2019 NLCA 56, 2019 NLCA 56

General Cable Company Ltd. (appellant) v. Labrador-Island Link Limited Partnership, as represented by its general partner, Labrador- Island Link General Partner Corporation (respondent) (19/07) Indexed As: General Cable Company Ltd. v. Labrador-Island Link Limited Partnership 2019 NLCA 56 5 C.A.N.L.R. 46 Court of Appeal of Newfoundland and Labrador Green, Welsh and O’Brien JJ.A. September 11, 2019

Summary: Labrador-Island Link entered into an agreement with General Cable for the supply of transmission line conductors for an electrical transmission line that was being constructed by Labrador-Island Link. When an issue occurred with a prototype conductor, Labrador- Island Link bore all the costs associated with remedying the problem. Labrador-Island Link subsequently filed a statement of claim in which it sought the costs of rectification. General Cable applied to strike out the statement of claim pursuant to rule 14.24(1)(

d) of the Rules of Supreme Court, 1986 . General Cable argued that Labrador-Island Link failed to comply with the dispute resolution provisions of the agreement and was therefore prohibited from bringing an action in court. The applications judge found that Labrador-Island Link had substantially complied with the requirements of the dispute resolution provisions of the agreement and that General Cable was not entitled to a stay of proceedings or an order striking out the statement of claim.

General Cable appealed the judge’s decision and argued that the judge erred in concluding that the filing of Labrador-Island Link’s statement of claim did not amount to an abuse of process. Held: Appeal dismissed. Welsh J.A. (Green and O’Brien JJ.A. concurring): The relevant provisions are rule 14.24(1)(

d) of the Rules of the Supreme Court, 1986 (striking a statement of claim); articles 34, 32 and 1.13 of the agreement (the dispute resolution provisions); and

section 5 of the Limitations Act (limitation period for bringing an action in court) (paragraphs 5-10). General principles governing the

interpretation of commercial agreements are discussed. The judge was required to interpret the agreement to determine whether filing a statement of claim resulted in an abuse of process (paragraphs 14 and 15). The judge considered the words and effect of the relevant provisions of the agreement, together with the effect of technical defects in complying with those provisions (paragraphs 16-18). An abuse of process had not been established.

The applications judge did not err in determining that Labrador-Island Link had substantially complied with the requirements of the dispute resolution clause, despite a lack of strict compliance. While Labrador-Island Link had failed to comply with the provision of the agreement that stipulated the manner in which notice was to be given, there was no evidence that General Cable did not have notice of the dispute despite the technical defect.

Further, the agreement could not have been intended to preclude Labrador-Island Link from exercising its right to proceed with an action in court should such an action prove necessary. Issuing a statement of claim to preserve that right would have been in contemplation of the parties when the agreement was executed (paragraphs 19-21).

Cases cited: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 , [2014] 2 S.C.R. 633 S.A. v. Metro Vancouver Housing Corp., 2019 SCC 4 Statutes considered: Limitations Act , SNL 1995, c. L-16.1,

section 5 Rules considered: Rules of the Supreme Court, 1986 , rule 14.24 Counsel: Terry G. Rowe Q.C., for the appellant; Leanne O’Leary and Thomas Munn, for the respondent. The appeal was heard on June 12, 2019 before Green, Welsh and O’Brien JJ.A. The following judgment was filed on September 11, 2019 by Welsh J.A. for the Court. ______________________________________________________________ Welsh J.A.: [ 1 ] An application by General Cable Company Ltd. to strike out a statement of claim filed by Labrador-Island Link Limited was denied by a judge of the Supreme Court, General Division.

General Cable took the position that pursuing an action in court amounted to an abuse of process because Labrador-Island Link had failed to comply with the dispute resolution clause in a purchase agreement between the two companies. General Cable appeals the dismissal of its application. BACKGROUND [ 2 ] Labrador-Island Link entered into an agreement with General Cable for the supply of transmission line conductors (the “Conductors”) for an electrical transmission line that was being constructed by Labrador-Island Link.

