A.G. Clark Holdings Ltd. v. HOOPP Realty Inc., 2012 ABQB 567

Court of Queen ’ s Bench of Alberta Citation: A.G. Clark Holdings Ltd. v. HOOPP Realty Inc., 2012 ABQB 567 Date: 20120921 Docket: 0203 04225 Registry: Edmonton Between: A.G. Clark Holdings Ltd. and Giebelhaus Developments Ltd., carrying on Business In Partnership As Clark Builders Applicants(Defendants) - and - HOOPP Realty Inc. Respondent(Plaintiff) Corrected judgment: A corrigendum was issued on September 27, 2012; the corrections have been made to the text and the corrigendum is appended to this judgment. _______________________________________________________ Reasons for Judgment of the Honourable Mr.

Justice J. J. Gill _______________________________________________________ I. Introduction................................................................................................................ Page: 2 II. Background................................................................................................................ Page: 2 III. The Issues................................................................................................................... Page: 3

IV. Is there a mandatory arbitration clause in the Design-Build Agreement? .................. Page: 3

A) Positions of the Parties........................................................................................... Page: 3

B) Arbitration Clauses - Generally.............................................................................. Page: 4

C) The Arbitration Clause in the Design-Build Agreement ........................................ Page: 5 V. Analysis...................................................................................................................... Page: 9 VI. Conclusion................................................................................................................ Page: 12 I. Introduction [ 1 ] This application involves the

interpretation of an arbitration clause in a construction contract. [ 2 ] The Applicants, A.G. Clark Holdings Ltd. and Giebelhaus Developments Ltd., carrying on business in partnership as Clark Builders ( “ Clark Builders ” ) apply to strike an action for breach of contract and negligence on the ground that the construction contract, (the “ Design-Build Agreement ” ), contains a mandatory arbitration clause and that the Respondent, HOOPP Realty Inc. ( “ HOOPP ” ), failed to commence an arbitration proceeding within the two year limitation period prescribed under the Limitations Act , RSA 2000, c L- 12. In the alternative, Clark Builders seeks a stay pursuant to

section 7 of the Arbitration Act , RSA 2000, c A-43. II. Background [ 3 ] This action, and the underlying litigation, arises from the construction of a warehouse (the “ Warehouse ” ) by Clark Builders in Edmonton during 1999 -2000. The Warehouse was constructed pursuant to the Design-Build Agreement between HOOPP, as owner, and Clark Builders, as the design-builder. After taking possession of the Warehouse in 2000, the tenant MTE Logistix Inc. ( “ MTE ” ) complained to HOOPP about dust emanating from the concrete floor.

A dispute then arose as to whether or not the remedial work was successful. [ 4 ] Four legal proceedings were commenced relating to alleged construction deficiencies in the Warehouse:

(1) HOOPP ’ s tenant, MTE commenced an action on July 4, 2000 against HOOPP for losses allegedly suffered as a result of the construction deficiencies. HOOPP Third Partied Clark Builders in that action. In turn, Clark Builders Fourth Partied one of its sub- contractors who installed the concrete hardener and sealer used in the Warehouse construction, as well as the product manufacturer of the concrete hardener and sealer;

(2) MTE filed a second action against Clark Builders on February 1, 2002 alleging negligence in the design and construction of the Warehouse;

(3) HOOPP commenced legal proceedings against Clark Builders on February 28, 2002, alleging breach of the Design-Build Agreement and negligence; and

(4) HOOPP commenced an action against Guaranteed Company of North America, Clark Builders ’ s Bonding Company, on February 23, 2002 (the “ Bond Action ” ). [ 5 ] The first two actions are now settled. This application is concerned with the third action, the alleged breach of the Design- Build Agreement and negligence, commenced by HOOPP against Clark Builders. [ 6 ] There have been numerous attempts to resolve this litigation. Subsequent to the Design-Build Agreement, two agreements were entered into by the parties aimed at either re-mediating the construction deficiencies or replacing the work done.

