Ontario – ability to decide limitation issue before referral to arbitrator relieves parties from rearguing issue – #478

In Maisonneuve v. Clark, 2021 ONSC 1960, Madam Justice Sally Gomery held she had jurisdiction to determine whether an application for referral to arbitration was time-barred because (i) the record provided sufficient insight with respect to limitation issues despite having to draw some inferences and (ii) Ontario’s Rules of Civil Procedure, RRO 1990, Reg 194 urged that they be “liberally construed to secure the just, most expeditious and least expensive determination” of the limitation issue.  Gomery J. commented that those reasons justified her deciding the issue, thereby relieving parties of having to reargue it before arbitrator.  Gomery J. also observed that “the exercise of interpreting a contract is different than the exercise of interpreting a statutory provision”.  The latter is a question law, requiring courts to “discern the mischief that the legislator intended to address in enacting legislation, and to interpret the statutory language to further the legislator’s purpose, sometimes to address problems that were not even contemplated when the law was passed”.  The former is a mixed question of fact and law.  “A contract is not made to address a societal issue or need. It is made to order the relationship between the parties or to resolve a specific problem they have at a particular time”.

After years in business together, deterioration of C’s and M’s relationship and legal claims prompted them to agree in September 2016 to minutes of settlement (“Minutes”) to resolve their disputes.  As each had engaged in their businesses through shareholdings in different corporate entities, the Minutes provided that M would transfer to C certain shares M held in two (2) corporations and C would transfer to M his shares held in another corporation (“EOREI”).

Lawyers for each participated in drafting the Minutes which included a mutual release, escrow agreement and an agreement to arbitrate a single outstanding issue concerning who should pay for outstanding costs and expenses related to EOREI.   C and M disputed whether those costs and expenses fell within the mutual release and whether they had been incurred before or after the date of the acceptance leading to the Minutes.  The Minutes included a clause identifying the issue and providing for arbitration. Excerpted the clause at para. 4 of Gomery J.’s reasons, the clause closes with the following agreement.

If the parties are unable to resolve the Excluded Issue as between them, then the Excluded Issue shall be fully and finally referred to the Arbitrator for resolution. The Arbitrator’s decision shall not be subject to any appeal, either of law, fact or mixed law and fact”.

Gomery J. recorded that both C and M agreed that the terms above “give rise to an enforceable arbitration agreement governed by the Arbitration Act, 1991, SO 1991, c 17” and justified her reference to it as the Arbitration Clause.

Dissatisfied with the progress on the implementing the Minutes, C instituted court litigation in July 2017 to enforce the Minutes and obtain damages for M’s alleged breaches of it.  In his July 2017 statement of defense, M asserted, among other things, that arbitration contemplated in the Minutes had to take place within ninety (90) days.  Following a change of counsel in 2019, M dropped this position and, in June 2019, sought arbitration of the costs and expenses related to EOREI.  C refused, arguing that arbitration was time-barred by either (i) the ninety (90) day delay or (ii) alternatively, by the lapse of the two (2) year delay under the Limitations Act, 2002, SO 2002, c 24, Sch B calculated from signature of the September 2016 Minutes.

M and his corporation (“Applicants”) applied to the Superior Court for an order referring them and C and C’s corporation (“Respondents”) to arbitration.  Respondents applied to raised a preliminary issue regarding Gomery J.’s jurisdiction and sought dismissal of Applicants’ motion or, alternatively, referral to arbitration, as time-barred.

Gomery J. identified three (3) issues raised by Applicants’ application and Respondents’ resistance to it: whether she had jurisdiction to determine whether M’s arbitration request is time-barred and, if so, should she determine it; whether a ninety (90) day deadline to request or complete arbitration existed; and, if not, is the application nonetheless time-barred?

(i) jurisdiction (paras 11- 19) – By their applications, Applicants had raised a preliminary issue regarding whether Gomery J. even had jurisdiction to consider whether M’s request for arbitration was time-barred.   C conceded at the hearing that Gomery J. did have jurisdiction but maintained that she ought to refer the jurisdiction question to the arbitrator if  Gomery J. concluded that “the evidence currently on record does not permit me to determine the limitations issue”.

