Manitoba – no meeting of minds to arbitrate due to unsuccessful attempts to access online contractual schedules – #477

In Razar Contracting Services Ltd v. Evoqua Water, 2021 MBQB 69, Mr. Justice David Kroft dismissed an application to stay in favour of arbitration, holding that (i) a bidder’s inability to access an online link to other documents containing an agreement to arbitrate and (ii) absent evidence that such agreement had been brought to the bidder’s attention demonstrated “no meeting of the minds in respective of the agreement to arbitrate”. Kroft J. held he had jurisdiction to determine whether the facts established an agreement to arbitrate within the meaning of article 7(2) of the UNCITRAL Model Law on International Commercial Arbitration (1985).  He concluded that “the evidence, viewed objectively, does not establish, on a balance of probabilities, the three elements required for a binding contract:  intention to contract; settlement of essential terms; and, sufficiently certain terms”.

Simplot Canada (II) Limited (“Simplot”) retained Evoqua Water Technologies Canada Ltd. (“Evoqua”) on June 30, 2018 as contractor for a project involving expansion of a potato processing plant (“Project”).  Evoqua retained Razar Contracting Services Ltd (“Razar”) as subcontractor following a formal bid process.

Evoqua’s bid process involved the successful bidder’s agreement to be bound by a subcontract agreement, including what Kroft J. styled as “special conditions”. Kroft J. noted that the subcontract agreement and the special conditions “were attached to the bid documents”.

On March 28, 2019, upon acceptance of Razar’s bid, Evoqua issued a two‑page purchase order itemizing the first portion of the work to be done by Razar valued at $2,074,867.  Subsequently, Evoqua issued several other purchase orders (in identical form) itemizing work totalling an aggregate of $2,929,330.90.  At the bottom of page one of the purchase order was the statement, “Unless otherwise agreed to in writing by Evoqua Water Technologies LLC Terms and Conditions of Purchase apply to this purchase order.  These Terms and Conditions of Purchase can be located at the following website:“.

Kroft J. noted that each of Evoqua and Razar produced an affidavit in support of the application for stay and referral to arbitration.  He also noted that neither affiant was cross-examined.

Razar’s affiant attested that he attempted unsuccessfully to access Evoqua’s website and, in anticipation of the subcontract agreement, elected to wait for that document.  Evoqua and Razar did not execute a subcontract agreement.

Kroft J. observed that, had Razar’s affiant succeeded in accessing Evoqua’s website, a webpage, annexed to Kroft J.’s reasons, would have appeared.  That webpage, comprising “Terms and Conditions for the Purchase of Goods and Services” included a document specific to Canada and the following agreement to arbitrate.

If the parties are unable to resolve the dispute through mediation, then any dispute, claim or controversy arising out of or relating to this Agreement or the breach, termination, enforcement, interpretation or validity thereof, including the determination of the scope or applicability of this agreement to arbitrate, shall be determined by arbitration in Pittsburgh, Pennsylvania before three arbitrators who are lawyers experienced in the discipline that is the subject of the dispute and shall be jointly selected by Seller and EWT.  The arbitration shall be administered by JAMS pursuant to its Comprehensive Arbitration Rules and Procedures.  The Arbitrators shall issue a reasoned decision of a majority of the arbitrators, which shall be the decision of the panel”.

Disputing unpaid amounts and delay costs, Razar registered a lien against the Project which Evoqua vacated in exchange for a posted bond.  Evoqua filed a September 2, 20201 demand for arbitration with JAMS to recover costs and expenses it alleged it incurred due to Razar’s breaches of contract.  Razar filed a September 18, 2020 court action in Manitoba’s Court of Queen’s Bench.

Before summarizing the parties’ respective positions, Kroft J. closed his summation of the facts by noting that “[a]t no time prior to the dispute arising was the arbitration clause brought to Razar’s attention by Evoqua”.

