Tall Ships Development Inc. v. Brockville (City)

Tall Ships Development Inc. v. Brockville (City) Collection Decisions of the Court of Appeal Date 2022-12-13 Neutral citation 2022 ONCA 861 Docket numbers C69715 Judges Doherty, David H.; Huscroft, Grant; Harvison Young, Alison Subject Civil Decision Content COURT OF APPEAL FOR ONTARIO CITATION: Tall Ships Development Inc. v. Brockville (City), 2022 ONCA 861 DATE: 20221213 DOCKET: C69715 Doherty, Huscroft and Harvison Young JJ.A. BETWEEN Tall Ships Landing Development Inc. Respondent and The Corporation of the City of Brockville Appellant Aaron Rubinoff and Bryce Dillon, for the appellant James Plotkin, Jeff Saikaley and Alyssa Tomkins, for the respondent Heard: March 30, 2022 by video conference. On appeal from the judgment of Justice Sally A. Gomery of the Superior Court of Justice, dated November 15, 2019, with reasons reported at 2019 ONSC 6597, and from the remedy order dated September 15, 2020, with reasons reported at 2020 ONSC 5527, allowing an appeal from the decisions of Arbitrator William L. Neville, dated September 5, 2018, December 4, 2018, and February 11, 2019. Harvison Young J.A.: OVERVIEW [1] The appellant, City of Brockville (“Brockville”), appeals the order of the application judge setting aside three arbitral awards and appointing a new arbitrator to preside over the matters upon reconsideration. For the reasons that follow, I would allow the appeal. [2] Central to this appeal is the fact that the parties agreed that the decision of the arbitrator was to be final, subject only to appeals on questions of law under s. 45(2) of the Arbitration Act, 1991, S.O. 1991, c. 17 (“Arbitration Act”). The application judge erred by characterizing questions of mixed fact and law as extricable questions of law. Moreover, in characterizing the same arguments as breaches of procedural fairness falling under s. 46 of the Arbitration Act, the application judge effectively bootstrapped the substantive arguments. This court has recently emphasized the narrow basis for setting aside an arbitral award under s. 46 of the Arbitration Act, which is not concerned with the substance of the parties’ dispute and is not to be treated as an alternate appeal route: Alectra Utilities Corporation v. Solar Power Network Inc., 2019 ONCA 254, 145 O.R. (3d) 481, at paras. 20-27, 40-44, leave to appeal refused, [2019] S.C.C.A. No. 202; Mensula Bancorp Inc. v. Halton Condominium Corporation No. 137, 2022 ONCA 769, at paras. 5, 40. [3] In this case, the parties selected an arbitrator to deal with a number of issues arising out of a large project with a number of interrelated contracts and agreements. Moreover, they specifically chose to agree that only questions of law would be subject to appeal. As a matter of policy, and as the Supreme Court of Canada has stated repeatedly, judges exercising their appellate powers under s. 45 of the Arbitration Act should be cautious about extricating questions of law from the interpretation process: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at paras. 54-55; Teal Cedar Products Ltd. v. British Columbia, 2017 SCC 32, [2017] 1 S.C.R. 688, at paras. 45-47. Failing to exercise such caution will result in the very inefficiencies, delays and added expense that choosing an arbitral process seeks to avoid. As I will explain in detail below, I conclude that none of the alleged errors made by the arbitrator could properly be considered extricable errors of law. Nor were there any breaches of procedural fairness that could attract review pursuant to s. 46 of the Arbitration Act. FACTUAL BACKGROUND [4] The litigation between the parties arose out of a public-private partnership between the Brockville and Tall Ships Landing Development Ltd. (“Tall Ships”) to develop waterfront property on the St. Lawrence River in downtown Brockville. Tall Ships and Brockville entered into a series of agreements in which Tall Ships undertook to remediate and develop a waterfront project on property acquired by Tall Ships. The project, which continued for over a decade from conception until completion, included a mixed residential/commercial condominium tower and an attraction known as the Maritime Discovery Centre (“MDC”). Tall Ships also agreed to assume various roles with respect to the construction of the MDC. [5] The idea was to create a significant draw to Brockville, a city which had, over previous decades, suffered from a dwindling tax base and a declining manufacturing industry. The Public-Private Partnership Agreement (“P.P.P.A.”) described the anticipated total capital cost as $12,000,000, although the issues in this appeal related largely to the construction budget “estimate” of $7,400,000 set out in the Purchase Agreement (“P.A.”). [6] The P.P.P.A. between Brockville and Tall Ships was executed on October 9, 2007. The property was conveyed to Brockville in March 2016. Overall, this was a large project and continued over an extensive period of time. It is clear from the record that both Brockville and Tall Ships, whose principal was Simon Fuller, were very committed to the project, as members of the community and people with deep ties to the city. [7] In return, Brockville agreed that Tall Ships would qualify for multi-year tax credits based on its remediation costs and receive a fee for its work as construction manager. Once the MDC was built, Tall Ships would sell it to Brockville and Brockville would pay a purchase price equivalent to the construction budget for the building. In addition, Brockville agreed to pay Tall Ships for construction work for fit-ups and exhibits, known as “MDC Exclusions”. The basic idea was that Tall Ships would develop the property and, when it was “substantially complete”, Tall Ships would sell the property to Brockville for a price that was set out by a formula set out in the P.A. dated March 9, 2011. Part of that formula included the cost of construction, the budget for which was defined in that agreement as “$7,400,000 relating to the design and construction of the approximate 27,000 square foot MDC base building and MDC Interior Fit-Ups”. [8] Whether Brockville is liable for the difference of roughly $1,800,000 between the $7,400,000 “estimate” and the actual cost of construction is one of three major issues between the parties in this appeal. In the parties’ P.A., Tall Ships was the vendor of the MDC, and Brockville was the purchaser. Tall Ships was to build a 27,000-square-foot building within a budget of $7,400,000. Brockville appointed a committee (the “Steering Committee”) to act on its behalf during construction, but the committee could not increase the construction budget. The P.A. also provided that Tall Ships would act as a construction manager for the project. [9] The completed MDC was roughly 6,000 square feet larger than designed. Tall Ships claimed approximately $1,800,000 in additional construction costs from Brockville on the basis that Brockville was aware that construction was over budget, and that the Steering Committee approved design changes that inevitably led to cost increases. Brockville refused to pay the additional costs on the basis that it was unaware that construction costs exceeded the budget until the MDC was substantially complete, and that it had not consented to any increases over the $7,400,000. [10] The second central issue on this appeal arises from Brockville’s refusal to pay invoices in the amount of $929,893 for remediation costs on the basis that they were out of time pursuant to