A.G. Clark Holdings Ltd v. HOOPP Realty Inc., 2013 ABQB 402

Court of Queen ’ s Bench of Alberta Citation: A.G. Clark Holdings Ltd v. HOOPP Realty Inc., 2013 ABQB 402 Date: 20130716 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) - and - _______________________________________________________ Reasons for Judgment of the Honourable Mr. Justice J. J. Gill _______________________________________________________ Introduction [ 1 ] On September 5 th , 2012, the Applicant (“Clark Builders”) applied to strike an action brought by the Respondent, HOOPP

Realty Inc. (“HOOPP”) for negligence and breach of a Design-Build Agreement. Clark Builders claimed that the Design-Build Agreement contained a mandatory arbitration clause and that HOOPP failed to commence an arbitration proceeding within the two year limitation period alleged to apply under the Limitations Act , RSA 2000, c L-12. In the alternative, Clark Builders sought a stay pursuant to s. 7 of the Arbitration Act , RSA 2000, c A-43. [ 2 ] This Court found that the Design-Build Agreement did not make arbitration mandatory and dismissed that application.

Clark Builders appealed that decision. [ 3 ] On March 19 th , 2013, the Court of Appeal held the arbitration clause in the Design-Build Agreement was mandatory, allowed the appeal, and returned the matter to the Court of Queen’s Bench for consideration of the remaining issues. [ 4 ] Clark Builders now re-applies to strike the Action on the grounds that: (

a) the 1999 Design-Build Agreement between HOOPP and Clark Builders contains a mandatory arbitration clause; (

b) no arbitration was initiated by either party, and in particular HOOPP failed to commence arbitration proceedings within the two year limitation period prescribed by the Limitations Act ; (

c) HOOPP’s cause of action against Clark Builders has been extinguished by virtue of the Arbitration Act and the Limitations Act , as applied by the Alberta Court of Appeal in Babcock & Wilcox Canada Ltd v Agrium Inc , 2005 ABCA 82 (“ Babcock & Wilcox ”); and (

d) in the alternative, Clark Builders should be granted a stay on the basis that there has been “undue delay” as contemplated by s. 7(2) (

d) of the Arbitration Act . Background [ 5 ] This action arises from the construction of a warehouse (the “Warehouse”) by Clark Builders in Edmonton during 1999 - 2000. The Warehouse was constructed pursuant to a Design-Build Agreement (the “Design- Build Agreement”) between HOOPP, as owner, and Clark Builders, as the design-builder. [ 6 ] 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. [ 7 ] 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 (the “HOOPP action”); and

(4) HOOPP commenced an action against Guaranteed Company of North America, Clark Builders’s Bonding Company, on February 23, 2002 (the “Bond Action”). [ 8 ] The first two actions are now settled.

This application involves the third action. [ 9 ] After this action was commenced on February 28, 2002, there were numerous attempts to resolve this litigation. [ 10 ] During 2003 and 2004 the parties engaged in discussions and mediation concerning the MTE Actions which were settled in January 2004. [ 11 ] After that settlement, the parties attempted to resolve the claims advanced by HOOPP against Clark Builders directly. [ 12 ] The issue of the limitation period concerning rights of arbitration was discussed by the parties and they agreed on an extension of the limitation period to January 31, 2005. [ 13 ] On January 31, 2005, Clark Builders filed a motion to stay this action on the basis that the action was not the proper method for determining disputes under the Design-Build Agreement (the “2005 Motion”).

No affidavit was filed in support of this motion. [ 14 ] The 2005 Motion was adjourned by agreement to allow the parties to continue with settlement discussions. Further without prejudice discussions took place in 2005. [ 15 ] Neither party served a Notice of Arbitration by the extended deadline of January 31, 2005 or at any time thereafter. [ 16 ] In October 2006, HOOPP filed an Amended Statement of Claim in this Action.

This prompted the parties to enter into a Tolling Agreement, which remained in effect for three years (the “2006 Tolling Agreement”). [ 17 ] Under the 2006 Tolling Agreement, the parties agreed to suspend the running of time with respect to any claims related to the Warehouse. It was also agreed that nothing in the Tolling Agreement would operate to postpone a limitation period which had already lapsed.

Without prejudice negotiations continued. [ 18 ] By notice dated October 19, 2009, HOOPP’s lawyers terminated the 2006 Tolling Agreement effective November 2, 2009, ten business days later. [ 19 ] On November 13, 2009, Clark Builders filed this Notice of Motion to strike HOOPP’s pleadings. [ 20 ] Clark Builders has not filed a Statement of Defence in this Action. [ 21 ] Neither party has invoked any of the dispute resolution procedures in the Design-Build Agreement, nor attempted to initiate arbitration proceedings. The Law

[22] Rule 3.68 states: Court options to deal with significant deficiencies 3.68(1) If the circumstances warrant and a condition under subrule (2) applies, the Court may order one or more of the following: (

a) that all or any part of a claim or defence be struck out; (

b) that a commencement document or pleading be amended or set aside; (

c) that judgment or an order be entered; (

d) that an action, an application or a proceeding be stayed.

