COURT FILE NO.: CV-22-00678519-0000
DATE: 20230612
ONTARIO SUPERIOR COURT OF JUSTICE
RE: His Majesty the King in Right of Ontario (as represented by the Minister of Northern Development, Mines, Natural Resources and Forestry), Applicant
-and-
HugoMB Contracting Inc. (formerly known as MTM-2 Contracting Inc.), Respondent
BEFORE: Robert Centa J.
COUNSEL: Eunice Machado, for the applicant
Albert G. Formosa and Paul Conrod, for the respondent
HEARD: April 6, 2023
ENDORSEMENT
[1] In 2019, the Ministry of Natural Resources contracted with HugoMB Contracting Inc., for work on the Tilden Lake Dam project.[^1] The Ministry became dissatisfied with the HugoMB’s work and, on March 19, 2021, terminated HugoMB’s right to work on the Tilden Lake Dam.
[2] HugoMB subsequently submitted unsuccessful bids on various other Ministry projects. It appears that the Ministry considered HugoMB’s prior performance on contracts, including on the Tilden Lake Dam project, as one factor in its decisions not to award further contracts to HugoMB. On August 30, 2021, the Ministry advised HugoMB that it would be barred from bidding on any Ministry projects for two years.
[3] HugoMB triggered the arbitration clause in the Tilden Lake Dam contract to resolve its claims for compensation for additional costs it incurred and extra work it performed. The parties agree that the arbitration clause in the contract was enforceable, and, on August 13, 2021, they appointed an arbitrator to resolve their disputes.
[4] The parties agree that six of the claims that HugoMB wishes to arbitrate fall within the scope of the arbitration provision and that the arbitrator has jurisdiction to resolve those six claims. The parties disagree about whether or not the seventh claim is arbitrable. Hugo MB summarized claim #7 as follows:
HugoMB was improperly disqualified by the [Ministry] from bidding on further projects following the notice of termination of [HugoMB’s] right to continue the work dated March 19, 2021. HugoMB claims damages relating to the disqualifications. HugoMB claims all of its damages for improper disqualifications that occurred up to August 30, 2021.
[5] HugoMB seeks $4.1 million in damages for claim #7. The Ministry took the position that the dispute described in claim #7 did not fall within the scope of the arbitration clause in the Tilden Lake Dam contract and, therefore, was not arbitrable. HugoMB disagreed. The Ministry brought a preliminary motion before the arbitrator to determine whether or not he had jurisdiction over claim #7.
[6] On February 14, 2022, the arbitrator concluded that there was a nexus between HugoMB’s performance under the Tilden Lake Dam contract and the Ministry’s decision to disqualify HugoMB from bidding on future contracts for two years. The arbitrator held that as the tender agreement contemplated that outstanding claims and matters, contractual and otherwise, may be arbitrated, he had jurisdiction over the dispute.
[7] The Ministry applied to the court to decide whether or not claim #7 is arbitrable. I find that it is not.
[8] The dispute underpinning claim #7 relates to the disqualification of HugoMB from other Ministry projects and does not fall within the scope of the arbitration provisions in the Tilden Lake Dam contract. There is nothing in the language of the Tilden Lake Dam contract that indicates that the parties agreed that a claim like claim #7 would be subject to arbitration. HugoMB may be able to pursue some or all of the disputes raised in claim #7 through an action in the Superior Court of Justice. What it cannot do, however, is include claim #7 among the items to be arbitrated.
[9] For the reasons that follow, I set aside the decision of the arbitrator and declare that claim #7 is not arbitrable.
The applicable legal principles
This application is a hearing de novo
[10] Under the Arbitration Act, an arbitrator may rule on her jurisdiction to conduct the arbitration either as a preliminary question or in an award.[^2] Where the arbitrator rules on an objection to jurisdiction as a preliminary question, a disappointed party may “make an application to the court to decide the matter.”[^3] In this case, the arbitrator determined as a preliminary question that he had jurisdiction over claim #7. The Ministry then brought this application asking the court to decide the matter.
[11] This application is a hearing de novo, not a review of or an appeal from the arbitrator’s decision.[^4] The principle of competence-competence does not require that any deference be paid to an arbitrator’s determination of her own jurisdiction.[^5] The usual principles and standards of appellate review or judicial review do not apply.[^6] I am simply to “decide the matter” of whether or not the arbitrator has jurisdiction over claim #7.
The analytical framework for determining whether or not an issue is arbitrable
[12] In Haas v. Gunasekaram, the Court of Appeal for Ontario established the analytical framework to determine whether or not an issue is arbitrable.[^7] In this case, the parties agree that there is a valid arbitration provision in the Tilden Lake Dam contract. They agree that six of the seven claims put forward by HugoMB are within the jurisdiction of the arbitrator.
[13] The only issue to be determined by me is whether the dispute set out in claim #7 falls within the scope of the arbitration provision. If the arbitration provision does not cover claim #7, then there is no obligation to submit it to arbitration and the arbitrator has no jurisdiction over the dispute.
[14] In this case, there are three elements of the Haas test at issue:
a. What is the subject matter of the dispute?
b. What is the scope of the arbitration agreement?
c. Does the dispute fall within the scope of the arbitration agreement?
Background facts
[15] I will first set out the relevant background facts and then turn to the specific issues related to the arbitrability of claim #7.
[16] Tilden Lake Dam is located at the southern outlet of Tilden Lake, approximately 30 km north of North Bay, in Lyman Township. The dam was constructed in 1961 and comprises a 4.4-metre high concrete gravity structure with two stop log sluiceways, and earth embankments at both sides.
