COURT FILE NO.: CV-22-677302
DATE: 20221007
ONTARIO SUPERIOR COURT OF JUSTICE
RE: CRUICKSHANK CONSTRUCTION LTD., Applicant
-and-
THE CORPORATION OF THE CITY OF KINGSTON, Respondent
BEFORE: FL Myers J
COUNSEL: Christopher J. Cosgriffe and Mark T. Dzurman, for Cruickshank Construction Ltd
Roger Gillott and Andrew Rintoul, for the Corporation of the City of Kingston
HEARD: September 26, 2022
ENDORSEMENT
The Applications and the Outcome
[1] Cruickshank Construction Ltd. asks the court to appoint Marty Sclisizzi, FCIArb as arbitrator pursuant to a notice of arbitration dated November 30, 2021.
[2] The City of Kingston cross-applies under Court File No. CV-22-679595 for a declaration that Cruickshank’s notice of arbitration is barred under the Limitations Act, 2002, SO 2002, c. 24, Schedule B. It also seeks a declaration that Cruickshank has not complied with the preconditions required before it was entitled to commence an arbitration under the agreement between the parties.
[3] For the reasons that follow, Cruickshank’s application is allowed and Kingston’s is dismissed.
[4] The parties are to agree on an arbitrator forthwith. In the unlikely event that they cannot agree upon an arbitrator, then, by the end of day on October 11, 2022, each party may deliver a list of three proposed arbitrators with a
copy of the CV of each. Then, by the end of day on October 14, 2022, each side may deliver no more than three pages containing the specific bases on which they object to the appointment of any of the proposed people listed by the other party.
Background
[5] Cruickshank contracted to perform construction services for the City of Kinston. The parties agreed to arbitrate disputes under the construction agreement between them. Kingston would have me decide in advance if the arbitrator has jurisdiction to proceed and whether Kingston’s proposed defences to the arbitration are valid.
[6] Parties are not free to ignore arbitration agreements to ask the court to decide their case in advance. They agreed to submit their disputes to arbitration. The court enforces arbitration agreements and assiduously respects the competence-competence principle.
[7] Under s. 17 (1) of the Arbitration Act, 1991, SO 1991, c 17, arbitrators may rule on their own jurisdiction and then decide the issues that are properly before them.
[8] There are narrow circumstances when a court may rule on an arbitrator’s jurisdiction if it turns on a neat issue of law that is ripe for determination. Or the court might decline to stay civil litigation in favour of arbitration because the merits are amenable to summary judgment. This case does not fit into those or any of the other circumstances in which the court may intervene identified by Perell J. in Electek Power Services Inc. v. Greenfield Energy Centre Limited Partnership, 2022 ONSC 894. In fact, as Mr. Gillott painstakingly led me through document after document to try to establish when Cruickshank discovered its cause of action on many of the twenty-plus component pieces of its claim, my sense was that I was actually hearing the arbitration on its merits in the uncomfortably compressed process of motion practice.
[9] Kingston does not deny that there is an arbitration agreement between the parties. It does not contend that the agreement is illegal. Kingston has not sued Cruickshank on the merits of the construction dispute. So, there is no motion for a stay of litigation under s. 7 (1) of the Arbitration Act, 1991. Kingston also has no grounds to move to prevent an arbitration under s. 48 of the statute.
[10] Instead, Kingston simply applies for an interpretation of the jurisdiction of the arbitrator under the agreement using the summary application process in Rule 14.05 of the Rules of Civil Procedure. In Electek Power Services Inc. v. Greenfield Energy Centre Limited Partnership, 2022 ONSC 894 Perell J. discussed the approach to this type of application:
The analytical framework for deciding whether to enjoin the arbitration mirrors the analysis used for a stay motion. Pursuant to the competence-competence principle, the court may decide to let the arbitrator rule on his or her own jurisdiction to decide the dispute and thus refuse to enjoin the arbitration.
[11] In linking this type of application to a stay motion, Perell J. referred to the Court of Appeal’s decision in Haas v. Gunasekaram, 2016 ONCA 744. He recited the five-part test for considering a stay of litigation in favour of arbitration including:
(4) Does the dispute arguably fall within the scope of the arbitration agreement? [emphasis added.]
[12] If a dispute just arguably falls within the arbitrator’s jurisdiction, the court will leave it to the arbitrator to make the decision.