Gomery J. drew on Foglia v. Coccimiglio, 2013 ONSC 1114 paras 27 and 32 for guidance and the two (2) grounds relied on to decide the jurisdiction question rather than refer it on to the arbitration.  First, the record before gave the court sufficient insight with respect to the limitations issue.  Second, the found that “no good purpose would be served by requiring the parties to litigate the issue before an arbitrator, when they had already presented their arguments to the Court”.

[16] Second, at para. 32, Ellies J. found that no good purpose would be served by requiring the parties to litigate the issue before an arbitrator, when they had already presented their arguments to the Court:

Convenience is the other reason why I believe that this issue should be resolved by this court.  I agree with counsel for the respondent that, although the matter could have been dealt with by the arbitrator, and probably should have been, it would be helpful to deal with the issue now, so as to avoid the duplication of effort involved in later bringing it before the arbitrator.  I do not agree, however, with the submission that there is a risk of inconsistent verdicts, should this court decide the issue, because of the concurrent jurisdiction of the court and the arbitrator.

[17] I agree with and adopt this reasoning in this case.  I find that I have jurisdiction to determine the limitations issue and that I can determine it fairly on the record before me, based on the documentary record and uncontroverted evidence.  I do not need to make findings of credibility. I do have to make some inferences, but they are based on uncontested facts, such as the contents of correspondence exchanged between the parties’ lawyers”.

In addition to that reasoning, Gomery J. also relied on Rule 1.04 of Ontario’s Rules of Civil Procedure, RRO 1990, Reg 194 (“Rules”) which mandated that the Rules “be liberally construed to secure the just, most expeditious and least expensive determination of every civil proceeding on its merits”.

(ii) existence of ninety (90) day deadline (paras 20-42) – Gomery J. reviewed the exchanges between counsel for the parties and drew on the rules applicable to interpretation of contracts set out in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 (CanLII), [2014] 2 SCR 633 paras 47 and 57.  Gomery J. also added reference to Glaswegian Enterprises Inc. v. BC Tel Mobility Cellular Inc., 1997 CanLII 4085 (BC CA) para. 20 which spoke to the “factual matrix” as an element in a court’s interpretation.

The factual matrix is the background which may deepen an understanding of what the parties meant by the language they used, but the Court cannot make a new agreement.  Our search is always for the meaning intended by the parties as expressed in the agreement.  I agree with the conclusion of the trial judge about the meaning of the relevant clauses.  That meaning is the meaning most consistent with commercial reality and most consistent with the other clauses of the whole agreement”.

Gomery J. dismissed Respondents’ argument that Applicants’ request for arbitration was time-barred.

The agreements signed by the parties on September 26 and 27, 2016 do not set a deadline for the arbitration of the Excluded Issue, failing which Maisonneuve would lose his entitlement to claim for EOREI expenses. Nor do I find a deadline imposed as an implied term”.  See M.J.B. Enterprises Ltd. v. Defence Construction (1951) Ltd., 1999 CanLII 677 (SCC), [1999] 1 SCR 619 para. 27.

Gomery J. added further comment on the interpretation task set for her by the parties’ competing arguments regarding the Minutes.

[39] The Arbitration Clause is not ambiguous. It does not set any deadline for arbitration of the Excluded Issue. The escrow agreement says that, if the arbitration is not concluded within 90 days, [M] will lose some leverage, in that [C]’s share documents will be released from escrow.  It does not say or suggest that [M] would lose any right to claim the disputed EOREI expenses.  The parties agree, through the whole agreement clause at para. 8 of the minutes of settlement, that they are not bound by any collateral conditions or agreements.  In these circumstances, I do not place any weight on the position initially taken by [M] in the 2017 Action, a position which he has since repudiated”.

Gomery J. concluded that the parties had set no deadline in which to request or complete the arbitration.

(iii) time-bar to application (paras 43-72) – This issue required extensive consideration by Gomery J.

First, Gomery J. identified section 5 of the Limitations Act, 2002, SO 2002, c 24, Sch B as setting a two (2) year period calculated from the date on which the claim was “discovered”.  At paras 44-45, Gomery J. set out M’s and C’s competing application of this rule to the facts on the record, with M concluding that the claim was not time-barred and C concluding that the Minutes did not require informal resolution and not enforcing the limitation period “would create a dangerous precedent”.

