CITATION: Sky Solar (Canada) Ltd. v. Marnoch Electrical Services Inc., 2016 ONSC 1295
COMMERCIAL LIST COURT FILE NO.: CV-15-1094500-CL
COURT FILE NO.: CV-15-519259
DATE: 20160224
ONTARIO
SUPERIOR COURT OF JUSTICE
IN THE MATTER OF the Arbitration Act, 1991, S.O. 1991, c.17
AND IN THE MATTER OF an arbitration between Sky Solar (Canada) Ltd.
and Marnoch Electrical Services Inc.
AND IN THE MATTER OF AN APPEAL of the Arbitration Award dated December 10, 2014
BETWEEN:
SKY SOLAR (CANADA) LTD.
Claimant (Appellant on Appeal)
– and –
MARNOCH ELECTRICAL SERVICES INC.
Respondent (Respondent on Appeal)
J. Thomas Curry and Rebecca Huang, for the Claimant/Appellant
John Cannings, for the Respondent
HEARD: November 26, 2015
HAINEY J.
Background
[1] Sky Solar (Canada) Ltd. (“Sky Solar”) appeals from the arbitration award of Clifford Lax, Q.C., dated December 10, 2014 (the “Arbitration Award”) dismissing Sky Solar’s claim against the Respondent, Marnoch Electrical Services Inc. (“Marnoch”).
[2] Sky Solar also appeals from the Arbitration Awards concerning costs dated February 27, 2015 and March 11, 2015 (the “Arbitration Costs Awards”).
[3] Sky Solar is a solar energy project developer carrying on business in Ontario. In 2010, Sky Solar was awarded contracts by the Ontario Power Authority for two rooftop solar systems to be built at two different sites in Ontario, Whybank Drive (Brampton) and Manchester Court (Bolton).
[4] Sky Solar issued a public invitation to bid for the construction of the two rooftop solar systems.
[5] Marnoch, an electrical contractor with experience in the solar industry, submitted a bid which was accepted by Sky Solar for the construction and installation of the two rooftop solar systems. Sky Solar and Marnoch entered into contracts for the work (the “CCDC Contracts”).
[6] After the solar systems were installed by Marnoch there were fires at both sites that originated in the electrical transformers that had been installed by Marnoch. The first fire occurred in August 2012 at the Whybank site. The second fire occurred in March 2013 at the Manchester site. This appeal only concerns Sky Solar’s claim arising from the fire at the Manchester site.
[7] Following the second fire, Sky Solar commenced arbitration against Marnoch for indemnity for losses it suffered as a result of the two fires. Sky Solar alleged the fires were caused by the failure of two transformers supplied and installed by Marnoch.
[8] The CCDC Contracts contain the following mandatory arbitration clause:
The parties shall endeavor to resolve any dispute by mediation, but mediation shall not be a condition precedent to litigation or arbitration. If the parties are unable to resolve disputes by mediation, then any and all disputes shall be resolved by arbitration in accordance with the Ontario Arbitration Act before a single arbitrator. Arbitration may be commenced by a Notice in Writing. Any such arbitration shall take place in Ontario and be conducted in English.
[9] Sky Solar sought arbitration of the following issue:
Is Marnoch liable under the CCDC Contracts for the losses resulting from the failures of, or harmful conditions created by, the Marcus transformers at 90 Whybank Drive and 6 Manchester Court?
[10] Sky Solar and Marnoch entered into an arbitration agreement. The arbitration hearing took place over nine days in October 2014 before Clifford Lax, Q.C. (the “Arbitrator”). The only parties to the arbitration were Sky Solar and Marnoch. Although the failed electrical transformers were manufactured by Marcus Transformer of Canada Ltd. (“Marcus”), it was not a party to the arbitration.
[11] On December 10, 2014, the Arbitrator delivered his Arbitration Award. He subsequently made the Arbitration Costs Awards in favour of Marnoch.