[13] I do not understand how it is that Kingston alleges than the possible existence of a limitation period defence goes to the arbitrator’s jurisdiction and allows it to ignore the arbitration. The limitation period defence does not deny that a debt is due. It just says that the claim was made too late even if it is a valid claim. The existence of a limitation defence might make an arbitration inefficient just as a full trial on the merits in court would be wasted if the claim could be defeated by the limitation period no matter how valid the debt or underlying claim may be. But that does not mean that the issue of whether the limitation period has run can always be hived off from the main hearing and dealt with summarily in advance. Moreover, the fact that there may be a defence on the merits available to a party does not undermine the jurisdiction of an arbitrator.
[14] Kingston relies heavily on the decisions of Ellies J (as he then was) in Foglia v. Coccimiglio, 2013 ONSC 114 and Gomery J. in Maisonneuve v. Clark, 2021 ONSC 1960. In the latter case, Gomery J. decided a limitation period issue that would otherwise have gone to arbitration. She wrote:
- In determining that he should exercise the jurisdiction conferred under s. 7(2), Ellies J. held that there were two reasons to do so. First, he found, at para. 27, that the record before him gave him sufficient insight with respect to the limitations issue:
[T]his is a case where the court can easily get a full appreciation of the issue and the evidence (see Combined Air Mechanical Services Inc.v. Flesch, 2011 ONCA 764, 108 O.R. (3d) 1 (Ont. C.A.)). With one exception, the relevant facts are uncontested. The evidence consists almost entirely of documents, the authenticity of which is unchallenged. Although the court is now empowered under Rule 20 to make findings of credibility in summary judgment motions, it is not necessary to exercise that authority with respect to most of the evidence in this case.
[16] Second, at para. 32, Ellies J. found that no good purpose would be served by requiring the parties to litigate the issue before an arbitrator, when they had already presented their arguments to the Court:
Convenience is the other reason why I believe that this issue should be resolved by this court. I agree with counsel for the respondent that, although the matter could have been dealt with by the arbitrator, and probably should have been, it would be helpful to deal with the issue now, so as to avoid the duplication of effort involved in later bringing it before the arbitrator. I do not agree, however, with the submission that there is a risk of inconsistent verdicts, should this court decide the issue, because of the concurrent jurisdiction of the court and the arbitrator.
[17] I agree with and adopt this reasoning in this case. I find that I have jurisdiction to determine the limitations issue and that I can determine it fairly on the record before me, based on the documentary record and uncontroverted evidence. I do not need to make findings of credibility. I do have to make some inferences, but they are based on uncontested facts, such as the contents of correspondence exchanged between the parties’ lawyers.
[18] In keeping with r. 4.01 of the Rules of Civil Procedure, a ruling by this court will secure the “just, most expeditious and least expensive determination” of the issue. Counsel for Clark conceded that, if I am able to determine the issue on the record before me, I should do so.
[19] I therefore conclude that I can and should resolve the limitations issue.
[15] There are several important things to note about these decisions. First, in Maisonneuve the respondent agreed that the judge should decide the issue if she felt that she could do so. That is not the case here.
[16] Second, Ellies J (as he then was) found that the issue before him “probably should have been” decided by the arbitrator. But he was satisfied that it would have been inefficient and wasteful to duplicate the work when the issue was readily resolved before him. While that reasoning works in the first case that mistakenly comes to court, to allow subsequent cases to continue to come to court when they should be before the arbitrator undermines the “should” and drives a truck through a loophole in the competence-competence principle.
[17] Third, the law has changed at least since Foglia gave priority to efficiency over the competence-competence principle in 2013. In particular, the Supreme Court of Canada has spoken about the need for the courts to adopt a “hands off” approach to arbitration. It specifically rejected the argument that the court can or ought to weigh-in just because it is efficient to do so.
[18] In TELUS Communications Inc. v. Wellman, 2019 SCC 19, the Supreme Court of Canada wrote:
[55] The policy that parties to a valid arbitration agreement should abide by their agreement goes hand in hand with the principle of limited court intervention in arbitration matters. This latter principle finds expression throughout modern Canadian arbitration legislation (see McEwan and Herbst, at pp. 10-7 to 10-11; Casey, at p. 319) and has been described as a “fundamental principle underlying modern arbitration law” (Alberta Law Reform Institute, at para. 19). This principle is embedded most visibly in ss. 6 and 7 of the Arbitration Act, which are both contained in the part of the Act labelled “Court Intervention”. Section 6 reads:
Court intervention limited
6 No court shall intervene in matters governed by this Act, except for the following purposes, in accordance with this Act:
To assist the conducting of arbitrations.
To ensure that arbitrations are conducted in accordance with arbitration agreements.
To prevent unequal or unfair treatment of parties to arbitration agreements.