[17] The Ministry concluded that it needed to reconstruct the Tilden Lake dam. On February 7, 2019, the Ministry issued a request for bids for work to construct a new reinforced concrete dam and to then remove the existing dam.
[18] HugoMB bid on the work. It had previously won work for the Ministry on projects including a project at Kenogamisis Lake Dam project that ran from May to December 2019. The Ministry selected HugoMB as the successful bidder. The parties entered into a contract dated June 1, 2019, to cover that work.
[19] The contract contained an entire agreement clause and seven schedules, including Schedule 7 – General Conditions. Schedule 7 appears to be a standard form list of general conditions used by the Ministry. Schedule 7 indicates that the general conditions were last updated on July 1, 2018, and has a version control date of October 4, 2018.
[20] In the contract and its schedules, the Ministry is called the “Owner” and HugoMB is called the “Contractor.” Schedule 7 defined work to mean:
Work means the total construction and related services required by the Contract, and includes everything developed for or provided to the Owner in the course of performing under the Contract or agreed to be provided to the Owner under the Contract by the Contractor, including any goods or services.
[21] Section 3.13 of the Schedule 7 is titled “Claims, Negotiations, Mediation,” and sets out the claims procedure, a negotiation procedure, a mediation procedure. Section 3.14 contains the arbitration provisions. These clauses will be considered in more detail below.
[22] HugoMB was required to substantially perform the work in a diligent and competent manner on or before February 14, 2020, and to complete the work no later than May 31, 2020. In exchange, the Ministry agreed to pay HugoMB up to $5,828,550.
[23] HugoMB did not meet the timelines in the contract. On March 8, 2021, the Ministry notified HugoMB that it was in default and that, unless HugoMB delivered an acceptable schedule to remedy the default, the Ministry could terminate HugoMB’s “right to continue the work.” On March 15, 2021, HugoMB delivered a revised schedule.
[24] On March 19, 2021, the Ministry wrote to HugoMB and provided notice that it was terminating HugoMB’s right to continue the work. The Ministry stated that HugoMB’s revised schedule was not acceptable and, in any event, HugoMB had already breached it. The Ministry took the position that HugoMB had failed to provide design plans in accordance with the contract, had failed to deliver timely substantial performance, and had provided a plan that required work during a very risky high-water period. The letter concluded as follows:
The [Ministry] no longer has the confidence that [HugoMB] is able to complete the removal of the diversion channel and restoration of the Dam embankment in a safe, satisfactory or expeditious manner.
To protect the Dam from possible flood damage, including from floods that cannot be forecasted, and to minimize the potential risks to downstream residents, the [HugoMB’s] right to continue the work is being terminated with immediate effect.
[25] On August 13, 2021, the parties entered into an arbitration agreement with the arbitrator. The agreement describes the dispute as follows:
- The Claimant, [HugoMB], and the Respondent, [the Ministry] are involved in a number of disputes (collectively, the "Disputes") arising out of the reconstruction of the Tilden Lake Dam….Particulars of these Disputes, which are the subject of the Arbitrator's jurisdiction in this arbitration proceeding, are set out in Schedule "A" hereto. In general terms, HugoMB Contracting has put forward claims against [the Ministry] for damages or additional compensation relating to, without limitation, environmental compliance approvals; dewatering of the work area and diversion of water flow during construction; removal of unforeseen concrete and timber; removal of bedrock; and contract termination.
[26] Schedule A to the tri-partite arbitration agreement set out the seven claims advanced by HugoMB. The schedule provided as follows:[^8]
Claim
Amount
Brief Description
Claim #1 Additional costs relating to the environmental compliance approval (“ECA”)
$125,740.52
HugoMB claims it incurred additional costs due to extra work required in obtaining an ECA, which was added as a requirement by the owner after tender award. Ministry’s position: the total potential work outside of the tendering scope to comply with the final ECA is valued at $25,443.80 plus HST
Claim #2 change in elevations
$229,705.00
HugoMB claims that the owner and or its consultant changed the elevations of the Dam after tender award resulting in additional costs to the contractor for diversion channel installation and design. Ministry’s position: HugoMB's tender proposed using the Tender Drawings concept for flow diversion and dewatering. HugoMB unilaterally decided to construct a diversion channel parallel to the dam. This was done without the owner’s permission, any Change Order, any Change Directive or a deviation on the working drawings approved by the Contract Administrator. Any costs associated with diversion channel are HugoMB’s alone.
Claim #3 Change Directives 01 and 02
$314,976.27
HugoMB claims that it incurred extra costs due to change directives given by the owner in relation to extra work to remove cribbing found in excavation area of the new dam. The final cost of the work under these change directives is unresolved. Ministry’s position: the additional works are valued at $41,446.55. The purpose of the Change Directives was to prevent schedule delays.
Claim #4 Rock Excavation
$448,080.00
The contractor performed rock excavation work that was required for the new dam. HugoMB claims that it should be paid for this element as a provisional item. Ministry’s position: the Provisional Item was intended for other work related to erosion protection and is not applicable to this circumstance. HugoMB did not submit requested supporting documentation.
Claim #5 West abutment wall movement and related events
$4,3783,188.72
Shifting and movement of the west abutment wall occurred, which resulted in delays to the project schedule and created extra work for HugoMB. Ministry’s position: the contractor’s construction means and methods were inappropriate for the circumstances and this resulted in damage to the concrete structure. The contractor is responsible for the repairs. The contractor did not fulfill its obligations under such circumstances in a timely manner. The Contract Administrators opinion with regard to the validity of the claim is still pending.