Second, she pointed out that prior cases – L-3 Communication SPAR Aerospace Limited v. CAE Inc., 2010 ONSC 7133 and PQ Licensing S.A. v. LPQ Central Canada Inc., 2018 ONCA 331 – had recognized that “where the parties have agreed to exchange information, negotiate or mediate prior to arbitration, the limitations clock does not begin to run until they have done so.”  Gomery J. then considered the particular facts before her in light of those cases.

Applying these decisions to this case, if I find that Arbitration Clause required the parties to attempt to resolve the Excluded Issue prior to requesting arbitration, then arbitration did not become appropriate until this occurred.  As a result, the two-year limitation period would not have begun to run until [M] realized, or ought to have realized, that [C] refused to engage in any discussions on the issue”.

At paras 50-63, Gomery J. closely examined the give-and-take of the exchanges between counsel for the parties, concluding that the Minutes did require the parties to attempt to resolve the EOREI issue before engaging in arbitration and therefore fell within the reasoning set out in L-3 Communication SPAR Aerospace Limited v. CAE Inc. and PQ Licensing S.A. v. LPQ Central Canada Inc.

In arriving at that conclusion, Gomery J. distinguished the interpretation task as it applied to a contract and to legislation.

[53] I begin by observing that the exercise of interpreting a contract is different than the exercise of interpreting a statutory provision. The interpretation of a statue is a question of law. Pursuant to s. 64 of the provincial Legislation Act, 2006, SO 2006, c 21, Sch F: “An Act shall be interpreted as being remedial and shall be given such fair, large and liberal interpretation as best ensures the attainment of its objects”.  Section 63 of that same Act further provides that: “The law is always speaking”.  This echoes s. 10 of the federal Interpretation Act, R.S., [c 1-21], s. 10, which expands on the purpose of this rule:

The law shall be considered as always speaking, and where a matter or thing is expressed in the present tense, it shall be applied to the circumstances as they arise, so that effect may be given to the enactment according to its true spirit, intent and meaning.

[54] These interpretive principles require courts to discern the mischief that the legislator intended to address in enacting legislation, and to interpret the statutory language to further the legislator’s purpose, sometimes to address problems that were not even contemplated when the law was passed.

[55] A judge’s goal in interpreting a contract is different.  A contract is not made to address a societal issue or need. It is made to order the relationship between the parties or to resolve a specific problem they have at a particular time. As the Supreme Court reminded us in Sattva, the court’s unique focus is the discernment of the parties’ intent at the time they reached their agreement.  That is why, unless a contract is a standard form agreement described in Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37 (CanLII), [2016] 2 SCR 23, the interpretation of a contract is a mixed question of fact and law”.

In her closing section at paras 65-72, Gomery J. considered C’s argument that M ought to have realized when signing the Minutes that informal resolution was impossible and that realization would have started the limitation period.  Gomery J. dismissed this argument as an attempt to impose an implied term.  Rather, Gomery J. disposed on the argument by referencing the exchanges between counsel for the parties and stating that someone in M’s position would have reasonably made that realization on January 31, 2018 when in receipt of a firm refusal from C’s counsel that “he had no intention of engaging in any negotiations outside the context of the” July 2017 court litigation.

Gomery J. dismissed Respondents’ reliance on Fennell v. Deol, 2016 ONCA 249 and caution that her conclusion “creates a dangerous precedent”.  She distinguished that case, stating that Respondents were not at the mercy of Applicants’ decision to delay making a claim.

[72] Similarly, in the present case, Clark could have taken steps at any point after September 27, 2016 to ensure that the limitations period for Maisonneuve’s claim for EOREI expenses began to run. He simply had to advise Maisonneuve, either directly or through counsel, that an amicable resolution of the Excluded Issue remained impossible. This is what in fact happened at the end of January 2018”.

