2018 QCCA 1078, 2018 QCCA 1078

Arrangement relatif à Orbite Technologies inc. 2018 QCCA 1078 COUR D’APPEL CANADA PROVINCE DE QUÉBEC GREFFE DE MONTRÉAL N° : 500-09-027338-185 (500-11-052363-179) DATE : LE 28 JUIN 2018 CORAM : LES HONORABLES MARTIN VAUCLAIR, J.C.A. GENEVIÈVE MARCOTTE, J.C.A. PATRICK HEALY, J.C.A. DANS L’AFFAIRE DE LA

LOI SUR LES ARRANGEMENTS AVEC LES CRÉANCIERS DES COMPAGNIES : ORBITE TECHNOLOGIES INC. APPELANTE – Requérante débitrice c. ROYAL & SUN ALLIANCE INSURANCE COMPANY OF CANADA INTIMÉE - Intimée ARRÊT [ 1 ] L’appelante se pourvoit contre un jugement rendu le 23 février 2018 par la Cour supérieure du Québec (honorable Louis J. Gouin), district de Montréal, lequel rejette la demande de l’appelante qui réclamait une indemnité d’assurance de l’intimée. [ 2 ] Pour les motifs du juge Healy, auxquels souscrivent les juges Vauclair et Marcotte, LA COUR : [ 3 ] REJETTE l’appel avec les frais de justice. MARTIN VAUCLAIR, J.C.A.

GENEVIÈVE MARCOTTE, J.C.A. PATRICK HEALY, J.C.A. Me Martin F. Sheehan Me Brandon Farber FASKEN MARTINEAU DuMOULIN Pour l’appelante Me John Nicholl Me Gabriel Archambault Me Eric Van Eyken Me Christopher Fraticelli-Tassé

CLYDE & CIE CANADA Pour l’intimée Date d’audience : 11 mai 2018 REASONS OF HEALY, J.A. [ 4 ] This is an appeal from a judgment of the Superior Court [1] that dismissed the appellant’s action for more than $23,000,000.00 under a contract of insurance underwritten by the respondent on the ground that a clause unambiguously excluded the claim in the circumstances of the case. The amount was claimed under two heads: damage to equipment (approximately $1.3 million) and loss of revenue due to the interruption of operations (approximately $22 million). The appellant submits that the trial judge erred in the

interpretation and application of the exclusion clause. Context [ 5 ] In 2012 the appellant began to convert its plant at Cap-Chat in order to produce high-purity alumina (“ HPA ”). HPA is produced in three phases: I. Production of aluminium chloride hexahydrate (“ ACH ”) from a base of aluminium hydroxide; II. Transformation of ACH into HPA, during which ACH passes through the decomposer oven and later the calcination oven; III.

Finishing and packaging of the HPA. [ 6 ] According to the design for the plant’s operations, the transformation of ACH into HPA at the second phase requires that ceramic tubes be used in the decomposer oven to conduct electric elements and to protect them from contact with other substances or gases in the ovens. [ 7 ] The insurance policy at issue in this appeal concerning the appellant’s operations came into effect on 30 September 2016. At this time phase III was not in operation and it is not entirely clear whether operations in phase II had begun.

It is clear that between December 2016 and February 2017 there were three incidents in which ceramic tubes broke and caused interruptions of the appellant’s operations: 15 December 2016 (5 tubes); 5 and 7 January 2017 (10 tubes); 21 February 2017 (16 tubes). The interruption of operations was time-consuming because several days were needed to cool and reheat the ovens. [ 8 ] According to the evidence, ACH was first used in phase II of the appellant’s operations on 13 December 2016 and at the time of each of the three incidents between December 2016 and February 2017.

During preliminary tests, notably in the summer of 2016, smelter-grade alumina (“ SGA ”) (not ACH) was used in this process. SGA resembles ACH but has entirely different chemical properties.