Issues identified – Kroft J. identified two (2) issues raised by the parties and the application for a stay:

(a) does the court have jurisdiction to hear this motion, and

(b) if it does, is there a clear agreement between the parties to submit the dispute to arbitration in Pittsburgh, Pennsylvania.

Which arbitration legislation – Kroft J. confirmed that, despite Evoqua’s reliance on The Arbitration Act, CCSM c A120, in its written submissions, Evoqua rightly switched in its oral argument to application of The International Commercial Arbitration Act, CCSM c C151 (“ICAA”).  Evoqua submitted that, under either, the issues and result were the same: the court had no jurisdiction to hear the motion to stay and, if it did, the parties had agreed to engage in arbitration in Pittsburgh.  Razar agreed with the ICAA’s application and submitted that Kroft J. had jurisdiction to hear the application to stay but that, under the ICAA, the parties had reached no agreement to arbitrate.

Kroft J. referred to and reproduced articles 1, 7 and 8 of the Model Law on International Commercial Arbitration, adopted by the United Nations Commission on International Trade Law on June 21, 1985 (“Model Law”) reproduced as Schedule B to the ICAA.  Kroft J. stated that, because Evoqua asserted that the parties agreed to arbitration in Pittsburgh, the ICAA applied, referring to Cangene Corp. v. Octapharma AG, 2000 MBQB 111.

Jurisdiction to decide the application to stay – At paras 21-29, Kroft J. considered the parties’ competing positions regarding his jurisdiction to hear the application to stay. 

Both Evoqua and Razar relied on H & H Marine Engine Service Ltd. v. Volvo Penta of the Americas, Inc., 2009 BCSC 1389 to support their respective positions as to whether Kroft J. had jurisdiction to hear the application to stay.  In that decision, the court referred to Dell Computer Corp. v. Union des consommateurs, 2007 SCC 34 (CanLII), [2007] 2 SCR 801 paras 84-86 which Evoqua argued justified application of the competence-competence principle and required Kroft J. “to defer to the jurisdiction of the arbitrator in Pittsburgh, Pennsylvania”.

Razar disagreed, distinguishing H & H Marine Engine Service Ltd. v Volvo Penta of the Americas, Inc. on a number of grounds, set out by Kroft J. at para. 27 of his reasons.

– The Supreme Court of Canada’s analysis in Dell Computer Corp. is rooted in a particular legal context.  The governing legal framework was the Quebec Civil Code, which specifically incorporates the deference principle (competence/competence).

– Although a high degree of deference to the arbitrator’s authority is appropriate for the reasons identified in Dell Computer Corp., in some legal contexts, the Dell Computer Corp. rule may not apply.

– Volvo failed to tender into evidence the rules of the Arbitration Institute of the Stockholm Chamber of Commerce, which had a bearing on the decision before the Court.

– In the absence of an evidentiary or statutory basis for application of the competence/competence principle, the Court should determine whether an arbitration agreement exists before Article 8 of the International Law can be invoked”.

At para. 29, Kroft J. addressed the authority relied on by both Evoqua and Razar and agreed with Razar. In doing so, he stressed that he was making “a legal conclusion, not material findings of fact”.

[29] As in H & H Marine, the defendants have tendered no evidence pertaining to JAMS’ rules, establishing the competence/competence principle would in fact apply to a panel in Pittsburgh, Pennsylvania.  Moreover, in this case, the facts material to the decision of whether an arbitration agreement exists or not are not contested.  In other words, I am being asked to make a legal conclusion, not material findings of facts.  Even if Dell Computer Corp. applies, the circumstances in this case are such that this Court can and does assume jurisdiction to decide the question of whether an arbitration agreement exists”.

Existence of valid and binding agreement to arbitrate – At paras 30-33, Kroft J. listed and evaluated the impact of the facts and the conclusions he could draw from them in light of the ICAA.  Before doing so, he paused to reiterate the terms of article 7(2) of the Model Law.

