In Hydro Hawkesbury v. ABB Inc., 2020 ONCA 53, the Ontario Court of Appeal enforced an undertaking to arbitrate despite the undertaking being contained in terms which had not been specifically brought to the resisting party’s attention or provided in materials exchanged. Those terms were readily available and specifically referred to in documents creating the contractual relationship and a “fairly sophisticated corporate consumer” doing business with a foreign supplier in international markets would reasonably be expected to expect and to review the terms. Also, in first instance, the applications judge also accepted that the application to stay was timely despite being filed well after the defence.
Following a 2011 request for proposals issued by Hydro Hawkesbury, Pioneer Transformers Ltd. (“Pioneer”) contracted with Hydro Hawkesbury to manufacture and supply transformers. Following delivery and operation of the transformer in April 2012, the transformer failed in July 2013 causing damage and contamination to the surrounding ground. All agreed that the failure was due to a faulty weld on the drive shaft of a tap changer which regulates voltage output. ABB AB (“ABB”) supplied the tap changer.
On August 12, 2014, Hydro Hawkesbury sued Pioneer in contract and sued Pioneer and ABB in negligence. Pioneer and ABB defended and also cross-claimed against each other. On November 14, 2014, Pioneer filed its defence against both causes of action and cross-claimed against ABB. ABB filed its defence and cross-claim on July 16, 2015.
In its July 2015 defence, ABB argued that the Components Proposal it provided to Pioneer contained a specific reference to the Orgalime S 2000 General Conditions for the Supply of Mechanical, Electrical and Electronic Products (“General Conditions”) which issued in August 2000 from an industry body located in Europe. (“Organisme de Liaison des Industries Métalliques Européennes” or “European Engineering Industries Association Representing the Interests of the Mechanical, Electrical, Electronic, Metalworking & Metal Articles Industries”).
ABB stated that its follow up Order Acknowledgement to Pioneer stipulated that deliveries were made in accordance with the General Conditions. ABB did not provide those General Conditions and Pioneer did not request them. The General Conditions included sections 44 and 45:
“Section 44 All disputes arising out of in connection with the contract shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said rules.
Section 45 The contract shall be governed by the substantive law of the Supplier’s country.”
In June 2019, just under four (4) years after having filed its defence, ABB pleaded an application to stay the cross-claims between ABB and Pioneer. ABB was prompted to file its stay application because Hydro Hawkesbury applied for summary judgment of the contract claim against Pioneer.
Pioneer resisted application of the General Conditions, raising two (2) arguments: (i) ABB never brought the General Conditions to its attention; and, (ii) ABB raised the General Conditions for the first time when ABB served its July 2015 defence and did not invoke them until it applied for a stay of the cross-claims between it and Pioneer.
In his decision on ABB AB’s motion to stay the cross-claims between ABB and Pioneer, Mr. Justice Robert Pelletier introduces his reasons by guiding readers to read his other set of reasons also:
“ The present Reasons for Judgment are to be read in conjunction with the Reasons for Judgment in the summary judgment motion of the Plaintiff Hydro Hawkesbury as against Pioneer on the issue of breach of contract.”
Pelletier J. identified two (2) issues and dealt with them in turn:
(i) application of General Conditions – “Are Pioneer and ABB AB bound by the terms of the General Conditions establishing Orgalime as the proper authority for the resolution of the dispute between them” paras 8-14
Pelletier J. accepted that Pioneer established that the General Conditions had neither been “specifically brought” to Pioneer’s attention nor included in the materials exchanged. Pelletier J. offset those facts by determining that Pioneer was an existing client of ABB and “a fairly sophisticated corporate consumer” which must have turned its mind to litigation and forum. Pelletier J. distinguished the cases offered by Pioneer which sought to establish “the limits to which contracting parties are entitled to rely on voluminous, at times, overwhelming documentation associated with commercial transactions”. See Tilden Rent-A-Car Co. v. Clendenning, 1978 CanLII 1446 (ON CA) and Anglo Oriental Rugs Ltd. v. March Sleeping Ltd. (ONSC) (1993) 40 A.C.W.S. (3d) 260.
In contrast to those precedents, Pelletier J. found that “proper notice and tacit acceptance” of the General Conditions existed when Pioneer accepted ABB’s terms of delivery.
