COURT FILE NO.: 11-CV-430322
DATE: 20120615
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Greenfield Energy Centre LP, Applicant
AND:
Ontario Power Authority, Respondent
BEFORE: Carole J. Brown J.
COUNSEL:
David Chernos , for the Applicant
Paul Ivanoff and Kevin O’Brien , for the Respondent
HEARD: February 3, 2012
ENDORSEMENT
[ 1 ] The Applicant, Greenfield Energy Centre LP ("GEC"), seeks an order pursuant to section 6 of the Arbitration Act , 1991 (the Act) referring a contractual dispute between the parties to arbitration; an order requiring the Respondent, Ontario Power Authority (OPA) to comply with its contractual obligations to appoint an arbitrator and to give notice of arbitration to certain other power suppliers as required by the contractual provisions between them. It takes the position that the contract includes a clearly worded mandatory arbitration clause and that this Application is unnecessary.
[ 2 ] The Respondent, OPA states that the issue is not, as a GEC maintains, whether the underlying dispute between the parties should go to arbitration, as the parties agree that it should. In fact, to that end, OPA has nominated the Hon. John W. Morden as arbitrator for the dispute, and Mr. Morden has confirmed his availability. Rather, the issue is which of two distinct arbitration procedures contained in the contractual agreement applies to the dispute. The Agreement between the parties contains two separate arbitration clauses, each applying to different types of disputes that may arise under the Agreement, and each containing its own distinct arbitration procedure. The parties differ as to which arbitration clause applies in the circumstances of this case.
The Facts
[ 3 ] The OPA is a statutory corporation created under The Electricity Restructuring Act , 2004, S.O. 2004, c 23. The OPA's mandate includes forecasting Ontario's electricity demand and the adequacy and reliability of electricity resources for the medium and long-term, and entering into supply contracts for the purchase of electricity from power suppliers, such as GEC.
[ 4 ] GEC is an Ontario limited partnership and the operator of a gas-fired power generating facility near Sarnia, Ontario that supplies power to Ontario's electricity grid.
[ 5 ] The parties entered into an Agreement for the supply of electricity and related products into Ontario's electricity grid. The Agreement was entered into pursuant to a request for proposals issued by the Minister of Energy to solicit the long-term supply of approximately 2500 MW of clean generating capacity and demand-side projects in Ontario. Several power suppliers, including GEC, responded and were selected as suppliers under the RFP. Each supplier entered into a Clean Energy Supply Contract (the "CES contracts") with the OPA, based on a standard form contract template that formed part of the RFP. The Agreement between OPA and GEC was made effective April 12, 2005, and was amended effective June 9, 2006.
[ 6 ] The IESO is a not-for-profit Corporation established under Ontario's Electricity Act, 1998 . It administers Ontario's wholesale energy market, authorizing market participants and administering the IESO Market Rules governing the market’s operation. In June of 2009, it issued a proposed amendment to the IESO Market Rules, MR356, which became effective on December 9, 2009. This gave rise to the dispute between the parties.
The Agreement Between the Parties
[ 7 ] The Agreement contains two separate arbitration clauses, each applying to different types of disputes that may arise under the Agreement, and each containing its own distinct arbitration procedure.
[ 8 ] Section 1.6 of the Agreement regarding IESO Market Rules states, in relevant part, as follows:
To the extent that there is a change in the IES0 Market Rules following the date hereof [April 12, 2005], which such change has the effect of materially affecting the Supplier’s economics as contemplated hereunder prior to the introduction of such change, then:
(a) either Party upon becoming aware of the consequences of such change shall promptly notify the other Party;
(b) the Parties shall engage in good faith negotiations to amend this Agreement on the basis that the amendments together with the change in the IES0 Market Rules will reflect the Supplier's economics as contemplated hereunder prior to the introduction of such change in the IES0 Market Rules; and
(c) if the Parties fail to reach agreement on the amendments described in section 1.6 (b), the matter shall be determined by mandatory and binding arbitration from which there shall be no appeal, with such arbitration(s) to be conducted in accordance with the procedures set out in Exhibit F. The terms of this Agreement shall be amended by an agreement of the Parties made pursuant to and to implement such an arbitration award.
[ 9 ] I am advised by the parties that the Exhibit referred to in the Agreement should be Exhibit L rather than F.
[ 10 ] Section 1.6 of the Agreement, as it refers to "affecting the suppliers economics as contemplated hereunder" refers to the introduction of the Day-Ahead Energy Forward Market (1.7), the Evolution of the IESO-Administered Markets (1.8), Price Unavailability Events (1.9), and the Invalidity, Unenforceability or Inapplicability of Indices and Other Provisions (1.10).
