Dow Chemical Canada ULC v NOVA Chemicals Corporation, 2023 ABKB 215

Court of King’s Bench of Alberta Citation: Dow Chemical Canada ULC v NOVA Chemicals Corporation, 2023 ABKB 215 Date: 20230414 Docket: 2201 14239 Registry: Calgary Between: Dow Chemical Canada ULC Applicant - and - NOVA Chemicals Corporation Respondent Corrected judgment: A corrigendum was issued on August 23, 2023; the corrections have been made to the text and the corrigendum is appended to this judgment. _______________________________________________________ Memorandum of Decision of the Honourable Justice A. Woolley _______________________________________________________ Introduction

[ 1 ] Since 2004 NOVA Chemicals Corporation (“Nova”) and Dow Chemical Canada ULC (“Dow”) have co-owned E3, one of three ethane crackers at Nova’s petrochemical complex at Joffre Alberta. Nova operates E3, and Nova and Dow share the ethylene and other by-products E3 produces. [ 2 ] From the outset, Nova and Dow have vigorously disagreed about their rights and responsibilities in relation to the co- ownership and operation of E3. That disagreement resulted in litigation, commenced by Dow in 2006. [ 3 ] A central issue in that litigation related to the capacity at which Nova was required to operate E3.

In 2018, this Court found that Nova had a legal obligation to operate E3 at full capacity (“its productive capability”), and that it was in breach of that obligation: Dow Chemical Canada ULC v NOVA Chemicals Corporation , 2018 ABQB 482 at ( inter alia ) paras 146, 160, 188, 226, 235, 678, 694, 698, 1183-1188 (“ Dow 2018”). [ 4 ] The Court of Appeal reversed certain aspects of the trial judgment, finding that the trial judge had wrongly calculated the damages claim on the basis of evidence adduced by the parties on lost polyethylene sales which, on a proper

interpretation of the contract, failed to recognize the impact of an exclusion clause. The Court directed the trial judge to determine direct losses arising from NOVA's breaches excluding indirect or consequential damages.

It also remitted to the trial judge the issue of the remedial effect of the illegality of the performance of an ethane pooling covenant, an issue that was not addressed at trial: Dow Chemical Canada ULC v NOVA Chemicals Corporation , 2020 ABCA 320 (“ Dow 2020”) [ 5 ] On the central question of Nova’s legal obligation to operate E3 at its full capacity, however, the Court of Appeal affirmed the trial judgment: Dow 2020 at paras 14-16, 42 . [ 6 ] Nova and Dow continue to litigate issues related to the co-ownership and operation of E3.

They have an ongoing hearing before the Court about damages arising from Nova’s liability, as set out in Dow 2018, for the period from the breaches to the date of decision in 2018. Dow also submitted a new claim to the Court in 2020. [ 7 ] In addition, Nova and Dow have a disagreement about how to develop budgets for E3 on a go forward basis. It is that disagreement that gives rise to the application before me. [ 8 ] Specifically, Nova includes in its proposed budgets for E3 a production forecast.

It says that a forecast is an essential element of identifying the necessary operating and capital expenditures for E3 for an upcoming year. It asks Dow to approve the budget with the production forecast included. [ 9 ] Dow refuses to do so. It says that while a production forecast may underlie the operating and capital expenditures proposed, there is no need for that forecast to form part of the budget which it approves.

In the context of the parties’ broader dispute, Dow says it is improper and unreasonable for Nova to ask it to “approve” a production forecast as part of the budgeting process. [ 10 ] Both parties find support for their position in Justice Romaine’s decision where she said: Dow notes that “Budget is a defined term in the OSA, meaning “the amount of capital or operating expenditures, or both, to the extent approved by the Management Committee for the conduct of Operations during a specified year, or for such other period of time as the Management Committee may determine”.

While a forecast of production is a necessary input to the calculation of such expenditures, the defined term “Budget” does not include an amount of production. I agree that it is an authority to spend money, not to curtail budget rates. While Nova as Operator has authority under

section 4.3(

e) to prepare and present annual Budgets for approval, it has a separate duty under

section 4.3(

b) to conduct operations with the objective that E3 will optimize production: Dow 2018 at paras 658-659. [ 11 ] Nova says that this quote shows that its forecast is a “necessary input” for its budget. Dow says that it shows that a Budget does not, definitionally, “include an amount of production”. [ 12 ] As a result of this disagreement, E3 has for several years operated without a budget approved by its co-owners; indeed, it appears to have operated without an approved budget in all the years following Dow 2018. [ 13 ] Under the Operating and Services Agreement (“OSA”) which governs Nova’s operation of E3, budget disputes are to be resolved through arbitration. Specifically,

Article 9.3(

b) of the OSA states: If as a result of a dispute between the Co-owners, the budget has not been approved by the Management Committee by the date upon which it is to become effective, such dispute shall be referred to arbitration under

Article 19 for resolution. [ 14 ] Nova says that its disagreement with Dow about the budget is a budget dispute. On April 25, 2022, it served Dow with a notice to arbitrate with respect to Dow’s failure to approve the 2022 budget. [ 15 ] Dow says that this disagreement about the budget is not a budget dispute. Rather, it is a matter of contractual

interpretation which, under

Article 24.3 of the OSA, falls within the jurisdiction of the Alberta Courts. It is in its substance a dispute within, and governed by, Nova and Dow’s past and ongoing litigation before this Court. As such, Dow submits, it is not properly the subject of arbitration pursuant to Articles 9.3(

b) and 19 of the OSA. [ 16 ] As discussed below, Dow did not immediately raise this jurisdictional objection. Through the spring and summer of 2022, Dow worked with Nova to appoint an arbitration tribunal (the “Arbitration Tribunal”). It attended a case management meeting and outlined the basics of its position on the budget disagreement. On October 17, 2022, however, Dow sent a letter advising the Arbitration Tribunal that Nova’s request to arbitrate raises “threshold questions of arbitrability”. [ 17 ] Dow filed an Originating Application on December 7, 2022, seeking a declaration of this Court that Articles 9.3(

b) and 19 of

the OSA do not apply to the budget disagreement, and an injunction prohibiting the continuation of the arbitration. Its Originating Application relies on

Section 47 of the Arbitration Act RSA 2000, c A-43 and, in particular, s. 47 :

(1) At any stage during or after an arbitration on the application a party who has not participated in the arbitration, the court may grant a declaration that the arbitration is invalid because … (

d) the arbitration agreement does not apply to the matter in dispute.

(2) When the court grants the declaration it may also grant an injunction prohibiting the commencement or continuation of the arbitration. [ 18 ] Dow also cites s. 6 of the Arbitration Act , and ss. 8 and 11 of the Judicature Act RSA 2000, c J-2 , in support of its request for declaratory and injunctive relief. [ 19 ] I deny Dow’s application for a declaration that the Articles 9.3(

b) and 19 of the OSA do not apply to the budget disagreement, and to enjoin the arbitration. Dow participated in the arbitration and, as such, cannot rely on s. 47 of the Arbitration Act . Further, even if Dow did not participate, the nature of the jurisdictional issue, and the application of the competence-competence principle, precludes this Court from issuing the declaration or enjoining the arbitration. Any judicial consideration of the jurisdiction of the arbitrator over the parties’ budget approval disagreement must follow from the Arbitration Tribunal’s assessment of the issue, not precede it.

