In Broadband Communications North Inc. v. 6901001 Manitoba Ltd., 2021 MBQB 25, Mr. Justice James G. Edmond held that imposing conditions on an award of damages does not comply with principles of awarding damages in breach of contract cases. Observing that the arbitrator ought to have awarded damages without conditions or required the parties to file additional evidence if the evidence was insufficient to grant the award of damages, the decision to grant a conditional award of damages resulted in the successful party receiving no compensation when it failed to satisfy the conditions. Edmond J. also expressly followed and applied the principles set in Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65 in choosing correctness as the standard of review in an appeal provided by statute.
The dispute involved a $5,141,884.00 Stipulated Price Contract signed March 10, 2006 (“SPC”) between 6901001 Manitoba Ltd (formerly I-Netlink Incorporated) (“I-Net) and Broadband Communications North Inc. (“BCN”). Under the SPC, I-Net undertook to perform design and construction work related to twenty-three (23) towers and their foundations comprising a data network designed to deliver internet access to Manitoba communities.
Disputes arose and the parties engaged in arbitration, agreeing to bifurcate the hearing of issues. The reasons do not identify the date the arbitration commenced.
The parties identified a preliminary or threshold question involving whether a CSA standard applied to the design and construction of the towers and foundations constructed pursuant to the SPC. By October 18, 2013 preliminary award (“Preliminary Award”) the arbitrator issued his conclusions.
I-Net unsuccessfully sought leave to appeal the Preliminary Award, following which the arbitration continued to a final award. See I-NetLink Incorporated et al. v. Broadband Communications North Inc., 2014 MBCA 38.
In the November 13, 2015 final award (“Final Award”), the arbitrator issued the following dispositive:
“1. BCN is entitled to damages of $680,000 as compensation to remediate the foundations of the eighteen towers that remain standing;
2. BCN is awarded $80,000 towards the cost of reconstructing the towers and foundations at the five sites where the original towers have been dismantled subject to the rebuilding being completed by the end of 2016;
3. BCN is awarded party and party costs;
4. BCN’s claim against [CC] in his capacity as Construction Manager is denied;
5. BCN’s claims for punitive damages and solicitor client costs are denied;
6. The costs of the arbitrator are to be shared equally by I-Net and BCN”.
In response to the parties’ request for clarifications, the arbitrator issued a number of clarifications including the following:
“a) The $80,000 awarded towards the cost of constructing new towers and foundations was at each of the five sites such that the total amount available to BCN is $400,000 subject to three conditions being met:
(i) the reconstruction must meet or exceed the requirements specified in the SPC and site surveys;
(ii) BCN must produce evidence of the costs incurred for constructing new foundations and towers at each site;
(iii) all work must be completed by the end of 2016”.
Edmond J. opens his reasons with reference to his prevision decision Broadband Communications North Inc. v. I-Netlink Incorporated, 2017 MBQB 146 by which he granted leave to appeal on three (3) questions of law. See the earlier Arbitration Matters note, “Manitoba – court uses res judicata and abuse of procedure principles to pre-empt appeal of arbitral award – #011” In the decision, Edmond J. relied on the principle of res judicata and the control’s inherent powers to control for abuse of its procedure to deny three (3) grounds for leave to appeal application in . Mr. Justice James G. Edmond did allow a limited number of grounds to go forward as those few did qualify under Manitoba’s The Arbitration Act, CCSM, c A120. In Broadband Communications North Inc v. I-Netlink Incorporated, 2018 MBCA 24 , Mr. Justice William J. Burnett sitting in Chambers dismissed an application for leave to appeal that decision which itself had granted leave in part to appeal a final award. See the earlier Arbitration Mattes note, “Manitoba – Court of Appeal declines to grant leave to appeal if unnecessary – #072” Burnett J.’s brief reasons observe that leave is not granted when leave is unnecessary, jurisdiction only being raised if and when an appeal is filed.
At the onset of his reasons regarding the merits of the appeal, Edmond J. noted three (3) changes. First, Edmond J. noted that I-Netlink Incorporated had changed its name to 6901001 Manitoba Ltd. and that, for ease of reference and consistency, he would refer to as “I-Net”, granting a consent order to change the style of cause.
Second, I-Net and BCN advised Edmond J. that the question involving taxes had been resolved, leaving only two (2) questions, namely did the arbitrator err in law in: (i) failing to consider that I-Net bore the burden of proof to propose a method of remediation of the foundations based on the principle of mitigation; and, (ii) finding that BCN was required to complete the construction of the foundations as a prerequisite of payment?
