In Saskatchewan v Capitol Steel Corporation, 2021 SKQB 224, Saskatchewan alleged that Capitol Steel Corporation (“CSC”) had repudiated the arbitration agreement in written submissions made just before the arbitration hearing. Saskatchewan’s position was that these submissions denied one of the recitals in the parties’ arbitration agreement that showed agreement on a matter which CSC then put in issue in the arbitration. Saskatchewan challenged the arbitrator’s jurisdiction as a result of CSC’s alleged repudiation of the arbitration agreement. The arbitrator dismissed the application and Saskatchewan then applied to the Court “to decide the matter” under s. 18(9) of The Arbitration Act, 1992, SS 1992, c A-24.1, which states that, “[i]f the arbitral tribunal rules on an objection as a preliminary question, a party may, within 30 days after receiving notice of the ruling, make an application to the court to decide the matter.” Justice Clackson found that the standard of review of an arbitrator’s preliminary decision on jurisdiction, where one party alleged the other repudiated the arbitration agreement, was correctness. He held that the arbitrator was correct in finding there was no repudiation because there was no anticipatory breach. The alleged breach did not deprive Saskatchewan of any of the rights that it had under the arbitration agreement.
This dispute arose in connection with a Project Agreement between the Government of Saskatchewan and CSC for the construction of a bridge across the South Saskatchewan River. The agreement for the first phase of the project required CSC to make two steel deliveries, the first on February 17, 2012, and the second on February 24, 2012. The Project Agreement also set out both daily and lump sum liquidated damages in the event of late delivery by CSC.
CSC’s two deliveries were late, the first on October 10, 2013, and the second on October 30, 2013. A dispute arose between the parties on the issue of liquidated damages. Saskatchewan and CSC entered into an arbitration agreement on October 9, 2015. In the recitals to the arbitration agreement the parties agreed “that the daily Liquidated Damages provision is a valid [sic] and should be used to determine the Government’s damages.” The parties also specifically asked the arbitrator to determine “the appropriate amount of daily Liquidated Damages to which the Government is entitled” under the Project Agreement.
The arbitration hearing was scheduled to commence on October 4, 2016. Saskatchewan and CSC delivered their written submissions in advance. In response to Saskatchewan’s claim for liquidated damages, CSC’s written submissions included a defence that, in Saskatchewan’s view, called into question the enforceability of the liquidated damages provision of the Project Agreement. Saskatchewan claimed this defence was diametrically opposed to the recital in the arbitration agreement that confirmed the validity of liquidated damages provision.
Saskatchewan then wrote to CSC, claiming that it had committed a “material or fundamental breach” of the arbitration agreement. Saskatchewan claimed the arbitration agreement was discharged by breach or was repudiated. It claimed that, because the arbitration agreement was at an end, it was relieved of its obligation to proceed with the arbitration.
Saskatchewan challenged the jurisdiction of the arbitrator, who agreed to hear and determine jurisdiction as a preliminary matter in the arbitration. The arbitrator issued a decision on June 21, 2019, dismissing Saskatchewan’s challenge, and finding that he had jurisdiction.
Saskatchewan then applied to the court, relying upon s. 18(9) of The Arbitration Act, 1992, SS 1992, c A-24.1, which states that “[i]f the arbitral tribunal rules on an objection as a preliminary question, a party may, within 30 days after receiving notice of the ruling, make an application to the court to decide the matter.”
Justice Clackson began by determining the appropriate standard of review. He found that while s. 18(9) of the Arbitration Act does not contemplate a hearing de novo, it does require a decision by the Court as to whether the arbitrator’s decision was correct. He then examined the law on contract repudiation. He found Saskatchewan’s claim melded both repudiation by an innocent party arising from another party’s breach of contract and repudiation by a contract-breaker which is an anticipatory breach. Saskatchewan’s position was predicated upon repudiation arising from anticipatory breach; specifically, that CSC’s conduct constituted anticipatory breach of the arbitration agreement. In reviewing the law on anticipatory breach, Justice Clackson found that an anticipatory breach occurs where the conduct of a party amounts to a total and unjustified rejection of its contractual obligations with the effect of depriving the innocent party of all or substantially all of the benefit it would derive from the contract.
