The Queen’s Bench Court for Saskatchewan recently applied the Saskatchewan International Commercial Arbitration Act (SICAA) and the UNCITRAL Model law annexed to that Act and stayed an action based on the Saskatchewan Consumer Protection Act and a contract which was apparently between two Canadian entities.

The decision in Zwack v. Pocha is important for two reasons.

First, the plaintiffs’ action was stayed because another company from the state of Washington said that it was also a party to the agreement.

Second, the action was stayed despite the terms of the Saskatchewan Consumer Protection Act (CPA).  In previous cases, such as Seidel v. TELUS, plaintiffs were held to be entitled to bring claims in court under the provincial CPA despite the presence of arbitration clauses.

Accordingly, the decision in Zwack v. Pocha helps us explore the boundaries of the claims that fall within “international commercial arbitration” and are governed by the Model Law, and those that are not.

Factual Background

The plaintiffs in Saskatchewan wanted to build a cottage based upon plans and materials made by Lindal Cedar Homes, a company located in the State of Washington.  They entered into a sales agreement with Lindal’s local Saskatchewan dealer, Prairie Cedar Homes.  The sales agreement stated that Prairie Cedar Homes would sell the materials to the plaintiffs.  The agreement also stated that Lindal’s responsibility was to manufacture and ship the materials and building plans, to honour its warranty and to mediate and arbitrate disputes with the client, and that “Lindel will accept this agreement when the President/CEO of Lindal sends a written confirmation and warranty number.”  The agreement contained a clause which required any disputes to be mediated “before the American Arbitration Association (in Canada, the appropriate Provincial arbitration act)”, and if not successful, required any dispute to be arbitrated “by the American Arbitration Association(“AAA”) (in Canada, the appropriate Provincial arbitration act)”.  The agreement further stated: “If the dispute involves Lindal, mediation and arbitration will take place in King County, Washington and the laws of the state of Washington will apply.”  Lindal said that it was party to the agreement by reason of delivering a written confirmation of the agreement and a warranty.

The construction of the cottage led to acrimony between the parties. Ultimately, the parties separated and the plaintiffs engaged another contractor to complete the building.  They then sued Prairie Cedar Homes, Lindel and the original building contractor. Lindel brought a motion to stay the action based upon the arbitration clause in the agreement and the Model Law attached to SICAA.

The Decision

The judge held that the plaintiffs were bound by the arbitration clause and stayed the action. In arriving at that conclusion he noted that, while Lindel was not an original signatory to the agreement containing the arbitration clause, Lindel asserted that it was a party to that agreement by reason of its confirmation of the agreement and the warranty it issued pursuant to the agreement. The plaintiffs themselves agreed that Lindel was a party to the sales agreement; they agreed that Lindel was entitled to rely upon the arbitration clause if it was applicable; and they agreed that the SICAA applied to the issues raised in Lindal’s motion. Accordingly, these issues were conceded by the plaintiffs and were not determined by the court.

The judge also held that, in accordance with Article 16 of the Model Law, the arbitral tribunal was to decide any jurisdictional issues, not the court.  The court referred to the decision of the Supreme Court of Canada in Seidel v. TELUS 2011 SCC 15 which adopted the competence-competence principle which is directly set forth in Article 16.

The plaintiffs asserted that their claims of negligence and vicarious liability were not captured by the arbitration clause.  However, the arbitration agreement referred to “any dispute”, and the court held that the application of interpretation principles – including contra proferentum – did not remove the dispute from the ambit of the clause.  Moreover, the articles of the Model Law demonstrated the wide ambit of international commercial arbitration, which includes “all or certain” disputes, whether “contractual or otherwise.” (articles 7(1) and 16(1).

The court held that the CPA did not render the arbitration clause inapplicable to the dispute. Unlike the provisions of the British Columbia CPA which were in issue in Seidel v. TELUS, the Saskatchewan CPA makes a distinction, the court determined, between proceedings brought by the director under that Act and proceedings brought by members of the public; only the proceedings brought by the director were public interest claims.

Moreover, the court found that section 44 of the Saskatchewan CPA does not eliminate the arbitration of claims which are subject to the CPA.  Section 44(1) states that any agreement which “implies that …any right or remedy provided by this Part do not apply…or …any right or remedy provided by this Part in any way limited, modified or abrogated” is void.  Section 44(2) says: “Notwithstanding subsection (1), where the parties to a dispute pursuant to this part are able to resolve their dispute through mediation, arbitration or another process, the parties’ rights pursuant to this Part are extinguished respecting that dispute.”  The court found that “s. 44(2) expressly extinguishes Part III rights in favour of arbitration.”

