2017 MBQB 92, 2017 MBQB 92

Date: 20170517 Docket: Tundra Oil & Gas Partnership et al v Enbridge Bakken Pipeline Company Inc and Surerus Pipeline Inc (Winnipeg Centre) Indexed as: CI 14-01-92642 Cited as: 2017 MBQB 92 COURT OF QUEEN’S BENCH OF MANITOBA B E T W E E N: ) TUNDRA OIL & GAS PARTNERSHIP by its Managing Partner TUNDRA OIL & GAS LIMITED, ) ) ) C. Smith Counsel for the plaintiff plaintiff, ) ) -and- ) ) ) ENBRIDGE BAKKEN PIPELINE COMPANY INC. ) D. L. Picco, Q.C. and SURERUS PIPELINE INC. ) ) ) ) Counsel for the defendant Enbridge Bakken Pipeline Company Inc. defendants. ) ) ) E. A.

Dolden Counsel for the defendant Surerus Pipeline Inc. ) ) JUDGMENT DELIVERED: ) May 17, 2017 MASTER CLEARWATER [ 1 ] This is a motion brought by the defendant Surerus Pipeline Inc. (Surerus) for an order pursuant to

section 7 of the Arbitration Act (Alberta), RSA 2000, c. A-43, or alternatively

section 7 of The Arbitration Act of Manitoba, C.C.S.M. c. A120, staying the determination of any apportionment of liability, as between the defendants Enbridge Bakken Pipeline Company Inc. (Enbridge) and Surerus, either in contract or pursuant to The Tortfeasers and Contributory Negligence Act of Manitoba, C.C.S.M. c. T90 . [ 2 ] The motion was contested by both the plaintiff, Tundra Oil & Gas Partnership by its Managing Partner Tundra Oil & Gas Limited (Tundra) and by Enbridge. The matter proceeded concurrently with Tundra’s motion to add Surerus as a defendant.

Tundra’s motion was granted and is the subject of an order signed March 15, 2017. This decision reflects my findings in the Surerus motion as set out above. THE FACTS [ 3 ] The parties in this action are all corporate parties involved in the oil and gas industry in Canada. The statement of claim relates to work performed and damages allegedly suffered within the Province of Manitoba. Tundra and Enbridge both have head offices in Alberta while the defendant Surerus is a provincially incorporated company in British Columbia.

All companies are extra provincially registered and carry on business in Alberta, Manitoba and elsewhere in Canada. [ 4 ] The statement of claim in this case alleges damages and losses were suffered by Tundra as a result of a leak in one of its fiberglass flow lines. The leak is alleged to have resulted from construction work performed by Enbridge and/or Surerus while installing a pipeline under, or adjacent to existing pipelines, including the Tundra flow line (the Crossing).

[ 5 ] The original contract for construction of the Crossing was between Tundra and Enbridge. At some point during the proceedings, Tundra became aware that Enbridge had subcontracted the construction work at the Crossing to Surerus. Surerus was joined as a defendant to the within proceeding as noted above. [ 6 ] The statement of claim alleges that the leak at or near the Crossing caused an oil and saltwater spill sometime in December 2012. The spill was discovered in January, 2013.

Tundra immediately began remedial work at the site and the statement of claim alleges the loss suffered, including the cost of the remedial work, was as a result of a breach of the contractual terms between them and/or of the negligence of Enbridge and Surerus. [ 7 ] As noted, Enbridge contracted directly with Tundra for the performance of the work at the Crossing. This work was part of a larger project involving Enbridge which spanned the provinces and crossed other pipelines.

Enbridge then subcontracted the work to be performed at the Crossing with the defendant Surerus, pursuant to a separate agreement between them. [ 8 ] The contract between Enbridge and Surerus contained provisions regarding the allocation of risk as between Surerus and Enbridge, including an indemnity clause. It also contained an agreement that any disputes arising from that contract would be resolved in Alberta, through arbitration in accordance with Alberta law.

Tundra is not a party to this contract. [ 9 ] The facts are undisputed that after Tundra commenced this action on or about December 1, 2014 against Enbridge for breach of contract and negligence, Enbridge commenced a number of separate actions against Surerus in various forums. In particular, Enbridge filed an action against Surerus in the Alberta Court of Queen’s Bench, joined Surerus as a third party to this action and, concurrently with Surerus, commenced arbitrations pursuant to the contract between them (the Surerus arbitrations).

Both parties have delivered their statements of defence in the Surerus arbitrations and are negotiating a process that would bring the two arbitrations together. They are also working on the selection of an arbitration panel.

No further steps have been taken in the Surerus arbitrations and in the submissions of the parties at this hearing, both Surerus and Enbridge concede that the Surerus arbitrations will not likely proceed before the within action is completed. [ 10 ] Enbridge ultimately, with consent, discontinued both the Alberta action against Surerus, and its third party action against Surerus in this case.

