COURT FILE NO.: CV-16-11486-00CL DATE: 20170623 ONTARIO SUPERIOR COURT OF JUSTICE COMMERCIAL LIST
BETWEEN:
TORONTO DISTRICT SCHOOL BOARD, TORONTO CATHOLIC DISTRICT SCHOOL BOARD and THE CITY OF TORONTO Applicants – and – COGECO DATA SERVICES INC. Respondent
COUNSEL: J. Thomas Curry and Andrew Skodyn, for the Applicants Chris G. Paliare, Jean-Claude Killey, Lindsay Scott, and Lauren Pearce, for the Respondent
HEARD: March 15, 2017
HAINEY J.
Overview
[1] This is an application pursuant to s. 45(1) of the Ontario Arbitration Act, S.O. 1991, c. 17 (the “Act”) for leave to appeal, and if leave is granted, appeal from two commercial arbitration decisions rendered by The Honourable Lee K. Ferrier, Q.C. (the “Arbitrator”).
[2] The first decision was an interim award (the “Interim Award”) delivered January 29, 2016, in which the Arbitrator granted a declaration sought by Cogeco Data Services Inc. (“Cogeco”) that all of the Applicants’ claims were limited by limitation of liability clauses in the agreements between the parties.
[3] The second decision was a final award (the “Final Award”) delivered July 11, 2016, after 12 days of hearing, in which the Arbitrator dismissed Cogeco’s attempt to avoid liability for its conceded breaches of contract, dismissed the Applicants’ claim for specific performance of the agreements and awarded the Applicants the maximum amount of damages the agreements allowed.
[4] The subject matter of this dispute is Cogeco’s breach of its agreements with the Applicants to build and operate a 1,200-site wide-area fibre optic network (the “WAN Network”). Cogeco entered into a series of agreements with the Applicants in 2008 and 2009 to build and operate the WAN Network (the “WAN Agreements”). In 2013, after a series of delays, Cogeco decided that it would not complete the WAN Network. Cogeco did not exercise a right of termination under the WAN Agreements but decided that completing the WAN Network had become too costly and stopped building it.
[5] Cogeco asserted that it did not have to complete the WAN Network, so long as it paid damages to the Applicants. These damages, according to Cogeco, were capped by clauses in the WAN Agreements that limit any damages payable to amounts paid by the Applicants to Cogeco in the three months preceding the breach of the WAN Agreements (the “Damages Caps”).
[6] The Applicants disagreed and the parties submitted their dispute to arbitration in 2014. The Applicants sought specific performance of the WAN Agreements, or an award of equitable damages that would permit them to purchase substitute performance of the WAN Agreements. As indicated above, in January 2016, the Arbitrator issued the Interim Award, deciding that the Damages Caps in the WAN Agreements applied to the Applicants’ claims.
[7] In the Final Award the Arbitrator denied the Applicants specific performance of the WAN Agreements and found that the Applicants had suffered damages in the amount of their respective limits under the WAN Agreements of approximately $5.7 million, in total. According to the Applicants, these damages will not permit them to purchase substitute performance of the WAN Network.
[8] The Applicants seek leave to appeal the Interim Award and the Final Award on the grounds that the Arbitrator erred in law by: (i) failing to apply fundamental principles of contractual interpretation to the WAN Agreements, (ii) applying the Damages Caps in the WAN Agreements so as to allow Cogeco to benefit from its own breach of contract, (iii) misapprehending the test for the equitable remedy of specific performance; and (iv) placing an onus on the Applicants to negate the availability of alternate performance of the WAN Agreements.
Facts
The Parties
[9] The City of Toronto (the “City”) contracted with Cogeco to provide WAN Network services to the sites it operates and to other sites operated by the Toronto Police Services Board (“TPS”), the Toronto Public Library (“TPL”), and the Toronto Transit Commission (“TTC”).
[10] The Toronto District School Board (“TDSB”) and the Toronto Catholic District School Board (“TCDSB”) are public school boards in the City that also entered into WAN Agreements with Cogeco.
[11] Cogeco is a wholly owned subsidiary of Cogeco Cable Inc., a publicly traded, international telecommunications and media company headquartered in Quebec. Its business involves the construction of high speed data networks and the provision of Internet services over those networks.