Thus, before the insurance policy entered into effect on 30 September 2016, there was no evidence that the appellant had tested its tubes with ACH, which was the product specifically intended for the production of HPA in the converted plant. [ 9 ] In a report dated 8 October 2016 Agnes von Garnier of Outotec, a German company involved in the design of the conversion, wrote specifically that the plant was not designed for the use of SGA: Outotec was only informed in July 2016 that common industrial SGA should be used as test material for commissioning and start-up of the furnace section.

During the complete plant design and the elaboration of the operation and start-up procedures, it had been discussed to use alumina produced from alumina chloride hexahydrate (ACH) for the start-up. The plant was designed for ACH/HPA. Since both materials have a significant difference in density (bulk and fluidised density), this has impacts on the operation of the plant with regard to pressure drops and absolute pressures, as well as fluidisation and transport behaviour.

This requires changes to the alarms and set points for safe operation. […] During cold tests conducted Q2/2016, Orbite had experienced transport resistances and blockages in the seal pot 1, which is considered specific to the operation with SGA, especially at cold conditions. [2] [ 10 ] She continues in her report to specify the adjustments that were required to take account of the change of use from SGA to ACH. [ 11 ] On 31 March 2017, following the three incidents, the appellant stopped operations at the plant and on 3 April 2017 filed a notice of its intention to make a proposal under the Bankruptcy and Insolvency Act . [3] Protection of the appellant has continued since 1 May 2017 under the Companies’ Creditors Arrangement Act . [4] [ 12 ] The term of the insurance contract at issue in this appeal was 30 September 2016 to 30 September 2017 and it covered three heads: machinery; loss due to interruptions; and compensation for supplementary costs incurred as a result of interruptions.

These three elements were subject to the following exclusion clause: This Policy does not apply: […] (

c) to loss: […] (

x) from an Accident occurring to any Object prior to the time such Object has been completely installed, tested and contractually accepted by the Insured. [5] [ 13 ] In the Superior Court the parties made admissions that limited the question in issue to whether any object had been tested. The

parties agreed that the breaking of the ceramic tubes was an accident causing loss of an object and that these objects had been completely installed and accepted by the appellant. They agreed that the tubes were objects but that the ovens were not. [6] There is also no dispute that the exclusion clause, if it applies, would apply to both aspects of the appellant’s claim – damage to equipment and loss of revenue due to the interruption of operations. [7] The only question therefore was whether the tubes had been tested and, if so, when and how.

Judgment [ 14 ] The trial judge concluded that the appellant’s claims were clearly excluded by the clause because there was no evidence that the tubes had been adequately tested with ACH before the three incidents that occurred between December 2016 and February 2017: [134] À la lumière des commentaires sous la rubrique 2 ci-haut, le Tribunal est d’avis que le «Testing» des Tubes n’a pas été effectué adéquatement avant le Premier incident , et ce, sans même qu’il soit nécessaire de décider si le terme «completely» de l’article 2.0(c)(

x) de la Police RSA-2 s’applique aussi au terme «tested» qui y est prévu. [135] À tout événement, cet

article ne peut que référer à un «Testing» adéquatement effectué .

Cela ne veut pas dire qu’il doive être complété à 100%, mais encore faut-il que ce qui n’a pas été effectué soit mineur. [136] Le Tribunal est d’avis que le texte de l’Exclusion-bris ne souffre d’aucune ambiguïté à cet égard. [137] Ainsi, le Tribunal est d’avis qu’un «Testing» adéquat des Tubes devait nécessairement inclure une alimentation des Fours avec le Produit ACH, soit celui prévu pour l’opération courante des Fours, surtout à la lumière des différences connues entre le produit SGA et le Produit ACH, et des commentaires formulés par Mme Garnier d’Outotec à cet égard. [8] [ 15 ] These conclusions by the trial judge rest on the following findings of fact: [138] Lors de son témoignage, l’Expert Geoffroy a déposé un tableau comparatif entre le Produit SGA et le Produit ACH, faisant état, entre autres, de ce qui suit : Produit SGA Produit ACH Densité approximative (poudre) 0,95 g/ml 0,7 g/ml Hygroscopique (absorbe l’humidité de l’air) Non Oui Réactivité chimique Stable Corrosif Propriété d’écoulement Bon Mauvais (agglomération) [139] Qui plus est, la Phase II de l’Usine étant unique au monde, il n’existait pas de référence de comparaison et, nul doute, une attention toute particulière devait être apportée au «Testing» des Tubes, afin de vérifier adéquatement leur réaction au contact du Produit ACH. [140] Tel n’était pas le cas pour la Phase I, son processus de transformation de l’aluminium hydroxyde en Produit ACH n’étant pas étranger à Orbite, vu qu’elle l’avait déjà expérimenté par le passé et elle savait que le Produit SGA pouvait y être utilisé à cette fin. [141] Aussi, dans son rapport du 22 décembre 2017 (le « Rapport Geoffroy »), l’expert Geoffroy précise ce qui suit : Commissioning of production plants is always done before they go live.

