N.W.T. – parties do not create standard form contract when their lawyers do not “reinvent the wheel” – #240

Mr. Justice Andrew M. Mahar in Northland Utilities (NWT) Ltd. v. Town of Hay River, 2019 NWTSC 31 remarked that parties do not hire lawyers to “reinvent the wheel” each time they engage in commercial activity and, in doing so, do not thereby make their contract a standard form contract.  Despite omitting to characterize the issues as questions of law, mixed fact and law or fact and despite holding that the standard of review was reasonableness, Mahar J. did determine that the arbitrator’s analyses were not only reasonable but correct. 

Northland Utilities (NWT) Limited (“NUL”) signed a November 30, 2006 franchise agreement with The Town of Hay River (“Hay River”) to produce, distribute, supply and sell electricity within Hay River (“Franchise Agreement”).  For more on franchise agreements with public utilities, see section 37 and following of NWT’s Public Utilities Act, RSNWT 1988, c 24 (Supp)

Both the Franchise Agreement and the Northwest Territories’ legislation governing Hay River as a municipality provided for arbitration for disputes involving franchise agreements.  In particular, section 91(5) of the Cities, Towns and Villages Act, SNWT 2003, c 22, Sch B stipulates that, in upon expiration of a public utility franchise agreement, disputes over certain post-termination consequences will be determined by a sole arbitrator under the Arbitration Act, RSNWT 1988, c A-5.

95(5) If a public utility franchise is not renewed, a expiration of municipal corporation may, with the approval of the franchise Minister, purchase any or all of the rights under the franchise and any or all property used in connection with the franchise on terms agreed upon by the parties or, failing agreement, on terms determined by a sole arbitrator under the Arbitration Act.

When the Franchise Agreement expired November 30, 2016, Hay River and NUL could not agree on terms and they undertook arbitration.  The arbitrator issued a partial final award on February 16, 2018 (“Award”).  Dissatisfied with the result, NUL appealed.

The Franchise Agreement allowed for appeals on questions of law, mixed fact and law and fact.  Despite the availability of an appeal on a question of law, Mahar J. determined that the applicable standard of review was reasonableness. “While this does away with the need for the appealing party to establish threshold jurisdiction by way of a leave application, I can see no way in which it shifts the standard of review from reasonableness to correctness.” 

Mahar J.’s  and the submissions of the parties were implicit as the reasons also do not refer to or discuss the court’s or the parties’ application of NWT’s Arbitration Act, RSNWT 1988, c A-5 or cases such as Sattva Capital Corp. v. Creston Moly Corp., [2014] 2 SCR 633, 2014 SCC 53 or Teal Cedar Products Ltd. v. British Columbia, [2017] 1 SCR 688, 2017 SCC 32. The reasons (i) provide no authority to support setting aside a standard of correctness for an appeal on a question of law and (ii) omit to qualify the grounds of appeal as questions of law, questions of mixed fact and law or questions of fact. 

Whether Mahar J. applied the appropriate standard of review did not, in the result, affect the outcome as Mahar J. stated seven (7) times, at paras 12, 14, 18, 20, 22, 25 and 26, that the arbitrator’s analyses were correct.  Even if the issues raised questions of law, Mahar J. expressly stated that the arbitrator’s analyses on the issues were both reasonable and correct.

[12] On this issue, the decision by the Arbitrator to determine a value for the franchise assets that was fair to both parties, was not only reasonable and absent legal error, it was entirely correct.

[14] The Arbitrator did not fail to consider the rights of the buyer, mischaracterize the sale or improperly apply a valuation methodology.  On this issue the decision is both reasonable and correct.

[18] I find the Arbitrator’s analysis on this issue both reasonable and correct.

[20] I find the Arbitrator’s analysis on this issue both reasonable and correct.

[22] There is no indication that the Arbitrator failed to take into account the entirety of the Franchise Agreement.  What he did was disagree with the Appellant’s submissions.  Not only is this an entirely proper exercise of the Arbitrator’s function as a decision maker, but the decision he made makes abundant sense and is both reasonable and correct.