(ii) delay in bringing application to stay – “Can ABB AB invoke the terms of the General Conditions at this stage of the proceedings” paras 15-26
Pelletier J. looked to the combined application of section 9 of Ontario’s International Commercial Arbitration Act, 2017, SO 2017, c 2, Sch 5 (“ICAA”) and section 8(1) of the UNCITRAL Model Law on International Commercial Arbitration (“Model Law”) attached as Schedule 2 to ICAA.
“8(1) A court before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so requests not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed.”
Pelletier J. read those sections as requiring a party to request a referral to arbitration not later than upon submitting its first statement on the substance of the dispute. “The first statement has been held to represent a request before a Court, whether such request was made to the opposing party or not”. (As authority, Pelletier J. referred readers to ABN Amro Bank Canada v. Krupp Mark Machinenbau GmbH  O.J. No. 3044. See ABN Amro Bank Canada v. Krupp MaK Maschinenbau GmbH, 1994 CanLII 7355 (ON SC). The reference to the 1994 decision is inexact as that decision was overturned on appeal by the Ontario Divisional Court in 1996 in ABN Ambro Bank Canada v. Krupp Mak Maschihnenbau GmbH, 1996 CanLII 12449 (ON SCDC), para. 14. See further below in the urbitral note.)
Pelletier J. added that the “issue can be raised in the course of pending litigation”, referring to Automatic Systems Inc. v. Bracknell Corp., 1994 CanLII 1871 (ON CA)
In light of the above, Pelletier J. held that ABB had sought a referral to arbitration in its submissions on its application to stay and thereby met the “first statement” requirement set out in section 8(1) of the Model Law.
Pelletier J. further held that ABB had not attorned to the Ontario courts’ jurisdiction by delaying its application to stay. Hydro Hawkesbury had sued ABB in negligence and, in doing so, prevented ABB from invoking the terms of ABB’s contract with Pioneer. See paras 24-25.
Appeal to Ontario Court of Appeal – Hydro Hawkesbury appealed both of Pelletier J.’s June 26, 2019 decisions.
The Court of Appeal issued a pair of reasons a corresponding to each June 26, 2019 decision. The first, Hydro Hawkesbury v. ABB Inc., 2020 ONCA 53, addressed Pelletier J.’s decision to grant a stay in favour of arbitration. The second, Hydro Hawkesbury v. ABB AB, 2020 ONCA 54, addressed Pelletier J.’s decision to grant summary judgment against Hydro Hawkesbury. Each of the reasons refers to the corresponding June 26, 2019 decision issued by Pelletier J. and identifies both as being reported at 2019 ONSC 3930. As of the date of this post, neither of Pelletier J.’s June 26, 2019 decisions are posted.
In its brief reasons, the Court readily agreed with Pelletier J. that Tilden Rent-A-Car Co. v. Clendenning, 1978 CanLII 1446 (ON CA) did not apply.
“ We agree with the motion judge that this case is different from Tilden. This is not a case where the signing party could not reasonably have been expected to read the contract before signing it. As the motion judge noted at paras. 8-10, the appellant was a “fairly sophisticated corporate consumer” and the Orgalime terms and conditions, which were readily available, were specifically referred to in two documents creating the contractual relationship between the appellant and ABB. The two documents were dated two weeks apart and the appellant confirmed the second document three days after receiving it. In the circumstances of this case, a “fairly sophisticated corporate consumer” doing business with a foreign supplier of electrical components in international markets would reasonably be expected to have reviewed the terms of both documents and would expect clauses of the type contained in Orgalime.”
urbitral note – First, in his reasons at para. 5, Pelletier J. identifies the date of ABB’s stay application as “June 2018”. The mention of “2018” indicates either an error or a twelve-month delay in serving the application and obtaining a hearing date. The mention is likely an error and should read “2019”.
For a contrasting application of a similar delay in presenting a stay application, resulting in a refusal of the stay, see the Master’s decision in Agrium, Inc v. Colt Engineering Corporation, 2020 ABQB 53.
Second, regarding a recent application of Tilden Rent-A-Car Co. v. Clendenning to the related issue of forum selection clauses, see Schuppener v. Pioneer Steel Manufacturers Limited, 2019 BCSC 425 at paras 38-39.
Third, Pelletier J. at para. 21 of his June 26, 2019 stay decision cites the 1994 decision in ABN Amro Bank Canada v. Krupp MaK Maschinenbau GmbH, 1994 CanLII 7355 (ON SC) as authority. As noted above, that decision was overturned by the Divisional Court in 1996 in ABN Ambro Bank Canada v. Krupp Mak Maschihnenbau GmbH, 1996 CanLII 12449 (ON SCDC), para. 14. Pelletier J. likely meant to refer to the Divisional Court which supports the result in his decision.
