Ontario – Limitations defence not a matter of arbitral jurisdiction – #674

In Cruickshank Construction Ltd. v The Corporation of the City of Kingston, 2022 ONSC 5704, Justice Myers allowed an application to appoint an arbitrator, providing his views on the method for that appointment. He also dismissed the Respondent’s cross-application for a declaration that the notice of arbitration was limitation-barred and that the Applicant had not complied with preconditions to arbitration in the parties’ agreement. Justice Myers held that there was no basis in the Ontario Arbitration Act, 1991, SO 1991, c 17 (“Arbitration Act”) to permit the court to grant the cross-application and the grounds raised were not matters of arbitral jurisdiction.

In this case the Applicant, Cruickshank Construction Ltd. (“Cruickshank”), and the Respondent, The Corporation of the City of Kingston (“Kingston”), entered into a contract under which Cruickshank would perform certain construction services. The contract contained an arbitration agreement. While not quoted in the decision, the contract also contained many procedural and notice clauses. In sum (at para. 42):

“Cruickshank was required to keep careful records of work done on a time and materials basis for example. It was required to provide notice of claims verbally and then in writing. Kingston was then required to respond formally within a time frame. Then arbitration was available. Mediation could also be attempted if the parties wished to do so.”

Kingston terminated the contract in June 2019. A dispute arose between the parties consisting of several claims for payment by Cruickshank. Cruickshank initiated arbitration proceedings against Kingston under a Notice of Arbitration dated November 30, 2021. Cruickshank then applied to the court to appoint the arbitrator. Kingston cross-applied for a declaration that Notice of Arbitration was barred under the Ontario Limitations Act, 2002, SO 2002, c. 24 and for a declaration that Cruickshank had failed to comply with preconditions to commencing arbitration under the contract. 

The application and cross-application were heard on September 26, 2022. Justice Myers allowed the application to appoint the arbitrator and dismissed the Respondent’s cross-application.  

The Application to Appoint – Cruickshank applied to the court to appoint an arbitrator and named the arbitrator it wished to appoint. The only objections apparently raised by Kingston were those in its cross- applicati. In his decision, Justice Myers directed the parties “to agree on an arbitrator forthwith”. The remainder of the decision on this point stated (at para. 4):

“In the unlikely event that they cannot agree upon an arbitrator, then, by the end of day on October 11, 2022, each party may deliver a list of three proposed arbitrators with a copy of the CV of each. Then, by the end of day on October 14, 2022, each side may deliver no more than three pages containing the specific bases on which they object to the appointment of any of the proposed people listed by the other party.”

Presumably, Justice Myers would appoint the arbitrator based upon those submissions, if the parties could not reach agreement.

The Cross-Application on Limitations – Justice Myers began his assessment of the first ground in Kingston’s cross-application by noting that the parties agreed to arbitrate their dispute and Kingston had no grounds under the Arbitration Act to move to prevent an arbitration.” Having no authority in the Arbitration Act, Kingston relied upon the procedures for commencing an application for directions pursuant to in Rule 14.05 of the Rules of Civil Procedure, RRO 1990, Reg 194. However, as Justice Myers found the dispute arguably fell within the jurisdiction of the arbitrator, the arbitrator had to decide. While Kingston characterized its position that the entire arbitration was limitation-barred as a matter of jurisdiction, Justice Myers held that arbitrators are able to rule on their own jurisdiction under s. 17(1) of the Arbitration Act and, in more to the point, Kingston’s claim was not a matter of jurisdiction. Specifically:

“[13] I do not understand how it is that Kingston alleges that the possible existence of a limitation period defence goes to the arbitrator’s jurisdiction and allows it to ignore the arbitration. The limitation period defence does not deny that a debt is due. It just says that the claim was made too late even if it is a valid claim. The existence of a limitation defence might make an arbitration inefficient just as a full trial on the merits in court would be wasted if the claim could be defeated by the limitation period no matter how valid the debt or underlying claim may be. But that does not mean that the issue of whether the limitation period has run can always be hived off from the main hearing and dealt with summarily in advance. Moreover, the fact that there may be a defence on the merits available to a party does not undermine the jurisdiction of an arbitrator.”

Because there was “no question that an arbitrator would be entitled to decide a limitation period defence if one was pleaded”, there could be no question on how such a defence becomes a matter of arbitrator jurisdiction.

The Cross-Application on Preconditions to Arbitration – Justice Myers noted at the outset of his analysis on Kingston’s second ground that if Cruickshank failed to take the steps it needed to in order to be entitled to commence arbitration then “that could raise a form of jurisdictional argument.” However, it would be improper to use the Rule 14 application process to “usurp the arbitrator’s role to determine his or her own jurisdiction on the facts and law.”The scope of the factual evidence, and analysis, required to delve into the jurisdictional matters was best left to the arbitrator.

Contributor’s Notes:

Justice Myers did not explain why he declined to appoint the arbitrator requested by the Applicants, to whom the Respondents apparently raised no objection and directed a process whereby the parties were to “agree upon an arbitrator”, failing which he would do so. For further recent judicial consideration in (again by Justice Myers) Ontario of applications to appoint an arbitrator, see Ontario – Best practices: pre-appointment communications and application to appoint arbitrator – #607.

Second, Justice Myers follows the trend from the Ontario courts to defend arbitration clauses. As he notes (at para 16) when distinguishing the rare case where jurisdiction might be determined by a court (which includes situation where both parties agree to the court’s jurisdiction to do so), to allow “cases to come to court when they should be before the arbitrator undermines the “should” and drives a truck through a loophole in the competence-competence principle.” For a further discussion on the position of the Ontario courts, see Ontario – Arbitrator to determine jurisdiction/validity of arbitration clause in employment dispute – #654.