Claim #6 Termination by the owner of the contractor’s right to continue the work
HugoMB's initial estimate for its damages is pending Ministry’s estimate for its damages his pending
All claims relating to the owner’s notice of default dated March 8, 2021 and notice of termination of contractor’s right to continue the work dated March 19, 2021 including: a. whether the owner’s notices and termination were proper; b. the damages, if any, resulting from the termination of the contractor’s right to continue the work, including but not limited to: i. HugoMB’s delay and or standby costs, outstanding unpaid contract items, equipment and materials retained by the owner, and loss of reputation at damage to brand; ii. Ministry’s costs as a result of HugoMB actions including its costs for the projects delay, the procurement of a new and any additional costs for completion of the project
[27] The parties agree that the six disputes listed above fall within the scope of the arbitration agreement and will be determined by the arbitrator.
Is claim #7 arbitrable?
[28] I will now consider whether or not claim #7 is arbitrable by addressing the three Haas factors:
a. What is the subject matter of the dispute?
b. What is the scope of the arbitration agreement?
c. Does the dispute fall within the scope of the arbitration agreement?[^9]
What is the subject matter of this dispute?
Facts underpinning claim #7
[29] After the Ministry terminated HugoMB’s right to continue work on the Tilden Lake Dam project, staff at the Ministry discussed HugoMB’s unsatisfactory performance on that project as well as on the Kenogamisis Lake Dam project.
[30] In the months following the Ministry’s decision to terminate, HugoMB bid unsuccessfully on five other projects. The Ministry agrees that HugoMB was not successful, and offered the following explanations:
a. Monteith Dam replacement – HugoMB failed to meet technical or eligibility requirements for the project;
b. Elva Dam rehabilitation - HugoMB failed to meet technical or eligibility requirements for the project;
c. Kawagama Lake Dam – the Ministry cancelled the entire bidding project and Hugo MB agrees that the project was not awarded to any contractor; and
d. Snowshoe Rapids Dam rehabilitation project – pursuant to a provision in the request for bids document for the Snowshoe Rapids project, the Ministry disqualified HugoMB’s bid on the basis of its performance on previous contracts awarded by the Government of Ontario. Hugo MB agrees that the project was not awarded to any contractor; and
e. The Tilden Lake Dam completion project, which was the project that would complete the work that HugoMB started.
[31] For the purposes of this application, it is not necessary for me to make a final determination of why the Ministry did not award this work to HugoMB. Those decisions will be made during a hearing on this merits, either before the arbitrator or in the Superior Court of Justice.
[32] On August 30, 2021, which is after the parties signed the arbitration agreement with the arbitrator, the Deputy Minister of the Ministry sent a letter to HugoMB. The Deputy Minister advised HugoMB that the Ministry was barring HugoMB from tendering or being awarded any work for two years “principally as a result of its concerns with [HugoMB’s] work on two of its previous projects: Tilden Lake Dam and Kenogamisis Lake Dam.”
[33] The Deputy Minister explained her concerns about the Tilden Lake Dam project as follows:
You are already aware of the concerns expressed by the ministry regarding [HugoMB’s] performance on the Tilden project through correspondence sent to [HugoMB] regarding that project. In short, [HugoMB] was hired in May 2019 to reconstruct the Tilden Lake Dam with a completion date of February 2020, prior to the spring freshet. The project was not completed by that date as a result of [HugoMB’s] failure to attend regularly at the work site, issues regarding the quality of [HugoMB’s] work and other delays occasioned by [HugoMB’s] performance. In August and September 2019, [HugoMB] received four notices of violations from the Ministry of the Environment, Conservation and Parks due to improper management of the work. The project remains unfinished as of the date of this letter. By notice dated March 19, 2021, the ministry terminated [HugoMB’s] right to continue work on the project because of [HugoMB’s] failure to provide timely, engineered drawings for decommissioning the diversion channel. Ultimately, the ministry determined that it was not confident that [HugoMB] would be able to complete the removal of the diversion channel and restoration of the Dam embankment in a safe, satisfactory and expeditious manner.
[34] The Deputy Minister also explained that she had a number of concerns with HugoMB’s work on the Kenogamisis Lake Dam project. These concerns included delayed performance, mismanagement of the structure’s control works, poor performance of Hugo MB’s project manager, the failure to meet substantial performance timelines, and the failure to cure outstanding warranty issues.
[35] Finally, although not forming part of the decision to disqualify HugoMB for two years, the Deputy Minister expressed her serious concern that, despite the Ministry telling HugoMB that it would not provide a reference for its work, HugoMB provided Parks Canada with what purported to be a reference from the Ministry. The Deputy Minister emphasized that HugoMB’s actions “bolster[ed] the Ministry’s concerns about [HugoMB’s] integrity to operate honestly and in good faith.”
[36] The Deputy Minister noted that HugoMB had provided its views to the Ministry on the Tilden Lake and Lake Kenogamisis projects and that the Ministry had considered those submissions. The Deputy Minister advised that her decision was final and would not be reconsidered until May 18, 2023.
