Nova Scotia – court exercises discretion to grant plaintiff’s request to stay its own action – #031

In Lorneville Mechanical Contractors Ltd. v. Clyde Bergemann Canada Ltd., 2017 NSSC 119,  Madam Justice Ann E. Smith of the Supreme Court of Nova Scotia determined that a plaintiff could not rely on the Commercial Arbitration Act, SNS 1999, c 5 to stay its own lien action but exercised her discretion under section 41(e) of Nova Scotia’s Judicature Act, RSNS 1989, c 240 to refer the parties’ disputes to arbitration. 

Update:  appeal dismissed, Clyde Bergemann Canada Ltd. v. Lorneville Mechanical Contractors Ltd., 2018 NSCA 14. See the subsequent Arbitration Matters note “Nova Scotia – Court of Appeal sceptical that litigants suffer irreparable harm if obliged to litigate instead of arbitrate – #089” regarding Clyde Bergemann Canada Ltd. v. Lorneville Mechanical Contractors Ltd., 2018 NSCA 14. Nova Scotia’s Court of Appeal upheld a chambers judge’s decision granting a plaintiff a stay of its own litigation.  The Court held that a stay and an interlocutory injunction are remedies of the same nature and, absent different rules set out in particular legislation, are governed by the same rules.  Though section 9(1) Nova Scotia’s Commercial Arbitration Act, SNS 1999, c 5 did not authorize a stay in the circumstances, the Court accepted the chambers judges’ use of section 9(2) as a guideline in determining whether to exercise her discretion under section 41(e) the Judicature Act, RSNS 1989, c 240.)

Defendant, Bergemann Canada Ltd. (“Bergemann”), as contractor, signed an agreement with Co-Defendant, Northern Pulp Nova Scotia Corporation (“Northern Pulp”), as property owner, for the supply and installation of an electrostatic precipitator at Northern Pulp’s mill site.  Bergemann signed a stipulated price agreement with Plaintiff, Lorneville Mechanical Contractors (“Lorneville”), as sub-contractor, for various services at the mill site.  

Lorneville began providing services as of October 2014.  On February 26, 2015 Lorneville received notice from Bergemann advising it that Bergemann was terminating their contract effective the next day.  Lorneville ceased work and delivered an invoice March 20, 2015.  Bergemann disputed the amount of the invoice and the parties attempted over one year to negotiate a resolution to their dispute.  

In order to preserve its rights under Nova Scotia’s Builders’ Lien Act, RSNS 1989, c 277, on April 23, 2015 Lorneville filed a claim for lien against Bergemann as contractor and Northern Pulp as property owner.  On June 4, 2015, it commenced the lien action against Bergemann and Northern Pulp. Over several months, the parties made bona fide attempts to resolve their differences, including a face-to-face meeting in the U.S.  Lorneville agreed to extend the delays in which Bergemann and Northern Pulp would have had to file their court defences. 

The sub-contract between Lorneville and Bergemann contained an arbitration clause which Smith J. characterized as providing for a “very broad range of disputes able to be arbitrated.”  Their clause applied to the “interpretation, application or administration of the Subcontract, or any failure to agree where agreement between the parties is called for. 

Lorneville as Plaintiff applied for a stay of its own lien action in favour of arbitration.  Bergemann contested the stay, claiming that the parties were no longer bound by the undertaking to arbitrate and that Lorneville had unduly delayed seeking a stay.  

As there were no Nova Scotia cases on point, Smith J. looked to Ontario case law to determine whether Lorneveille had standing under section 9 of Nova Scotia’s Commercial Arbitration Act, SNS 1999, c 5  to seek a stay of its own action.    Though older Ontario cases said no, more recent Ontario cases used the courts’ inherent powers to consider and, if warranted, grant a stay.  The Ontario courts examined sections 6 and 7 in Ontario’s Arbitration Act, 1991, SO 1991, c 17,  similar to Nova Scotia’s section 9.  The Ontario courts found that section 7 did not prevent a court from staying an action on a plaintiff’s motion but merely limited that provision to defendants’ applications, leaving the court to exercise its inherent powers under section 106 of Ontario’s Courts of Justice Act, RSO 1990, c C.43.  Smith J. also looked to Saskatchewan case law, such as Alberici Western Constructors Ltd v Saskatchewan Power Corporation, 2015 SKQB 74, to find that the courts there too followed the inherent powers route to a stay developed in Ontario.  Smith J. concluded that Lorneville as Plaintiff could not apply under section 9 of Nova Scotia’s Commercial Arbitration Act to stay its own lien action but could still apply to the court to exercise its discretion in favour of a stay pursuant to Nova Scotia’s Judicature Act.