As set out in the statement of claim, a problem known as “prouding” was encountered with a prototype Conductor. When it appeared that the problem had been remedied, installation of the Conductor began in November 2015. However, in March 2016, “prevalent prouding was observed in significant intermittent portions of the installed Conductor” (decision of the applications judge, 2019 NLSC 6 , at paragraph 4 ). The parties acted collaboratively for the purpose of remedying the problem and work proceeded.

The judge accepted that Labrador-Island Link: [11] … bore all costs associated with removing and replacing the product and modifying the remainder of the uninstalled product to make it fit for the purpose. It “shelved” the liability issue and got on with the Project.

It was almost two years later that [Labrador- Island Link] resorted to legal action [by filing a statement of claim] on March 13, 2018. [12] The Statement of Claim asserts that notwithstanding its reasonable requests and in breach of the Agreement, [General Cable] failed to remedy the defective supply or pay the costs associated with rectifying the unacceptable supply of Conductor. [Labrador-Island Link] claims rectification costs currently calculated at $57,552,556.00 and other damages to be assessed. [ 3 ] Before filing a statement of defence, General Cable applied to strike out the statement of claim pursuant to rule 14.24(1)(

d) of the Rules of the Supreme Court, 1986 . ISSUES [ 4 ] At issue is whether the applications judge erred in concluding that filing a statement of claim against General Cable did not amount to an abuse of process. This requires consideration of the judge’s determination that Labrador-Island Link had not breached the dispute resolution clause in the agreement.

ANALYSIS Relevant Law and Provisions of the Agreement [ 5 ] The application to strike the statement of claim was made pursuant to rule 14.24(1)(d), which provides: The Court may at any stage of a proceeding order any pleading, … to be struck out … on the ground that … (

d) it is otherwise an abuse of the process of the Court, and may order the proceeding to be stayed or dismissed or judgment to be entered accordingly. [ 6 ]

Article 34 of the agreement sets out the dispute resolution provision: 34.1 If any dispute, controversy, claim, question or difference of opinion arises between the Parties under this Agreement including an

interpretation, enforceability, performance, breach, termination or validity of the Agreement (“Dispute”), the Party raising the Dispute shall give Notice to the other Party in writing within thirty (30) days of the Dispute arising, and such Notice shall provide all relevant particulars of the Dispute. 34.2 Upon issuance of Notice of the Dispute, the Parties shall, acting in good faith and a commercially reasonable manner, attempt to resolve the Dispute in the following manner: (

a) Within fifteen (15) days of the date of the Notice, the senior project managers for each of the Company and Supplier shall meet; (

b) If not resolved by project managers, the project sponsors or representative Vice Presidents for each of the Company and Supplier will meet within thirty (30) days following the meeting of the project managers; and ( sic ) 34.3 If the Dispute is not resolved by the Parties within ninety (90) days from the date of delivery of the Notice of Dispute then a Party may take whatever action is deemed appropriate pursuant to this Agreement. For greater certainty, the Parties must comply with this

Article 34 before commencing any further action, legal or otherwise, with respect to a Dispute under this Agreement. 34.4 Notwithstanding the existence of a Dispute and the referral of the Dispute to the resolution procedures in this

Article 34, [the] Company and Supplier shall, to the extent reasonably possible, continue to perform their obligations under this Agreement without interruption or delay. The continuation of such performance shall not amount to a waiver of, or in any way prejudice, the position that is taken by the Parties in the Dispute. There shall be no extension to the date for Delivery of Goods by reason that a Dispute has been referred to the dispute resolution process in this

Article 34. [ 7 ]

Article 32.1 of the agreement specifies the manner in which notice is to be given: Unless otherwise specified in the Agreement, any Notice given or made pursuant to the Agreement shall: (

a) be in writing; (

b) be marked to the attention of Regional Sales Manager, Eastern Canada, in the case of [General Cable] …; (

c) where given by [Labrador-Island Link], be signed or authorized by either [a Labrador-Island Link] representative, an officer, a director or company secretary of [Labrador-Island Link], or a duly authorized representative of [Labrador-Island Link]; … [ 8 ]

