Black & MacDonald Ltd. v. Degremont Ltee.

Black & MacDonald Ltd. v. Degremont Ltee. Court Supreme Court Date 2009-03-17 Citation 2009 NSSC 85 Docket Hfx 304988 Judge/Registrar/Adjudicator Coady, Kevin (Honourable Justice) (SC) Document Type Decision Decision Content SUPREME COURT OF NOVA SCOTIA Citation: Black & MacDonald Ltd. v Degrémont Ltée., 2009 NSSC 85 Date: 20090317 Docket: Hfx. No. 304988 Registry: Halifax Between: Black & MacDonald Limited, a body corporate Plaintiff v. Degrémont Ltée., a body corporate Defendant Judge: The Honourable Justice Kevin Coady Heard: January 22, 2009 in Halifax, Nova Scotia Written Decision: March 17, 2009 Counsel: Michael S. Ryan, QC, for the Plaintiff Geoffrey A. Saunders, for the Defendant By the Court: [1] This matter was heard in chambers in Halifax on January 22, 2009. The parties are involved in the Harbour Solutions Project. Halifax Regional Municipality contracted with the Defendant (herein DL) for the design, planning, engineering and construction of three sewage treatment plants. DL then entered into an “STP Mechanical and Electrical Agreement” with the Plaintiff (herein B&M) to procure “non-process equipment” and to install and test the mechanical and electrical components of the sewage treatment plants. This agreement entitles B&M to submit monthly payment requests to DL for work performed during the previous month. The agreement requires DL to provide a payment notice to B&M within 10 business days indicating whether the payment request had been verified in whole or in part. If DL notifies B&M that a payment request has not been verified, B&M may issue a dispute notice and refer the matter for resolution pursuant to the Dispute Resolution Procedures in the agreement. In the alternative B&M may make revisions to the payment request and re-submit it to DL for payment. [2] It is not disputed that on October 31, 2008 B&M created a payment request to DL in the amount of $914,498.62 for services performed in October. This amount is net of a 10% Builders Lien Act hold back and does not include HST. On December 3, 2008 DL delivered a cheque to B&M in the amount of $717,402.21. This amount was net of the 10% hold back plus HST. On December 4, 2008 B&M demanded payment from DL of the balance of the account, net of the 10% hold back plus HST, in the amount of $309,738.24. DL did not make this payment and on December 9, 2008 B&M issued this action. [3] There is some dispute as to when B&M made the payment request to DL. B&M alleges October 31, 2008 and DL alleges November 12, 2008. There is also some dispute as to whether DL provided a payment notice. B&M alleges this was not done while DL relies on letters dated November 13 and November 21, 2008 as payment notices. [4] A review of B&M’s payment request suggest that the invoice was dated October 31, 2008 and the document transmittal was dated November 12, 2008. DL’s letter of November 13, 2008 states: In reviewing the payments made to date against the three STPs, Degremont notes that Black & MacDonald has been paid for Work which was never performed. The most obvious of these scope deletions is the fire suppression system. Degremont would like to rectify this overpayment and take back a credit for the overpaid sums immediately. Note that Black & MacDonald has not invoiced for the fire suppression system at the Herring Cove STP as of payment request 47r. [5] DL’s letter of November 21, 2008 states: Degremont is in receipt of Black and MacDonald’s Payment Request #47r. Of the $914,498.62 requested by Black & MacDonald, $913,633.63, excluding HST, has been verified. The only reduction is to the holdback release amount. However, the amount paid will be $634,869.21, excluding HST, as outlined below. [6] The status of the reduction in the payment notice, and the use of the word “verified” is important to this dispute. [7] On January 9, 2009 DL filed a Notice of Motion seeking an order to have this proceeding stayed pursuant to s.9(1) of the Commercial Arbitration Act., R.S.N.S. 1999, c5. In support of this application DL filed an affidavit from their project manager, Nathanaël Tilly. The following represents the position of DL on this application. The payment request was delivered on November 12, 2008 and not on October 31, 2008. On November 13, 2008 DL notified B&M of its intention to deduct the sum of $309,738.24 from the account “ as a result of overpayments DL had made to B&M earlier for work not performed by B&M”. On November 21, 2008 DL advised B&M that it “was prepared to verify and pay B&M pursuant to payment request 47r and seeking a revised payment requests to reflect the changes”. [8] B&M opposes this stay application. It argues that this is not a dispute over a payment request and, as such, does not trigger the arbitration provisions in the Agreement. They argue that the payment request has been, for the most part, verified and that the deduction relates to matters technical to the project. [9] The following are the relevant articles in the parties agreement: 1.11 Governing Law and Choice of Forum This agreement shall be deemed to have been made in the Province of Nova Scotia and shall be governed by and construed in accordance with the laws in force in the Province of Nova Scotia. The parties covenant and agree that any disputes arising from or in connection with the Project or this Agreement shall be governed by the laws of the Province of Nova Scotia and that any matter regarding the interpretation and application of this Agreement and all disputes arising from or in connection with the Project or this Agreement shall be within the exclusive jurisdiction of the courts of Nova Scotia, except where this Agreement expressly stipulates reference to the Dispute Resolution Procedures, in which case the Dispute Resolution Procedure shall apply to the exclusion of all other dispute settlement procedures, proceedings, actions and causes of action, whether in domestic, foreign or international for a and the laws of the Province of Nova Scotia shall govern to the exclusion of all other sources of law. 13.06(c) Disputes If DL notifies M&E that a Payment Request has not been verified (in whole or in part), M&E may issue a Dispute Notice with respect thereto and refer the matter for resolution pursuant to the Dispute Resolution Procedures or make appropriate revisions to the Payment Request or part thereof, as the case may be, and re-submit same, together with an amended certificate of the Project Manager, and the provisions of this Section 13.06 shall apply thereto, with any necessary alterations. 