[12] Cogeco acquired Toronto Hydro Telecom Inc. (“THTI”) from Toronto Hydro in 2008. THTI was the owner of a fibre optic network in Toronto and the successful bidder for the WAN Agreements.
Request for Proposal and Agreements
[13] On July 20, 2017, TDSB issued a request for proposal (“RFP”) for the construction of an advanced fibre optic data network that would connect its various school and administrative sites throughout the City.
[14] The project described in the RFP, and eventually codified in the WAN Agreements, involved two distinct portions. First, the winning bidder was required to build a physical network linking all of the Applicants’ sites. Second, as each site was physically connected to the network, specified network services were to be provided to that site and monitored and maintained for a total of 10 years by Cogeco.
[15] THTI and Bell Canada bid on the project in response to the RFP. THTI was the successful bidder. Cogeco entered into the WAN Agreements for the provision of WAN services (the “WAN Project”) with TDSB on December 11, 2008; TCDSB on April 14, 2009; and the City on April 16, 2009. Each of these dates is the “Effective Date” for the respective WAN Agreements. Cogeco was to complete the activation of 95% of each of the Applicants’ sites by the “WAN Completion Date”, which was to be three years after the Effective Date of each WAN Agreement.
[16] Of the approximately 1,200 sites, a handful of WAN Network sites have been added or removed in the years since the WAN Agreements were concluded. At the time of the arbitration, the parties agreed that the total number of WAN Network sites was 1,216.
The Damages Caps
[17] The WAN Agreements all contain the following limitation of liability clause:
14.01 General Liability Subject only to the provisions set forth in this Article 14, each Party will be liable to the other hereunder solely for direct damages actually incurred by that other Party arising out of or relating to this Agreement.
14.02 Limitations on Damages Recoverable Subject to Section 14.05, each Party’s, their respective Affiliates’, and their employees’, officers’ and directors’ entire liability for all claims and causes of action arising out of or relating to this Agreement, and regardless of the basis of the claim, including breach of contract, negligence, misrepresentation, or other contract or tort claims, will not exceed the amount paid by the Customer to the Service Provider during the three month period immediately preceding the date of the event which resulted in the claim.
14.03 Exclusion Subject to Section 14.05, neither Party will be liable to the other for indirect, consequential, exemplary or punitive damages, including, without limitation, loss of business, profits or revenue, arising out of or related to this Agreement, regardless of the cause of action, whether in contract, negligence, tort or otherwise, and even if such Party has been advised of the possibility of such damages.
14.04 Application of Limitations The limitations set out in 14.02 and 14.03 shall apply irrespective of the cause of action, demand or claim, including but not limited to, an action in contract, tort including negligence, or based on any other legal theory, and will survive a fundamental breach or breaches and/or failure of the essential purpose of this Agreement.
14.05 Exception Notwithstanding anything to the contrary set out herein, the limitations set forth in Section 14.02 or Section 14.03 will not apply in respect of: a) taxes incurred or paid by Customer which are the obligation of Service Provider; b) bodily injury (including death) or damage to, or loss or destruction of, any real or tangible personal property for which and to the extent the Party is liable hereunder; c) breaches of Article 7 [concerning confidentiality and compliance with laws]; d) infringement of Intellectual Property Rights of a Third Party.
[18] The Damages Caps are identical in the three WAN Agreements, except that in the TDSB agreement, the quantum of the cap is $5 million, rather than “the amount paid by the Customer to the Service Provider during the three-month period immediately preceding the date of the event which resulted in the claim”. The WAN Agreements also specifically contemplate equitable relief in s. 16.15 as follows:
16.15 Equitable Relief Notwithstanding anything to the contrary in this Agreement, both Parties agree that monetary damages may not be a sufficient remedy for any breach of this Agreement and each Party will be entitled to seek equitable relief, including injunctive relief and specific performance in the event of breach of this Agreement.
WAN Project Planning and Initial Permit Requests
[19] Fibre optic cable can be laid by either attaching the cable to poles and stringing it through the air from pole to pole, which is referred to as aerial attachment, or running the cable through underground ducts. A network owner like Cogeco often builds its own aerial or underground infrastructure to hold its cable. However, in areas where there is existing aerial and underground infrastructure, which is the case in most of the City, a network owner may apply to the infrastructure owner for permission to attach its cable to their infrastructure.