Claim #7
[37] HugoMB took issue with the decisions of the Ministry and wished to have its claims determined in the arbitration. In the arbitration agreement dated August 13, 2021, the Ministry took the position that claim #7 was not arbitrable. In the schedule to the arbitration agreement, the parties described claim #7 and their positions as follows:
Claim
Amount
Brief Description
Claim #7
HugoMB’s estimate for its damages is pending
HugoMB was improperly disqualified by the Ministry from bidding on further projects following the notice of termination of contractor's right to continue the work dated March 19, 2021. HugoMB claims damages relating to the disqualifications. HugoMB claims all of its damages for improper disqualifications that occurred up to August 30, 2021. Ministry’s position: this issue is neither arbitrable nor properly within the arbitrator's jurisdiction. The decision to disqualify was not made pursuant to the Contract at issue in this arbitration. Any damages, costs or issues arising from the disqualification should be excluded from this Arbitration Agreement. The Ministry has agreed to list this Claim within this schedule, without prejudice to its position that is not properly the subject of arbitration. The Ministry reserves its right to file a motion, before the arbitrator and or the courts, to bar this claim from being considered in this arbitration.
[38] On October 29, 2021, HugoMB filed its statement of claim in the arbitration. It included claim #7. HugoMB claimed an estimated $4.1 million in damages relating to the Ministry’s “improper disqualification and exclusion of HugoMB from further contracts.” HugoMB asserted that it had not committed a default under the Tilden Lake Dam contract and that the Ministry’s notice of default and notice of termination on the Tilden Lake Dam project were improperly issued. HugoMB asserted that it was in full compliance with the contract and that the Ministry “subsequently and improperly disqualified Hugo MB from bidding on further contracts” with the Ministry. HugoMB pointed specifically to its bids on the Snowshoe Rapids Project, the Kawagama Dam, Monteith Dam, and Elva Dam projects.
[39] HugoMB also pleaded that the Ministry “unreasonably withheld a reference for HugoMB on a bid it on a federal project” and improperly excluded HugoMB from bidding on the completion of the Tilden Lake Dam project.
[40] HugoMB alleged that the Ministry owed it a duty of fair and equal treatment in the procurement processes for these other projects and claimed damages for breach of that duty. HugoMB summarized its pleading as follows:
- As HugoMB was not in default of the Contract and the [Ministry] improperly issued the Notice of Default. and Notice of Termination, the [Ministry] improperly disqualified and excluded HugoMB from the procurement processes for these other projects,
102 The [Ministry] also owed HugoMB a duty of fair and equal treatment in the procurement processes for these projects. These duties extend to all participants in the procurement process. The [Ministry’s] improper disqualification and exclusion of HugoMB are in breach of the [Ministry’s]duty of fair and equal treatment.
103 HugoMB claims damages for improper disqualification from bidding on these projects, including damages for lost profits and breach of the duty of fair and equal treatment in procurement. The particulars of HugoMB 's damages will be provided prior to the hearing of this arbitration.
- As the [Ministry] sought to rely on its improper Notice of Default and Notice of Termination to disqualify and exclude HugoMB from these projects, HugoMB's damages flow directly from the Tilden Lake Project and the [Ministry’s] breaches of the Contract.….
Conclusion on the subject matter of the dispute
[41] I find that the subject matter of the dispute described as claim #7 is as follows. After the Ministry delivered the notice of termination of HugoMB’s right to continue the work on the Tilden Lake Dam project on March 19, 2021, did the Ministry:
a. breach a duty of fair and equal treatment in the procurement process and improperly disqualify HugoMB’s bids on the Snowshoe Rapids Project, the Kawagama Dam, Monteith Dam, and Elva Dam projects resulting in lost profits for HugoMB?
b. improperly bar HugoMB from tendering or being awarded any work for two years?
c. unreasonably withhold a reference letter for HugoMB on a bid it submitted to Parks Canada?
What is the scope of the arbitration agreement?
[42] The next step in the analysis is to interpret the scope of the arbitration agreement.
Principles of contract interpretation
[43] Interpreting the scope of the arbitration agreement is an exercise in contractual interpretation. The Court of Appeal for Ontario has held that when interpreting a contract, a judge should:
a. determine the intention of the parties in accordance with the language they have used in the written document, based upon the "cardinal presumption" that they intended what they wrote;
b. read the text of the written agreement as a whole, giving the words used their ordinary and grammatical meaning, in a manner that gives meaning to all of the agreement’s terms and avoids an interpretation that would render one or more of its terms ineffective;
c. read the contract in the context of the surrounding circumstances known to the parties at the time of its formation. The surrounding circumstances, or factual matrix, include facts that were known or reasonably capable of being known by the parties when they entered into the written agreement, such as facts concerning the genesis of the agreement, its purpose, and the commercial context in which it was made. However, the factual matrix cannot include evidence about the subjective intention of the parties; and
d. read the text in a fashion that accords with sound commercial principles and good business sense, avoiding a commercially absurd result, objectively assessed.[^10]
[44] As Laskin J.A. noted in City of Thunder Bay, the “overriding principle is that the meaning of an agreement and the intent of the parties in entering into it must be derived from the words the parties used and the context in which they used those words.” For this reason, context (sometimes described as “the surrounding circumstances” or “the factual matrix”) almost always matters because words rarely have meaning apart from their context.[^11]
[45] Arbitration agreements are to be given a large and liberal interpretation.[^12] The arbitrator’s mandate must not be interpreted restrictively by limiting it to what is expressly set out in the arbitration agreement.[^13]
What arbitration agreement is at issue here?
[46] There are two possible sources of the arbitrator’s jurisdiction over claim #7. First, the contract between the parties for the work on the Tilden Lake Dam project. Second, the arbitration agreement signed by the parties and the arbitrator. In the arbitration agreement, however, the Ministry explicitly denied that claim #7 was arbitrable and reserved its rights to challenge the jurisdiction of the arbitrator over claim #7. I find that the arbitration agreement does not provide jurisdiction for the arbitrator to consider clam #7. If claim #7 is arbitrable, the jurisdiction must be found in the Tilden Lake Dam contract.