27.01 Commencement of Process Either M&E or DL may give notice of any dispute arising from or in connection with the Project or the interpretation, application, operation or performance of this Agreement to the other which is to contain the particulars of the matter in dispute, the details of its position and the relevant provisions of this Agreement (“Dispute Notice”). The other party shall reply in writing to the Dispute Notice within ten (10) Business Days after receiving it, setting out in such reply the details of its response and any other relevant provisions of this Agreement. 27.02 Amicable Negotiations Following the delivery of a reply to a Dispute Notice, DL and M&E shall use best efforts to resolve the dispute. If the dispute is not resolved within five (5) Business Days following receipt of a responding party’s reply to a Dispute Notice, the dispute shall be resolved in accordance with the remaining provisions of this Article 27. 27.03 Arbitration Proceedings Whenever under the terms of this Agreement a dispute is to be resolved pursuant to the Dispute Resolution Procedures, or with the consent of M&E and DL, the dispute shall be resolved by arbitration as set forth herein ... [10] I believe it is obvious from the above articles that the parties anticipated disputes in their very technical and costly relationship and generally recognized the value of arbitration over litigation. [11] B&M, in its written submissions, argues that “the issues in the arbitration are discreet and unrelated to payment request 47r”. They allege that the deduction relates to “scope deletions and credit change orders” and that disputes over such items are dealt with in the Article 14 Rider to the Agreement and not by the arbitration provisions. Consequently B&M feel entitled to proceed with their legal action. [12] Section 9 of the Commercial Arbitration Act states as follows: 9(1) Where a party to an arbitration agreement commences a proceeding in a court in respect of a matter in dispute to be submitted to arbitration under the agreement, the court shall, on the motion of another party to the arbitration agreement, stay the proceeding. (2) The court may refuse to stay the proceeding pursuant to subsection (1) only in the following cases: (a) a party entered into the arbitration agreement while under a legal incapacity; (b) the arbitration agreement is invalid; (c) the subject-matter of the dispute is not capable of being the subject of arbitration pursuant to the law of the Province; (d) the motion to stay the proceeding was brought with undue delay; (e) the matter in dispute is a proper one for default or summary judgment. (3) An arbitration of the matter in dispute may be commenced or continued while the motion pursuant to subsection (1) is before the court. (4) Where the court refuses to stay the proceeding, (a) no arbitration of the matter in dispute shall be commenced; and (b) an arbitration that has been commenced shall not be continued and anything done in connection with the arbitration, before the refusal of the court, is without effect. (5) The court may stay the proceeding with respect to the matters in dispute dealt with in the arbitration agreement and allow the proceeding to continue with respect to other matters if the court finds that (a) the agreement deals with only some of the matters in dispute in respect of which the proceeding was commenced; and (b) it is reasonable to separate the matters in dispute dealt with in the agreement from the other matters. (6) There is no appeal from the decision of the court pursuant to this Section. [13] The intention of s.9 is clear. In agreements governed by an arbitration clause, and where a party commences an action to resolve a dispute, the court must stay the action save in exceptional circumstances. The burden of allowing this action to continue rests with B&M, the party attempting to circumvent the arbitration clause. [14] In Self v Abridean Inc., 2001 NSSC 191 Robertson J. addressed decisions where a court will exercise its discretion and refuse to stay an action. These cases fall into two groups. One is where the matter in dispute was not anticipated by the arbitration agreement. The second is where the party resisting the stay demonstrates that one of the discretionary factors in s.9(2) applies. The issue in this application is whether this dispute is caught by Article 27.03 of this Agreement. [15] In Mantini v Smith Lyons LLP, [2003] O.J. No. 1831 the Ontario Court of Appeal described the approach a court is to take when applying s.7(1) of Ontario’s Arbitration Act. The provision is nearly identical to s.9(1) of the Nova Scotia Act. Feldman J.A. set out the approach at paragraph 17: 17 In order to determine whether a claim should be stayed under s. 7(1) of the Arbitration Act, the court first interprets the arbitration provision, then analyzes the claims to