant to the (Arbitration Act)”. Both McHenry and ARAS signed the document. The parties’ proceedings, including pleadings, lists of documents, applications, affidavits, witness statements and written submissions all mentioned “Arbitration Act” in the style of proceedings. The arbitrator issued interim orders and awards also referencing “Arbitration Act” in the style of proceedings.
The arbitrator’s final award, issued on March 26, 2014, dismissed both parties’ claims and both parties filed to appeal the award on May 26, 2014. The style of proceeding for ARAS’ application for leave to appeal mentioned the domestic Arbitration Act. Soon afterwards, in September and October 2014, ARAS argued for the first time that ICAA applied and not the Arbitration Act.
Before undertaking her analysis, Russell J. closed her summary of the procedural history with a note that her decision on which legislation applied to the appeal going forward did not affect the proceedings already completed. When arguing on the issue of estoppel, McHenry did submit that it had relied throughout the arbitration on ARAS’ representations that the Arbitration Act applied and, in so relying, had reasonably assumed that the broader right of appeal would be available to it: see para. 60. No details as to the procedural choices taken or declined by McHenry appear in the judgment. It is unclear whether McHenry made more detailed submissions on such choices, if any, or whether that statement was the essence of its submissions.
Russell J. followed the analytical approach recommended in United Mexican States v. Metalclad Corp., 2001 BCSC 664. That case looked at the wording of the Arbitration Act which defined “arbitration agreement” as excluding one to which the ICAA applies. As a consequence, Metalclad urged that the court should determine if the ICAA applies. If it does, then there is no need to consider the application of the Arbitration Act.
Both parties acknowledged that their relationship was “commercial”, that both parties had their places of business in different states and therefore their arbitration was “international”.
McHenry resisted the application of the ICAA. It argued that the parties had waived its application and, if not, ARAS was estopped from seeking its application.
McHenry argued that parties are entitled at common law to waive their statutory rights under the ICAA and that, once they did so, the Arbitration Act applies. It submitted that the parties did waive their rights.
ARAS responded that (a) parties are not at liberty to contract out of the application of the ICAA in its entirety; (b) the wording in section 4 of the ICAA requires a party to have knowledge of non-compliance with the a provision of the ICAA before its conduct is deemed to be a waiver; and, (c) only a limited number of sections in the ICAA can be replaced by contrary agreement of the parties: see para. 36 for ARAS’ list of those sections.
Russell J. noted that the parties had not stipulated the application of the Arbitration Act in their arbitration clause. The latter only contained a mention of ‘BCICAC’s Domestic Arbitration Rules’. Referring to Brent v. Brent, 2004 CanLII 17996, she reiterated that parties cannot by private agreement provide additional appeal rights. Doing so would be the equivalent of conferring jurisdiction on court that it did not have.
She reviewed the doctrine on the subject, such as Brian Casey’s Arbitration Law of Canada: Practice and Procedure, 3rd ed. (New York: Juris, 2017) (“Arbitration Law”) pp. 479-80, and Howard M. Holtzmann’s and Joseph E. Neuhaus’ A Guide to the UNCITRAL Model Law on International Commercial Arbitration: Legislative History and Commentary (Kluwer Law and Taxation Publishers: Cambridge, MA, 1989) para. 197. That doctrine, as well as her reading of section 4 of the ICAA, lead her to conclude that a waiver could only occur to non-mandatory provisions of the ICAA. She held that the ICAA’s application is mandatory once an arbitration qualifies as being both “international” and “commercial” within the meaning of sections 1(3) and 1(6) of the ICAA.
Russell J. almost addressed ARAS’ argument that ARAS’ conduct did not trigger a deemed waiver because ARAS did not know that the ICAA applied. Russell J. agreed with ARAS, stating that neither party argued that such knowledge was objective (‘knew or ought to have known’) rather than subjective.