[20] THTI was responsible for the initial planning of the WAN Project. THTI projected that approximately 80-90% of the WAN Network would be constructed using aerial attachments, with the balance of the necessary infrastructure built through underground ducts. For both aerial and underground construction, THTI planned to use the infrastructure of the Toronto Hydro Electric System Ltd. (“Hydro”). Based on its projections, THTI initially estimated that the WAN Network would take approximately 24-36 months to complete, at a total cost of approximately $46.6 million.
[21] Cogeco started the WAN Project with 540 km of its own network fibre inherited from THTI and needed to build an additional 600 km to complete the WAN Network. In the course of the WAN Project, Cogeco required various permissions from third parties, including Hydro.
[22] The Hydro permits became an issue for the WAN Project because on March 2, 2010, Hydro announced it would begin enforcing Ontario Regulation 22/04 (“Reg. 22/04”), which contains stringent standards for the pole loading analysis required in every aerial permit application. This added to the expense and delay of obtaining the permits necessary to build the WAN Network as planned.
[23] Shortly after this new Hydro requirement was announced, Hydro notified Cogeco that it was rejecting 381 of 479 of its permit requests because they did not comply with Reg. 22/04.
[24] The implementation of this regulation required Cogeco to complete a full pole loading analysis for every aerial attachment permit request. The impact of this requirement was significant. The 381 rejected permit requests had to be completely re-done to conform to Hydro’s new requirements. As Tony Hunt, Cogeco’s manager of the WAN Project, described it, Cogeco “basically lost the better part of an entire year of effort planning the network to be done a certain way. And when we received these denials, we basically had to step back and […] reset and recalibrate the project from a timeline and costs perspective.”
[25] Cogeco began revising the 381 denied permits and reanalyzing the engineering submissions. Cogeco soon discovered that many of its proposed aerial routes had Hydro poles that were already failing the standards set by the Electrical Safety Authority even before Cogeco proposed its cable attachment.
[26] At the outset of the WAN Project in 2008, THTI anticipated the total cost to complete the WAN Network would be about $46 million. According to Cogeco, the more it built of the WAN Project, the more of Hydro’s infrastructure it discovered to be unusable. By June 2013, the projected total cost of the WAN Project had risen to $92.8 million, primarily as a result of the increased need to construct exclusive Cogeco underground infrastructure, rather than use Hydro’s existing infrastructure.
[27] On July 15, 2013, Mark Montpetit, a senior Cogeco employee, wrote to the Applicants proposing the following: (a) an increase of $250 to the monthly recurring charge for each site. According to the Applicants, this would result in a monthly recurring charge per site of $800, or 145% of the bargained-for, “future-proof” cost that had been agreed; or (b) a non-recurring charge of $45,000 per remaining site which the Applicants maintain was 30 times the agreed price of $1,500 per build and would result in the Applicants paying approximately $30 million to Cogeco to complete a network that Cogeco would then own. The Applicants did not accept these proposals and insisted on compliance with the WAN Agreements.
[28] In considering the Applicants’ rejection of Cogeco’s proposal, the Arbitrator found as follows: On the evidence, the Claimants do not have capital reserves or budgetary flexibility that would allow for this kind of mid-contract price increase. They would have to de-fund services to the public, or simply go without the service promised by Cogeco. The Claimants are trustees of the public funds and must observe the rules that prevent them from agreeing to mid-term price increases in the absence of a change in the scope of a contract.
[29] Cogeco decided that it would complete the approximately 60 sites in the “existing engineering and construction funnel”, but nothing more. As of May 2016, the date of the arbitration, 549 sites, representing 45% of the total WAN Network, had not been built by Cogeco. Each of the Applicants has about half of the WAN Network contracted for in 2008-2009.
[30] Cogeco’s current projections show it suffering an overall loss of $43 million if forced to complete the WAN Network with the potential for a $67 million loss depending on the proportion of underground infrastructure that it currently anticipates it will likely be able to use. The Arbitrator found as a fact that Cogeco would suffer a loss in the range of $40 million if required to complete the WAN Project.
The Applicants’ Efforts to Find Alternate Services
[31] The evidence before the Arbitrator established that alternate carriers offer network services that have many similar features to those of Cogeco’s and that may be suitable for the Applicants’ intended use of the WAN Network.
