P.E.I. – arbitral institution denied leave to intervene in jurisdiction-based challenge to arbitral award

In HZPC Americas v. Skye View Farms, 2018 PESC 47, Mr. Justice Gordon L. Campbell determined that an arbitral institution would not contribute anything useful to an appeal arguing an excess of jurisdiction of the institution’s arbitration rules. The institution’s concern for the precedential value of the appeal did not justify it being added to the appeal as the arguments it could make could be made by either of the existing parties. The institution’s claim to have a global outlook of the potential adverse impact of an “unfavourable” result was insufficient to grant the institution leave to intervene.

HZPC Americas Corp. (“HZPC”) is an agent dealing exclusively with facilitating the sale of potato growers’ seeds to third-parties.  It does not deal in table stock potatoes sold into the fresh market for human consumption or operate in the potato processing industry. HZPC purchases no potatoes, owns/leases no commercial seed potato storage facilities or equipment and lacks the labour force needed to deal with commercial seed potatoes. Skye View Farms Ltd. (“Skye View”) grows potatoes in P.E.I. and has a dealer license and an export license. With those licenses, it can arrange for distribution of its own potatoes.

In the past, HZPC and Skye View had contracted to do business. In a recent arrangement, Skye View alleged that HZPC engaged Skye View by verbal contract to produce seed potatoes for Skye View’s 2014 crop. HZPC disputes Skye View’s claims, arguing that the parties’ practice was to sign a written agency agreement and denied having any verbal contract. HZPC further argued that, if the two parties did have a verbal contract, then it dealt with seed potatoes and not fresh fruit or vegetables.

The dispute arose when Skye View’s 2014 potato crop remained unsold into mid-2015, becoming unsaleable except as cattle feed. HZPC disputed that it was responsible for payment, stating that it had not contracted for the purchase of the potatoes.

HZPC and Skye View are both members of the Fruit and Vegetable Dispute Resolution Corporation (“DRC”), a non-profit corporation, based in Ottawa and created in 1999 under a provision of the North American Free Trade Agreement providing for the creation of private commercial dispute resolution organizations for agricultural goods.  Membership in the DRC is voluntary and offers various benefits.

Membership can nonetheless be required by others with or through which some might want to do business. For example, the P.E.I. Potato Marketing Board (“Board”) requires dealers, brokers and exporters of table stock or seed potatoes from P.E.I. to have a license issued by the Board. A pre-requisite for obtaining a license from the Board is to first become a member of the DRC. The application for membership at section 11 contains a consent to arbitration, with a reference to the “Mediation and Arbitration Rules of the DRC” (the “Rules”):

I understand and agree that if I and/or the organization I represent are accepted as a member or members of the DRC, I and/or the organization I represent shall be bound by the Articles of Continuance, By-Laws and Operating Rules of the DRC including, but not limited to the Trading Standards, Transportation Standards and Mediation and Arbitration Rules of the Fruit & Vegetable Dispute Resolution Corporation. I specifically agree that all disputes between me and/or my organization and any other member or members of the DRC shall be resolved exclusively pursuant to the Mediation and Arbitration Rules of the DRC. I further specifically agree to submit any such disputes not resolved through mediation to arbitration in accordance with the said Mediation and Arbitration Rules and the agreement to arbitrate contained in Article 2 thereof.

(Note: the current online form refers to the former set of dispute resolution rules by their former name, “Mediation and Arbitration Rules”, whereas as of November 1, 2018 the title has been updated to “Dispute Resolution Rules.  See further at the foot of this note.)

The membership category for which HZPC applied was “Regular Member” defined by DRC on the application form as being for buyers, sellers, brokers and commission merchants of “fresh fruits and vegetables”. Immediately below that definition of status, the same form stipulated that the definition of fresh fruits and vegetables “includes all fresh and chilled fruits and vegetables, fresh cuts, edible fungi and herbs, but excludes any fresh fruit and vegetable that is frozen or sold for seed.

HZPC and Skye View undertook arbitration resulting in a July 6, 2017 award in which the arbitrator determined that the parties had a valid contract for seed potatoes and ordered HZPC to pay Skye View for the seed potatoes. HZPC asked the arbitrator to reconsider his award based on the fact that the contract he identified was for seed potatoes, a category which the DRC specifically excludes from its Rules. The arbitrator declined. HZPC then applied to the court under section 12(2) of P.E.I.’s Arbitration Act, RSPEI 1988, c A-16 for an order to set aside or vary the award. That section briefly mentions grounds for the court to set aside an award:

12(2) Where an arbitrator or umpire has misconducted himself, or an arbitration or award has been improperly procured, the court may set the award aside.

