Trade Finance Solutions v. Equinox Global Limited, 2016 ONSC 7988

CITATION: Trade Finance Solutions v. Equinox Global Limited, 2016 ONSC 7988

COURT FILE NO.: CV-16-549762

DATE: 20161230

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

TRADE FINANCE SOLUTIONS INC.

Plaintiff

– and –

EQUINOX GLOBAL LIMITED and LLOYD’S UNDERWRITERS

Defendants

Alan L.W. D’Silva and Mark Walli, for the Plaintiff

Ryan A. Morris and John Mather, for the Defendants

HEARD: December 12, 2016

G. DOW, J

REASONS FOR DECISION

1The Defendants, Equinox Global Limited (“Equniox”) and Lloyd’s Underwriters, seek an order staying this action based upon a clause in what I would call the “base” contract of insurance which states:

“Any dispute arising in connection with this contract, including any question regarding its existence, validity, or termination, shall be referred to and finally resolved by arbitration”.

This is contained in Clause 8 j) of the Excess of Loss Policy Wording or “LMW201402”. Clause 8 j) goes on to detail the rules to be applied (London Court of International Arbitration or “LCIA”), the number of arbitrators to be used (3), the place for the arbitration, (London – presumably – England), and the language to be used (English).

2The plaintiff opposes the motion for reasons referred to below.

Background

Background

3The plaintiff is in the business for providing short term financing and trade credit to small and medium size businesses. I understand, for a fee, it will immediately advance funds to the contracting business in return for that business assigning its receivables to the plaintiff which get paid over time. Because not all invoices get paid or problems arise in payment, the plaintiff obtains “trade credit” insurance which is available from the defendants. In this regard, the plaintiff retained an insurance broker in Ontario, Jones Brown as well as in England, Miller Insurance Services Inc. in May, 2014. They were retained to assist in securing a policy to provide the required coverage effective June 1, 2014 for one year. While the plaintiff is based in Toronto, it is clear that it does business globally from the contents of the endorsements attached to the contract. Much of its business appears to occur in North America, primarily in Canada and in Florida.

4The negotiation resulted in the defendants issuing a contract of insurance that went into effect on June 1, 2014 with terms that continued to be negotiated up until September 30, 2014. At this point, the “final” policy was delivered to the plaintiff’s broker, Jones Brown. The documents forwarded referenced but did not include the base policy, inserting on the second page of the twenty page Schedule the number-letter, being LMW201402, beside the phrase “Policy wording applicable to this Schedule”, as well as other various details including eight enumerated endorsements.

5The complexities appear to have been the result of, in part, Ontario and Canadian legislation regulating insurers who wish to conduct business in this jurisdiction. This was referred to in evidence and submissions as the “Canadianization” of the policy. For example, one of the endorsements, “13888Z14-01-Insuring in Canada a risk” states “this Canadian Policy was issued in the course of Lloyd’s Underwriters’ Insurance business in Canada” and provides that “in the event of a conflict between the wording of this Endorsement and the Policy, this Endorsement shall prevail otherwise the wording of the Policy remains unaffected”. Subsequent endorsements refer to a “Complaint Protocol”, some “Consumer Rights Information” and, most importantly, a Declarations endorsement which contained the premium and policy limits as well as a statement labelled “Identification of Insurer/Action Against Insurer.” As submitted by the defendants, this merely provided an address for service given the defendant, Lloyd’s Underwriters is actually a combination of insurers or syndicates primarily based in London, England. Alternatively, as submitted by the plaintiff, it provides for, as stated in the endorsement “in any action to enforce the obligations of the underwriters”, the right to commence an action such as this one in this jurisdiction for the recovery of amounts disputed and paid between the parties.

6The president of the plaintiff, Steven McDonald admits on behalf of the plaintiff that he received a copy of LMW201402 shortly on or after May 19, 2014 by email which had been forwarded to the brokers by Genevieve Ahinful, the senior underwriter at Equinox Global who was negotiating the contract on the part of the defendants. It was provided to both brokers assisting the plaintiff, in England and Toronto. Neither Mr. McDonald nor Jeffrey Charles, the managing director of Jones Brown recalled reading or being specifically aware of Clause 8 j) and, as a result, no effort was made by the plaintiff or its brokers in negotiations of the endorsements to directly address the contradiction between the two clauses.

7In cross-examination of representatives of the defendants, both Ms. Ahinful and Michael Holley, Chief Executive Officer of Equinox Global, admitted the existence of the clauses referred to above and the endorsements suggested the defendants’ awareness that the conflict in the wording between the endorsements and the policy including the above referenced phrase that conflicts would be resolved in favour of the endorsements. Further, they also acknowledged that “an action” in Canada would include a law suit. In its factum, the defendants conceded the “Action Against Insurer” portion of the endorsement and the words used therein were sufficient for the insured to “bring a court proceeding in Canada, such as a proceeding to compel arbitration, a proceeding to declare the validity of and enforce an award, or a proceeding on the merits in the event the parties agreed to dispense with arbitration.” It should be noted the defendants otherwise sought to reduce this portion of the endorsement to a “service of suit” clause or an efficient method to effect service on a combination of insurers or syndicates that makes up the defendant, Lloyd’s Underwriters.

