COURT FILE NO.: CV-15-519416

DATE: 2015-12-11

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: T.F. WARREN GROUP INC. and VANGUARD SHIPPING (GREAT LAKES) LTD., Plaintiffs

AND:

THE STANDARD STEAMSHIP OWNERS PROTECTION AND INDEMNITY ASSOCIATION (BERMUDA) LIMITED, Defendant

BEFORE: S. F. Dunphy, J.

COUNSEL: Michael C. Smith, for the Defendant/Moving Party

Gregory Azeff, for the Plaintiff/Responding Party

HEARD: November 26, 2015

ENDORSEMENT

[1] This is an application by the defendant insurer seeking a stay of proceedings of this action brought by the plaintiffs who claim the benefit of their insurance policy.

[2] The case arises from a maritime incident that occurred in 2011. A ship insured by the defendant collided with a railway bridge on the Maumee River in Ohio. The plaintiffs had different interests in the ship that caused the accident, either as mortgagee or “member”.

[3] The plaintiffs claim that the defendant participated in settlement discussions of the claim leading to claim under the policy. They contend that their Statement of Claim should be considered as being equivalent to a motion to enforce a Rule 49 Settlement Agreement.

[4] The defendants for their part do not deny the reasonableness of the amounts arrived at in the settlement negotiations with the owner of the bridge. The bridge was very likely minding its own business, so it is a fair bet that the liability of the ship was not a very large issue in those negotiations. The defendant insurer acknowledges that the settlement reached with the railway owner of the bridge was reached at its own suggestion and within the economic limits it set. They take issue with only two things. Firstly, they say that they made it clear at the outset of their participation in the claim settlement process that they were not waiving compliance with the policy. Secondly, the point out that the particular type of insurance they provide is essentially a a “pay to collect” policy. Unless and until an insured member with an actual obligation to pay a claim does so with its own funds, they claim to have no liability to discharge. They have expressed doubts that the claim has been paid or paid by someone with an obligation to do so.

[5] The foregoing is at best a high-level overview of the nature of the underlying dispute. This, however, is a claim to enforce an arbitration clause said to be subject to the International Commercial Arbitrations Act, R.S.O. 1990, c. I.9 (or “ICAA”). If the claim is one that ought to be referred to arbitration under the ICAA, this court is not required to inquire into the merits.

[6] The nub of the dispute is whether there is an “arbitration agreement” as defined in the ICAA that governs the dispute between the parties. If there is, my duty is clear. I must issue the stay and step back: s. 8(1) of the Model Law adopted by the ICAA. See also Dalimpex Ltd. v. Janicki, 2003 34234 (ON CA). The deference due to arbitration clauses is mandatory under the statute and includes recognizing the jurisdiction of the arbitrator to assess the scope of the arbitration clause in question: Dalimpex (supra) and Dell Computer Corp. v. Union des Consommateurs, 2007 SCC 34.

[7] The plaintiffs take the position that, in essence, they are not seeking to enforce the insurance agreement (which contains the arbitration agreement at issue) but rather seek to enforce a settlement reached by the insurer with them. In my view, that position skates perilously close to denying the “competence-competence” approach to arbitral jurisdiction that I am required by Dalimpex (supra) and Dell (surpa) to apply. If they are correct in their allegations of a concluded settlement, neither I nor they should have reason to fear that the arbitral panel will fail to appreciate the correctness of their analysis.

[8] The Court of Appeal in Dalimpex informs me that my role ought to be limited to establishing whether the arbitration agreement is null and void, inoperative or incapable of being performed (Dalimpex, (supra), at para. 22).

[9] If there were sufficient clear and convincing evidence that the defendant had made a binding agreement to contribute to the settlement reached, I accept without concluding that such may be sufficient to take me into the second of the three exceptions outlined by the Court in Dalimpex (inoperative arbitration clause).

[10] I need not make that determination here because the evidence of settlement is quite thin. I have no doubt – and the defendant does not deny – that the defendant did agree with the amount of the settlement and its reasonableness. So much appears to be common ground. The issue is whether the defendant also agreed to waive further compliance with the insurance policy and contribute without condition.

[11] I find that the record in support of that allegation is very thin indeed and does not provide me with sufficient purchase to make a finding that the claim can stand on its own as a stand-alone settlement agreement without requiring support from the terms of the insurance policy itself. If the plaintiff needs to refer to the insurance policy to make its case – and it must on the record before me – I can’t see how to avoid the arbitration clause it contains. The entire evidentiary record in support of the claim on the settlement agreement consists of only a couple of ambiguous emails that in the aggregate do not leave me with sufficient confidence that a stand-alone claim can survive.

[12] There is in reality but one issue that gives me serious pause. The insurance policy in question has a rather odd arbitration clause. The arbitration clause is contained in section 25 of the “Standard Steamship Owners’ Protection and Indemnity Association (Bermuda) Ltd. Defence Rules” (mercifully known as the “P&I Rules” for short). Section 25 of the P&I Rules imposes a number of conditions precedent that could be read as giving the defendant insurer the unilateral discretion to defer – potentially indefinitely – the submission of a matter to arbitration. Sections 25.2-25.5 require the following process to be followed:

• Submit the dispute to the board (s. 25.2)

• “No insured party is entitled to maintain any legal proceedings against the club unless and until the matter has been submitted to the board and the board has given its decision” (emphasis added): s. 25.3

• Mandatory mediation: s. 25.4

• If the matter is not settled by mandatory mediation within 14 days “the dispute shall be referred to and finally resolved by arbitration in London”: s. 25.5

[13] I have some concern that the ability of the board of the defendant to deny access to arbitration by the simple expedient of failing to process a request may take the matter out of the domain of the ICAA entirely.

[14] My concern is not entirely academic. The plaintiff T.F. Warren Group Inc. wrote to the board on December 2, 2014 outlining the nature of its claim. It is true that the letter did not purport to be on behalf of the second plaintiff (Vanguard Shipping (Great Lakes) Ltd.). However, to date the plaintiff has had no reply to this letter and can thus say with some justification that there is no arbitration clause that it may invoke by reason of the delay of the defendant. The entire premise of granting a stay under the ICAA is that the party whose action is stayed is not denied access to justice but is gently but firmly directed to the correct door to obtain it.

[15] The moving party defendant indicates that its board is meeting in January and will deal with the 2014 request at that time. Counsel had no excuse to offer for the delay beyond inadvertence and oversight. There was no intent, I am assured, to deny access to justice.

a. Accordingly, I am ruling on this motion as follows:

b. I shall remain seized of this matter for 2016;

c. The defendant is directed to treat the plaintiff’s letter of December 2, 2014 as being a request by BOTH plaintiffs pursuant to s. 25.2 and s. 25.3 of the P&I Rules (such that both plaintiffs shall be considered to be the “Applicant” referred to in the letter);

d. The plaintiff is directed to supplement the December 2, 2014 letter if required by January 6, 2016;

e. This action is stayed until March 1, 2016 without prejudice to the right of the moving party to apply to extend the stay if all conditions precedent to commencement of arbitration proceedings on the claim that are within its control have been waived or completed by such time including without limitation a decision by the board pursuant to s. 25.3 of the P&I Rules.

[16] Success being divided on this matter, I make no order as to costs.

S.F. Dunphy, J.

Date: December 11, 2015