The Appeal
[12] Sky Solar submits that the Arbitrator erred in law as follows:
The Arbitrator failed to apply the law applicable to the interpretation of contracts disregarding the clear language of the agreements he was to interpret in order to achieve a result he perceived was fair;
The Arbitrator determined that Sky Solar was required to prove blameworthiness or reliance in order to hold the Respondent liable under a warranty; and
The Arbitrator imposed, as an additional precondition to a claim under the warranty, a requirement that the manufacturer of the transformers, Marcus, who was not a party to the CCDC Contracts, should be a party to the proceeding in which the warranty claim is made.
The Standard of Review
[13] The arbitration agreement between Sky Solar and Marnoch provides as follows:
Pursuant to Section 45(2) and Section 45(3) of the Arbitration Act, 1991, the parties may appeal the arbitration award to the court on a question of law or on a question of mixed fact and law.
[14] The Supreme Court of Canada held in Creston Moly Corp. v. Sattva Capital Corp., 2014 SCC 53, that the standard of review for the interpretation of contracts is reasonableness. At para. 50 Rothstein J. stated as follows:
Contractual interpretation involves issues of mixed fact and law as it is an exercise in which the principles of contractual interpretation are applied to the words of the written contract, considered in light of the factual matrix.
[15] Rothstein J. elaborated upon the appropriate standard of review to apply in the review of a commercial arbitration award as follows at para. 106 of his decision in Creston Moly Corp., supra:
Dunsmuir and the post-Dunsmuir jurisprudence confirm that it will often be possible to determine the standard of review by focusing on the nature of the question at issue (see for example A.T.A. v. Alberta (Information & Privacy Commissioner), 2011 SCC 61, [2011] 3 S.C.R. 654 (S.C.C.), at para. 44). In the context of commercial arbitration, where appeals are restricted to questions of law, the standard of review will be reasonableness unless the question is one that would attract the correctness standard, such as constitutional questions or questions of law of central importance to the legal system as a whole and outside the adjudicator’s expertise (A.T.A., at par. 30). The question at issue here, whether the arbitrator interpreted the Agreement as a whole, does not fall into one of those categories. The relevant portions of the Dunsmuir analysis point to a standard of review of reasonableness in this case.
[16] The Supreme Court of Canada described the reasonableness standard of review as a “deferential standard” as follows at para. 47 of its decision in New Brunswick (Board of Management) v. Dunsmuir, 2008 SCC 9, [2008] 1 S.C.R. 190:
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 facts and law.
[17] In this case Sky Solar submits that the Arbitrator made extricable errors of law that are subject on appeal to a standard of review of “correctness”.
[18] I must be cautious in identifying any extricable questions of law that are subject to the higher standard of review suggested by Sky Solar. Rothstein J. made this point clear in Creston Moly Corp., supra at paras. 51 and 53-55 as follows:
One central purpose of drawing a distinction between questions of law and those of mixed fact and law is to limit the intervention of appellate courts to cases where the results can be expected to have an impact beyond the parties to the particular dispute. It reflects the role of courts of appeal in ensuring consistency of the law, rather than in providing a new forum for parties to continue their private litigation.
Nonetheless, it may be possible to identify an extricable question of law from within what was initially characterized as a question of mixed fact and law …. Legal errors made in the course of contractual interpretation include “the application of an incorrect principle, the failure to consider a required element of a legal test, or the failure to consider a relevant factor” …
However, courts should be cautious in identifying extricable questions of law in disputes over contractual interpretation. …
The close relationship between the selection and application of principles of contractual interpretation and the construction ultimately given to the instrument means that the circumstances in which a question of law can be extricated from the interpretation process will be rare.
Discussion
[19] Sky Solar submits at paragraph 66 of its factum that the following issues must be decided on this appeal:
(1) Did the Arbitrator err in failing to give effect to the terms of the warranties requiring Marnoch to bear the risk of defects in the Marcus transformers?