The intent is to make sure that all of the phases of a given process work well, not only individually, but together at not only a testing of temporary pace, but rather to emulate a commercial production line. As of today [December 22, 2017], at least for the pyrometallurgical

section of the plant [Phase II], Orbite Technologies has not been able, in our view, to complete with success most of these stages . Furthermore, Orbite refers in the motion [la Demande] to cold commissioning, but it is important to understand that the final step leading to a commercial production of product is a step called hot commissioning . In this case, cold commissioning is only the process in which operational tests of the facility systems are completed with inert material.

Hot commissioning corresponds to the process during which the actual material to be used in production, ACH, is fed into the ovens (decomposer and calcinatory) . Moreover, especially for the case of the decomposer and calcinatory, it is obvious that Orbite Technologies was, at best, at the testing phase as described in articles 64, 66, 70, 74 and 75 of the motion presented to the Court.

If the plant had been constructed by an independent third-party contractor (ex: engineering firm) and had to be contractually transferred to an owner-operator such as Orbite , it would never have passed the tests required to be handed over .

In other words, this plant could never have been considered to have completed the commissioning stage or be considered in production had it been built by a third- party . [9] (le Tribunal souligne ) [142] Lors de son témoignage, l’Expert Geoffroy fut catégorique : il n’était nullement adéquat de faire le «Testing» des Tubes avec le Produit SGA au lieu du Produit ACH. [143] Le Tribunal retient le témoignage de cet expert qui a su très bien vulgariser le sujet; il fut très clair dans ses explications et ses réponses aux questions du Tribunal. [144] Aussi, tel que cité au paragraphe [36] de ce jugement, Mme Garnier d’Outotec a clairement consigné dans le Compte-rendu Outotec sa surprise de constater qu’Orbite utilisait le Produit SGA pour les fins du «Testing» des Fours, et donc aussi des Tubes.

[145] Par ailleurs, M. Kelly a témoigné à l’effet qu’Orbite n’était pas en mesure, à cette époque, de se procurer le Produit ACH, aucun compétiteur n’étant disposé à accommoder Orbite. [ 16 ] With respect to the last paragraph in this passage, it must be noted that Mr. Kelly was a representative of the appellant who testified that ACH could not be obtained before the insurance policy came into effect.

It must also be repeated that ACH was not used before 13 December 2016. [ 17 ] The judge observes that it was in no way the respondent’s obligation to verify whether the testing of the ceramic tubes had been adequate and indeed it might be added that one of the aims of an exclusion such as that in this appeal is to delimit the risk assumed by the insurer.

Thus the judge repeats his central conclusions in the clearest terms: [152] Même si le «Testing» avec le Produit SGA était terminé, il n’en demeure pas moins que ce «Testing» n’a pas été effectué avec le bon produit et les ingénieurs d’Orbite en étaient conscients. [153] Il s’agit, dans les circonstances, d’un élément majeur d’un «Testing» adéquat, et non d’un élément mineur. [ 18 ] The judge then concludes on this basis that the appellant’s claim is excluded by the clause recited above and dismisses the appellant’s action with the legal costs.