To enforce awards.
[56] Stated succinctly, s. 6 signals that courts are generally to take a “hands off” approach to matters governed by the Arbitration Act. This is “in keeping with the modern approach that sees arbitration as an autonomous, self-contained, self-sufficient process pursuant to which the parties agree to have their disputes resolved by an arbitrator, not by the courts” (Inforica Inc. v. CGI Information Systems and Management Consultants Inc., 2009 ONCA 642, 97 O.R. (3d) 161, at para. 14).
[19] Few things are more inefficient in civil litigation than a multiplicity of proceedings. Multiple lawsuits on the same issues cause duplication of work. They multiply costs needlessly. They run the risk of inconsistent verdicts and thereby undermine the finality of the result. Multiplicity of lawsuits is so obviously inefficient that s. 138 of the Courts of Justice Act, RSO 1990 c C.43, specifically directs courts to avoid multiplicity of proceedings as far as possible.
[20] Yet in Wellman the SCC held that even the risk of inefficiency through wasteful multiplicity yields to the policy favouring a hands off approach to arbitration:
[90] Lastly, while s. 138 of the Courts of Justice Act stipulates that courts “shall” avoid a multiplicity of proceedings, it tempers this language by indicating that the court must do so only “as far as possible”. Accordingly, where the application of an Ontario statute, properly interpreted, leads to a multiplicity of proceedings, the court must give effect to the will of the legislature, even if the consequence is to potentially create a multiplicity of proceedings. This is consistent with Seidel, where the Court recognized that even where a multiplicity of proceedings could result, the court must nonetheless give effect to the “legislative choice” embodied in the legislation in question (para. 50) ... In theory, the Arbitration Act could be amended to grant the courts broad discretion to refuse a stay where doing otherwise could result in a multiplicity of proceedings, but the legislature has not taken this step. For these reasons, while a multiplicity of proceedings can cause practical difficulties, this concern cannot be permitted to trump the language of the statute.
[21] The hands off policy embedded in s. 6 of the Arbitration Act is the dominant approach today. That does not mean that the court can never be involved. But it limits the court’s incursions to those specifically allowed by the statute and, even then, discretion should be exercised to respect the competence-competence principle where appropriate.
Kingston’s Limitation Period Defence to Cruickshank’s Claims
[22] Mr. Gillott submits that the limitation period defence in this case is obvious and virtually incontestable. But Kingston has not sued on the merits of the construction claims. It is not responding to a motion to stay litigation about the merits under s. 7 (2) of the statute. If the merits were before me, Kingston could try to avoid a stay pending arbitration by showing that it would be entitled to summary judgment on its claim.
[23] Instead, in this proceeding, Kingston has purported to bring a summary application for declaratory relief as to the arbitrator’s jurisdiction. In that form of proceeding it then asks me to pre-judge the validity of its limitation defence.
[24] Parties should not be encouraged to sue to avoid letting an arbitrator decide the merits of a claim. The parties agreed to arbitrate. I do not understand the prejudice of proceeding as they agreed to do. Kingston is free to ask the arbitrator to consider the limitation period summarily as it has asked me to do. I do not see how coming here first is more efficient, affordable, or proportionate. Rather, it seems to me to be a breach of the party’s promise embedded in the arbitration agreement.
[25] Moreover, I do not see how a question of a limitation period morphs into a question of the arbitrator’s jurisdiction. Perell J. allowed for a summary process to determine an arbitrator’s jurisdiction as a matter of law and where
there is no arguable claim in favour of jurisdiction. Here, there is no question that an arbitrator would be entitled to decide a limitation period defence if one was pleaded in response to Cruickshank’s claims.
[26] Kingston just prefers that I decide the limitation period now. In my view, the better course is to implement the hands off policy required by s. 6 of the Arbitration Act, 1991 in order to respect the competence-competence principle to allow an arbitrator to consider the matter first.
[27] If Kingston had sued for relief under the construction contract and if Cruickshank had defended or counterclaimed on the basis that it had numerous claims for payments due under the contract, and if Cruickshank then asked for a stay of the City’s litigation pending arbitration of all the disputes, the outcome would be no different. The City could then try to defend against a stay of its litigation by saying that it would be entitled to summary judgment on the limitation period so a stay should be refused under s. 7 (2) of the statute.
[28] To understand the limitation period issues, Mr. Gillott had me compare a chart showing the first notice of claims, in Cruickshank’s answers to undertakings, to a chart showing the circumstances and timing of discovery of each claim, at para. 32 of his factum, to the dates of each claim listed in the arbitration notice, to the details of each claim listed in Mr. Lambert’s affidavit. This was not a neat issue of law. There was nothing summary about the fact-finding process submitted before me.