Issues [ 20 ] The issues to be determined in this application are: 1. What does “has not participated in the arbitration” mean? 2. Does the competence-competence principle apply to s. 47 ? 3. Has Dow “not participated in the arbitration” with respect to the budget disagreement? 4. If Dow has not participated in the arbitration, ought this Court to grant the declaration and injunction Dow seeks? More specifically: (

a) Is the issue of jurisdiction raised by Dow one that the Court ought to consider given the competence-competence principle? (

b) Does the budget disagreement fall within the scope of Articles 9.3(

b) and 19 of the OSA? 5. If Dow cannot rely on s. 47 is there any other basis for the Court to nonetheless assess the scope of the arbitration agreement? 6. If so, does that assessment justify the Court granting the declaration and injunction sought by Dow? [ 21 ] Because of the analysis below, this decision considers only Issues 1, 2, 3, 4(

a) and 5. The substantive question of the scope of the arbitration agreement, and its application to the budget disagreement, is left to consideration in the first instance by the Arbitration Tribunal. Facts [ 22 ] On April 25, 2022, counsel for Nova served on Dow a notice of a request to arbitrate, dated April 22, 2022 (“Notice”). [ 23 ] The Notice alleged that Dow refused to approve the 2022 budget, and that Dow indicated that it intends to withhold its approval of future budgets indefinitely. The Notice asserted that Dow’s refusal was “a breach of its obligations under the OSA”.

It claimed that the 2022 budget was prepared by Nova “ in good faith and in accordance with the OSA, and reflects the Operator’s views as to the capital and operating expenditures to be expected at E3 in the 2022 calendar year based on the capacity of E3 to produce ethylene for the Co-owners. [ 24 ] The Notice said, as well, that “service upon Dow of this notice is effective to commence arbitration proceedings under the OSA respecting the issues set out herein”.

It sought an order directing Dow to approve the 2022 Budget, and such “other relief as may be awarded by the Arbitrator”. [ 25 ] The covering letter sent to Dow stated that the governing arbitration provisions were Articles 9.3 and 19.1 of the OSA, and that the Notice was issued in accordance with Article19.2 of the OSA.

Nova demanded that Dow meet with Nova to appoint a single arbitrator to “hear the matters and disputes raised in the Notice”. [ 26 ] On May 5, 2022, counsel for Dow responded that it had been retained with respect to the arbitration, that it was obtaining instructions and becoming familiar with the matter, and asked for some time to do so. [ 27 ] On May 6, 2022, counsel for Nova responded that there was “urgency to this dispute given that the E3 Budget was to become effective January 1, 2022”.

It agreed to defer the meeting but said that the meeting should nonetheless be held “relatively soon” given the meeting was only to determine if they could agree on the arbitrator to hear the dispute.

[ 28 ] On May 27, 2022, counsel for Dow sent an e-mail saying that they would be back with “some suggestions for arbitrators early next week”. Nova responded suggesting a potential arbitrator, and on May 31 Dow suggested three alternative potential arbitrators. [ 29 ] On June 10, 2022, Nova provided three further names. It also suggested that, rather than trying to find a single arbitrator, they could instead each appoint a representative, and have those representatives appoint a third arbitrator, as contemplated by

Article 19 of the OSA. [ 30 ] On June 22, 2022, counsel for Dow advised that he had not yet received any instructions on the choice of arbitrator. On July 7, 2022, counsel for Dow said that he was still having difficulty getting instructions, but that he would be in touch the following week. [ 31 ] On July 20, 2022, Nova sent a letter demanding that Dow name an arbitrator, and saying that it would do so, with a third arbitrator to be appointed.

It noted that the: 2022 budget year is now more than half over and our client simply cannot tolerate any further delay in the resolution of the issues raised in our arbitration notice…It is now past time that this arbitration process is progressed. [ 32 ] On July 28, 2022, Nova sent Dow an Amended Notice to Arbitrate (“Amended Notice”).

The Amended Notice added a request that the arbitrator find that “Dow’s ongoing refusal to approve Budgets, including its refusal to do so indefinitely and into the future, amounts to a breach of the OSA” and sought an order requiring “Dow to participate in good faith in the process of developing and approving Budgets in accordance with the OSA”. [ 33 ] At the same time, Nova nominated Gerald Ghikas to the panel.

On July 30, 2022, counsel for Dow said that it would appoint Peter Linder as its arbitration panel nominee. [ 34 ] On August 12, 2022, following a series of e-mails on the issue, counsel for Dow wrote to counsel for Nova proposing that both parties be involved in the selection of the third arbitrator. The parties continued to discuss the appointment of the third arbitrator in e-mails dated August 16, 2022 through August 19, 2022.

In an e-mail dated August 23, 2022, Dan McDonald wrote to the parties with respect to his ability to act as the third arbitrator, scheduling and potential conflicts. [ 35 ] On August 26, 2022, it was confirmed, in a letter to Mr. Ghikas and Mr. Linder, that Mr. McDonald was viewed by Dow and Nova as suitable to be the third arbitrator and chair of the panel, if the two party appointed arbitrators were agreeable to him assuming that role. [ 36 ] On August 29, 2022, Mr. Linder advised counsel that Mr.

McDonald had accepted the appointment as chair, and that the arbitration tribunal was set. [ 37 ] On September 2, 2022, Arbitration Tribunal Chair McDonald wrote to counsel for both parties suggesting an initial conference call with the Arbitration Tribunal to discuss preliminary matters and the next steps. It said that counsel was to “provide a brief description of the background to and nature of the dispute”. [ 38 ] On September 16, 2022, counsel for Dow advised counsel for Nova by e-mail that they would “need a few more days with the draft TOR”.

Counsel for Dow suggested that they “request that the tribunal provide their available dates for a five-day hearing in 2023”. Counsel further said that: We can also let them know that the draft terms of reference are in progress, that counsel will make efforts to reach agreement on those over the next few weeks, and that we anticipate that the draft TOR will deal with the procedural issues that would generally be dealt with in procedural order no. 1… To keep things on track, we could tentatively

schedule a further conference in October to deal with outstanding issues (if any). [ 39 ] On September 19, 2022, at a case management meeting with the Panel, counsel for Dow briefly summarized its position on the case: Mr. Tupper, with Ms. Solose’s assistance, generally agreed with Mr. Benediktsson’s comments [about the nature of the disagreement], and briefly described the response which will be submitted to the arbitrators shortly.

The Respondent claims its failure to approve the 2022 budget was reasonable and consistent with its interests as owner and arises from the Claimant’s failure to provide the required information for budget approval. The Respondent anticipates evidence of industry practice, which may require expert evidence regarding operations and budgets for similar facilities. Mr.

Tupper also referred to the litigation between the parties and stated that some findings in the litigation may be relied upon. [ 40 ] The minutes of the meeting further said that “Counsel for the Respondent [Dow] will provide draft terms of reference to counsel for the Claimant [Nova] shortly”.