7(2) The arbitration agreement shall be in writing.  An agreement is in writing if it is contained in a document signed by the parties or in an exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement, or in an exchange of statements of claim and defence in which the existence of an agreement is alleged by one party and not denied by another.  The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement provided that the contract is in writing and the reference is such as to make that clause part of the contract”.

Evoqua focused on Razar’s reference to purchases orders as the “Agreement” when Razar drafted its Statement of Claim.  Evoqua argued that, in doing so, Razar essentially admitted each of the terms and conditions which Razar “might have come across had [Razar’s affiant] been more diligent in attempting to access the website noted at the bottom of page one of the purchase orders”.

[32] In the specific context of Article 7(2) of the International Law, the defendants submit the arbitration agreement was in writing in the sense that the issuing of the purchase order formed part of communications recording an agreement or, alternatively, the purchase order is an example of a “reference in a contract to a document containing an arbitration clause . . . and the reference is such as to make that clause part of the contract“.

(Note: Kroft J. refers to defendants as Razar named Evoqua and its insurer as defendants.)

Kroft J. agreed with Razar that, on the facts and in light of the ICAA, the parties had not entered into an enforceable agreement to arbitrate within the meaning of article 7 of the Model Law.  Kroft J. readily dismissed Evoqua’s reliance on Razar’s use of “Agreement” in its Statement of Claim, limiting Razar’s use to “drafting purposes” and remarking that Evoqua’s argument was unsupported by any law or pleading rule.

In addition to that observation, Kroft J. relied on a number of elements to hold that there “was no meeting of the minds in respect of the agreement to arbitrate”, including the following:

– In respect of the International Law, Article 7 specifically defines what constitutes an arbitration agreement.  When the words of that statute are read in their grammatical and ordinary sense, harmoniously with the objects of the statute, it is clear to me there must be “an exchange” of documents where both parties signify their agreement to refer matters to arbitration.  It is not to be left to happenstance.  More than what occurred in this case is required.  I agree with Razar that the importance of both sides clearly consenting to an arbitration agreement is supported by the Report of the United Nations Commission on International Trade Law referenced in section 12(2) of the ICAA.

– I also agree that the reference in Evoqua’s purchase order to a website showing multiple categories of terms and conditions with no real guidance does not amount to a written arbitration agreement as contemplated by Article 7 of the International Law.  The evidence does not support an understanding by Razar that it would be bound by the terms and conditions found on Evoqua’s website.

– Turning from the ICAA to the common law, the evidence, viewed objectively, does not establish, on a balance of probabilities, the three elements required for a binding contract:  intention to contract; settlement of essential terms; and, sufficiently certain terms.  See Matic et al v Waldner et al, 2016 MBCA 60 (CanLII) at paras. 55–64; Agropur MSI, LLC v. The Winning Combination Inc., 2020 MBQB 188 (CanLII) at para. 18”.

Kroft J. explained that, to conclude as he did, he reiterated his earlier observations including the unchallenged fact that Razar’s affiant did not see the terms and conditions upon which Evoqua now relied and that Evoqua adduced no evidence that it brought those terms and conditions to the attention of Razar.  Based on the above, Kroft J. concluded that “[t]here is no valid and binding arbitration agreement between Razar and Evoqua”.

urbitral notes – First, for a recent approach to the same legislative wording and the formation of an agreement to arbitrate, see the earlier Arbitration Matters note “Saskatchewan – ‘only logical to modernize’ New York Convention ‘agreement in writing’ to include text/ e-mail exchange – #437” regarding .Parrish & Heimbecker Ltd. v. TSM Winny AG Ltd., 2020 SKQB 348.

Mr. Justice Richard W. Elson held that the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958) mention of an “agreement in writing” in the definition of an agreement to arbitration was “inclusive” and imposed no formal requirement that an “agreement in writing” needed to be signed. “Given the absence of text and email messages in 1958, when the New York Convention was created, I think it only logical for the Court to modernize these words and find that the reference to “telegrams” should include other similar forms of electronic communication, such as facsimile, text and email messages”.