[32] Three such carriers – Rogers, Allstream and Telus – were never contacted by the Applicants to determine whether a reasonable alternative to Cogeco’s network and services was available from those entities.
[33] One carrier – Beanfield – was contacted by the Applicants and showed no interest in pursuing the matter.
[34] Otherwise, the Applicants’ attempts to find alternate services to Cogeco’s were exclusively with Bell.
[35] In December 2015, Bell presented the Applicants with a comprehensive network offering designed to entirely replace the Cogeco service. According to Bell, it could activate its service faster than Cogeco could, because it already has fibre built to all of the TDSB and TCDSB sites.
[36] The TDSB (but not the other two Applicants) continued to meet with Bell weekly to explore its offerings for a replacement service, including while the arbitration was taking place.
[37] On May 8, 2017, after the application for leave to appeal and appeal had been argued, the Applicants’ counsel wrote to me stating as follows: Both the Toronto District School Board (TDSB) and the Toronto Catholic District School Board (TCDSB) have terminated their Wide Area Network Services Agreements with Cogeco Data Services Inc. (CDSI) and will be transitioning their sites to services offered by Bell Canada. As a result, the TDSB and TCDSB no longer seek the remedy of specific performance of the CDSI agreements. However, the TDSB and TCDSB maintain their request for equitable damages in lieu of specific performance, as well as all other claims and arguments raised before you. The City of Toronto has not terminated its Wide Area Network Services Agreement with CDSI, and therefore its claims and arguments remain unaffected.
The Arbitral Awards
Interim Award
[38] In the Interim Award, the Arbitrator held that the Damages Caps in section 14 of the WAN Agreements were valid, enforceable, and applicable to the Applicants’ claims. He also held that the Damages Caps applied to any claim that the Applicants might have to equitable damages by virtue of the reference to “equitable relief” in section 16.15 of the WAN Agreements. The Arbitrator declined to make a determination as to whether specific performance was available and should be granted.
Final Award
[39] At the arbitration hearing, Cogeco conceded that it was in breach of the WAN Agreements. As a result, the primary issue for the Arbitrator in his Final Award was whether an order for specific performance of the WAN Agreements should be made. The Arbitrator concluded that specific performance should not be granted because the Applicants had failed to meet the onus of demonstrating that there was not a readily available substitute for Cogeco’s service. In his Final Award, the Arbitrator also capped the damages for Cogeco’s breach of contract at $5 million for the TDSB, at $195,375.21 for the TCDSB, and at $525,085.68 for the City.
Issues
[40] The Applicants seek leave to appeal the Interim Award on the basis that: (1) The Arbitrator erred in law by failing to apply the proper principles of contractual interpretation to the Damages Caps in the WAN Agreements; and (2) The Arbitrator erred in law by allowing Cogeco to claim a benefit under the WAN Agreements as a result of its own breach of contract.
The Applicants seek leave to appeal the Final Award on the basis that: (3) The Arbitrator erred in law by misapprehending the correct legal test that must be satisfied before a court will grant the equitable remedy of specific performance; (4) The Arbitrator erred in law by imposing on a party seeking specific performance an onus to negate the availability of alternate performance; and (5) The Arbitrator erred in law by refusing to award specific performance after finding that the legal and equitable requirements for the remedy had been satisfied.
Positions of the Parties
[41] The Applicants submit that leave to appeal should be granted because the Arbitrator committed a number of errors of law. According to the Applicants, the Interim Award and the Final Award should be set aside and judgment should be granted for, inter alia, an order for specific performance of the WAN Agreements or a declaration that the Damages Caps do not apply to any equitable relief available to the Applicants.
[42] Cogeco submits that the proposed appeal does not raise questions of law and leave to appeal should not be granted. Further, Cogeco submits that if leave to appeal is granted the appeal should be dismissed because the Arbitrator’s decisions were correct, and in any case, reasonably available to him on the law and the facts and his decision is entitled to deference.
Analysis
Application for Leave to Appeal
The Statutory Test
[43] Section 45 (1) of the Arbitration Act provides:
- (1) If the arbitration agreement does not deal with appeals on questions of law, a party may appeal an award to the court on a question of law with leave, which the court shall grant only if it is satisfied that, (a) the importance to the parties of the matters at stake in the arbitration justifies an appeal; and (b) determination of the question of law at issue will significantly affect the rights of the parties.