(2) The conditions for the order are one or more of the following: (

a) the Court has no jurisdiction; (

b) a commencement document or pleading discloses no reasonable claim or defence to a claim; (

c) a commencement document or pleading is frivolous, irrelevant or improper; (

d) a commencement document or pleading constitutes an abuse of process; (

e) an irregularity in a commencement document or pleading is so prejudicial to the claim that it is sufficient to defeat the claim. [23] In Donaldson v Farrell, 2011 ABQB 11, Graesser J. noted that the test under Rule 3.68 is similar to that under former Rule129: [30] ... I do not see that the new rules have modified or lessened the test for striking out pleadings. As stated at para. 7 in Mackay v.Farm Business Consultants Inc., 2006 ABCA 316 (quoting from Korte v. Deloitte Haskins & Sells, (1993), 1993 ABCA 78 , 8Alta. L.R. (3d) 337), "the test for striking pleadings under Rule 129 is not in issue.

It is whether it is plain and obvious or beyondreasonable doubt that the claim cannot succeed." [24] The relevant provisions of the Arbitration Act RSA 2000, c A-43 are attached as Appendix A. Issue

1. Should this action be struck under Rule 3.68? Submissions of Clark Builders [ 25 ] Clark Builders submits that it is plain and obvious that HOOPP’s claim cannot succeed due to the mandatory arbitration clause in the Design-Build Agreement, and HOOPP’s failure to submit its claims to arbitration within the applicable limitation period. [ 26 ] The Court of Appeal’s analysis in Babcock & Wilcox v Agrium ( supra ) is applicable to this case.

Clark Builders relies on that case for the proposition that when a party files a statement of claim, but fails to commence mandatory arbitration within the applicable limitation period, the party’s right to arbitrate is extinguished and the Statement of Claim will be struck out. [ 27 ] In the alternative, if the Court is of the view that s.79(2) of the Arbitration Act is relevant, Clark Builders submits that it did not unduly delay in bringing a stay application .

Submissions of HOOPP [ 28 ] HOOPP submits that the application to strike should be dismissed for two primary reasons. [ 29 ] First, HOOPP claims that Clark Builders unduly delayed in bringing this application. Clause 7(2) (

d) of the Arbitration Act permits the Court to refuse to stay a legal proceeding if the application to stay has been brought with undue delay. [ 30 ] The Statement of Claim was filed February 28, 2002. The Applicants filed the 2005 Motion on January 31, 2005 but never served the anticipated supporting Affidavit and never pursued the Application.

It was not until November 13, 2009 that Clark Builders filed this Application, some seven-and-a-half years after the commencement of the action. [ 31 ] HOOPP notes that even if the time period within the Tolling Agreement is excluded, there was a period of almost four years and eight months (from February 28, 2002 until November 1, 2006) during which Clark Builders failed to file its Application.

HOOPP submits that this constitutes undue delay. [ 32 ] To support its claim for undue delay, HOOPP refers to a number of cases: Turner & Goudy v McConnell , [1985] 1 WLR 898 (Eng CA) , Hnatiuk v Assured Developments Ltd , 2012 ABCA 97 , Eiffel Developments Ltd v Paskuski , 2010 ABQB 619 , and Millennial Construction Ltd v 1021120 Alberta Ltd , 2005 ABQB 533 . [ 33 ] Second, HOOPP claims that while it did not issue a Notice of Arbitration, Clark Builders was nevertheless given sufficient notice when it was served with the Statement of Claim.

HOOPP refers to a decision of Lafarge Canada Inc v Edmonton (City) , 2012 ABQB 634 (“ Lafarge ”) where Clackson J. found that s. 23 of the Arbitration Act did not foreclose a finding that the issuance of a statement of claim could be considered an arbitration-commencing document. Analysis [ 34 ] The decision of the Alberta Court of Appeal in Babcock & Wilcox v Agrium ( supra ) has to be considered in this case. [ 35 ] Babcock & Wilcox (“B & W”) entered into a construction contract with Agrium which stipulated that disputes must be

submitted to arbitration. The work was completed on October 2, 1999. On May 14, 2002, B & W served Agrium with a Notice of Arbitration. On May 23, 2002 Babcock and Wilcox served Agrium with a Statement of Claim. The chambers judge found that B & W did not commence the arbitration until beyond the two year limitation period. The effect of the decision was that B & W had no further right to arbitrate their claims. The Chambers judge dismissed Agrium’s application to strike the statement of claim. [ 36 ] On appeal, the Court of Appeal reviewed the Arbitration Act in detail.

At paragraph 7 it noted that the Court must stay litigation of a dispute covered by the arbitration agreement when there is a mandatory arbitration agreement. [ 37 ] The Court of Appeal addressed the appropriateness of a dismissal application where there is a mandatory arbitration clause and the underlying right to arbitrate has become statute-barred as a result of s. 51 of the Arbitration Act . Fruman J.A. stated: [11] An application under R. 129 or R. 159 is appropriate here because the underlying right to arbitrate is statute-barred.

