Manitoba – litigants lack a dispute to justify one arbitration and an agreement to justify another arbitration – #039

Manitoba’s Court of Queen’s Bench in I.XL Properties Ltd. v. Springs of Living Water Centre Inc. et al, 2017 MBQB 30 demonstrated two (2) limits of a court’s intervention in consensual arbitration when handling two (2) separate disagreements involving three parties.  For the first disagreement, involving two (2) litigants bound by an arbitration agreement, Mr. Justice Robert A. Dewar declined to order them to arbitration because they had not yet reached a dispute.  For the second disagreement, involving another pair of litigants who did have a dispute but no arbitration agreement,  Dewar J. sent them to trial but offered to order them to arbitration if only they would consent.    

In doing so, Dewar J. implicitly anticipated benefits to those with a dispute to go to arbitration instead of court but expressly noted the limits on his authority to order them to access those benefits.  Despite recognizing the benefits of arbitration, Dewar J. was unwilling to order parties to undertake that dispute resolution process without a genuine dispute to resolve. The result reflects that the parties bound by arbitration agreements need not be sent to arbitration unless and until they have a dispute while others with a dispute cannot be ordered to arbitration unless and until they have consented to it.  

 I.XL Properties Ltd. (“IXL”) and Springs of Living Water Centre Inc. (“Springs Church”) occupy land adjacent to each other in City of Winnipeg (the “City”).  Two disagreements arose, one regarding a wastewater sewer line and another regarding access rights.  The manner in which the court dealt with the both disagreements should be of interest to commercial arbitration practitioners given the comments made by Dewar J. 

Springs Church acquired its land in 1998, after IXL had, and intended to develop its land in three stages.  The first phase would involve the construction of a building to house a sanctuary, church offices and an elementary school followed by two further phases involving the construction of a high school and a second sanctuary.  Springs Church’s development plans required that the land be rezoned from an industrial use designation to a parks and recreation designation.

Springs Church filed a development application for rezoning triggering a series of municipal reviews by different committees within the City administration.  In concert with the City passing a bylaw authorizing the new zoning, Springs Church and the City signed an October 20, 1998 Services Agreement.  The terms of the Services Agreement imposed an obligation on Springs Church to construct a wastewater sewer but only once it commenced the second phase of its development plan.  That Services Agreement contained an arbitration clause.  

[11Springs Church then commenced its development. However, contrary to what appears to have been forecasted, to date it has only completed the first phase of its development, and has no plans to proceed further to the next phases in the foreseeable future. The wastewater sewer contemplated in Clause 7 has never been built. At the time of the rezoning, the church’s estimated time horizon for all phases of the development was five to 10 years. 

 IXL began experiencing difficulties in 2010 with the discharge of sewage from its land.  The configuration of its sewage system has sewage from IXL’s land flowing through pipes which join up with the Springs Church’s sewage pipes, apparently preventing IXL’s sewage from flowing in an efficient way into the City system.  The problem requires IXL to pay a pumping service company $1,000.00 to $1,400.00 per month to pump out the sewage from a holding tank installed on IXL’s land. Each party disputes what is the better solution and its costs. 

[14]        Evidence filed by Springs Church in the form of an affidavit from an experienced contractor in the business of repair and installation of sewers, indicates that the cost to the church of constructing the gravity wastewater sewer contemplated in Clause 7 is in excess of $250,000. Springs Church posits that the problem with I.XL’s sewage issue arises between I.XL’s holding tank and the junction of its line with the sewage line from 725 Lagimodiere Boulevard. The contractor retained by Springs Church deposes that the cost of fixing a problem in that area would cost approximately $24,000, plus GST. 

[15]        I.XL believes that the solution to its sewage discharge problem would be the construction of the gravity wastewater sewer which was contemplated in the recommendations of the Riel Community Committee and the Standing Policy Committee on Property and Development which appear to have been accepted by City Council when it passed the bylaw to amend the zoning of the Development Property. I.XL therefore requests this court to order a mandatory injunction requiring Springs Church to construct the proposed wastewater sewer, or in the alternative, an order of mandamus against the City requiring it to compel Springs Church to construct the wastewater sewer. 

As indicated in the excerpt above, IXL applied to the Manitoba Court of Queen’s Bench for injunctive relief.  

