Alberta – participation in court proceedings prior to stay application waives mandatory arbitration

In Agrium, Inc. v. Colt Engineering Corporation, 2020 ABQB 53, Master J.T. Prowse held that he had discretion to refuse a stay in favour of mandatory arbitration and could do so on the basis of unfairness to plaintiff stemming from the applicants’ participation in court proceedings.  That participation, though minimum, coupled with two (2) years of delay, lead Master Prowse to conclude that it would be unfair to plaintiff to allow defendants to “go back on their choice to participate in this litigation”.

Following a March 22, 2014 incident at its Carseland Nitrogen Plant, Agrium Inc. (“Agrium”) instituted court litigation on March 18, 2016 against ten (10) Defendants: Colt Engineering Corporation, Worleyparsons Canada Services Ltd., ACM Automation Inc., Orbis Engineering Field Services Ltd., Elliott Turbomachinery Canada Inc., Elliott Company, Invensys Systems Canada, Inc., Schneider Electric Systems Canada Inc., Rockwell Automation, Inc. and Allen-Bradley. 

Agrium served its statement of claim on Orbis Engineering Field Services Ltd. (“Orbis”) and Elliott Turbomachinery Canada Inc. and Elliott Company (together “Elliott”) on March 14, 2017.

Orbis and Elliott each supplied equipment and/or services to Agrium by contracts which included arbitration clauses to resolve disputes.  Orbis and Elliott applied for a stay under Alberta’s Arbitration Act, RSA 2000, c A-43 but did so, respectively, after two (2) years and two (2) years and three (3) months after service.

Master Prowse identified three (3) questions:

(i) does he have discretion “in appropriate circumstance” to allow the action to continue on the basis that applicants seeking the stay have waived their right to arbitration and/or attorned to the court’s jurisdiction;

(ii) if he has such discretion, what is the test governing its exercise; and,

(iii) how should he exercise his discretion?

Master Prowse analysed each question in light of the facts and applicable case law and determined that he had discretion and that, in light of the delays in applying for the stay and participation in the court proceedings to advance claims against other defendants, it would be “would be unfair to Agrium to allow Orbis and Elliott to go back on their choice to participate in this litigation”.

(i) discretion to refuse a stay based on waiver or attornment – paras 13-28

Relying on Hnatiuk v. Assured Developments Ltd., 2012 ABCA 97, cited with approval in Lafarge Canada Inc. v. Edmonton (City), 2013 ABCA 376 at para. 39, Master Prowse identified precedent for courts accepting that litigants can waive or attorn to a court’s jurisdiction and thereby lose its right to mandatory arbitration.  

He referred to a recent application of the principle in Fath v. Quadrant Construction Ltd, 2019 ABQB 151 and commented rightly that it “sets out an excellent summary of the preceding case law”.  That case law includes the Court of Appeal decisions in Hnatiuk v. Assured Developments Ltd. and Lafarge Canada Inc. Edmonton (City).  For an earlier Arbitration Matters note on Fath v. Quadrant Construction Ltd., see “Even after limitation period expires to initiate arbitration, court applies exceptions to deny stay”.

See also Millennial Construction Ltd. v. 1021120 Alberta Ltd., 2005 ABQB 533 and Eiffel Developments Ltd. v. Paskuski, 2010 ABQB 619.

Master Prowse did identify other cases which, at a minimum, held only that on their facts either (i) the party seeking the stay had not attorned to the court’s jurisdiction or (ii) the principle did not apply.  In particular, referring to HOOPP Realty Inc. v A.G. Clark Holdings Ltd., 2014 ABCA 20, he considered that it had not overruled the earlier Hnatiuk v. Assured Developments Ltd. and Lafarge Canada Inc. Edmonton (City).  Rather, HOOPP Realty Inc. v. A.G. Clark Holdings Ltd. only dealt with “a much narrower point” concerning limitation periods.

[26] HOOPP deals with a much narrower point. In my view it simply decides that, where the limitation period for arbitration has elapsed, a plaintiff cannot use a defendant’s ‘undue delay’ pursuant to section 7(2) of the Arbitration Act to prevent a defendant from applying to strike an action. Waiver and attornment are not mentioned in HOOPP, and no reference is made to Hnatiuk or Lafarge (CA).