The Tilden Lake Dam contract
[47] The arbitration provisions of the Tilden Lake Dam contract must be interpreted in light of the contract as a whole. The contract contains a number of defined terms to assist with its interpretation. For example, the contract defines “Work” as follows:
Work means the total construction and related services required by the Contract, and includes everything developed for or provided to the Owner in the course of performing under the Contract or agreed to be provided to the Owner under the Contract by the Contractor, including any goods or services.
[48] Section 3.13 of the Schedule 7 is titled “Claims, Negotiations, Mediation,” and sets out the claims procedure, a negotiation procedure, and a mediation procedure.
[49] The claims procedure required HugoMB to give verbal notice of any situation that may lead to a claim “immediately upon becoming aware of the situation.” HugoMB was required to provide a standard form written notice of intent to claim within seven days of the commencement of any part of the work that may be affected. Then, Hugo MB was required to submit a detailed claim as soon as reasonably possible and no later than 30 days “after completion of the work affected by the situation.” That detailed claim must identify the item or items in respect of which the claim arises, state the grounds, contractual or otherwise, upon which the claim is made, and include the records supporting the claim. Once the claim is submitted, the contract administrator is to provide her or his “opinion with respect to the validity of the claim.”
[50] The contract obliges the parties to make all reasonable efforts to resolve their dispute through negotiations. The contract obliged the parties to make prompt disclosure of relevant facts, information, and documents to facilitate these negotiations. If the negotiations are not successful, the parties are to proceed to mediation or arbitration.
[51] Under the contract, if a claim is not resolved through negotiations, the parties may retain an independent mediator to assist them to reach an agreement. The mediator is required to provide a without prejudice, non-binding recommendation for settlement.
[52] Section 3.14 sets out the arbitration provision. The contract expressly provides that the arbitration provision does not apply in respect of intellectual property rights. It provides as follows:
GC 3.14.01 Conditions of Arbitration
.01 If a claim is not resolved satisfactorily through the negotiation stage noted in clause GC 3.13.04, Negotiations, or the mediation stage noted in clause GC 3.13.05, Mediation, cither party may Invoke the provisions of subsection GC 3.14, Arbitration, by giving written notice to the other party.
.02 Notification that arbitration shall be implemented to resolve the issue shall be communicated in writing as soon as possible and no later than 60 Days following the opinion given in paragraph GC 3.13.03.05. Where the use of a third party mediator was implemented, notification shall be within 120 Days of the opinion given in paragraph GC 3. 13.03.05.
.03 The parties shall be bound by the decision of the arbitrator. .04 The rules and procedures of the Arbitration Act, 1991, S.O. 1991, c.17, as amended, shall apply to any arbitration conducted hereunder except to the extent that they are modified by the express provisions of subsection GC 3.14, Arbitration.
[53] Section 3.14.02 sets out a few rules that must be included in the arbitration procedure, including that all actions in respect of the matters under arbitration shall be stayed, that the matters to be arbitrated are to be set out in a schedule to the arbitration agreement, that only disputes included in the arbitration agreement may be arbitrated, and that all matters to be arbitrated are set out in that schedule.
[54] Sections 3.14.03 and .04 deal with the appointment of the arbitrator and the payment of fees.
The scope of the arbitration provision in the contract
[55] I must determine the meaning of this agreement and the intent of the parties in entering into it from the words the parties used and the context in which they used those words.
[56] In my view, the arbitration provision in the Tilden Lake Dam contract is not a universal agreement to submit all disputes between the parties to arbitration.[^14] Instead, the arbitration provisions are confined to “claims.” Unfortunately, the term “claims” is not one of the approximately 80 defined terms in the contract.
[57] However, in my view, the language of the clause, read in the context of the contract and the relationship between the parties, confirms that the arbitration provision is intended to perform a limited purpose to adjudicating claims arising out of decisions made under the contract, or actions taken to fulfil the terms of the contract. These claims may be framed in contract or tort, but they must arise out of actions taken to fulfil the terms of the Tilden Lake Dam contract.
[58] The language of s. 3.14.01.01 is strong evidence that the arbitration provision is limited in scope. First, it states that “if a claim is not resolved satisfactorily through the negotiation stage…or the mediation stage…either party may invoke the provisions of GC 3.14, Arbitration by giving written notice to the other party.” This indicates to me that the clause is intended to address disputes that arise during the performance of the work under the contract. Put differently, the arbitration provision appears designed to capture disputes internal to the agreement itself, which must be resolved to ensure that the fixed-price contract between the parties operates smoothly.
[59] There is nothing in the language of s. 3.14 that suggests that all disputes of any kind between HugoMB and the Ministry are to be resolved through arbitration. Indeed, there is not even language suggesting that “any dispute, difference or question between the parties in respect of the agreement,” shall be submitted to arbitration. There is no open-ended language that suggests to me that the arbitration agreement was meant to embrace disputes between the parties other than those directly linked to the performance of work under the Tilden Lake Dam contract.
[60] I note that section 3.14 expressly states that the arbitration provision does not apply in respect of intellectual property rights. I disagree, however, with HugoMB’s submission that this supports that all other disputes between the parties must, therefore, be arbitrable. In my view, this clause was included because the contract itself addresses intellectual property rights in general condition 6.02.02 – Indemnification.