(2) Did the Arbitrator err in declining jurisdiction because Marcus, a non-party to the CCDC Contracts, did not participate in the arbitration?
(3) Can this Court grant the award that the Arbitrator should have made but for his errors?
Issue Number 1
[20] The Arbitrator concluded that Marnoch was not liable to Sky Solar under the terms of the warranties contained in the CCDC Contracts.
[21] Sky Solar submits that the Arbitrator erred in law because:
(a) He concluded that Marcus was not Marnoch’s “supplier” for the purpose of the indemnification clause;
(b) He concluded that to impose warranty liability upon Marnoch for deliberate choices of Sky Solar would result in a “commercial absurdity” without any evidentiary basis for such a conclusion; and
(c) He concluded that reliance on the part of Sky Solar was necessary to impose warranty liability upon Marnoch when Marnoch had expressly agreed to assume the risk should the Marcus transformers prove to be faulty or unfit for their intended purpose.
[22] The Arbitrator’s findings and conclusions with respect to these issues are contained in the following paragraphs of his Arbitration Award:
The decision of whether or not to accept the Marcus transformer was left entirely to Sky. Marnoch was not asked for its view on the suitability of the Marcus transformer, nor did it have the expertise or technical knowledge to assess the relative advantages of different transformers. Marnoch was not an electrical engineer nor an electrical consultant, but an electrical contractor with considerable experience as an installer, trying to assist its client Sky out of a jam that Marnoch had no role in creating.
Marnoch assumed a risk of having to indemnify Sky for risks that were within Marnoch’s control or sphere of responsibility. The choice of transformer was not within Marnoch’s control or sphere of responsibility. Merely agreeing to implement Sky’s choice of the Marcus transformer by simply placing the order and arranging for its shipment to the sites, does not make Marcus, a Marnoch “supplier”, for the purposes of GC 12.1.
Marnoch would have to indemnify Sky for the negligence of its supplier, if Marnoch had been responsible for choosing the supplier and the equipment. So for example, if the wiring cables (chosen by Marnoch) had been negligently manufactured (or installed), Marnoch’s duty to indemnify Sky would apply. Marnoch will be held responsible for its own decisions, its own conduct and for equipment that it has chosen to install. In this instance, Marnoch exercised no control and played no role in the choice of Marcus as supplier, or of its transformers.
The warranty language cannot be read in isolation of the contractual scope of the contracts, the objective evidence of the factual matrix of the obligations and the conduct of both Sky and Marnoch. (See Ventas et al. v. Sunrise Senior Living Real Estate Investment Trust, 2007 ONCA 205, 85 O.R. (3d) 254).
To impose a warranty liability on Marnoch for the deliberate choice of Sky would result in a commercial absurdity, viz., the imposition of risk on the warrantor for the decisions of others.
So while I agree … that the warranty language could encompass Marnoch’s installation of faulty transformers, liability therefore would only be imposed if the choice of transformer was made by Marnoch, or if Sky had relied on Marnoch’s skill and judgment with respect to the suitability of Marcus’ transformers. (See Landev Developments v. Clarke & Adamson, 1990 CarswellOnt 2226, page 5.)
This case is distinguishable from the Supreme Court of Canada decisions in Steel Co. of Canada v. Willand Management, 1966 CanLII 13 (SCC), [1966] S.C.R. 746 or Nowlan v. Brunswick Construction Ltd., 1974 CanLII 181 (SCC), [1975] 2 S.C.R. 523. In both of those cases, the owner placed its reliance on the contractor with regard to the work undertaken. No such reliance was established in this case. Conversely, Ruffolo [Marnoch’s Vice President of Engineering] straightforwardly confirmed that engineering decisions, (including the choice of transformers) were his prerogative alone.
Sky cannot hold Marnoch responsible or liable for the consequences of Sky’s own decisions. Therefore, this claim must be dismissed.
