Saskatchewan – litigants’ autonomy to consent to drop dead orders not contrary to public policy – #219

In Gustafson v. Future Four Agro Inc., 2019 SKCA 68, Saskatchewan’s Court of Appeal upheld the litigants’ agreement to dismiss a party’s Statement of Defence and Counterclaim for failure to complete an agreed-upon procedural step by the date set.  The Court held that such agreements are “Contracts” which can be enforced by a consent order and do not constitute contracting out of legislation designed to protect the public interest.  The reasoning can apply by analogy to procedural agreements made and enforced in arbitration.

Appellant and Respondent were parties to a series of contracts of sale for agricultural products.  Appellant refused to pay Respondent $1,101,311.26, claiming billing irregularities and non-delivery.

Responded instituted an action in Saskatchewan’s Court of Queen’s Bench to recover payment.  Initially unresponsive to the litigation, Appellant did engage but failed to comply with his obligation and the delays to provide an affidavit of documents.  At one point, Appellant and Respondent came to an agreement on an extension of time by which Appellant would file his affidavit of documents.  The Court of Appeal qualifies the agreement as a “Contract” with the following terms:

(i) Respondent would withdraw its application to compel production;

(ii) the time for Appellant to serve his affidavit of documents would be extended to January 31, 2018;

(iii) Appellant would provide his crop insurance records; and,

(iv) Appellant’s Statement of Defence and Counterclaim would be struck if the affidavit was not served by January 31, 2018.

These terms were formalized in a Consent Order, reproduced at para. 6 of the reasons which included, as a consequence of non-compliance, the following order:

Should the Defendant fail to serve his Affidavit of Documents (along with the SCIC Documents) on or before January 31, 2018, the Defendant’s Statement of Defence and Counterclaim shall be struck.

After the Consent Order issued: Respondent withdrew its application to compel production; Appellant failed to serve his affidavit of documents; Respondent applied to strike Appellant’s Statement of Defence and Counterclaim; and, Appellant served his Affidavit of Documents and applied under Rule 13-7 of Saskatchewan’s Queen’s Bench Rules (“Rules”) to extend the time for service nunc pro tunc

The Chambers’ judge dismissed Appellant’s application.  Appellant appealed under section 7(2) of the The Court of Appeal Act, 2000, SS 2000, c C-42.1.

Appellant’s appeal raised three (3) issues, the second of which raises issues of party autonomy and procedural fairness in arbitration: did the Chambers judge err in law in failing to find the Consent Order was vitiated by reason of illegality?

Paras 35-53 of the reasons contain the analysis relevant to arbitration practice and concern whether and when a party can contract out a statutory provision designed to protect the public interest.

Appellant argued that the Consent Order amounted to contracting out of The Queen’s Bench Act, 1998, SS 1998, c Q-1.01 (the “QB Act”) which, by section 28, grants authority to judges to make the Rules, as well as contracting out of the Rules themselves.  Appellant submitted that the QB Act and the Rules “protect the public interest in the litigation process and facilitate just resolutions to disputes”.  Relying on Royal Trust v. Potash, [1986] 2 SCR 351, 1986 CanLII 34 (SCC), paras 39-40.

The Court of Appeal acknowledged the statement of the “long standing principle” made in Royal Trust v. Potash against contracting out of a statutory provision designed to protect the public interest.  The Court then pointed to a more in-depth consideration in Ontario Human Rights Commission v. Etobicoke, [1982] 1 SCR 202, 1982 CanLII 15 (SCC) of the issue. See para. 37 of the reasons which focus on paras 213-214 of Ontario Human Rights Commission v. Etobicoke.

The Court of Appeal cautioned that, as revealed by the Supreme Court’s analysis, the issue is not simply whether the legislation was passed in the public interest. 

In the broad sense, all legislation is passed in what legislators believe to be the public interest. Nonetheless, as a general rule, a person can contract to waive benefits conferred by legislation. He or she cannot do so only if it would be contrary to public policy or contrary to the provisions or general policy of the legislation.

To refine the “long standing principle”, the Court of Appeal looked deeper into the reasoning of Ontario Human Rights Commission v Etobicoke and Potash v Royal Trust Co.

These cases reflect the fact that the contracting out principle applies only if the legislation at issue has a certain sort of public policy purpose, and then only if permitting the waiver or contracting out would be inconsistent with or undermine that purpose. The principle has limited application. The “general rule” that contracting out is permitted referred to in Etobicoke reflects that fact.

The Court of Appeal further held that Appellant overstated the nature of the Consent Order.  The issue, as framed by the Court, was not whether parties could contract out of the QB Act or the Rules but whether the “Contract” providing that the Statement of Defence and Counterclaim would be struck was contrary to public policy.