In addition, Clark Builders and HOOPP entered into two Tolling Agreements, one dated November 1, 2006 and one dated February 12, 2010. These Tolling Agreements postponed the running of time with respect to any limitation periods applicable to any claim from and after the effective date of the agreement. III.

The Issues [ 7 ] This application raises the following issues: 1) Is there a mandatory arbitration clause in the Design-Build Agreement? 2) Did HOOPP fail to commence arbitration within the two year limitation period prescribed by the Limitations Act ? 3) If HOOPP failed to commence arbitration within the two year limitation period, has HOOPP ’ s cause of action been extinguished, or should it be stayed pursuant to

section 7 of the Arbitration Act ? 4) Was this application brought by Clark Builders without undue delay? 5) Would it be manifestly unfair to require the Applicants and the Respondent to proceed to arbitration when there is other litigation (The Bond Action) involving the same or similar issues? IV. Is there a mandatory arbitration clause in the Design-Build Agreement?

A) Positions of the Parties [ 8 ] Clark Builders submits that the Design-Build Agreement contains a mandatory arbitration clause. Clark Builders submits HOOPP ’ s claim cannot succeed as HOOPP failed to submit its claims to arbitration within the applicable limitation period. Clark Builders relies on the decision of the Court of Appeal per Fruman, J.A. in Babcock and Wilcox Ltd. v. Agrium Inc. , [2005] A.J. No. 171 , 2005 ABCA 82 . [ 9 ] HOOPP submits that a requirement to arbitrate has never arisen. HOOPP submits there are clear and mandatory steps

required by the Design-Build Agreement before the parties could refer the dispute to arbitration. These pre-conditions to Arbitration did not occur. Accordingly, a requirement to proceed to arbitration has not arisen and Clark Builders ’ s application should be dismissed.

B) Arbitration Clauses - Generally [ 10 ] The right to private arbitration and the scope of that right arises from the contract between the parties. A useful

summary of this fundamental principle can be found in Nelson on ADR, Robert Nelson, (Scarborough, Ont: Carswell, 2003) at page 142: 2. PRIVATE ARBITRATION Private arbitration is triggered by the agreement of the parties. If the parties have previously agreed on an arbitration clause, then the parties by law will be obligated to conduct a private arbitration, either institutional or ad hoc . The arbitration agreement between the parties can be made after the dispute has arisen for the resolution of that dispute. The arbitration agreement can also be made as a contract to arbitrate future disputes.

The arbitration clause must be clear and workable. It should contain a clear description of the following: • which disputes are covered; • how is the arbitral tribunal to be constituted; • what procedure will be adopted; • when must an award be rendered; and • the Rules to govern the tribunal hearing. The arbitration clause sets out the legal parameters of the private arbitration and therefore is a critical document. [ 11 ] This principle was also recently discussed in the context of

Section 7 of the Arbitration Act by the Alberta Law Reform Institute in its Report for Discussion Number 24, entitled “ Arbitration Act: Stay and Appeals Issues ” at paragraph 14: While

section 7 is designed to enforce agreements to arbitrate, it is deliberately drafted in an indirect way for conceptual reasons. The law of arbitration rests on what is called “ the doctrine of party autonomy ” . As a private dispute resolution process, arbitration exists entirely outside the Court system and occurs only by agreement of the parties [emphasis added]. No one can be compelled by a Court to arbitrate without their consent or prior agreement. And, at common law, the parties remain equally free to litigate. An arbitration agreement cannot oust the courts ’ jurisdiction over the dispute.

Such a provision is illegal and void as against public policy. So, at common law, parties to an arbitration agreement could still bring a court action and the court must exercise its jurisdiction to hear it. A statutory provision is required to authorize or direct a court to refuse to exercise its jurisdiction. That is what

section 7 does ... [ 12 ] The

interpretation of arbitration clauses focuses on the parties ’ intention and their mutual will. Arbitration clauses are to be interpreted within the context of the contract as a whole: Geoff R. Hall , Canadian Contractual

Interpretation Law , 2 nd edition at pg. 226 (Markham, Ontario: LexisNexis, 2012).

