B.C. – single notice to arbitrate breaching consent/privacy of parties cannot be regularized by court – #143

B.C.’s Court of Appeal in South Coast British Columbia Transportation Authority v. BMT Fleet Technology Ltd., 2018 BCCA 468 refused to accept that a a single notice to arbitrate against three (3) different parties under four (4) separate contracts was merely a curable irregularity. Instead, the Court declared that the notice was a nullity, having breached the essence of the parties’ respective consents to arbitrate through a pre-determined, private process and could not be salvaged by a subsequent court order declaring it be valid.

The dispute stemmed from contracts entered into for the design and construction of a new passenger ferry in B.C. South Coast British Columbia Transportation Authority (“TransLink”) entered into four (4) contracts with three (3) parties:

(i) and (ii) contracts 1 and 2 with BMT Fleet Technology Ltd. (“BMT”) – for the preliminary design services and services to act as TransLink’s representative;
(iii) contract 3 with International Marine Consultants Ltd. (“IMC”) – for the review of design and construction services; and,
(iv) contract 4 with Victoria Shipyards Company Limited (“VS”) – for the detailed design and construction services.

Each contract contained an undertaking to arbitrate under B.C.’s Arbitration Act, RSBC 1996, c 55. Section 22(1) of the Arbitration Act deems that, absent the parties’ agreement otherwise, the domestic commercial arbitrations rules (“Rules”) of the British Columbia International Commercial Arbitration Centre (“BCICAC”) apply to that arbitration.

By April 1, 2011 notice to arbitrate, TransLink purported to commence a single arbitration with BMT, IMC and VS under the four (4) different contracts but without the prior consent of the other entities. TransLink also paid only one (1) fee to commence its single arbitration. It stated in its notice that TransLink sought arbitration of “a dispute” pursuant to “the arbitration clauses” contained in the “Agreements”. In describing the “nature of the dispute”, TransLink detailed the four (4) contracts and the alleged defective performance of each, specified the “value of the claim” and then noted:

(i) the parties had not yet agreed to the name of any individual to act as arbitrator; and,

(ii) TransLink “prefers that the single arbitrator be familiar with construction law”.

BCICAC issued an April 4, 2011 letter advising TransLink, BMT, IMC and VS that it deemed that the arbitration had commenced April 4, 2011. Counsel for VS promptly objected to TransLink’s use of a single notice, stating that one notice could not effect an arbitration under multiple contracts between multiple parties.

Prompted by VS’ objection, BCICAC responded by April 8, 2011 letter to all the parties that “concerns” had been identified with the format of the notice and informed them that TransLink’s counsel had left a message in which he “acknowledged” that the notice may be “irregular”. Without a definitive solution due to an unfinished follow up with counsel for TransLink, BCICAC suspended the arbitration pending further discussions between the parties. BCICAC wrote to TransLink on May 16, 2011 enquiring about the status of the arbitration and required that, should the arbitration proceed, three (3) separate notices to arbitrate must be filed as the three (3) respondents were not bound to the same agreement.

TransLink did not file the additional separate notices in 2011. Rather, in 2016 it “revived its initiative to arbitrate” by proposing the name of a single arbitrator for all four (4) arbitrations. No agreement resulted.

TransLink then commenced court litigation in August 2016 against BMT, IMC and VS but discontinued it against VS in January 2017. TransLink also served and filed a separate notice to appoint an arbitrator under each of the contracts with BMT and IMC, paid the fees for each and requested BCICAC to restructure its file to reflect three (3) separate arbitrations. In court, TransLink amended its proceedings to seek a declaration that the three (3) arbitrations had been commenced effective April 4, 2011 and to have the same arbitrator appointed for each of the arbitrations.

In South Coast British Columbia Transportation Authority v BMT Fleet Technology Ltd., 2017 BCSC 1683, Mr. Justice Gordon C. Weatherill granted TransLink’s application. He declared that TransLink’s April 1, 2011 notice “although an irregularity, was effective to commence four separate arbitration proceedings” and appointed the same, single arbitrator in each of the arbitrations.