[27] While undue delay under section 7(2) of the Arbitration Act cannot be used to stay an action under the Arbitration Act after the time for arbitration has elapsed, it is a permissible factor to be considered when deciding whether to stay or strike and action based on waiver or attornment.

[28] To hold otherwise, taken to the extreme, would allow a defendant to proceed all the way to trial without seeking to have an action stayed or struck based on a mandatory arbitration provision, and then to allow that defendant to have the action struck at that late stage pursuant to the mandatory arbitration provision.

(ii) test governing exercise of discretion – paras 29-34

Master Prowse summed up the test as “whether in the circumstances it would be unfair to a plaintiff to allow a defendant to go back on its choice to participate in litigation”.  To evaluate fairness, factors included:

 – promptness with which defendant moved to stay/strike the court proceedings;

– degree to which defendant participated in court proceedings prior to moving to stay/strike those proceedings; and,

– any adverse consequences suffered by plaintiff as a result of delay and extent of defendant’s participation in court proceedings.

He referred to Saskatchewan River Bungalows Ltd. v. Maritime Life Assurance Co., 1994 CanLII 100 (SCC), [1994] 2 SCR 490 which, at para. 18, reproduced doctrinal comments that the doctrine of promissory/equitable estoppel and waiver are “closely related” because each rests on the principle that “a party should not be allowed to go back on a choice when it would be unfair to the other party to do so”.

Master Prowse further added reference to section 6(c) of the Arbitration Act which mentioned that a court may not intervene in matters governed by that legislation unless it is “to prevent manifestly unfair or unequal treatment of a party to an arbitration agreement”.

(iii) application of test to facts – paras 35-49

At paras 41 and 42 of his reasons, Master Prowse reproduces a list provided by Agrium of, respectively, Orbis’ and Elliott’s participation in the litigation.  Those steps included filing a statement of defence without any initial mention of the arbitration agreement and filing a Notice of Claim to Co-Defendants. Orbis did amend its defence the next day to mention mandatory arbitration. In all, those steps took place over two (2) years for Orbis and longer for Elliott before either applied to stay the proceedings.

Master Prowse discounted the time and expense Agrium alleged it incurred in exchanges with Orbis and Elliott over the two (2) years, holding that it “obviously” did so but did not suffer “severe prejudice” in doing so.  He contrasted this expense to the loss of an opportunity to arbitrate which elapsed due to the passage of time before which a defendant applied for a stay.  See HOOPP Realty Inc. v A.G. Clark Holdings Ltd.

urbitral note – First, unlike other cases in which a court struggles with whether to allow a particular defendant to separate itself from litigation in which other defendants would remain behind, Master Prowse makes no mention of the impact on them of his granting or denying a stay.  By doing so, he distanced his reasons from any express influence of now-familiar ‘efficiency and order’ arguments urged in support of denying a stay.  Rather, he isolated his discretion to focus on Orbis’ and Elliott’s own conduct and not equity for other defendants or impact on Agrium’s case post-stay.

Second, Master Prowse did record the expense and effort incurred by Agrium during the two (2) years but demonstrated that such factors did not have a material effect on his conclusions either way.  By noting and ignoring expense and effort, he appeared to discount their role in his calculation of “fairness”.

Third, the number of steps taken by Orbis and Elliott and listed at paras 41 and 42 seem numerous but, in their substance, are slight.  The real impact of those steps on Master Prowse’s calculation appeared to be those few steps which ‘took the benefit’ of the court procedure.  Sending a Notice of Claim to Co-Defendants and filing Statements of Defence without any initial reference to arbitration appeared sufficient to support “their choice to participate in this litigation”.  While Orbis did amend its defence a day later to raiser the mandatory arbitration clause, the initial step remained part of the list.

Fourth, the reasons do not address the obligation, if any, for Orbis and Elliott to file their Notices to Co-Defendants within a set time period in order to preserve their rights. Some court practice rules impose imperative delays and, hopefully, meeting procedural requirements in court to preserve rights in court should not, in and of itself, be deemed to be a “choice to participate“. Rather, other factors such as promptness in subsequently applying for a stay or filing those Notices to Co-Defendants under reserve of rights may be more appropriate measure of whether a party waived or attorned.

Or, perhaps the best approach for a defendant asserting a right to arbitration is to just apply promptly for a stay and do so before any other imperative delays set out by court practice rules.