BC – Stay granted where two relevant agreements, only one having arbitration clause – #562

In Canadian Pacific Railway Company v Canadian National Railway Company, 2021 BCSC, Justice Iyer ordered a stay of an action in favour of arbitration in circumstances in which she found that it was arguable that the parties’ dispute fell within two contracts between the parties – one that contained a mandatory arbitration clause and one that did not. Which agreement governed the dispute was an issue for the arbitrator to decide.

On September 14, 2020, a train derailed in British Columbia, causing significant property damage. The train was owned by plaintiff Canadian Pacific Railway Company (“CP”), but was operated by a crew employed by defendant Canadian National Railway Company (“CN”) on track owned by CN. CP sued CN and certain employees claiming negligence and breach of contract on the basis that the CN crew was not properly trained and qualified to operate the train. CN brought a motion for a stay pursuant to s. 7 of the B.C. Arbitration Act, SBC 2020, c. 2, on the ground that the dispute was covered by an arbitration agreement.

There were two relevant agreements between CP and CN governing the operation and crewing of trains on CP and CN tracks. One contract had an arbitration clause; the other did not.

The Fraser Canyon Directional Running Agreement (“DRZ Agreement”) allowed CN and CP to use each other’s tracks to enhance operational efficiency. In the region covered (“DRZ zone”), the CN and CP tracks ran parallel to each other, one to be used by eastbound trains and the other to be used by westtbound trains. However, regardless of the track, CN crews were to operate CN trains and CP crews were to operate CP trains. The DRZ Agreement contained an arbitration clause that provided that “any dispute under this Agreement” was to be submitted to arbitration under the “British Columbia Commercial Arbitration Act”.

The Vancouver and BC Lower Mainland Operations Co-Production Agreement (“Co-Pro Agreement”) regulated rail operations in an area where the CN and CP tracks diverged from each other (“Co-Pro zone”). Under this Agreement, CN and CP trains running on CN tracks were operated by a CN crew and CN and CP trains running on CP tracks were operated by a CP crew. The Co-Pro Agreement contained no arbitration clause.

Both agreements addressed crew training and qualification.

To simplify the relevant facts:

  • In the DRZ zone, on CN tracks, CP trains were operated by a CP crew;
  • In the Co-Pro zone, on CN tracks, CP trains were operated by a CN crew; and
  • The derailment occurred in the DRZ zone, on CN tracks, with respect to a CP train operated by a CN crew.

This is because the only place there could be a crew change before the westbound train entered the Co-Pro zone from the DRZ zone was at a station inside the DRZ zone. Therefore, for a period of time, all trains travelling westbound from the DRZ zone to the Co-Pro zone had the crew required under the Co-Pro Agreement, rather than the DRZ Agreement. The derailment occurred in the DRZ zone after the crew change while the train was on its way to the Co-Pro zone.

The issue before Justice Iyer was whether the claim arising out of the derailment was a dispute under the DRZ Agreement or the Co-Pro Agreement.

CN’s position was that the derailment occurred within the DRZ zone and outside the Pro-Co zone; therefore, the DRZ Agreement governed. The parties intended the DRZ Agreement to cover all disputes relating to rail operations within the DRZ zone. Because the DRZ Agreement contained an arbitration clause, the action must be stayed.

CP’s position was that the DRZ Agreement applied only to track sharing. Therefore, the Co-Pro Agreement applied because the dispute was not about track sharing. It concerned the operation of a train, which was a “Co-Pro train” as defined in the Co-Pro Agreement because it was a train owned by one party and operated by the other party’s crew. Because the Co-Pro Agreement contained no arbitration clause, the stay motion should be dismissed and the action permitted to proceed.

Justice Iyger found that it was arguable that the dispute was covered by the DRZ Agreement. In fact, it was arguable that the both agreements covered the subject matter of the dispute because the claim alleged that the CN crew operating the CP train was not properly trained.

She noted that this was a contract interpretation exercise, which was a question of mixed fact and law. Relying upon Clayworth v Octaform Systems Inc., 2020 BCCA 117, para. 6, she found that the applicable test was whether CN had made out an “arguable case” that the dispute fell within the DRZ Agreement arbitration clause, which was no different than the “prima facie test” adopted by the Supreme Court of Canada in Dell Computer Corp. v Union des consommateurs, 2007 SCC 34 at para. 84.

Justice Iyer also relied upon Uber Technologies v Heller, 2020 SCC 16 at para. 36, which she found, “clarified that for questions of mixed fact and law, consideration of whether there is a nexus between the claim and the matters reserved for arbitration includes only consideration of undisputed facts and facts and facts evident on the face of the record”.

She concluded that the “arguable case” standard was a low one and that a court should only dismiss a stay application where the conclusion that the arbitration agreement does not apply can be drawn from facts that are either evident on the face of the record or undisputed by the parties. In this case, Justice Iyer found that she was not in a position to make a finding, as the facts were in dispute and the parties tendered no evidence about the factual context at the time of contract formation. Therefore, the dispute had to be referred to the arbitrator.

She granted the stay.

Editor’s notes:

First, the primary difficulty faced by Justice Iyer was the ambiguity in the parties’ contracts because the dispute could possibly be covered by both agreements (or neither?). The contracts purported to set out a sharing agreement between CN and CP concerning whose trains and whose crew would be employed on tracks which the parties agreed to share. But it apparently did not address explicitly the situation which arose – even thought it must occur with great frequency. The contract may have been quite old. The arbitration clause in the DRZ Agreement provided that any dispute was to be submitted to arbitration under the “British Columbia Commercial Arbitration Act”, which no longer exists. And one burning question is why the parties provided for arbitration in one of the agreements and not the other…….

Second, the principle that Justice Iyer cited from the Uber case on the issue of systemic referral to the arbitrator comes, of course, from the Dell Computer case. But it is a reminder that the Uber case provides a summary of the Supreme Court of Canada’s view of current arbitration principles that go beyond the narrow issue that the Court was asked to determine, namely, whether the arbitration clause was unconscionable and thereby unenforceable (such as applicable arbitration legislation, competence-competence, and the doctrine of separability).