In Attorney General of Canada v. Aéroports de Montréal, 2023 FC 1562, the Court decided the issue of a tribunal’s jurisdiction under section 16(3) of the UNCITRAL Model Law, which is incorporated into the Commercial Arbitration Act, R.S.C., 1985, c. 17 as the “Commercial Arbitration Code” (the “CAC”). The tribunal had made a preliminary ruling that it had jurisdiction over the commercial dispute between the parties. The Court upheld the tribunal’s finding. The issue involved a determination of whether the arbitration clause in one of three related contracts applied. This case reiterates the following key arbitration principles: the power of an arbitral tribunal to rule on its own jurisdiction does not limit the powers of the Court to weigh and make its own findings of fact, on the basis of the evidence, and to consider and rule de novo on that jurisdiction; the Court must take the pleaded facts by a plaintiff as true on a jurisdiction motion; and if both interpretations of an arbitration agreement proposed by the parties are possible, priority must be given to the interpretation that favours the jurisdiction of the arbitral tribunal.
The Court applied leading authorities relating both to the Court’s powers to decide jurisdiction under section 16(3) to hear the issue de novo and to the interpretation of arbitration clauses. The Court examined whether the challenge made by the Respondent, Aéroports de Montréal (ADM), concerning the calculation of payments it was required to make to the Crown in connection with its operation of the airport was subject to arbitration. The Court concluded that the dispute was to be arbitrated. In so finding, the Court emphasized the importance of respecting parties’ intentions and interpreting arbitration clauses liberally.
Background – The dispute related to three agreements the parties entered into in 1992 involving the transfer of management of the Pierre Elliott Trudeau Airport to ADM from the Crown, represented by the Claimant, the Attorney General of Canada (AGC).
To simplify a very complex factual background: The airport operated on Crown land. Under the Constitution Act 1867, Crown lands are exempt from taxation. To compensate municipalities for their services on Crown lands, the Crown calculates and remits payments referred to as PILTs (Payments in Lieu of Taxes) to the municipalities.
When transferring management of the airport from the Crown to the ADM under the 1992 agreements, the parties agreed to maintain the tax-exempt status of the airport, with ADM taking on the requirement to reimburse the Crown for the payment of the PILTs. ADM benefitted from a more tax-advantageous position, while the Crown incurred no additional cost or benefit. Under this scheme, the Minister of Public Services and Procurement Canada (the Minister) calculated the PILT amount and, once received from ADM, would remit that amount to the taxing authority (in this case, the City of Dorval, the City of Pointe-Claire and the City of Montréal).
The three agreements were as follows:
- The Agreement to Transfer (ATT): contained an arbitration clause requiring any dispute or disagreement under the agreement or its instruments, other than a point of law, to be referred to an arbitral tribunal upon the request of either party; and listed the Ground Lease as an “Instrument” (to which the arbitration clause applied) but did not list the GSA (defined below).
- The General Service Agreement (GSA): related to the administration of the government’s PILT system, and specified that the Crown would calculate PILTs in accordance with the standards and rules governing federal properties, and that ADM would reimburse the Crown for such amounts.
- The Ground Lease set out payment obligations, including “Additional Rent”, which was defined as any sum of money or charges payable to the Landlord (the Crown) by the Tenant ( ADM)under the lease, other than “Airport Rent” (Additional Rent).
In particular, section 5.04 of the Ground Lease referred to Grants in Lieu of Taxes:
“5.04.01 Subject to any agreement between Her Majesty, as represented by the Minister of Public Works, and the Tenant with respect to the matters referred to in paragraphs (a) and (b) below, the Tenant must, upon request, promptly advance to the Landlord, as Additional Rent, any sum required by the Landlord to
(a) pay grants in lieu of Real Property Taxes for any part of the Demised Premises in accordance with the Municipal Grants Act, R.S.C. 1985, c. M-13 or any similar or successor legislation; and
(b) cover all reasonable general and administrative expenses of the Landlord.
5.04.02 The Tenant agrees to comply fully with all the terms and conditions of any agreement referred to in subsection 5.04.01.”
