Ontario – non-parties to arbitration agree arbitrator’s findings of facts binding for facts common to their litigation – #223

In Sky Solar (Canada) Ltd. v. Economical Mutual Insurance Company, 2019 ONSC 4165, Mr. Justice Peter J. Cavanagh issued detailed trial reasons relying on key findings of fact made in arbitration involving only plaintiff.  Defendants in the court litigation – an insurer of respondent in the arbitration and respondent’s insurance broker – agreed with plaintiff that those facts were binding and would not be relitigated. Plaintiff had been unsuccessful in the arbitration but still agreed to re-purpose those findings for use by Cavanagh J. in determining liability against the non-parties. The agreement demonstrates that non-parties – and unsuccessful arbitral parties – need not expect different findings if the same evidence is presented to a new decision maker. 

Sky Solar (Canada) Ltd. (“Sky Solar”), a solar energy project developer, signed two (2) construction contracts in 2012 with Marnoch Electrical Services Inc. (“Marnoch”), a contractor.  Both contracts obliged Monarch to provide insurance coverage naming Sky Solar as an additional insured. 

Marnoch’s broker, Firstbrook, Cassie & Anderson Limited (“FCA”), issued a certificate of insurance certifying that Sky Solar was a named, additional insured under Marnoch’s general commercial liability policy.  That policy, issued by Economical Mutual Insurance Company (“Economical”), stated that additional insureds were covered only for liability arising out of Marnoch’s operations.

Fires at two (2) separate project locations involved a transformer selected by Sky Solar but ordered and installed by Monarch. Sky Solar sold the projects to Firelight Solar Limited Partnership (“Firelight”).  In breach of its contractual warranties to Fireflight, Sky Solar became liable for Fireflight’s remediation costs and loss of income.  Sky Solar settled with Fireflight and claimed against Economical.

Accepting that Sky Solar was a named, additional insured, Economical denied that Sky Solar’s liability was covered under Marnoch’s policy.  Sky Solar initiated court litigation in which it claimed against:

(i) Economical – indemnification for its payment to Fireflight or, in the alternative, compensatory damages;

(ii) FCA – negligence in role as insurance broker issuing certificates; and,

(iii) Economical and FCA – special damages for litigation expenses incurred pursuing contractual warranty claim against Marnoch in arbitration, damages for breach of a duty of good faith, aggravated and punitive damages.

In separate sections, Cavanagh J. addressed Sky Solar’s claims against Economical (paras 38-126) and FCA (paras 127-169). Cavanagh J. dismissed Sky Solar’s action against Economical and FCA.

The case is of interest to arbitration practitioners for the manner in which findings of fact made in an arbitration between Sky and Marnoch were accepted as binding in litigation between Sky Solar, Economical and FCA.

Sky Solar had initiated arbitration against Marnoch seeking indemnification for its losses and alleged breaches of contractual warranties.  In his December 10, 2014 award (“Award”), the arbitrator dismissed Sky Solar’s claim against Marnoch.  Sky Solar appealed against the Award as well as two (2) costs awards (“Costs Awards”) dated February 27 and March 11, 2015.  Sky Solar’s appeal was dismissed: Sky Solar (Canada) Ltd. v Marnoch Electrical Services Inc., 2016 ONSC 1295.

At trial before Cavanagh J., Sky Solar accepted the factual findings made by the arbitrator in the Award as binding on it in its claims against Economical and FCA.  Though not a party to the arbitration, Economical also relied on findings made by the arbitrator in the Award.  Cavanagh J. confirmed Sky Solar’s, Economical’s and FCA’s agreement that the arbitrator’s findings of fact were binding and would not be relitigated in the court litigation.  See para. 32.

The findings of fact made in the arbitration between Sky Solar and Marnoch were at the heart of the court litigation between Sky Solar, Economical and FCA:

(a) the design of the solar systems, the wiring design and the choice of equipment to be installed were the responsibility of Sky Solar; and,

(b) Marnoch played no role in the decision to initially purchase the transformer for project 1 or in the subsequent decision to use brand of transformers at project 2 and as the replacement at project 1.

Cavanagh J. as trial judge expressly cited excerpts of the Award at paras 48, 50-51, 76 and 79. Those findings inform his own determinations of liability in the claims made before him in the litigation.

urbitral note – Cavanagh J.’s reasons contain no mention of issue estoppel explaining the reasons behind why the court litigants agreed to omit proof of those key facts.

(i) Economical – Economical’s role as insurer was not fully set out in Cavanagh J.’s reasons to explain why Economical accepted findings of fact made in another proceeding in which it was not involved.  Acknowledging that Economical was likely encouraged by the fact that Sky Solar had not prevailed on the claims made against Marnoch, readers can only infer the fuller reasoning, including that of Sky Solar also invoking the same findings.

Cavanagh J. did note Economical’s role as subrogated claimant by referring, at para. 125, to Economical’s alleged litigation against Marnoch in other proceedings.  Economical’s reliance, made in the court litigation, no doubt brought with it more fulsome explanations or caveats when presented to Cavanagh J.  For example, initially Economical denied that Sky Solar was an additional insured under its policy for Marnoch.  See para. 7.

Counsel, in their own dispute resolution, may point to Cavanagh J.’s own reliance on the arbitral findings as an example to follow.  Before doing so, counsel should anticipate distinctions regarding whether Economical’s role as insurer makes such reliance more or less relevant to their own disputes involving no insurer or subrogated claims.

(ii) FCA – Setting aside distinctions for insurers and subrogated claims, FCA’s own willingness to accept facts determined by arbitration deserve its own attention. Cavanagh J. did mention at para. 32 that “the parties” had agreed to rely on the facts determined in arbitration.  This means that FCA, and not just Sky Solar and Economical, agreed to rely on facts determined in a process in which FCA was not involved. 

The mention of “parties” sets aside the issue of whether Economical’s role as insurer imposed a willingness to adopt those facts.  Acknowledging that FCA’s agreement could have been motivated primarily by cost considerations, FCA’s willingness does serve as an example of a non-party voluntarily agreeing to re-using findings from an arbitration award to condense fact-finding in court proceedings regarding facts common to both dispute resolution processes. 

 (iii) Sky Solar – Though unsuccessful in the arbitration and in appeal of the Award, Sky Solar still agreed to apply those findings in fresh litigation against non-parties to the arbitration. Those facts ‘common to both’ involved Sky Solar and Marnoch and not Economical and FCA.  As such, proof made in arbitration of the acts/omissions of Sky Solar and Marnoch would be subject to the same evidence in arbitration.  By their agreement, the court litigants effectively acknowledged that, by re-submitting the same evidence but to a different decision maker, the findings would be the same.