At paras 26-29 of its own reasons, the Court of Appeal summarized and provided detailed excerpts of Weatherill J.’s reasons, including all or parts of paras 40-43, 47, 77-79, 82-84, 87-89 and 93 of Weatherill J.’s reasons, and grouped them into four (4) sections:

(i) Weatherill J. confirmed that TransLink conceded that a single notice for several arbitrations was a breach of section 21(b) of the Arbitration Act;

(ii) By focusing on the “substance of the matter”, Weatherill J. determined that the notice was an irregularity not a nullity. Though a court has an inherent and statutory jurisdiction to “correct” irregularities in judicial proceedings, he noted that it did not have “a direct equivalent in arbitration”, noting that jurisdiction is given by the parties in the contract. That said, Weatherill J. stated that the informality of the arbitral process demonstrated the “fact that arbitration is concerned with substance rather than form” and concluded that TransLink’s single notice contained all the information required in the BCICAC’s Rules to start arbitration against the other parties.

(iii) Weatherill J. observed that TransLink agreed that it could have “simply” filed sufficient copies of the notice and that the omission to pay the full fees was corrected by BCICAC agreeing to proceed with the arbitration. He likened the approach to a court registry accepting a civil action for filing and that any shortfall in payment was “not a matter between TransLink and the respondents”, writing that “payment of the incorrect fee can hardly be described as a fundamental breach of the parties’ contracts or going to the substance or “root” of the parties’ rights inter se.

(iv) TransLink’s decision to appoint only a single arbitrator was “irregular” but “the irregularity was remedied by new counsel” by serving new notices in February 2017.

On appeal, the Court identified a single, central issue on appeal: the application judge’s interpretation of section 21 of the Arbitration Act. Combining the approaches established in Housen v. Nikolaisen, [2002] 2 SCR 235, 2002 SCC 33 and Sattva Capital Corp. v. Creston Moly Corp., [2014] 2 SCR 633, 2014 SCC 53, the Court stated that questions of mixed fact and law may involve an extricable question of law for which the proper standard of review is correctness. As a result, the Court characterized the central issue before it as one of law to which the standard of correctness applied.

BMT and IMC also contested the statement made by the BCICAC that the arbitration had commenced on April 4, 2011. Though Weatherill J. did not apply the title nunc pro tunc to his intervention, the substance of his order prompted the Court to characterize his order as such and prompted it to look to the efficacy of TransLink’s April 4, 2011 notice to commence arbitration.

The legal doctrine of nunc pro tunc applies to correct a mistake or an omission in a written record in order to correctly reflect what took place in fact. The correction addresses a clerical mistake, not a substantive error, and cannot recreate what did not already exist. If TransLink’s notice was a nullity, then an order by the court nunc pro tunc could not correct it.

The Court began its analysis by identifying the update given in 1986 to B.C.’s then-current arbitration legislation which the Court observed “differed little from the one that had been enacted back in 1893”. The 1986 legislative update followed on the B.C. Law Reform Commission’s 1982 Report on Arbitration, No. 55. (1982) which the Court summarized as having described the five (5) “primary advantages of arbitration”:

1. fostering amicable relationships;
2. permitting the parties to agree on an arbitrator and so select a person with expertise or familiarity with the situation;
3. opening the possibility of speedier hearings;
4. creating a private forum in which to air the dispute; and
5. producing an award with greater finality than the resolution available through the trial process.

The Court identified Weatherill J.’s error as having overlooked the consensual nature of arbitration and its privacy.

[31] In my respectful view, the error lay in overlooking the central character of arbitration under the Act, which in turn has the same central character as an arbitration clause ‒ the parties’ agreement not to litigate in open court but instead to resolve it in a private proceeding with a decision maker selected by them (or at least one chosen through some other agreed-upon process). For this reason, the essence of an arbitration clause consists of both consent and privacy: consent to arbitrate under a decision maker chosen through a predetermined and agreed-upon process, and privacy in the resultant proceeding.