Third, during oral argument and in its written submissions, BCN sought to argue two (2) further issues involving the doctrine of functus officio and procedural fairness. As a result, Edmond J. added another issue on the appeal, namely should BCN’s new grounds be added to the appeal as already authorized.
Standard of review – Edmond J. introduced his section on standard of review by identifying Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65 and Bell Canada v. Canada (Attorney General), 2019 SCC 66 as the “leading authority on the applicable standard of review”. Despite the mention of the second, companion case, Edmond J. restricted subsequent references to Vavilov.
Edmond J. set out the guidance Vavilov provides but noted that the parties disagreed on the applicable standard of review. Edmond J. referred to Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633 and Teal Cedar Products Ltd. v. British Columbia, 2017 SCC 32, [2017] 1 S.C.R. 688 as cases which “dealt specifically with appeals in commercial arbitration cases”. Those cases held that the standard of review is reasonableness.
I-Net and BCN disputed the role Vavilov played in the standard of review applicable to their commercial arbitration. I-Net argued that “if Vavilov had intended to overrule the decisions in Sattva and Teal Cedar Products, it would have done so in clear language”. I-Net referred to Ontario First Nations (2008) Limited Partnership v. Ontario Lottery and Gaming Corp., 2020 ONSC 1516 and Freedman v. Freedman Holdings Inc., 2020 ONSC 2692, arguing that the standard remained reasonableness. BCN referred to Buffalo Point First Nation et al. v. Cottage Owners Association, 2020 MBQB 20, Manitoba (Hydro-Electric Board) v. Manitoba (Public Utilities Board), 2020 MBCA 60 and Allstate Insurance Co. v. Ontario (Minister of Finance), 2020 ONSC 830, arguing that the standard of review is now correctness.
“[28] While I accept that there are conflicting decisions regarding the appropriate standard of review to be applied on judicial review in commercial arbitrations, in my view, following the Vavilov decision, the decision of the Court of Appeal in Manitoba (Hydro-Electric Board) and the decision of this court in Buffalo Point First Nation, this is a statutory appeal limited to a question of law and the correctness standard should therefore apply”.
Issue 1 – At para. 5(a) of his reasons, based on the arguments and analysis at paras 30-48, Edmond J. determined that neither of BCN’s two (2) new issues was considered or granted in the leave decision and BCN’s failure to seek leave with the time required pursuant to The Arbitration Act, CCSM c A120 “is fatal to BCN’s submission”. Edmond J. added that he was not satisfied that leave should be granted now “as BCN has failed to satisfy the test for granting leave to hear a new issue on appeal”. See also paras 32 and 35.
“[40] The failure to comply with the time requirements in the Act for seeking leave to appeal, coupled with the fact that there is a no reasonable prospect of BCN establishing a basis for the alleged functus officio submission do not justify a finding of exceptional circumstances to permit the court to entertain this new issue on appeal.
[41] The common law doctrine of functus officio exists to provide finality in legal proceedings. This dispute and the cause of action was commenced in 2011 with the preliminary award being issued on October 18, 2013. It is ironic that BCN, now seeks to raise functus officio for the first time over seven years after the preliminary award and over five years after the Award was issued”.
Issue 2 – At para. 5(b) of his reasons, based on the arguments at paras 49-53 and analysis at paras 54-66, Edmond J. determined that the arbitrator did not err in applying the burden of proof in relation to the principle of mitigation of damages and that ground of appeal is dismissed.
“[62] I have no doubt that the calculation and assessment of damages in this case was difficult. In my view, the arbitrator applied the law in assessing damages and followed the principles set forth in Penvidic Contracting Co. at pp. 279-80 and Vickar v. M.J. Roofing & Supply Ltd., 2016 MBCA 77, [2016] M.J. No. 228 (QL) at paras. 52 and 53, in doing the best that he could in the circumstances.
[63] I agree with I-Net’s submission that BCN has not raised an issue respecting mitigation. Rather, BCN has raised an issue regarding the arbitrator’s assessment of the reasonable cost necessary to remediate the foundations in order to put BCN in the same position it would have been had the breach not occurred. If I am wrong and the arbitrator’s finding involves the application of the principle of mitigation of damages, I am not satisfied the arbitrator misapplied the legal onus of proof in arriving at his assessment of damages”.