[ 11 ] Exhibit L (arbitration procedures applicable to sections 1.7, 1.8, 1.9, and 1.10) set forth the provisions for arbitration in the above circumstances. In relevant part, it states:
Commencement Of Arbitration – If the Parties and the parties to all other CES Contracts entered into under the 2500 MW RFP have been unable to reach agreement on Replacement Price or the Replacement Provision within 30 days of the day the Day-Ahead Energy Forward Market was opened for operation or the day the relevant energy price becomes (became) unavailable, the Supplier or any supplier under the other CES Contracts entered into under 2500 MW RFP (collectively the "Suppliers") or the buyer may commence arbitration by delivering a written notice to the party opposite requesting arbitration (the "Request"). If the Buyer has not already done so, the Buyer shall then deliver to the Suppliers the names of all Suppliers. Within 20 days of the delivery of the request, the Buyer shall deliver to the Suppliers a written notice nominating an arbitrator who shall be familiar with commercial law matters and has no financial or personal interest in the business affairs of any of the parties. Within 20 days of the receipt of the Buyers notice nominating its arbitrator, the Suppliers shall by written notice to the Buyer nominate an arbitrator who shall be familiar with commercial law matters and has no financial or personal interest in the business affairs of any of the parties. The two arbitrators nominated shall then select the chair person of the Arbitration Panel who shall be a former judge of a Superior Court or appellate court in Canada.
Application to Court – If the Suppliers are unable to agree on the nomination of an arbitrator within 20 days of the receipt of the Buyers notice nominating its arbitrator, any Supplier or the Buyer may apply to a judge of the Superior Court of Justice of Ontario to appoint the arbitrator. If the two arbitrators are unable to agree on a chair person within 30 days of the nomination or appointment of the Supplier's arbitrator, any supplier or Buyer may apply to a judge of the Superior Court of Justice of Ontario to appoint the chair person.
General – The Arbitration Panel, once appointed, shall proceed immediately to determine the Replacement Price or the Replacement Provision in accordance with the Ontario Arbitration Act, 1991 and where applicable, the Ontario International Commercial Arbitration Act , it being the intention of the Buyer and the Supplier that there be, to the extent possible, one arbitration proceeding in a hearing to determine the Replacement Price or the Replacement Provision. [as defined in section 1.7 and 1.8 of the Agreement] .
Fees – Each of the arbitrators on the Arbitration Panel shall be paid their normal professional fees for their time and attendances, which fees together with any hearing room fees, shall be paid by the Buyer.
[ 12 ] The second arbitration provision in the Agreement, Sections 15.1 and 15.2, states as follows:
15.1 Informal Dispute Resolution
If any dispute arises under or in connection with this Agreement that the Parties cannot resolve, each of the Parties shall promptly advise its senior management, in writing, of such dispute. Within ten (10) Business Days following delivery of such notice, a senior executive (Senior Vice-President or higher) from each Party shall meet, either in person or by telephone (the " Senior Conference "), to attempt to resolve the dispute. Each senior executive shall be prepared to propose a solution to the dispute. If, following the Senior Conference, the dispute is not resolved, the dispute may be settled by arbitration pursuant to section 15.2, if agreed to by both Parties.
15.2 Arbitration
Except as otherwise specifically provided for in this Agreement, any matter in issue between the parties as to their rights under this Agreement may be decided by arbitration provided, however, that the Parties have first completed a Senior Conference pursuant to section 15.1. Any dispute to be decided by arbitration will be decided by a single arbitrator appointed by the Parties or, if such Parties fail to point an arbitrator within fifteen (15) days following the agreement to refer the dispute to an arbitration, upon the application of either of the Parties, the arbitrator shall be appointed by a Judge of the Superior Court of Justice (Ontario) sitting in the Judicial District of Toronto Region… The arbitrator shall be authorized only to interpret and apply the provisions of this Agreement and shall have no power to modify or change the Agreement in any manner. The decision of the arbitrator shall be conclusive, final and binding upon the Parties. The decision of the arbitrator may be appealed solely on the grounds that the conduct of the arbitrator, or the decision itself, violated the provisions of the Arbitration Act , 1991 ( Ontario) or solely on a question of law as provided in the Arbitration Act, 1991 (Ontario). The arbitrator shall provide each of the Parties an opportunity to be heard and shall conduct the arbitration hearing in accordance with the provisions of the Arbitration Act, 1991 (Ontario). Unless otherwise agreed by the Parties, the arbitrator shall render a decision within ninety (90) days after the end of the arbitration hearing and shall notify the Parties in writing of such decision and the reasons therefor. The arbitrator shall be authorized only to interpret and apply the provisions of this Agreement and shall have no power to modify or change the Agreement in any manner. The decision of the arbitrator shall be conclusive, final and binding upon the Parties. The decision of the arbitrator may be appealed solely on the grounds that the conduct of the arbitrator, or the decision itself, violated the provisions of the Arbitration Act, 1991 (Ontario) or solely on a question of law as provided for in the Arbitration Act, 1991 (Ontario). The Arbitration Act, 1991 (Ontario) shall govern the procedures to apply in the enforcement of any award to the contrary, each party shall bear (and be solely responsible for) its equal share of the costs of the arbitrator.
