Ontario – court grants temporary stay of litigation, endorsing arbitration as tandem support to court litigation process – #068

Master Robert A. Muir in Coco Paving Inc. v. Durham (Municipality), 2018 ONSC 2849 used the court’s own case management powers under section 106 of the Courts of Justice Act, RSO 1990, c C.43 to temporarily stay five (5) court files in favour of ongoing arbitration to advance the litigation.  The arbitration process would resolve issues key to the litigation and thereby add efficiencies to the litigation process. The reasoning and the result in support of a temporary stay reflects the court’s belief that arbitration is not only an either-or alternative to litigation but can qualify as tandem support.

The parties’ underlying dispute involved the complexity familiar to large infrastructure and construction projects.  Covanta Durham York Renewable Energy Limited Partnership and Covanta York Renewable Energy Ltd. (collectively “Covanta”) contracted in November 2010 with York Region and Durham Region to design, build, construct and operate a facility, the Durham York Energy Centre (the “Project”).  The initial contract price was over $230 million.

Covanta sub-contracted Courtice Power Partners (“CPP”) for supply and construction related services.  CPP in turn sub-contracted various components to different trade contractors for the supply of labour, equipment and services relating to the work undertaken by CPP in favour of Covanta.

In one of the sub-contracts, Coco Paving Inc. (“Coco”) contracted in May 2012 with CPP to provide labour, material and equipment for excavation and yard piping work in connection with the Project.  (CPP is a joint venture comprised on Barton Malow Canada Inc. and Kenaidan Contracting Ltd.)  In another sub-contract, General Sprinklers Inc. (“GS”) contracted in August 2012 with CPP for the installation of the Project’s fire protection system.

Coco and GS had each instituted litigation regarding either liens or bonds, adding to approximately 20 other court litigation files for liens and other claims in regard to the Project.

[8] The contract between CPP and Covanta contains an arbitration provision. The dispute between those two parties is the subject of an ongoing and lengthy arbitration proceeding. As of the date of the hearing of these motions, the parties to the arbitration had participated in 79 hearing days. CPP is advancing the claims made by its sub-contractors as part of its case at the arbitration. CPP has presented evidence in respect of approximately 450 change orders, mostly originating with CPP sub-contractors. Many thousands of documents have been reviewed and considered in evidence. The claims CPP is making against Covanta include all of the claims being made by Coco and GS.

 [9] The arbitration is nearing its completion. Hearing dates were scheduled through April 5, 2018 but further dates may be required. Of course, additional time will be required for argument and for the arbitrator to render a decision. The exact end date for the arbitration remains unclear but it appears that steady progress is being made.

CPP as defendant in the court litigation filed several applications pursuant to section 106 of the Courts of Justice Act to stay the litigation in which it was a named defendant as well as other related litigation instituted by Coco and GS.  The stay sought was not a permanent one but a temporary one.  The two largest CPP sub-contractor claimants had consented to stay orders and all the remaining claimants, except Coco and GS, had signalled a willingness to await the completion of CPP’s and Covanta’s arbitration, although no formal stay order had yet been made.

Master Muir, appointed by Madam Justice Michelle Fuerst, Regional Senior Judge, Central East Region, to case manage all claims stemming from the Project, heard CPP’s applications.  The latter authorizes the court, on its own initiative or on motion by any person, whether or not a party, to stay any proceeding in the court on such terms as are considered just.  Section 106 grants the court broad discretion and, as stated in Penn-Co Construction Canada (2003) Ltd. v. Constance Lake First Nation, 2008 ONCA 768 at para. 4, referred to by Master Muir, offers hope to solve difficulties created in complex litigation.

It is well-established that the risk of multiplicity of proceedings, the avoidance of cost and inconvenience and the risk of inconsistent results are factors to be taken into account in the exercise of the discretion conferred by these sections.

Before considering whether to grant a stay under section 106, Master Muir had first to consider whether to grant CPP leave to apply for a stay of the lien actions.  Section 67(2) of the Construction Lien Act, RSO 1990, c C.30 required the court’s consent for such interlocutory matters.  CPP did not require leave to apply for a stay of the non-lien claims.

