In Baffinland v Tower-EBC, 2022 ONSC 1900, Justice Pattillo dismissed both: (1) an application to set aside an award from a majority of an arbitral tribunal (the “Majority Award”) under section 46 of the Arbitration Act, 1991, S.O. 1991, c. 17 (the “Act”); and (2) an application for an order granting leave to appeal the Majority Award and Costs Award under section 45(1) of the Act. Justice Pattillo found there were no grounds upon which to set aside the Majority Award; there was no lack of jurisdiction or failure to be treated equally and fairly. Nor could leave to appeal be granted under section 45(1) of the Act because the arbitration agreement precluded an appeal.
This matter involved the construction of a rail line in the Qikiqtani region of North Baffin in Nunavut. The applicants, Baffinland Iron Mines LP and Baffinland Iron Mines Corporation (collectively “BIM”), wanted to construct the rail line along related infrastructure to transport ore from the Mary River mine to a port at Milne Inlet (the “Project”). BIM entered into two contracts with the respondent, a general partnership between EBC Inc. and Tower Arctic Limited (“TEBC”), to perform earthworks for the Project. The contracts were based upon the FIDIC (Federation Internationale des Ingenieurs-conseils) standard form for construction projects, were virtually identical to each other, and contained an agreement to arbitrate (the “Contracts”).
TEBC entered into a sub-contract with another privately owned corporation (“CRS”) for drilling, blasting and crushing services in connection with the Contracts.
The Project suffered lengthy, unanticipated delays in obtaining the permits necessary under Nunavut law. Having not received the requisite permits, BIM sent a notices to TEBC on September 25, 2018, terminating the Contracts.
The arbitration – TEBC commenced arbitration, challenging BIM’s right to terminate the Contracts and for damages arising from the termination. TEBC also sought to recover amounts that it would owe to CRS for outstanding standby charges, the cost of spare parts, and lost profit. The arbitration proceeded before a three-member tribunal. Prior to the hearing, with the consent of the parties, the tribunal issued a Procedural Order that provided sub-contractor and non-party CRS with the right to be represented by counsel during the testimony of CRS witnesses at the merits hearing (in the interests of advancing the CRS component of TEBC’s claim).
After hearing from seven fact witnesses and five experts at the hearing, receiving a joint expert report, and two-and-a-half days of closing submissions, the tribunal issued a Partial Final Award on Liability and Remedy on December 9, 2020. The tribunal unanimously found that BIM had wrongfully terminated the Contracts but was split in respect of damages. The Majority Award provided TEBC with damages of either $70,340,292 or $66,763,347, depending on whether BIM was taking title to certain contractor equipment, along with damages for lost profits, as a result of CRS’ claims, as compensation for supplied materials and as compensation for the parties’ agreement on smaller claims. The Partial Dissent found that damages ought to be $54,155,680 less than the Majority Award. It awarded damages for a smaller amount of lost profits, with no damages in consideration of the contractor equipment moved to the construction site or for CRS’s claims.
After summarizing the facts relating to the arbitration, Justice Pattillo determined there were three issues before him as a result of BIM’s application: 1) whether the Award should be set aside pursuant to section 46 of the Act; 2) whether BIM had a right of appeal under section 45 of the Act; and, if so, 3) whether leave to appeal should be granted under section 45 of the Act.
The set aside application – BIM argued that the Majority of the tribunal exceeded its jurisdiction in three specific ways (the “Disputed Claims”). These were in: a) awarding TEBC standby fees in respect of contractor equipment TEBC sent to Baffin Island or otherwise dedicated to the Contracts (the “Standby Claim”); b) awarding $13 million in compensation in respect of CRS’s pre-termination standby fees and lost profit (the “CRS Claims”); and c) awarding non-contractual damages for TEBC’s loss of profits in respect of additional quantities of earthworks which were allegedly outside the Contracts(the “Additional Quantities”). These Disputed Claims correlated with where the Partial Dissent disagreed with the Majority’s award on damages.