The minutes noted that Nova thought that the hearing could be completed in two days but that Dow anticipated that it would take 5 days. [ 41 ] Nowhere in the minutes, nor in any correspondence exchanged between counsel for Dow and Nova prior to that time, was it suggested that Dow would object to the jurisdiction of arbitrators to hear the matter.

It was not until October 17, 2022, that counsel for Dow advised the Arbitration Tribunal as follows: Dow believes that Nova’s Amended Notice of Request to Arbitrate raises threshold questions of arbitrability and, as a result, potential procedures for resolving these questions must now be considered. Accordingly, Dow proposes that the upcoming October 24, 2022 conference be rescheduled to the week of November 7, 2022, or the first availability thereafter of the Arbitral Tribunal and the parties.

We anticipate that this time will allow us to confer with our client and take instructions on a proposed course forward, and then to determine if Nova consents to that course.

We have advised counsel for Nova of Dow’s intention to request that the October 24, 2022 conference and Nova has declined to consent. Nova has instead asked that we append our October 12th email exchange with them to this correspondence, which we do so here.

In brief response, Dow does not agree with the assertions Nova makes in its October 12, 2022 email, and Dow reiterates that it will be more efficient to briefly adjourn the October 24, 2022 conference. [ 42 ] On October 24, 2022, counsel for Dow sent the Tribunal a signed copy of the Appointment and Remuneration Agreement. [ 43 ] On October 25, 2022, Chair McDonald sent a decision to counsel in relation to the case management conference that had occurred on October 24, 2022.

Along with providing some procedural directions, the decision noted that at the prior case management conference on September 19, counsel for Dow had agreed to provide draft terms of reference to counsel for Nova. Chair McDonald acknowledged Dow’s concern that if it participated in the drafting of the terms of reference that “may prejudice it in this or another forum”.

The panel directed that if Dow concluded that it could respond with respect to the terms of reference, or had a response, then it should advise Nova and the Tribunal of that by November 9, 2022. [ 44 ] In its second procedural order of January 20, 2023, the panel said of the September 19 and October 24 meetings: On September 19, 2022, the first case management conference was held virtually.

Counsel described the background to the dispute, addressed the terms of reference, confirmed that the Appointment and Remuneration Agreement provided by the Tribunal was acceptable, subject to certain minor changes, and provided preliminary submissions regarding the hearing date and number of days expected to be required for the hearing. On October 24, 2022, the second case management conference was held virtually. Counsel for Dow advised the Tribunal that Dow believes that the Arbitration Notice raises threshold questions of arbitrability.

The Tribunal directed that Dow advise Nova and the Tribunal in writing of the substance of the questions, invited the Parties to prepare draft terms of reference, and proposed dates for the next conference to address the procedure to resolve the questions, the terms of reference, and other matters counsel may wish to raise. [ 45 ] By way of a letter dated November 8, 2022, counsel for Dow provided Nova with its originating application for declaratory relief with respect to resisting the jurisdiction of the arbitrator, along with a letter explaining same.

The draft originating application for declaratory relief did not refer to s. 47 of the Arbitration Act , relying instead on the Rules of Court, the Judicature Act and “any other acts and regulations that become applicable”. [ 46 ] After a case management conference held on November 16, 2022, a procedural order was issued dated November 24, 2022. The panel declined Dow’s request that the Tribunal not take any further steps in this matter. It held: We decline Dow’s request for the following reasons: (

i) the Tribunal has jurisdiction to determine its own jurisdiction ( Arbitration Act, s. 17 ), (ii) the arbitration agreement reflects the agreement of the parties that any arbitration is to be expeditiously resolved (section 19.3(

e) of the OSA), (iii) the Tribunal has an obligation to move the arbitration forward efficiently, and (iv) we see no prejudice to Dow in moving forward with the arbitration, as it has recorded its jurisdictional objection, and can now seek to have its jurisdictional objection determined by the Tribunal and, in the meantime, to participate actively in the arbitration without prejudice to that objection. [ 47 ] It further found it would be unfair to Nova to “hold the arbitration in abeyance for an indeterminate period pending a final Court decision on that issue”. [ 48 ] With respect to

section 47 of the Arbitration Act , the Tribunal said: We note Dow’s concern that to apply under s. 47 of the Arbitration Act it must not participate in the arbitration. For two reasons, we do not consider that is a sufficient basis to place the arbitration proceedings on hold indefinitely: (

i) the proposed form of application that Dow has presented does not make an application under s. 47 , nor indeed even reference s. 47 ; and (ii) if Dow were to seek a declaration from the Court under s. 47 , it may also seek an injunction under s. 47(2) prohibiting the continuation of the arbitration.

Unless and until this were to occur and the Court were to grant such an injunction, the Tribunal has the jurisdiction to determine its own jurisdiction over the matters raised in the Amended Notice of Request to Arbitration, and to proceed with the arbitration. [ 49 ] It went on to say further: An arbitral tribunal may determine its own jurisdiction, and may do that as a preliminary matter or as part of a final award.

Without an application before us, we will not decide whether the proceedings should be bifurcated to determine jurisdiction as a preliminary matter or whether jurisdiction should be determined as part of a final award. We have not made provision in the terms of reference and procedural timetable (discussed below) for a separate preliminary hearing on jurisdiction.

If either party proposes to apply to the Tribunal for an order that the arbitration proceeding be bifurcated to decide Dow’s jurisdictional objection as a preliminary matter, to avoid disruption of the proceedings we direct that the application be provided to the Tribunal by December 12, 2022. [ 50 ] Dow did not participate in the drafting of the terms of reference. [ 51 ] On December 7, 2022, Dow filed its Originating Notice with the Court, explicitly referencing s. 47 of the Arbitration Act . [ 52 ] On January 13, 2023, Justice D.B.

Nixon denied Dow’s application for an interim stay of the arbitration. [ 53 ] On January 20, 2023, a further procedural order was issued by the Arbitration Tribunal. With respect to the issue of jurisdiction the tribunal stated: In an email dated October 17, 2022, Dow stated that “Dow believes that Nova’s Amended Notice of Request to Arbitrate raises threshold

questions of arbitrability and, as a result, potential procedures for resolving these questions must now be considered”. This objection was confirmed and described by Dow in a letter dated November 11, 2022. Dow continues to maintain its objection to the Tribunal’s jurisdiction to determine the dispute described in the Amended Notice of Request to Arbitrate. As described in Procedural Order No. 1, dated November 24, 2022, Dow has advised of its intention to seek a determination of the Tribunal’s jurisdiction by the Alberta Court of King’s Bench.

The Tribunal considers that Dow has timely recorded its objection to jurisdiction. Dow agrees that Dow’s continued participation in this proceeding is without prejudice to Dow’s right to maintain its objection to jurisdiction. [ 54 ] On February 10, 2023, Justice Horner also refused Dow’s application for an interim stay of the arbitration. Analysis What does “has not participated in the arbitration” mean?

Does the competence-competence principle apply to s. 47? [ 55 ] Dow submits that unless a party has taken one of the steps set out in the Arbitration Act under the heading “Conduct of an Arbitration” it cannot be said to have participated in the arbitration. [ 56 ] Nova submits that after an arbitration has commenced, as it did in April 2022 with the service of the Notice to Arbitrate, and a party takes any active steps in relation to that arbitration, then that party has participated in the arbitration.

