Inter Pipeline Ltd v Rural Road Construction Ltd, 2017 ABQB 811

Court of Queen’s Bench of Alberta Citation: Inter Pipeline Ltd v Rural Road Construction Ltd, 2017 ABQB 811 Date: 20171222 Docket: 1701 05661 Registry: Calgary Between: Inter Pipeline Ltd. Applicant - and - Rural Road Construction Ltd. Respondent _______________________________________________________ Reasons for Judgment of the Honourable Madam Justice C. Dario _______________________________________________________ I.

Introduction [ 1 ] The Applicant, Inter Pipeline Ltd. (“ Inter Pipeline ”), seeks a declaration that the Respondent, Rural Road Construction (“ Rural Road ”), may not commence litigation or arbitration proceedings as the limitations period has expired pursuant to s. 3(1) of the Limitations Act , RSA 2000, c L-12; and s. 51(1) of the Arbitration Act , RSA 2000, c A-43. Alternatively, the Applicant seeks

summary judgment against Rural Road Construction on the same basis; namely, the expiry of the limitation period. As a further alternative, the Applicants seek a declaration that the arbitration is invalid, and an injunction prohibiting the commencement of the arbitration pursuant

to

section 47 of the Arbitration Act , presumably on the same grounds. [ 2 ] The Respondent contests this application on three grounds: 1) The court lacks the jurisdiction to decide whether or not the limitation period has expired; 2) The Arbitration commenced at the time of entering the arbitration agreement, so the limitation period had not expired prior to the Respondent’s application for the appointment of an arbitrator; and 3) The conduct of the Applicant precludes a finding that the limitation period has expired; that such a finding would be contrary to the principles of equity. II.

Background [ 3 ] In the course of constructing a pipeline between Edmonton and Lamont, the Applicant entered into a Right of Way agreement and temporary working space agreement with owners of certain lands (the “ Lands ”) in which the Applicant was given the right to install a pipeline on the Lands. The Respondent held a lease with one of the owners of the Lands.

That lease allowed the Respondent to extract sand fill from the Lands, and the leasehold interest was registered on title to the Lands. [ 4 ] In June 2014, an issue arose regarding the impact the Applicant’s installation of the pipeline would have on the Respondent’s sand fill extraction operations. The Respondent and Applicant continued discussions on this issue in July and September 2014.

Once the Applicant commenced stripping and grading activities, the Respondent applied for an injunction which would have the effect of ceasing the Applicant’s pipeline installation work. [ 5 ] The parties agreed that the dispute would be resolved by way of arbitration. The Respondent executed a release on December 1 and the injunction application was discontinued on December 3, allowing the Applicant to continue its work on the Lands. The parties entered into an arbitration agreement dated effective December 5, 2014. That agreement did not contain a standstill clause.

The recitals of the arbitration agreement set out the nature of the dispute and paragraph 5 of the agreement sets out the specific issues to be determined by the arbitrator.

Until the arbitration agreement, there had been no contract between the parties; both had entered into agreements with one or more of the owners of the Lands, but not with each other. [ 6 ] The Applicant concluded its work on the Lands by the end of December 2014. [ 7 ] The Applicant’s counsel sent a letter to the Respondent’s counsel dated February 17, 2015 stating that they had neglected to provide the Respondent with a fully executed copy of the arbitration agreement, and provided a copy. [ 8 ] After the Applicant’s counsel provided the executed agreement to the Respondent, the Respondent’s counsel communicated on an infrequent basis (once in July 2015, and again in May 2016), primarily advising the Applicant that the Respondent was still investigating with a view to settling the dispute or moving forward with the arbitration.

The Respondent did not respond. [ 9 ] On February 13, 2017, the Respondent’s counsel advised the Applicant that the Respondent was still in the process of gathering needed information regarding the value of material the pipeline sterilized, “however, given it will be 2 years since [they] signed the arbitration agreement [that] week, and given the obligation to co-operate and move the arbitration forward in a timely manner” the Respondent requested confirmation of whether the Applicant wanted the Respondent to press ahead with arbitration or wait for further information.

