Since the Supreme Court of Canada's decision in RJR-MacDonald Inc. v. Canada1, the legal test for granting or denying an interlocutory injunction has been a generally stable and settled area of law. However, the common law continuously considers new circumstances and issues, and in this context, the Superior Court's recent decision in NorthStar Earth & Space Inc. v Spire Global Subsidiary, Inc., 2024 ONSC 5060 marks a continuation of this tradition in relation to injunctions. In NorthStar, the Court was faced with the question of whether to adjust the traditional framework for granting a mandatory injunction in relation to a matter that had been proposed for arbitration.
Below, we review the Superior Court's decision, including the insight it provides on how a court may exercise its discretion in determining the appropriate analytical framework for granting an injunction and its clarifications on what may be considered as an "irreparable harm".
Factual Background
NorthStar, an outer space data provider, required images from space to sell its services to customers. To meet this need, NorthStar contracted with Spire, a supplier of space infrastructure. Under their Constellation Services Framework Agreement (the "Agreement"), NorthStar was to pay Spire for the manufacture, launch, and operation of satellites, enabling NorthStar to obtain images compatible with its patented technology.
The satellites were launched on January 31, 2024, but they failed to produce images that met the terms of the parties' Service Level Agreement (the "SLA"), which was included as a schedule to the Agreement. Accordingly, these satellites did not pass the "Checkout & Commissioning" process, and were deemed to be in "Block Failure" under s. 12.1 of the Agreement. This designation required Spire to supply additional satellites and to use "all commercially reasonable efforts" to ensure that the additional satellites completed "Checkout & Commissioning" no later than eleven months after the launch of the "Block Failure" satellites (the "Failed Satellites").
Spire did not indicate that they would replace the Failed Satellites by the December 31, 2024, deadline (i.e. the eleven-month deadline). Consequently, NorthStar indicated that it intended to commence arbitration under the ICC Rules, as specified by the arbitration clause in the Agreement, in order to seek remedies (the particulars of which were unspecified by the Superior Court) for what it considered to be a breach of s. 12.1 of the Agreement.
In the meantime, NorthStar sought an interim injunction from the Superior Court pursuant to s. 5 of Ontario's ICAA, in order to compel Spire to abide by s. 12.2 of the Agreement; s. 12.2 stipulated that the Failed Satellites must remain in orbit and that Spire must continue to provide images, even if they do not meet the contractual specifications of the SLA. Specifically, s. 12.2 provided as follows:
Spire shall operate any Satellite that is part of a Block that is Block Failure but that itself is not affected by a Launch Failure or has successfully completed Checkout & Commissioning:
(a) in the same manner as any other Satellite that is operating as described in the applicable Service Order;
(b) in accordance with subsections 13.2 and 13.3 (Spire Satellite Operations); and,
(c) at least until such time as the additional Satellites to be manufactured, launched and operated shall have been manufactured, launched and are operating.
NorthStar asserted that Spire's intention to not operate the Failed Satellites until replacement satellites were operating in accordance with the SLA under s. 12.2 of the Agreement constituted an anticipatory breach of contract, which was also to be raised at the intended arbitration.
Moreover, NorthStar contended that interim measures were necessary to protect NorthStar from permanent and irreparable harm (in the form of loss of reputation and loss of customers) until the ICC tribunal could render an award.
Spire, on the other hand, argued that NorthStar could not satisfy any of the requirements for the injunction it sought. Notably, Spire contended that the balance of convenience favoured the dismissal of NorthStar's motion for an injunction: specifically, Spire alleged that it had a separate service agreement with a third-party supplier, Kepler Communications Inc. ("Kepler"), and that if Spire were required to keep the Failed Satellites in orbit and then later terminate its agreement with Kepler after the agreed upon service start date of September 12, 2024, then Spire would incur a significant financial obligation of $1.8 million USD.
Decision of the Superior Court
With the September 12, 2024 deadline in mind, the Court heard NorthStar's motion on September 10, 2024, and considered two main issues:
1) What is the appropriate analytical framework for the requested injunction?
2) According to the framework, should an injunction be granted?