[44] Cogeco does not contest the importance to the parties of the matters at stake in the arbitration or that the result of the proposed appeal would significantly affect the parties’ rights. However, Cogeco maintains that the proposed appeal does not raise any questions of law which is a requirement under s. 45(1) of the Act.
[45] In considering whether leave to appeal should be granted I must be mindful of what Doherty J.A. of the Court of Appeal for Ontario had to say about appeals from arbitration decisions in Popack v. Lipszyc, 2016 ONCA 135 at para. 26 as follows:
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.
[46] The leading case concerning the characterization of a question of law when the court is called upon to review how an arbitrator interpreted a commercial contract is the Supreme Court of Canada’s decision in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53. In Sattva, Rothstein J. stated as follows at paras. 49-52 and 55:
[49] As to the second development, the historical approach to contractual interpretation does not fit well with the definition of a pure question of law identified in Housen and Southam. Questions of law “are questions about what the correct legal test is” (Southam, at para. 35). Yet in contractual interpretation, the goal of the exercise is to ascertain the objective intent of the parties — a fact-specific goal — through the application of legal principles of interpretation. This appears closer to a question of mixed fact and law, defined in Housen as “applying a legal standard to a set of facts” (para. 26; see also Southam, at para. 35) …
[50] … 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.
[51] The purpose of the distinction between questions of law and those of mixed fact and law further supports this conclusion. 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 the consistency of the law, rather than in providing a new forum for parties to continue their private litigation. …
[52] … The legal obligations arising from a contract are, in most cases, limited to the interest of the particular parties. Given that our legal system leaves broad scope to tribunals of first instance to resolve issues of limited application, this supports treating contractual interpretation as a question of mixed fact and law.
[55] … As mentioned above, the goal of contractual interpretation, to ascertain the objective intentions of the parties, is inherently fact specific. 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. …
[47] I will now consider each of the alleged errors of law upon which the Applicants rely in the context of the Supreme Court’s decision in Sattva.
Alleged Error # 1 – The Arbitrator erred in law in his Interim Award in failing to apply the proper principles of contractual interpretation to the Damages Caps in the WAN Agreements.
[48] The Applicants submit that the Arbitrator did not apply an “objective determination” of the parties’ intentions in his contractual interpretation. In essence the Applicants’ complaint is that the Arbitrator erred in the way he interpreted the Damages Caps in the WAN Agreements.
[49] In my view, the decision in Sattva makes it clear that this is a question of mixed fact and law for which leave to appeal is not available. In any event, it is clear from the Arbitrator’s Interim Award that he did apply an objective determination of the parties’ intentions. For example, at paras. 42–46 of the Interim Award, the Arbitrator concluded that his interpretation of the Damages Caps was consistent with the parties’ intentions as demonstrated by the language of the agreements. He made the following observations concerning the parties’ intentions:
…The Claimants argue that it is unreasonable to suggest that the Parties would have contemplated that CDSI could simply never activate hundreds of locations with no obligations beyond payment of limited damages.
However, the ‘Force Majeure’ article is in effect an exception which the Parties have stipulated. As well, the parties put their minds to and provided for exceptions in article 14.05.
Failing to include conduct like the subject breach in article 14.05, supports the proposition that the breach is included in the damages cap provision – that is to say the basis of the cause of action arising from the breach could have been specified as an exception, but was not.
The damages cap uses broad and inclusive language capturing the widest possible range of claims that might be asserted: 14.02 Limitations on Damages Recoverable ‘… entire liability for all claims and causes of action arising out of or relating to this Agreement, and regardless of the basis of the claim, including breach of contract, negligence, misrepresentation, or other contract, or tort claims, will not exceed…’ 14.04 Application of Limitations The limitations set out in 14.02 and 14.03 shall apply irrespective of the cause of action, demand or claim, including but not limited to, an action in contract, tort including negligence, or based on any other legal theory, and will survive a fundamental breach or breaches and/or failure of the essential purpose of this Agreement.
Clearly, fundamental breach and repudiation are expressly contemplated to be subject to the damages cap.
[50] In considering this issue the Arbitrator was clearly involved in a consideration of the objective intentions of the parties which is “inherently fact specific”. This does not involve the consideration of a question of law.
[51] For these reasons, leave to appeal is denied with respect to this alleged error.