Grounds of appeal [ 19 ] The appellant submits two questions to this Court: Le juge a-t-il erré en droit en concluant que la clause d’exclusion était claire tout en y rajoutant des termes pour rendre la clause conforme à l’interprétation qu’il désirait obtenir?

Si tant est que la clause est ambigüe, le Juge a-t-il erré en droit en n’appliquant pas les principes maintes fois reconnus relativement à l’interprétation des contrats d’assurance? [ 20 ] If this Court finds that the judge committed no error in concluding that the exclusion clause was unambiguous and must be applied, the Court need not address the second question. Discussion [ 21 ] It is settled law in the

interpretation of an insurance policy, as with other contracts, that an unambiguous clause must be applied according to its plain meaning without further

interpretation. [10] In this case the judge concluded that the clause had an unambiguous meaning and he applied it. It is also settled law that an appellate court must show deference to this conclusion in the absence of palpable and overriding error by the trial judge. This Court and others have frequently said that such an error can only be found if it is clearly identified and demonstrably decisive. [11] [ 22 ] The trial judge concluded that the appellant’s claim was excluded because the testing of the ceramic tubes with SGA in 2016 before the policy entered into effect was inadequate.

It was inadequate because the testing with SGA rather than ACH was not a testing of the tubes in conformity with the express design of the operation of the plant during the term of the policy.

The judge’s use of the word “adequately” adds nothing new to the terms of the exclusion clause and serves only to underscore that there could be no testing of the objects in question unless they were tested in accordance with the purpose for which they would be used and the manner in which they would be used in the execution of the design for operations of the appellant’s converted plant. [ 23 ] By using the ceramic tubes with SGA before 30 September 2016, and until 13 December 2016, the appellant did not test them with ACH as was their intended use.

The appellant affirms that testing was completed by 30 September 2016 but there is nothing to show that the tubes had been tested with ACH before ACH was first used on 13 December 2016 or after the first incident in December 2016. It is impossible to say therefore that the trial judge committed palpable and overriding error in concluding that the tubes were not tested for their designed use with ACH when the policy went into effect.

It is self-evident that the purpose of the exclusion clause is to relieve the insurer of liability for risks concerning objects that have not been tested, which means tested according to the design. [12] [ 24 ] In short, the judge concluded that there was no test. The contract makes clear that the respondent would not cover the identified risks until the tubes had been tested in accordance with their intended use in the appellant’s operations. The tubes were intended for use in the production of HPA with ACH.

To repeat, the first use of ACH occurred on 13 December 2016 and the appellant produced no evidence that the tubes were tested with ACH before that date. The first use of ACH at that time was also in effect the first test, which is precisely what the parties intended to exclude from the policy. [ 25 ] Moreover, the judge added no elements to the exclusion clause that could adversely affect the appellant.

On the contrary, his conclusion that the tubes were not “adequately” tested was, if anything, more favourable to the appellant to the extent that it implies that the exclusion clause might not apply if testing had been diligent, rather than complete to 100%, [13] in view of the purpose to be served by the tubes according to the design of the appellant’s operations. There was evidence that the tubes were tested with SGA. There is no evidence whether, when or how the tubes were tested with ACH before 13 December 2016.

The appellant has shown no palpable and overriding error by the trial judge. [ 26 ] As the trial judge found no ambiguity in the exclusion clause, and applied it according to its plain meaning, he had no need to examine any other issues of

interpretation. [ 27 ] The appellant advances two further points to conclude that the respondent cannot rely on the exclusion clause. The first is that the respondent cannot rely on the clause by virtue of the principle of reasonable expectations, as it is known in the law of Quebec. The second is that the respondent waived its right to rely on the exclusion clause. Both submissions must be mentioned.