In the Context of an Impending Arbitration, a Party Requesting Interim Measures Only Needs to Demonstrate a Reasonable Possibility the Claim will Succeed
As a preliminary matter, the Court reiterated the usual test for an injunction as follows:
(a) there is a serious issue to be tried;
(b) the moving party would suffer irreparable harm should the injunction not be granted; and
(c) the balance of convenience favours granting the injunction.
The Court further characterized NorthStar's requested injunction as mandatory, insofar as it required Spire to continue to operate and deliver data from the Satellites (that is, the order would compel a particular action rather than requiring Spire to refrain from a particular action). As a result, the applicable case law dictated that the first factor of the test was elevated from a "serious issue to be tried" standard to a "strong prima facie case" standard.
NorthStar argued that because the injunction was being sought within the context of a proposed arbitration under the ICAA, the Court should take into consideration the test that would be applied when granting interim measures under the Model Law. In accepting this argument, the Court cited Article 17 of the Model Law (as codified in Schedule 2 to the ICAA), which states in relevant part as follows:
- Under Article 17(A)(1)(b), the party requesting interim measures "need only satisfy the tribunal that there is a reasonable possibility that it will succeed on the merits of the claim (and the determination of this possibility shall not affect the discretion of the arbitral tribunal in making any subsequent determination)" [emphasis added]; and
- Under Article 17(J), a court "shall have the same power of issuing an interim measure in relation to arbitration proceedings... [and] shall exercise such power in accordance with its own procedures in consideration of the specific features of international arbitration" [emphasis added].
The Court observed that this motion was only before the court due to the urgency of the situation and the September 12, 2024, deadline, and would have otherwise been determined by an arbitral tribunal applying the Model Law. On that basis, the Court concluded that the appropriate standard for the first step of the test for an injunction only required that NorthStar demonstrate that there was a reasonable possibility that it would succeed on the merits, rather than usual "strong prima facie case" standard.
An Injunction Should be Granted
Having determined the appropriate standard for the first step of the test for an injunction, the Court then applied the three-step framework to the case at hand.
(A) There was a Reasonable Possibility that NorthStar would Succeed in Arbitration
The Court firstly defined that the reasonable possibility standard fell in between "serious issue to be tried" and "strong prima facie case" standard. Moreover, the Court found that it was reasonably possible that NorthStar would succeed in its claim that Spire had breached s. 12.1 of the Agreement, as there was no evidence that Spire had used "all commercially reasonable efforts" to ensure that the replacement satellites would be "delivered" before the eleven-month deadline.
The Court further observed that there was a reasonable possibility that NorthStar would succeed in its claim that Spire would also breach s. 12.2 of the Agreement if it did not continue to operate and deliver data from the Failed Satellites. Spire argued that the word "or" under s. 12.2 of the Agreement should be interpreted in a commercially reasonable manner to have a conjunctive meaning.2 Through this interpretation, Spire would only be responsible for operating "Block Failure" satellites that had successfully launched and had completed "Checkout & Commissioning", thus excusing Spire from any liability in refusing to operate the Failed Satellites as they had failed "Checkout & Commissioning".
Although the Court accepted that Spire's argument may have prevented NorthStar from establishing a "strong prima facie case", the Court ruled that NorthStar was still able to establish a reasonable possibility of an anticipatory breach of s. 12.2 of the Agreement.
(B) NorthStar would Face Irreparable Harm if the Injunction is not Granted
The Court confirmed the well-established propositions that (1) harm is irreparable if it cannot be quantified in monetary terms or cannot be cured, and (2) evidence of such harm cannot be speculative. Here, the Court found that NorthStar's potential loss of customers, employees, research and development, and reputation were speculative, which conclusion was further supported by the fact that, even if it received the data that it sought, NorthStar still would not be able to service its customers.
However, the Court confirmed that NorthStar would suffer "irreparable harm" on two fronts:
- First, the Court accepted that NorthStar might be unable to claim full monetary compensation for Spire's breaches, due to the limitation of liability clause contained in the Agreement, which restricted the quantum and type of damages that NorthStar could claim; and
- Second, if Spire were to cease operations, this would mean that the Satellites would either be deorbited or no longer commanded. The Court reasoned that resuming operations would be difficult in case of cessation of commanding the Satellites, and impossible in the case of deorbiting. This would effectively deprive NorthStar of the ability to obtain any data from the Satellites, even if successful at arbitration.
