Milner Power Inc. v. Coal Valley Resources Inc., 2011 ABQB 118

Court of Queen ’ s Bench of Alberta Citation: Milner Power Inc. v. Coal Valley Resources Inc., 2011 ABQB 118 Date: 20110301 Docket: 1003 21500 Registry: Edmonton Between: Milner Power Inc., as general partner for and on behalf of Milner Power Limited Partnership, a limited partnership established pursuant to the laws of Alberta Applicant - and - Coal Valley Resources Inc. as successor in interest to Luscar Ltd. Respondent _______________________________________________________ Reasons for Judgment of the Honourable Mr. Justice M.A.

Binder _______________________________________________________ Nature of Application [ 1 ] This is an application for leave to appeal the May 21, 2010 award ("Award") of Mr. Foran, Q.C. ("Arbitrator") on a question of law, pursuant to s. 44(2) of the Arbitration Act , R.S.A. 2000, c. A-43 ("Act").

Facts [2] Parsed to their essentials, the facts are that the parties entered into a coal supply agreement (“Agreement”) whereby theRespondent ("CV") agreed to supply coal from its mine ("Mine") to the Applicant ("Milner") to fuel its electrical production station foran initial term of 5 years, with a 5 year option to renew, subject to the right of CV to call for a price review ("Price Review") ifanticipated operating costs of its Mine would not result in a profit at the price levels provided for in the Agreement. CV called for a PriceReview, the parties were unable to agree and the matter was referred to arbitration as provided for in the Agreement. [3] Each party took the position that

Article 7.5 of the Agreement containing the Price Review was clear and unambiguous;Milner asserted a "mine profitability test" whereas CV asserted a "contract profitability test". Accordingly, the question put to theArbitrator for the purpose of this application was whether the test to determine whether the operation of the Mine at a profit was a "mineprofitability test" or a "contract profitability test".

The Arbitrator concluded that it was the latter. [4] Milner does not assert that the conclusion of the Arbitrator was an error of law, nor that the Arbitrator erred in law bymisstating the parol evidence rule ("Parol Evidence Rule") for the purpose of determining what facts if any where required to form thecommercial factual context to assist in interpreting the meaning of the Price Review. [5] Rather, Milner asserts that because the Arbitrator admitted, without initial objection from either party, a substantial body ofevidence (“Parol Evidence”) presented by both parties regarding the surrounding circumstances leading up to the finalization of theAgreement and the subjective intention of the parties as to the meaning of

Article 7.5, the Arbitrator erred in law in ignoring suchevidence. [6] In essence, Milner says that its right to a fair hearing was breached by the Arbitrator in not admitting that portion of the ParolEvidence summarized by the Arbitrator at paragraphs 60 to 67 and 91 to 92 of the Award, which breach amounted to an error of law,relying on Université du Québec à Trois-Rivières v. Larocque, (SCC), [1993] 1 S.C.R. 471 and paragraph 94 of theAward, where the Arbitrator said, "For these reasons I decline to consider such evidence".

Legislation [7] The Act provides in part: 44(2) If the arbitration agreement does not provide that the parties may appeal an award to the court on a question of law, a party mayappeal an award to the court on a question of law with leave, which the court shall grant only if it is satisfied that (

a) the importance to the parties of the matters at stake in the arbitration justifies an appeal, and (

b) determination of the question of law at issue will significantly affect the rights of the parties. Issue [8] The first issue is whether the applicant has raised a question of law. If so, the second issue is whether the criteria in s.44(2)(

a) and (

b) are met in this case.

Analysis [9] The Court of Appeal has held that while the test for the Parol Evidence Rule is a question of law, the application of the ParolEvidence Rule is a question of mixed fact and law: Driving Force Inc. v. Assaf, 2009 ABCA 62. [10] As for procedural fairness, proceedings must meet the level of fairness required by law. The Court of Appeal has held thatboth errors of fact and errors of law may contribute to an unfair hearing: Alberta (Information and Privacy Commissioner) v.