Specifically, where a party participated in the appointment of an arbitration tribunal, and in a case management conference, and does so without stating its objection to the tribunal’s jurisdiction, it has participated in the arbitration. [ 57 ] Nova further submits that even where a party has not participated in the arbitration, s. 47 does not give the Court unlimited authority to assess whether “the arbitration agreement does not apply to the matter in dispute”; in Nova’s view, the competence- competence principle applies such that the Court should, absent exceptional circumstances, only assess jurisdiction in relation to questions of law, or questions of mixed fact and law where the necessary facts are evident on the record or not in dispute. [ 58 ] To assess these submissions this part begins with a general review of the law governing judicial oversight of an arbitrator’s jurisdiction so as to put s. 47 in the context of other provisions of the Arbitration Act , and Supreme Court case law on the competence- competence principle.

It then reviews authority specifically related to s. 47 of the Arbitration Act and analogous provisions in other Canadian provinces and the United Kingdom. Judicial Consideration of an Arbitrator’s Jurisdiction [ 59 ] The Arbitration Act explicitly constrains judicial intervention in arbitration, prohibiting courts from intervening in matters governed by the Act except to assist in the arbitration process, to ensure the arbitration is carried on in accordance with the arbitration agreement, to prevent manifestly unfair or unequal treatment, or to enforce awards: Arbitration Act , s. 6 .

The Supreme Court has described this as a signal “that courts are generally to take a ‘hands off’ approach to matters governed by the Arbitration Act ”: TELUS Communications Inc v Wellman , 2019 SCC 19 at para 56 . [ 60 ] Further, s. 7 directs the Court to stay judicial proceedings in respect of a matter “to be submitted to arbitration under the agreement”, only allowing a stay to be refused in defined circumstances.

Those circumstances generally relate to foundational issues – for example, that the arbitration agreement is invalid, or the subject-matter of the dispute “is not capable of being subject of arbitration under Alberta law” (7(2)(

b) and 7(2)(c). Section 7(2)(

e) also allows a court to refuse a stay if the judicial proceeding “is a proper one for default or

summary judgment”. With respect to the scope of s. 7 see: TELUS Communications at paras 63-75. [ 61 ] That is not to say that arbitrations occur without judicial involvement or oversight. Courts have specific powers under s. 8 of the Arbitration Act to assist in the arbitral process such as, on consent or on the application of the arbitral tribunal, determining “any question of law that arises during the arbitration”: s. 8(2).

See also, ss. 16(3), 18(2), 29(5), 39. [ 62 ] If the arbitration agreement permits, a party may appeal an award to the court “on a question of law, on a question of fact or on a question of mixed law and fact”: s. 44(1). If the agreement does not permit an appeal on a question of law, and the question was not one that the parties expressly referred to the tribunal for decision, a party “may, with the permission of the court, appeal an award to the court on a question of law”: s. 44(2)-(3).

See also, ss. 13(6), 15, 40(2). [ 63 ] Pursuant to s. 17(9), if an arbitration tribunal rules on an objection to its jurisdiction as a preliminary question, a party may, within 30 days of receiving notice of the ruling, “make an application to the court to decide the matter”. [ 64 ]

Section 45 permits a court to set aside an arbitration award where the “award deals with a matter in dispute that the arbitration agreement does not cover or contains a decision on a matter in dispute that is beyond the scope of the agreement”: s. 45(1)(c).

Section 45(3) provides that the court shall not exercise this discretion if the “applicant has agreed to the inclusion of the matter in dispute, waived the right to object to its inclusion or agreed that the arbitral tribunal has power to decide what matters in dispute have been referred to it”. [ 65 ] And, of course, s. 47 allows a party who has not participated in an arbitration to obtain a declaration that the arbitration is invalid because the arbitration agreement does not apply to the matter in dispute and to enjoin the arbitration from proceeding. [ 66 ]

Section 3 of the Act prohibits parties from varying or excluding any of s. 44(2), 45 or 47 in their arbitration agreements.

[ 67 ] The Supreme Court has considered the role of the courts in relation to arbitrations.

It has held that the legislation includes, significantly, the goal that parties “to a valid arbitration agreement abide by their agreement”: TELUS Communications at paras 82-83. [ 68 ] In numerous cases, all of which dealt with whether judicial proceedings ought to be commenced or continued in the face of an arbitration clause or agreement, the Court had adopted the competence-competence principle. [ 69 ] Specifically, the Court has held that in general a “challenge to the arbitrator’s jurisdiction must be resolved first by the arbitrator”.

That rule should only be departed from where the issue is based solely on a question of law, or a question of mixed fact and law where the factual issues require only “superficial consideration of the documentary evidence in the record”: Dell Computer Corp v Union des consommateurs , 2007 SCC 34 at para 84-85 ; Rogers Wireless Inc v Muroff , 2007 SCC 35 at para 11 ; Seidel v TELUS Communications Inc , 2011 SCC 15 at paras 28-29 ; Peace River Hydro Partners v Petrowest Corp , 2022 SCC 41 at paras 39-42 . [ 70 ] The Court explained, in Peace River at para 41, that the competence-competence principle reflects the presumption that arbitrators can find facts as well as courts can, and also “that the parties intended an arbitrator to determine the validity and scope of their agreement”. [ 71 ] In Uber Technologies Inc v Heller , 2020 SCC 16 at para 36 , the Court clarified that “superficial” in relation to a question of mixed fact and law means “whether the necessary conclusions can be drawn from facts that are either evident on the face of the record or undisputed by the parties”. [ 72 ] The Court has also held that, in extraordinary cases, where there is a bona fide challenge that only the Court can resolve, that the Court can consider jurisdiction.

The question is, is there a genuine challenge to arbitral jurisdiction, and is there a real prospect that if the Court does not consider the challenge, the arbitrator never will: Uber at paras 44-46. Case Law – s. 47 [ 73 ] Little case law exists with respect to s. 47 or its Canadian equivalents. [ 74 ] In Alberta Medical Association v Alberta , 2012 ABQB 133 at para 19 , the Court held that s. 47(1) applies where “one party has given notice of its intention to initiate arbitration proceedings and another party objects”. [ 75 ] In Ontario s. 48(1)(

d) of the Arbitration Act , SO 1991 c 17 , provides: 48

(1) At any stage during or after an arbitration, on the application of a party who has not participated in the arbitration, the court may grant a declaration that the arbitration is invalid because… (

d) the arbitration agreement does not apply to the dispute. [ 76 ] In Eyelet Investment Corp v Li Song , 2018 ONSC 3980 , the Court held that a vendor had not participated in the arbitration process even thought it had attended a meeting. The Court said, “The fact that counsel for Eyelet showed up at a meeting, clearly taking the position that he was not attorning to the arbitrator’s jurisdiction, cannot now be used against the plaintiff.

Therefore, the plaintiff is entitled to seek a declaration that the arbitration is invalid”: Eyelet at para 9. [ 77 ] The Court in Eyelet also, however, held that it should defer to the arbitrator for the determination of jurisdiction even when it has the authority to consider jurisdiction under s. 48.