ADM filed a Notice of Arbitration seeking, among other things, compensation for overpayments of Additional Rent. ADM claimed that the Minister’s calculation of PILTs was flawed, resulting in overpayments.
The jurisdiction issue was whether the dispute regarding the calculation of PILTs fell under the Ground Lease through its reference to PILTs (or Grants in Lieu of Taxes), which was covered under the arbitration clause as an “instrument” under the ATT, or whether it was governed solely by the GSA, which was arguably not covered by the arbitration clause in the ATT because it was not identified as an “instrument”.
ADM argued that while the calculation of PILTs was addressed in the GSA, the Ground Lease incorporated the GSA through inclusion of its key terms within sections 5.04.01 and 5.04.02. ADM also relied on the broad definition of Additional Rent under the Ground Lease, which it argued captured the PILTs. ADM emphasized that the negotiations of the agreements showed the parties’ intention to include PILT reimbursements as part of the Additional Rent, and to incorporate the GSA into the Ground Lease, thus making them subject to arbitration because the Ground Lease was an “instrument” referred to in the ATT, which contained the relevant arbitration clause.
On the other hand, the AGC argued that the lack of explicit reference to the GSA in either the ATT or the Ground Lease demonstrated a clear intention that the parties did not intend for the ATT arbitration clause to apply to a dispute about the PILTs. The AGC argued that the arbitration clause applied solely to the listed “instruments”, which included the Ground Lease, but not the GSA. Instead, any challenge to the calculation of the PILTs should be made through judicial review because the calculation of PILTs was a discretionary administrative decision by the Minister.
The tribunal determined that it had jurisdiction over the dispute concerning the overpayment of PILTs. The AGC applied to the Court to “decide the matter” under section 16(3) of the CAC (i.e. the Model Law).
Issue 1: What is the legal framework that should guide the arbitration tribunal’s analysis of a declinatory exception raised under subsection 16(3) of the CAC?
The Federal Court undertook a de novo review of the arbitral tribunal’s jurisdiction under subsection 16(3) of the CAC. The Court relied on Luxtona Limited v. Russian Federation, 2023 ONCA 393 (“Luxtona”), for the principle, “that the power of an arbitral tribunal to rule on its own jurisdiction does not limit the powers of the Court to weigh and make its own findings of fact, on the basis of the evidence, to consider and rule de novo on that jurisdiction” (para 60). The Court also relied on Luxtona to explain the limits of the competence-competence principle – namely, that the principle is “best understood as ‘a rule of chronological priority’” rather than as ‘empowering the arbitrators to be the sole judgment of their jurisdiction’”. Further, because “the court retains the final say over questions of jurisdiction, it necessarily follows that the court must be… ‘unfettered by any principle limiting its facts finding ability’” (citing Luxtona at paras. 34-40).
Additionally, as set out in Spar Aerospace Ltd v. American Mobile Satellite Corp, 2002 SCC 78, the Court must take the pleaded facts by a plaintiff as true on a jurisdiction motion. However, when the pleaded facts are contested through evidence in a declinatory motion or an application to dismiss, the Court may need to make findings of fact on the basis of filed evidence to determine jurisdiction. This involves a preliminary, but not exhaustive, analysis of the evidence presented by the parties.
In this case, the Court accepted as true the pleaded allegation that the Minister erred in failing to calculate the PILT reimbursements in accordance with the standards and rules governing federal properties. The Court then considered evidence regarding the scope of the contractual provisions in the three agreements in issue.
Issue 2: What are the rules of interpretation governing the agreements in this case and the arbitration clause?
The Court relied on the two-step process for contractual interpretation set out in Uniprix Inc v. Gestion Gosselin et Bérubé inc, 2017 SCC 43:
- Determining Clarity or Ambiguity: Assess whether the contract’s language is clear or ambiguous. If clear, the Court must apply the plain meaning of the words. If ambiguous, further analysis is required to ascertain the parties’ common intention.
- Common Intention of the Parties: If ambiguity exists, the Court must seek the common intention of the parties by considering intrinsic and extrinsic evidence, including the circumstances surrounding the contract’s formation and the parties’ conduct.