[29] I do not mean to overcomplicate matters. At bottom, Mr. Gillott submits that for every single piece of every single claim, one can see discussion among the parties and even disagreement some months before the date that is two-and-one-half years before the delivery of the notice of arbitration.[^1]
[30] Mr. Cosgriffe submits that while numbers were plainly under discussion, one cannot tell yet when the limitation period commenced. Under ss 4 and 5 (1)(a)(iv) of the Limitations Act, 2002, a claim must be discovered for the statutory limitation period to commence. That requires, among other things, that the plaintiff knows “that, having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it”.
[31] Mr. Gillott submits that Cruickshank is a sophisticated construction company. It always knows that if a counterparty disputes liability for a contractual charge, then legal proceedings are appropriate. I agree this far at least – commercial negotiations do not defer the limitation period. There was no formal ADR process to toll the limitation period here. This is also not a case where a patient does not want to sue a health professional who is trying to help fix a problem. Rather, once the date or dates that Cruickshank discovered its claims are fixed, then the limitation defence will succeed or not depending on whether the date of discovery was more or less than 2.5 years prior to Cruickshank’s delivery of its arbitration notice.
[32] Mr. Gillott focused on the question of when legal proceedings became appropriate under s. 5 (1)(a)(iv) of the Limitations Act, 2002. His basic argument is that Cruickshank knew it wanted to get paid and all the back-and-forth shows that the issues were joined more that 2.5 years before Cruickshank commenced the arbitration.
[33] But there is a more fundamental issue that was not addressed before me at all. Before a claim can be discovered, s. 5 (1)(a)(i) of the Limitations Act, 2002 requires that there must have been injury, loss, or damage suffered by the plaintiff. The parties can talk about the value of different pieces of work as much as they want. There can be no injury to Cruickshank until payment for the work comes due and the Kingston fails to pay as required by the contract. That is, there is no claim to be discovered until a cause of action accrues i.e. the contract requires payment and payment is not made.
[34] Mr. Gillott was unable to advise me of when the various amounts claimed by Cruickshank were invoiced or became due and payable. Under the parties’ agreement, sums come due when invoiced either on an ongoing basis, or when various certificates are provided when the agreement is terminated. Although the parties were discussing claim amounts, if the amounts never came due until the agreement was terminated by Kingston in June, 2019, then the arbitration was commenced in time.
[35] Mr. Cosgriffe submits that various certificates of substantial completion and contract completion were to be provided when Kingston terminated the agreement in June 2019 (within 2.5 years of the commencement of the arbitration). The amounts due are driven by the certifications and to this day at least one remains outstanding because the parties were still discussing the results of quantity surveys in relation to at least some of the work. In fact, Cruickshank submits that the City is in breach of the agreement by failing to take the steps needed so that Cruickshank can claim that funds are due to it under the contract.
[36] Mr. Cosgriffe submits, for example, that there is a $266,000 holdback in issue. It is axiomatic that a holdback cannot be released until substantial completion at the earliest. Moreover, despite termination of the agreement in June, 2019, there were mortgages on title that had to be cleared before the holdback could be released or evolve into trust funds in the owner’s hands. There is no basis, he submits, that Kingston can say that the limitation period started to run for the holdback amount before it terminated the agreement and claimed substantial completion.
[37] It may well be that each of the 25 sub-elements of the claims was invoiced properly during the construction well before the agreement was terminated by Kingston. But I cannot tell that on the evidence before me. Mr. Gillott pointed to one email that made reference to one invoice in relation to one of the items that is the subject of a claim. There is no actual evidence that any of them were invoiced or came due before Kingston terminated the agreement.
[38] There is a detailed narrative as to what was happening between these parties in a complex and specialized field. Mr. Gillott tried to pluck numerous emails from the broader narrative to have me conclude summarily that monies were due, Kingston was refusing to pay, and it was legally appropriate for Cruickshank to sue months before Kingston terminated the agreement. He might be right. But deciding that requires a holistic understanding of the relationship. It is apparent that there were numerous different characters playing out various scenes and acts. One needs to understand the whole play to follow the plot, discern the theme or themes, and draw conclusions. That is hardly the stuff of summary judgment or a summary application. It is a trial-in-a-box as discussed in RNC Corp. v. Johnstone, 2020 ONSC 7751, at paras 48 to 53.