Article 32.3 specifies how notice is to be delivered: Any Notice given or made under the Agreement shall be delivered to the intended recipient by hand, post, Aconex or fax to the address or fax number below … . [ 9 ]

Article 1.13 of the agreement confirms the broad legal rights of the parties: The rights and recourse of [the] Company and Supplier contained in the Agreement are cumulative and not in the alternative unless otherwise provided. The exercise of any such rights or recourse shall not constitute a waiver or renunciation of any other rights or recourse. Except as expressly provided in the Agreement, the obligations imposed by the Agreement and the rights and remedies available thereunder are in addition to and not a limitation of any obligations, rights and remedies otherwise imposed or available by law. [ 10 ]

Section 5 of the Limitations Act , SNL 1995, c. L-16.1 , sets out the applicable limitation period for bringing an action in court: Following the expiration of 2 years after the date on which the right to do so arose, a person shall not bring an action (

a) for damages in respect of injury to a person or property, including economic loss arising from the injury whether based on contract, tort or statutory duty; … Decision of the Applications Judge [ 11 ] The applications judge was satisfied that Labrador-Island Link had not complied strictly with the specifics of notice set out in articles 32.1 and 32.3 of the agreement. However, having considered the evidence and the requirements of articles 34 and 32, the

applications judge drew several conclusions: [61] … (a) … Notwithstanding that a formal Notice in the format required by

Article 32.1 was not given before the series of meetings was held, [General Cable] had notice of the problem, was aware of the dispute and had at least one representative in attendance at five meetings held between May and July 2016. (b) … When the parties could not agree upon who was liable for the problem, the dispute was “shelved” and [Labrador-Island Link] took it on its shoulders to cover the full cost of remediation and get the job done. It was a practical and purposeful approach to the problem identified and that was what

Article 34 contemplated. (c) … [General Cable’s] position on the

interpretation of

Article 34 would result in a construction of

Article 34 that is commercially unreasonable and unfair. It could, if [General Cable’s] position on the limitations period is correct, result in the complete loss of [Labrador-Island Link’s] ability to have liability for the Conductor problem determined by a court as contemplated by

Article 1.13. [General Cable] has not established prejudice by failure [of Labrador-Island Link] to give a Notice in the format outlined in

Article 32.1 … … (d) … [Labrador-Island Link’s]

interpretation is consistent with construction of the agreement as a whole, gives intended effect to all relevant parts thereof, avoids an absurd outcome and is an outcome that supports validity of the agreement and should therefore be preferred. [General Cable’s]

interpretation suggests potential for an expired limitation period notwithstanding that [Labrador-Island Link] acted in good faith, “shelved” the liability issue and continued to perform its obligations without interruption or delay as contemplated by

Article 34.4. This

interpretation could leave [Labrador-Island Link] with no recourse, contrary to

Article 1.13 and would be an absurd result. (

e) On its face, [Labrador-Island Link’s] May 25, 2016 letter met the requirements of

Article 32.1(

a) and (c). It was in writing and signed by a representative of [Labrador-Island Link]. As to

Article 32.1(

b) and (e), it was delivered by email to Mr. Lahman, who was not [General Cable’s] Regional Sales Manager and it was not delivered by post, hand or Aconex but by email. … As to

Article 34.1, the May 25, 2016 letter was written within 30 days of the problem arising. [Labrador-Island Link’s] May 25, 2016 letter did not predate the meetings held on May 11, 24 and 25 as contemplated by

Article 34.2(a). Since the issue was not resolved by the project managers by May 25, 2016, [Labrador-Island Link’s] request for a meeting with [General Cable’s] Vice President within 24 to 48 hours was consistent with