The Court of Appeal give three (3) reasons why the “Contract” was not contrary to public policy.  The reasoning should be of interest to arbitration practitioners and their discussion of party autonomy, especially when dealing with procedural issues.

First – (see paras 43-46) – The “public policy purpose” of the QB Rules appears in Rule 1-3:

Rule 1-3(1) The purpose of these rules is to provide a means by which claims can be justly resolved in or by a court process in a timely and cost effective way.

The Court held that parties who do decide to engage in court litigation are free, to the extent and in the manner set out in the Rules, to make agreements as to how they will conduct their litigation.  They can take positions in response to applications by the other party and agree to consent orders involving a procedural rule which includes consequences for non-compliance.  They may agree to settle on terms incorporated into a consent order and forego the “full litigation menu” by way of summary judgment.

In endorsing litigants’ autonomy, the Court did acknowledge that some parties may avoid the courts altogether and that doing so is not contrary to public policy.

[44] Those who have a legal dispute are not obliged to choose this dispute settlement mechanism. They may negotiate the resolution of their dispute, with or without a mediator. They may agree to arbitrate or to litigate in another jurisdiction. They are not, by doing so, waiving or contracting out of a benefit of the kind at issue in Etobicoke. It may be contrary to public policy to waive or contract out of the right to assert certain statutory rights in the Court of Queen’s Bench. However, the problem would not arise because a party waived the right to file a statement of claim or defence, but because it was contrary to public policy to waive or contract out of the ability to assert the statutory right.

Second – (see para. 47) – Even if Rule 13-7(2) is a rule which would engage the contracting out principle, the facts of the case did not trigger it.  Appellant had sought and obtained the benefit of a judge’s consideration to enlarge the time and extend the deadline.  Having benefited, Appellant cannot claim he had been denied the protection of the legislation.

Third – (see paras 48-51) – Having decided that the Chambers judge had jurisdiction to grant the order to strike the Statement of Defence and Counterclaim, the Court also held that Appellant and Respondent were entitled to agree that the Chambers judge grant the order. 

It cannot be contrary to public policy for parties to an action to agree that a judge will make an order that he or she has the jurisdiction to make pursuant to The Queen’s Bench Rules. Orders fixing deadlines and orders striking pleadings are granted as a matter of course.

Such orders do not deny access to justice and are “part and parcel of providing a means to resolve disputes in a timely and cost-effective manner pursuant to The Queen’s Bench Rules, which is an essential element of access to justice”.

Appellant was able to point to Sigfusson Northern Ltd. v Signal Energy LLC, 2016 SKQB 46 as precedent for a judge declining to make a “drop dead” order, stating that doing so would “do away with, or fetter, the court’s discretion”.  The Court of Appeal disagreed with that reasoning and, in doing so, provides support for similar procedural flexibility and results in arbitration. 

[51] With the greatest respect, we are of a different view. The Consent Order does not purport to fetter the discretion of the court at a future time. It does not tell another judge what to do. It provides that the statement of defence and counterclaim “shall be struck”. Although the respondent chose to apply for a further order, that application was not necessary.

[52] As a matter of practice, Chambers judges may be reluctant to make drop dead orders, regardless of whether they are by consent. However, practice is one thing, and jurisdiction is another. Judges have the discretion to make such orders under Subrule 13-7(2) in appropriate circumstances. Indeed, it would be an error for a judge to conclude that the court has no discretion to make such an order, regardless of the circumstances. Further, judges may often find that the consent of the parties is a very important consideration in deciding whether to do so.

The Court of Appeal held that reluctance to issue a drop dead order is not lack of jurisdiction to do so.

urbitral note – The reasons support party autonomy not only for opting for arbitration but also for crafting their own arbitration procedure and consequences for non-compliance.  The Court is careful not to overstate that autonomy and warns that contracting out may be prevented if the exercise of that autonomy is “inconsistent with or undermine that [public policy] purpose”.  Acknowledging that the autonomy does have those limits, the reasons do underline that reluctance to issue certain procedural orders goes to practice and not jurisdiction. 

Arbitral legislation does specify limits to the parties’ agreement, such as providing parties with equal and fair treatment and, at the appropriate time, the opportunity to make their case and meet the other party’s case.  Within those limits, arbitration grants the parties flexibility.  Parties to arbitration can tailor their procedure and authorize the tribunal to enforce compliance.  Non-compliance can entail significant impacts, provided that the procedure and the impacts do not deny a party the essence of applicable legislation.   The reasoning provided by the Court of Appeal suggests that agreements having more significant impacts can and will be enforced.