determine whether they must be decided by an arbitrator under the terms of the agreement, as interpreted by the court. If so, then under s.7(1), the court is required to stay the action and refer the claims to arbitration subject to the limited exceptions in s.7(2): T1T2 Ltd. Partnership v. Canada (1994), 23 OR (3d) 66 (Ont.Gen.Div.), at 73-74. [16] DL’s submissions focus almost entirely on the end of this test, and not on whether the claim falls within the terms of the arbitration provision. This approach avoids the crucial issue in this case; whether B&M’s claim is caught by the arbitration clause. DL is correct that if B&M’s claim does fall within the arbitration provision, then B&M’s action must be stayed. However, it is not entirely clear whether B&M’s claim does fall within the arbitration provisions of the Agreement. [17] The respondent B&M, at paragraph 18 of its submissions, appear to be arguing that paragraph 13.06(c) is not triggered since that paragraph deals with a payment request that “has not been verified”. They point out that DL did in fact verify the amount requested so there is no unverified payment requests to trigger paragraph 13.06(c). Effectively B&M is arguing that what is in dispute is not the quantum of the payment request but rather the deduction of $309,738.24 for alleged past overpayments. The dispute, it submits, is in relation to “scope deletions” and “credit change orders” and is therefore governed by provisions in Article 14 and the Article 14 Rider. [18] According to Drafting ADR and Arbitration Clauses for Commercial Contracts, a Canadian text by Wendy Earle (Toronto: Carswell,2005), arbitration clauses can be classified as either universal, specific, or universal with exceptions. Use of a specific arbitration clause, rather than a universal one, indicates the parties intend only certain specified questions to be referred to arbitration. The author cautions against the use of specific arbitration clauses owing to the difficulties that can arise with respect to their interpretation: Agreements to refer specific disputes to arbitration, on the other hand, can prove problematic in two ways. First, if the agreement is not perfectly clear as to the types of disputes covered by the arbitration provision, the parties can become involved in a lengthy and costly process both before the arbitrator and in the courts to determine whether the dispute falls within or outside the arbitrator’s jurisdiction ... For these reasons ... specific arbitration clauses are best avoided. [19] The arbitration provisions in this agreement can be characterized as specific. It is not perfectly clear whether B&M’s claim is covered by those clauses. Traditionally, courts have held that the interpretation of arbitration clauses requires nothing more than an exercise in orthodox contractual interpretation. In Heyman v. Darwins Ltd., [1942] A.C. 356 Lord Wright noted at page 376 that “it is clear that, as the arbitration clause is a matter of agreement, the first thing to ascertain, according to ordinary principles of construction, is what the parties have actually agreed”. [20] In Mantini v Smith Lyons LLP, supra, Feldman J.A. stated at paragraph 21 that “in order to interpret the arbitration clause, it must be read in the context of the agreement as a whole, and its intended meaning gleaned within that context.” [21] Modern decisions have emphasized that policy considerations in encouraging arbitration may influence judicial interpretation of these clauses. In Canadian National Railway Co. v. Lovat Tunnell Equipment Inc., [1999] O.J. No. 2498 (Ont.C.A.) Finlayson J.A. addresses this shift at paragraph 20: “In any event, there has been a significant change since 1970 ... in the attitudes of the courts and legislature as to the desirability of encouraging the resolution of disputes between the parties other than by resort to the courts.” [22] At paragraph 21 Justice Finlayson endorses the following comments of Blair J. in Onex Corp. v. Ball Corp. (1994), 12 B.L.R. (2d) 151 (Ont.Gen.Div.): “At the very least, where the language of arbitration clauses is capable of bearing two interpretations, and on [sic] one of those interpretations fairly provides for arbitration, the courts should lean towards honouring that option, given the recent developments in the law in this regard which I have earlier referred.” [23] Without access to background information on the business relationship of the parties, and given the technical language “scope deletions” and “credit change orders”, it is difficult to know what the parties subjectively intended the words in the arbitration clauses to mean. That being said, an interpretation of these provisions must be derived from their plain meaning. A plain reading of the arbitration clause in this Agreement suggests that the parties intended all financial disputes be settled by arbitration. Even putting aside this conclusion for a moment, Canadian National Railway Co. v. Lovat Tunnel Equipment Inc., supra, dictates that where uncertain, the parties must pursue arbitration. [24] I therefore grant DL a stay pursuant to s.9(1) of the Commercial Arbitration Act. [25] There is a further reason to stay the action regardless of the interpretation of the arbitration clause. In Self v. Abridean Inc., supra, Robertson J. adopted the following passage from Bakorp Management Limited v. Pepsi-Cola Canada Ltd., [1994] O.J. No.873, at paragraph 20: “Where matters in dispute in litigation are inextricably bound up with matters which the parties have agreed to arbitrate, the Courts will refuse to permit such multiplicity of proceedings and will stay the litigation.” [26] I will hear the parties on costs should they be unable to agree. J.