The private-public partnership between the City of Brockville and Tall Ships Land Development Ltd. has attracted a great deal of comment from those specializing in arbitration. At issue was whether or not an arbitrator had overstepped its authority by awarding significant compensation to the developer Tall Ships.
Brockville had entered into several contracts with Tall Ships to remediate a brownfield area and build a 27,000-square-foot mixed-use residential/commercial condominium property. Tall Ships would do the work, receive various management fees and ultimately sell the finished project to the city for about $7.5 million.
When finally completed, however, the project was bigger than originally designed. Brockville refused to pay the extra $1.8 million. Nor would it pay nearly $1 million covering remediation costs, saying invoices were filed beyond the time allowed in the contract. In an attempt to get the money plus interest, Tall Ships requested arbitration, as included in the contracts.
After four weeks of hearings, the arbitrator dismissed all three of Tall Ship’s claims.
First, claims for payment for remediation were dismissed because they were submitted beyond the contracted 15-day deadline.
Second, claims for the additional building costs were denied. The arbitrator ruled that, in its role as construction manager, Tall Ships failed to keep Brockville properly informed of the extra costs. They also cited a lack of good faith and various arbitrary and unreasonable actions taken. Also dismissed was Tall Ship’s suggestion Brockville had gained unjust enrichment.
And third, interest charges on a one-year-old invoice were dismissed because Brockville was not informed interest would be claimed until Tall Ship’s statement of claim was made.
Not satisfied, Tall Ships appealed to the Ontario Superior Court. Here, all three claims were reversed in favour of Tall Ships.
That left the City of Brockville dissatisfied. They went to the Ontario Court of Appeal, where the arbitrator’s original rulings were reinstated.
As described by Bruce Reynolds, Sharon Vogel and Cheryl Labris of Singleton Urquhart Reynolds Vogel LLP, “The Ontario Court of Appeal allowed the city’s appeal, and held that the application judge erred in categorizing the matters at issue as extricable questions of law, finding that the issues were questions of mixed fact and law.”
Edward Lynde, partner at Fasken Martineau DuMoulin LLP, and associate Montana Licari, explain that, “Where the application judge had found extricable questions of law, the court of appeal determined that no such extricable legal questions existed. The court of appeal was also critical of the application judge’s findings on procedural fairness, holding that the application judge had ‘effectively bootstrapped the substantive arguments’ in this part of the analysis, so as to bring these arguments within the ambit of section 46 of the Arbitration Act.”
Also at issue was role of the arbitrator as outlined in the contract, write Lynde and Licari.
“The court of appeal further observed that the ‘heart’ of the arbitrator’s task in this case was ‘the interpretation of the contractual arrangements’ of the parties.”
Lisa Munro, partner at Lerners LLP, points out under their agreement, Brockville and Tall Ships could have agreed to allow appeal on questions that mixed both fact and law, but had agreed to arbitration appeals only on questions of law.
By overturning the Ontario Superior Court ruling, Lynde and Licari suggest the court of appeal was “signalling a reluctance to extricate legal issues from a factually complex and context-rich process of contractual interpretation, as was the case in the matter before it.”
The court of appeal suggested appellate judges should restrain themselves from being too eager to characterize all issues as issues of law.
As Reynolds, Vogel and Labris observe, “Judges exercising such appellate powers under Section 45 of the Arbitration Act should exercise caution when extracting questions of law from the contract interpretation process as ‘[f]ailure to exercise such caution will result in the very inefficiencies, delays and added expense that choosing an arbitral process seeks to avoid.’”
John Bleasby is a Coldwater, Ont.-based freelance writer. Send comments and Legal Notes column ideas to editor@dailycommercialnews.com.
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