[ 13 ] It is clear from the wording of the arbitration clauses in the Agreement that the procedure set forth under Exhibit L requires that the OPA provide the names of all other market suppliers and the other suppliers shall have the right to participate in the arbitration; that there is a panel of three arbitrators, paid for by OPA, that the panel "shall proceed immediately to determine the replacement price or the replacement provision”; and that there is no right of appeal from the panel's decision. With respect to sections 15.1 and 15.2, only the parties, and not "other suppliers" are involved in the arbitration, which is conducted by a single arbitrator who cannot modify or change the Agreement; the arbitrator is paid for equally by the parties; and there is a right of appeal, on a question of law as provided for in the Arbitration Act, 1991 , or on the grounds that the arbitrator’s conduct or the decision itself violated the provisions of the Arbitration Act.
[ 14 ] GEC maintains that, in the circumstances of this case, the arbitration procedure as set forth under Exhibit L applies. OPA maintains that the arbitration procedure set forth pursuant to sections 15.1 and 15.2 is applicable in the circumstances of this case.
[ 15 ] Pursuant to the IESO Market Rule changes effective December 9, 2009, GEC took the position that amendment MR 356 would materially affect GEC's economics as contemplated under the CES Contract, section 1.6. It took the position that the arbitration procedure contemplated by Exhibit L was applicable in the circumstances. It argued that the parties had already engaged in negotiations regarding appropriate amendments to the Contract in light of MR 356, which were not successful and, as a result, it has invoked arbitration proceedings pursuant to Exhibit L.
[ 16 ] OPA disagrees and takes the position that the parties have not engaged in discussions regarding an appropriate amendment or amendments to the Agreement arising as a result of MR 356. Rather, it states that the parties engaged in discussions regarding the issue of GEC's claim of entitlement to an amendment pursuant to the Agreement. Further, it takes the position that a Senior Conference pursuant to section 15.1 was undertaken on May 26, 2011, and, accordingly, that the parties have commenced the dispute resolution process under sections 15.1 and 15.2. GEC acknowledges that a Senior Conference has been held, but does not concede that such has initiated the dispute resolution process pursuant to sections 15.1 and 15.2.
[ 17 ] OPA submits that the Exhibit L arbitration procedure has a limited, narrow application under the agreement and is only applicable where a change to the IESO Market Rules has the effect of materially affecting GEC's economics as contemplated under the Agreement. It refutes GEC's position that the underlying dispute is one of liability, which will turn on GEC demonstrating a material adverse economic effect caused by MR 356, which ignores the words "as contemplated hereunder" in section 1.6. It takes the position that the underlying dispute is not whether GEC can demonstrate a materially adverse economic effect caused by MR 356, but rather whether MR 356 had the effect of materially affecting GEC's economics as contemplated under the Agreement. It takes the position that this divergence of views with respect to the Agreement is an issue of interpretation which is to be determined by an arbitrator pursuant to section 15.2 of the Agreement.
The Issue
[ 18 ] The parties are in agreement that the underlying dispute between them should be decided by way of arbitration, but differ as to which of the two distinct arbitration procedures in the agreement should apply to the underlying dispute.
Law and Analysis
[ 19 ] This Court has the authority, pursuant to the Arbitration Act and to the subject Agreement, to determine the issues involved in this motion.
[ 20 ] In this case, the issue is which of two arbitration provisions in the Agreement is applicable in the circumstances.
[ 21 ] An arbitration clause, as part of a commercial contract, "is to be interpreted in the context of that contract and the commercial relationship which it creates": Huras v Primerica Financial Services Ltd, [2001] 55 0.R. (3d) 449 (Ont. C.A). In general, a commercial contract is to be interpreted in a manner that (i) gives meaning to all of its terms and avoids an interpretation that would render one or more of its terms ineffective; (ii) in accordance with the intention of the parties; (iii) having regard to objective evidence of the factual matrix underlying the negotiation of the contract; and (iv) to the extent that there is an ambiguity in the contract, in a fashion that accords with sound commercial principles and good business sense, and that avoids a commercial absurdity: Ventas Inc. v. Sunrise Senior Living Real Estate Investment Trust , [2007] 85 0.R. (3d) 254 (Ont. C.A.).
