New Brunswick – Arbitration award not trigger for discoverability of related claim– #764

In Architecture 2000 Inc. v. Moncton, 2023 NBCA 50,  a unanimous Court of Appeal summarily dismissed civil claims of breach of contract and negligence in the design and management of a building addition. While the appeal turned on New Brunswick’s limitations legislation, claims made in an earlier arbitration from the same construction project were crucial to this outcome, as explained below. The decision exemplifies problems that can arise in a dispute in which there are multiple contracts at issue, when some players are parties to some contracts but not others, and when an arbitration agreement covers only some of the disputes between the various contracting players.

Background – The City of Moncton (“Moncton”) entered a contract (the “Consulting Contract”) with Architecture 2000 Inc. to design and manage the construction of a museum addition (the “Project”). Architecture 2000 Inc. was subsequently acquired by Stantec Architecture Ltd. (together referred to as “the Consultant”). In August 2012, the Consultant certified the foundation and structural steel works as complete. 

Thereafter, Moncton and Dora Construction Limited (“Dora”) entered into a stipulated price contract (the “Construction  Contract”) for a further phase of the Project, including installation of glass and a skylight. The Construction Contract provided that if delay was caused by an act or omission of the Consultant, a non-party to the Construction Contract, Dora could only recover from Moncton. 

In July 2014, Dora sued Moncton, faulting the Consultant for additional costs and delay caused by  faulty steel, which was misaligned and deviated from the intended design. Moncton did not join the Consultant as a third party in the litigation. The Construction Contract included an arbitration agreement, and the litigation was stayed. 

Dora proceeded to arbitrate its claims against Moncton, again blaming the Consultant for the steel deficiencies. Moncton did not seek Dora’s agreement that the Consultant join the arbitration. To the contrary, Moncton confirmed to the Consultant that it would not be joined as a party. The Consultant’s principal was the only witness to testify on behalf of Moncton during a one-week hearing in late 2015. 

The arbitrator awarded Dora $800,000 in damages against Moncton for breach of contract, costs, and arbitration fees in a March 2016 award. He found the Consultant had mishandled the review of steel drawings and failed to properly deal with the misaligned steel when the problem became known. 

In December 2016, Moncton sued the Consultant, seeking contribution for damages in the amount Moncton was required to pay Dora by the arbitral award.  Moncton also claimed from the Consultant an additional $300,000 of expenses incurred in a further phase of the Project.

The Consultant moved for summary dismissal of the action on the basis of prescription pursuant to the Limitation of Actions Act, SNB 2009, c L-8.5 (“Limitation Act”). 

The Consultant maintained that a two-year prescription period began to run when Moncton knew or ought reasonably to have known the Consultant may be liable. According to the Consultant, Moncton knew well before Dora commenced litigation in July 2014 that Dora faulted the Consultant. According to the Consultant, there was no basis in law for applying the doctrine of contribution and Moncton’s December 2016 civil action was commenced out of time. 

King’s Bench decision – In Moncton v. Stantec et al., 2022 NBKB 185, the Court, reviewed the general two-year limitation and contribution provisions of the Limitation Act and rejected the Consultant’s’ argument that Moncton’s claim was time-barred:

“[50] …  Had Moncton not been made liable by the arbitrator, there would have been no claim made against [the Consultant] as Moncton relied on and adopted [the Consultant’s] position based on the representations made during the construction, denying Dora’s claims.”  

The Court ruled that the December 2016 civil action against the Consultant was commenced within the two-year limitation period, because Moncton’s liability to Dora was not known until the March 2016 arbitration award had been rendered.  The Court concluded Moncton had a claim in contribution against the Consultant. 

Court of Appeal decision – The Court of Appeal overturned the summary judgment and dismissed Moncton’s claim against the Consultant on the basis that the lower Court had made of errors of law on the limitation period issue because it had not correctly identified the nature of Moncton’s claim against the Consultant:

“[24]  The decision contains no analysis in support of the motion judge’s conclusion that the claim was properly one for contribution and indemnity. He…assumes the claim Dora advanced against Moncton in its action and eventual arbitration is the same as the claim Moncton now purports to advance against [the Consultant] because the quantum of damages is the same. …With respect, as I discuss below, that is an error of law.