Reasonable expectations [ 28 ] In the absence of ambiguity in the language of an insurance policy, it must be applied according to its plain terms. It follows that a court need not consider the reasonable expectations of the insured party except where a confirmed ambiguity in the policy compels such an exercise in

interpretation in order to dispel the ambiguity. This point is made clearly by the Supreme Court in Ferme Vi-Ber Inc. : [65] We are of the view that in Quebec law, the reasonable expectations rule must apply solely in its minimum dimension, that is, only where there is ambiguity. The Civil Code of Québec contains a series of rules for resolving difficulties in the

interpretation of contracts. The reasonable expectations rule can certainly be added to those rules of

interpretation for contracts of insurance, but only for the

interpretation of an ambiguous clause and for the purpose of identifying the common intention of the parties (art. 1425 C.C.Q. ). [14] [ 29 ] In the present case the trial judge concluded that the policy was unambiguous with respect to the testing of the tubes. That conclusion discloses no palpable and overriding error that would justify the intervention of this court. In the absence of ambiguity in the policy, and in the absence of error in the judgment at first instance, this Court need not embark any further exercise of textual

interpretation. Waiver [ 30 ] In a contract of insurance waiver typically refers to the insurer’s conscious decision to deny coverage on a specific ground and not to invoke some other ground or exclusion, all of which may be expressed in the denial of coverage letter. It also refers to the insurer’s choice not to insist that the insured party make timely reports of incidents covered by the policy in force. It also has a broader connotation, as explained by Pagé: Le « waiver » est ni plus ni moins que le vocable anglais en usage dans l’industrie de l’assurance pour signifier la renonciation. Il y a renonciation lorsqu’une

partie abandonne intentionnellement un droit connu et existant ou agit de façon à faire comprendre qu’il en est ainsi au bénéfice d’une autre . Ce concept de la renonciation, en droit civil québécois, n’est pas uniquement rattaché au droit des assurances mais y tient une place importante en raison notamment de la dynamique contractuelle qui lui est propre. Ce concept qui ne fait l’objet d’aucune codification en droit des assurances du Québec ne doit par ailleurs pas être confondu avec le concept d’ estoppel .

L’estoppel est une notion de droit anglais et de common law que nos tribunaux ont toujours refusé d’importer. L’ estoppel ne correspond pas tout à fait au « waiver » en ce que notamment il ne comprend pas d’élément d’intention ou de volonté. Le concept reconnu actuellement en droit civil qui se rapproche sans doute le plus de l’estoppel est celui de la fin de non-recevoir . [15] [ 31 ] Waiver must be pleaded by the party who alleges it and proved according to restrictive criteria.

Further, waiver must refer to a contractual right existing at the time of the alleged waiver and it must be, among other things, unequivocal. [16] [ 32 ] The judgment of the Superior Court contains no discussion of a claim of waiver and the issue does not appear to have been pleaded before the trial judge. The notice of appeal in this case makes no express reference to waiver and the only reference in the appellant’s factum is in a single paragraph: 56.

La jurisprudence reconnaît qu’un assureur qui émet une police d’assurance ne peut invoquer plus tard des faits qu’il connaissait ou aurait dû connaître au moment de l’émission de la police afin de nier couverture.

Dans un tel cas, l’assureur est réputé avoir renoncé à la condition ou l’exclusion à laquelle ces faits auraient pu donner ouverture. [ 33 ] This assertion was otherwise undeveloped in written and oral argument and no reference is made to any jurisprudence from Quebec or elsewhere in Canada. [ 34 ] At the hearing of the appeal the appellant did not press the issue of waiver and the respondent stoutly denied any suggestion that it had waived in any manner the application of the exclusion clause.

Moreover, the trial judge plainly concluded that the evidence proved that the respondent at no time waived the effect of the clause and that on 30 September 2016 it was understood by all involved that the testing was completed and that the respondent’s policy was in full force for all operations except those in phase III. [ 35 ] By definition the appellant’s argument concerning waiver cannot succeed in the absence of a finding of fact that the respondent knowingly undertook to cover the appellant’s operations in the absence of an adequate test or decided to deny coverage for another reason.