[61] In the contract, HugoMB indemnified His Majesty the King in right of Ontario, and the members of the Executive Council of Ontario, and their respective directors, officers, advisors, agents, appointees, and employees, described in the contract as the “Indemnified Parties” against claims for damages for infringement of any other parties’ intellectual property. Section 6.02.02 provides:
.02 The Contractor shall indemnify and hold harmless the Indemnified Parties from all and every claim for damages, royalties or fees for the infringement of any patented invention or copyright occasioned by the Contractor in connection with the Work performed or Material furnished by the Contractor under the Contract. This section is deemed to apply to all forms of intellectual property and is not limited to patent and copyright.
.03 The Indemnified Parties expressly waive the right to indemnity for claims other than those stated in paragraphs GC 6.02.01 and GC 6.02.02.
[62] If the Ministry wished to claim indemnification under section 6.02.02, that claim would arise under the contract and would be subject to arbitration. However, because the parties expressly stated that the arbitration provision does not apply in respect of intellectual property rights, those claims would have to be advanced in court. In my view, the exclusion of intellectual property claims from the scope of the arbitration agreement does not mean that all other disputes, except intellectual property claims, must be arbitrated. Rather, the parties took one specific type of dispute that could arise under the contract and determined that it would not be subject to arbitration.
[63] I disagree with the submission of HugoMB that s. 13.14.02 creates jurisdiction for arbitration. I find that it is purely a procedural provision, as its heading indicates. It does not expand the scope of the contractual right to arbitration. It states as follows:
GC 3.14.02 Arbitration Procedure
.01 The following provisions are to be included in the agreement to arbitrate and are subject only to such right of appeal as exist where the arbitrator has exceeded his or her jurisdiction or have otherwisc disqualified him or herself:
a) All existing actions in respect of the matters under arbitration shall be stayed pending arbitration:
b) All outstanding claims and matters to be settled are to be set out in a schedule to the agreement. Only such claims and matters as are in the schedule shall be arbitrated; and
c) Before proceeding with the arbitration, the Contractor shall confirm that all matters in dispute are set out in the schedule.
[64] As indicated in s. 13.14.02.01, these provisions are to be included in the agreement to arbitrate. Nothing in this provision suggests that it expands the arbitrator’s jurisdiction beyond what is referred to arbitration by virtue of the substantive provisions in the Tilden Lake Dam contract.
[65] There is no doubt that the parties can always agree to have an additional issue arbitrated. In this case, the parties would demonstrate their agreement by adding the item to the schedule to the arbitration agreement on consent. If both parties agreed to add claim #7 to the schedule to the arbitration agreement, they would be conferring jurisdiction on the arbitrator to determine that matter. Absent consent however, there is nothing in these procedural provisions that brings claim #7 within the scope of the arbitration agreement.
[66] In my view, nothing turns on the different terms “claims,” and “matters to be settled” within this procedural provision. The use of these words in the procedural provision does not expand the scope of what must be referred to arbitration. The use of the different terms is best understood as including both matters that must be referred to arbitration and additional issues that the parties may agree to refer to arbitration and include in the schedule to the arbitration agreement.
[67] I find that the scope of the arbitration provision only extends to claims arising out of decisions made under the contract or actions taken to fulfil the terms of the contract.
The dispute does not fall within the scope of the arbitration agreement
[68] The final part of the test is to determine whether the subject matter of the dispute falls within the scope of the arbitration agreement.
[69] I have already found that:
a. The subject matter of the dispute is whether or not, after delivering the notice of termination of HugoMB’s right to work, the Ministry
i. breached a duty of fair and equal treatment in the procurement process and improperly disqualify HugoMB’s bids on the Snowshoe Rapids Project, the Kawagama Dam, Monteith Dam, and Elva Dam projects;
ii. improperly barred HugoMB from tendering or being awarded any work for two years; and
iii. unreasonably withheld a reference letter for HugoMB on a bid it submitted to Parks Canada.
b. the scope of the arbitration provisions only extends to claims arising out of decisions made under the contract or actions taken to fulfil the terms of the contract.
[70] I find that the subject matter of the dispute does not fall within the scope of the arbitration provisions of the contract for five reasons.
[71] First, claim #7 relates to a series of decisions that the Ministry made after it delivered the notice of termination of HB’s right to continue the work. At the time that the Ministry made the challenged decisions, HugoMB had no right to continue its work under the contract and only had the right to fair compensation for the work performed to that point. Those decisions challenged in claim #7 do not fall within the scope of the arbitration agreement, which I have found to be limited to disputes directly linked to the performance of work under the contract.
[72] Second, the Ministry made the decisions in claim #7 challenges in reliance on rights that are completely external to the Tilden Lake Dam contract. For example, the Request for Bid document for the Snowshoe Rapids Dam project states that the Ministry reserves the right to assess a bidder’s bid on factors including the bidder’s past performance on previous contracts awarded by the Government of Ontario and other relevant information that arises during the request for bid process. There is no indication in the Tilden Lake Dam contract that the Ministry’s decision under a different request for bid document could be arbitrated under the Tilden Lake Dam contract. Even assuming that the Ministry relied on HugoMB’s past performance on Tilden Lake Dam and Lake Kenogamisis Dam projects in assessing its bids on future work, that does not bring claims about those decisions within the scope of this arbitration provision.
[73] Similarly, the decision of the Deputy Minister to impose the two-year ban on HugoMB bidding or performing any work for Ontario was explicitly based on her concerns with HugoMB’s performance on both the Tilden Lake Dam project and the Lake Kenogamisis Dam project. It is clear that the Deputy Minister was acting on concerns that transcended each individual project. The Deputy Minister was not relying on any of her rights under either project agreement to make this decision. In my view, a dispute over her decision cannot be arbitrated under either of the project contracts.