the Brownfields Agreements (“B.A.”). [11] The third issue pertains to the final award, which addressed Tall Ships’ claim for interest paid one year after it was submitted. Tall Ships did not advise Brockville that it would be claiming interest on the invoice prior to the closing date, but asked for prime plus five percent in interest on its statement of claim. [12] The parties submitted the Tall Ships claims to arbitration and agreed on the appointment of the arbitrator. After a four-week hearing, the arbitrator dismissed the claims in three awards issued between September 2018 and February 2019. In the first award, the arbitrator rejected Tall Ships’ claim for remediation costs under the B.A. The process for the claims was set out in the B.A. and the arbitrator held that Tall Ships was deemed to have accepted Brockville’s determinations because it had failed to send dispute notices within the 15-day deadline specified in the agreement and was therefore out of time. He also held that these claims were statute barred. In the second award, the arbitrator found that Tall Ships was responsible for these cost overruns. He found that Tall Ships had not kept Brockville informed as to cost overruns despite knowing that the project would be much larger, and cost substantially more, than originally planned. The arbitrator dismissed the Tall Ships claims based on unjust enrichment because it had failed to show a lack of juristic reason for its loss and Brockville’s corresponding enrichment. In the third award, the arbitrator rejected Tall Ships’ claim for interest on an invoice paid a year after it was submitted. Tall Ships did not advise Brockville that it would be claiming interest on the invoice prior to the closing date, but asked for prime plus five percent in interest in its statement of claim. The arbitrator found that Tall Ships was effectively estopped in the circumstances from making this claim. [13] On appeal, the application judge found for Tall Ships. She set aside the three arbitral awards and ordered that a new arbitrator be appointed to preside over the matters upon reconsideration. [14] Brockville argues that the questions before the arbitrator were questions of mixed fact and law, which did not give rise to any right of appeal pursuant to the Arbitration Act and the Arbitration Agreement. It further argues that the application judge erred in finding errors of law that warranted the court’s intervention. Tall Ships argues that the arbitrator committed extricable errors of law and breached their rights to procedural fairness. It further argues that the application judge was correct in making her findings. ISSUES [15] As I have indicated, this appeal turns on whether the arbitrator fell into any errors of law in the course of determining Brockville’s liability, and in particular, whether the application judge incorrectly categorized questions of mixed fact and law as extricable questions of law. In my view, she erred in so doing. The alleged breaches of procedural fairness depend on the substantive questions of whether the arbitrator fell into errors of law, which, in my view, he did not. [16] The principle that in exercising their role as appellate courts, judges should not be too ready to characterize particular issues as issues of law because doing so may render the point of consensual arbitration nugatory is of particular importance when, as here, the impugned terms form a relatively small part of a large and complex arbitration decision. As the Supreme Court has stated, “the circumstances in which a question of law can be extricated from the interpretation process will be rare”: Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37, [2016] 2 S.C.R. 23, at para. 113, citing Sattva, at para. 55. [17] I will first discuss the Brownfields remediation claims, and then the construction overrun claims, followed by the unjust enrichment claim. I will then conclude by considering Tall Ships’ claim for interest. THE BROWNFIELDS REMEDIATION CLAIMS The Arbitrator’s Decision (Award #1 – Dated: September 5, 2018) [18] The arbitrator rejected Tall Ships’ claim for remediation costs under the B.A. The agreements provided compensation to Tall Ships for the costs of its environmental remediation of the project site. The process to submit claims for eligible remediation costs was set out in art. 22.3 of the B.A. Tall Ships was to submit its claims for eligible remediation claims as the work progressed. Article 22.3(c) provided that, upon receipt of a claim submitted by Tall Ships (referred to as the “Owner” in the B.A.): [Brockville] shall, within thirty (30) days … give written notice to the Owner wherein [Brockville] either accepts, rejects or requests additional information from the Owner. A request for additional information shall detail the type or nature of the information required by [Brockville] and a rejection of the submission shall provide reasons and details for the rejection. In the event of a request for additional information, [Brockville] shall have a further period of thirty (30) days following the receipt of the additional information to assess the additional submissions as aforesaid and provide the Owner with its written notice of acceptance, rejection or request for additional information. [19] Article 22.3(d) provided the mechanism whereby Tall Ships could challenge the rejection of a claim for eligible remediation costs: [I]f [Brockville] gives notice to the Owner of its rejection or partial rejection of the Owner’s request for payment of Actual Rehabilitation Costs (the “Rejection Notice”), the Owner shall be conclusively deemed to have accepted the determination of [Brockville] in respect to the elements of cost detailed in the Rejection Notice and have waived and released [Brockville] from any claims in respect thereof unless within fifteen (15) days after receipt of the Rejection Notice, the Owner sends a notice in writing of dispute to [Brockville] (the “Dispute Notice”). [Emphasis added.] [20] Once Tall Ships submitted its claim, Brockville had 30 days to accept, reject, or request additional information. Tall Ships could dispute a rejection or partial rejection by sending a notice of dispute within 15 days of their receipt of the rejection notice. [21] Tall Ships submitted 13 such claims. Brockville did not reply to any of these claims within the contemplated 30-day period. However, despite Brockville’s failure to issue a notice of dispute, Brockville was not deemed to accept Tall Ships’ claims if it failed to respond within 30 days. Further, Brockville argued that none of its eventual replies were mere requests for information. All accepted part of a claim, rejected certain items, and also requested additional information. [22] Tall Ships neither provided further information, nor submitted dispute notices to these claims. However, prior to arbitration, Brockville informed Tall Ships that, because Brockville’s replies were not mere requests for information, Tall Ships was deemed to have accepted Brockville’s determination because it failed to send notices of dispute within the 15-day deadline. [23] The arbitrator agreed with Brockville. He found that the parties had explicitly chosen to make time of the essence by their contractual language. Where Brockville issued a rejection, paired with a request for additional information, Tall Ships was deemed to accept Brockville’s determination unless it filed a dispute notice or responded to the request within the 15-day deadline. The arbitrator