Discussion

There are two interesting aspects to this decision:

The first aspect involves the related issues of whether the arbitration was truly an “international arbitration”, and whether, if the action had been brought only against the Saskatchewan agent, Prairie Cedar Homes, a stay motion would have been successful.

Section 1(3) of the Model Law attached to SICAA says that “an arbitration is international if:

(a) the parties to an arbitration agreement have, at the time of the conclusion of that agreement, their places of business in different States; or

(b) one of the following places is situated outside the State in which the parties have their places of business:

(i) the place of arbitration if determined in, or pursuant to, the arbitration agreement,

(ii) any place where a substantial part of the obligations of the commercial relationship is to be performed or the place with which the subject-matter of the dispute is most closely connected….”

One may wonder at the outset whether the SICAA and the Model Law should apply at all since the plaintiffs were not in business and were buying a cottage for their own use.  If SICAA did not apply then the Saskatchewan Arbitration Act would have applied.  As the court noted, under the Arbitration Act, the court had a discretion to stay or not stay the action while under the SICAA there was no such discretion.

Clause (a) of the Model Law raises the issue of who were parties to the arbitration agreement “at the time of the conclusion of that agreement.” Arguably, Lindel was not a party to the agreement at the time of the conclusion of the agreement, if the agreement was “concluded” when first signed by Prairie Cedar Homes.  If Lindel was not such a party, then clause (a) would not apply since the other parties were located in Saskatchewan.

Clause (b) is obviously intended to apply if all the parties have their place of business in the same State. If Lindel had not been sued, then sub-clause (b)(i) would not have applied as the place of the arbitration was not mandated to be in the state of Washington if Lindel was not sued.

Sub-clause (b)(ii) also might not apply unless Lindel’s obligations were in issue.  The state of Washington might well be the place where Lindel carried out its obligations, and the place to which the agreement was closely connected, if Lindel’s obligations were in issue.  Obviously, Washington is outside the State of the place of business of the plaintiffs and Prairie Cedar Homes, namely Saskatchewan and Canada. But if Lindel was not sued and if Lindel’s obligation were not relevant to the dispute and only the obligations of Prairie Cedar Homes were relevant, then sub-clause (b)(ii) might not be engaged.

So the facts of this case raise the interesting issue of whether, under the Model Law, the “international commercial” nature of the agreement is to be determined once and for all at the time of the agreement, or whether that nature can be determined or influenced by the location of the actual parties to the actual dispute.  If the latter is so, then plaintiffs may arguably avoid being involved in an international arbitration in another country by only suing domestic parties with domestic obligations, even though the arbitration agreement is also with international parties.

The second issue is whether the court correctly held that the CPA authorized the arbitration of claims falling within that Act, notwithstanding the plaintiffs’ objection.  Section 44(1) assumes that there is an existing agreement which that section renders void.  An arbitration agreement would be the very sort of agreement to which one could argue that the sub-section applies.

Section 44(2) says “notwithstanding section 44(1)” if the parties are “are able to resolve their dispute” through arbitration, their rights under Part III are extinguished.   It could be argued that the words “are able” refer to a dispute that is actually and consensually arbitrated; that the point of sub-section 2 was to ensure that the parties can’t have two kicks at the can; and that it was not intended to include arbitration agreements per se within subsection 2 since, if it had been so intended then the sub-section would have said “where parties to a dispute pursuant to this Part have agreed to resolve their dispute through mediation, arbitration or another process…”  It could be argued that the reference in this subsection to the ability of the parties to resolve their dispute by arbitration, not their agreement to do so, is quite striking.  Those making that argument could also submit that provincial legislatures do not have different intentions on this issue and that consumer protection legislation should be read consistently across Canada to exclude arbitration.

In the result, the decision demonstrates that the ambit of the Model Law may be a matter of controversy.  Exactly what sort of arbitration agreement is an “international commercial” arbitration agreement may be disputed, and that issue may be influenced by the nature of the dispute that arises. In addition, a controversy may arise as to whether the Model Law requires arbitration in the face of provincial consumer protection legislation.

See Heintzman and Goldsmith on Canadian Building Contracts, 4th ed., chapter 10

Zwack v. Pocha 2012 SKQB 371

Arbitration – International Commercial Arbitration – Competence-Competence – Interpretation of Arbitration Agreement

Thomas G. Heintzman O.C., Q.C., FCIArb                                                                January 4, 2013

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