There is no such finding of fact. There are, however, findings of fact not only that the respondent actively and diligently pursued inquiries before 30 September 2016 to determine whether the plant was still in construction or operational but further findings that the appellant had led the respondent to believe that testing had been completed for phases I and II. In his reasons the trial judge conducted an extensive review of the facts in this regard and concluded as follows: [61] Puis, le 28 septembre 2016, Mme Mercado fait parvenir le courriel suivant à M. Borja d’Aon : «Following our conversation yesterday, M.

Arguin confirmed to our engineer [M. Demers] that production will start during the coming weekend; he says there will still be work to be done but it is minor work such as what they do when they have a shutdown.» [62] Parallèlement, le 28 septembre 2016, Mme Héon d’Aon écrit à M. Bédard et Me Marchand d’Orbite ce qui suit : «[…] 2. Les discussions avec RSA et les autres assureurs pour la

partie opérationnelle vont bien. RSA a appelé hier Denis [Arguin

d’Orbite] qui leur a confirmé que les opérations commençaient effectivement le 30 [septembre] et que le testing et commissioning seraitterminé. Cela veut dire que la police chantier se termine, que la police intact se termine aussi et que tout sera dans le programmeopérationnel ainsi que le bris de machine pour le 30 sept. […]» (le Tribunal souligne) [63] M.

Bédard d’Orbite demande alors à Mme Héon d’Aon : «Quelle est la conclusion de RSA que la police sera en vigueur le 30 sept?» [sic] [64] Ce à quoi Mme Héon répond : «Oui, le 30, et qu’il y aura peu de testing [la Phase III] qui restera et que cela est pas critique ou majeur (cependant la machine oucomposante qui sera testée après le 30 sera pas couvert [sic] mais le feu qui en suit le serait). Je comprends que tu valides avec Denis [Arguin d’Orbite].» [65] Effectivement, le 28 septembre 2016, Charles Taschereau («M.

Taschereau») d’Orbite confirme ce qui suit à Mme Héon : «Comme discuté à l’instant au téléphone, à la fin septembre les travaux restants à l’usine HPA de Cap-Chat seront la connection(tuyauterie) des équipements du ‘HP60’, qui représente la

section de broyage et empaquetage du produit final [la Phase III]. […][43] [66] Il ressort donc de la preuve que les réponses données par Orbite, suite aux questions de RSA relativement au «Testing», laissentclairement sous-entendre que le seul «Testing» restant était celui de la Phase III[44], toujours en construction, et non celui de la Phase II,RSA prenant alors pour acquis que le «Testing» de la Phase II, et donc des Fours et des Tubes, était terminé, et ce, suite aux informationsreçues en ce sens, entre autres, de M. Arguin, M. Bibeau et M.

Taschereau d’Orbite.[17] [36] In addition to these findings there is no evidence that after 30 September 2016 the respondent in any way knowingly andexplicitly waived the exclusion clause to condone the appellant’s operations in the absence of a test of the tubes.

The insured could notreasonably expect the insurer to assume the risk related to the operation of the equipment with a product that had not been previouslytested. [37] Accordingly, the appellant cannot rely upon the principles of reasonable expectations or waiver to claim that the exclusionclause is inapplicable in the present case. [38] For these reasons I propose to dismiss the appeal with costs of justice to the respondent.

PATRICK HEALY, J.C.A. [67] Pour le Tribunal, il ne fait aucun doute que RSA ne voulait couvrir aucun «Testing» sauf, peut-être, celui à faire éventuellementpour la Phase III, mais sans suite finalement. [68] Il n’était donc pas question que la Police RSA-2 couvre quelque «Testing» que ce soit, d’où l’exclusion qui y est prévue à ceteffet. [49] The parties agree that the governing principles of

interpretation applicable to insurance policies are those summarized byRothstein J. in Progressive Homes. The primary interpretive principle is that where the language of the insurance policy is unambiguous,effect should be given to that clear language, reading the contract as a whole: para. 22, citing Non-Marine Underwriters, Lloyd’s ofLondon v. Scalera, 2000 SCC 24 , [2000] 1 S.C.R. 551, at para. 71.