The Court also underscored that arbitration clauses should be given a liberal interpretation, as set out in Desputaux v. Éditions Chouette (1987) inc., 2003 SCC 17. Where an arbitration clause is capable of two meanings, courts should favour an interpretation that would allow for arbitration, as set out in Electek Power Services Inc v. Greenfield Energy Centre Limited Partnership, 2022 ONSC 894.
Although not expressly stated in the decision, it appears that the underlying contracts were governed by Quebec law, given the reliance on the Quebec cases above and the Civil Code of Quebec.
Issue 3: Does the tribunal have jurisdiction over the issue resulting from PILTs, since it is included in the Ground Lease?
Applying these interpretative rules, the Court found that the arbitral tribunal had jurisdiction over the dispute concerning PILT overpayments.
The Court first noted the ambiguity in “the scope of the agreements” (para. 74). The parties could have, but did not, include the GSA as one of the “Instruments” to which the ATT arbitration clause applied. That would have clarified whether such disputes were to be arbitrated. The Court therefore proceeded to the second stage, reviewing intrinsic and extrinsic elements of the agreement to ascertain the intention of the parties.
In examining the intrinsic elements, the Court held that, as a matter of contract interpretation, the Additional Rentincluded PILTs through its broad wording and that all of the material conditions imposed by the GSA were expressly incorporated into the Ground Lease through section 5.04. Accordingly, it was not necessary for the parties to list the GSA as an “Instrument” in the ATT. The Court concluded:
“[T] he GSA is incorporated by reference into the Lease by virtue of its inclusion in subsections 5.04.01 and 5.04.02 of the Ground Lease… ADM’s obligation to reimburse PILTs must be read in the context of the relationship between the parties under the Ground Lease, in particular subsection 5.04.01, and the GSA, which subjects the calculation of PILTs to the [translation] ‘standards and rules governing federal properties’.” (para.21)
In analyzing the extrinsic elements of the agreement, the Court found that contemporaneous communications between parties demonstrated that it was the common intention of the parties that the Ground Lease included ADM’s PILT obligations. In particular:
- the majority of the discussions surrounding the PILT system and the agreements regarding its structure occurred during the drafting of the Ground Lease rather than the GSA;
- prior to the entering into of the GSA, the PILT reimbursement system was already provided for in a draft of the Ground Lease; and
- a letter from Transport Canada dated after the agreements were entered into confirmed that ADM had accepted the PILT payment terms in a “long term agreement…as well as under the Ground Lease.”
Finally, even if both interpretations proposed by the parties are possible, priority must be given to the interpretation that favours the jurisdiction of the arbitral tribunal.
Issue 4: Does the true nature of ADM’s application require judicial review of the Minister’s exercise of discretion?
The AGC argued that the PILT calculations fell within the discretionary powers of the Minister, thus necessitating judicial review rather than arbitration. The Court acknowledged that while certain administrative decisions are indeed subject to judicial review, the specific dispute over PILT reimbursements as “Additional Rent” was fundamentally a contractual issue for arbitration. The Court distinguished between administrative discretion and contractual obligations.
Contributor’s Notes:
The decision in AG of Canada v. Aéroports de Montréal affirms the principles set out in Luxtona, Uniprix, Spar, and Electek, about the importance of respecting the parties’ autonomy in choosing arbitration as a dispute resolution mechanism and construing arbitration clauses liberally.
The case highlights the need for clarity and precision in drafting arbitration clauses – particularly across multiple related agreements – to ensure that all potential disputes, especially those involving intricate financial arrangements, are clearly addressed. This promotes efficiency in dispute resolution, and reduces the likelihood of protracted legal battles over jurisdictional issues and the associated costs. Finally, this case is a reminder that the competence-competence principle does not entirely exclude judicial oversight. The competence-competence principle is a “rule of chronological priority” – i.e. the arbitrator gets to decide the issue of jurisdiction first – but does not limit the courts’ supervisory jurisdiction. Courts retain the authority to review jurisdictional decisions de novo, ensuring that arbitral tribunals do not overstep.