The Respondent further advised that if it did not hear from the Applicant by February 21, 2017, it would apply to have an arbitrator appointed. [ 10 ] No response from the Applicant was forthcoming. [ 11 ] The Respondent filed an originating application on February 21, 2017, seeking the appointment of an arbitrator. It was met with this application by Inter Pipeline Ltd. III. Jurisdiction of the Court [ 12 ] As a preliminary issue, the Respondent argues that the determination of whether the matter is statute barred belongs to and should be determined by the arbitrator, once appointed, rather than the court.

The Respondent relies on the decision of the Court of Appeal in EPCOR Power LP v Petrobank Energy and Resources Ltd , 2010 ABCA 378 [ EPCOR ], wherein the justice hearing the application declined to find that the matter was statute barred and that arbitration was precluded. Each party had been operating according to their respective

interpretations of an arrangement between them, and to prevent a resolution of the matter would mean the parties would be left in “legal limbo”. [ 13 ] In affirming the Justice’s decision, the Court of Appeal noted that the determination of whether the dispute should be referred to arbitration was largely a discretionary one; the standard of review is highly deferential. Absent a material error in principle, a significant misapprehension or disregard of the evidence, or a decision which is clearly wrong, the court noted that it should not interfere: at para 14.

As such, the Court of Appeal did not interfere with the decision in the first instance. [ 14 ] The Applicant argues that this court has the jurisdiction to determine whether the arbitration is statute barred.

It points to the decision in Suncor Energy Products Inc v Howe-Baker Engineers Ltd , 2010 ABQB 310 , wherein at paras 19 and 21 the Court, relying on the decision of the Court of Appeal in Autoweld Systems Ltd v CRC-Evans Pipeline International Inc , 2009 ABCA 366 at para 2 , finds that where the issue is the very existence (as opposed to the scope) of the arbitration, the court is not compelled to send the issue to the arbitrator. The issue of the court’s jurisdiction falls within the limited exception in Union des consommateurs v Dell Computer

Corp , 2007 SCC 34 [ Dell ] at para 84 , which states: 84 First of all, I would lay down a general rule that in any case involving an arbitration clause, a challenge to the arbitrator’s jurisdiction must be resolved first by the arbitrator. A court should depart from the rule of systematic referral to arbitration only if the challenge to the arbitrator’s jurisdiction is based solely on a question of law.

This exception is justified by the courts’ expertise in resolving such questions, by the fact that the court is the forum to which the parties apply first when requesting referral and by the rule that an arbitrator’s decision regarding his or her jurisdiction can be reviewed by a court. It allows a legal argument relating to the arbitrator’s jurisdiction to be resolved once and for all, and also allows the parties to avoid duplication of a strictly legal debate.

In addition, the danger that a party will obstruct the process by manipulating procedural rules will be reduced, since the court must not, in ruling on the arbitrator’s jurisdiction, consider the facts leading to the application of the arbitration clause. [ 15 ] In reviewing the parameters set out by the Supreme Court of Canada in Dell , the Court of Appeal in EPCOR holds that the circumstances in which the court may exercise its discretion not to refer an issue to an arbitrator are narrow: “only on a pure question of law alone that can be readily resolved on superficial material”: at para 20.

Even in these circumstances, the court can refer the issue to the arbitrator. The Court of Appeal also limited such exercise of discretion to where the determination will “expeditiously dispose of the entire dispute between the parties”: at para 20. Given, however, that this was not a condition set out in Dell , I interpret this statement to mean, resolve the specific jurisdictional dispute or question of law at issue before the court in that application, rather than resolve the entire action between the parties.

Otherwise, the statement of the Court of Appeal would be inconsistent with and more limiting than the parameters established in Dell , including that before departing from the general rule of referral to the arbitrator, the court must be satisfied that the challenge to the arbitrator’s jurisdiction is not a delaying tactic, unduly impairing the conduct of the arbitration proceeding: Dell at para 86 . [ 16 ] In the present case, the issue before the court is limited to whether there is anything left to be submitted to arbitration, or if due to the expiry of the limitation period, the claim is statute barred.