[ 22 ] I note, as well, that the Agreement itself contains a non- contra proferendum clause, which provides that "any doubt or ambiguity in the meaning, application or enforceability" of any term of the Agreement shall not be interpreted against the party who drafted the Agreement in favour of the other party (Section 1.14 of the Agreement).
[ 23 ] Jurisprudence recognizes two different types of arbitration clauses: a universal clause, which is intended to submit all disputes which might arise between the parties to arbitration, and a limited or executory clause, which provides for the adjustment of disputes concerned with working out the details of the contract: see Ontario v Abilities Frontier Co-operative Homes Inc ., [1996] 5 C.P. C. (4th) 81 (Gen. Div.) at paragraph 28 .
[ 24 ] OPA submits that the s ection 15.2 procedure is a universal arbitration provision, with application to "any matter in issue between the parties as to their rights under the Agreement", unless otherwise specifically provided for in the Agreement. The Agreement provides for a second arbitration procedure, that set forth in Exhibit L, which is a limited or executory provision, providing for the crafting of an amendment to the Agreement in the limited set of circumstances explicitly provided for in the Agreement and specifically referable to sections 1.7, 1.8, 1,9, and 1.10. OPA further submit that the absence of a right of appeal in an arbitration clause, as under the Exhibit L procedure, can be "an added indicator of the clause's limited scope", as indicated in Ontario v Abilities Frontier Co-Operative Homes Inc., supra.
[ 25 ] It submits that the respective jurisdictions of the arbitrators under the two distinct arbitration procedures differ and that under section 15.2 the sole arbitrator has the authority to "interpret and apply the provisions of" the Agreement, but not the "power to modify or change the Agreement", while the three-person panel under the Exhibit L procedure has the mandate of drafting amendments to the Agreement with respect to Replacement Prices or Replacement Provisions and, once the panel is constituted, is to "proceed immediately" to do so.
[ 26 ] I accept the respondent's submission that the underlying dispute is not whether GEC can demonstrate a material adverse economic effect caused by MR 356, but rather whether MR 356 has the effect of materially affecting GEC's economics as contemplated under the Agreement. This is an issue of interpretation of the Agreement.
[ 27 ] While GEC states that, if Mr. Morden were to determine that MR 356 did have the effect of materially affecting GEC's economics as contemplated under the Agreement, and a three-person panel were then constituted to determine the appropriate amendment to the Agreement, there would be a potential for inconsistent factual findings. I do not agree. The parties would be bound by the findings made by Mr. Morden in any subsequent proceeding.
[ 28 ] I find that this interpretation is consistent with the overall construction of the Agreement and gives meaning to it in its entirety. Moreover, I agree with the Respondent’s position that it accords with sound commercial principles and good business sense. The arbitration pursuant to section 15.2 may determine the underlying dispute between the parties. If the arbitrator determines that MR 356 does not have the effect of materially affecting GEC's economics as contemplated under the Agreement, the underlying dispute would be resolved, subject to GEC's right of appeal. There would be no need for a full-blown three-person arbitration panel to be constituted, nor any need to involve the other suppliers under the other CES contracts. I note that the evidence indicates that no other supplier has, thus far, given any notice pursuant to the CES Contracts with respect to MR 365. Moreover, there would be no need to proceed immediately to draft any amendment to the Agreement regarding Replacement Price or Replacement Provisions. On the other hand, if the arbitrator determines that MR 356 does have the effect of materially affecting GEC's economics as contemplated under the Agreement, the arbitration panel would proceed with its limited mandate of determining the appropriate amendment to the Agreement. The second stage would involve the other suppliers of electricity to OPA, which would be a lengthier, more complex process, involving other parties.
[ 29 ] Based on the foregoing reasons, I dismiss the Applicant's motion. I find that the applicable process pursuant to the Agreement, in the circumstances of this case and given the issues in dispute, is an arbitration before a sole arbitrator pursuant to section 15.2 of the Agreement. OPA has already nominated the Hon. John W. Morden, who I find to be appropriate in the circumstances of this case.
Costs
[ 30 ] I would urge the parties to agree upon costs, failing which I would invite the parties to provide any costs submissions in writing, to be limited to three pages, including the costs outline. The submissions may be forwarded to my attention, through Judges’ Administration at 361 University Avenue, within thirty days of the release of this Endorsement.
Carole J. Brown J.
Date: June 15, 2012