determined that Tall Ships never did. [24] Finally, the arbitrator found that Tall Ships’ first seven claims were “certainly well beyond the two-year limitation period”: Award #1, at para. 52. These claims were accordingly statute-barred. The Application Judge’s Decision [25] The application judge accepted Tall Ships’ appeal from the Brownfields decision in Award #1 for two reasons. First, she concluded that the arbitrator erred by relying on an implicit “time of the essence” clause that was neither pleaded nor argued, consequently violating Tall Ships’ right to procedural fairness. The application judge found that reliance on this clause was “critical to his conclusion that Tall Ships … lost its right to contest [Brockville’s] non-acceptance of its remediation claims”: Tall Ships Landing Devt. Inc. v. City of Brockville, 2019 ONSC 6597 (“TSL (ONSC)”), at para. 32. [26] The application judge reasoned that this contractual interpretation was neither advanced nor argued. Deciding the case on this new, unargued theory was not only “fundamentally unfair” to the parties, but also rested the case on an “inherently unreliable” theory: TSL (ONSC), at para. 37. Therefore, applying the correctness standard, the application judge found that the arbitrator committed a reviewable error under s. 46(1) of the Arbitration Act. [27] Moreover, relying on an unargued theory was also an error of law in her view because it was clearly unreasonable. She noted that the deference inherent in the arbitral process does not “displace the imperatives of fairness and reliability”: TSL (ONSC), at para. 48. Therefore, since the arbitrator would not have concluded that Tall Ships waived its right to dispute the rejections absent his finding that time was of the essence, the arbitrator committed an error of law under s. 45 of the Arbitration Act. [28] Second, the application judge concluded that the arbitrator violated procedural fairness in offering meager reasons for his conclusion on the limitations period. She noted that the arbitrator did not address Tall Ships’ argument that bringing a claim at the time would not have been legally appropriate, nor did he make a finding about when Tall Ships’ claim was discoverable. [29] The application judge also disagreed with Brockville that this did not amount to an error of law. Relying on Newfoundland and Labrador Nurses’ Union v. Newfoundland and Labrador (Treasury Board), 2011 SCC 62, [2011] 3 S.C.R. 708, she determined that the arbitrator’s reasons did not permit her to understand why he concluded that Tall Ships’ claims were time-barred. Indeed, there was nothing in the arbitrator’s reasons that allowed the application judge to “even speculate, as to why the Arbitrator concluded that the claims were discoverable at that time”: TSL (ONSC), at para. 60. Accordingly, his decision that the claims were statute-barred was also reviewable for procedural fairness under s. 46 of the Arbitration Act. The Parties’ Submissions on the Brownfields Remediation Claims [30] At the outset, Brockville argues that the application judge did not have the jurisdiction to reach her decision. As it points out, the Arbitration Act permits a limited scope for arbitration awards in Ontario. Subsections 45(2) and (3) allow appeals on questions of law or mixed fact and law “if the arbitration agreement so provides”. The Arbitration Agreement in this case provided for appeals on questions of law only. No appeal lied from questions of mixed fact and law. [31] In particular, Brockville reserves most of its argument on the Brownfields remediation claims for the application judge’s conclusion that the “time of the essence” clause was procedurally unfair and an extricable error of law. It emphasizes that the parties’ own Arbitration Agreement allowed appeals only on questions of law. The arbitrator’s conclusion that “time was of the essence” does not reach this threshold. His findings were responsive to the record before him, and the application judge’s reasons fail to explain how this theory impacted his analysis or outcome. The essential task at hand for the arbitrator was that of contractual interpretation. It argues that the application judge overstepped her jurisdiction by engaging issues of contractual interpretation, which are questions of mixed fact and law: Sattva, at para. 50. Consequently, the arbitrator’s finding that “time was of the essence” was immune from review because it was based on his interpretation of the B.A. Similarly, the arbitrator’s conclusion that Tall Ships’ claims were out of time was a finding of mixed fact and law. [32] In its oral argument, Brockville argued explicitly that the arbitrator did not use “time of the essence” as a contractual term of art. Rather, he was referring to “time of the essence” colloquially, and was not implying that the parties would be able to cancel the contract for delay, as would be the case if a “time is of the essence” clause were breached. Accordingly, the application judge misapprehended the meaning of “time of the essence” in the arbitrator’s decision. [33] Tall Ships argues that the application judge’s decision turned on the arbitrator’s failure to notify Tall Ships of his intent to imply a “time of the essence” clause into his analysis. Tall Ships claims that this is both an error of law and a violation of procedural fairness. Further, the arbitrator’s finding on the limitation period was not a finding of mixed fact and law because he failed to consider the issue of discoverability. [34] Tall Ships submits that it could not “join issue” on the arbitrator’s conclusion that time was of the essence. It submits that Brockville pleaded that the requests for more information were, in fact, rejection notices. Tall Ships was deemed to have accepted them because it did not issue dispute notices. However, the arbitrator recognized that a request for information and a rejection were distinct, but still found that the same deadline should apply to the response. Tall Ships had no notice of the “key link” in the arbitrator’s chain of reasoning until it read the first award. This is fatal to the fairness of the arbitrator’s decision. [35] Further, the arbitrator erred in finding that Tall Ships claims were statute barred because he provided no reasons for doing so. He did not even acknowledge Tall Ships’ “detailed submissions on discoverability”. The arbitrator violated procedural fairness because he ignored the “key plank” of Tall Ships’ argument. Analysis of the Brownfields Remediation Claims [36] The core of the application judge’s conclusion was that the arbitrator erred in finding that “time was of the essence” because the point was neither advanced nor argued. She reasoned that this finding was critical to his conclusion that Tall Ships, through its inaction, had lost its right to contest Brockville’s non-acceptance of them. In her view, basing his decision on this point thus “violated mandatory rules of procedural fairness in the Arbitration Act” TSL (ONSC), at para. 35. As she stated, at para. 33, of her reasons: The Arbitrator’s reasoning is problematic because it hinged on a contractual interpretation that was neither advanced nor argued. [Brockville] did not allege, in its statement of defence, that the parties agreed that time was of the essence in the performance of their obligations under the [B.A.] or, more specifically, in Tall Ships’ response to a Rejection Notice under clause 22.3(d). As already mentioned, there is no reference to time being of the essence in the [B.A.] itself. The point was not raised in written or oral argument to the Arbitrator, nor did he ask the parties, before reaching his decision, for additional submissions on this point. [37] With respect, the application judge erred in finding that Tall Ships’ procedural fairness rights under s. 46(1) of the Arbitration Act had been breached. As I discuss further below, I do not accept Tall Ships’ submission that the arbitrator’s conclusion on the “time of the essence” clause was neither advanced nor argued before the arbitrator. The application judge’s conclusion on procedural fairness rests on her finding that the arbitrator implied a term into the contract that had neither been advanced nor argued. [38] In order to find that the arbitrator fell into error with respect to the contractual interpretation he reached, the application judge was required to find that the question of whether Tall Ships could submit its claims after 15 days had passed from its receipt of the determination or request for information from Brockville was an extricable question of law. [39] At the outset, I emphasize again the heart of the task which the parties agreed to have the arbitrator determine was the interpretation of the contractual arrangements between these parties. Moreover, they expressly provided that only questions of law could be subject to appeal. [40] Against this context is the standard of review applicable to the interpretation of contracts. In commenting upon the role of appellate courts in reviewing the proposed grounds of appeal from a commercial arbitration award, the Supreme Court cautioned in Sattva, at para. 54: [C]ourts should be cautious in identifying extricable questions of law in disputes over contractual interpretation. Given the statutory requirement to identify a question of law in a leave application pursuant to s. 31(2) of the AA, the applicant for leave and its counsel will seek to frame any alleged errors as questions of law. The legislature has sought to restrict such appeals, however, and courts must be careful to ensure that the proposed ground of appeal has been properly characterized. [41] In this case, there were volumes of evidence and the arbitration proceeded over 4 weeks of hearings, not including a great deal of time spent in preparation and case management. The arbitrator gave detailed and extensive reasons. He emphasized that his reasons for all three awards were to be read as a whole. [42] He considered the fact that Brockville had not responded to claims within 30 days of their submission, but found that Tall Ships was obliged nevertheless pursuant to art. 22.3 to dispute the determination or refusal within the stipulated 15 days. They had not done so. In fact, they did not make these claims until after the main dispute concerning the construction costs had arisen. The arbitrator held that “by its complete non-action, [Tall Ships] must be conclusively deemed to have accepted [Brockville’s] Determinations/Rejections” with respect to those claims: Award #1, at para. 52 (emphasis in original). [43] In my view, a fair reading of the arbitrator’s conclusion that Tall Ships was not entitled to claim the impugned remediation costs gives rise to the conclusion that he was not using the term “time of the essence” as a term of art. Read in context, he was simply saying that the contract required that Tall Ships submit notice of a dispute of a determination or rejection within 15 days. In the course of his detailed reasons, he found as fact, that Tall Ships had failed to establish that it had ever objected to any of those claims being determined by Brockville in more than 30 days. In addition, he was not satisfied that Tall Ships had ever provided Brockville with any of the additional information it had requested in its response to the impugned claims, nor had Tall Ships ever issued dispute notices as contemplated by art. 22.3 with respect to the impugned Brownfields remediation claims, although he was satisfied that Tall Ships had received the Determinations/Rejections. [44] While the arbitrator’s choice of expression was less than ideal in using the term “time of the essence”, it is in my view neither a fair, nor reasonable interpretation of his reasons in rejecting the claim to say that it was based on implying a “time is of the essence” clause into the contract. In reaching the conclusion that Tall Ships was out of time with respect to the impugned remediation claims of $929,893, the arbitrator was not using the expression “time of the essence” as though it were a term of the contract. Rather, having found that Brockville’s responses, while not made within 30 days, did constitute determinations or refusals, they triggered the 15-day period within which Tall Ships was required, pursuant to the contract, to dispute the determination or refusal. The application judge’s error in interpretation arose largely out of a failure to consider the arbitrator’s reasons as a whole and failing to consider the factual matrix. [45] It is significant to note that the reference to “time of the essence” is contained in two paragraphs out of approximately 36 which address the issues surrounding the B.A. This was within extensive reasons that, as I have already emphasized, considered the background and network of agreements that formed the context to the litigation between the parties. There is no suggestion anywhere in the reasons that the arbitrator intended to imply such a term in the technical sense such that it would have given rise to the innocent party’s right to cancel the contract. The statement of claim does not support such a claim. [46] Third, and as another contextual matter, the arbitrator did find Brockville to have been in breach of the B.A. because of its failure to render any determinations with respect to a number of other claims that Tall Ships had submitted. He did note that “by the time [Brockville] received [these claims], the parties had already thrown down and picked up the gauntlet: they had, by then, entered into a formal arbitration agreement … and [Tall Ships] had already served the Claim of Sept. 9, 2016 on [Brockville]”: Award #1, at para. 57. He ordered Brockville to make its determinations of those claims and to make its determinations and written responses to Tall Ships in a form and content similar to those it had received from Tall Ships. [47] In short, he considered the B.A. as a whole and within the factual matrix within which the use of the “time of the essence” term was incidental and entirely ungrounded to the implications it would or could have had had it been used in the technical sense. In doing so, he set out and considered the parties’ submissions in great detail. [48] It follows from the foregoing discussion that, as long as the “time of the essence” comment is not read as a term of the contract, there was no procedural unfairness caused to Tall Ships. Tall Ships pleaded that it was owed monies for remediation pursuant to the B.A. Brockville defended against this claim and was partly successful. As the arbitrator’s reasons indicate, his findings were detailed and grounded in a thorough interpretation of the applicable provisions. He found that while Brockville was wrong not to respond at all to certain claims, Tall Ships was bound under the B.A. to have disputed the determinations or refusals to pay submitted claims within 15 days. The term “time of the essence” does not form an essential aspect of the arbitrator’s interpretation of the contract and means no more