In particular, it said that the competence-competence principle requires that “questions relating to jurisdiction – which includes the scope of the arbitration agreement – should in the first instance be decided by the arbitral tribunal rather than by the Court”: Eyelet at para 13. [ 78 ] A more recent case, Electek Power Services Inc v Greenfield Energy Centre Limited Partnership , 2022 ONSC 894 , did not consider the scope of “has not participated in s. 48” but, as in Eyelet , held that the test for determining whether to enjoin an arbitration under s. 48(2) is the same test as for whether to grant a stay of an arbitration, including the application of the competence-competence principle: Electek at para 117. [ 79 ] Canadian textbooks on arbitration suggest that any participation, including in the selection of the arbitrator, will constitute disqualifying participation.

In his textbook J. Brian Casey says, for example: Note that s. 48 [of the Ontario legislation] only applies to a party who has not participated in the arbitration. If a party participates in the nomination process or takes any other steps in the arbitration, then s. 48 is not applicable. This does not mean the party is without recourse.

All it means is that any challenge to the arbitration must be brought to the arbitrators themselves: Arbitration Law of Canada: Practice and Procedure , 3rd ed (Huntington, NY: Juris, 2017) at 397. [ 80 ] The Annotated Arbitration Act says with respect to s. 48: … [Section 48(1)] allows a party who did not participate in the arbitration to apply for a declaration that the arbitration is invalid, thereby causing any award to be unenforceable.

The rights bestowed on a party under s. 48(1), however, are lost if they appoint or participate in the appointment of an arbitrator, or appear before or correspond with the tribunal with a view to it exercising any power… The following acts do not amount to participation in an arbitration

a) silence and inactivity towards the initiation or revival of an arbitration proceeding;

b) a request or agreement to adjourn a procedural hearing in circumstances where a party has not agreed to the arbitration; and

c) an indication that a party will move to appoint an arbitration and a subsequent failure to appoint one. Alexander Gay & Alexandre Kaufman, Annotated Arbitration Act, 1991, 1st ed (Toronto: Thomson Reuters Canada, 2016 at p 217. [ 81 ] A more significant body of case law exists with respect to the British equivalent of s. 47. That provision, s. 72 of the

Arbitration Act, 1996 , c 23 , has somewhat different wording, and says:

(1) A person alleged to be a party to arbitral proceedings but who takes no

part in the proceedings may question… (

c) what matters have been submitted to arbitration in accordance with the arbitration agreement, By proceedings in the court for a declaration or injunction or other appropriate relief.

(2) He also has the same right as a party to the arbitral proceedings to challenge an award – (

a) by an application under

section 67 on the ground of lack of substantive jurisdiction in relation to him… And section 70(2) (duty to exhaust arbitral procedures) does not apply in his case. [ 82 ] The Court in Caparo Group v Fagor Arrasate Sociedad Cooperative 1998 Folio No. 507 (QB), held that a party who advised the arbitrator that it was not a party to the arbitration agreement, and that as such the request for arbitration should be rejected, but made no further submissions on the issue of jurisdiction, could not be said to have taken

part in the arbitration.

A similar result was reached in Law Debenture Trust Corp v Elektrim Finance BV , [2005] EWHC 1412 (Ch) at paras 22-30, where the Court noted the objecting party’s consistent assertion that the arbitrators should not be acting, and found as a fact that the objecting party did not participate in the appointment of an arbitrator. [ 83 ] In Harper Versicherungs AG v Indemnity Marine Assurance Co et al [2006] EWHC 1500 (QB) the Court rejected a party’s argument that it had declined to appoint an arbitrator due to concerns about protecting his rights under s. 72 as factually unfounded, but also suggested that a party who appointed an arbitrator without prejudice to its contention that there was no arbitration agreement “will not ordinarily without more lose his right to question whether there is a valid arbitration agreement”: Harper Verischerungs at para 25 (although note that it is not entirely clear that the judge saw the right to question whether there is an agreement as arising under s. 72 or another provision of the Arbitration Act 1996 ). [ 84 ] In British Telecommunications PLC v SAE Group Inc [2009] EWHC 252 (TCC) at para 56, the Court held that a party who had not “applied or concurred in the appointment of the arbitrator” had “not taken

part in the arbitration proceedings as that is the full extent, so far, of the arbitration proceedings”. The Court described the “temporal” requirement of s. 72 as meaning that the matter must “be brought before the Court at an early stage of the arbitration proceedings in the sense that it must be before the challenging party has taken

part in the arbitration proceedings”: British Telecommunications at para 56. [ 85 ] Broda Agro Trade (Cyprus) Limited v Alfred C. Toepfer International Gmbh [2010] EWCA Civ 1100 (CA) dealt with a case where a party had not participated in the arbitrator’s assessment of jurisdiction, but had participated in the arbitrator’s assessment of the substantive issues in dispute. The party sought the Court’s consideration of the arbitrator’s jurisdiction pursuant to s. 72, submitting that it had not participated because it had not participated in the assessment of jurisdiction. The Court rejected this argument, saying at paras 37: Mr Flynn is of course correct that

section 72 is concerned with the jurisdiction of the arbitrators. But in my judgment, its wording is clear. I see no basis for an implied restriction of the words "takes no

part in the proceedings" to the proceedings relating to the determination of the substantive jurisdiction of the arbitrators. The purpose of the requirement is clear. A person who considers that he has not entered into an arbitration agreement is entitled to ignore its proceedings. He is entitled to say, in effect, that the arbitral proceedings are nothing to do with him. If he takes that course, his rights to claim relief from the court cannot be restricted because he did not participate in those proceedings .

If, on the other hand, he participated in the proceedings, whether in relation to the jurisdiction of the arbitrators or in relation to the exercise of their asserted substantive jurisdiction, and is disappointed by their decision, he can fairly be required to bring proceedings to challenge their award within the limited time applicable to an application under

section 67, which in any event may in an appropriate case be extended by the court [emphasis added]. [ 86 ] A v B , [2010] EWHC 3302 (Comm), dealt with the availability of security of costs for a party who had succeeded in arbitration in relation to the unsuccessful party’s application for judicial review of the decision.

In the course of its reasons the Court distinguished s. 67, the judicial review provision, from s. 72, relying on earlier authority for the proposition that s. 67 applies where a party participates in an arbitration while disputing the arbitrator’s jurisdiction, while s. 72 “deals with the case of someone who does not participate in the arbitration at all”: A v B at para 13.

See also, AES ust-Kamenogorsk LLP v Ust-Kamenogorsk JSC [2012] 1 WLR 920 (CA) at para 184 (aff’d, Ust-Kamenogorsk JSC v AES ust-Kamenogorsk LLP [2013] UKSC 35). [ 87 ] One judge, in obiter , described s. 72 as permitting a respondent to an arbitration to “stand aloof, go to the court…and ask the court to determine the question of jurisdiction”: Barclays Bank PLC v Nylon Capital LLP [2010] EWHC 1139 (Ch) at para 22; see also, DHL Project & Chartering Limited v Gemini Ocean Shipping Co Limited , [2022] EWHC 181 (Comm) at para 16. [ 88 ] Sovarex SA v Romero Alvarez SA , [2011] EWHC 1661 (Comm) at para 17-18 states that the test for whether a person has taken

part in the arbitration proceedings must be determined objectively, although each case turns on its own facts. In considering earlier authorities such as Caparo and Law Debenture , the Application Justice noted that they effectively distinguish between a party protesting jurisdiction and suggesting that jurisdiction ought to be determined elsewhere, and a party objecting to jurisdiction but submitting its objection to the tribunal: Sovarex at para 23.