Issue 3 – At para. 5(c) of his reasons, based on the arguments at paras 67-71 and analysis at paras 72-100, Edmond J. determined that arbitrator erred in law in finding that BCN was required to complete the re-construction of the towers and foundations within a certain time period at the sites where they had been dismantled as a prerequisite to payment of that portion of the damage award and allowed the appeal on that question.
BCN argued that imposing conditions on the award of damages which involved reconstruction of certain towers constituted an error in law, citing Rebel Holdings Ltd. v. Division Scolaire Franco-Manitobaine, 2008 MBCA 65. I-Net argued that making an award conditional on a subsequent event was not a reviewable error. Acknowledging without disputing the principle in Rebel Holdings Ltd. v. Division Scolaire Franco-Manitobaine, I-Net submitted that the Final Award did not qualify as an award of periodic payment of damages rather that a “single, once-and-for-all lump sum”.
Edmond J. agreed with BCN.
“[79] In the Award it appears the arbitrator did consider whether BCN genuinely intended to reconstruct the five dismantled towers. However, he stated there was insufficient evidence to conclude with any degree of certainty whether the decisions to dismantle the towers was driven by concerns over safety or for commercial factors. Instead of taking that into account as a factor in assessing a lump sum damage award, he granted damages and imposed the above-noted three conditions on the damages awarded to BCN. In my view, the arbitrator erred in law in doing so”.
He reviewed the principles set out at paras 155-159 in Rebel Holdings Ltd. v. Division Scolaire Franco-Manitobaine, 2008 MBCA 65 and concluded that, on the record and the clarifications made by the arbitrator for the Final Award constituted an error. “Applying these principles, I am satisfied that the arbitrator erred in law by attaching conditions to the award of damages. As pointed out in the authorities, the common law system of assessing damages has always been as a single, once-and-for-all lump sum determined at the time of the trial”.
Edmond J. added a version of an alternative approach to the same issue of whether a party, subject to receiving an award of damages, might actually perform the work quantified in that award.
“[82] The arbitrator ought to have made his finding on the likelihood of BCN performing the restoration or re-construction and determined whether the damage claimed was reasonable. The likelihood of restoration or re-construction is a factor considered in assessing damages and the arbitrator erred when he imposed conditions on BCN in order to receive the damage award”.
Edmond J. at para. 83 noted sources in the record on which the arbitrator could have, but did not, make a specific finding regarding BCN’s intentions to dismantle the towers in question.
“[85] The arbitrator specifically found that I-Net breached the terms of the SPC and did not construct the foundations in accordance with the agreed specifications. Imposing conditions that BCN must satisfy to be compensated for the claim respecting the five towers and foundations is inconsistent with the general principle that a wronged plaintiff is entitled to be put in as good a position as the plaintiff would have been in if there had been proper performance of the contract by the defendant”.
He added, at para. 88 the following:
“Imposing conditions on an award of damages is inconsistent with legal principles of awarding damages noted above, including the finality of litigation. In addition, in my view, imposing the conditions created an unfairness to BCN, disentitling the aggrieved party to any compensation, when the imposed conditions were not met”.
Edmond J. concluded that imposing conditions were not in accordance with the principles of awarding damages in breach of contract cases. The options for the arbitrator were to either (i) award damages without conditions or (ii) require the parties to file additional evidence if the arbitrator determined the evidence was insufficient to grant the award of damages.
“Instead he granted a conditional award of damages. BCN’s failure to satisfy the conditions imposed resulted in BCN receiving no compensation respecting the five dismantled towers”.
As a result, despite acknowledging the deficiencies in the evidence regarding damages, Edmond J. concluded that “imposing conditions on a damage award amounts to an error in law”.
urbitral notes – First, I-Net referred to Ontario First Nations (2008) Limited Partnership v. Ontario Lottery and Gaming Corp., 2020 ONSC 1516. For the earlier Arbitration Matters note on that decision, see “Ontario – Vavilov does not overrule Teal Cedar or Sattva Capital – #302”.
In Ontario First Nations (2008) Limited Partnership v. Ontario Lottery And Gaming Corporation, 2020 ONSC 1516, Mr. Justice Glenn A. Hainey held that Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65 does not refer to either Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 (CanLII), [2014] 2 SCR 633 or Teal Cedar Products Ltd. v. British Columbia, 2017 SCC 32 (CanLII), [2017] 1 SCR 688 and that it is not reasonable to conclude that the Supreme Court meant to overrule its own decisions without making any reference to them or to the area of law to which they relate.