than that Tall Ships was obliged to dispute the determinations\refusals within 15 days. The parties made full arguments on the point. [49] This was a question of mixed fact and law which fell squarely within the purview of the arbitrator, by which process the parties had chosen to resolve this dispute, with appeals on questions of law only. [50] Given my conclusion with respect to the interpretation of the contractual time limit for the submission of dispute notices, there is no need to address the limitation period issue. THE CONSTRUCTION COST OVERRUNs CLAIMS The Arbitrator’s Decision (Award #2 – Dated: December 4, 2018) [51] The arbitrator found that Tall Ships was responsible for these cost overruns. He resolved this issue according to the core, most basic obligations under the P.A. He noted that both parties were obligated to have regard for the legitimate contractual interests of the other, that Brockville had an obligation to co-operate with Tall Ships, and that Tall Ships had a “core obligation” as construction manager. [52] Tall Ships’ obligations as construction manager were key. The arbitrator reviewed several authorities before finding that Tall Ships undertook some of the normal functions of a general contractor. However, Tall Ships’ obligations were circumscribed by the fact that it was to conduct construction management “without risk”. Accordingly, the arbitrator found that Tall Ships was obliged to, among other obligations, carry out work on the MDC, prepare all project schedules, and importantly, manage Brockville’s expectations so that it would make fully informed decisions with a realistic appreciation of the cost consequences. [53] Turning specifically to the cost overages, the arbitrator notes that Brockville was not in a financial position to give Tall Ships a financial carte blanche on the project. It was therefore essential for Tall Ships, in its role as construction manager, to keep Brockville informed on matters of risk management. However, relying almost entirely on the evidence of Simon Fuller, the arbitrator found that this had not happened. The evidence showed that Tall Ships knew that the project would be much larger, and cost substantially more, than originally planned. Tall Ships never saw fit to disclose this evidence. Accordingly, Tall Ships did not perform its duties as construction manager reasonably, and it withheld information arbitrarily. In doing so, Tall Ships breached its duty of good faith. The Application Judge’s Decision [54] In allowing Tall Ships’ appeal on the additional construction costs, the application judge held that the arbitrator erred in law in finding that Tall Ships had breached obligations that were neither pleaded nor argued by Brockville, that he failed to apply the appropriate legal analysis for implying contractual terms and that he unreasonably misconstrued the duty of good faith. [55] The application judge set aside the arbitrator’s second award for three reasons. First, she found that the arbitrator erred in relying on Tall Ships’ obligations as a construction manager because Brockville did not rely on this obligation in its submissions before the arbitrator. She noted that these submissions were limited to arguments that Tall Ships deliberately withheld information about cost overruns from Brockville and failed to seek its authorization to increase the budget. Accordingly, Tall Ships was not on notice of the theory used to reject its claim for additional construction costs. This argument constituted an argument that Brockville had breached its obligations of procedural fairness pursuant to s. 46 of the Arbitration Act. [56] Second, the arbitrator’s elaboration of Tall Ships’ duties as construction manager relied on a contractual term implied using the incorrect test. The application judge could find no explicit obligations in the P.A. that required Tall Ships to keep Brockville “apprised of any revised total budget based on changes in the size or design”: TSL (ONSC), at para. 105. Therefore, she concluded that the arbitrator’s definition of “construction manager” was based on Brockville’s financial situation and the parties’ inequality of information. [57] However, though this interpretation could not arise without implying a term in the contract, the implied term did not conform to the three methods of implying a contractual term as set forth in M.J.B. Enterprises Ltd. v. Defence Construction (1951) Ltd., [1999] 1 S.C.R. 619. Moreover, the term explicitly contravened Tall Ships’ exclusion of liability in art. 2.2. Consequently, the arbitrator committed a legal error in finding that Tall Ships was obliged to keep Brockville abreast of changes to the overall construction budget. [58] Third, the arbitrator’s conclusion that Tall Ships breached its duty of good faith could not stand because it resulted from the arbitrator’s improper implication of a contractual term. The arbitrator could not have found that Tall Ships acted in bad faith without first finding that it had a duty to disclose the financial impact of various design changes. Since there was no legitimate foundation underpinning this obligation, there was similarly no basis for finding that Tall Ships had performed these obligations in bad faith. The Parties’ Submissions on the Cost Overruns Claims [59] Brockville makes very similar arguments against the application judge’s conclusion on the second award as it does on the first. It alleges both that the application judge exceeded her jurisdiction by reviewing questions of fact or mixed fact and law, and that she applied incorrect principles of procedural fairness. Additionally, Brockville submits that the application judge supplanted the arbitrator’s reasonable determination with her own, unreasonable findings. [60] Brockville argues that the arbitrator’s finding that Tall Ships had an obligation to inform it of cost overruns was based on the arbitrator’s review of the contract and the factual matrix. The question was one of mixed fact and law, and was thus not open to appellate review by the application judge. [61] Brockville states that the application judge failed to consider that Tall Ships’ obligation to disclose information arose as a matter of contractual interpretation. This finding was responsive to submissions about whether Brockville was aware of and consented to the additional costs. Further, the application judge failed to explain how this theory impacted the arbitrator’s analysis. [62] Brockville maintains that the arbitrator did not imply terms into the contract because he was merely giving effect to the parties’ words. His conclusion on Tall Ships’ obligation as a construction manager was based on common sense, the provisions of the agreement, and many days of evidence. [63] Tall Ships claims that this finding was the result of the arbitrator’s failure to consider the contract as a whole and of allowing the context to overwhelm the text. Both are pure legal errors subject to review. [64] Tall Ships argues that the application judge correctly found that the arbitrator erred in attaching obligations to its duties as construction manager that are not attributable to construction managers, and particularly, the duty to keep Brockville informed of the cost increases. It argues that this strips a key provision of meaning. Analysis of the Construction Cost Overruns Claims [65] The central error in the application judge’s analysis of the liability for the construction cost overruns is similar to that discussed above in relation