In South Coast British Columbia Transportation Authority v. BMT Fleet Technology Ltd.

2017 CarswellBC 2587, 2017 BCSC 1683, the British Columbia Supreme Court recently held that a single notice purporting to commence several arbitrations against several respondents was procedural invalid. However, the notice was not totally void and could be amended by the applicant to provide for several arbitrations and thereby correct the procedural irregularity.

In view of the absence in most arbitration statutes of the right to consolidate arbitral proceedings, this decision is important as it allows an apparently invalid commencement of arbitral proceedings to stand in a corrected form. Whether this decision has any application to arbitrations outside British Columbia, or to an ad hoc arbitration, are issues to be considered.

Background

South Coast British Columbia Transportation Authority (known as, and referred to in this article as, TransLink) entered into two separate contracts with a ship architect, a contract with a ship consultant and a contract with a shipyard for the design and construction of a new ferry. Each contract contained a clause requiring arbitration of any disputes under the British Columbia Arbitration Act.

On April 1, 2011, TransLink delivered a Notice to Arbitrate to the British Columbia International Commercial Arbitration Centre (“BCICAC”). The notice purported to commence one arbitration proceeding under all the contracts against each of the architect, consultant and shipyard. TransLink paid a fee of $1,680 ($1,500 plus H.S.T.), the fee to be paid for one arbitration proceeding for a claim over $50,000. The Notice identified each respondent and the respective contracts with TransLink, set forth the relevant provisions of each contract and separately identified each cause of action and remedy being sought against each party.

BCICAC opened File No. DCA-1313 and wrote to the parties notifying them of the arbitration, stating in part “We acknowledge receipt of a Notice to Arbitrate (the “Notice”) . . . on behalf of . . . TransLink . . . received at this office on April 1, 2011. This arbitration is deemed to have commenced on April 4, 2011.”

Then counsel for the shipyard telephoned BCICAC to raise concerns about the propriety of a single arbitration proceeding against multiple parties under multiple contracts. TransLink advised BCICAC that the Notice to Arbitrate “may have been irregular”. BCICAC suspended the Arbitration until they “have had the opportunity to discuss the form of the Notice further with counsel”. Various correspondence was exchanged and then in May 2011, BCICAC advised TransLink that if it decided to proceed with arbitration, separate Notices to Arbitrate would have to be filed with the BCICAC since the respondents were not bound by the same arbitration agreement.

The parties participated in an unsuccessful mediation of their differences, and in April 2016, TransLink issued and served a Notice to Appoint an Arbitrator, to which the respondents replied, amongst other things, that the issue of the propriety of the commencement of the arbitral proceeding against several respondents under several arbitration agreements would have to be addressed.  Then in February 2017, TransLink’s new counsel wrote to counsel for the ship architect and consultant acknowledging that the Notice to Appoint an Arbitrator dated April 19, 2016 is “arguably irregular”, but stated that three contracts had been effectively commenced, one involving the ship architect and the other two involving the consultant. TransLink issued a new and separate Notice to Appoint an Arbitrator under each contract. TransLink’s counsel requested that BCICAC File No. DCA-1313 be administratively restructured to reflect separate arbitrations for each of the three contracts in issue, and provided BCICAC with an additional fee of $3,150 plus GST for two additional arbitrations. TransLink did not seek to maintain an arbitration against the shipyard.

TransLink then applied to the B.C. court for a declaration that an arbitration proceeding against each of the ship architect and the consultant had been effectively commenced, and for an order that a specified individual be appointed as arbitrator for each arbitration.

British Columbia Arbitration Act and BCICAC Rules

Like most of the arbitral statutes in Canada, the B.C. Arbitration Act (section 21) empowers the court to consolidate two or more arbitrations if, among other conditions, “all parties to those agreements agree on the appointment of the arbitrator and the steps to be taken to consolidate the disputes into the one arbitration.”

Unlike most other provincial arbitral statutes, the B.C. Act (section 22) provides that unless the parties to an arbitration otherwise agree, the domestic rules of the BCICAC apply to arbitrations governed by that Act, unless those rules are inconsistent with another governing arbitral statute or the B.C. Act. .

The BCICAC rules provide for the payment of fees upon the commencement of an arbitration and state (in rule 10) that “the arbitration is deemed to have commenced when the Arbitration Notice or Joint Submission has been filed with the Centre and the commencement fee paid. The Centre shall notify the parties when an arbitration has commenced.”

Decision of the B.C. Supreme Court

The B.C. Supreme Court held that the Notice to Arbitrate contained all of the information required by the rules of the BCICAC relating to the commencement of an arbitration: the names of the parties and their addresses for delivery; a brief statement of the matter in dispute; the remedies sought; a precise estimate of the amount claimed; and the number of arbitrators proposed.

The court found that “the respondents clearly understood the nature and substance of the specific claims being made against them, the contractual provisions being relied upon, the remedy being sought, and the fact that a request for arbitration was being made in respect to those claims. Had TransLink photocopied the Notice to Arbitrate and filed the same document four times (including in respect of the claim against Victoria Shipyards), there could be no dispute that it was fully compliant.” The parties had “adopted arbitration as the means by which their disputes would be resolved and must now be content with the informalities of the arbitration process.”