Alberta(Freedom of Information and Protection of Privacy Act Adjudicator), 2011 ABCA 36. [11] If the Applicant’s position was that the Arbitrator had misinterpreted or misstated the Parol Evidence Rule, this would raise aquestion of law as required by s. 44(2) of the Act. [12] However, once all of the Parol Evidence had been entered, the task for the Arbitrator was to apply the Parol Evidence Rule tothe facts and evidence presented, and to determine which facts were relevant to the commercial factual context.

In my opinion, suchdetermination was a question of mixed fact and law rather than a question of law. [13] Further, it is clear from the record that CV in first instance in its Written Opening Statement expressly objected to theadmission of evidence of negotiations or subjective intention. This was repeated in CV's oral Opening Statement before the Arbitratorand again in CV's Written Closing Argument. [14] In my opinion, the focus on the term “inadmissible” by Milner in describing what the Arbitrator did is somewhat misleading,as is its assertion that the Arbitrator reached his decision in a vacuum.

These assertions, when subjected to analysis, are found to bewithout merit. [15] The flaw in Milner's position that the Arbitrator erred in law in not admitting the Parol Evidence and therefore reached hisdecision in a vacuum lies in the fact that unlike Université du Québec à Trois-Rivières v.

Larocque where the arbitrator refused to hearand therefore consider the evidence, in this arbitration the Arbitrator did hear and consider the Parol Evidence and having done sodetermined that the only evidence permitted to be considered under the Parol Evidence Rule was the commercial setting or factual matrixevidence set out in paragraphs 96 to 101 of the Award. [16] In my view, the Arbitrator did exactly what he was required to do: he applied the Parol Evidence Rule to the Parol Evidenceand determined which commercial/factual portion of such evidence was permitted or required to assist in interpreting the Price Review,and in paragraph 94 of the Award, the Arbitrator said, "For these reasons I decline to consider such evidence".

In other words, theArbitrator was applying the correct principle of law to a body of evidence to determine which facts (if any - see highlighted portion ofpara. 55 of Eli Lilly below) were required or permissible to assist him in interpreting the clear and unambiguous Price Review. Suchdetermination is a question of mixed fact and law. [17] That the above described approach of the Arbitrator was correct is made clear in Eli Lilly & Co. v. Novopharm Ltd.; Eli Lily& Co.v.

Apotex Inc., (SCC), [1998] 2 S.C.R. 129: 55 Indeed, it is unnecessary to consider any extrinsic evidence at all when the document is clear and unambiguous on its face.In the words of Lord Atkinson in Lampson v.

City of Quebec (1920), (UK JCPC), 54 D.L.R. 344 (P.C.), at p. 350: . . . the intention by which the deed is to be construed is that of the parties as revealed by the language they have chosen to use in thedeed itself .... [I]f the meaning of the deed, reading its words in their ordinary sense, be plain and unambiguous it is not permissible forthe parties to it, while it stands unreformed, to come into a Court of justice and say: "Our intention was wholly different from that whichthe language of our deed expresses. . . ." 56 When there is no ambiguity in the wording of the document, the notion in Consolidated-Bathurst that the

interpretation which

produces a "fair result" or a "sensible commercial result" should be adopted is not determinative. Admittedly, it would be absurd to adoptan

interpretation which is clearly inconsistent with the commercial interests of the parties, if the goal is to ascertain their true contractualintent. However, to interpret a plainly worded document in accordance with the true contractual intent of the parties is not difficult, if it ispresumed that the parties intended the legal consequences of their words. This is consistent with the following dictum of this Court, inJoy Oil Co. v.

The King, (SCC), [1951] S.C.R. 624, at p. 641: . . . in construing a written document, the question is not as to the meaning of the words alone, nor the meaning of the writer alone, butthe meaning of the words as used by the writer. [18] Twelve years later our Court of Appeal commented in Dow Chemical Canada Inc. v. Shell Chemicals Canada Ltd., 2010ABCA 126: 11 The

interpretation of a contract may invoke several standards of review. Some findings of fact may be required. In some cases thetrial judge may have to determine which documents, promises, and consideration constitute the contract. There is a limited ability tointroduce evidence regarding the circumstances surrounding the formation of the contract. Findings of fact on such issues will only bedisturbed on appeal if they disclose palpable and overriding error: Double N Earthmovers v. Edmonton, 2005 ABCA 104, 363 A.R. 201at para. 16, aff'd, [2007] 1 S.C.R. 116, 2007 SCC 3; Jiro Enterprises Ltd. v.

