TR Canada Inc v Cahill Industrial Limited, 2021 ABQB 274

Court of Queen’s Bench of Alberta Citation: TR Canada Inc v Cahill Industrial Limited, 2021 ABQB 274 Date: 20210409 Docket: 2001 08970 Registry: Calgary Between: TR Canada Inc. Applicant - and - Cahill Industrial Limited Respondent _______________________________________________________ Memorandum of Decision of the Honourable Madam Justice J.C.

Kubik _______________________________________________________ Introduction [ 1 ] TR Canada Inc. (“TR”) seeks leave to appeal a decision of a three-member tribunal of the International Court of Arbitration (“ICC”) issued June 23, 2020. [ 2 ] By way of background: TR was the general contractor responsible for completing the engineering, procurement, construction and pre-commissioned work on the cogeneration facility at the Fort Hills Oil Sands plant in Fort McMurray, Alberta. The

main contract was awarded to TR in August 2014, and contemplated construction of two gas turbine generators and two heat recoverysteam generators, both to be interconnected to the Fort Hills electrical system. [3] TR purchased the equipment and subcontracted the physical work. One of the subcontracts was with Cahill IndustrialLimited (“Cahill”). This subcontract required Cahill to perform the “balance of plant works”, which included the electro-mechanicalerection works of the project. [4] A number of disputes arose between TR and Cahill during the project.

Those disputes related to coordination and sequencingof the various subcontractors and the works, as well as changes and additions to the scope of work. As required by the terms of thesubcontract, the parties referred these disputes to arbitration. [5] The arbitration was facilitated pursuant to the ICC Articles and Rules. From a jurisdictional perspective, the law of theProvince of Alberta applied. [6] On June 23, 2020, Cahill was awarded damages against TR totalling $17,908,267.25 plus GST and interest.

This awardrepresented damages arising from a finding that TR breached the subcontract between the parties, and reflected a quantification of costsassociated with delay in the work, extra expense incurred in completing the work, loss of productivity, and indirect costs for extendedtime on the work site. Statutory Provisions [7] Applications for leave to appeal arbitration decisions are governed by

section 44 of the Arbitration Act, RSA 2000, c A-43[Arbitration Act]. [8] Sections 44(2), (2.1), and (3) of the Arbitration Act provide as follows: 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 may,with the permission of the court, appeal an award to the court on a question of law.

(2.1) The court shall grant the permission referred to in subsection (2) 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) the determination of the question of law at issue will significantly affect the rights of the parties.

(3) Notwithstanding subsections (1) and (2), a party may not appeal an award to the court on a question of law that the parties expresslyreferred to the arbitral tribunal for decision. [9] Effectively, these sections limit appeals to questions of law, arising from issues which are of sufficient import to the partiesto justify an appeal, and the determination of which will significantly impact the rights of the parties. [10] Whether the issues raised are questions of law is a threshold determination. If so, the Court must then consider whether anappeal would be barred by s. 44(3) of the Arbitration Act.

If not so barred, then the Court must consider whether the issues raised are ofsufficient import to justify an appeal and whether their determination will significantly impact the rights of the parties. Determination of a Question of Law [11] In considering whether an issue raises a question of law, the applicable analysis is well-articulated in Beta Management Inc vEdmonton (City), 2017 ABQB 571, where Renke J stated at para 24: A question of law is a question about a decision-maker’s appreciation of a legal test, rule, or standard.

For an applicant to raise a questionof law, there must be a foundation for concluding that the decision-maker erred in identifying or articulating a material legal test. Legalerror would occur if a decision-maker expressly articulated a test incorrectly. A “covert” error would occur if a decision-maker expresslyarticulated a test correctly but in its application of the test demonstrated that it had altered the test – i.e., the test articulated and the testapplied were not the same and the test applied was the wrong test.

Legal error would occur if a decision-maker failed to considerevidence a legal test required it to consider. Legal error would also occur if a decision-maker made a factual finding based on nosupporting evidence. In effect, such an error would alter the legal test by omitting the need for evidence supporting one or more of itselements. Further, legal error would occur if there were only a “modicum” of evidence of a fact-in-issue contrasted with a large amountof evidence to the contrary.

In this instance too, there would be an alteration of the legal test through omission of the need for a properevidential finding supporting one or more of the elements of the test.