Alleged Error # 2 – The Arbitrator erred in law in his Interim Award in allowing Cogeco to claim a benefit under the WAN Agreements as a result of its own breach of contract.
[52] The Applicants submit that the Arbitrator erred by permitting Cogeco to claim a benefit as a result of its own breach of the WAN Agreements. In particular, the Applicants argue that the Arbitrator should not have distinguished Freedman v. Mason, 1957 ONCA 28, [1957] O.R. 441 (C.A.) or Barclays Bank PLC v. Devonshire Trust (Trustee of), 2013 ONCA 494.
[53] In my view, this is again a question of mixed fact and law. The Arbitrator did not misconstrue the principles enunciated in Freedman and Barclays; rather he expressly distinguished their relevance to the specific facts before him. He concluded that neither of these cases applied to the facts before him as follows at paras. 65 and 66 of his Interim Award:
However, these cases cannot be said to apply here. They deal with a claimant seeking to void a contract upon a triggering event, which event has been caused by the wilful act of the claimant. In Devonshire, Barclays wrongly caused Devonshire’s alleged default. Barclays then sought relief based on that default – the claim was dismissed.
In Freedman, the vendor sought to repudiate the agreement for his inability to obtain a bar of dower necessary to transfer clean title. He had regretted his agreement to sell and made no effort to obtain the boar of dower. His claim was dismissed.
[54] The Applicants allege that the Arbitrator was wrong to distinguish Freedman and Barclays because he concluded that they did not apply to the facts before him. Distinguishing these cases on the facts clearly involves a question of mixed fact and law.
[55] For these reasons, leave to appeal is denied with respect to this alleged error.
Alleged Error # 3 – The Arbitrator erred in law in his Final Award by misapprehending the correct legal test for specific performance.
[56] The Applicants submission that the Arbitrator applied the incorrect test for specific performance by failing to consider whether the damages available to the Applicants, limited by the Damages Caps, could adequately compensate them for Cogeco’s breach of the WAN Agreements.
[57] The Arbitrator addressed this issue at paras. 154 and 155 of his Final Award as follows:
The Claimants argue, citing Bath and AB v CD that the existence of a damages cap can ground a finding that damages would not adequately compensate the plaintiff. However, both of those decisions concern interlocutory injunctions pending final adjudication at trial or at arbitration. In AB v CD, the English Court of Appeal affirmed the binding effect of Bath, but also noted that it is expressly limited to situations in which a party seeks an injunction to avoid any cause for a claim to damages …
I agree with Cogeco’s submission that the Claimants cannot be in a better position to obtain the extraordinary remedy of specific performance as a result of their informed decision to limit the quantum of damages they could recover – or be liable for – in the event of a claim under the agreement.
[58] The Arbitrator clearly considered this issue and rejected the Applicants’ argument for the reasons he set out in these paragraphs of his Final Award. Accordingly, the alleged error by the Arbitrator did not occur. However, in any event, his consideration of this argument involved a question of mixed fact and law because to determine whether the available damages were adequate, the Arbitrator had to consider the factual matrix which clearly involves a question of mixed fact and law.
[59] For these reasons, leave to appeal is denied in respect of this alleged error.
Alleged Error # 4 – The Arbitrator erred in law by imposing on a party seeking specific performance an onus to negate the availability of alternate performance.
[60] The Applicants also submit that the Arbitrator misapprehended the test for specific performance by requiring them to negate the possibility of alternate performance of the WAN Agreements. The Applicants submit that this was an error of law.
[61] It would appear, however, that the Applicants’ real complaint is that the Arbitrator “misapplied” the correct test for specific performance which involves a question of mixed fact and law. At para. 2 (s) (i) of the Applicants’ Notice of Application they state as follows: The Arbitrator erred in law and misapplied the test for specific performance by placing the onus on the Applicants to negate the possibility of alternate performance from all other potential suppliers, particularly where he had found that the performance the Applicants bargained for was unique.
[62] Further, at para. 104 of the Applicants’ Appeal Factum they state as follows:
- … At para. 102 of the [Final] Award, the Arbitrator stated, correctly, that ‘the plaintiff is not required to prove a negative and demonstrate the complete absence of comparable properties.’ However, then at paras. 190 and 191 of the [Final] Award, the Arbitrator first observed ‘[t]he onus is on the Claimants to show there is not a readily available substitute,’ and then concluded ‘[t]he Claimants have not met the onus and this is fatal to a claim for specific performance.’