[ 13 ] Therefore, the question of whether or not there is a mandatory arbitration clause in the Design-Build Agreement depends on the wording of the Agreement.

C) The Arbitration Clause in the Design-Build Agreement [ 14 ] The Dispute Resolution

section of the Design-Build Agreement is contained in

Part 8. The Arbitration clause is found at GC 8.2.6. The Dispute Resolution

section reads:

Part 8 Dispute Resolution GC 8.1 AUTHORITY OF THE CONSULTANT 8.1.1 Differences between the parties to the Contract as to the

interpretation, application, or administration of the Contract or any failure to agree where agreement between the parties is called for, collectively referred to as disputes, which are not resolved in the first instance by findings of the Consultant as provided in GC 2.1 - CONSULTANT, shall be settled in accordance with the requirements of

Part 8 of the General Conditions - DISPUTE RESOLUTION. 8.1.2 If a dispute is not resolved promptly, the Consultant shall give such written instructions as in the Consultant ’ s opinion are necessary for the proper performance of the Work and to prevent delays pending settlement of the dispute. As time is of the essence, the Design Builder shall continue performance of the Work notwithstanding any such dispute and shall ensure its Subcontractors and Suppliers also do so.

Accordingly, in the event of a dispute, any Work stoppage by the Design Builder or by any Subcontractor, Supplier or by any others for whom the Design Builder is responsible will constitute a breach of the Contract entitling the Owner to claim damages on account of any delay affecting the construction

schedule of the Work. The Design-Builder shall act immediately according to such instructions, it being understood that by so doing the Design-Builder will not jeopardize any claim the Design-Builder may have.

If it is subsequently determined that such instructions were in error or at variance with the Contract Documents , the Owner shall pay the Design-Builder costs incurred by the Design-Builder in carrying out such instructions which the Design-Builder was required to do beyond what the Contract Documents correctly understood and interpreted would have required, including costs resulting from interruption of the Work.

GC 8.2 NEGOTIATION, MEDIATION, AND ARBITRATION 8.2.1 In accordance with the latest edition of the Rules for Mediation of Construction Disputes as provided in CCDC 40, the parties shall appoint a Project Mediator .1 within 30 days after the Contract was awarded, or .2 if the parties neglected to make an appointment within the 30 day period, within 15 days after either party by notice in writing requests that the Project Mediator be appointed. 8.2.2 A party shall be conclusively deemed to have accepted a finding of the Consultant under GC 2.1 — CONSULTANT and to have expressly waived and released the other party from any claims in respect of the particular matter dealt with in that finding unless, within 15 Working Days after receipt of that finding, the party sends a notice in writing of dispute to the other party and to the Consultants , which contains the particulars of the matter in dispute and the relevant provisions of the Contract Documents .

The responding party shall send a notice in writing of reply to the dispute within 10 Working Days after receipt of the notice of dispute setting out particulars of this response and any relevant provisions of the Contract Documents . 8.2.3 The parties shall make all reasonable efforts to resolve their disputes by amicable negotiations and agree to provide, without prejudice, frank, candid and timely disclosure of relevant facts, information, and documents to facilitate these negotiations.

8.2.4 After a period of 10 Working Days following receipt of a responding party ’ s notice in writing of reply under paragraph 8.2.2, the parties shall request the Project Mediator to assist the parties to reach agreement on any unresolved dispute. The mediated negotiations shall be conducted in accordance with the latest edition of the Rules for Mediation of Construction Disputes as provided in CCDC 40 subject to the following modification: .1 the mediation shall be “ rights reserved ” , i.e., the mediator should assist the parties in resolving the dispute based on the Contract Documents, applicable law and pertinent facts. 8.2.5 If the dispute has not been resolved within ten

(10) Working Days after the appointment of the Project Mediator either party may by notice to the other withdraw from the mediation process. 8.2.6 All disputes, claims and differences not settled as herein provided, arising out of or in connection with the Contract or in respect of any defined legal relationship associated with it or derived from it, shall be referred to and finally resolved by arbitration in accordance with the Alberta Arbitration Act .