This issue is a pure question of law and may be determined by this court, as only limited facts (and no testimony) are required to dispose of the issue. [ 17 ] In the event my

interpretation of the Court of Appeal’s statement in EPCOR , in light of my understanding of Dell , is incorrect, and the court can only seize itself of an issue where the decision would also end the entire dispute, this court would then not have the jurisdiction to make this determination. The issue of whether the arbitrator lacks jurisdiction to hear the matter due to the expiry of the limitation period (or the matter should on that basis be summarily dismissed) should then be submitted to the arbitrator to determine. The reasons for this conclusion follow. IV. Limitation Period,

Summary Judgment and s. 47 of the Arbitration Act [ 18 ] All the forms of relief sought by the Applicant are premised on a finding that the arbitration process had not been commenced before the originating application to appoint an arbitrator. Simply put, the issue is whether entering into the arbitration agreement constitutes commencement of the arbitration process. If it does, then arbitration was commenced within the limitation period.

If it does not, to the extent that the Respondent’s February 21, 2017, filing of the originating application seeking the appointment of an arbitrator commenced the proceedings (which I find it would have), it was arguably out of time and therefore, subject to equitable relief, the action would likely be statute barred: Limitations Act s. 3(1)(a). [ 19 ] The Applicant’s arguments with respect to

summary judgment and s. 47 of the Arbitration Act (that the court grants a declaration that the arbitration is invalid because the arbitration agreement does not apply to the matter in dispute) are based on the same limitation period rationale. [ 20 ] In the alternative to a finding that entering the arbitration agreement commences the arbitration, the Respondent argues that the relevant time period for the commencement of the limitation period is February 17, 2015, which is when it received a copy of the fully executed arbitration agreement.

The date of receiving the executed agreement is not the date upon which the limitation period commences running in this case. If the Respondent’s claim was for breach of the arbitration agreement and it was unclear when the agreement was fully executed, this may be a relevant time period. The present claim is not, however, regarding a breach of contract; rather it is for damages related to the Applicant’s activities on the Lands. The issue pertains to when Respondent first knew that damages arose attributable to the Applicant that warranted bringing an action: Limitations Act s. 3(1)(a).

Both parties clearly had knowledge of the dispute well before the February 17, 2015 date. That it warranted action is obvious by the fact the Respondent had already commenced an injunction application. [ 21 ] A further argument of the Respondent is that the Applicant failed to respond to the (very sparse) communications of the Respondent and essentially lay in the weeds until the limitations period expired.

Although s. 6 of the arbitration agreement requires the parties to undertake the arbitral process in a timely manner, it would be difficult for the Respondent to succeed based on that provision if the Respondent itself was not moving the process forward (other than to write twice that it was investigating the underlying facts). Further, litigation is an adversarial process and it is not the obligation of the Applicant to move the Respondent’s arbitration issue forward.

In any event, a further analysis of this argument is not required given my other findings in this application. [ 22 ] Finally, while it is clear from the communications that the Respondent was mistakenly under the belief that the limitations period was about to expire, its subjective belief does not invoke a limitation period any more than its error in relying on the latter date (February 17, 2015) extends one. A. Does Entering into the Arbitration Agreement Commence Arbitration? [ 23 ] According to s. 23(1) of the Arbitration Act , “[a]n arbitration may be commenced in any way recognized by law,” including,

for example, service of a notice to appoint an arbitrator, and service of a notice demanding arbitration under the arbitration agreement.The list is not exclusive, meaning that other conduct may also be recognized as commencing arbitration. [24] I note that arbitration agreement as defined under the Arbitration Act means an agreement or part of an agreement by whichtwo or more persons agree to submit a matter in dispute to arbitration. Thus, a strict legal

