Ontario – confidentiality of arbitration raised as shield to disclosing information relevant to litigation

In Vanalt Electrical Construction, Inc. v. Ozz Electric Inc., 2019 ONSC 5893, Defendant alleged that confidentiality of an arbitration involving it and others prevented it from providing Plaintiff with information/documents relevant and probative to quantifying a key claim it made against Plaintiff.  Instead of forcing an issue on the confidentiality, Master Michael Philip McGraw ordered Defendant to re-attend a final time for discovery at which time it could satisfy Plaintiff’s entitlement to clarity and evidence.

Toronto Transit Commission (“TTC”) retained Pomerleau Inc. (“Pomerleau”) as general contractor for TTC projects located at Ashbridges Bay and Leslie Street (the “Projects”).  Pomerleau retained Ozz Electric Inc. (“Ozz”) as subcontractor which in turn retained Vanalt Electrical Construction Inc. (“VEC”) by way of stipulated or fixed price contract to supply materials and services for the Projects.

VEC claimed $563,336.77 US payment against Ozz for outstanding holdback and unpaid invoices as well as alleged breach of trust under Ontario’s Construction Act, RSO 1990, c C.30 (formerly the “Construction Lien Act”).  That sum divided almost evenly between the Projects: $271,292.16 US for Ashbridges Bay; $292,044.61 US for Leslie Street.

As part of its defence, Ozz claimed a set-off against VEC in the amount of $1,700,000.00 which allegedly resulted from TTC having issued a change directive no. 301 (“CD301”).  Ozz claimed that the CD301 reduced the scope of Ozz’ work regarding an overhead contact system (“OCS”) at the Ashbridges Bay location.

By May 9, 2017 letter, TTC claimed a credit from Pomerleau for $1,533,016.38 plus HST regarding CD301.   Though Ozz later recalculated the off-set down from $1,700,000.00 to $1,500,000.00, Ozz later informed that TTC, Pomerleau and Ozz had resolved their disputes over the CD301 as part of an arbitration.  Master McGraw described that arbitration as involving “numerous disputes related to multiple projects” and observed that the eventual settlement amount did not attribute value to specific projects or claims.

During the motion, Ozz advised for the first time that CD301 was resolved as part of a global settlement of the arbitration for a lump-sum credit of $800,000 which was not allocated to any specific projects or claims.

The hearing before Master McGraw stemmed from a limited but disputed set of questions, undertakings, refusals and advisements raised during discovery of Defendants.  The reasons consider the application of court procedure set out by Rules 29.2.03 and 31.06 of Ontario’s Rules of Civil Procedure, RRO 1990, Reg 194 (“Rules”) and the standards of relevance and the scope of discovery for those Rules as summarized in Ontario v. Rothmans Inc., 2011 ONSC 2504 (CanLII) and Canadian Imperial Bank of Commerce v. Deloitte & Touche, 2013 ONSC 917 (CanLII).   The latter cases determined that discovery questions in Ontario under the Rules must be relevant to the issues as defined by the pleadings such that they have probative value and adequately contribute to the determination of the truth or falsity of a material fact and that overbroad and speculative discovery and “fishing expeditions” are not permitted.

Master McGraw recorded how counsel had “engaged in significant discussions” during and between three (3) case management calls, two (2) prior court attendances and the hearing on VEC’s motion seeking to compel answers and re-attendance.  Master McGraw noted that those exchanges were made with a view to agreeing on a form of consent judgment involving VEC’s breach of trust claim.  The efforts of counsel demonstrated a marked willingness on all sides to collaborate in the resolution of disputes.

Master McGraw narrowed the key disputes to VEC’s concern over what it perceived as Ozz’ and other Defendants’ lack of productions and particulars supporting Ozz’ set-off claim. In light of a line of questions identified in part at para. 16 of his reasons, Master McGraw pointed to VEC’s interest in documents exchanged between TTC, Pomerleau and Ozz which would itemize how the $800,000.00 arbitration settlement could be allocated to projects or claims.

At this point, Master McGraw confronted the confidentiality of the arbitral process and the refusal of the parties to that arbitration to agree to release information in breach of that confidentiality. 