On the facts before him, the Application Justice found that the objecting party had simply protested jurisdiction and asked the arbitrator to wait while the matter was before the Spanish court: “It never recognized that the tribunal had jurisdiction, still less did it invite them to consider or determine the issue of jurisdiction. The letters were directed at explaining why Alvarez was not going to participate”: Sovarex at para 29. [ 89 ] In National Investment Bank Ltd v Eland International (Thailand) Co.

Ltd. and anothe r , [2022] EWHC 1168 (Comm) the Court considered a situation where the participating party used s. 18 of the arbitration legislation to obtain the appointment of an arbitrator without the agreement of the objecting party, and then said that the effect of it having done so was that the objecting party became a party to the proceedings. The Court rejected this “ingenious” argument, citing the Department Advisory Committee on

Arbitration Law Report on the Arbitration Bill with respect to the purpose of s. 72: To our mind this is a vital provision. A person who disputes that an arbitral tribunal has jurisdiction cannot be required to take

part in the arbitration proceedings or to take positive steps to defend his position, for any such requirement would beg the question whether or not his objection has any substance and thus be likely to lead to gross injustice. Such a person must be entitled, if he wishes, simply to ignore the arbitral process … Those who do decide to take

part in the arbitral proceedings in order to challenge the jurisdiction are, of course, in a different category, for then, having made that choice, such people can fairly and properly be required to abide by the time limits etc that we have proposed: National Investment Bank at para 15. [ 90 ] Merkin and Flannery on the Arbitration Act 1996 , 6 th ed (UK: Informa Law from Routledge, 2020) comments on s. 72, and says that even participation in the constitution of the tribunal might be enough for a party to be said to have taken

part in the proceedings. In its view, the “fork in the road” occurs when the notice or request for arbitration is received: Mann J in Law Debenture accepted that a mere assertion of non-jurisdiction was not the same as participating in the exercise of it. However, it is arguable that by participating in the constitution of the tribunal, a party is taking

part in ‘the proceedings’, which (by virtue of

section 14) are deemed to commence (at least in ad hoc cases) on the service of the notice of arbitration (and in institutional cases, upon the filing of the Request for Arbitration). By even engaging on the issue as to the constitution of the tribunal, a respondent will have become aware of the proceedings, and if it wishes to take advantage of

section 72 it should understand that the fork in the road occurs at the time of the receipt of the notice of (or request for) arbitration. It can write back, explain why the tribunal has no jurisdiction and why the claim will be doomed for that reason, and provided it does nothing more, its rights under

section 72 will be preserved. A party or putative party seeking to enjoy the benefit of

section 72 therefore ought really to err on the side of caution and to expect that any participation at all, even under protect, may be enough to disqualify it from

section 72, even if that party would not thereby lose the right to object to jurisdiction under

section 67. Certainly, putting in writing submissions without appearing at any hearing, even confined to a jurisdictional issue, will debar any application under

section 72…A party cannot have its cake and eat it: it must really elect at the outset to snub the process entirely, or to engage, and if the latter, any engagement at all will cost that party the right to apply under

section 72: Merkin and Flannery at 783. Analysis [ 91 ] This

summary of the law sets out some general precepts that assist in interpreting s. 47. [ 92 ] First, parties ought to be bound by their arbitration agreements. [ 93 ] Second, courts ought not to interfere with the arbitral process beyond exercising the oversight granted through the Arbitration Act and should respect the competence of arbitrators to determine their own jurisdiction. [ 94 ] Third, and relatedly, the courts will apply the competence-competence principle in cases where judicial proceedings have been commenced, or are sought to be commenced, and a party seeks to stay or prevent those proceedings because the parties’ dispute ought to be resolved through arbitration.

Absent extraordinary circumstances, courts in those cases require a challenge to an arbitrator’s jurisdiction to be resolved first by the arbitrator unless the jurisdictional issue is based solely on a question of law, or the factual issues require only a superficial consideration of the documentary evidence. [ 95 ] Fourth, in at least two cases, Eyelet and Electek , judges held that the competence-competence principle applies to a judge’s determination of whether, pursuant to s. 47 (Ontario’s s. 48), to assess jurisdiction and enjoin arbitration proceedings. [ 96 ] Fifth, although courts defer to arbitrators to determine jurisdiction in the first instance, they retain oversight with respect to that determination.

If a party objects to the arbitrator’s jurisdiction, and the arbitrator wrongly decides that the dispute falls within the scope of the arbitration agreement, its decision may be corrected by the court after an application brought pursuant to s. 17(9) or s. 45(1) (c). [ 97 ] Sixth, relying on Sovarex , the determination of whether a party has participated in a proceeding must be assessed objectively, but depends on the facts of the case (see, relatedly, Peace River at para 97 where the Court held that a determination of whether a party had taken a “step in” court proceedings ought to be assessed objectively). [ 98 ] Seventh, in determining whether participation has occurred in a particular case, while commentators generally view s. 47 as an exceptional remedy, available only to a party who has done essentially nothing in response to a notice to arbitrate, courts seem to approach the provision more pragmatically.

They take into account whether a party has consistently contested jurisdiction, whether it has engaged with the substance of the matter before the arbitrator, and how far the arbitration has progressed. [ 99 ] Finally, none of the cases set out a generally applicable test, or a series of relevant criteria, for deciding whether a party has participated or taken

part in an arbitration. [ 100 ] In my view these observations and principles do not support either of the somewhat rigid positions articulated by Dow and Nova. I do not accept Nova’s position that in any case where a party has participated in the selection of an arbitrator that it will have participated in the arbitration. [ 101 ] Nor, however, do I accept Dow’s position that until a party has done or participated in one of the steps listed in ss. 19 - 26 of the Arbitration Act that it will not have participated in the arbitration.

That approach would make the test for “participation” analogous to the test used to assess whether a party has taken a “step in” court proceedings, which some arbitration legislation had prohibited a party from doing in advance of seeking a stay: Peace River at para 96; Arbitration Act , RSBC 1996 Ch 55, s. 15 (now repealed). In Peace River the Court held that “step in” requires a positive action, such as an application to the court, “not mere talk between solicitors”: Peace River at para 97. The word “participation”, however, means simply “to take

part in something”; it connotes less active engagement than the

phrase “take a step in”. Dow’s position would make them essentially the same and, in my view, the different language precludes that equivalency. [ 102 ] Rather, the assessment of whether a party has participated in the arbitration should be approached objectively and practically, in light of the circumstances of a particular case. While what informs the analysis will vary between cases, factors that usefully elucidate the assessment of whether a party has participated include: 1. Was a notice of arbitration served on the objecting party? 2.

