Ontario – tolling agreement from arbitration overcomes limitation defence at pleadings amendment stage – #574

In Vale Canada Limited v. Solway Investment Group Limited et al, 2021 ONSC 7562, Justice Koehnen considered, in the context of a motion to amend a Statement of Claim,  the impact of a tolling agreement made in respect of claims made in arbitrations that had been commenced and concluded five years previous. In a decision that canvasses the law on the interaction of motions to strike and motions to amend, Justice Koehnen ultimately permitted the amendments, without prejudice to the defendants to plead a limitation defence and to bring a motion to strike.

The key issues, in this case, were predominantly procedural. The plaintiff Vale was an international mining company. It brought an action against the defendants in December 2020, alleging a failure to honour royalty payment obligations and undertaking conduct designed to deprive Vale of the consideration to which was entitled under certain royalty payment agreements, all relating to the production from a nickel mine in Guatemala known as Project Fenix. As between Vale and the defendants (and/or their predecessors), there were three agreements (the “CGN Agreements”). 

The Solway Group purchased an interest in Project Fenix in 2011 after the execution of the CGN Agreements. The defendants Solway Industries and HMI Ned, both wholly-owned subsidiaries of the Solway Investment Group, were said to have specifically guaranteed that the CGN Agreements would “continue unaffected” and be “binding and enforceable” following the sale to the Solway Group, in a Termination Assignment Agreement dated August 5, 2011.

In its action, Vale alleged that by late 2013, the defendants were engaged in conduct that was aimed at depriving Vale of the benefits to which it was entitled under the CGN Agreements. 

On January 14, 2015, Vale commenced two arbitrations against certain of the defendants, one under the CGN Agreements and another under the Termination Agreement. Vale then entered into a consent and tolling agreement with those parties (the “signing defendants”), which terminated the arbitrations. The tolling agreement provided that the issues raised in both arbitrations would be litigated in the Ontario Superior Court of Justice and that any limitation period would cease to run as of September 18, 2015, being the date of the tolling agreement. 

In December 2020, Vale issued a Statement of Claim as against both the signing defendants and defendants who were not signatories to the tolling agreement (the “non-signing defendants”). The defendants brought motions to strike out the claim. The non-signing defendants took the position that the claim ought to be struck in its entirety as against them, on the basis that the claims were time-barred. The signing defendants argued that at least portions of the claim should be struck as the claim contained new causes of action in respect of which the limitation period had not been tolled. 

Prior to the hearing of the motion to strike, Vale brought a motion for leave to amend its statement of claim. It also took the position that it had an absolute right to amend as the pleadings had not closed. The defendants objected, arguing that the motion to strike had to be argued first on the original Statement of Claim and that Vale’s proposed amendments, which included an allegation that it was an implied term of the tolling agreement that affiliates to the signing defendants would be bound, were an abuse of process. 

Both motions were before Justice Koehnen. He noted that the general rule is that, once a motion to strike has been brought, no party can take an action that will affect the interest of another party until such motion has been argued. In effect, the action is crystalized as at the time of the notice of motion such that the motion to strike ought to be heard on the original claim, not on the amendments. However, previous cases were not always consistent in their approach and application of the general rule. After review of the jurisprudence, Justice Koehnen noted that the “mainstream” of cases suggested that a party should not be allowed to amend without leave in the face of a motion to strike even before the close of pleadings, but that the motion on the amendment should be heard before the motion to strike. That is the process he followed here. He noted that, as a matter of practicality and efficiency, in most instances, one of the outcomes on a motion to strike is granting leave to amend. Here, those amendments could be dealt with first.

Amendments affecting non-signatory defendants – Key to the motion to amend was a consideration of the tolling agreement and whether the claims against some or all of the defendants were time-barred. Justice Koehnen noted that on a motion for leave to amend, the court is not to assess the evidence, interpret agreements or weigh the merits. For a limitation period to prevent an amendment, it had to be clear. The non-signing defendants argued that the allegation that there was an implied term that they would be bound by the tolling agreement was “patently ridiculous and incapable of proof”. However, Justice Koehnen noted that a tolling agreement is a contract, the interpretation of which involves questions of mixed fact and law. Implied terms are particularly bound up in the factual matrix of the contract. Similar to motions to strike where no evidence is admissible, on a pleading amendment motion, the court is precluded from weighing the evidence, interpreting controversial positions or making findings of fact. In the circumstances, the amendment was permitted without prejudice to the non-signing defendants to advance the limitation period defence.

Amendments relating to proposed new claims – Justice Koehnen did not reject the proposed amendments on the basis of the scope of the tolling agreement. The signing defendants argued that the arbitrations were limited to contractual claims and that the proposed amended claim would raise new causes of action not raised in the arbitrations. Those new causes of action were, therefore, time-barred.

Justice Koehnen reviewed the language of the tolling agreement. The agreement expressly tolled all the limitation periods to which the “Action applied and stated that the “issues” from the arbitration were to be determined in the action. Justice Koehnen agreed with Vale that there was a live issue as to whether the “issues” tolled in the agreement could be interpreted more broadly than the contractual claims advanced in the arbitrations. Further, limitation periods are about the facts and not the legal characterization of them. Thus, a different legal characterization of the same facts to which the tolling agreement applied would not be barred by a limitation defence. 

Withdrawal of admissions argument – Finally, Justice Koehnen rejected the defendants’ argument that the proposed amendments amounted to a withdrawal of admissions, noting that admissions in a claim are to be restrictively defined to “intentional, unambiguous and deliberate concessions”. In particular, how Vale described in the original claim who entered into the tolling agreement was really the effect of a choice of words and did not meet the threshold of an “admission”. 

Justice Koehnen granted Vale leave to amend the Statement of Claim without prejudice to the defendants’ rights to advance a limitation defence and to bring a motion to strike on the amended claim. 

Contributor’s Notes:

This case is predominantly about the interaction between motions to strike and motions to amend, but also raises interesting issues about the interaction between arbitrations and subsequent legal proceedings particularly relating to tolling agreements. The language used in the tolling agreement was argued to be open to interpretation. Counsel who enter into those agreements must be alive to these interpretive issues. 

One of the issues was what claims were being tolled. Though not reviewed in the decision, the Notices of Arbitration must have particularized the factual issues giving rise to the causes of action so as to allow for Justice Koehnen’s comments that those facts may give rise to different legal characterizations. In domestic arbitrations, Notices of Arbitration can vary dramatically as to their detail. As a practice point, counsel should consider how those pleadings may be reviewed and considered in a subsequent proceeding.

Finally, an important arbitration issue that sometimes arises: claims against multiple parties, some of whom may not be parties to the arbitration agreement. Vale’s argument that the non-signing defendants were impliedly bound by the tolling agreement has potential ramifications to the issue of whether affiliates or related entities are similarly impliedly bound to arbitration clauses. Given the focus on party autonomy in arbitration, different arguments may apply in the arbitration context as to the scope of any implied terms but this is an argument to watch in this case.

For a discussion on whether limitation periods continue to run even if it is unclear as to whether a matter should be pursued in arbitration or litigation, see Case Note: Alberta – uncertainty over which claims covered by arbitration does not delay commencement of limitation period – #162.