Usually, parties whose lawsuits deal with arbitrable issues would have their actions stayed under s. 7(1) and the arbitration would proceed. The lawsuit would not be dismissed outright because the court retains supervisory jurisdiction under s. 6 and could, for example, enforce an award. In the instant case a stay is not appropriate because the right to arbitrate is extinguished through the expiration of the limitations period and, accordingly, there is no further supervisory or enforcement jurisdiction for the court to exercise . [12] In

summary, s. 7(1) of the Arbitration Act makes arbitration a condition precedent to litigation when the parties have agreed their disputes shall be submitted to arbitration, and the previous distinction between ordinary arbitration clauses and Scott v. Avery clauses no longer exists. In those circumstances, a court must stay parallel litigation, unless the narrow exceptions contained in s. 7(2) apply. Parties to an arbitration agreement, like parties to any contract, can agree that arbitration is not mandatory. But unless they use appropriate permissive language, s. 7 applies.

In this case the parties used mandatory language and none of the s. 7(2) exceptions apply. Because the underlying arbitration is statute-barred, the statement of claim should be dismissed. (Emphasis added) [ 38 ] These principles apply to this case. The arbitration clause is mandatory. HOOPP failed to commence arbitration proceedings within the limitation period. The right to arbitrate is statute barred. The Court has no further supervisory role. [ 39 ] Section 7(2) of the Arbitration Act does not assist HOOPP.

Once it has been determined that there is a mandatory arbitration clause and that the applicable party failed to commence an arbitration within the limitation period, the Arbitration Act ceases to have any further application and the Court’s role comes to an end. [ 40 ] I also find that Lafarge ( supra ) is not applicable as the factual background and the wording of the arbitration clause makes that case distinguishable. Conclusion [ 41 ] I find that it is plain and obvious that HOOPP’s claim cannot succeed .

The action is dismissed. [ 42 ] If the parties cannot agree on costs, they may speak to them within 120 days of this decision. Heard on the 9 th day of July, 2013. Dated at the City of Edmonton, Alberta this 15 th day of July, 2013.

J. J. Gill J.C.Q.B.A. Appearances: Donald Cranston,Q.C. For the Plaintiff HOOPP Realty Inc. Blair Shaw and Alexandra C. Bochinski Davis LLP For the Defendants A.G. Clark Holdings Ltd. and Giebelhaus Developments Ltd., carrying on Business In Partnership As Clark Builders Appendix A Arbitration Act, RSA 2000, c A-43 Court Intervention Court Intervention Limited 6 No court may intervene in matters governed by this Act, except for the following purposes as provided by this Act: (

a) to assist the arbitration process; (

b) to ensure that an arbitration is carried on in accordance with the arbitration agreement; (

c) to prevent manifestly unfair or unequal treatment of a party to an arbitration agreement; (

d) to enforce awards. Stay 7(1) If a party to an arbitration agreement commences a proceeding in a court in respect of a matter in dispute to be submitted to

arbitration under the agreement, the court shall, on the application of another party to the arbitration agreement, stay the proceeding.

(2) The court may refuse to stay the proceeding in only the following cases: (

a) a party entered into the arbitration agreement while under a legal incapacity; (

b) the arbitration agreement is invalid; (

c) the subject-matter of the dispute is not capable of being the subject of arbitration under Alberta law; (

d) the application to stay the proceeding was brought with undue delay; (

e) the matter in dispute is a proper one for default or

summary judgment.

(3) An arbitration of the matter in dispute may be commenced or continued while the application is before the court.

(4) If the court refuses to stay the proceeding, (

a) no arbitration of the matter in dispute shall be commenced, and (

b) an arbitration that has been commenced shall not be continued, and anything done in connection with the arbitration before the court ’ s refusal is without effect.

(5) The court may stay the proceeding with respect to the matters in dispute dealt with in the arbitration agreement and allow the proceeding to continue with respect to other matters if it finds that (

a) the agreement deals with only some of the matters in dispute in respect of which the proceeding was commenced, and (

b) it is reasonable to separate the matters in dispute dealt with in the agreement from the other matters.

(6) There is no appeal from the court ’ s decision under this section. Commencement of Arbitration 23(1) An arbitration may be commenced in any way recognized by law, including the following: (

a) a party to an arbitration agreement serves on the other parties notice to appoint or to participate in the appointment of an arbitrator under the agreement;

(

b) if the arbitration agreement gives a person who is not a party power to appoint an arbitrator, a party serves notice to exercise that power on the person and serves a copy of the notice on the other parties; (

c) a party serves on the other parties a notice demanding arbitration under the arbitration agreement.

(2) The arbitral tribunal may exercise its powers when every member has accepted appointment. Limitation Periods 51(1) The law with respect to limitation periods applies to an arbitration as if the arbitration were an action and a matter in dispute in the arbitration were a cause of action.

(2) If the court sets aside an award, terminates an arbitration or declares an arbitration to be invalid, it may order that the period from the commencement of the arbitration to the date of the order is excluded from the computation of the time within which an action may be brought on a cause of action that was a matter in dispute in the arbitration.

(3) An application for the enforcement of an award may not be made more than (a) 2 years after the day on which the applicant receives the award, or (b) 2 years after all appeal periods have expired, whichever is later.