In Install-A-Floor Limited v. The Roy Building Limited, 2022 NSSC 67, the applicant, Floors Plus, sought an order appointing an arbitrator pursuant to the dispute resolution provision of its contract with the respondent, the Roy. The respondent opposed the application on two grounds: (1) the applicant lost its right to pursue arbitration as the limitation period had expired; and (2) the applicant did not adhere to certain contractual requirements and as such was disentitled to apply for the appointment of an arbitrator. Justice Norton granted the relief sought and ordered the arbitrator be appointed pursuant to the parties’ contract. On the evidence before him, Justice Norton found that the arbitration was commenced in compliance with the applicable limitation period. He also found that there was nothing in the parties’ contract to indicate that the respondent was relieved of its contractual obligations to participate in the dispute resolution process, and further, that the respondent could not rely on compliance issues created by its own conduct to object to arbitration.
The applicant and respondent were parties to a CCDC-17 Stipulated Price Contract (the “Contract”) for the supply to and installation of flooring at the respondent’s residential condominium project (the “Premises”). Part 8 of the Contract contained a dispute resolution clause. Paragraph 8.1 stated that the parties intended all disputes to be resolved by the dispute resolution provisions in General Condition (“GC”) paragraph 8.2, which provided for a mediation process before arbitration:
“8.2.2 A party shall be conclusively deemed to have accepted a finding of the Construction Manager or the Consultant under GC 2.2 – ROLES OF THE CONSTRUCTION MANAGER AND THE CONSULTANT and to have expressly waived and released the other party from any claims in respect of the particular matter dealt with in that finding unless, within 15 Working Days after receipt of that finding, the party sends a Notice in Writing of dispute to the other party, the Construction Manager and the Consultant, which contains the particulars of the matter in dispute and the relevant provisions of the Contract Documents. The responding party shall send a Notice in Writing of reply to the dispute within 10 Working Days after receipt of such Notice in Writing setting out particulars of this response and any relevant provisions of the Contract Documents.
8.2.3 The parties shall make all reasonable efforts to resolve their dispute by amicable negotiations and agreed to provide, without prejudice, frank, candid and timely disclosure of relevant facts, information and documents to facilitate these negotiations.
8.2.4 After a period of 10 Working Days following receipt of a responding party’s Notice in Writing of reply under paragraph 8.2.2, the parties shall request the Project Mediator to assist the parties to reach agreement on any unresolved dispute. The mediated negotiations shall be conducted in accordance with the Rules for Mediation and Arbitration of Construction Disputes as provided in CCDC 40 in effect at the time of bid closing.
8.2.5 If the dispute has not been resolved within 10 Working Days after the Project Mediator was requested under paragraph 8.2.4 or within such further period agreed by the parties, the Project Mediator shall terminate the mediated negotiations by giving Notice in Writing to the Owner, the Trade Contractor and the Construction Manager.
8.2.6 By giving a Notice in Writing to the other party and the Construction Manager, not later than 10 Working Days after the date of termination of the mediated negotiations under paragraph 8.2.5 either party may refer the dispute to be finally resolved by arbitration under the latest edition of the Rules of Mediation and Arbitration of Construction Dispute as provided in the CCDC 40 in effect at the time of bid closing. The arbitration shall be conducted in the jurisdiction of the Place of the Project.
8.2.7 On expiration of the 10 Working Days, the arbitration agreement under paragraph 8.2.6 is not binding on the parties and if a Notice in Writing is not given within the required time, the parties may refer the unresolved dispute to the courts or to any other form of dispute resolution, including arbitration, which they have agreed to use.”
Two disputes arose between the parties in relation to the Contract. The first related to whether additional compensation would be payable to the applicant for floor preparation work of a value exceeding the $300,000 allowed under the Contract. The second related to the respondent’s failure to pay the applicant’s invoice for April 2019 Monthly Progress Billing (“Invoice 23”).
On April 25, 2019, the applicant submitted a request for change pursuant to GC 6.6 of the Contract to EllisDon Corporation (“EllisDon”), the Contract’s Construction Manager, for an additional $456,458.87 plus HST for floor levelling work it claimed it carried out at the Premises. EllisDon denied the applicant’s change request on the basis that floor leveling work was part of the Contract and there was no basis for a claim for extra costs.
In response to this denial, the applicant submitted a Notice in Writing of dispute to EllisDon, as Construction manager, as required by paragraph 8.2.2 of the Contract. Paragraph 8.2.2 required that the respondent submit “a Notice in Writing of reply to the dispute within 10 Working Days after receipt” of a Notice in Writing of dispute “setting out the particulars of this response and any relevant provisions of the Contract Documents”. The court found there was no evidence that the respondent replied to the applicant as required by paragraph 8.2.2.