interpretation of this definition would suggestthat the entering into the agreement in and of itself is not the commencement of arbitration under s. 23(1)(c) - service of a noticedemanding arbitration under the arbitration agreement. All of the examples given in this

section are subsequent to the existence of anarbitration agreement. [25] The list in s. 23(1) is not comprehensive, and other actions could constitute commencement of an arbitration procedure if theyare otherwise recognized at law to do so. [26] In most cases dealing with the commencement of an arbitration agreement, the parties have included an arbitration provisionin a pre-existing contract, which is to be relied upon when one or both of the parties identify a dispute in the performance of the contract.In the present case, there was no pre-existing contract between the parties, and they entered into the arbitration agreement after thedispute was identified, for the specific purpose of resolving the dispute. [27] The issue that is the crux of this action is whether – for the purposes of determining whether arbitration has commenced per s.23(1) of the Arbitration Act – there is a distinction at law in terms of the effect of entering into an arbitration agreement before a disputearises (on the basis of a potential dispute), as opposed to after a dispute has arisen (with specific reference to the issue in dispute).

TheRespondent argues that the effect of entering into such an agreement after a dispute has already arisen and which clearly identifies thespecifics of the dispute (provided the process employed to resolve the dispute is similar to a judicial process), satisfies the requirementsof s. 23(1). [28] Resolution of the issue is dependent on how s. 23(1) of the Arbitration Act is interpreted. Although the Arbitration Act is not alimitation statute, the provision in question, s. 23(1) is relevant in determining the limitation period end point. In this context, I considercase law addressing

interpretation of limitation statutes as a framework for the

interpretation of this provision. [29] In Sousa v Mayo, 2005 ABQB 845, the Court discussed the modern approach to statutory

interpretation, and how it applies tolimitations statutes: 15 The issue which arises on this appeal is one of statutory

interpretation. The Supreme Court of Canada in Rizzo & Rizzo Shoes Ltd.,Re, (SCC), [1998] 1 S.C.R. 27 (S.C.C.), at 41 endorsed the modern approach to statutory

interpretation, citing E.A.Driedger, Construction of Statutes, 2d ed. (Toronto: Butterworths, 1983) at 87, stating: Today there is only one principle or approach, namely, the words of

an Act are to be read in their entire context and in their grammaticaland ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament. 16 The Alberta Court of Appeal applied the modern approach in Tardif v. Wong, 303 A.R. 103, 2002 ABCA 121 (Alta. C.A.) at para.31, and went on to hold at para. 34 that if a statute is clear, effect must be given to its wording. If the provision is capable of more thanone reasonable

interpretation, the court must determine and give effect to the legislative intent. 17 The Supreme Court of Canada has held that in the event there is ambiguity, limitation statutes are to be strictly construed. Anyambiguity should be resolved in favour of the person whose rights are being truncated, unless there is a valid policy reason to justify theless favourable limitation period: Ordon Estate v. Grail, (SCC), [1998] 3 S.C.R. 437 (S.C.C.); Berardinelli v. OntarioHousing Corp. (1978), (SCC), [1979] 1 S.C.R. 275 (S.C.C.). This principle has been adopted by the Alberta Court ofAppeal: Tardif v.

Wong at paras. 21, 26, 30. 18 The scheme and purpose of limitations legislation rests on certainty, evidentiary, and diligence rationales: Novak v. Bond, (SCC), [1999] 1 S.C.R. 808 (S.C.C.), at 839; Tardif v. Wong at para. 37. [30] Thus, employing the modern approach to statutory

interpretation in the context of limitation statutes (or in this case, alimitation provision), the court is to: 1) consider the plain meaning of the statute, 2) if a provision is capable of more than one meaning,consider the legislative intent, and 3) where there is ambiguity, resolve the ambiguity in favor of the party whose rights are beingtruncated, unless there is a valid policy reason to justify the less favourable limitation period. [31] Turning to the first consideration, although the meaning of the enumerated commencement actions in s. 23(1) are clear, thelist is not exhaustive and the court may recognize other methods to commence the arbitration. [32] The second consideration is the legislative intent.