(1) Waiver issue – TEBC opposed BIM’s application because BIM never raised any objection before the tribunal with respect to the Disputed Claims. Moreover, BIM actually agreed to the inclusion of the Disputed Claims in the arbitration and provided defences to these claims on the merits. Amongst other provisions in the Act, and under the ICC Rules which applied, TEBC relied upon section 46(3) of the Act, which provides that the court shall not set aside an award if ”the party has agreed to the inclusion of the dispute or matter, waived the right to object to its inclusion or agreed that the arbitral tribunal has power to decide what disputes have been referred to it.”
Justice Pattillo found that establishing any one of the disjunctive elements of section 46(3) of the Act was sufficient to prevent a court from setting aside the Majority Award on allegations the Majority exceeded its jurisdiction. All three grounds of section 46(3) applied in this case: BIM agreed to the inclusion of these three specific issues in the arbitration through the pleadings and the Terms of Reference for the arbitration; failed to raise any objection to the tribunal’s jurisdiction to deal with these three specific issues at any time (and was thus deemed to have waived its right to do so under section 4 and 17(5) of the Act and Article 40 of the ICC Rules); and thereby agreed that the tribunal had the power to decide these points. Justice Pattillo also expressly disagreed with BIM’s argument that it was not until the Majority Award that these jurisdictional errors became apparent; they should have been raised with the tribunal from the outset.
(2) Scope of arbitration clause issue – BIM also relied upon section 46(1)(3) of the Act, which states that the court may set aside an award if it “deals with a dispute that the arbitration agreement does not cover or contains a decision on a matter that is beyond the scope of the agreement.” Justice Pattillo found that even if his conclusion on section 46(3) was incorrect, the arbitration agreement between the parties expressly provided jurisdiction to the tribunal to deal with each of the three issues now raised by BIM. The broad language of the arbitration agreement specifically provided the tribunal with jurisdiction to determine “a dispute (of any kind whatsoever) arising between the Parties in connection with or arising out of the Contracts or the execution of the Works.” Specifically, BIM’s argument that the Majority purported to exercise extra-contractual equitable jurisdiction in concluding TEBC was entitled to the Standby Claim was a mischaracterization of comments made in obiter by the Majority.
The Majority had noted in a footnote that the power granted to the arbitrator under the Contracts to “have full power to open up, review and revise any Certificate, determination, instruction, opinion or valuation of the Engineer, and any decision of the [Dispute Advisory Board], relevant to the dispute” was “in the nature of equitable relief.” BIM relied upon this footnote to assert that the Majority’s decision on the Standby Claim, specifically certain standby fees, was an exercise in extra-contractual equitable jurisdiction. Justice Pattillo found the award on the Standby Claim involved matters of interpretation of the Contracts and was not an excess of jurisdiction. Similarly, the Majority Award’s findings with respect to the CRS Claim and Additional Quantities Claim were reached through analysis of the Contracts, matters clearly within their jurisdiction, and at no time did the Majority determine a dispute not covered by the arbitration agreement.
(3) Procedural fairness issue – Next, BIM alleged that the conduct of the President of the tribunal (part of the Majority) during the hearing interfered with the proceedings and was improper, and that the Majority Award relied upon “a highly dubious legal argument” in respect of the CRS Claim that neither Party had advanced, thus failing to treat BIM fairly or equally. It relied upon sections 46(1)(6) or (7) and section 19 of the Act, which read:
“s.46(1) On a party’s application, the court may set aside an award on any of the following grounds:
6. The applicant was not treated equally and fairly, was not given an opportunity to present a case or to respond to another party’s case or was not given proper notice of the arbitration or of the appointment of an arbitrator.
7. The procedures followed in the arbitration did not comply with this Act.
s.19 (1) In an arbitration, the parties shall be treated equally and fairly.
(2) Each party shall be given an opportunity to present a case and to respond to the other parties’ cases.