See Canada (Director of Investigation and Research) v SouthamInc, [1997] 1 SCR 748, (SCC), Iacobucci J at para 35 ; Concord Pacific Alberta Properties at para 15; EauClaire Market Inc v Calgary (City), 2015 ABQB 131, Millar J at para 10; Gold Bar at para 11; Canada Safeway at para 18; Edmonton(City) v Alberta (City of Edmonton Composite Assessment Review Board), 2012 ABQB 118, Sulyma J at para 71 [Earle M.Jorgenson]. [12] In the context of commercial arbitration involving the

interpretation of contractual provisions, the Supreme Court of Canadahas stated that contractual

interpretation is a question of mixed fact and law: Sattva Capital Corp v Creston Moly Corp, 2014 SCC 53[Sattva]. As noted by the Court, this is because “it is an exercise in which the principles of contractual

interpretation are applied to thewords of the written contract, considered in light of the factual matrix”. [13] While there are circumstances in which a question of mixed fact and law can give rise to an extricable legal error, such an

error must be demonstrated on the arbitrator’s misapplication of a legal test, whether by misapplication of a legal principle, failure to consider a required element of a legal test, or failure to consider a relevant factor: Sattva; Teal Cedar Products Ltd v British Columbia , 2017 SCC 32 at para 52 .

Such circumstances will be rare. [ 14 ] Where a question of law arises, the Court must assess the merits of the particular question, to determine whether it has arguable merit: Sattva . [ 15 ] Subsequent to the oral hearing of this matter, the Supreme Court of Canada issued reasons in Wastech Services Ltd v Greater Vancouver Sewerage and Drainage District , 2021 SCC 7 [ Wastech ]. Both parties provided very brief submissions directing my attention to particular passages in the reasons, as related to standard of review on appeal.

Noting that Wastech involved an appeal and given the Court’s limited role in a leave application pursuant to s. 44(2) of the Arbitration Act , I do not find Wastech , to be relevant to my analysis in this case. Grounds of Appeal Raised by TR [ 16 ] TR frames three general errors of law committed by the tribunal, as follows: (

a) Errors of law regarding changes to the Work and Field Extra Work Orders (“FEWOs”); (

b) Errors of law regarding “Notice” provisions as contemplated by the subcontract; (

c) Errors of law regarding findings with respect to liability, causation and damages. Each will be dealt with in turn. I. Errors of Law Regarding Changes to the Work and Field Extra Work Orders (FEWOs) [ 17 ] Field Extra Work Orders (FEWOs) are the documentary forms which were used by the parties to record additional work carried out by Cahill. At issue before the tribunal was whether the FEWOs were contracts. [ 18 ] The majority of the tribunal concluded that the FEWOs were not contracts.

Rather, they characterized them as “non-binding administrative agreements” which were utilized to track, in a provisional way, the state of progress of the work and the value of the additional work carried out. The tribunal concluded that the work tracked by the FEWOs was largely recorded on documents known as “Site Instructions” and ultimately quantified and paid in Progress Payment Certificates.

The tribunal concluded that because the FEWOs were not binding contracts, the language contained in them, which had the effect of limiting payment to Cahill, was not a complete defence to Cahill’s claim. [ 19 ] TR argues that this finding resulted from three legal errors.

First, that the tribunal failed to follow the law, as set out in Sattva , in interpreting the FEWOs, and in particular, failed to consider the written language of the FEWOs (which they say included contractual language), relied on subsequent conduct of the parties in interpreting the document, and allowed the surrounding circumstances to overwhelm the written words of the document. Second, TR argues that the tribunal, in concluding that the FEWOs were not signed by persons in positions of authority, relied on inadmissible evidence and failed to apply the legal test for actual or ostensible authority.

Third, TR argues that the tribunal, in concluding that no consideration was given for the FEWOs, failed to apply the legal test for consideration. [ 20 ] Cahill argues that the tribunal came to the conclusion that the FEWOs were not contracts based on all of the facts before them, including an absence of consideration and execution, or in some cases execution by parties without authority to bind Cahill. They also argue that this determination turned largely on factual findings made by the tribunal, or were findings of mixed fact and law.

Further, Cahill argues that the principles in Sattva were not engaged as the FEWOs were determined not to be contractual in nature. [ 21 ] In coming to its decision, the tribunal considered the FEWOs in the context of the subcontract between the parties. In doing so, it considered the written words of the subcontract, which provided specifically for change orders, a process which they found TR did not avail itself of throughout the project. In addition, the tribunal made factual findings relating to the conduct of the parties at the time the work associated with the FEWOs was being undertaken.