Smith J. then remarked that the onus is on Bergemann as the resisting party to show why the court action should not be stayed, referring to Self v. Abridean Inc., 2001 NSSC 191.  Her review of the cases contained references to the courts exercising caution not to interfere with the parties’ choice to arbitrate and to give primacy to arbitration over litigation where the parties have so chosen to undertake arbitration. Examining the content of the principal claims and counterclaims made by the parties, Smith J. concluded that Lorneville’s and Bergemann’s respective claims were matters qualifying as “disputes” within their undertaking to arbitrate. The separate disputes involving Northern Pulp did not impact that conclusion.  

Smith J. dismissed Bergemann’s claim that Lorneville, having not complied with the parties’ dispute resolution provisions, could not trigger the mandatory arbitration process.  She found that Lorneville was obliged by Nova Scotia’s Builders’ Lien Act to name Northern Pulp as a defendant and, by doing so, did not expand its action beyond the scope of the arbitration.  Section 33B of the Builder’s Lien Act expressly exempts such litigation from constituting a waiver of the right to arbitrate.  

 Lastly, Smith J. dismissed Bergemann’s argument that Lorneville’s involvement in the amicable negotiations and agreement to provide extensions prevented it from moving for a stay 15 months after filing the action and five months after it served its Notice of Arbitration.  Smith J. agreed that short delays to settle disputes were common in construction contracts and required prompt resolution but only when the construction was still ongoing.  In the present case, the work by Lorneville had terminated and there was no longer any imperative. 

[52] As was the case in IWK Health Centre, (IWK Health Center v. Northfield Glass Group Ltd., 2016 NSSC 281) the Subcontract contained a clause (8.2.2) that provided that “the parties shall make all responsible efforts to resolve their dispute by amicable negotiations and agree to provide, without prejudice, frank, candid and timely disclosure of relevant facts, information and documents to facilitate these negotiations.”  I agree with counsel for Lorneville that it would be perverse for the Court to fail to give primacy to the arbitration clause in favour of litigation on the basis that the parties did not adhere to the timelines set out in the dispute resolution provisions. 

She agreed that Bergemann, by its conduct, had waived the strict timelines in the parties’ dispute resolution provisions while participating in the good faith negotiations.  

At the urging of Lorneville, in exercising her discretionary jurisdiction under the Judicature Act, Smith J. agreed to consider, without being bound by, the considerations set out in section 9(2) of the Commercial Arbitration Act, which allow a court to refuse a stay only in five instances:  

 (a)   a party entered into the arbitration agreement while under a legal incapacity; 

(b)   the arbitration agreement is invalid; 

(c)   the subject‑matter of the dispute is not capable of being the subject of arbitration pursuant to the law of the Province; 

(d)   the motion to stay the proceeding was brought with undue delay; 

(e)   the matter in dispute is a proper one for default or summary judgment. 

She found them helpful but not mandatory and that only (c) and (d) might apply.  She noted that none of the criteria listed a risk of multiple proceedings as an exception to deny a stay as argued by Bergemann.   At the demand of Bergemann, she did evaluate the test for interlocutory injunctions set out in RJR-MacDonald Inc. v. Canada (Attorney General), [1994] 1 SCR 311, 1994 CanLII 117 (SCC) as a proxy for whether a party seeking a stay demonstrated both irreparable harm and the balance of convenience in granting the stay.  Smith J. determined that both criteria favoured Lorneville.  

Based on her analysis of the facts and applicable legislation, Smith J. exercised her inherent discretion in favour of Lorneville as Plaintiff to stay Lorneville’s own action and referred the disputes to arbitration.  She declined to name the arbitrator proposed by Lorneville, leaving the paties to attempt to agree on one as per the terms of their agreement.