“ Further, waiver under s. 4 requires that the party waiving its right under the ICAA had knowledge that any provision of the ICAA—in respect of which the parties may otherwise agree—had not been complied with. As stated earlier in these reasons, there is no allegation that ARAS knew that the ICAA applied to the Arbitration before September 2014, when it raised the issue in its costs submissions. One might expect a sophisticated commercial entity like ARAS to have been aware that the ICAA applied, but there is nothing in the evidence to suggest such an awareness prior to September 2014, and there has been no submission to this Court that the “know[ledge]” referred to in s. 4 requires an objective assessment.”
Given that McHenry’s argument on waiver did not rely on section 4 of the ICAA but on the common law, Russell J. also analyzed whether ARAS’ conduct constituted a waiver of a statutory right of a private nature.
She accepted that parties can waive statutory rights granted in their favour provided that the right was of a private nature. Parties could not waive a right which was in the public interest or originated from a public purpose.
Russell J. noted that, based on her earlier analysis, only certain non-mandatory provisions of the ICAA could be waived and that the application of the ICAA as a whole was mandatory. She specifically held that “the ICAA’s law of waiver displaces the common law” as reasoned and held in Busse Farms Ltd. v. Federal Business Development Bank, 1998 CanLII 12401 (SK CA) paras 12-14.
With that result, for the purposes of resolving the parties’ dispute over whether ARAS had waived the application of the ICAA, Russell J. declined to determine whether the ICAA is a public policy statute or a statute concerned with private interests. That determination re-emerged in her analysis of the estoppel argument.
McHenry submitted that ARAS had consistently relied on and referred to the Arbitration Act throughout the arbitration and that McHenry had relied on those representations. The reasons for judgment contain few details of the impact McHenry’s reliance occasioned other than a mention that it invested effort in pursuing relief consistent with the Arbitration Act as well as reliance on the broader grounds for appeal available under that legislation.
Russell J. examined the preamble to the ICAA as well as the General Assembly of the United Nations’ resolution adopted December 11, 1985, which approved the Model Law: G.A. Res. 40/72, GAOR 40th Sess., Supp. No. 53, U.N. Doc. A/40/53 (1985) 308 (“Resolution”): see excerpts of the Resolution at para. 70. Her reading of the preamble and the Resolution supported her conclusion that the Model Law’s purposes were to contribute: ““the development of harmonious international economic relations”; “the establishment of a unified legal framework for the fair and efficient settlement of disputes arising in international commercial relations”; and the “uniformity of the law of arbitral procedures and the specific needs of international commercial arbitration practice””.
Concluding her review of with an excerpt from Brian Casey in Arbitration Law, at p. 23, Russell J. wrote that that, given that the basis of the ICAA is the Model Law, she could infer that the ICAA drew on the same purposes listed above. As a final step in her analysis, Russell J. referred to H & H Marine Engine Service Ltd. v. Volvo Penta of the Americas, Inc., 2009 BCSC 1389 at para. 28 and CE International Resources Holdings LLC v. Yeap Soon Sit, 2013 BCSC 1804 at para. 21 which excerpted phrasings of the purposes similar to those she identified above.
“ Upon reviewing the preamble of the ICAA, the Resolution, commentary on the purposes of the Model Law, and decisions of this Court that discuss the purposes of the ICAA, it is clear to me that the ICAA does indeed possess a public purpose, namely, to ensure consistency, uniformity and certainty in the resolution of disputes arising out of international commercial arbitration, across jurisdictions; and further, to develop “harmonious international economic relations”.”
Based on her conclusion that the ICAA had a public purpose, she concluded that estoppel was not available.
In her closing paragraphs, Russell J. stated the effect of her conclusion.
“ The appeal will be governed by the ICAA, which allows for an appeal in this case only if the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration; the award contains decisions on matters beyond the scope of the submission to arbitration; or the award is in conflict with the public policy in British Columbia: ss. 34(1) and (2).”