Among the grounds raised by HZPC and listed at para. 15 of Campbell J.’s reasons, HZPC argued, among other things, that the arbitrator did not have jurisdiction to arbitrate the dispute, had failed or refused to apply the DRC Rules that defined his jurisdiction and the principles that were to be applied to resolve the arbitration and had made fundamental errors of law relating to whether he had jurisdiction.

In the court file initiated by HZPC, DRC applied under P.E.I.’s Supreme Court’s Rules of Civil Procedure Rule 13.01 “Intervention” and Rule 5 “Joinder of Claim and Parties” for leave to intervene to:

(i) address the issues which “affect” the DRC and/or which the DRC “has an interest in the subject matter” including the application, interpretation and binding effect of, among other things listed, the DRC Rules; and,

(ii) possess the same rights of participation as any other party including, providing written and oral submissions, adduce evidence, seek costs and appeal.

A full list of DRC’s grounds for intervention appear at para. 18 of Campbell J.’s reasons. Key to its intervention are the claims that DRC has a “direct” and “significant” interest in the interpretation, application and binding effect of the “contract”/ “Contract” which provided for “dispute resolution services”. (The use of the terms “contract” and “Contract” vary in the excerpts at para. 18 but appear to both refer to the membership contract HZPC and Skye View each signed with DRC. )

Despite the subsequent use of “contract”, the DRC at the onset of its application for leave to intervene defined “Contract” as “collectively includes terms set out in the: Articles of Incorporation, Bylaws, Operating Rules, Trading Standards, Transportation Standards, and Mediation and Arbitration Rules (as referred to as the “Arbitration Agreement”).

In its affidavit material filed by its Chief Executive Officer, DRC explained that the DRC provides members with “a strict set of standards to be followed in the resolution of any dispute between members”, that members “rely on the strict adherence to these standards”, that the DRC requires “strict compliance with the membership contract” and that DRC requires all disputes arising between DRC members to proceed through its Rules. DRC argued that HZPC’s application “explicitly raises issues regarding the interpretation and application of those DRC contractual terms” which is “at the heart” of HZPC’s application. Campbell J. characterized the essence of DRC’s concerns as an arbitral institution charged with administering arbitrations under its Rules:

Given that the court is being asked to interpret and apply those various provisions, DRC maintains it has a significant commercial interest in the outcome and in the court’s interpretations. Should the court make a determination with respect to the contract that is “unfavourable” to the DRC and its other members, the DRC claims its commercial and economic interests will be directly adversely affected.

Skye View consented to DRC’s intervention, stating that Skye View did not have the institutional knowledge that DRC would have with respect to the interpretation or application of the documents in issue. Denying DRC leave to intervene would deprive Skye View of the benefit of DRC’s experience and leave Skye View to argue in favour of DRC’s rules while being “handcuffed on a number evidentiary issues”.

HZPC objected, arguing that “DRC has no horse in this race” and that HZPC also sought to uphold, not challenge, the provisions which DRC invoked.

Campbell J. referred to a series of cases, in P.E.I. and elsewhere, which decided leave to appeal applications: Simmonds v. Law Society of Prince Edward Island, [1994] P.E.I.J. No. 1 ; Gallant v. Prince Edward Island (Worker’s Compensation Board), 2001 PESCAD 9; Vail & McIver v. WCB(PEI) & AG(PEI), 2011 PECA 17; Re Starr and Township of Puslinch et al., 1976 CanLII 870 (ON SC); Re Ronark Developments and City of Hamilton et al., 1974 CanLII 872 (ON SC); Re Orangeville Highlands Ltd. et al. and Township of Mono et al. (1974), 5 O.R. (2(d) 266, 1974 CanLII 811 (ON SC); Johnson et al. v. Corporation of Town of Milton (No. 1), (1982), 1981 CanLII 1736 (ON SC), 34 O.R. (2d) 289); Steeves v Doyle Salewski Inc., 2016 ONSC 2223; United Food and Commercial Workers Union Local No. 832 v. Westfair Foods Ltd., 2003 MBQB 300; Re Schofield and Minister of Consumer and Commercial Relations, 1980 CanLII 1726 (ON CA); Solosky v. The Queen, 1978 CanLII 2051 (FCA); and, M. v. H., 1994 CanLII 7324 (ON SC).