The applicant subsequently wrote to the respondent three more times requesting that the matter proceed to dispute resolution. On August 8, 2019, representatives of the parties met to discuss various issues. The applicant again raised Progress Invoice 23 and the possibility of dispute resolution. At this meeting, the respondent indicated it disputed Progress Invoice 23 and was not interested in mediation.
On June 25, 2020, counsel for the applicant wrote to the respondent regarding the Dispute Notice. Counsel for the respondent replied that the respondent did not view mediation as an effective course of action in the present case and stated that in its view, the time to commence an arbitration pursuant to the Contract had expired. On June 21, 2021, the applicant sent the respondent a Notice of Arbitration. Counsel for the respondent replied by reiterating its position.
The parties agreed that the Contract was subject to the Commercial Arbitration Act, SNS 1999, c.5 (“CAA”). Section 54 of the CAA provides:
“54 (1)The law with respect to limitation periods applies to an arbitration as if the arbitration were an action and a matter in dispute in the arbitration were a cause of action.”
Pursuant to section 8 of the Limitation of Actions Act, SNS 2014, c. 35 (“LOAA”), the limitation period for an action is “two years from the day on which the claim is discovered.”
Justice Norton held that section 8 of the LOAA requires there to be a reasonable basis on the part of the party to believe that a proceeding could be commenced to address the loss. In the present case, a proceeding was not warranted until the applicant knew or ought to have known that the respondent was not going to comply with the mediation process. On the evidence before the court, Justice Norton held that the meeting of August 8, 2019, at which the respondent made clear that it was not interested in mediation to be the date on which the applicant discovered its claim. As the applicant served its Notice of Arbitration on June 21, 2021, the court found that the limitation period had not expired and the arbitration was commenced in compliance with the applicable limitation period.
The respondent argued that although the applicant met the contractual requirements in paragraph 8.2.2, it did not adhere to the remaining contractual requirements of Part 8. In particular, the respondent argued that the applicant did not request a project mediator as required by paragraph 8.2.4 and after requesting that the matter proceed to dispute resolution in July 2019, it took no further action to pursue arbitration until June 2021. As such, it was disentitled to apply for the appointment of an arbitrator. The respondent did not take issue with the arbitrator proposed by the applicant.
Justice Norton held that the arbitration agreement only became non-binding upon the expiration of the 10 working days referred to in paragraph 8.2.6, which was not applicable in the circumstances, as the mediated negotiations under paragraph 8.2.5 were never commenced, let alone terminated under paragraph 8.2.6. This was the sole trigger for the commencement of the 10 working-day period referenced in paragraph 8.2.7. There was nothing in Part 8 of the Contract to indicate that the respondent was no longer subject to its contractual obligations to participate in the dispute resolution process.
Justice Norton accepted the argument of the applicant and held that the respondent could not rely on compliance issues to object to arbitration when compliance was prevented by its own conduct. Specifically, the applicant did not consent to the mandatory mediation stage of the process of being “passed over”. Although the respondent eventually communicated that it was unwilling to proceed with mandatory mediation, it offered no authority to support its position that the 10 working day period commenced when it communicated its unwillingness to the applicant. Justice Norton found that paragraph 8.2.6 clearly provided that the 10 day working period only commenced upon termination of the mandatory mediation by the project mediator appointed under the Contract. As the mandatory mediation was never commenced and the applicant did not consent to dispensing with this requirement, paragraph 8.2.7 did not apply to remove the right of the applicant to arbitration under the Contract. Justice Norton went on to note that strict compliance with the dispute resolution process is not necessarily required to be able to proceed with arbitration. In the result, the court allowed the applicant’s motion and ordered that the applicant’s choice of arbitrator be appointed pursuant to the Contract.
Contributor’s Note:
First, the expiration of the limitation period is a fact specific exercise to be conducted by the adjudicator on a case-by-case basis on the evidentiary record and applying the relevant statute of limitations. See a previous Case Note Ontario – Start of limitation period determined by interpretation of stepped arbitration clause – #592 which also discusses the application of limitation periods and stepped arbitration clauses.
Second, this case also serves as a caution to parties that they cannot rely on compliance issues created by their own conduct to object to an arbitration. Although the court noted that strict compliance with the dispute resolution process may not necessarily be required to be able to proceed with an arbitration, it is unclear whether Justice Norton’s observation was meant to apply only in reference to the wording of the arbitration clause in this case or has the potential for wider application, for example to stepped arbitration clauses in general. Notwithstanding Justice Norton’s comment, parties who intend to rely on an arbitration clause in their contracts should ensure they follow the contractual requirements of that clause and any related provisions to avoid potential difficulties in proceeding to arbitration.