[63] In my view, the Arbitrator correctly characterized the test for awarding specific performance at para. 99 of his Final Award where he quoted from the leading decision of the late Lax J. in John E. Dodge Holdings Ltd. v. 805062 Ontario Ltd., (2001) 2001 ONSC 28012, 56 O.R. (3d) 341 (S.C.) At para. 102 the Arbitrator stated as follows:
- Second, the plaintiff is not required to prove a negative and demonstrate the complete absence of comparable properties.
[64] I am satisfied that the Arbitrator was aware of and relied upon the correct principles for awarding specific performance. The Arbitrator was correct in concluding that the Applicants had the onus of demonstrating that the subject matter of the WAN Agreements is unique in the sense that there is no readily available substitute, but that satisfying this onus does not require that the Applicants prove the complete absence of alternatives. In my view, the Arbitrator applied the relevant law to the unique facts of this case and in doing so he determined a question of mixed fact and law from which no appeal lies.
[65] For these reasons, leave to appeal is denied with respect to this alleged error.
Alleged Error # 5 – The Arbitrator erred in law by refusing to award specific performance after finding that the legal and equitable requirements for the remedy had been satisfied.
[66] The granting of specific performance is fundamentally a discretionary equitable remedy. The Court of Appeal for Ontario made this clear in UBS Securities Canada, Inc. v. Sands Brothers Canada, Ltd., 2009 ONCA 328, at para. 98 as follows:
- … The order for specific performance was an exercise of discretion by the trial judge. As she applied the correct legal principles and had due regard to the relevant factual considerations, I see no basis on which to interfere with that exercise of discretion.
[67] The same can be said about the Arbitrator’s decision not to award specific performance of the WAN Agreements. I have concluded that he applied the correct legal principles and had due regard to the relevant factual considerations in deciding not to grant specific performance. As such, his decision involved a question of mixed fact and law.
[68] For these reasons, leave to appeal is denied with respect to this alleged error.
Appeal
[69] Although I have concluded that leave to appeal should not be granted for any of the Arbitrator’s alleged errors, I will consider the Applicants’ appeal on the merits in case my conclusion on the leave to appeal application is incorrect.
Standard of Review
[70] The Arbitrator’s decisions are entitled to deference. The standard of review on an appeal from a commercial arbitration award is one of reasonableness. I must therefore determine whether the Arbitrator’s decisions were reasonable under the circumstances.
The Interim Award
[71] The Applicants submit that the Arbitrator failed to apply the proper principles of contract interpretation to the Damages Caps in the WAN Agreements in his Interim Award. Further, they submit that the Arbitrator erred by permitting Cogeco to claim a benefit under the WAN Agreements as a result of its own breach of the agreements.
[72] The Applicants argue that the Arbitrator did not consider whether it was within the reasonable expectations of the parties at the time the agreements were formed that the Applicants’ maximum compensation would be $5.7 million in the event that Cogeco deliberately ceased performing the WAN Agreements leaving them with a half-built WAN Network.
[73] The Arbitrator specifically addressed this issue at para. 42 of his Interim Award as set out above at para. 49.
[74] The Arbitrator explained why he rejected the Applicants’ argument and why he concluded that it was within the parties’ reasonable expectations to limit damages for this type of breach at paras. 44-46 of his Interim Award as set out above at para. 49.
[75] In my view, the Arbitrator’s decision on this issue was reasonable. I see no reason to interfere with his decision on this ground.
[76] The Applicants also submit that the Arbitrator erred in concluding that all damages, including equitable damages, are limited by the Damages Caps. The Arbitrator explained his reasoning on this issue at paras. 69-71 of his Interim Award as follows:
There is no distinction in article 14.02 and 14.04 between common law and equitable damages. Only the word ‘damages’ appears in the articles. Nowhere is the phrase ‘common law damages’ used.
There is nothing in article 16.15 that suggests that equitable damages would not be subject to the cap. Nor are equitable damages referred to in the exceptions in article 14.05. The use of the word ‘monetary’ in describing ‘damages’, in article 16.15 adds nothing to the analysis. All damages are monetary.