The purpose of s. 23(1) generally is to delineate a point at which the partiesunderstand the arbitration has commenced. This in turn allows the parties to determine if the limitation period pursuant to s. 3(1) of theLimitations Act and s. 51(1) of the Arbitration Act has been met. As such, s. 23(1) forms both notification that an arbitration relating to aspecific dispute is proceeding and an end point to calculate whether the dispute is statute barred. [33] In Guay v Wong, 2008 ABQB 638, the Court enumerated the objectives of limitations acts: 57 The objectives of the LA are thus central to this inquiry.

The objectives of limitations statutes were summarized by McLachlin J. (asshe then was) in Novak v. Bond, (SCC), [1991] 1 S.C.R. 808 at para. 67, 172 D.L.R. (4th) 385 (S.C.C.): …most limitations statutes may now be said to possess four characteristics.

They are intended to: (1) define a time at which potentialdefendants may be free of ancient obligations, (2) prevent the bringing of claims where the evidence may have been lost to the passageof time, (3) provide an incentive for plaintiffs to bring suits in a timely fashion, and (4) account for the plaintiff’s own circumstances, asassessed through a subjective/objective lens, when assessing whether a claim should be barred by the passage of time. To the extent theyare reflected in the particular words and structure of the statute in question, the best

interpretation of a limitations statute seeks to give

effect to each of these characteristics. [34] Further supporting a modern approach to understanding the intent of a statute, in Envision Edmonton Opportunities Society vEdmonton (City), 2011 ABQB 131 (aff’d: 2012 ABCA 188) at paras 63 and 64, the Court reviewed the Supreme Court of Canada’sconsideration of the modern approach to statutory

interpretation in AUPE v Lethbridge Community College, 2004 SCC 28 ,[2004] 1 SCR 727: 64 The court reiterated that not only has this approach been adopted in numerous cases from the Supreme Court of Canada but also is aprinciple supported by the

Interpretation Act, R.S.A. 2000, c. I-8, s. 10 which states that “… [a]n enactment shall be construed as beingremedial, and shall be given the fair, large and liberal construction and

interpretation that best ensures the attainment of its objects”: para25. [35] The third consideration, that ambiguity should be resolved in favor of the party whose rights are being truncated, is similarlystated in York Condominium Corp, No 382 v Jay-M Holdings Ltd, 2007 ONCA 49 (leave to appeal to the SCC refused, 31950 (6September 2007)), wherein the Court discusses the

interpretation of limitations statutes: 26 ... when the provisions of a statute of limitations are in issue, “[they] should be liberally construed in favour of the individual whoseright to sue for compensation is in question.” Papamonolopoulos v. Toronto (City) Board of Education (1986), (ONCA), 56 O.R. (2d) 1 (Ont. C.A.), at 7, aff’d, [1987] 1 S.C.R. v, (SCC), 58 O.R. (2d) 528n (S.C.C.).

While anevolution respecting statutory construction has occurred in the past two decades, the broader principle, that access to justice should notbe frustrated except in clear cases, has not changed and informs the legislative and broader context discussed below. [36] The courts have provided guidance on what characteristics or requirements an action must satisfy to constitute acommencement of arbitration under s. 23(1).

In Lafarge Canada Inc v Edmonton (City), 2013 ABCA 376, the Court held: 28 This position does not assist the respondent on the specific issue before this Court at this stage but may have life later. We concludethat the chambers justice erred by co-mingling the distinct processes of arbitration and suit.

Section 23 of the Arbitration Act ispermissive in the sense that the list of ways to commence arbitrations is not exclusive to those mentioned in the section. Form is notimportant. But an intention to arbitrate must be “clear and unequivocal”: Suncor Energy Products Inc. v. Howe-Baker Engineers Ltd.,2010 ABQB 310 (Alta. Q.B.) at para 58 (2010), 492 A.R. 288 (Alta. Q.B.) quoting Surrendra Overseas Ltd. v. Sri Lanka (1976), [1977]2 All E.R. 481 (Eng. Q.B.), at 486.