Then Justice Clackson examined the arbitrator’s decision. The arbitrator had concluded that CSC’s position in its written submissions could not be taken as a total rejection of the arbitration agreement and therefore was not an anticipatory breach. This was because, regardless of whether there was a rejection of the liquidated damages clause, the determinative issue was whether Saskatchewan was deprived of all or substantially all of the benefit of the contract, specifically the arbitration agreement, as a result of that breach. On this issue, the arbitrator’s reasons noted that even if CSC had committed an anticipatory breach in its defence submission on the liquidated damages clause, Saskatchewan did not thereby suffer a loss of all or substantially all of the benefit of the arbitration agreement. Saskatchewan still had the benefit of insisting on compliance with the arbitration agreement and proceeding to arbitration. Justice Clackson found that the arbitrator correctly concluded there was no repudiation by anticipatory breach; if the arbitration agreement precluded CSC from advancing its challenge to liquidated damages then Saskatchewan lost nothing and if the agreement did not preclude this defence then Saskatchewan had no cause to complain.
Justice Clackson concluded that the arbitrator’s decision on jurisdiction was correct.
Contributor’s Notes:
Justice Clackson necessarily embarked upon a discussion of the appropriate standard of review for matters under s. 18(9) of the Arbitration Act. He ultimately found the standard to be correctness. Notwithstanding the fact that Saskatchewan formulated the proceedings as an appeal of the arbitrator’s decision, the legislation at issue says that an aggrieved party is to “make an application to the Court to decide the matter.” The Court found, in line with case law from Alberta which has a similar provision at s. 17(9) of its Arbitration Act, RSA 2000, c A-43, that this language demonstrated a legislative choice to engage a judicial review in which the Court can make a final decision. As a result, the Court is not to consider appellate standards of review. Justice Clackson’s determination that the Court was not conducting a hearing de novo can be contrasted with the decisions at Case Notes: Ontario – Court application under Model Law Art. 16(3) to “decide the matter” of the tribunal’s jurisdiction is a hearing de novo and not a “review” of the tribunal’s decision – #513 and Ontario – Courts decide consent to arbitration de novo, without deference to arbitral tribunal – #532. These Case Notes concern decisions from Ontario which find applications to a Court to “decide the matter” in connection with preliminary questions on arbitrator jurisdiction are hearings de novo.
Justice Clackson found that the standard of review of an arbitrator’s preliminary decision on jurisdiction, where one party alleged the other repudiated the arbitration agreement, was correctness. With respect to whether the decision in Canada (Minister of Citizenship and Immigration) v Vavilov, 2019 SCC 65, (“Vavilov”) supplanted the correctness standard with one of reasonableness, Justice Clackson relied upon the direction in Vavilov that the standard “must reflect the legislature’s intent with respect to the role of the reviewing court, except where giving effect to that intent is precluded by the rule of law.” Case Notes N.W.T. – Court applies Vavilov to commercial arbitration awards subject to statutory right of appeal – #419 and Supreme Court – for those SCC justices willing to consider it, Vavilov applies to private commercial arbitration where legislation provides for appeal – #420 discuss the tension in the case law as to whether the decision in Vavilov applies to appeals in commercial arbitration. In this case, however, Justice Clackson determined that it was not presiding over an appeal but a judicial review. He found the language in s. 18(9) to be clear that the legislature intended a standard of correctness for preliminary rulings on jurisdiction. This was because the language came into effect before Vavilov, when the state of the law was that such questions were reviewed on a correctness standard, and the wording of s. 18(9) strongly suggests correctness because it empowers the Court to make the decision regarding jurisdiction.