Second, BCN referred to Buffalo Point First Nation et al. v. Cottage Owners Association, 2020 MBQB 20, Manitoba (Hydro-Electric Board) v. Manitoba (Public Utilities Board), 2020 MBCA 60 and Allstate Insurance Co. v. Ontario (Minister of Finance), 2020 ONSC 830. For the earlier Arbitration Matters notes on those decisions, see:
In Cove Contracting Ltd v. Condominium Corporation No 012 5598 (Ravine Park), 2020 ABQB 106, Mr. Justice Grant S. Dunlop held that Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65 had not changed the standard of review for commercial arbitrations from reasonableness to correctness and denied leave to appeal. In Buffalo Point First Nation et al. v. Cottage Owners Association, 2020 MBQB 20, Mr. Justice Chris W. Martin held that Vavilov had changed the standard and granted leave to appeal. Dunlop J. postponed his hearing to give the parties the opportunity to argue the role of Vavilov. Martin J. issued his decision on leave to appeal without hearing from the parties but invited them to submit argument for the merits of the appeal.
In Allstate Insurance Company v. Her Majesty the Queen, 2020 ONSC 830, Madam Justice Breese Davies held that Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65 altered judicial intervention on appeals from insurance arbitration mandated by legislation. Davies J. held that legislation which includes a statutory appeal mechanism signals legislative intent that courts are to perform an appellate function in respect of the administrative decision and apply appellate standards of review. Davies J. distinguished between appeals of statutory arbitrations and private commercial arbitrations, the latter being seen as autonomous, self-contained process in which courts should “generally” not intervene.
Second, “Supreme Court – for those SCC justices willing to consider it, Vavilov applies to private commercial arbitration where legislation provides for appeal – #420” Canada’s Supreme Court in Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, 2021 SCC 7 offered to clarify a contracting party’s duty to exercise in good faith a discretion granted to it by contract and recognized in Bhasin v. Hrynew, 2014 SCC 71. In dismissing the appeal from Greater Vancouver Sewerage and Drainage District v. Wastech Services Ltd., 2019 BCCA 66, the Supreme Court upheld a decision in first instance to set aside a private, commercial arbitration award. The appeal presented an opportunity for the Supreme Court to consider the effect, if any, of Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65 on the standard of review principles applicable to appeals of commercial arbitration awards set out in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 and Teal Cedar Products Ltd. v. British Columbia, 2017 SCC 32.
Regarding that opportunity, six justices preferred to “leave [it] to another day” while the other three chose to embrace it, considering that to “leave this undecided is to invite conflict and confusion”. The six reasoned that they did not have the benefit of submissions on that question or the assistance of reasons on point from the courts below and that, in any event, the appeal’s outcome did not depend on identifying whether the proper standard of review was correctness or reasonableness.
Three justices acknowledged “important differences between commercial arbitration and administrative decision‑making” but declared that such differences do not affect the standard of review where legislation provides for a right of appeal. Drawing on Vavilov which explained that “a legislative choice to enact a statutory right of appeal signals an intention to ascribe an appellate role to reviewing courts”, the three held that Vavilov had “displaced” the reasoning in Sattva and Teal Cedar. “Concluding otherwise would undermine the coherence of Vavilov and the principles expressed therein”. The three limited the scope of their determination. “Our conclusion on this point is limited to the specific statutory provision at issue. In every case, the question is one of legislative intention, as reflected in the language of the statute”.
Independent of the above, the six justices also expressly agreed with B.C.’s Attorney General that, when granting leave to appeal, courts should “simply and precisely” state questions of law upon which they grant leave in order to prosecute appeals efficiently. The six observed that the “complicated formulation of the first question of law” made it difficult for the courts below to provide a direct and effective answer.
The impact of Vavilov urged by three of the justices has been advocated well before the February 5, 2021 release of Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, 2021 SCC 7. In their paper submitted to the Canadian Journal of Commercial Arbitration in December 2020 (currently under peer review), authors James Plotkin and Mark Mancini have already made a detailed argument in line with Brown and Rowe JJ’s opinion on the standard of review issue. Their paper takes the position that Vavilov’s underlying rationale on the appellate review standard ought to apply with full force to appeals from arbitral awards. They argue that, far from lying at odds with the principles underpinning arbitration law, applying the appellate standard of review is consistent with and in fact furthers respect for party autonomy. Digging deep into Canada’s common law provinces’ domestic arbitration legislation, the authors argue that the existing review framework is flawed and that Vavilov’s focus on legislative intent (coupled with party autonomy) is the way forward.