Did the notice of arbitration clearly indicate the nature of the dispute, so that the jurisdictional issue was apparent on its face? 3. Did the objecting party raise any issue with respect to jurisdiction? 4. What steps did the objecting party take to progress the arbitration, if any? Did any of those steps relate to the substantive issue in dispute? Did any of these steps engage with the arbitrator’s jurisdiction? 5.

How much time elapsed between the objecting party receiving the notice of arbitration, and raising the jurisdictional issue? [ 103 ] These criteria provide a framework to allow a court to assess whether participation has, in substance occurred. They also allow the court to consider whether the objecting party implicitly or explicitly acknowledges the competence of the arbitrator to assess its own jurisdiction, even if it does not accept that the arbitrator has jurisdiction.

They permit the court to consider, to the extent it informs the analysis of “participation”, the possibility of prejudice to the counterparty to the arbitration agreement in relation to that party’s ability to have a timely and fair resolution of the issue in dispute. [ 104 ] Once a court has determined whether or not a party participated it must then assess whether it ought to issue a declaration on jurisdiction, and enjoin the arbitral proceedings, in light of the competence-competence principle. [ 105 ] At the hearing I expressed some doubt about this position.

In particular, it struck me as problematic that a provision would impose a barrier to access – that a party not have participated in the arbitration – but then impose a further limitation on the circumstances in which a declaration would be granted.

If, to use the language from Merkin and Flannery , a party takes the “fork in the road” in favour of the Court’s jurisdiction, why ought it not be entitled to the full benefit of that jurisdiction? [ 106 ] On reflection, however, the party who seeks a declaration under s. 47, and to enjoin the arbitration, is not substantially different than a party who, despite having signed an arbitration agreement, commences (or seeks to commence) an action in court: Arbitration Law of Canada at 396. Both parties have acted, to use the language of Broda Argro , as if the arbitral process is nothing to do with them.

If the courts – as they undoubtedly have – impose restrictions on their assessment of jurisdiction for the party who brings, or attempts to bring, an action to court instead of arbitration, those same restrictions ought logically to apply to a party who, in the face of an arbitration, brings the matter to court instead of to the arbitrator. The recognition of the competence of the arbitrator, particularly in relation to disputed questions of fact, is properly made in both situations. [ 107 ] In a sense, although imperfectly, s. 47 is a mirror image of s. 7. In

section 7, party A commences an action in court, and party B seeks to stay the court action in favour of the arbitrator assessing jurisdiction. In

section 47, party A commences an action in front of an arbitrator, and party B seeks to stay the arbitration in favour of the court assessing jurisdiction. [ 108 ] I add one caveat to this analysis. In the analysis of some British Cases (in A v B , e.g.), s. 72 exists not only to allow a pre- emptive challenge to jurisdiction, but also to ensure that a party who did not participate in the arbitration can obtain judicial review without applying under the judicial review provisions.

The language of the Alberta legislation is quite different but it, too, allows for s. 47 to be accessed “during or after” the arbitration. In the situation of a post-arbitration application, where arbitration has already occurred, and an arbitrator has taken jurisdiction, it would not make sense to apply the competence-competence principle: the arbitrator has effectively decided jurisdiction.

A party who did not participate in the arbitration and who challenges the arbitrator’s jurisdiction after the arbitration has concluded, ought to be able to challenge the arbitrator’s jurisdiction pursuant to s. 47 without first establishing that the question is one for the courts in accordance with the competence-competence principle.

Has Dow “not participated in the arbitration” with respect to the budget disagreement? [ 109 ] I am satisfied that Dow participated in the arbitration. [ 110 ] Nova served a notice of arbitration on Dow, thereby commencing the arbitration: Arbitration Act , s. 23 . [ 111 ] The Notice explicitly set out the matters in dispute in a manner sufficient to indicate to Dow that Dow’s refusal to approve of budgets containing a forecast of production was central to the disagreement in question: 5.

The OSA contemplates, among other things, the operation of E3 by NOVA (in that capacity, the Operator) on behalf of NOVA and Dow as Co-owners. Pursuant to the OSA and various related agreements respecting the construction, ownership, and operation of E3 (collectively, the Project Agreements), NOVA and Dow are each owners of a fractional share of E3 and entitled to receive production of ethylene and other products from E3 in accordance with their ownership interest (EPP). 6.

Under the OSA, the Co-owners are each represented on a committee formed under the OSA to provide direction to the Operator relating to the management and operations of E3 (the Management Committee), and (in some cases) to approve the actions (and proposed actions) of the Operator. 7. The OSA requires the Operator to propose, and the Management Committee to consider, a budget for each year of operations at E3.

The budget is to include a

summary of proposed capital and operating expenditures and a forecast of E3's operations based on the estimated requirements of the Co-owners for Ethylene . 8. In accordance with the OSA, the Operator provided a budget for the 2022 operating year to the Management Committee and requested that the Co-owners approve that budget. In the course of preparing and presenting the 2022 budget, the Operator received and responded to all questions that Dow posed regarding the budget.

The Operator has further offered to Dow to answer any additional questions Dow may have such that Dow is in a position to approve the 2022 budget. Dow has identified no such additional questions. 9. NOVA (as Co-owner) approved the 2022 Budget, but Dow refused to approve the budget. Dow further indicated that it intends to withhold its approval of future budgets indefinitely. 10. Dow's refusal to approve the annual budgets at E3 is a breach of its obligations under the OSA. 11. The 2022 Budget was to become effective on January 1, 2022. 12.

The 2022 Budget was prepared by the Operator in good faith and in accordance with the OSA, and reflects the Operator's views as to the capital and operating expenditures to be expected at E3 in the 2022 calendar year based on the capacity of E3 to produce ethylene for the Co-owners [emphasis added] [ 112 ] Dow did not raise any issue of jurisdiction on receiving the Notice; indeed, it did not raise any issue of jurisdiction for nearly six months after the Notice was provided to it (April 25, 2022-October 17, 2022). [ 113 ] Further, Dow acted to progress the arbitration, and did so without asserting any caveat or caution to indicate that its doing so was without prejudice to the jurisdiction question.

It appointed its own panel member and worked with Nova to appoint a mutually agreeable chair of the Arbitration Tribunal. It participated in a case management meeting, going so far as to set out its basic position on the issues in dispute: [I]ts failure to approve the 2022 budget was reasonable and consistent with its interests as owner and arises from the Claimant’s failure to provide the required information for budget approval. [ 114 ] I acknowledge that Dow never suggested, once it had raised a jurisdictional issue, that that issue was properly determined by the arbitrator.

Dow was clear that the question of jurisdiction ought to be determined by this Court. I also acknowledge that nothing Dow did prior to October 17, 2022 engaged in a meaningful way with the substantive or jurisdictional questions, and that hearings by the Arbitration Tribunal had not yet begun. [ 115 ] Nonetheless, in the circumstances I am satisfied that Dow participated in the arbitration.

Dow certainly gave Nova and the Arbitration Tribunal no basis for understanding that it objected to the arbitration, or to the Arbitration Tribunal’s assessment of its own jurisdiction; if anything, its actions communicated that it accepted the authority of the Arbitration Tribunal. It advanced the progress of the arbitration. Its conduct would have been understood by a reasonable person in the position of the Arbitration Tribunal, and Nova, as participation in the arbitration.

