N.L. – court stay bifurcates litigation in favour of statute-imposed arbitration of resource – #041

The Supreme Court of Newfoundland and Labrador, Trial Division in Dewey v. Kruger Inc., 2017 CanLII 85310 agreed to stay part of a proposed class action in favour of mandatory arbitration imposed by legislation dating back to 1927.  In doing so, the court acknowledged the while both class actions and arbitrations have advantages, (a) possible bifurcation of proceedings is not a determining factor to deny referring parties to arbitration and (b) if a legislature intends to exclude arbitration of a particular type of dispute, it must do so explicitly.

Four individuals (“Plaintiffs”) initiated a class action against five defendants: Kruger Inc. (“Kruger”), Deer Lake Power Company Limited (“Deer Lake PCL”), Corner Brook Pulp & Paper Limited (“Corner Brook PPL”), the Town of Deer Lake and Her Majesty the Queen in Right of Newfoundland and Labrador (the “Province”).   Plaintiffs’ cause of action stems from the creation and operation of a “Water Control System” related to a hydroelectric power generating system which provides power to Corner Brook PPL paper mill at Corner Brook.

Corner Book PPL applied for a stay pursuant to section 97 of Newfoundland and Labrador’s Judicature Act, RSNL 1990, c J-4 in favour of arbitration which it argued was imposed by legislation promulgated in 1927.  The Town of Deer Lake and the Province opposed Corner Brook PPL’s application as did Plaintiffs. Kruger did not participate in the hearing on the application.  Deer Lake PCL did not participate either, no longer existing as a corporation.

Corner Book PPL has operated since 1915 under agreements with the Province which had been and remain incorporated into legislation.  Some of the legislation imposed mandatory arbitration for disputes arising from the operations.  The reasons for judgment list three clusters of instruments which Hurley J. had to consider:

(i)   An Act for the Confirmation of a Contract with the Newfoundland Products Corporation, Limited (the “1915 Act”) and the attached Schedule (the “1915 Agreement”);

(ii)  An Act for the Confirmation of a Contract with the Newfoundland Products Corporation, Limited (the “1923 Act”) and Part I of the Schedule to the 1923 Act and Part II of the Schedule to 1923 Act (the “1923 Agreements”); and,

(iii) An Act for the Confirmation of an Agreement between the Government and International Paper Company and Newfoundland, Limited (the “1927 Act”) and the attached Schedule (the “1927 Agreement”).

Mr. Justice David F. Hurley considered each instrument in chronological order and the parties’ arguments in regard to each.  In the reasons for judgment, Corner Book PPL is referred to as “the Company”.

The 1915 Act and the 1915 Agreement conveyed and demised to a predecessor of Corner Brook PPL the water power or powers in and upon two waterways named in the legislation, along with certain rights and privileges.  Hurley J. held that the 1915 Act supported Plaintiffs’ position that the legislation imposed no restriction to pursue any claims in court.  His analysis of the other sections of the 1915 Act demonstrated that they dealt with issues inapplicable to Plaintiffs’ cause of action.  His analysis of the 1915 Agreement lead him to a similar conclusion, namely that its provisions were irrelevant to the dispute alleged to exist.

One section, section 15, of the 1915 Act provided for the arbitration of compensation but did not provide that liability was also subject to arbitration.  Hurley J. determined, with such clauses, legislation had authorized the nuisance and only stipulated that compensation, if any, would be arbitrated.  The section did not explain why it omitted mention of liability. Hurley J., looking to similar clauses, concluded that if the nuisance is an inevitable result of legislatively authorized undertaking, and was not negligently carried out, no liability attaches.  The compensation clause, and the referral to arbitration, was therefore inapplicable to Plaintiffs’ litigation. Hurley J. concluded that under the 1915 Act, access to the court was not restricted in favour of arbitration.

Hurley J.’s analysis of the 1923 Act allowed him to conclude that it did not affect Plaintiffs’ rights to pursue their claims before the courts, impose arbitration on matters relevant to their current claims or refer to matters relevant to the current litigation.   The one mention of mandatory arbitration in the 1923 Agreements was limited to “questions, disputes or difference arising out of, under or in connection with this Agreement or the execution thereof”.  That agreement was not in issue in Plaintiffs’ current litigation.