In his survey, Campbell J. identified a number of considerations for granting or refusing leave:

– the intervenor had a direct, personal, financial and professional interest in the proceeding’s outcome;
– the intervention would not unduly prejudice or delay the proceeding;
– similar circumstances in another case and only a question of law common to both does not qualify as an interest in the subject matter of the proceeding the intervener seeks to join;
– the intervener must make submissions that will be useful or different than those of the existing parties;
– adding parties without a direct legal interest in the legal rights raised in the proceeding in effect turns the court from a judicial body into “a forum for the advancing of all sorts of political arguments”;
– the addition of the party would give the court the benefit of argument or a legal position not put forward by a party;
– the intervenor should not introduce new issues but also not just “echo” or duplicate the position of an existing party and make a useful contribution to the resolution of the dispute;
– the interpretation of the legislation common to the proceeding and the intervenor’s case is merely a part of the litigation and already addressed by the parties and the court will not allow a third party to “encumber” the private litigation;
– an interest in another controversy sharing the same question of law is insufficient to justify intervention;
– concern for precedent and that the decision may subsequently be applied by another court to resolve another dispute involving the intervenor is insufficient; and,
– the common law is built upon an incremental system of developing the law and “there would be no principled way of excluding the second of the 500th case” and the common law “would implode upon itself”.

Having surveyed the state of the case law, Campbell J. applied it to DRC’s application and identified four (4) reasons to refuse leave to DRC to intervene.

First, DRC has no interest in the dispute. Its willingness to intervene stemmed from the effect DRC anticipated.

Their desire to intervene is based on a more global outlook of the potential adverse impact an “unfavourable” decision might have on DRC. There “interest” is in the interpretation of the contract they have with each of HZPC and Skye View, and many other similar members throughout the country. They fear a decision made without their input might turn their whole regime “on its head”.

Campbell J. appeared to liken DRC’s concern to the frequency with which courts interpreted statutes to resolve private disputes. There has been and should be no need to call upon the drafters of the legislation, contracts or rules to resolve disputes over that wording. “Having drafted a document which is to be considered and interpreted by the court is not sufficient reason to warrant allowing the drafter to enter the fray as an intervenor.” The institutional knowledge of DRC was not a determinative consideration.

Second, DRC failed to demonstrate that it would contribute “anything useful in any substantial way to the issues to be addressed by the main parties. Whatever argument is to be made can be made by Skye View, and in fact may also be made by HZPC”.

Third, Campbell J. did not dispute DRC’s interest in the outcome of the appeal but determined that DRC did not have a direct interest. “Theirs is only a jurisprudential or “precedential” interest. Others are not given standing to join an action simply on the basis the court’s decision may alter the legal landscape for them going forward. That impact is one of the standard features of our common law system.

Fourth, turning to Rule 5 “Joinder of Claim and Parties” of P.E.I.’s rules of court, DRC failed to show it would be necessary to add it as a party to enable the court to effectively adjudicate effectively and completely on the issues.

I am confident the adversarial system will provide for a complete airing of the issues to be considered on the application to set aside or vary the arbitration award. There needs to be a principled way of excluding unnecessary participants and limiting arguments and submissions which go beyond the lis between the principal parties.

On the basis of the above, Campbell J. dismissed DRC’s application for leave to intervene and ordered DRC to pay costs to HZPC on a partial indemnity basis.

Additional note: Readers should consult the new Dispute Resolution Rules, effective November 1, 2018.

The changes, minor and significant, are identified by DRC on its website as follows:

The new Dispute Resolution Rules have one arbitration proceeding with an appendix to cover expedited procedures, unlike the previous Mediation and Arbitration Rules which had two separate arbitration procedures.
Going forward, all DRC arbitration proceedings will be considered international arbitrations in accordance with Ontario’s International Arbitration Act.
The new rules now allow for multiple contracts, additional parties or cases to be joined in one arbitration proceeding.
All arbitrator’s draft decisions will be reviewed by DRC without affecting the arbitrator’s liberty of decision prior to submitting their decision and award to the parties. DRC may make observations as to the form of the award and draw attention to points of substance.
The Dispute Resolution Rules include a provision that allows for early dismissal meaning cases that have no merit can be expedited.

DRC confirms that cases received by DRC prior to November 1, 2018 are conducted under the former Mediation and Arbitration Rules.

A detailed report on the origins of the DRC, entitled “Final Report: Origins, Creation, and Evolution of the Fruit & Vegetable Dispute Resolution Corporation”, is available.