The arbitral tribunal shall be composed of one (1) arbitrator where the subject of the dispute, claim or difference relates primarily to whether work required to be performed is within the scope of the Work or the Contractor has met the required specifications of the Contract, and the Work has not yet been completed when the matter is referred to arbitration.

In all other cases the arbitral tribunal shall be composed of three (3) arbitrators, one appointed by each party who shall select the third (3 rd ) who shall act as chair. 8.2.7 deleted 8.2.8 If neither party requires by notice in writing given within 10 Working Days of the date of notice requesting arbitration in paragraph 8.2.6 that a dispute be arbitrated immediately, all disputes referred to arbitration as provided in paragraph 8.2.6 shall be .1 held in abeyance until

(1) Substantial Performance of the Work, (2) the Contract has been terminated, or (3) the Design-Builder has abandoned the Work whichever is earlier, and .2 consolidated into a single arbitration under the rules governing the arbitration under paragraph 8.2.6. [ 15 ] GC 8.1.1 refers to the “ Consultant ” . The following clauses of the Design-Build Agreement describing the role of the Consultant are relevant: 5. Consultant The Consultant is the person or entity identified as such in the Agreement.

The term Consultant means the Architect, the Engineer, or entity licensed to practice in the province or territory of the Place of the Work and engaged by the Design-Builder to provide the Consultant ’ s Design Services and to and to [sic] coordinate the provision of the Design Services of all other consultants employed by the Design-Builder . The term Consultants means the Consultant or the Consultant ’ s authorized representative as designed to the Owner in writing.

PART 2 DESIGN SERVICES AND ADMINISTRATION OF THE CONTRACT GC 2.1 CONSULTANT 2.1.1 The Consultant ’ s duties and responsibilities will Include: . . . .14 the

interpretation, in the first instances, of the requirements of the Construction Documents and the making of findings as to the performance thereunder by both the Owner and the Design-Builder without showing partially [sic] to either the Owner or the Design-Builder , and in no event incurring liability for the result of such

interpretations or findings rendered in good faith in such capacity; .15 the

interpretation and finding, in the first instance, of claims, disputes, and other matters in question of the performance of the Work or the

interpretation of the Contract Documents , except for GC 5.1 - FINANCING INFORMATION REQUIRED OF THE OWNER. . . . 2.1.6 If the Consultant's engagement is terminated, the Design-Builder shall notify the Owner in writing before appointing or reappointing a Consultant to provide the Design Services V. Analysis [ 16 ]

Part 8 of the Design-Build Agreement sets out the Dispute Resolution processes agreed upon by the parties. It delineates in some detail how disputes are to be resolved. [ 17 ] GC.8.1.1, the first clause of

Part 8, describes which disputes are covered by the dispute resolution processes. [ 18 ] GC.8.1.1 states: “ Differences between the parties to the Contract ...... which are not resolved in the first instance by findings of the Consultant as provided in GC 2.1 - CONSULTANT, shall be settled in accordance with the requirements of

Part 8 of the General Conditions - DISPUTE RESOLUTION. ”(Emphasis added). [ 19 ] GC.8.1.1 imposes a restriction on which disputes have to be “ settled in accordance with the requirements of

Part 8 ” . Not every dispute between the parties is subject to the requirements of

Part 8. It is only those disputes where the Consultant was involved and “ which are not resolved in the first instance by findings of the Consultant ” . [ 20 ] While Arbitration is one of the dispute resolution methods mandated in

Part 8, a review of

Part 8 in its entirety demonstrates that there are a number of steps that the parties to the Design-Build Agreement have to complete before a matter can be referred to Arbitration under GC 8.2.6.