[25] The decision of the Arbitrator on this issue is obviously one that can be reasonably supported.  Given my decision on the standard of review I do not need to decide if it is also correct, though it certainly appears to be”

“[26] The Arbitrator fairly considered the arguments put forth by the Appellant and the decisions he made were reasonable and not incorrect on any point of law.

Mahar J. discerned that NUL’s appeal required him to consider different arguments in favour of the standard of review being correctness.  First, whether the appeal raised extricable questions of law.  Second, whether the similarity of the Franchise Agreement with other contracts make it a standard form contract thereby attracting a standard of correctness. 

NUL submitted that Mahar J. should follow the approach in Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., [2016] 2 SCR 23, 2016 SCC 37 and consider the Franchise Agreement as a standard form contract.  Mahar J. dismissed this argument.

I find no merit in this argument.  There is no reasonable way that a multi-million dollar commercial contract between a utility and a municipal entity can be seen as falling within the confines of the sort of “take it or leave it” contracts that concerned the Court in Ledcor.  This was not a residential mortgage or a car lease.  The fact that there are many similar contracts is hardly surprising.  What would be surprising, given the similarity of concerns and fact patterns behind contracts of this sort, is if they were radically different.  Parties do not pay lawyers to reinvent the wheel every time they engage in commercial transactions.  That does not make the resulting contracts “standard form”.

Mahar J. grouped NUL’s grounds of appeal under a “central issue driving this appeal” which he summed up as “the valuation methodology used by the arbitrator in valuing the franchise assets to arrive at a purchase price by Hay River on termination of the franchise”.  This central issue covered seven (7) grounds which Mahar J. dealt with individually at paras 14-25.

At para. 9, Mahar J. reproduced several passages illustrating the arbitrator’s analysis of the valuation issue, citing no less than 16 passages from the Award.  The arbitrator identified the variety of valuation options referred to in the authorities: salvage value, book value or rate base value, fair market value, valuation determined by capitalization of earnings (“CE”) and replacement cost new minus depreciation (“RCN-D”).  Hay River preferred CE.  NUL preferred RCN-D.

In his own analysis, Mahar J. did remark that NUL seemed to take a “diametrically different position” in the appeal than it had in the arbitration.  In the latter, NUL had stated that it did not assert that the Franchise Agreement or applicable legislation bound the arbitrator to apply RCN-D.  NUL did, though, appear to nuance its submission in appeal, arguing that case law applied RCN-D and pointed to that application as precedent.

NUL’s argued that not following RCN-D amounted to an extricable error of law reversible on a standard of correctness or was, in the alternative, unreasonable given “the weight of precedent”.

Mahar J. disagreed that the case law established a precedent, binding on the arbitrator, to apply RCN-D as a valuation method in priority to others.  Rather, Mahar J. determined that “[t]here is no one, acceptable approach to determining such a price” adding that “[t]here is instead a broad obligation to treat the Parties fairly and equitably according to the particular circumstances of each case”.

Mahar J. addressed each ground of appeal in turn, dismissing each.  In some instances, he held that NUL’s argument was “a clear misinterpretation of the reasoning of the Arbitrator” and that the latter “was pointing out the obvious” or, in other cases, having summed up NUL’s argument, responded that “I fail to see the logic in this argument”.

urbitral note – Mahar J.’s brief analysis on what type of contract qualifies as a standard form contract refreshes and can be cited in other cases.  Mahar J. observed that, just because lawyers do not re-invent contracts each time their clients undertake commercial activity does not, in itself, make the contract a standard form contract.  Mahar J.’s observation offers a counterweight to arguments targeting the lack of changes brought by the parties to a contract.  The amount of lawyering does not necessarily convert a contract into a standard form.

Despite choosing not to identify the nature of each issue as either a question of law, mixed fact and law or fact, and despite asserting that, in any case, the standard of review was reasonableness, Mahar J. did determine that the arbitrator’s analyses met both the standard of reasonableness and the standard of correctness.  If challenged on appeal for having applied the wrong standard, Mahar J.’s reasons do hold that the Award met the higher standard of correctness.