[17] Given concerns that there may be confidentiality restrictions related to the arbitration proceedings preventing the production of documentation and the amount of the credit claimed by TTC, in my Endorsement dated March 27, 2019, I ordered the Defendants “to request TTC’s and Pomerleau’s positions with respect to any undertakings and refusals/under advisements particularly with respect to confidentiality”.  In a letter to Defendants’ counsel dated April 23, 2019, TTC’s counsel confirmed that the arbitration and the settlement are “governed by strict confidentiality provisions”, that all documents, information or communications generated for the purpose of the arbitration and settlement are confidential and TTC will not agree to their production. TTC’s counsel also refers to correspondence with VEC’s counsel wherein VEC withdrew its request for similar documents. However, TTC’s counsel also states:

 “… TTC does not object to Ozz advising Vanalt whether CD 301 was resolved or whether there are amounts retained from or by Ozz with respect to CD 301. This would include advising Vanalt as to the particulars of these amounts.”

[18] Pomerleau has also confirmed that it does not object to the disclosure of this information. However, Ozz advises that is unable to provide any breakdown or allocation with respect to the $800,000 arbitration settlement as the amount is a lump-sum which is not comprised of specific project or claim amounts.

Master McGraw readily held, at paras 19-21, that the quantum of Ozz’ set-off was not only relevant but probative of one of the main issues in the court action and that VEC was “entitled to as much clarity as possible regarding the quantum and evidence in support of Ozz’s set-off claim”.  That said, Master McGraw did not see the need to challenge the arbitral parties’ agreement to confidentiality.  Rather, at para. 20, he ordered that Ozz undertake steps to provide “further clarity and facilitate the efficient completion of discoveries” by:

(i) Ozz shall make best efforts to obtain a final copy of CD301 and produce it to VEC within 30 days; and,

(ii) Ozz shall advise, confirm and/or clarify all documentation already produced to VEC upon which Ozz is relying in support of its set-off claim within 30 days.

He then ordered that, once Ozz completed those steps, re-attendance on discovery would take place but only after further discussions between the parties.

Master McGraw noted that Defendants might have no further information or documents to produce but, in authorizing the above, enabled VEC to exhaust its search by way of final questions on discovery.

[21] Subject to my orders above, I am of the view that discovery on these issues has largely reached the point where it appears that Ozz has no further information or documentation to produce. Accordingly, the most efficient and proportionate approach is for VEC to ask any remaining follow-up and clarification questions on re-attendance on examinations for discovery (Axelrod et al v. Primont Management Corporation et al, 2017 ONSC 3082 (CanLII) at para. 12; Arenza Global Technologies Corp v. Cue Network Ltd., [2000] O.J. No. 1524 (S.C.J.).

urbitral note – Master McGraw was made aware of the agreement by TTC, Pomerleau and Ozz to keep their arbitration confidential.  He did not state whether he would or could, if pressed, compromise or otherwise test the confidentiality raised by those parties to the arbitration.

In the present case, there did not appear to a focus on documents which pre-existed the arbitration.  Instead, the focus was precisely on documents created for and used in the arbitration to calculate a global amount covering, in some undetermined part, the claim made in court.  The claim in court reached at least $1,500,000.00 but, with other claims, was settled for $800,000.00.  Those documents were deemed to be relevant and probative despite being created for and during a confidential arbitration.

Balancing the relevance of the quantum and its probative value to Ozz’ set-off claim with VEC’s entitlement to better information, Master McGraw instead granted Ozz an opportunity on re-attendance to answer questions about that quantum.  In doing so, Master McGraw opted to oblige Ozz as the litigant making a set-off claim to decide how it could best make its claim and not make an express choice to breach the agreed-upon arbitral confidentiality.

Master McGraw’s approach effectively identified the difficult choices facing a litigant when it uses the confidentiality of arbitration as a shield while wielding its claim as a sword.  The choice to reconcile shield and sword rests with the party asserting both the claim and the confidentiality. 

The timing of the early resolution in arbitration and the terms of the confidentiality agreement presented Ozz with a dilemma which could have been either avoided or attenuated with different wording in the settlement involving TTC, Pomerleau and Ozz. Such wording might have (i) authorized Ozz to disclose some information involving calculation or (ii) assigned a clear value to that portion of the $800,000.00 attributed to the CD301 issue. The speed of settling in the arbitration may have been a benefit of that process but presented Ozz with additional challenges in court which, despite evident efforts by counsel, would take somewhat longer.