Still a Good Place to Arbitrate, no Apology Necessary

Canada’s mining industry is a key contributor to the economy and major employer in communities across the country.

Two recent mining industry cases provide further evidence that Canada remains an arbitration-friendly jurisdiction, where the courts generally adopt a “hands off” approach and respect the parties’ decision to arbitrate. 

Baffinland v Tower-EBC, 2022 ONSC 1900

Baffinland entered into two contracts with Tower-EBC (the “Contracts”) to perform earthworks for the construction of a rail line, together with related infrastructure, to transport iron ore from its mine in Nunavut to Milne Inlet where it is shipped. The project suffered lengthy and unanticipated delays and Baffinland terminated the contracts. Tower-EBC commenced an arbitration challenging Baffinland’s right to terminate the Contracts and seeking damages arising from the termination. 

The Arbitral Tribunal (constituted under the ICC Rules) (the “Tribunal”) issued a Partial Final Award on Liability and Remedy, unanimously dismissing Baffinland’s objection to the scope of its jurisdiction (over a related company) and finding that the Contracts had been wrongfully terminated. The Tribunal was divided on the issue of damages. The Majority awarded approximately $70 million in damages (the “Majority Award”), while the Minority would have awarded approximately $16 million. Thereafter, the Tribunal issued its Final Award on Costs.

Baffinland applied to the Ontario Superior Court of Justice [Commercial List], pursuant to the Arbitration Act, 1991, S.O. 1991, c.17 (the “Act”), for, amongst other things, an order setting aside the Majority Award (s.46), an order granting it leave to appeal the Majority Award (s.45), and, if leave to appeal was granted, an order granting the appeal and setting aside or varying the Majority Award as necessary (s.45). Section 46 of the Act empowers the court to set aside an arbitration award on one or more of ten enumerated grounds. Generally speaking, these grounds do not address the substance of the dispute, but rather issues such as the formation of the tribunal, adherence to the law of Ontario, and procedural fairness.

Relying on s.46(1)3 of the Act, Baffinland argued that the Tribunal exceeded its jurisdiction given the nature and quantum of damages awarded. While there is some conflict as to the standard of review on a question of jurisdiction since the Supreme Court of Canada’s decision in Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65, Justice Pattillo held that the standard of review, if applicable, was correctness, and not reasonableness. That said, he found that Baffinland had failed to raise any objection to the Tribunals’ jurisdiction to deal with the disputed claims during the arbitration, and accordingly, pursuant to ss. 4 and 17(5) of the Act and Article 40 of the ICC Rules, it was deemed to have waived its right to object to the Tribunal’s alleged excess of jurisdiction. 

Baffinland also relied on ss. 19(1), 46(1)6 and 46(1)9 of the Act (natural justice and procedural fairness) in arguing that it was treated unfairly. It alleged that the Tribunal’s President’s conduct during the hearing interfered with the proceeding and was improper, and that the Majority relied upon “highly dubious legal arguments”. Justice Pattillo noted that the standard of review regarding procedural fairness is whether the requisite level of procedural fairness has been afforded, having regard to the fact that the proceeding is an arbitration agreed to by the parties where both parties are sophisticated and had legal representation throughout. He found that the questioning at issue by the President was not improper, and that Baffinland had an opportunity to address all the issues raised by the Tribunal, that it now complained of, at the hearing. 

Regarding s.45 of the Act (appeals), the preliminary issue facing the court was a question of contractual interpretation, namely, whether the arbitration agreement, either expressly or by implication, prohibited appeals on a question of law. Justice Pattillo found no substantive difference in the ordinary and grammatical meaning of the terms “final and binding” and “finally settled” as found in the contracts, or in the meaning of “binding” and “settled” in the context of the resolution of a dispute. Both terms showed the parties’ clear intent with respect to the finality of the process. Further, the Contracts incorporated the ICC Rules, including Article 35(6), which provides, amongst other things, that the tribunal’s award is binding, and the parties are deemed to have waived their right to “any form of recourse”; and there is none under the ICC Rules. Accordingly, Justice Pattillo held that there could be no appeal of the Majority Award on a question of law, or otherwise. Baffinland’s application was dismissed.

MDG Contracting Services Inc. v Mount Polley Mining Corporation, 2022 BCSC 1078

MDG entered into a contract to provide dredging work to remove tailings from an area within the Mount Polley mine (the “Contract”). A dispute arose concerning the Contract which the parties referred to arbitration. The initial hearing addressed questions of liability only. MDG’s claim alleging liability on the part of Mount Polley was unsuccessful, while Mount Polley’s counterclaim was successful.

MDG applied to the Supreme Court of British Columbia for leave to appeal the award on the basis of s. 30 (errors of law) and to set aside the award on the basis of section 31 (failing to observe the rules of natural justice) of British Columbia’s former Arbitration Act, RSBC 1996, c 55 (the test for leave to appeal under the new/current Arbitration Act, SBC 2020, c 2 is unchanged, the bar remains high).

Regarding the high bar required for leave to appeal, Justice McDonald noted that the modern “hands off” view is that arbitration is an autonomous, self-contained, and self-sufficient process where parties agree to have their disputes resolved by an arbitrator, not courts. Courts must show due respect to the parties’ decision to arbitrate, and the test for leave to appeal an arbitration award is not easily met. Identifying a question of law for appellate review is a threshold requirement for granting leave. Questions of law must be clearly perceived and delineated. 

Citing the Supreme Court of Canada’s decision in Teal Cedar Products Ltd. v British Columbia, 2017 SCC 32, Justice McDonald held that courts must be vigilant when faced with strategic drafting. It is an extricable question of law when a party alleges that “a legal test may have been altered in the course of its application”. On the other hand, it is a mixed question of fact and law when a party alleges that “a legal test, which was unaltered, should have, when applied, resulted in a different outcome.” 

Once again relying on Teal Cedar, Justice McDonald found that MDG’s submission that despite the arbitrator making a correct statement regarding the law, he should have reached a different conclusion on the issues of negligent misrepresentation and breach, raised questions of fact or mixed fact and law.  As a result, it did not meet the requisite threshold for leave to appeal, namely, an extricable question of law, for leave to appeal. 

Justice McDonald also rejected MDG’s argument that the Arbitrator had failed to follow the rules of natural justice, having found that the award contained ample details regarding the arbitrator’s findings, relevant authorities, and reasonings. 

It is often suggested that Canadians are too polite and overly apologetic. That might be the case in some circumstances, but not often when arbitration and arbitrators are challenged. Canadian statutes are, generally, supportive of domestic and international arbitration. So too are Canadian courts who continue to enforce arbitration agreements and the jurisdiction of arbitral tribunals. 

Originally published by Jus Mundi in the Mining Arbitration Report, Industry Insights Issue 6, March 2023.