Gomery J. granted Applicants’ application and dismissed Respondents’.

urbitral notes – First, for more on limitation periods and arbitration, see the earlier Arbitration Matters notes:

(i) “Alberta – court rules permitting appeal of Master’s stay decision consistent with section 7(6) of Arbitration Act – #412” regarding Agrium, Inc v. Colt Engineering Corporation, 2020 ABQB 807. Madam Justice Nancy Dilts held that unsuccessful applicants could appeal to a justice of the court a Master’s decision refusing a stay under section 7(1) of the Arbitration Act, RSA 2000, c A-43.  The legislated right of appeal from a Master’s decision under the Alberta Rules of Court, Alta Reg 124/2010  does not contradict the policy decisions underlying the Arbitration Act. The Court of Queen’s Bench Act, RSA 2000, c C-31creates layers of decision making authority” and section 7(6) did not intend to render Master’s decisions on stay applications “unappealable”.  Section 7(6) should “not be read in a manner that would be inconsistent with that legislated right”. Having jurisdiction to hear the appeal, Dilts J. held that she retained jurisdiction under section 7(1) to consider waiver and attornment notwithstanding expiry of a limitation period in which to commence arbitration.

(ii) “Québec – award treated as “judgment” subject to ten (10) year prescription (limitation) period – #259” regarding Société générale de Banque au Liban SAL v. Itani, 2019 QCCS 5266. Madam Justice Dominique Poulin held that the longer, ten (10) year prescription (limitation) period applied to recognize and enforce an arbitration award made outside of Québec.  Notwithstanding comments to the contrary in Yugraneft Corp. v. Rexx Management Corp., 2010 SCC 19 (CanLII), [2010] 1 SCR 649 based on two (2) of its leading cases originating from Québec, Poulin J. reasoned that, to be coherent, the provisions in the Civil Code of Québec, CQLR c CCQ-1991 should be read to treat an arbitration award as a “judgment”, thereby qualifying it for longer prescription (limitation) period.

(iii) “Alberta – even after limitation period expires to initiate arbitration, court applies exceptions to deny stay – #171” regarding Fath v. Quadrant Construction Ltd, 2019 ABQB 151.  Defendant petitioned to stay litigation against it only after the limitation period expired in which plaintiff could initiate mandatory arbitration.  Master W. Scott Schlosser noted that a court lost its supervisory jurisdiction to stay if arbitration was no longer viable because its jurisdiction was over the arbitration and not the lawsuit.  Acknowledging that granting  a stay effectively barred plaintiff’s claim against defendant and faced with a divided approach in the case law, Master Schlosser opted to consider the exceptions to stay set in Section 7(2) of the Arbitration Act, RSA 2000, c A-43.  As an alternative, he also considered defendant’s waiver and attornment as further sources of the court’s jurisdiction to preserve the litigation.

(iv) “Alberta – uncertainty over which claims covered by arbitration does not delay commencement of limitation period – #162” regarding Weir-Jones Technical Services Incorporated v. Purolator Courier Ltd, 2019 ABCA 49. Alberta’s Court of Appeal held that an arbitral party’s uncertainty about which claims were covered by arbitration did not delay commencement of the applicable limitation period. A party’s reliance on the potential success of other procedures amounts at most to an error of law is irrelevant to calculating the start of a limitation period. “Discovery relates to the facts, not the applicable law or any assurance of success.”  In a lengthy footnote to concurring reasons, Mr. Justice Thomas W. Wakeling also commented on how the cost of litigation drove litigants towards other procedural solutions such as summary judgment and arbitration.

(v) “Ontario – Court of Appeal upholds arbitrator’s decision to “blue pencil” mediation clause having impact on limitation period – #057” regarding PQ Licensing S.A. v. LPQ Central Canada Inc., 2018 ONCA 331. Ontario’s Court of Appeal upheld an arbitrator’s decision on a preliminary issue involving the application of a limitation period.   The Court of Appeal agreed with the Superior Court which had held that it was reasonable for the arbitrator to sever the mention of “in Delaware” in a mediation clause because that stipulation violated remedial legislation applicable to franchising.  The balance of the mediation clause remained valid.  Completing the mediation was a condition precedent to triggering the date at which one of the parties could “discover” its claim and delayed triggering the two-year limitation period in Ontario’s Limitations Act, 2002, SO 2002, c 24, Sch B. (“Limitations Act”).