Court of Appeal for Ontario

Date: June 20, 2017 Docket: C63179

Judges: MacPherson, Blair and MacFarland JJ.A.

Between

Ledore Investments Limited, carrying on business as Ross Steel Fabricators & Contractors Plaintiff (Appellant)

and

Ellis-Don Construction Ltd. Defendant (Respondent)

Counsel

W. Ross MacDougall and Robin E. Joffe, for the appellants

Angelo D'Ascanio, for the respondent

Heard: June 15, 2017

On appeal from the judgment of Justice J.N. Morissette of the Superior Court of Justice, dated August 29, 2016.

Decision

By the Court:

[1] Overview of the Appeal

The appellant Ledore Investments Limited appeals from the judgment of Morissette J. of the Superior Court of Justice setting aside a commercial arbitration award rendered by arbitrator Larry Banack.

[2] Background – The Construction Project

In a major bridge construction project in southwest Ontario, the respondent Ellis-Don Construction Ltd. was the general contractor and the appellant was a subcontractor supplying steel to the project.

[3] The Underlying Dispute

The underlying dispute arose out of the final subcontract accounting between the parties. There is no dispute that there were delays in the course of the project and that some money was owed by the respondent to the appellant, and vice versa. The respondent wrote to the appellant a number of times about the delay and ultimately withheld some funds.

[4] The Crucial Letter

In the crucial letter, the respondent said:

In addition to impacting the schedule, Ross Steel also forced Ellis-Don to expend substantial monies to accelerate the work in an effort to recover the schedule. We are currently assessing the financial impact that Ross Steel's slippages have had on Ellis-Don and we intend to recover the costs from you.

[5] Arbitration and the Estoppel Issue

The parties referred their dispute to a commercial arbitrator. Both parties relied on an article (Article 15) of the subcontract to say that the other party was estopped from raising certain delay costs claims. The arbitrator agreed with both parties' assertions on the estoppel issue.

[6] The Arbitrator's Decision on Ellis-Don's Delay Costs Claim

With respect to Ellis-Don's delay costs claim, the arbitrator said:

I find that while Ellis-Don may have contemplated a delay claim in January 1999 and may have discussed amongst its own representatives a possible strategy to assert a claim for delay costs in the amount of $400,000, there is no proof that it actually did so. As stated earlier, the intention to claim is not the same as a claim. Further, the failure to advance the delay claim in the August 4, 1999 meeting supports my view that Ellis-Don did not assert a delay claim "in-writing" before the final certificate of completion. [Emphasis added.]

[7] The Arbitrator's Decision on Ross Steel's Delay Costs Claim

With respect to Ross Steel's delay costs claim, the arbitrator said:

For many of the same reasons above, Ross Steel's claims for delay costs cannot be pursued.

[8] Leave to Appeal

Ross Steel accepted the arbitrator's decision. Ellis-Don did not. It sought leave to appeal which Leach J. granted on this issue:

Ellis-Don is granted leave to appeal in relation to its contention that the arbitrator erred in law in finding that the letters sent by Ellis-Don to Ross Steel, (and the letter of January 18, 1999, in particular), did not constitute an unsettled "claim made in writing", capable of satisfying the provisions of Article 15.1 of the parties' agreement.

[9] Article 15.1 of the Subcontract

In relevant part, Article 15.1 of the subcontract provides:

15.1 As of the date of the final certificate for payment of the prime contract, the contractor expressly waives and releases the subcontractor from all claims against the subcontractor, including without limitation those that might arise from the negligence or breach of this agreement by the subcontractor, except one or more of the following:

(a) those made in writing prior to the date of the final certificate for payment of the prime contract and still unsettled; [Emphasis added.]

[10] The Appeal Judge's Decision

The appeal judge allowed Ellis-Don's appeal from the arbitrator's award. She held that the arbitrator did not apply what she called "the general principles established in Doyle Construction Co. v. O'Keefe Breweries of Canada Ltd., [1988] 5 WWR 677 (BCCA) ("Doyle") to determine whether or not the requirement of Article 15.1(a) had been satisfied." She continued:

Doyle provides legal authority for the general proposition that provisions requiring claims to be made in writing should be treated as provisions requiring written notice of claims, contrary to the approach taken by the arbitrator.

In this court's view, the arbitrator erred in finding that "claims made in writing" should not be treated as provisions requiring written notice of a claim.

As indicated above, not only was there legal authority for that general proposition, but also authority suggesting an approach precisely the opposite to that taken by the arbitrator. In doing so, the arbitrator misapplied the general principles and considerations established in Doyle to reach his conclusion that Article 15.1(a) had been satisfied but instead fashioned and applied his own test in that regard, contrary to the applied legal principles established.

[11] Grounds of Appeal

The appellant appeals this decision, essentially on two grounds.