The tribunal found, based on the oral and written evidence before it, that the FEWOs were largely executed after completion of the works, those executed on site were often executed by people whom both parties acknowledged did not have authority to bind Cahill, that multiple FEWOs, in varying amounts, were issued for the same works, and on some occasions, TR paid Cahill in excess of the amount stipulated in the FEWO. [ 22 ] The tribunal’s decision was based on their factual findings, the application of legal principles relating to formation of a contract, including authority and consideration, and having regard to the context of the subcontract governing the party’s relationship.

This was an exercise of mixed fact and law, and no extricable legal error arises on the record. II. Errors of Law Regarding “Notice” Provisions as Contemplated by the Subcontract [ 23 ] The subcontract contained various notice provisions. In particular, Clause 16 of the subcontract placed certain notice obligations on Cahill. TR sought to rely upon Cahill’s failure to abide the notice requirements, as a defence to Cahill’s claims. [ 24 ] Clause 16.6 would arguably provide a complete defence. However, the tribunal ruled that TR had failed to specifically plead

Clause 16.6 as a defence, and therefore were prohibited from relying upon it. [ 25 ] TR argues that the tribunal’s refusal to allow it to advance a defence based on Clause 16.6 is an issue of procedural fairness and therefore a question of law.

Further, they say they raised Clause 16.6 in their pleadings, based on a blanket pleading of Clause 16, and that regardless, it is an integral part of Clause 16, which, based on Sattva , the tribunal was bound to interpret as a whole. [ 26 ] Cahill argues that by virtue of the rules of the ICC, the arbitral tribunal was entitled to control its own process, and that there was no breach of procedural fairness or natural justice giving rise to an error of law. [ 27 ] The tribunal’s review of the history of the proceedings found that TR had not plead reliance on Clause 16.6 as a defence to Cahill’s claims in any of its pleadings, and only raised the issue mid-oral hearing, and subsequently in its closing submissions.

The tribunal was satisfied that failure to plead Clause 16.6 was prejudicial to Cahill, in that it deprived them of the opportunity to advance responsive evidence and argument. Further, the tribunal found that TR could have sought an amendment to its pleadings at an early stage and having failed to do so was barred from relying on Clause 16.6. [ 28 ] In its ruling in relation to Clause 16.6, the tribunal relied on Article 22(4) of the ICC Rules.

Article 22(4) provides that: “In all cases, the arbitral tribunal shall act fairly and impartially and ensure that each party has a reasonable opportunity to present its case.” This procedure is in keeping with the provisions of the Arbitration Act , most notably, sections 19 – 25 which frame the requirements of procedural fairness and empower the tribunal to control its own procedure. Specifically, s. 25(4) authorizes a tribunal to disallow any changes to the parties position statements, if those changes are unduly delayed.

The case law recognizes that tribunals are entitled to control their own procedure, subject to rules of natural justice and procedural fairness: Sharma v Edmonton (Police Service) , 2019 ABCA 501 . [ 29 ] The parties are sophisticated commercial construction entities which sought to resolve their dispute utilizing final and binding arbitration. In submitting to arbitration, facilitated by the ICC, they accepted that the arbitration process would be administered by the ICC and governed by its rules.

Where such rules were silent and the parties could not agree on the rules to apply, the arbitral tribunal has the jurisdiction to settle the rules: ICC Rules,

Article 10,

Article 19 . [ 30 ] Further, the ICC Rules empower the tribunal to establish the process by which the dispute will be presented and heard, including with respect to the timing for filing pleadings, the hearing of evidence and the timing of submissions.

In this case, pleadings commenced on December 4, 2018 and concluded on August 15, 2019; opening statements were received on September 30, 2019; the oral hearing was conducted from October 7 – 19, 2019; a joint expert statement was filed on November 15, 2019; closing submissions were received on November 29, 2019; and all final requests of the tribunal were completed by April 2020. [ 31 ] The tribunal did not deny TR procedural fairness or violate the rules of natural justice.