As such, the Court held that the effects from ceasing operation of the Satellites would be irreversible, and that NorthStar's requested injunction was a way to protect itself from such harm. Accordingly, the evidence of irreparable harm was sufficient to satisfy this step of the test.
(C) The Balance of Convenience Favoured Granting the Injunction
The Court ruled that Spire's $1.8 million USD liability to Kepler and its own operating costs were outweighed by the irreparable harm that NorthStar would suffer if the injunction was not granted. In coming to its decision, the Court took into account NorthStar's offer to partially offset the fees for the operation of the Failed Satellites, and NorthStar's intention to expedite the arbitration to alleviate Spire's financial concerns.
Although Spire contended that compelling it to provide NorthStar with data from the Failed Satellites would create an impossible obligation or an entirely new obligation on Spire that would be too vague or difficult to police, the Court dismissed this argument. The Court ruled that the Failed Satellites were still able to provide useful data for NorthStar regardless of its inability to complete the "Checkout & Commissioning" phase, but agreed that the parties would need to meet to specify what requirements that the Failed Satellites could reasonably meet.
Consequently, the Court granted the injunction ordering Spire to continue to operate the Satellites and to provide NorthStar images from them.
Commentary
Broadly speaking, NorthStar affirms that courts will take a contextual approach to determining the appropriate analytical framework for assessing an injunction application. In one sense, this should come as no surprise insofar as the courts have already distinguished between the "serious issue to tried" and "strong prima facie case" standards, depending on whether the requested injunction is prohibitory or mandatory.
That being said, NorthStar indicates that courts may have greater discretion beyond these two standards, should the matter in question be distinguishable from those circumstances normally giving rise to injunction applications. Here, when faced with a motion for an injunction that would have ordinarily been decided by an arbitration, the Court adapted its analytical framework to reflect the standard that the appropriate decision-making party would have applied.
In that regard, it appears this may be the first time that a court in Ontario has employed the "reasonable possibility" standard based on the application of the Model Law; given that this was determined by reference to Ontario's international arbitration legislation, it accordingly raises the question of whether an injunction application brought under the Arbitration Act, 1991 would be similarly decided notwithstanding that that legislation does not incorporate the Model Law and therefore does not contain the same provisions that embody the "reasonable possibility" standard. To the contrary, the relevant section of the Arbitration Act, 1991 simply states that "the court's powers with respect to... interim injunctions... are the same in arbitrations as in court actions." Accordingly, we await with interest to see if parties will attempt to apply NorthStar in the domestic arbitration context, and whether this aspect of the decision is appealed.
Furthermore, NorthStar adds greater clarity to the inquiry into what may constitute an "irreparable harm". Construction industry participants will be particularly interested in the Court's finding that a party may suffer irreparable harm if the absence of an injunction allows their counterparty to breach the contract and to then subsequently insulate themselves from the full scope of liability on the basis of a limitation of liability clause. It also raises the question of whether the presence of an exclusion clause could also serve as the basis for such an argument, given their similar effect. As readers will appreciate, limitation of liability clauses and exclusion clauses are both common in construction contracts.
In that regard, readers may find this result to be challenging insofar as it appears to undermine the principle of freedom of contract. NorthStar and Spire, being sophisticated parties, entered into an agreement with a liability clause for the very purpose of limiting their liability in the event of a breach; in theory, this should presumably mean that liability in excess of such a clause should not be able to form the basis for legal relief. Accordingly, the Court's acceptance of this clause as a basis to grant an injunction could arguably be viewed as overriding the parties' intentions. Nonetheless, it will be interesting to see how future case law considers this question.
Footnotes
1. [1994] 1 SCR 311.
2. NorthStar at para 49, citing Clergue v. Vivian & Co., (1909) 1909 CanLII 5 (SCC), 41 S.C.R. 607.
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