The court noted that BCICAC accepted the fee that accompanied the Notice to Arbitrate, stated that the arbitration was deemed to have been commenced and had not returned the funds. The court held that “BCICAC’s deeming that the arbitration proceedings had commenced is analogous to the court registry having accepted a civil action for filing. The matter of the payment of a fee is for the BCICAC to address and administer. It is not a matter between TransLink and the respondents, and does not prejudice the respondents in any way. The payment of the incorrect fee can hardly be described as a fundamental breach of the parties’ contracts or going to the substance or “root” of the parties’ rights inter se.”

Accordingly, the court found that “TransLink’s April 1, 2011 Notice to Arbitrate, although an irregularity, was effective to commence four separate arbitration proceedings”, two against the ship architect and one each against the consultant and shipyard.

The court also held that the irregularity in the appointment of the arbitrator had been remedied by TransLink by its issuance of separate notices of appointment in February, 2017. The language of Section 17 of the B.C. Arbitration Act was mandatory and required the court to appoint an arbitrator if the arbitrator was not appointed by the parties. Accordingly, the court appointed the arbitrator nominated by TransLink for each of the arbitrations.

Discussion

This decision deals with the classic problem faced by arbitration in construction projects. There is an arbitration agreement in each of the contracts between the owner and various participants in the project (say, the contractor and the consultant). There is also an arbitration agreement in each of the contracts between the various other participants in the project (say, the subcontractors, suppliers, etc). Standard arbitral law requires that there be separate arbitrations for each of these arbitration agreements, even though that will result in much greater time, inconvenience and the expense of multiple arbitrations instead of one consolidated arbitration, and with the possibility of inconsistent decisions.

The solution to this problem is not the one first adopted by TransLink, namely, the issuance of one Notice to Arbitrate under four contracts. Ultimately, TransLink did not gain consolidation of the arbitrations. Indeed, it was fortunate to end up with a court decision that validated the commencement of the arbitrations, and divided them into separate arbitrations. So TransLink was back to where it would have been had it commenced separate arbitrations.

Although the decision in this case seems fair, an appellate court might not uphold it having regard to section 21 of the B.C. Act. That section only contemplates the consolidation of multiple arbitrations with the parties’ consent. Accordingly, it might be read, by inference, as prohibiting the commencement of multiple arbitration by one commencement document. In addition, this decision might also not apply in the case of an ad hoc arbitration conducted under an arbitration agreement which is not subject to the auspices or rules of an arbitral tribunal.

The fact that the notice was accepted by BCICAC, that BCICAC stated that an arbitral proceeding was deemed to have been commenced, and that the BCICAC rules deem the proceeding to have been commenced, were key factors in the court’s decision. In effect, the court held that the fault was that of BCICAC, if there was “fault”, in accepting the single Notice of Arbitration in respect of several arbitrations, and that if there was something ineffective about that notice, then it was BCICAC that should not have accepted it. Having accepted the notice, separate effective arbitrations against each of the respondents had been commenced. The joinder of those arbitrations was an irregularity which could be cured.

The arbitration agreement contained in most Canadian building contracts provide for ad hoc arbitration, not arbitration conducted under the auspices of an arbitral institute, such as the BCICAC, ADRIC, ICC, LCIA or ICDR. Thus, the arbitration clause in the CCDC contracts does not name an institute under which the arbitration is to be conducted. If the arbitration is not conducted under the auspices of an arbitral institution, the authority of the ad hoc arbitrator to decide that multiple arbitrations were commenced by one notice to arbitration seems more doubtful.

If an arbitration is commenced under the auspices of an arbitral institution other than BCICAC, the institution’s rules may not state that an arbitration is “deemed to have commenced” when an Notice to Arbitrate is received by the institution, and the facts may not otherwise satisfy a court that multiple valid arbitrations were commenced against multiple parties just because the institution accepted the notice of arbitration and stated that an arbitration proceeding has commenced.

The better solution for the multiple arbitration problem is to deal with it up-front in the arbitration agreement in each of the contracts between the owner and other parties, such as in main contract between the owner and the general contractor and in the contract between the owner and the consultant.

That arbitration agreement can provide that each party agrees to participate in, and agrees to a consolidation of the disputes into one arbitration before one arbitral tribunal in respect of all contracts on the project. The owner and general contractor can then ensure that this sort of wording is incorporated into subcontracts through an “incorporation by reference” clause in the general contract requiring that the provisions of that contract are to be incorporated into each subcontract, and for the contractor to ensure that that occurs. That “incorporation by reference” clause may appear in either the arbitration agreement itself, or may be applicable to all the parts of the general contract that are to be incorporated into the subcontracts.

See Heintzman and Goldsmith on Canadian Building Contracts, 5th ed., chapter 11, part 4

South Coast British Columbia Transportation Authority v. BMT Fleet Technology Ltd.

2017 CarswellBC 2587, 2017 BCSC 1683

Building contract – arbitration – commencement of arbitration – consolidation of arbitrations

Thomas G. Heintzman O.C., Q.C., LL.D. (Hon.), FCIArb              January 18, 2018

www.heintzmanadr.com

www.constructionlawcanada.com