to the claims for remediation costs. That is, she erred in characterizing aspects of the arbitrator addressing the construction cost overruns as errors of law rather than errors of mixed fact and law. [66] To begin with, the task facing the arbitrator was to interpret the P.A. within the context of the other instruments and circumstances existing at the time. There can be no question that art. 2.2 of the P.A. was part of it and this could not have come as a surprise to any of the parties. In its submissions to the arbitrator on the construction cost claim, Tall Ships cited art. 2.2 and emphasized the parts of arts. 2.1 and 2.2 upon which it has relied: 2.1 (a) […] the Vendor covenants and agrees to undertake and complete the construction of the MDC. […] in accordance with the plans and specifications as approved by the Vendor and the MDC Steering Committee, prepared within the parameters of the Construction Budget […] (b) […] the Vendor shall not be liable to the Purchaser for any direct, indirect, foreseen or unforeseen damages which the Purchaser may sustain or incur by reason of any delay in the commencement and or completion of the MDC base building […] Furthermore, the Vendor shall not be liable to the Purchaser for any direct, indirect, foreseen or unforeseen damages which the Purchaser may sustain or incur if the MDC and or the MDC Parking Units are not constructed and or completed through no fault of the Vendor […] 2.2 The Vendor shall operate as construction manager in respect to the construction of the MDC as herein provided and for such services the Vendor shall be paid a construction management fee (without risk) […] based on an estimated Construction Budget of $7,400,000.00 [...] It is understood and agreed that the assumption of the construction management of the MDC shall not give rise to any obligation upon the Vendor or a related party or a party designated by the Vendor to assume the obligations for or make payment of the cost of construction of the MDC and or the MDC Parking Units nor give rise to any claim for delay or failure to complete. [Emphasis in original submissions.] [67] However, this provision could not be read in isolation from other provisions in the P.A. Tall Ships argued that as construction manager, it assumed no risk for any financial overruns. Brockville argued that it neither knew of, nor approved of any such increases over the $7,400,000 envelope. The arbitrator was alive to the argument that Tall Ships, as construction manager, assumed no risk for cost overruns. This is evident from the fact that he set these submissions out accurately and in detail in his reasons. And as he observed, at para. 192, at the beginning of his discussion of contractual obligations with respect to the cost overruns and good faith: [T]his was a massive case for both legal teams to marshal - thousands upon thousands of documents and a myriad of human interactions over nearly a decade, all to be sorted through in order to bring the case forward to arbitration. [68] The arbitrator, at para. 199, cited the following well known passage from Sattva, at para. 47: [T]he interpretation of contracts has evolved towards a practical, common-sense approach not dominated by technical rules of construction. The overriding concern is to determine “the intent of the parties and the scope of their understanding”. To do so, a decision-maker must read the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract. [Citation omitted in the original.] [69] The arbitrator carefully considered Tall Ships’ role as construction manager. In doing so, at para. 206, he specifically considered “the core or most basic (as in fundamental) obligations under the [P.A.]”, finding that there were three: (a) As per Bhasin: each party had to have regard for the legitimate contractual interests of the other contracting partner: each, in discharging the obligation of good faith or honest performance, had to perform its contractual duties honestly and reasonably and not capriciously or arbitrarily; (b) Brockville, obviously, had an obligation to co-operate with [Tall Ships] and, inter alia, to make appropriate payments under the [P.A.] when presented with appropriate invoices by [Tall Ships]; (c) [Tall Ships] had a core obligation of construction management in relation to the Aquatarium. [Emphasis in original.] [70] He then went on to consider what the term “construction manager” meant within the context of this P.A., citing authorities on the issue and noting that it is not a term with a fixed meaning. At para. 210, he cited Thomas J. Kelleher Jr. & G. Scott Walter, eds, Smith, Currie & Hancock’s Common Sense Construction Law: A Practical Guide for the Construction Professional, 4th ed (Hoboken, USA: John Wiley & Sons, Inc., 2009) at p. 15, emphasising the statement that: Because general principles regarding construction management are lacking, and because someone operating under a title and position designated as [Construction Manager] performs many and varied roles, it is always necessary to examine the specific contractual obligations undertaken by the [Construction Manager] and the owner through the contract at issue. [71] He found as a fact that Tall Ships was not only a construction manager but also performed some of the normal functions that a general contractor would usually perform, giving a number of examples. He then expressly addressed the question as to what the “without risk” provision in the P.A. meant. While the arbitrator did not specifically cite art. 2.2 of the P.A. at this point, it is clear that this is the provision he was referring to. In other words, he was very alive to this provision and to Tall Ships’ argument that this precluded Tall Ships’ liability for the cost overruns, which he set out in detail in his reasons. [72] In my view, and with respect, the application judge erred in focussing on what she considers to have been a legal error by the arbitrator in imputing the duties that he did to a construction manager. It is clear in his reasons that he found that Tall Ships was not simply a construction manager. In reaching his conclusions, he considered the contract as a whole within the context of the project as a whole. This was not a question of law, but a question of mixed fact and law, which according to the parties’ Arbitration Agreement, was not subject to appeal. [73] The arbitrator began his discussion, at para. 219, about Tall Ships’ obligation to keep the Steering Committee informed of financial risks by setting out the context of the project and the construction budget: The whole point about the Project was to enable [Brockville] to try and rebuild its downtown core and, in that way, not only revitalize the downtown portion of Brockville but also help to rebuild the commercial tax base that had been in decline with the loss of several key industries. Brockville was in no financial position to say to [Tall Ships] or to any other party for that matter: “Don’t worry about the cost. Just build the Aquatarium. We’ll cover the cost whatever it ends up being. It will be good for Brockville in the long run.” To put it simply: in entering into the [P.A.], [Brockville] was not giving [Tall Ships], as [Construction Manager], a “carte blanche”. The $7.4M, as an estimated construction budget, fit within the overall $18 million submission to OMAFRA and I am satisfied that once the BCF Grant was awarded for somewhat less than the $18 million, both [Brockville] and [Tall Ships] understood that this represented