[12] First Ground: Standard of Review

First, the appellant asserts that the standard of review of a commercial arbitrator's decision is reasonableness and that the appeal judge erroneously applied a correctness standard. The appellant points to the word "erred" in the passage from the appeal judge's decision set out above.

[13] The Correct Standard of Review

The appellant is correct in the first of these two propositions. The standard of review on appeal from a commercial arbitration award will generally be reasonableness: see Sattva Capital Corp. v. Creston Moly Corp, 2014 SCC 53 ("Sattva"), at para. 106.

[14] Application of the Reasonableness Standard

In our view, the appellant is wrong in the second of its propositions on this issue. In her reasons, the appeal judge explicitly stated the issue in this fashion: "The question therefore is whether there is a reasonable legal basis for the Arbitrator's impugned decision/conclusion." It is true that in one place the appeal judge used the word "erred" in her description of the arbitrator's decision. However, in light of her explicit framing of the legal issue in terms of reasonableness, and reading her reasons as a whole, we are satisfied that the appeal judge applied the proper test in her analysis.

[15] Second Ground: Reasonableness of the Arbitrator's Decision

Second, the appellant contends that the appeal judge erred by determining that the arbitrator's decision was unreasonable. We agree.

[16] Contextual Framework

We begin with two contextual points.

[17] First Contextual Point: Deference to Arbitration

The first contextual point is recognition that there is an important link between the fact of a private consensual arbitration and the need for judicial deference to the result of the arbitration. As explained by Doherty J.A. in Popack v. Lipszyc, 2016 ONCA 135, at para. 26:

In addition to the generally applicable principles that urge deference in the review of all discretionary decisions, the nature of the specific order under appeal can also enhance the deference rationale. The application judge exercised her discretion in the context of a review of an award rendered in a private arbitration before a panel chosen by the parties to determine the dispute between them. The parties' selection of their forum implies both a preference for the outcome arrived at in that forum and a limited role for judicial oversight of the award made in the arbitral forum. The application judge's decision to not set aside the award is consistent with the well-established preference in favour of maintaining arbitral awards rendered in consensual private arbitrations.

[18] Additional Authority on Deference

See also: Sattva, at para. 104; and Ottawa (City) v. Coliseum Inc., 2016 ONCA 363, at paras. 31-34.

[19] Second Contextual Point: The Reasonableness Standard

The second contextual point is recognition that the test for reasonableness, with respect to both tribunal and arbitral decisions, is a highly deferential one, encompassed in the formulation in the still leading case, Dunsmuir v. New Brunswick, 2008 SCC 9, at para. 47:

Reasonableness is a deferential standard animated by the principle that underlies the development of the two previous standards of reasonableness: certain questions that come before administrative tribunals do not lend themselves to one specific, particular result. Instead, they may give rise to a number of possible, reasonable conclusions. Tribunals have a margin of appreciation within the range of acceptable and rational solutions. A court conducting a review for reasonableness inquires into the qualities that make a decision reasonable, referring both to the process of articulating the reasons and to outcomes. In judicial review, reasonableness is concerned mostly with the existence of justification, transparency and intelligibility within the decision-making process. But it is also concerned with whether the decision falls within a range of possible, acceptable outcomes which are defensible in respect of the fact and law.

[20] Analysis of the Arbitral Award

Against this backdrop, I turn to the arbitral award and the appeal judge's review of that award.

[21] The Arbitrator's Interpretation of Article 15.1(a)

The principal focus must be on the arbitrator's decision. In our view, his interpretation of Article 15.1(a) of the subcontract at paragraphs 52-68 of the award is eminently reasonable. The question of whether Ellis-Don advanced a "claim" for delay in writing within the time permitted under the subcontract is, by its very nature, a question of mixed law and fact. The question required the arbitrator to not only interpret Article 15.1(a), but also to decide whether the language contained in Ellis-Don's January 18, 1999 (or any other letters) was sufficient to constitute a "claim". This is precisely what the arbitrator did.

[22] Consistency with Doyle Construction

The arbitrator was aware of the cases the respondent relies on in this appeal (Ellis-Don put them before him and relied on them in argument). In our view, the arbitrator did not ignore or misperceive them. Indeed, in terms of the principal case relied on by the respondent, Doyle, the arbitrator's decision is not inconsistent with it; his dichotomy between "intention to make a claim" and "an actual claim" is similar to the distinction in Doyle, at para. 71, between "grumbling display[ing] an intention to claim" and an actual claim.

[23] Conclusion and Disposition

For these reasons, the appeal is allowed, the order of the appeal judge is set aside, and the arbitrator's award is reinstated.

[24] Costs

The appellant is entitled to its costs of the appeal fixed at $30,000, inclusive of disbursements and HST.

Released: June 20, 2017

J.C. MacPherson J.A.

R.A. Blair J.A.

J. MacFarland J.A.