Hurley J.’s analysis of the 1927 Act and 1927 Agreement lead him to an opposite conclusion.  The 1927 Act confirmed an agreement with the International Paper Company and its acquisition of all the property and assets of Newfoundland Power and Paper Company, Limited.  (There is no clear mention of the former corporation being a predecessor of Corner Brook PPL but that seems implicit in Hurley J.’s discussion of this part of the chain of legislation and agreements referred to as schedules).

Clause 2(n) of the 1927 Agreement provided for arbitration and Hurley J. determined that the clause removed the right to litigate a claim in court, in favour of arbitration.  He read that the wording was much broader and included disputes not just between the Province and the Corner Brook PPL but also Corner Brook PPL and third parties.  He rejected Plaintiffs’ argument that because the clause did not impose arbitration, the parties could look back to the 1915 Agreement and opt for arbitration or litigation.   Evaluating Plaintiffs’ argument, he reasoned that the “fact that a claimant could opt to initiate a claim in Court does not mean that there was no provision for arbitration”.

Having determined that arbitration was mandatory, Plaintiffs, the Town of Deer Lake and the Province asked that he use his discretion to refrain from staying the litigation against Corner Brook PPL.   The stay, they argued, would lead to inefficiency, multiplicity of proceedings and added cost of delay.  Hurley J. summarized their arguments as appearing “to be related to the advantage of generally proceeding in Court which, unlike arbitration, would permit access to class action as set out in the Class Actions Act, SNL 2001, c C-18.1.”   In reply, he cited the B.C. Court of Appeal’s observation in Ruddell v. BC Rail Ltd., 2007 BCCA 269 that the both class actions and arbitrations have certain advantages but concluded that “(d)eference, however, must be given to the legislative stated preference for arbitration if provided.”

Relying on two prior labour arbitration decisions before the Supreme Court of Canada, Weber v. Ontario Hydro, [1995] 2 SCR 929, 1995 CanLII 108 and Bisaillon v. Concordia University, [2006] 1 SCR 666, 2006 SCC 19, he held that the Supreme Court “has consistently held in a number of recent decisions that the presence of a mandatory arbitration clause precludes the Courts from having jurisdiction to determine the matter”.  He distinguished those cases and the one before him from Seidel v. TELUS Communications Inc., [2011] 1 SCR 531, 2011 SCC 15 on the basis that the latter did not involve a statutory referral to arbitration.  In Seidel, the Supreme Court accepted a bifurcation of proceedings which could not be avoided by the legislation.

[56] Of relevance to the proceedings, the Court recognized its ruling meant that Ms. Seidel’s claims would be subjected to bifurcated proceedings which the Court said could not be avoided based on the nature of the legislation.  In these proceedings, the Plaintiffs have requested a stay in part that in allowing the claim against the Company to proceed by arbitration would simply mean possibly two adjudications should the Plaintiffs continue to pursue their claims against the Town and the Province. 

[57]  These decisions support the assertion that Canadian Courts have accepted and affirmed arbitration jurisdiction both when provided by legislation or agreed to by the parties in the absence of language confirming a statutory right to proceed to Court.”

The Town of Deer Lake and the Province also referred Hurley J. to Hurley v. Slate Ventures Inc. et al., 1996 CanLII 11648 as an example of a court refusing to stay only a part of the claim.  Hurley J. noted that their authority issued before Seidel in which the Supreme Court made two important determinations.

Firstly, the majority found that the possible bifurcation of proceedings was not a determining factor to deny a party its contractual right to arbitration.  Secondly, the Court held that if a legislature intended to exclude arbitration as a method for resolving a particular type of dispute, it must do so explicitly.

On a closing note, Hurley J. observed that “arbitration is regarded as efficient means of dispute resolution particularly in areas of the development of resources for the public good.”

He referred to Petroleum and Natural Gas Act, R.S.N.L. 1990, c. P-10, s. 21; Petroleum Regulations, C.N.L.R. 1151/96, s. 68; Muskrat Falls Project Land Use and Expropriation Act, S.N.L. 2012, Part II, c. M-25.

Hurley J. stayed the litigation against Corner Brook PPL but without costs in accordance with section 37 of Class Actions Act, SNL 2001, c C-18.1.