As noted, Surerus has since been added as a defendant to this action by Tundra. [ 11 ] The context and parameters of the Surerus arbitrations are described at some length in the materials filed in support of the within motion. In short, Surerus has raised concerns in its arbitration pleadings with matters relating to Enbridge’s alleged failure to obtain proper insurance coverage for Surerus as set out in the contract between them.

Enbridge claims in its pleadings that Surerus expressly agreed to indemnify it for losses or damages arising out of work performed pursuant to the contract. [ 12 ] Surerus brings the within motion seeking a partial stay of proceedings, specifically a stay of any determination of the apportionment of liability as between the defendants. Surerus says this issue is essentially the same issue as the subject matter of the Surerus arbitrations. Both Tundra and Enbridge contested the motion. The parties all filed affidavit evidence in support of their positions and the matter proceeded to a contested hearing.

The Law [ 13 ] The primary focus of Enbridge in this hearing was that the relief requested by it in this matter is governed either by the Arbitration Act (Alberta), or The Arbitration Act of Manitoba, both of which permit the court to grant a stay of proceedings, either wholly or in part, where the matters in dispute are governed by an arbitration agreement. The motion was specifically brought pursuant to

section 6 and 7 of the Arbitration Act (Alberta) and/or The Arbitration Act of Manitoba. Surerus also points to the inherent jurisdiction of the court under The Court of Queen’s Bench Act of Manitoba, C.C.S.M. c. C280 and/or the Judicature Act of Alberta, RSA 2000, c. J- 2, as providing the required authority to grant the stay. [ 14 ] The relevant sections relied upon by the parties in this case are as follows: Arbitration Act (Alberta): Court intervention limited 6 No court may intervene in matters governed by this Act , except for the following purposes as provided by this Act : (

a) to assist the arbitration process; (

b) to ensure that an arbitration is carried on in accordance with the arbitration agreement; (

c) to prevent manifestly unfair or unequal treatment of a party to an arbitration agreement; (

d) to enforce awards.

Stay 7(1) If a party to an arbitration agreement commences a proceeding in a court in respect of a matter in dispute to be submitted to arbitration under the agreement, the court shall, on the application of another party to the arbitration agreement, stay the proceeding.

(2) The court may refuse to stay the proceeding in only the following cases: (

a) a party entered into the arbitration agreement while under a legal incapacity; (

b) the arbitration agreement is invalid; (

c) the subject-matter of the dispute is not capable of being the subject of arbitration under Alberta law; (

d) the application to stay the proceeding was brought with undue delay; (

e) the matter in dispute is a proper one for default or

summary judgment.

(3) An arbitration of the matter in dispute may be commenced or continued while the application is before the court.

(4) If the court refuses to stay the proceeding, (

a) no arbitration of the matter in dispute shall be commenced, and (

b) an arbitration that has been commenced shall not be continued, and anything done in connection with the arbitration before the court’s refusal is without effect.

(5) The court may stay the proceeding with respect to the matters in dispute dealt with in the arbitration agreement and allow the proceeding to continue with respect to other matters if it finds that (

a) the agreement deals with only some of the matters in dispute in respect of which the proceeding was commenced, and (

b) it is reasonable to separate the matters in dispute dealt with in the agreement from the other matters.

(6) There is no appeal from the court’s decision under this section. Judicature Act of Alberta Definition 1 In this Act , except in

Part 2.1, “Court” means the Court of

Queen’s Bench or, on appeal, the Court of Appeal. Stay of proceedings 17(1) In a proceeding (

a) for the recovery of a debt or liquidated demand, (

b) for the enforcement of a security or charge on land, (

c) for the determination or specific performance of an agreement for the sale of land, or (

d) for the possession of land, the Court in its discretion may at any stage of the proceeding grant a stay of proceedings on any terms that the Court may prescribe, and in like manner the Court in its discretion may with or without imposing terms, after final judgment in any proceeding whatsoever, grant a stay of execution of an order for sale or of other similar process, including a stay of an order for possession of land, and may by an order granting the stay extend the time for payment of a judgment debt or the time for doing any act or making any payment prescribed by a previous order of the Court The Arbitration Act of Manitoba

Definitions 1(1) In this Act , "arbitration agreement" means, subject to subsections (2) and (3), an agreement or part of an agreement by which two or more persons agree to submit a matter in dispute to arbitration; "arbitrator" includes an umpire; "court" means the Court of Queen's Bench. Court intervention limited 6 No court may intervene in matters governed by this Act , except for the following purposes, as provided by this Act: (

a) to assist the arbitration process; (

b) to ensure that an arbitration is carried on in accordance with the arbitration agreement; (

c) to prevent unfair or unequal treatment of a party to an arbitration agreement; (

d) to enforce awards. Stay 7(1) Subject to subsection (2), if a party to an arbitration agreement commences a proceeding in a court in respect of a matter in dispute to be submitted to arbitration under the agreement, the court shall, on the motion of another party to the arbitration agreement, stay the proceeding. Refusal to stay 7(2) The court may refuse to stay the proceeding in only the following cases: (

a) a party entered into the arbitration agreement while under a legal incapacity;