For ease of reference, Haley J. in first instance ruled that a party which files its defence effectively waives its right to object but the Divisional Court disagreed and reversed that approach:
First instance – Haley J.: “I do not see how this applicant can take the definitive step of serving and filing a statement of defence and counterclaim in the action and say simultaneously that it seeks a stay for an arbitration to deny the jurisdiction of the court. It is similar to a party’s filing a pleading in an action where it disputes the jurisdiction of the court. By filing the pleading the party attorns to the jurisdiction of the court and it loses its right to dispute the jurisdiction. By the same token when the applicant filed its statement of defence and counterclaim in this action, although the arbitration clause was mentioned in the pleading, it was waiving its right to arbitration.
I am satisfied that even on a generous interpretation of the wording in the statement of defence and counterclaim the service of the pleading amounted to a waiver of the right to request arbitration. The correct procedure would have been to bring a motion before the court following receipt of the statement of claim requesting referral to arbitration and a stay before taking any step in the action. Only in that way could the court have had assurance that the applicant was adopting a formal position and was not, as it would appear here, just keeping its options open. It is perhaps significant for that last point to recall that a number of other actions arising out of these transactions had been brought much earlier between the parties both in Ontario and in other jurisdictions, and in none of them did the applicant seek arbitration. Nor did the applicant take any steps to institute the arbitration process as it was open for it to do with the protections of art. 8(2) mentioned above.”
On appeal – Divisional Court reversed: “ I find that Krupp’s statement of defence and counterclaim, in the context of the correspondence between counsel at the time, constituted a request “not later than when submitting [its] first statement on the substance of the dispute”. The effect of Haley J.’s ruling is to require that a request be made before a party’s first statement which is contrary to the express wording of both art. 8 and the commentary. Indeed, it is a return to the requirement of a procedural plea at an earlier stage than any pleading, a concept which the commentary makes clear has been done away with. With the greatest of respect, it is too technical to require that Krupp should also have served a notice of motion before pleading or actually have appeared before a court on or before filing its first pleading. Krupp was pursuing its motion to refer prior to, concurrent with and after filing its statement of defence. In fact, I do not understand that Krupp took any further step in the action in so far as it pertained to the matters Krupp sought to have referred to arbitration. Thus, it is untenable to contend that Krupp did not commit itself until it formally brought its motion or until it was actually before the court. If this was the position of counsel for ABN from the outset, Krupp’s counsel should have been so advised, given the state of the correspondence between counsel at the time.”
The omission to mention the 1996 Divisional Court was also made in Sala v. Jack Aaron & Company Ltd., 2009 CanLII 32263 (ON SC) para. 5 and in Bouchan v. Slipacoff, 2009 CanLII 728 (ON SC) para. 33. Like Pelletier J.’s, both 2009 decisions refer only to the 1994 General Division decision but not the later 1996 Divisional Court decision reversing it.
Haley J.’s 1994 decision in first instance has been referred to as recently as 2015 in West Coast Installations Inc v. Frazier Industrial Company, 2015 ABQB 257 paras 33-43 but with the added mention of the Divisional Court’s 1996 decision. Agrawest & AWI v. BMA, 2005 PESCTD 36 para. 15 also refers to the Ontario Divisional Court.
Fourth, at para. 15 of his reasons for summary judgment, Pelletier J. anticipated the impact on the ABB/Pioneer arbitration of granting Hydro Hawkesbury’s claim. “To the extent that Hydro Hawkesbury is capable of providing relevant and admissible evidence in the litigation of those issues, it can do so as a witness without the necessity that it remain a litigant”.
Fifth, the Divisional Court’s reasons in ABN Ambro Bank Canada v. Krupp Mak Maschihnenbau GmbH, 1996 CanLII 12449 (ON SCDC) at para. 15 also provide helpful overview of the legal principle that an assignor is bound by the arbitration agreement contained in the assigned contract. The Court observed that “[i]t is a fundamental and, I think, universal commercial legal principle that an assignor is not entitled to divide that which is assigned amongst assignees so as to convey the benefits and nullify the burdens”.
Sixth, the Court of Appeal reference to “ABB” differs in the style of cause in each Court of Appeal decision. In the stay application 2020 ONCA 53, ABB is identified as “ABB Inc.” whereas in 2020 ONCA 54, ABB is identified as “ABB AB”. Pelletier J. uses the latter designation in both his June 26, 2019 decisions.