Article 34.2(

b) which anticipated such a meeting within 30 days. Finally, as to

Article 34.4, the records establish that [Labrador-Island Link] and [General Cable] continued to perform their obligations under the Agreement to the extent reasonably possible, notwithstanding the problem. … I would similarly characterize the alleged defects in [Labrador-Island Link’s] Notice and procedure as trivial and I have already noted that [General Cable] was unable to point to any prejudice to it in the procedure followed. (f) … I conclude that [Labrador-Island Link] has established that despite the technical non-compliance it took all steps contemplated by

Article 34 to attempt to resolve the dispute in good faith and in a commercially reasonable manner. … [ 12 ] Further, the applications judge found that General Cable’s actions “are suggestive of efforts to frustrate the purpose and intention of

Article 34” (at paragraph 61(f)). The judge pointed to General Cable’s insistence on a one-sided document disclosure process and on strict compliance with the form of the notice, despite being aware of the problem.

She concluded, at paragraph 61(f): … (c) [General Cable’s] clear motivation for the position taken is to force [Labrador-Island Link] to enter into discussions under pressure (concern that [Labrador-Island Link] has no legal recourse to the Court, should negotiations fail). (d) [General Cable’s] actions, overall, are the antithesis of reasonableness and suggestive of bad faith delays. … [ 13 ] In the result, the applications judge found that Labrador-Island Link substantially complied with the requirements of the dispute resolution provisions of the agreement and that General Cable was not entitled to a stay of proceedings or an order striking out the statement of claim.

The Law [ 14 ] General principles governing the

interpretation of commercial agreements are discussed in Sattva Capital Corp. v. Creston Moly

Corp. , 2014 SCC 53 , [2014] 2 S.C.R. 633 . Rothstein J., for the Court, addressed “the shift away from the historical approach”: [46] …The first is the adoption of an approach to contractual

interpretation which directs courts to have regard for the surrounding circumstances of the contract – often referred to as the factual matrix – when interpreting a written contract … . [47] Regarding the first development, the

interpretation of contracts has evolved towards a practical, common-sense approach not dominated by technical rules of construction. The overriding concern is to determine “the intent of the parties and the scope of their understanding” … . To do so, a decision-maker must read the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract. … [48] The meaning of words is often derived from a number of contextual factors, including the purpose of the agreement and the nature of the relationship created by the agreement … . … [50] … Contractual

interpretation involves issues of mixed fact and law as it is an exercise in which the principles of contractual

interpretation are applied to the words of the written contract, considered in light of the factual matrix. … [58] The nature of the evidence that can be relied upon under the rubric of “surrounding circumstances” will necessarily vary from case to case. It does, however, have its limits. It should consist only of objective evidence of the background facts at the time of the execution of the contract ( King [2011 MBCA 80], at paras. 66 and 70), that is, knowledge that was or reasonably ought to have been within the knowledge of both parties at or before the date of contracting.

Subject to these requirements and the parol evidence rule discussed below, this includes, in the words of Lord Hoffmann, “absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man” ( Investors Compensation Scheme [ [1998] 1 All E.R. 98 ], at p. 114). Whether something was or reasonably ought to have been within the common knowledge of the parties at the time of execution of the contract is a question of fact. See also S.A. v. Metro Vancouver Housing Corp. , 2019 SCC 4 , at paragraph 30 .

Interpretation of the Dispute Resolution Clause [ 15 ] In applying to have the statement of claim struck out under rule 14.24, General Cable sought to preclude further proceedings in court, which, if successful, it submits, would result in savings in time and expense. The application required the judge to interpret the dispute resolution clause in the agreement to determine whether, applying that clause, filing a statement of claim resulted in an abuse of process. [ 16 ] For that purpose, the judge considered the words and effect of articles 34, 32 and 1.13 in the context of what would have been in the knowledge and understanding of the parties when the agreement was made.