Dewar J. reviewed the chronology of the facts leading up to the rezoning and the wording in the Services Agreement.  He identified competing interpretations of Springs Church’s obligations and the timing of when it would have to commence construction of the wastewater sewer.  Though aware of the choices, Dewar J. declined to adopt one over the other because there was no obligation for Springs Church to do anything at the present time.  As a result of there being no current obligation to do anything, Dewar J. dismissed IXL’s application for an injunction.  He would not order Springs Church to build the wastewater sewer and would not order the City to build that sewer. Springs Church had not yet embarked on the next phase and the City had not yet insisted it do so.  There was no obligation and no dispute.   

He did mention that, had there been a dispute between the City and Springs Church, he would have referred them to arbitration.  In the absence of a current obligation, there was no dispute and no purpose or authority to refer the City and Springs Church to arbitration.  

[36] Suffice it to say that I need not choose one interpretation over the other since in either case, there is no current obligation on Springs Church to construct the wastewater sewer. It has not commenced Phase 2 of its proposed development, nor is there any evidence before me that the Director of Water and Waste has required the wastewater sewer’s construction. Under both interpretations, there is no obligation on Springs Church to build the wastewater sewer at this time. 

[37] I am reluctant to decide which is the better interpretation in the circumstances of this case. The City supported the position of Springs Church in this motion, but the notion that Springs Church has a perpetual veto over the construction of the wastewater sewer unless it builds Phase 2 is somewhat inconsistent with the notion that construction of the wastewater sewer was a price to be paid in exchange for the rezoning. Using the interpretation of Springs Church, it is a price that may never be paid. That said, since there is no current dispute between the City and Springs Church about the meaning of Clause 9 of the Servicing Agreement, I need not address which interpretation is preferable. Furthermore, the Servicing Agreement contains an arbitration clause which suggests that if there was a dispute between the City and Springs Church, it should be placed before an arbitrator. 

 The second disagreement dealt with access to IXL’s and Springs Church’s lands affected by barriers erected by Springs Church to limit heavy trucks passing on its land in order to service IXL’s operations.  Dewar J. examined the disagreement, characterized in the reasons as an “ingress/egress disagreement“, and determined that there were obligations owing by Springs Church to IXL but that the evidentiary record was insufficient for him to make a determination.  He therefore ordered IXL and Springs Church to proceed to trial on discrete issues he listed, identifying IXL as Plaintiff and Springs Church as Defendant and reminding them of the court rules and anticipated procedural steps associated with a trial.   

His comments are best provided in their entirety so as to appreciate the court’s willingness to facilitate a solution, provided the parties opted in.  

[48In regards to issue c), I view it as established that I.XL is entitled to some ingress/egress arrangement. The question for the court under such circumstances is the extent of the right of access and on what conditions. 

[49] In directing the trial of these issues, I.XL shall be the plaintiff and Springs Church shall be the defendant. The proceeding shall be commenced by statement of claim, claiming at least a declaration as to the access to which I.XL is entitled, followed by a statement of defence. The rules of court respecting discovery of documents, examinations for discovery, as well as other pre-trial rules are applicable. 

[50I would anticipate that in the event that issue c) is applicable, both sides would present to the presiding judge their respective proposals for reasonable ingress/egress along with the costs of construction. 

[51The statement of claim shall be commenced within 30 days of the signing of the order which evidences this decision, or within 30 days after any applicable appeals, whichever last occurs. 

[52I am quite prepared to vary the terms of this order to reflect placing the matter before an arbitrator, if both Springs Church and I.XL consent to that approach. In my view, absent any ingress/egress agreement between Springs Church and the prior owner, the most practical procedure would be to submit the terms of access to a single arbitrator, but I cannot order that without the consent of the parties. 

In addition to confirming that the court will not refer Springs Church and the City to arbitration in a vacuum, the case is also of interest to commercial arbitration practitioners because Dewar J. volunteered to order IXL and Springs Church to arbitration instead of trial but required their consent.   

There is no mention of IXL being a party to the Services Agreement signed by the City and Springs Church.  There is also no summary in the reasons of any submissions by the parties of the need or obligation for IXL and Springs Church to go to arbitration.  Rather, the judge appears to see the benefit of arbitration over court litigation at the moment he orders the parties to proceed to trial on the second disagreement and sets out the bare procedure to get to that trial.