Master Muir remarked that “it would make no sense to deny leave in the lien actions and then proceed to decide the stay motions in the bond actions”.  He noted that the two categories of actions were closely connected, involved the same claims on the Project and many of the same parties and that all of the parties litigating claims in the Project had agreed that all of the claims be case managed together.

Master Muir further noted that, in the circumstances, lien claims were much like class proceedings with each lien claimant being “ultimately a party to all the lien actions arising from the improvement”, referring to North Key v. Miwell, 2013 ONSC 4433 at para. 16. He pursued his reasoning, noting that the court was alert to overlapping interests and how the court could assist the litigation process by ordering a temporary stay to that litigation:

The motions are also necessary because they are being case managed. The necessity arises because a stay of the Coco and GS actions is the only way to prevent those actions from being litigated on their own, separate and apart from the remaining case managed lien and other actions. If Coco and GS seek to move ahead with their actions while the vast majority of the other claimants and parties are content to await the outcome of the arbitration, a stay order may become a necessary tool to promote important principles of Ontario lien legislation, as set out in Miwel (sic) and in the CLA itself.

Having granted leave to bring the applications for a temporary stay, Master Muir turned to the merits of the applications.

– CPP argued that the arbitration process allowed it to advance all the sub-trades’ claims, including those of Coco and GS, and that it was impossible to determine the important matters in issue in Coco’s and GS’ claims until the arbitration process was completed.

– Coco and GS resisted a stay of their litigation.  Their claims, instituted in 2015, involved relatively small claims but had not moved beyond the pleadings and both parties wanted to move ahead with documentary and oral discovery.  As Master Muir noted: “They want their day in court. They seek a timely determination of their claims.

On the merits of the application, Master Muir exercised his discretion and granted the applications.  He ordered that his reasons applied in five (5) different actions, three (3) instituted by Coco and two (2) instituted by GS.

In his reasons, he reiterated the comments he made when granting leave to CPP to present its applications.  He favoured that the claims arising from the Project proceed together, leading to a more efficient and less expensive adjudication process.  In this manner, he considered that arbitration would assist the courts in resolving a complex set of claims and exercised the court’s discretion to temporarily stay its own process in favour of arbitration among some but not all parties so that the litigation process would be better served.

He did not view CPP as lax in its prosecution of the arbitration process and noted the extensive efforts CPP had invested in pursuing resolution of many issues with the sub-trades by way of arbitration.  In addition, he noted that he retained case management jurisdiction and could consider lifting the temporary stay should new facts arise demonstrating a lack of diligence in the arbitration.

Master Muir also considered that the arbitration would assist in the court’s later determination of a live issue in the Project among competing litigants, namely the issue of “pay when paid”.  This concept, familiar to many in infrastructure and construction dispute resolution, remained unsettled.  Without opining on its validity as a means to delay or resist payment, Master Muir simply observed that the arbitration process would go a long way in addressing part of the issue and, at the least, avoid the risk of inconsistent findings and a multiplicity of proceedings.

Lastly, Master Muir distinguished the earlier findings in Covanta v. Barton-Malow et al., 2016 ONSC 2044 from the facts presented by CPP in its applications.  While agreeing with the result in that case, he disagreed with its relevance to CPP’s applications.  In that 2016 decision, Mr. Justice James F. Diamond determined that an arbitrator had exceeded his jurisdiction by adding two sub-trades to CPP’s arbitration.  Diamond J. held that the contractual arrangements lacked the necessary specificity to justify making those sub-trades party to the undertaking to arbitrate.

CPP does not take the position on this motion that Coco and GS are parties to the arbitration proceeding. CPP simply argues that the Coco and GS claims may be affected by the outcome of the arbitration. It is therefore just in the full circumstances of these actions that Coco and GS should wait and see what happens with the arbitration before advancing their claims any further.

Master Muir granted a temporary stay of five (5) litigation files, until October 31, 2018, or such earlier time as may be agreed by the parties. He reserved CPP the opportunity to extend the order by fixing a case management conference at a later date if need be.