Article 32 provides for written notice, signed by a representative of the party giving notice of a dispute, to be sent to the attention of a regional sales manager. The first two elements were satisfied. However, notice was not given to the specified person and was delivered via email, rather than by hand, post, Aconex or fax as specified in

article 32.3. [ 17 ] In ascertaining the effect of failure to deliver the notice to a particular person by a particular means, the judge focused on the requirement for notice rather than the manner in which it is to be given. She was satisfied that the intention of the parties was contained in

article 34 which was directed to ensuring that General Cable received notice of the dispute brought by Labrador-Island Link. There was no evidence that General Cable had no knowledge of the dispute because the notice was not delivered to the specified person.

Rather, the judge found as facts that several representatives of General Cable had attended meetings regarding the defect in the Conductor, that General Cable had not established that it had been prejudiced by the defect in notice, and indeed that General Cable did receive notice. [ 18 ] In determining that General Cable had notice of the dispute despite the technical defect, the judge applied the principle in Sattva that the modern approach to contractual

interpretation involves a “common-sense approach not dominated by technical rules of construction”, the concern being to ascertain “the intent of the parties and the scope of their understanding” ( Sattva , at paragraph 47). Further, General Cable did not point to a provision in the agreement stating that, in the absence of strict compliance with

article 32, Labrador-Island Link could not rely on notice having been given.

Article 34.3 specifies only that the parties must comply with

article 34, which requires a party to be given notice of a dispute, before commencing legal action. [ 19 ] The judge was satisfied that what was within the knowledge of both parties when the agreement was executed, and what a reasonable person would have understood upon reading the agreement as a whole, is that General Cable had agreed to provide Conductors fit for the purpose and that, if a dispute arose regarding the quality of the material supplied, Labrador-Island Link would comply with the provisions of the agreement to continue with the work and to set aside the question of liability as appropriate.

Further, the agreement contemplates that, at the same time, General Cable would receive notice, providing it with an opportunity to discuss the issue and rectify any defect, thereby reducing any prejudice to General Cable. It could not have been intended that the dispute resolution clause would have the effect of precluding Labrador-Island Link from exercising its right to proceed with an action in court should that prove necessary.

Issuing a statement of claim in order to preserve that right in the face of a limitation period, while not explicitly stated, would have been in the contemplation of these sophisticated parties when the agreement was executed, and was recognized by the applications judge by her reference to

article 1.13. [ 20 ] Further, the applications judge did not, as General Cable submits, use evidence of how the parties proceeded after the defect had been identified in order to interpret the agreement. Rather, the evidence was provided to establish that Labrador-Island Link had sufficiently complied with the requirements of the relevant provisions.

[ 21 ] In the result, there is no basis on which to conclude that the applications judge erred in determining that Labrador-Island Link had complied with the requirements of the dispute resolution clause, despite the lack of strict compliance outlined above.

It follows that the judge did not err in concluding that Labrador-Island Link’s conduct in issuing a statement of claim did not amount to an abuse of process. [ 22 ] Finally, while it is unnecessary to address the question of remedy, I agree with the comment of the applications judge that the appropriate remedy in similar circumstances would be a stay of proceedings, rather than an order to strike the statement of claim. [ 23 ] Counsel for Labrador-Island Link requested an order for costs of the appeal under column 5 of the scale of costs in the Court of Appeal Rules .

The applications judge ordered that Labrador-Island Link, as the successful party, should have its costs under column 3 of the Supreme Court rules. I am satisfied that the same result, costs under column 3, should apply in this Court. While there is significant money involved in the action, the appeal was not complex and the issues were restricted to the application to strike the statement of claim. Accordingly, the general principle that the successful party is entitled to its costs for one counsel under column 3 of the scale of cost in the Court of Appeal Rules would apply.

SUMMARY AND DISPOSITION [ 24 ] In

summary, the applications judge did not err in concluding that Labrador-Island Link had not breached the dispute resolution clause in the agreement by filing a statement of claim against General Cable, and that, therefore, an abuse of process had not been established. [ 25 ] Accordingly, I would dismiss the appeal with costs to Labrador-Island Link for one counsel under column 3 of the scale of costs in the Court of Appeal Rules . Appeal dismissed.