[74] Third, there is a different dispute resolution process for HugoMB’s bids for other work. For example, the Request for Bid document for the Snowshoe Rapids Dam project advises potential bidders that “a formal bid dispute process is available”. This is evidence that disputes about subsequent bids do not fall within the scope of the arbitration provision of the Tilden Lake Dam contract.
[75] Fourth, HugoMB is asserting rights that do not arise under the Tilden Lake Dam contract:
a. HugoMB is claiming damages for work that, on its theory, it would have performed under other tenders if it had successfully won them. In my view, HugoMB is not asserting rights that it had under the Tilden Lake Dam contract. There is nothing in that contract that suggests HugoMB has any right to any further work simply because it won the Tilden Lake Dam contract. Recognizing any such rights under the Tilden Lake Dam contract would upend the law of public tendering.
b. HugoMB asserts that the Ministry breached its duty of fair and equal treatment in the procurement process when it considered HugoMB’s bids on other work. Assuming without deciding that such a duty exists, it does not arise under the Tilden Lake Dam contract. I have found that the arbitration agreement was not designed to be a universal clause whereby the parties agreed to place each and every dispute between them before an arbitrator. HugoMb’s allegation that the Ministry breached a duty of fair and equal treatment of HugoMB in the other tenders may be litigated in the Superior Court of Justice, but that dispute does not fall within the narrow arbitration provision in the Tilden Lake Dam contract.
c. HugoMB asserts that the Ministry wrongfully withheld a reference letter for HugoMB that it wished to use in a bid for some work for the federal government. If the Ministry was obliged to provide such a reference, which I doubt, that obligation did not arise under the Tilden Lake Dam contract and that dispute does not fall within the narrow scope of that contract’s arbitration provision.
[76] Fifth, the disputes raised in claim #7 do not fit easily within the structure of the dispute resolution process laid out in the contract. These claims could not have been the subject of the claims procedure or the advice of the contract administrator, which appear to be preconditions to accessing arbitration. While I do not find this to be determinative of the question, it supports my conclusion that the disputes raised in claim #7 do not fall within the scope of the arbitration agreement.
[77] While I accept the general point that an arbitrator has the authority to decide matters closely or intrinsically connected to the disputes submitted to her, this principle does not assist HugoMB on the facts of this case.[^15]
[78] An arbitrator may answer questions that must be determined in order to answer the questions that the parties have agreed to arbitrate. For example, the dispute in Desputeaux concerned the interpretation of licensing agreements relating to the copyright in a fictional character, Caillou. The Supreme Court held that the question of co-authorship of the literary work at issue was intrinsically related to the other questions raised by the arbitration agreement. The court held:
Despite the unfortunate uncertainties that remain as to the procedure followed in defining the terms of reference for the arbitration, they necessarily included the problem referred to as “co‑authorship” in the context of this case. In order to understand the scope of the arbitrator’s mandate, a purely textual analysis of the communications between the parties is not sufficient. The arbitrator’s mandate must not be interpreted restrictively by limiting it to what is expressly set out in the arbitration agreement. The mandate also includes everything that is closely connected with that agreement, or, in other words, questions that have [TRANSLATION] “a connection with the question to be disposed of by the arbitrators with the dispute submitted to them”. Since the 1986 arbitration reforms, the scope of arbitration agreements has been interpreted liberally. From a liberal interpretation of the arbitration agreement, based on identification of the objectives of the agreement, we can conclude that the question of co‑authorship was intrinsically related to the other questions raised by the arbitration agreement. For example, in order to determine the rights of Chouette to produce and sell products derived from Caillou, it is necessary to ascertain whether the owners of the copyright in Caillou assigned their patrimonial rights to Chouette. In order to answer that question, we must then identify the authors who were authorized to assign their patrimonial rights in the work.[^16]
[79] It is one thing for an arbitrator to answer predicate questions that are intrinsically related to the ultimate issues that the parties have agreed to arbitrate. It is quite another to suggest that the arbitrator can leap the fence of her jurisdiction to graze for related issues in the surrounding meadow.
[80] The arbitrator does not have to answer the issues raised in claim #7 to answer any of the other questions properly before her. The disputes raised in claim #7 do not fall within scope of the arbitration provision, are not necessary to answer, and are not intrinsically related to Claims #1 to 6, within the meaning of Despeuteaux.
[81] While I agree that it is desirable to avoid a multiplicity of proceedings, that is not a reason to find arbitral jurisdiction where none exists. A privately appointed arbitrator has no inherent jurisdiction. Her jurisdiction comes only from the parties’ agreement.[^17] The parties to an arbitration agreement have “virtually unfettered autonomy” in identifying the disputes that may be the subject of the arbitration proceeding.[^18] Similarly, no party can be compelled to submit to arbitration a dispute other than the one they agreed to arbitrate.
[82] It is also not obvious that excluding claim #7 from the arbitration will be, on balance, less efficient than if it was included. An arbitration over claims #1 to #6 will be focused on the issues directly related to the execution of the terms of the Tilden Lake Dam project contract without the extraneous and voluminous evidence and arguments required to adjudicate the Ministry’s decisions on the other project tenders and the Deputy Minister’s decision. It appears to me that the parties agreed to an expeditious and streamlined arbitration process to deal with disputes related to the execution of the Tilden Lake Dam contract. They are entitled to have that bargain respected. If HugoMB wishes to bring an action against the Ministry in respect of the matters raised in claim #7, the arbitration agreement is no barrier to proceeding in that manner.[^19]
[83] HugoMB submits that claim #7 must be arbitrable because the Ministry has commenced a counterclaim within the arbitration alleging “breaches of the Contract,” “negligent and tortious actions,” and breaches of the “duty of good faith and fair dealing.” In my view, that is of no assistance to HugoMB. First, HugoMB has not asked me to determine whether or not the counterclaim falls within the arbitration provisions of the agreement. It may or it may not, but that matter is not before me. Second, HugoMB may well have consented to having the counterclaim included before the arbitrator. If so, that consent would provide the arbitrator with jurisdiction over the claim. Third, if the Ministry’s claims relate to the performance of the Tilden Lake Dam project, then they may well be sufficiently linked to the performance of that contract to fall within the scope of the arbitration provision. Even if that is the case, that would not change the fact that claim #7 does not fall within the scope of the arbitration provision.