Spencer, 2008 ABCA 87 at para. 10. A trial judge'sdetermination of the factual matrix surrounding the contract in light of the evidence as a whole (including if appropriate extrinsicevidence) is a matter of fact, although the determination may be influenced by legal concepts: Diegel v. Diegel, 2008 ABCA 389, 100Alta. L.R. (4th) 1 at para. 20; Jiro Enterprises at para.10; Double N Earthmovers at para. 16. ... 16 The respondent acknowledges that the parties to the contract are not entitled to provide evidence on what they think the contractmeans.

Neither contracting party is entitled to call evidence that "I think it means X": Eli Lily & Co. v. Novopharm Ltd., (SCC), [1998] 2 S.C.R. 129 at p. 166; Gainers Inc. v. Pocklington Financial Corp., 2000 ABCA 151, 81 Alta. L.R. (3d) 17, 255A.R. 373 at para. 20; Marthaller v. Lansdowne Equity Venture Ltd. (c.o.b. Canadian Heritage Homes), 1997 ABCA 258 ,[1998] 1 W.W.R. 428, 52 Alta. L.R. (3d) 329, 200 A.R. 226 (C.A.). ... 20 Where a contract is ambiguous, there is a limited ability to call evidence on the circumstances surrounding the formation of thecontract and the commercial context in which it was made.

But where the contact is clear, the parties' intention is to be derived primarilyfrom the words they have used in the contract: Eli Lily & Co. at paras. 52-6, explaining Consolidated-Bathurst Export Ltd. v. MutualBoiler and Machinery Insurance Co., (SCC), [1980] 1 S.C.R. 888; Gilchrist v. Western Star Trucks Inc., 2000 BCCA70, 73 B.C.L.R. (3d) 102 at paras. 17-8. This is especially so when the contract contains a "whole agreement" clause. Evidence ofcontext cannot in any case be allowed to overwhelm the words of the contract, or to contradict those words: Black Swan Gold MinesLtd. v.

Goldbelt Resources Ltd. (1996), (BC CA), 25 B.C.L.R. (3d) 285 (C.A.) at para. 19. [19] Accordingly, as leave may only be granted on a question of law pursuant to s. 44 (2) of the Arbitration Act of Alberta, theapplication of Milner for leave is dismissed with costs. Section 44(2)(a)and(b) [20] Having so found, I do not consider it necessary to decide whether the Court must be satisfied that it is in the public interest togrant leave, in a case where leave to appeal is sought on a question of law. [21] Nevertheless, I question whether the reading of s. 44(2)(

a) and (

b) permits such a requirement. Rather, I suspect that theorigin of the requirement: see Warren v. Alberta Lawyer's Public Protection Association (1997), (AB KB), 56 Alta.L.R. (3d) 52, [1997] A.J. No. 1041 at para. 17 and since followed in a number of this Court’s decisions, arises from what appear to beunhelpful criteria, that is that the court shall only grant leave if it is satisfied that :

(

a) the importance to the parties of the matters at stake in the arbitration justifies an appeal, and (

b) determination of the question of law at issue will significantly affect the rights of the parties. [ 22 ] The above requirements have been deemed to be unhelpful because in almost every case the award is going to be important to the parties and determination of the question of law will significantly affect their rights. As a result, it appears that Dea J. in Warren added “public interest” and thereafter our Court has in effect added to (

a) and (

b) above that the Court “ ... shall only grant leave if it is satisfied that it is in the public interest to do so”. Accordingly, I suggest to counsel that they forward this matter to the appropriate government department or legislative counsel for review and consideration. Conclusion [ 23 ] The application is dismissed with costs. Heard on the 24 th day of February, 2011. Dated at the City of Edmonton, Alberta this 1st day of March, 2011. M.A. Binder J.C.Q.B.A. Appearances: D.J. McDonald, Q.C./Jeff E. Sharpe, Burnet Duckworth & Palmer LLP for the Applicant Kenneth F. Bailey, Q.C., Parlee McLaws LLP for the Respondent