The phrase ‘notwithstanding anything to the contrary in this agreement’ does not provide an exception to the damages cap, nor does the phrase limit the effect of the cap. What the phrase does is make clear that notwithstanding anything to the contrary in the agreement, equitable relief can be sought by either party.
[77] The Arbitrator clearly considered this issue and rejected the Applicants’ position. He gave cogent reasons for why he did so. I am of the view that the Arbitrator’s decision on this issue is reasonable. I see no reason to interfere with his decision on this ground.
[78] The Applicants further submit that the Arbitrator erred in allowing Cogeco to claim a benefit under the WAN Agreements as a result of its own breach of contract.
[79] The Arbitrator carefully considered the Applicants’ position that Cogeco was benefitting from its own breach of contract and rejected this argument at paras. 62-66 of his Interim Award. He concluded that the cases relied upon by the Applicants did not apply to Cogeco’s reliance on the Damages Caps. His decision in this regard was reasonable. I see no reason to interfere with it on this ground.
The Final Award
[80] The Applicants submit that the Arbitrator erred by misapprehending the correct legal test that must be satisfied for a court to grant specific performance. The Arbitrator set out the law concerning specific performance in detail at paras. 91-104 of his Final Award. None of his summary of the law governing specific performance is alleged by the Applicants to be incorrect. I am satisfied that the Arbitrator correctly summarized the law that applies to specific performance.
[81] At para. 178 of his Final Award the Arbitrator correctly stated as follows:
- I return to the judgment of Lax J. in Dodge. The question is which remedy better serves justice between the parties. That said, a claim for specific performance ‘will depend, in part, on whether or not there is a readily available substitute property. If there is, the plaintiff’s remedy will be damages and subject to the mitigation principle.’
[82] Ultimately, the Arbitrator concluded that the Applicants had failed to meet the onus of demonstrating that there was “not a readily available substitute” at paras. 190 and 191 of his Final Award. In my view, this was a reasonable conclusion that was available to him on the evidentiary record. I see no basis for interfering with his decision for this reason.
[83] The Applicants further submit that the Arbitrator erred in refusing to award specific performance after finding that the legal and equitable requirements for the remedy had been satisfied. They summarize their position at paras. 111 and 112 of their Appeal Factum as follows:
The Arbitrator’s reasons indicate that all the prerequisites for the granting of equitable relief had been satisfied. It is clear from the award that damages, capped at $5.7 million, were manifestly inadequate to compensate the Applicants for Cogeco’s breach of contract. The reasons also demonstrate the uniqueness of the WAN Network that the Applicants had bargained for with Cogeco.
The Arbitrator’s findings and reasons lead inevitably to the conclusion that Cogeco should have been ordered to specifically perform the Agreements.
[84] I am satisfied that the Arbitrator was entitled, in light of the limited evidence before him, to find that the Applicants had failed to discharge their evidentiary onus to demonstrate the uniqueness of Cogeco’s service. This was fatal to the Applicants’ claim for specific performance.
[85] Further, the power of the Arbitrator to order specific performance was discretionary and highly fact-specific. It was certainly not a compulsory remedy that the Arbitrator was required to award to the Applicants. The Court of Appeal for Ontario has made it clear that decisions with respect to discretionary remedies are entitled to a high degree of deference. In Popack, supra, Doherty J.A. made this clear at para. 25 as follows:
- The order under appeal is discretionary. Virtually all discretionary orders involve the balancing of competing interests. In most cases, the existence of a discretion implies that different judges can reasonably arrive at different results. Consequently, appellate courts will defer to the exercise of discretion at first instance absent a clearly identifiable error in the application of the law, a material misapprehension of the relevant evidence, or a result that is clearly wrong in the sense that it is not defensible on an application of the relevant law to the facts …
[86] I am satisfied that the Arbitrator did not err in his application of the law or misapprehend the evidence. His decision is not “clearly wrong”. It is, in my view, a reasonable decision considering the applicable law and the evidence before him. I see no reason for interfering with his decision for this reason.
CONCLUSION
[87] For the reasons set out above I have concluded that leave to appeal should not be granted. Further, if leave to appeal were granted I would dismiss the Applicants’ appeal.
COSTS
[88] If the parties cannot agree on costs they may provide me with written submissions of no more than 3 pages with costs outlines.
[89] I thank counsel for their very helpful submissions and the professional manner in which this appeal was conducted.