Issue – Interpretation of Contract

Issue – Interpretation of Contract

8Were this matter be a simple decision of whether or not the plaintiff ought to be allowed to avoid application of the base policy arbitration clause on the basis they were unaware of it, I would have little difficulty rejecting that submission and granting the defendants’ motion. However, it is my view that the correct analysis is to determine, like any situation where the terms of the contract are in dispute, the terms of the contract in the manner that gives meaning to all of its terms and avoids an interpretation that would render one or more of its terms ineffective.

9Further, despite submissions by the plaintiff, that the arbitration clause in the base policy is either void or “illegal” or inoperative, I am not prepared to exclude it as part of the overall contract. I reject the submission by the defendants the “Action Against Insurer” portion of the endorsement be reduced or limited to a mere service of suit clause. The words used are wider than that limited purpose. Had the defendants wished to make that the clear intent, it could have inserted those words into this portion of the endorsement. This occurred in another contract such as that contained in the Midnight Marine Limited v. Lloyd’s Underwriters, 2010 NLCA 64 decision upon which the defendants relied. Had the plaintiff sought to pursue its dispute with the defendants by utilizing the arbitration clause, it is clear that there would not have been any disagreement from the defendants regarding the forum for the dispute. Specifically, the plaintiff raises that if it is required to proceed by way of arbitration under Clause 8 j), it will lose its right to claim an action in bad faith and punitive damages. The defendants admit they would argue same but that it is not beyond the jurisdiction of the arbitration panel to conclude otherwise.

10The defendants argue the appropriate test for granting a stay is whether or not the application of the arbitration clause is arguable. My concern and reason for rejecting this proposition is that it appears the contract read as a whole provides for alternative methods of proceeding, that is by arbitration pursuant to Clause 8 j) and by an action under the Declarations endorsement which clearly states and contemplates an “action to enforce the obligations of the Underwriters”.

11The defendants submit that the “Model Law” rules governing this dispute are subject to the International Commercial Arbitration Act, R.S.O. 1990 c. I.9 and section 8 which provides for a stay of proceedings according to Article 8 of Uncitral Model Law on International Commercial Arbitration where courts are directed to enforce arbitration agreements when “an action is brought in a manner which is the subject of an arbitration agreement”. In my view, this is for situations where the parties to the agreement have agreed to arbitration as the sole method of proceeding and not where the parties have also agreed or contemplated an alternative, being “an action to enforce the obligations of the Underwriters”.

12I am reinforced in this conclusion by the existence of Section 123 of the Ontario Insurance Act, R.S.O. 1990, c. I.8, particularly the portion of that section that describes an “insurable interest of a person resident in Ontario” (which I would understand to include the corporate plaintiff.) Similarly, a “contract of insurance” delivered to the insured “shall be deemed to evidence a contract made” in Ontario. This, in my view, is the heart of the protection provided by provincial (and federal) legislation. The contract between these parties required the endorsement “Insuring in Canada a risk” which provided “in the event of a conflict between the wording of this Endorsement and the Policy, this Endorsement shall prevail”.

13As a result, because I have concluded the Model Law does not apply, it is not necessary to deal with the exceptions set out in Article 8(1) of the Model Law. It is clear the parties agreed to an arbitration clause in the base policy, however it is also clear the parties agreed, as part of the Canadianization of the policy to also allow actions against the insurer “to enforce the obligations of the Underwriters”. To the extent any modification of the wording of the contract is required, altering the word “shall” to “may” in Clause 8 j) of the base policy would be the minimum optimal change that least effects the meaning of the rest of the contract between the parties. To conclude otherwise would, in my view, render the Action Against Insurer portion of that endorsement completely ineffective.

Costs

Costs

14The parties had prepared and exchanged Costs Outline at the conclusion of submissions in accordance with Rule 57.01(6) but requested additional time to discuss and determine if an agreement could be reached. I acknowledge receipt of the letter from counsel for the plaintiff dated December 15, 2016 indicating the parties have agreed that the successful party on the motion be awarded $75,000.00, inclusive of fees, HST and disbursements. Having considered the submissions of the parties and having reviewed their Costs Outlines, I am prepared to agree to this amount.

15As a result, the defendants’ motion is dismissed with costs payable by the defendants to the plaintiff fixed in the amount of $75,000.00, inclusive of fees, HST and disbursements.