[23] Despite Mr. Curry’s able argument on behalf of Sky Solar, I find that these findings and conclusions by the Arbitrator do not constitute extricable errors of law. They do not involve the application of an incorrect principle, the failure to consider a required element of a legal test or the failure to consider a relevant factor. Rather, they are the Arbitrator’s interpretation of the warranty provisions contained in the CCDC Contracts in the context of the factual matrix that was before him. They, therefore, involve questions of mixed fact and law. I am bound by the Supreme Court of Canada to consider whether the Arbitrator’s decision on these issues was reasonable and falls within a range of possible, acceptable outcomes which are defensible in respect of the facts and law (see Dunsmuir, supra at para. 47).
[24] I am satisfied that the Arbitrator’s decision on these issues does fall within this range. His decision is both reasonable and defensible on the facts and the law. The Arbitrator considered the terms of the CCDC Contracts as a whole and followed the principles of contractual interpretation set out by the Ontario Court of Appeal in Salah v. Timothy’s Coffees of the World Inc., 2010 ONCA 673 at para. 16. I find that the Arbitrator came to sound and reasonable conclusions in deciding that:
• Marnoch was not a “supplier” for the purpose of the warranty provisions under the CCDC Contracts;
• Marnoch could not be liable to Sky Solar under the warranty provisions for Sky Solar’s own negligence; and
• Marnoch could not be liable to Sky Solar under the warranty provisions because Sky Solar did not rely on Marnoch’s skill and judgment with respect to the suitability of the Marcus transformers.
[25] These determinations were reasonably available to him in light of the factual and legal matrix before him. In view of the deferential standard of review that I must apply, I have concluded that these determinations by the Arbitrator should not be interfered with on appeal.
[26] Sky Solar also submits that the Arbitrator “gave no valid basis for refusing to follow” the case of Steel Co. of Canada v. Willand Management Ltd., supra.
[27] I find that the Arbitrator properly distinguished Steel Co. on the facts before him. It was reasonable for him to rely upon the decision of Saunders J. in Lander Developments v. Clarke & Adamson, 1990 CarswellOnt 2226, at para. 20 as follows:
- The limitation on the obligation of a contractor to correct defects and deficiencies has been subject to considerable litigation. It would appear that where a building contract specifies a particular kind of material, the builder is not liable to the owner for complying with the specifications even though the material proves to be unsuitable for its purpose, unless the owner relies on the skill and judgment of the builder with respect to the suitability of the materials. (See decision of the Supreme Court of Canada in Steel Company of Canada Ltd. v. Willand Management Ltd., 1966 CanLII 13 (SCC), 58 D.L.R. (2d) 595; Brunswick Construction Ltee. v. Nowlan et al., 1974 CanLII 181 (SCC), 49 D.L.R. (3d) 93; and CCH Canadian Ltd. v. Mollenhauer Contracting Co. Ltd. et al., 1974 CanLII 27 (SCC), 51 D.L.R. (3d) 638.)
[28] The Arbitrator’s decision on this issue was reasonable. Sky Solar’s appeal on this ground is dismissed.
Issue Number 2
[29] Sky Solar submits that the Arbitrator “committed a jurisdictional error in finding at paragraph 52 of the Arbitration Award that he could not resolve the central issue in this arbitration – the defectiveness or suitability of the Marcus transformers – without the participation of the non-party Marcus”.
[30] The Arbitrator’s findings and conclusions with respect to this issue are contained in the following paragraphs of his Arbitration Award:
In order for Sky to succeed in its claim for indemnification from Marnoch based on the negligent supply of the Marcus transformers, I would have to accept the evidence of its expert witness, Steven Probst (“Probst”), without hearing any responding evidence from Marcus or from its consulting engineer Dr. Guy Olivier (“Olivier”). The absence of Marcus as a party in this arbitration, obviously presents a significant roadblock to my ability to find that Marcus bears responsibility for the fire losses.
