Canada: Courts vs. Private Arbitration: Arbitrators Can Decide Who Has Jurisdiction

Introduction

The relationship between the Courts and private arbitration is complicated. The growing popularity of arbitration means that establishing judicial principles regarding the interplay of these two forms of dispute resolution is more important than ever. In Husky Oil Operations Limited v Husky Oil Canada Inc, 2017 ABQB 489 ("Husky Oil"), the Court of Queen's Bench heard an application seeking the stay of an arbitration when parallel litigation and arbitration proceedings were taking place. Ultimately, Madam Justice K. Horner dismissed the application and referred the applicant's arguments against proceeding with the arbitration to the arbitrator.

The decision in Husky Oil affirms the Court's policy of non-intervention where parties have chosen to resolve their disputes by arbitration. It demonstrates an arbitration-friendly approach to determining whether jurisdictional challenges to an arbitration should be referred to the arbitrator.

Background

In 2010, Husky Oil Operations Limited ("Husky") entered into a contract with Saipem Canada Inc. ("Saipem") in which Saipem agreed to provide engineering, procurement and construction services to build certain facilities at Husky's Sunrise Energy Project (the "Contract"). The Contract included provisions which prescribed a bifurcated dispute resolution process. In particular, the dispute resolution provisions provided that disputes concerning a narrow set of matters would be submitted to arbitration and that disputes outside that scope would be litigated before the Alberta Courts (the "Arbitration Agreement").

Husky purported to terminate the Contract in March of 2015. Shortly thereafter, Husky filed an action against Saipem in the Alberta Court of Queen's Bench seeking damages in excess of $1.325 billion for construction delays and increased costs (the "Husky Action"). Subsequently, Saipem filed a separate action in the Alberta Court against Husky and its partners in the Sunrise Energy Project seeking damages in excess of $800 million for construction delays and increased costs (the "Saipem Action").

Several months after filing the Husky Action, Husky commenced arbitration proceedings against Saipem seeking a $45 million credit for changes to the scope of work under the Contract (the "Arbitration").

Eventually Saipem brought an application to stay the Arbitration. Saipem supported this application by relying on the Court's powers under the Arbitration Act, RSA 2000, c A-43 (the "Act") and the Court's residual powers under the Judicature Act, RSA 2000, c J-2. In response to Saipem's application, Husky made a cross-application for a partial stay of the Saipem Action. Husky supported its cross-application by arguing that some of the issues in the Saipem Action overlapped with some of the issues in the Arbitration.

The Alberta Court determined that the offsetting applications gave rise to six issues, several of which involved Saipem challenging the jurisdiction of the Arbitration. The Alberta Court listed these six issues as follows:

  1. Has the Arbitration Agreement become invalid because Husky repudiated the Contract?
  2. Has Husky waived its right to arbitration by attorning to the jurisdiction of the Court of Queen's Bench?
  3. Are the claims contemplated in the Arbitration within the scope of the Arbitration Agreement?
  4. Are the claims contemplated in the Arbitration limitation-barred?
  5. Would the Arbitration result in unfair and unequal treatment of Saipem such that the Arbitration should be stayed?
  6. Should a stay of all or part of the Saipem Action be granted?

The Decision

The Court ultimately dismissed both Saipem's application to stay the Arbitration and Husky's cross-application to partially stay the Saipem Action.

Prior to addressing the specific issues raised by the applications, the Court reviewed the respective jurisprudence cited by Husky and Saipem regarding a court's obligation to refer to the arbitrator a jurisdictional challenge to an arbitration. Husky argued that a court's starting point is not to intervene where the parties have selected arbitration to resolve their disputes. Moreover, Husky argued that a court is obligated to refer to the arbitrator a jurisdictional challenge to an arbitration unless the challenge is based solely on a question of law. In response, Saipem argued that a Court may resolve a jurisdictional challenge to an arbitration where the challenge is either based solely on a question of law or involves a question of mixed fact and law which can be resolved on the basis of the evidentiary record. The Court held that a court has the discretion not to refer to the arbitrator a jurisdictional challenge to an arbitration where the jurisdictional challenge is based solely on a question of law or can be resolved on the basis of the evidentiary record.

The Court then turned to address whether the Arbitration Agreement survived Husky's alleged repudiation of the Contract. The Court found that this issue involved a jurisdictional challenge to the Arbitration which involved an issue of mixed fact and law that could not be resolved on the basis of the limited evidentiary record before her, therefore, referring the matter to the Arbitrator.

The second issue addressed was whether Husky waived its right to arbitration by attorning to the jurisdiction of the Alberta Court of Queen's Bench by submitting the same issues involved in the Arbitration to the Court by filing the Husky Action. Ultimately, the Court again referred the issue to the Arbitrator for determination.

The third issue was whether the dispute over the changes to the Contract's scope of work fell into the narrow list of topics that the Arbitration Agreement directed to arbitration. Ultimately, the Court held that this issue involved a jurisdictional challenge to the arbitration which should be resolved by the arbitrator on first instance.

The fourth issue was whether the claims Husky made in the Arbitration were limitation-barred. Saipem's argument regarding this issue was that Alberta case law states that the determination of a limitation period is a threshold issue that must be decided by the Court. Despite Saipem's argument, the Court held that an arbitrator has jurisdiction to consider limitations issues and that, at least in the factual context of Husky Oil, it was appropriate to refer the limitations issue to the Arbitration.

The final issue was whether allowing the Arbitration to proceed would result in unfair or unequal treatment of Saipem necessitating a stay of the Arbitration. This issue arose due to Saipem's reliance on subsection 6(c) of the Act, which permits a court to intervene in an Arbitration in order to prevent the "[m]anifestly unfair or unequal treatment of a party to an arbitration agreement." Saipem argued that allowing the Arbitration to proceed would render it unfairly or unequally treated in two ways. First, Saipem argued that the Arbitration considered the same issues as the Husky Action and that allowing the Arbitration to proceed risked creating a multiplicity of proceedings. Second, Saipem argued that Husky's partners in the Sunrise Energy Project were not parties to the Arbitration and that this created a danger of inconsistent findings. Despite Saipem's arguments, the Court found that Saipem failed to demonstrate any manifestly unfair or unequal treatment necessary for the Court to stay the Arbitration. On this point, the Court stated: "[t]here is nothing inherently unfair in allowing parallel arbitration and litigation proceedings where that is what was agreed to by the parties to the contract." Ultimately, the issue regarding risks of a multiplicity of proceedings and inconsistent findings were again referred to the Arbitrator.

Implications

The judgment in Husky Oil increases certainty for parties who include arbitration clauses in their agreements by emphasizing the Court's policy of not interfering in arbitrations. The Court's reasoning suggests that the Court will not interfere with an arbitration where arbitration is the dispute resolution mechanism the parties have selected. This is a positive development for the jurisprudence concerning court intervention in arbitration, and ensures that when parties agree to submit their disputes to arbitration, arbitration is where those disputes will be resolved. The Court repeatedly declined the invitation to resolve jurisdictional challenges to an arbitration, instead referring each of those jurisdictional challenges to the arbitrator. This approach ensures that a court will not allow a party to override the arbitration clause in a contract by launching veiled attacks against the jurisdiction of the arbitration, holding the parties to their bargain made in their arbitration agreement.

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