BIM’s specific allegation was that the President’s questioning of witnesses during the hearing, and of counsel during argument, “descended into the arena” constituting excessive interference with the parties’ presentation of their cases resulting in unfairness such that the Majority Award must be set aside. After a careful analysis of the 233 pages of the hearing transcript that BIM indicated were indicative of the President’s alleged conduct, Justice Pattillo noted that the parties agreed in their first Procedural Order that members of the tribunal may question witnesses, the President’s questions were mainly for clarification, the President was always courteous and respectful (apologizing for interrupting and thanking the witness for their answer), and the President always gave counsel for both parties the opportunity to ask follow-up questions from the tribunal’s questions. Notably, at no point during the hearing did BIM object to the President’s conduct. Given the severity of the allegations, Justice Pattillo believed counsel would have been aware of these allegations before they reviewed the transcript, despite BIM’s position that that was not the case. Also, all members of the tribunal asked questions not just the President.
With respect to the CRS Claim, BIM alleged that the Majority Award was based on a “highly dubious legal argument” that no party advanced during the hearing (specifically, that BIM was a third-party beneficiary of TEBC’s subcontracts such that CRS’ claim for standby fees could be awarded in the arbitration). Justice Pattillo found that it was clear from the transcript that the tribunal directly asked BIM to consider this legal argument, providing BIM (and TEBC) with an opportunity to address the issues that BIM now complained about. BIM’s application to set aside the Majority award under section 46(1)(6) or (7) and section 19 of the Act also failed.
Application for leave to appeal – Lastly, Justice Pattillo examined BIM’s application for leave to appeal in light of section 45(1) of the Act which states:
“45(1) If the arbitration agreement does not deal with appeals on questions of law, a party may appeal an award to the court on a question of law with leave, which the court shall grant only it is satisfied that,
(a) the importance to the parties of the matters at stake in the arbitration justifies an appeal; and
(b) determination of the question of law at issue will significantly affect the rights of the parties.”
While BIM argued that it met all of the tests, TEBC argued the opposite that none were met.
In looking at the first part of this test, Justice Pattillo recounted the language from the Contracts which stated:
“20.6 Unless settled amicably, any dispute in respect of which the DAB’s decision (if any) has not become final and binding shall be finally settled by international arbitration. Unless otherwise agreed by both Parties:
(a) the dispute shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce,
(b) the dispute shall be settled by three arbitrators appointed in accordance with these Rules, and
(c) the arbitration shall be conducted in the language for communications defined in Sub-Clause 1.4 [Law and Language].”
This incorporated by reference article 35(6) of the ICC Rules which provides:
“Every award shall be binding on the parties. By submitting the dispute to arbitration under the Rules, the parties undertake to carry out any award without delay and shall be deemed to have waived their right to any form of recourse insofar as such waiver can validly be made.”
BIM effectively conceded that article 35(6) of the ICC Rules precluded an appeal. Justice Pattillo also found that the words “finally settled” in the Contracts were not inconsistent with the language of article 35(6) of the ICC rules, thus precluding an appeal on a question of law and ending the inquiry. The application for leave to appeal was dismissed.
First, this case emphasizes an important feature under many arbitration statutes in Canada and institutional rules: the importance of promptly raising concerns with respect to the tribunal exceeding its jurisdiction. Justice Pattillo spends substantial time at the outset of the decision discussing the extensive proceedings and steps involved in the underlying arbitration, down to the number of pages of transcripts involved (over 8,300), and ultimately denied the application to set aside under section 46(1)(3) of the Act because of the absence of any complaint with respect to jurisdiction – and indeed apparent agreement and participation of the applicant in all steps up to when it brought the set-aside application. Not only does a failure to promptly raise a jurisdictional objection carry an implied waiver under the Act but in this case there was also a deemed waiver under the ICC Rules.
Second, this case also raises the conflict in the law on standard of review in the context of commercial arbitration awards following the Supreme Court of Canada’s decision in the Supreme Court’s decision in Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65. Justice Pattillo does not comment on the matter beyond recognizing the conflict that has developed. He finds in this decision that the standard of review on a question of arbitral jurisdiction is correctness, and the standard of review on BIM’s allegation that it was not treated fairly or equally was whether the requisite level of procedural fairness has been afforded. For greater background see previous Case Notes: Ontario – court’s contractual interpretation confirms arbitrator’s jurisdiction to hear dispute but not award lost profits – #117 and Ontario – jurisdiction involves whether arbitrator has authority to make inquiry, not the answer to the inquiry – #458.