[ 21 ] These steps are: 1) The parties must initially work with the Consultant on any dispute with the Consultant (GC 8.1.1 .). 2) The Consultant is assigned the role of attempting to settle a dispute (GC 8.1.1 and 2.1.1 ). 3) The Consultant is empowered to issue a “finding” in relation to a dispute between the parties. [ 22 ] Under GC 8.2.2, as a first step, the parties are required to respond to a “ finding ” of the Consultant.

The term “ finding ” appears in GC 2.14 ( “ the making of findings as to the performance thereunder by both the Owner and the Design-Builder ” ) and GC 2.15( “ finding, in the first instance, of claims, disputes, and other matters in question relating of the performance of the Work ” ). [ 23 ] The “finding” of a Consultant carries considerable weight under the Design-Build agreement.

Under GC 8.2.2 a “ party shall be conclusively deemed to have accepted a finding of the Consultant under GC 2.1 — ... unless, within 15 Working Days after receipt of that finding, the party sends a notice in writing of dispute to the other party and to the Consultants ” (Emphasis added). The responding party then has 10 working days to respond in writing to this notice. [ 24 ] If the Consultant ’ s involvement does not resolve the dispute, the next required step is to use the “ Project Mediator ” (GC 8.2.4) . The parties must appoint a Project Mediator.

Under GC 8.2.1, “ the parties shall appoint a Project Mediator ” (Emphasis added). [ 25 ] GC 8.2.4 requires the parties to invoke the assistance of the Project Mediator to run mediated negotiations ( “ the parties shall request the Project Mediator to assist the parties to reach agreement on any unresolved dispute ” ).

These mediated negotiations “ shall be conducted in accordance with the latest edition of the Rules for Mediation of Construction Disputes as provided in CCDC 40 subject to the following modification ” (Emphasis added). [ 26 ] GC 8.2.5 permits either party to withdraw from the mediation process if “ the dispute has not been resolved within 10 working days after the appointment of the Project Mediator ” . [ 27 ] GC 8.2.6 then describes the Arbitration process: “ All disputes, claims and differences not settled as herein provided , arising of or in connection with the Contract or in respect of any defined legal relationship associated with it or derived from it, shall be referred to and finally resolved by arbitration in accordance with the Alberta Arbitration Act ” (Emphasis added). [ 28 ] On a plain reading this clause imposes a restriction on which types of “ disputes, claims and differences ” can be referred to Arbitration; specifically those “ disputes, claims and differences not settled as herein provided ” (Emphasis added).

In context the phrase “ herein provided ” must refer to

Part 8 and the other dispute resolution steps being the Consultant and the Project Mediator. [ 29 ] As a result, I find that Arbitration under the Design-Build Agreement is only required, and only available, for disputes that remain outstanding after the parties have used the other dispute resolution steps in

Part 8, the Consultant and the Project Mediator. This

interpretation is consistent with GC 8.1.1 which sets out clear preconditions for using

Part 8. GC 8.1.1 reads: “ Differences between the parties to the Contract .... which are not resolved in the first instance by findings of the Consultant as provided in GC 2.1 - CONSULTANT, shall be settled in accordance with the requirements of

Part 8 of the General Conditions - DISPUTE RESOLUTION ” (Emphasis added). [ 30 ] There is a requirement in GC 8.2.3 to “ make all reasonable efforts to resolve their disputes by amicable negotiations ” . If negotiations are unsuccessful, the first formal step of the

Part 8 Dispute Resolution process requires the parties to respond in writing to the findings of an expert third party, the Consultant. If that process is unsuccessful, the dispute progresses to mediated negotiations with the Project Mediator. If that step is unsuccessful the dispute moves to a binding resolution in front of a 1 person or 3 person Arbitration panel. Clark Builders and HOOPP agreed that Arbitration was only to be pursued after the required steps occurred. Arbitration was not mandatory until these preconditions were fulfilled.