Moreover, that intention must clearly be communicated to the opposing party. [37] Referring to s. 23 of the Arbitration Act, the court in Renkinn Developments Inc v Stevens, 2016 ABQB 549 stated at para27: 27 Although this description of how an arbitration may be commenced is stated not to be exhaustive, a common theme in the examplesgiven is that there is to be a clear notice of some kind. [38] I find the action of parties entering into an arbitration agreement to address a specific known dispute that has alreadymaterialized satisfies the requirement of clear and unequivocal notice of an intention to arbitrate the dispute, which is known to bothsides.

While the examples set out in s. 23 of the Arbitration Act all contemplate a further step be taken to commence arbitration after thearbitration agreement is already in place, in this case, the sequence is reversed: the dispute was known and the parties chose to arbitrateit. Thus, in this circumstance, entering into the arbitration agreement satisfies both steps: entering the arbitration agreement andcommencing the arbitration. [39] By signing the arbitration agreement in this case, the parties acknowledge a claim requiring resolution as between the parties,and agree on how the dispute will proceed.

The intention to litigate or arbitrate is clear and unequivocal, and that intention is clearlycommunicated to the other party. This is not the same as setting out a provision in an arbitration agreement of how the parties willproceed if some future claim is subsequently identified. [40] One may argue that this finding could result in the claimant not moving an arbitration forward after the parties enter intoarbitration agreements relating to a known dispute (commencing the arbitration proceeding), yet preserving the claim without recourseby the other party.

This situation is no different, however, than the situation of a party providing notice demanding arbitration under s.23(1)(c). The parties to the arbitration agreement have the ability to include in their agreements provisions to ensure the timelyprogression of the dispute. This is especially true when the arbitration agreement is entered into after the dispute has materialized andthe subject matter of the dispute is known. [41] Further, even if the arbitration agreement does not make specific provision to move the matter forward, the non-moving partyis not necessarily left in limbo indefinitely.

It could request the appointment of an arbitrator itself to move the matter forward. I also notethat this situation is not materially different to litigation through the court process. A party could similarly file a statement of claim andtake no further action for 2 years or more.

In litigation, the respondent can file an application to strike due to long delay, while underarbitration, the respondent can either seek to appoint an arbitrator or rely on the provisions of the arbitration agreement to move thematter forward (or end it due to failure to prosecute). [42] In the present case, the Applicant is not left without an ability to require timely prosecution of this dispute.

The arbitrationagreement includes a provision requiring the parties to “undertake the arbitral process in a timely manner and further agree to use goodfaith efforts to insure the procedure that is agreed upon, or directed by the arbitrator, is followed.” It will be up to the arbitrator (onceselected) to determine whether the Respondent did in fact proceed in this manner, and if it did not, what the remedy should be. B.

Conduct of the Applicant [43] As noted above, given my findings on the commencement of the arbitration process by entering into the arbitrationagreement, it is not necessary to consider whether the conduct of the Applicant in this case gives rise to equitable relief.

C.

Conclusion [ 44 ] In conclusion: 1) This court has the jurisdiction to determine whether the dispute is statute barred due to the application of the limitations provisions within the Arbitration Act and the Limitations Act . 2) Entering into an arbitration agreement after the dispute arose, which agreement species the nature of the dispute and the issues to be determined in the arbitration, serves as sufficient notice of commencement of arbitration to satisfy s. 23(1) of the Arbitration Act . [ 45 ] Consequently, the Applicant’s application is denied. [ 46 ] Should the parties be unable to resolve the issue of costs for this application, they may attend before me within 45 days of this decision for a determination of this matter.

Dated at the City of Calgary, Alberta this 22 nd day of December, 2017. C. Dario J.C.Q.B.A. Appearances: Melanie Teetaert for the Applicant Mathew Farrell for the Respondent