[39] Even if I could infer that some or most of the claims had been invoiced and were due before 2.5 years before Cruickshank commenced the arbitration, I still cannot assess whether absolutely every claim had come due and was discovered. If any claim remains to be considered on the facts then the rule against partial summary judgment would preclude me from determining the issue. See: Butera v. Chown, Cairns LLP, 2017 ONCA 783. The claims overlap. The same correspondence speaks to multiple claims. I could hardly rule on some and leave an arbitrator to rule on others where the facts and issues completely overlap. That would be creating the inefficiencies and risk of duplication summary judgment is designed to avoid.
[40] So, while I prefer to base my decision by declining to undertake the analysis submitted by Kingston altogether, even on Kingston’s analysis, this is not a case in which I can find the facts and apply the law in a fair and efficient process summarily. The limitation period does not raise an issue of the arbitrator’s jurisdiction and, in any event, this is not a case for summary judgment on the limitation period without discovery of documents at least.
Procedural Preconditions to Arbitration: Mandatory or Directory?
[41] Kingston submits that Cruickshank did not take the steps required by the contract to entitle it to commence an arbitration. If true, that could raise a form of jurisdictional argument. But, here, the issue is heavily fact-laden and arguable. On this issue too, a Rule 14 application is not a proper basis to usurp the arbitrator’s role to determine his or her own jurisdiction on the facts and law.
[42] The parties’ agreement contains many procedural clauses. Cruickshank was required to keep careful records of work done on a time and materials basis for example. It was required to provide notice of claims verbally and then in writing. Kingston was then required to respond formally within a time frame. Then arbitration was available. Mediation could also be attempted if the parties wished to do so.
[43] Kingston claims that Cruickshank failed to follow the claims process and therefore it had no right to commence arbitration when it did.
[44] Cruickshank says it kept the records it was required to keep for work performed on a time and materials basis. Its evidence is that it submitted the records to Kingston with written notice on a timely basis for that piece of work and yet Kingston never responded as it was required to do. In this proceeding, Kingston refused Cruickshank’s request that it produce the records and claim filed with it by Cruickshank. It did so as a tit-for-tat because Cruickshank refused to produce to Kingston other documents that it sought prior to the hearing before me. The parties’ procedural games preclude me from finding a fact on diametrically opposed evidence from the main protagonists.
[45] There is no law cited in Kingston factum on the legal approach to assessing the effect of procedural preconditions to arbitration. It simply submits that because Cruickshank failed to submit all required documents within the times allowed, it had no right to invoke the arbitration process.
[46] Cruickshank submits that the claims process relied upon by Kingston deals with extras and issues where Kingston would not know its liability. The only extra that falls into that category, it says, is the one claim that it says it filed and that Kingston won’t produce. Mr. Cosgriffe submits that the ongoing efforts by the parties to value work and release the holdback, which efforts continued well after the contract was terminated by Kingston, must extend claims timelines or raise an estoppel.
[47] Once again, Kingston may be correct. Or it may be wrong. Both sides have facts to prove after someone forces them to disclose their documents sensibly. Then there is law to be argued.
[48] I know far too little about the relationship between the parties on the ground, the details of their negotiations, how claims processes normally work in massive government construction projects, or in this project in particular, to summarily assess whether the contractual claims timelines are meant to be comprehensive and strictly applied traps for the unwary or whether they are limited, directory guidelines only to be resorted to once the parties’ good faith efforts fail to result in a negotiated resolution.
[49] In other words, there is a vital fact base that is not before me and this too precludes me from resolving this issue summarily.
[50] Once again, I see no reason why this issue should not also be resolved by an arbitrator. He or she will be fully steeped in the facts, including hearing any conflicting evidence, after appropriate production and any other pre-hearing steps as may be agreed or allowed. The arbitrator will be well able to rule on whether the arbitration process was properly invoked. I am not sure that Kingston will even continue to raise that issue once the arbitration commences. The thought of holding a trial there to then come back to hold a trial before the court hardly seems a sensible way to proceed.
[51] Be that as it may and regardless of what might or might not happen next, if this matter is jurisdictional as asserted by Kingston, then it is arguable that the arbitrator has jurisdiction. Therefore, the arbitration should proceed.
Costs
[52] Cruickshank may deliver no more than five pages of costs submissions by October 17, 2022. The City may deliver no more than five pages of costs submission by October 24, 2022. To be considered, each submission shall be accompanied by a Costs Outline. The parties may also file any offers to settle on which they rely. Submissions and Costs Outlines shall be uploaded to Caselines.
FL Myers J
Date: October 7, 2022
[^1]: The parties agree that the COVID emergency laws added another six months to the normal two year limitation period.