[ 31 ] In

summary,

Part 8 requires the parties to the Design-Build Agreement to participate in a number of progressively more complex and formal dispute resolution techniques. It is a complete dispute resolution process, not a simple Arbitration provision. [ 32 ] The benefits of a dispute resolution process which incorporates progressively more complex steps are obvious from both a business and relationship perspective . This type of process creates a sequence for dispute resolution which minimizes costs and avoids escalation of the dispute. [ 33 ] The language in the Design-Build Agreement does not make arbitration mandatory.

Arbitration is not an automatic right, or obligation, under the Design-Build Agreement. It is only available, or required, for those disputes which are still outstanding after the parties follow the other steps in

Part 8 . These steps are preconditions to Arbitration. This

interpretation of the Dispute Resolution process is consistent with the overall structure and wording of

Part 8 of the Design-Build Agreement. [ 34 ] In this case, the parties chose not to use

Part 8 of the Design-Build Agreement. They did not appoint a Consultant or a Project Mediator. It is now too late to start the process and the preconditions to Arbitration cannot be fulfilled. Arbitration no longer remains alive as a contractual right. [ 35 ] This case is similar to the circumstances in Millenial Construction Ltd. v. 1021120 Alberta Ltd. , [2005] A.J. No. 876 , 2005 ABQB 533 , a decision of Madam Justice Romaine. At paragraph 13 she states: In this case, the contractual language used does not make arbitration mandatory.

Section 8.2.6 of the Contract provides that either party may refer a dispute to arbitration under certain conditions of timing that have not been met under the Contract and are now impossible to meet. Madam Justice Romaine continues at paragraph 14, stating: The steps that would have led to arbitration under the contract were never untaken. An arbitration remains an incomplete option. [ 36 ] The decision in Babcock and Wilcox Ltd. v.

Agrium Inc. , relied on by the Applicant, is distinguishable as the arbitration clause in that case was mandatory. [ 37 ] This case is also distinguishable from the Suncor Energy Products Inc. v. Howe Baker Engineers Ltd. , [2010] A.J. No. 618 , 2010 ABQB 310 , a decision of Mr. Justice Hawco. In that case there was also a number of steps in the dispute resolution process. The parties attempted the negotiation stage but failed to settle the dispute. The subsequent mediation stage was waived by the parties. This left the binding arbitration step.

The respondent in that case did not commence the mandatory arbitration process within the applicable limitation period. VI. Conclusion [ 38 ] In

summary, I find that the Design-Build Agreement did not make arbitration mandatory for this dispute. Further, Section 7(1) of the Arbitration Act does not apply as only mandatory arbitration clauses are subject to

Section 7 of the Arbitration Act . [ 39 ] The application to strike or stay the action is dismissed. In view of this conclusion there is no need to decide the other issues.

[ 40 ] If the parties are unable to agree, submissions may be made as to costs. Heard on the 5 th day of September, 2012. Dated at the City of Edmonton, Alberta this 21 st day of September, 2012. J. J. Gill J.C.Q.B.A. Appearances: Mr. Donald Cranston (Bennett Jones LLP) for the Plaintiff - HOOPP Realty Ltd. Mr. Blair M. Shaw and Ms. Alexandra C. Bochinski (Davis LLP) for the Defendants - A.G. Clark Holdings Ltd. et al. Mr. Rick Shaban and Mr. Ryan Kary (Borden Ladner Gervais LLP) for the Defendant - The Guarantee Company of North America

Corrected judgment: A corrigendum was issued on September 27, 2012; the corrections have been made to the text and the corrigendum is appended to this judgment. _______________________________________________________ Corrigendum of the Reasons for Judgment of The Hon. Mr. Justice J. J. Gill _______________________________________________________ The Index has been re-generated and has included levels I, II and III from the Index that were missing.