Conclusion
[84] The parties have agreed that costs of this application should be fixed at $7,000.
[85] I make the following order:
a. I set aside the decision of the arbitrator dated February 14, 2022, and declare that Claim #7 is not arbitrable.
b. I set aside the costs award of the arbitrator dated March 19, 2022, and order that HugoMB return to the Ministry the amounts paid pursuant to that costs order;
c. I remit the issue of the costs of the jurisdiction motion to the arbitrator to be dealt with in accordance with these reasons;
d. On consent of the parties, I fix the costs of the application before me at $7,000 inclusive of disbursements and Harmonized Sales Tax, and order HugoMB to pay that amount to Ontario within 30 days of the date of this order
Robert Centa J.
Date: June 12, 2023
[^1]: The correct name of the applicant is His Majesty the King in right of Ontario as represented by the Minister of Natural Resources. I will refer to the applicant in my reasons for decision as the Ministry. HugoMB Contracting Inc. was formerly knowns as MTM-2 Contracting Inc. As nothing turns on the change of name, I will refer to the corporation as HugoMB in my reasons for decision.
[^2]: Arbitration Act, 1991, S.O. 1991, s. 17(1), 17(7).
[^3]: Arbitration Act, s. 17(8).
[^4]: Russian Federation v. Luxtona Ltd., 2023 ONCA 393, at para. 40; Electek Power Services Inc. v. Greenfield Energy Centre Limited Partnership, 2022 ONSC 894, at para. 21; Hornepayne First Nation v. Ontario First Nations (2008) Limited Partnership, 2021 ONSC 5534.
[^5]: Russian Federation v. Luxtona Limited, 2023 ONCA 393, at para. 34.
[^6]: Russian Federation v. Luxtona Ltd., 2021 ONSC 4604, 156 O.R. (3d) 608 at para. 22; Electek Power Services Inc. v. Greenfield Energy Centre Limited Partnership, 2022 ONSC 894, at para. 22.
[^7]: 2016 ONCA 744 at para. 17. Electek, at para. 114; Pezo v. Pezo, 2021 ONSC 5406; Gupta v. Lindal Cedar Homes Ltd., 2020 ONSC 6333; Grandfield Homes (Kenton) Ltd. v. Chen, 2020 ONSC 5230; Leeds Standard Condominium Corp. No. 41 v. Fuller, 2019 ONSC 3900; Rhinehart v. Legend 3D Canada Inc., 2019 ONSC 3296.
[^8]: I have revised the names used in the chart to reflect the names that I am using in the reasons for decision.
[^9]: Haas, at para. 17.
[^10]: Weyerhaeuser Co. v. Ontario (Attorney General), 2017 ONCA 1007, 13 C.E.L.R. (4th) 28, at para. 65, rev’d on other grounds; Resolute FP Canada Inc. v. Ontario (Attorney General), 2019 SCC 60, [2019] 4 S.C.R. 394; Thunder Bay (City) v. Canadian National Railway Company, 2018 ONCA 517, 424 D.L.R. (4th) 588, at paras. 30, 46; Ottawa (City) v. ClubLink Corporation ULC, 2021 ONCA 847, 159 O.R. (3d) 255 at para. 52; Dumbrell v. Regional Group of Companies Inc., 2007 ONCA 59, 85 O.R. (3d) 616, at para. 53.
[^11]: City of Thunder Bay, at para. 30.
[^12]: Hopkins v. Ventura Custom Homes Ltd., 2013 MBCA 67, 294 Man.R. (2d) 168 at paras. 58-64; Electek at para 159.
[^13]: Desputeaux v. Éditions Chouette (1987) Inc., 2003 SCC 17, [2003] 1 S.C.R. 178, at para. 35.
[^14]: Ontario v. Abilities Frontier Co-operative Homes Inc. (1996), 5 C.P.C. (4th) 81 (Ont. Gen. Div.) at para. 28.
[^15]: Desputeaux v. Éditions Chouette (1987) inc., 2003 SCC 17, [2003] 1 S.C.R. 178; Advanced Explorations Inc. v. Storm Capital Corp., 2014 ONSC 3918.
[^16]: Desputeaux at para. 35 (internal citations omitted).
[^17]: The Piazza Family Trust v. Veillette, 2011 ONSC 2820, 279 O.A.C. 175 (Div. Ct.), at para. 71.
[^18]: Desputeaux, at para. 22.
[^19]: The Ministry also submitted that the disputes raised in claim #7 are not arbitrable because the Deputy Minister’s decision to impose a two-year ban was a statutory power of decision, which may only be challenged on judicial review pursuant to subsection 6(1) of the Judicial Review Procedure Act. R.S.O. 1990, c. J.1. Given my findings above, it is not necessary for me to address this argument and nothing in these reasons should be taken as me expressing a view on the merits of that argument.