[32] Through its notice, TransLink sought to invoke a quite different procedure – one not contemplated by the contracts and not contemplated by the Act. This difference, to borrow the judge’s phrase, goes to “‘the root’ of the parties’ rights inter se”, seeing as they had agreed to steer clear of the court system in favour of a process that offered privacy and decision-maker selection.

At paras 36-39, the Court considered the reasoning and results in cases concerning multi-party arbitrations: Oxford Shipping Co. Ltd. v. Nippon Yusen Kaisha (The “Eastern Saga”), [1984] 2 Lloyd’s L.R. 373 (U.K. Q.B.D), Charles M. Willie & Co. (Shipping) Ltd. v. Ocean Laser Shipping Ltd. (The “Smaro”) (1998), [1999] 1 Lloyd’s L.R. 225 (U.K. Q.B.D.), Liberty Reinsurance Canada, a Division of Liberty Mutual Insurance Co. v. QBE Insurance and Reinsurance (Europe) Ltd., [2002] O.J. No. 3599 and J.T. Mackley & Company Limited v. Gosport Marina Limited, [2002] EWHC 1315 (U.K. Q.B.D.).

It concluded that courts have no jurisdiction and that parties have no right to insist that one dispute be joined with others as doing so would involve strangers to each contract. There must be in fact a common intention to arbitrate all the disputes concurrently in a single common arbitration.

[40] I take from these authorities the proposition that, apart from statute law and absent consent, an arbitration may address only the contract giving rise to the dispute.

The Court accepted BMT’s and IMC’s argument that section 21 of the Arbitration Act adhered to the same approach set out in the case law and the authorities such as J. Brian Casey, in International Domestic Commercial Arbitration, loose-leaf (Scarborough, Ont.: Carswell, 1993) pp. 3‒17 and James M. Hosking in The Third Party Non-Signatory’s Ability to Compel International Commercial Arbitration: Doing Justice Without Destroying Consent” (2004) 4 Pepp. Disp. Resol. L.J. 469 at 545,. Agreeing with BMT and IMC, the Court determined that section 21 “requires the consent of all the parties before a multi-party, multi-contract arbitration may be commenced. They say that absent such consent, a notice to jointly arbitrate several disputes under several contracts will be ineffective and constitutes a nullity.

As additional support, when earlier identifying the changes suggested by the Report on Arbitration and those made in 1986 to the Arbitration Act reflecting the suggested changes, the Court had focused in on:

(i) the references to “arbitration”, “arbitration agreement” and “arbitrator” in the singular, except when a single arbitral panel has several “arbitrators”, means it is a single undertaking by parties to a single contract; and,

(ii) the sole mention of “consolidate” was reserved for the specific instance in which parties to two (2) or more arbitration agreements agreed on the arbitrator and the steps to take to consolidate their disputes into a single arbitration.

The Court returned to those observations later in its analysis and stated that “a plain reading” of B.C.’s Arbitration Act and section 21 in particular demonstrated that the legislation “only contemplates the singular arbitration of disputes arising under an individual contract” subject to exceptions which did not arise in the case. The inclusion of section 21 showed that the B.C. Legislature “was alive to the specific issue of multi-party, multi-contract arbitrations”.

Returning to the issue of nunc pro tunc at the close of its reasons, the Court referred to and excerpted from Hewgill v. Chadwick (1899), 18 O.P.R. 359 at 363–64 (Ont. Div. Ct.). It concluded that the April 4, 2011 notice was not an irregularity but had no “foundation of authority” when it sought “to pursue a single arbitration before a single arbitrator in respect of disputes arising under more than one contract with more than one respondent.” Contrary to Weatherill J., the Court did not view the case as “all about curable irregularities”. The April 4, 2011 notice required nothing of BMT, IMC or VS because it was a nullity.

The Court allowed the appeal, set aside Weatherill J.’s order and dismissed TransLink’s application.