the bulk of the funding envelope available for the Project. No one would have understood that either the Government of Ontario or the Government of Canada was an inexhaustible well to which one could return for $3 or $4 million more, in the event that the Aquatarium ended up 125%-130% over the estimated construction budget. And there is no evidence before me that Brockville was flush with cash reserves that could be readily available and applied to any MDC cost overruns. [Emphasis in original.] [74] The arbitrator then turned to the question of who knew what and when. This was directly relevant and responsive to Tall Ships’ central argument that Brockville knew, should have known and or was wilfully blind to the true size and cost of the project. Indeed, that was the central pillar in Tall Ships’ position throughout. [75] First, he referred to a number of admissions and statements by Simon Fuller that he knew, at the time that Tall Ships entered into the P.A., that the MDC was going to be 33,000 sq. ft., that he “never ever” thought that $7,400,000 would have built a 27,000 sq. ft. building and that such a thought was “ridiculous”, but that there were no substantive discussions on cost as the MDC expanded in size. [76] This latter point is important because although there were regular meetings with the Steering Committee, the Delegation of Authority in the P.A. did not vest the Steering Committee with the authority to increase the construction budget beyond that aggregate sum of $7,400,000. [77] Moreover, the arbitrator found that Mr. Fuller possessed this information “in sharp contrast” to what members of the Steering Committee and Brockville did not know. He accepted the evidence of a number of members of the Steering Committee that they did not know that the MDC had increased in total size and or that the cost would inevitably be more than $7,400,000 at the time the P.A. was entered into in March 2011. He found that Tall Ships had the financial expertise, and in its capacity as construction manager and contractor, had information and details at its fingertips that Brockville and the Steering Committee did not. [78] Against this backdrop, the arbitrator, relying on minutes of Steering Committee meetings, also chronicled the instances in which its members were attempting to get a response from Mr. Fuller as to what Tall Ships was going to deliver for $7,400,000. He found, at para. 235, that: As far as I am concerned, these enquiries were never met with a straight answer. Pointedly, the minutes continue to reflect the fact that the [Steering Committee] was operating in the belief that the $7.4 million was a “gravestone” number. Mr. Fuller never corrected that perception or assumption until the January 2015 “cash crunch” crisis. [Emphasis in original.] [79] The arbitrator also refers to the fact that art. 3.9 makes it clear that the Steering Committee could not approve increases in costs beyond the $7,400,000. Although it could reallocate within that envelope, Tall Ships never presented a request for an increased budget to Brockville. [80] The arbitrator found that Tall Ships, through Simon Fuller, had a duty under the contract to keep the Steering Committee apprised of financial risks as the project continued. He found that it not only failed to do so, but that Mr. Fuller repeatedly withheld critical information. This finding of fact, along with his finding that Tall Ships through Mr. Fuller breached its duty of good faith in withholding the information, is not challenged in this appeal. Nor does Tall Ships submit that it ever followed the procedure set out in the P.A. for an increase in the budget. [81] With respect to the application judge, I do not agree that these obligations arose out of “implied terms” which were neither pleaded nor argued and were thus unfair to Tall Ships. Rather, it arose from the interpretation of the contract as a whole and was a matter of mixed fact and law. As I stated above with respect to the claim for remediation expenses, the arbitrator did precisely what he was asked to do: he interpreted the contract as a whole, within its relatively complex factual matrix of the agreements and relationships in play. Characterizing the obligation to keep the Steering Committee informed as an “implied term”, such that it attracts a right to appeal in these circumstances, would entirely undermine the intent of these parties to submit this dispute, which arose out of a complex network of agreements and relationships which developed over a decade, to arbitration, and would particularly frustrate their specific provision that only errors of law could be appealed. [82] In addition, I see no basis for any argument of procedural unfairness to Tall Ships. As I have indicated above, the parties each argued that their position was vindicated by the facts and the agreements before the arbitrator. He found the facts largely in favour of Brockville and interpreted the P.A. as the parties agreed he should do. The conclusion that the procedural rights of Tall Ships were violated because the “implied terms” were neither pleaded nor argued is bootstrapped by the erroneous finding that these were “implied terms” that the arbitrator had erred in interpreting to be part of the contract. [83] Finally, Tall Ships submits that the arbitrator erred in the remedy imposed regarding the duty of good faith. Tall Ships states that, even if it did breach its duty of good faith, the arbitrator applied the wrong legal test for damages from such a breach. Damages for breaching the duty of good faith flow from the consequential loss of opportunity: C.M. Callow Inc. v. Zollinger, 2020 SCC 45, 452 D.L.R. (4th) 44, at para. 104. In this case, Brockville had no such loss because it could have obtained exactly what it bargained for. However, the arbitrator’s decision gave Brockville a larger MDC for the same price. [84] In its oral arguments, counsel for Tall Ships conceded that it could not dispute the arbitrator’s finding that it breached the duty of good faith. However, it argues that there was no causation between this breach and any damages to Brockville. Tall Ships offered Brockville exactly what it bargained for, but Brockville refused and failed to mitigate its damages in the process. [85] I would disagree. The arbitrator did not make an order for damages. Rather, he found that Tall Ships was not entitled under the contract to claim for the construction budget overruns. He found that Mr. Fuller had actively misled the Steering Committee and deliberately withheld information about the size and financial implications of the ongoing project which had constituted a breach of Tall Ships’ duty of good faith. Against the backdrop of the rest of the contract and the finding that Tall Ships had never requested an increase of the construction budget set at $7,400,000, he found that they were not entitled to the construction cost overruns under the contract. THE UNJUST ENRICHMENT CLAIM [86] Finally, I see no merit to Tall Ships’ submissions that they should succeed on the unjust enrichment claim. [87] Brockville argues that the application judge erred by delving into questions of mixed fact and law and improperly substituting her own unreasonable interpretation of the P.A. She did so without transcripts or a full understanding of the facts. It argues that the arbitrator’s analysis of Tall Ships’ obligations as construction manager was faithful to Sattva, and that he properly interpreted that the P.A. was unambiguous in its term that