Rather, it applied its own procedural rules to the record of proceedings, and exercised its discretion, within the powers conferred on it, to bar the defence raised. This does not raise a question of law. [ 32 ] Turning to Clause 16.3, that clause required the subcontractor to provide notice if it considered itself entitled to any additional payment and/or an extension of time under any

article or otherwise in connection with the subcontract. In addition to this notice requirement, Clause 16.3 stipulated the provision of records substantiating any claims made. Clause 16.4 was drawn in specific reference to Clause 16.3 and provided that non-compliance with Clause 16.3 would result in a waiver of any entitlement to additional payment or time for performance. [ 33 ] TR argues that the tribunal erred in law by failing to read the whole of Clause 16 (in particular Clause 16.6) in its

interpretation of Clause 16.3. [ 34 ] Cahill argues that the tribunal’s contractual

interpretation involved a mixed fact and law analysis and there are no extricable legal errors. [ 35 ] The tribunal held that Clause 16.3 did not apply to contractor-initiated changes and did not apply to allegations of breach of the subcontract. In coming to this conclusion, the tribunal applied the principles of contractual

interpretation. It considered the plain language of the clauses and their interconnectedness, along with their specific reference to additional payment or extension of time. It also considered that Clause 15 contained specific provisions relating to contractor-initiated changes. Further, the tribunal considered the factual matrix in which the subcontract was negotiated, including the expectations of the parties in the context of the construction industry.

A failure on the part of the tribunal to consider Clause 16.6 is not an extricable error of law given that a preliminary ruling had already been made that TR could not rely on Clause 16.6 as a defence to the claim (and Clause 16.6 effectively provided a complete defence to any claim not advanced within 14 days). Accordingly, no error of law arises. III.

Errors of Law Regarding Liability, Causation and Damages [ 36 ] The tribunal concluded that TR had breached the subcontract by failing to provide Cahill a construction schedule, and organize the works in a way which would have allowed Cahill to complete its obligations under the subcontract.

It also concluded that this breach caused damage to Cahill, and quantified that loss. [ 37 ] TR argues that in doing so, the tribunal committed three errors of law: first, the tribunal failed to identify how TR had breached the subcontract; second, the tribunal failed to make reference to any evidence of causation; and third, in quantifying the damages, the tribunal misapplied the Total Cost methodology. [ 38 ] Cahill argues that the tribunal made detailed findings with respect to the breach of the subcontract and causation, and appropriately applied a Modified Total Cost methodology.

Cahill submits that all of these determinations were questions of mixed fact and law, without extricable legal error.

[39] A review of the tribunal’s decision demonstrates that it made specific findings with respect to both liability and causation.Those findings involved the application of legal principles to the findings of fact made by the tribunal, based on all of the evidence.These determinations involved mixed fact and law.

No extricable legal error arises from the findings. [40] In relation to the quantification of damages, TR argued that the tribunal’s application of the Total Cost methodology wasflawed, in that it cited the proper four-part test as set out in McNamara Construction Co v Newfoundland Transshipment Ltd et al,, [2002] NJ No 127 (SCTD)[McNamara], but then failed to properly apply it when it reduced Cahill’s claim by 25%to account for the amount of the loss attributable to Cahill’s own failures or other factors contributing to the loss. [41] A review of the tribunal’s decision however, evidences that it applied the Modified Total Cost methodology.

Thatmethodology explicitly provides for the application of a reduction to damages where part of the loss is related to the claimant’s ownconduct or factors not causally connected to the breach. [42] While the Total Cost and Modified Total Cost methodologies are sparingly utilized in quantifying such losses, they arerecognized as appropriate methodologies in circumstances where liability and causation are proven, but the damages suffered cannot,with nicety, be specifically attributed to a particular breach.

The Modified Total Cost methodology further seeks to ensure that a claimantwho has contributed to its own loss, or was at the mercy of other factors contributing to the loss, is not overcompensated: McNamara atparas 787 -788; Opron Construction Co Ltd v Alberta, (AB KB), 1994 CarswellAlta 470 at para 817, [1994] AJ No224 (QB). [43] As a result, the tribunal’s quantification of the damages does not raise a question of law as asserted by TR as they did not failto apply part of the legal test enunciated. Further, the manner in which the tribunal quantified the damages was a true exercise of mixedfact and law.

Conclusion [44] There are no questions of law which arise. As a result, it is unnecessary to consider ss. 44(2.1) and (3) of the Arbitration Act. [45] The application for leave to appeal is dismissed. [46] Cahill is awarded the costs of the application pursuant to

Schedule C of the Alberta Rules of Court. Should the parties beunable to agree as to costs, they may provide costs submissions in writing pursuant to the procedure set out within the With Notice DeskApplication Process – Civil Justice Chambers released by the Court on May 25, 2020. Heard on the 13th day of November, 2020. Dated at the City of Lethbridge, Alberta this 9th day of April, 2021. J.C. Kubik J.C.Q.B.A. Appearances: Alex Kotkas & Robert Wood Fasken Martineau DuMoulin LLP for the Applicant Scott Hammel, Q.C. & Adrienne S. Funk Miller Thomson LLP for the Respondent