Conversely, the allegations of the negligent design advanced by Marnoch will, I assume, form part of the defence by Marcus in a lawsuit pending against it. Furthermore, an attribution of negligence under the Negligence Act, may result in a split of liability. It is also possible that claims could be advanced against Hudco (the supplier of the transformers) and Olivier, Marcus’ consulting engineer.
That trial, when all of the proper and necessary parties and all of the countervailing evidence can be assessed by the trier of fact, is the proper forum for determining the ultimate responsibility for the losses caused by the fires at Whybank and Manchester, and the subsequent replacement of the second Whybank transformer. That lawsuit should have preceded this arbitration as the issue of Marcus’ liability would have been determined.
While I fully appreciate that Probst’s evidence was intended to satisfy the Claimant’s burden of establishing that due to the negligent manufacture of the transformers by Marcus, Marnoch’s obligation of indemnification under GC 12.1 was triggered and Marnoch should be thus found liable for all of the resulting losses, to accede to this position would require me to ignore the extensive uncontradicted evidence regarding the informed decisions that Sky alone made when choosing to use the Marcus transformers.
In my view, even if I were to assume Marcus’ negligence without deciding it, it would be unjustifiable to so conclude in a proceeding in which Marcus is not a party and thus unable to defend itself from the allegations against it.
[31] I have concluded that the Arbitrator’s decision to decline to determine whether Marcus was negligent in the manufacture of the transformers was not a jurisdictional error. It was not the central issue that the Arbitrator had to decide on the arbitration. The issue before the Arbitrator was whether Marnoch was liable under the CCDC Contracts for Sky Solar’s losses resulting from the failure of the transformers. The Arbitrator exercised his jurisdiction pursuant to the arbitration agreement. He considered this issue and decided it in favour of Marnoch. He gave clear and comprehensive reasons for doing so. It was reasonable for him to conclude that the question of whether the transformers that had been manufactured by Marcus were defective should only be decided at a trial involving Marcus. In my view, the Arbitrator’s decision to decline determining Marcus’ alleged liability in its absence was reasonable under the circumstances. It fell within a range of possible and acceptable outcomes which are defensible in respect of the facts and the law he was presented with on the arbitration.
[32] There is, therefore, no basis to interfere with his decision in respect of this issue. Sky Solar’s appeal on this ground is dismissed for these reasons.
Issue Number 3
[33] In view of my conclusions on Issue Number 1 and Issue Number 2, it is not necessary for me to consider this issue.
Arbitration Costs Awards
[34] Although Sky Solar’s Amended Notice of Appeal includes an appeal from the Arbitration Costs Awards, this issue was not argued before me. I, therefore, make no order with respect to this issue.
Costs of the Appeal
[35] Marnoch was successful on this appeal and is, therefore, entitled to its costs of responding to Sky Solar’s appeal. I urge counsel to settle the amount of costs that should be awarded. If they are unable to do so, they may file brief written submissions of no longer than three pages on this issue.
Conclusion
[36] For the reasons outlined above, Sky Solar’s appeal is dismissed.
HAINEY J.
Released: February 24, 2016
CITATION: Sky Solar (Canada) Ltd. v. Marnoch Electrical Services Inc., 2016 ONSC 1295
COMMERCIAL LIST COURT FILE NO.: CV-15-1094500-CL
COURT FILE NO.: CV-15-519259
DATE: 20160224
ONTARIO
SUPERIOR COURT OF JUSTICE
IN THE MATTER OF
the Arbitration Act, 1991, S.O. 1991, c.17
AND IN THE MATTER OF an arbitration
between Sky Solar (Canada) Ltd. and
Marnoch Electrical Services Inc.
AND IN THE MATTER OF AN APPEAL
of the Arbitration Award dated December 10, 2014
BETWEEN:
SKY SOLAR (CANADA) LTD.
Claimant (Appellant on Appeal)
- and -
MARNOCH ELECTRICAL SERVICES INC.
Respondent (Respondent on Appeal)
REASONS FOR DECISION
HAINEY J.
Released: February 24, 2016