[25]   [T]he judge wrote that if the arbitrator had not found Moncton liable, there would be no claim against [the Consultant]. First, that assumes Moncton could not have a distinct cause of action against [the Consultant] regardless of the outcome of Dora’s claim against it. There is no basis in law for such an assumption. Second, the judge’s statement assumes the arbitrator’s decision established the legal foundation for a claim in contribution or indemnity against [the Consultant], notwithstanding it was not a party to the arbitration. Again, that is an error of law.

The Court reviewed the elements for contribution:

“[31] … 

(1) the claimant [Moncton] and defendant [the Consultant] are both liable to a third party [Dora];

(2) the third party [Dora] is forbidden from having full recovery from both of them;

(3) but the third party [Dora] can choose to recover in full from either of them; and

(4) some or all of the burden of paying the third party [Dora] should ultimately be borne by the defendant [the Consultant].” [Emphasis in original]

The Court found none of these elements were present. The Court viewed that the evidence established the opposite:

“[36]  Moncton breached the phase 2 contract with Dora by not paying it amounts properly owed for its additional work under that contract in relation to the misaligned steel. That was the damage Dora suffered from that breach. [The Consultant] was not a party to that contract and had no duty to make any payments to Dora. It could never have been liable to Dora for the damage claimed against Moncton. What Moncton claims in the underlying action is not damages, by way of contribution or indemnity, arising from its breach of the phase 2 contract with Dora but, rather, the difference between what Moncton paid to have the Project completed and what it would have cost but for the negligence or breach of the Consulting Agreement by [the Consultant]. [The Consultant] has no common liability with Moncton toward Dora and the nature of the damage claimed by Moncton against [the Consultant] is completely different than the basis for the damage which arose from Moncton’s breach of the phase 2 contract with Dora. There was no recognition by the motion judge of the requirement for common liability for the same damage in order for a claim for contribution to arise.”

Having rejected the lower Court’s conclusion that Moncton had a claim in contribution against the Consultant, the Court of Appeal applied the general two-year discoverability rule:

“[40]  …Moncton had all the knowledge it needed from which it could draw a plausible inference of liability against [the Consultant] as early as October 30, 2012, when it learned the steel was misaligned and certainly no later than July 15, 2014, when Dora presented to Moncton its comprehensive claim….”

Moncton had an additional claim against the Consultant for expenses in a further phase of the Project, unrelated to Dora’s arbitration against Moncton. Again, the Court of Appeal dismissed this claim, as it was brought outside the two-year limitation period.

Contributor’s Notes: 

As stated above, this decision exemplifies a problem that can arise in a dispute in which some, but not all, claims and parties are covered by an arbitration agreement. Careful analysis of the facts and possible claims need to be made at the outset to determine which claims should be made, against whom, and within what applicable limitation period. This is similar to the analysis litigation defence counsel makes in initiating a third-party claim. The variation here is the additional element of the arbitration agreement, which directs some disputes into a forum other than court. 

As this decision shows, when arbitration claims potentially implicate others not party to the arbitration, it is not safe to presume the eventual arbitration award will trigger the limitation period for all claims.  Whether this is so will always require careful consideration of the facts, the claims made in arbitration, other claims that could be made, the arbitrating parties, and additional potential parties. 

The Court of Appeal implicitly suggested a way Moncton might have avoided the limitation problem in this instance: adding the Consultant as a party to the arbitration. That would have worked―but only if Dora and the Consultant had been asked and agreed. 

Alternatively, two processes may be needed: arbitration and litigation for non-arbitration claims against additional parties.  But the fundamental issue remains the claims analysis. 

A further, quite common problem in disputes covered by arbitration agreements is that parties may have forgotten the arbitration agreement exists when the dispute arises. Or elect to forget. Did that occur here?  It is uncertain. 

It is apparent that Dora commenced civil litigation before proceeding with claims in arbitration with respect to a contract that contained an arbitration agreement.  If Moncton had acceded to litigation, there would have been no arbitration and it might have joined the Consultant in a third-party claim. However, the decisions below tell little about the stay of litigation. 

Given that Moncton initiated litigation against the Consultant, it is assumed there was no arbitration agreement in the Consulting Contract.  This is likely, though again not certain.

What is clear is that court and arbitration process were both engaged in the dispute between Dora and Moncton. As such, there were opportunities for Moncton to consider claims that had been brought, claims that might be brought arising from the steel design, and claim venues.