In the alternative, is the issue of jurisdiction raised by Dow one that the Court ought to consider given the competence-competence principle? [ 116 ] If I am incorrect with respect to Dow’s participation, I would nonetheless decline to assess the jurisdictional question given the competence-competence principle. [ 117 ] Dow objects to arbitration primarily on the basis that the budget disagreement requires

interpretation of the OSA, and also of the Plant Co-Owners Agreement, and that matters of contract

interpretation are to be decided by the Court pursuant to

Article 24.3 of the OSA. [ 118 ] Dow supports this argument by reference to Dow 2018, submitting that aspects of the budget disagreement were already decided in that litigation, and are res judicata .

In its view, Nova is trying to re-litigate that dispute as, Dow submits, it has attempted to do in other proceedings subsequent to Dow 2018: Dow Chemicals ULC v NOVA Chemicals Corporation , 2020 ABQB 441 . [ 119 ] Dow also observes that Nova’s claim is about Dow’s failure to approve budgets at all, rather than relating to any actual item it any actual budget, and that Dow has paid for all items claimed by Nova through the years in which no budget has been “approved”. [ 120 ] Dow suggests that to the extent there is a dispute, it is between Nova as an operator and Dow as a co-owner, rather than being a dispute between two co-owners. [ 121 ] Dow relies on a decision made by then Chief Justice Wittmann in which he rejected Nova’s attempt to prevent Dow from amending its statement of claim on the basis that the dispute went to billing matters, and thus should be subject to the billing arbitration decisions.

Chief Justice Wittman said that given the terms of the OSA “it is clear that the parties did not agree to send everything that can result in a change in the billing to the Billing Arbitrator”: Dow Chemical Canada Inc v NOVA Chemicals Corporation , 2010 ABQB 524 at para 59 . Similarly, here, Dow suggests, that the disagreement between the parties about the obligations under the OSA leads to a budget disagreement does not mean that this is a “budget dispute” and subject to arbitration. [ 122 ] At their essence, these jurisdictional objections by Dow must be resolved through

interpretation of the OSA, and in particular

interpretation of the arbitration provisions, and the relationship between the arbitration provisions and

Article 24.3. In addition, they must be resolved through interpreting the OSA and those provisions in light of the facts related to the budget disagreement that Dow and

Nova have had in each year since Dow 2018, and in particular 2022 and 2023. [ 123 ] Contract

interpretation is, generally speaking, a question of mixed fact and law: Rice v Shell Global Solutions Canada Inc , 2021 ABCA 408 at para. 18 . As a question of mixed fact and law, it ought to be decided by the arbitrator in the first instance, unless the factual questions it raises are evident on the record or not in dispute. That is not the case here. While the terms of the OSA are before the Court, their meaning is disputed and, importantly, the history and nature of the budget disagreement is not before the Court.

The only affidavits filed were by legal assistants of the lawyers and related almost entirely to the history of the arbitration, not to the budget disagreement.

I do not, for example, have in the record a copy of any of the disputed budgets, or of the form of approval sought by Nova. [ 124 ] To the extent that Dow’s jurisdictional objection (as opposed to its substantive defence) rests on a distinct claim of res judicata it, too, is a question of mixed fact and law: whether the factual and legal claims in the budget disagreement were determined by Dow 2018. [ 125 ] I am satisfied that the adjudicator best suited for determining whether the budget disagreement is a budget dispute for the purposes of Articles 9.3(

b) and 19 of the OSA is the Arbitration Tribunal, who have before them all the evidence and records relevant to analyze the precise nature of that disagreement, and how the terms of the OSA apply to it.

The Arbitration Tribunal is also best suited to determine whether that disagreement, properly understood, was determined by Dow 2018 such that it is res judicata . [ 126 ] Dow submitted that this case was the sort of exceptional case contemplated by Uber , in which the Court’s consideration of jurisdiction was warranted even if the competence-competence principle would ordinarily result in deference to the arbitrator. I do not accept this submission.

The concern in Uber was that if the Court did not consider unconscionability, then the issue would never be considered – arbitration was not practically available to the plaintiff.

This case is not analogous to those exceptional circumstances; Dow will have its jurisdictional arguments adjudicated by the Arbitration Tribunal, subject to judicial oversight through the operation of s. 17(9) or s. 45(1) of the Arbitration Act . [ 127 ] Dow further submitted that this case was analogous to Peace River , where the Supreme Court allowed a civil claim to proceed in the context of insolvency proceedings despite the existence of an arbitration agreement.

Dow sought to draw an analogy between its ongoing civil litigation with Nova and the complicated bankruptcy at issue in that case, and to rely on the Court’s determination that an arbitration should be prevented where it “would compromise the orderly and efficient conduct of a court-ordered receivership”: Peace River at 73. [ 128 ] Peace River does not assist Dow.

In that case the Court applied the competence-competence principle and determined that the issues raised questions of mixed fact and law, requiring only a superficial consideration of the evidentiary record, so that it was appropriate for the courts to determine jurisdiction: Peace River at 43. As just explained, that is not the case with respect to the question of jurisdiction over the budget disagreement.

Further, and in any event, ongoing civil litigation, however complex, is not analogous to proceedings under federal bankruptcy legislation, legislation which, the Court held, granted the courts jurisdiction to hold that an arbitration agreement is inoperative in the receivership context: Peace River at para 152. [ 129 ] Thus, relying on the competence-competence principle, I conclude that even if Dow did not participate in the arbitration, the question of the arbitrator’s jurisdiction is appropriately determined in the first instance by the Arbitration Tribunal, not this Court.

If Dow cannot rely on s. 47 is there any other basis for the Court to assess the scope of the arbitration agreement? [ 130 ] In addition to s. 47 of the Arbitration Act , Dow relied on s. 11 of the Judicature Act , in support of its request for judicial relief.

Section 11 states: No proceeding is open to objection on the ground that a judgment or order sought is declaratory only, and the Court may make binding declarations of right whether or not any consequential relief is or could be claimed. [ 131 ]

Section 11 of the Judicature Act does not expand the Court’s jurisdiction in light of the provisions of the Arbitration Act , and in particular s. 6 : Toyota Tusho Wheatland Inc v Encana Corp , 2016 ABQB 209 at para 82 ; Western Oil Ands Inc v Allianz Insurance Co of Canada , 2004 ABQB 79 at para 30-31 . Conclusion [ 132 ] Dow’s application is dismissed. If the parties cannot agree as to entitlement and quantum of costs, they may approach the Court for direction for a procedure to establish same. Heard on the 22 nd day of March, 2023. Dated at the City of Calgary, Alberta this 14 th day of April, 2023.

A. Woolley J.C.K.B.A. Appearances: David Tupper/Mihai Tomos - Blake, Cassels & Graydon LLP Blair C. Yorke-Slader, KC – Bennett Jones LLP for the Applicant Gunnar Benediktsson/ Steven H. Leitl, KC/Aaron Stephenson- Norton Rose Fulbright Canada LLP for the Respondent _______________________________________________________ Corrigendum of the Memorandum of Decision of The Honourable Justice A. Woolley _______________________________________________________ The date the matter was heard on page 21 has been corrected from 23 rd day of March, 2023 to the 22 nd day of March, 2023.