the $7,400,000 budget could only be increased “with the consent” of Brockville. Brockville agues that the arbitrator properly found that it had a juristic reason for its enrichment based on the P.A., Tall Ships’ non-entitlement to recover the construction costs, in addition to Tall Ships breaching its honest contractual performance duty. [88] The application judge found that the arbitrator’s error in implying “construction manager” obligations on Tall Ships, led inexorably to the conclusion that he had also erred in rejecting Tall Ships’ claim based on how it performed those obligations. According to the application judge, this error was in turn the basis for the arbitrator’s conclusion that Tall Ships was estopped from making a claim in contract or for unjust enrichment. Consequently, the arbitrator’s rejection of the claim for unjust enrichment was therefore premised on the same error that led him to reject the claim in contract. [89] It follows from the conclusion I have reached that Brockville had a juristic reason to retain any benefit acquired as a result of Tall Ships’ costs overruns. That is because the arbitrator did not err in finding that the proper interpretation of Tall Ships’ contractual obligations precluded recovery of the cost overruns. Put another way, the contract, as interpreted by the arbitrator, precluded recovery for these overruns. THE INTEREST CLAIM [90] In Award #3, the arbitrator denied Tall Ships’ claim for interest on the $315,000 paid in settlement of the MDC Exclusions claim. In doing so, he made some preliminary comments. First, he reiterated his earlier statement that all the evidence and awards were to be read together. Second, he noted that the agreement to pay this amount was not a one-off matter and the invoice was not issued “in splendid isolation”. [91] The arbitrator also found that the P.A. obliged Brockville to pay Tall Ships for the work it did that fell within the MDC Exclusions with interest. He also found, however, that the invoice was a “non-compliant” contract document. It failed, for example, to identify which work had been performed by Tall Ships or its related companies, and it did not set out quantities of time and material. The sum of $315,000 was to be paid as part of an agreement that the parties reached in April 2015 with a view to narrowing their disputes. The arbitrator further found that by the time they agreed to the sum of $315,000, interest on that amount was not contemplated. He also noted that Tall Ships did not respond to the letter from Brockville setting out that agreement. He found that in all the circumstances, Tall Ships was estopped from later claiming that interest was owed on the $315,000 between the time of the invoice until it was paid some months later. [92] The application judge found that the arbitrator’s analysis with respect to the interest award was in error because it was based on his finding that Tall Ships, as construction manager, was required to advise Brockville of its intention to claim interest. The application judge also found that the arbitrator erred in finding that Brockville had pleaded sufficient material facts to put Tall Ships on notice of its estoppel argument. Finally, she found that the arbitrator’s estoppel conclusion was manifestly unfair as he erred in finding that Tall Ships’ silence amounted to a representation because it was under an obligation to speak. The application judge concluded that “[t]he only possible source of such an obligation was Tall Ships’ role as construction manager in the [P.A.]”: TSL (ONSC), at para. 176. This finding stemmed from the arbitrator’s alleged error in interpreting art. 2.2 of the P.A. in Award #2 because “[h]e could not have concluded that, by saying nothing about an eventual interest claim, Tall Ships made a representation, without first finding that it had an obligation to disclose”: TSL (ONSC), at para. 177. [93] In my view, the application judge erred in her assessment of the arbitrator’s interest award for a number of reasons which are related to those I have already given with respect to the other awards. First, as I have already discussed above, the arbitrator’s finding with respect to Tall Ships’ duties was a question of mixed fact and law, which both parties agreed would be immune from appeal. As Tall Ships readily acknowledges in its written submissions before this court, “[l]ike his unjust enrichment finding, the Arbitrator’s conclusion that [Tall Ships] should not recover interest on the March 31, 2015, invoice also relies heavily on his view of [Tall Ships’] obligations as construction manager”. Given my earlier finding with respect to Award #2, there is no need to address this argument in any further detail. [94] Second, I see no reversible error of law in the arbitrator’s conclusion that, despite the fact that the word “estoppel” did not appear in its pleading, the substance of Brockville’s pleading was that Tall Ships resiled from an oral agreement that it would abandon its claims in exchange for $315,000, an amount which Brockville paid. The arbitrator made specific findings of fact that supported his determination that Brockville had pled sufficient material facts in support of estoppel. He noted that the context of these negotiations was the need that arose when Brockville suddenly discovered the overages and the need to contain the expenses, which, he found arose because of Tall Ships’ breach of its good faith duty to keep Brockville informed on these issues. His findings on estoppel also took account of the P.A. and his interpretation of its relevant provisions. He found that Tall Ships made a representation, which Brockville relied on to its detriment. It agreed to settle this aspect of the claim for $315,000 and it paid this amount. [95] It is again worth repeating, that this was a question of mixed fact and law, not subject to appeal under s. 45. It also bears repeating that s. 46 of the Arbitration Act cannot be used as a broad appeal route to bootstrap substantive arguments attacking an arbitrator’s findings which the parties had agreed would be immune from appeal. Here, the parties agreed to settle the claim for the MDC Exclusions with the payment of $315,000. There was no material surprise or unfairness to Tall Ships and the applications judge’s conclusion that the arbitrator’s decision was manifestly unfair cannot stand. [96] In summary, I see no extricable error of law in the arbitrator’s conclusions on the interest issue. He carefully considered the contract as a whole, the context of the negotiations and found that the parties agreed that the MDC Exclusions claim would be resolved by the payment of $315,000. He found that they effectively amended the P.A. in that they did not contemplate the payment of interest and that they could not resurrect such a claim by later resiling from that agreement and that they were estopped from making that claim before him. This was a finding of mixed fact and law and not an extricable error of law and is not subject to interference on appeal. CONCLUSION & COSTS [97] For the foregoing reasons, I would allow the appeal. I would award costs of the appeal to the appellant in the amount of $40,000 inclusive of H.S.T. and disbursements. As agreed, costs in the amount of $40,000 as awarded by the application judge to Tall Ships are reversed so that this amount is payable by the respondent to the appellant. Released: December 13, 2022 “D.D.” “A. Harvison Young J.A.” “I agree Doherty J.A.” “I agree Grant Huscroft J.A”