(

b) the arbitration agreement is invalid; (

c) the subject-matter of the dispute is not capable of being the subject of arbitration under Manitoba law; (

d) the motion was brought with undue delay; (

e) the matter in dispute is a proper one for default or

summary judgment. . . . Partial stay 7(5) The court may stay the proceeding with respect to the matters in dispute dealt with in the arbitration agreement and allow the proceeding to continue with respect to other matters if it finds that, (

a) the agreement deals with only some of the matters in dispute in respect of which the proceeding was commenced; and (

b) it is reasonable to separate the matters in dispute dealt with in the agreement from the other matters. The Court of Queen’s Bench Act Stay of proceedings 38 The court, on its own initiative or on motion by a person, whether or not a party, may stay a proceeding on such terms as are considered just. The Manitoba Court of Queen’s Bench Rules Master 37.02(2) A master has jurisdiction to hear any motion in a proceeding, except a motion, (

a) where the power to grant the relief sought is conferred expressly on a judge by a statute or rule; (

b) to set aside, vary or amend an order of a judge; (

c) to abridge or extend a time prescribed by an order that a master could not have made; (

d) for judgment on consent in favour of or against a party under disability; (

e) relating to criminal proceedings or the liberty of the subject; (

f) in an appeal; or (

g) for interim relief in a family proceeding in respect of custody, access, support or property. [ 15 ] In consideration of the application of

section 7 of The Arbitration Act of Manitoba, a two step analysis is required as set out in Hopkins v Ventura Custom Homes Ltd. , 2013 MBCA 67 . In this case the Court of Appeal considered the current language of The Arbitration Act of Manitoba, as well as previous decisions of the court, and determined the process to be applied in such cases is as follows: 20 The motion judge stated that the determination of whether an arbitration clause has application and is binding is guided by the principles in Heyman v Darwins Ltd., [1942] A.C. 356 (H.L. (E.)) . . . 1.

Has the precise nature of the dispute been ascertained? 2. Is the dispute one which falls within the terms of the arbitration clause? 3. Is the arbitration clause still effective? 4. Is there any sufficient reason why the matter in dispute should not be referred to arbitration?

. . . 53

Section 7 of the Act , as it now appears, requires a two-step analysis: - the court must first determine whether the court proceeding is “in respect of a matter in dispute to be submitted to arbitration under the agreement” ( s. 7(1) of the Act ); - if the answer is no, then the court will not grant a stay; - if the answer is yes, then the court must proceed to consider s.7(2) of the Act and whether any of the five cases in (

a) to (

e) therein applies to permit the court to refuse to stay the court proceedings. 54 The first three questions from Heyman clearly relate to the issue raised in s. 7(1), being whether the court proceeding is in respect of a matter in dispute to be submitted to arbitration under the agreement. … [ 16 ] The court in Hopkins v Ventura Custom Homes Ltd went on to say that the fourth principle is no longer applicable, as it is now replaced with the s. 7(2) analysis which is “much more limited” (para 55). [ 17 ] At the hearing, I raised the issue of jurisdiction of the master to hear the motion before it.

All three parties were granted leave to file additional materials concerning the issue of jurisdiction and did so. [ 18 ] In the written and oral submissions concerning jurisdiction, all three parties relied heavily on the decision of Master Ring, which decision was ultimately upheld by the Manitoba Court of Appeal in Bloomer Hotel Corp v Boehm Hotel Corp , [2009] M.J. No. 220, 2009 MBCA 68 . In that case, Master Ring was asked to grant a stay of proceedings in light of an arbitration agreement entered into by the two parties involved.

While the question of jurisdiction was not specifically addressed in the decisions, or on appeals, Master Ring did grant the stay requested, and that stay was ultimately upheld by the Manitoba Court of Appeal. [ 19 ] As a result of the above case and applicable laws, all three parties agreed that the master does have jurisdiction pursuant to The Arbitration Act of Manitoba and the Court of Queen’s Bench Rules , to grant the stay being requested in appropriate circumstances. However, Enbridge and Tundra took the position that this was not an appropriate case in which to exercise the available jurisdiction.

Positions of the parties [ 20 ] As the moving party, Surerus says that, in light of the agreement between itself and Enbridge, a partial stay is appropriate. Specifically, they rely on the provisions of the contract between the two defendants in this case concerning the work performed at the Crossing. That contract provides in part: Clause 15… 15. The laws of Alberta and the laws of Canada, as the case may be, govern this Contract.

The Parties hereby irrevocably and unconditionally attorn to the exclusive jurisdiction of the courts of Alberta and all courts competent to hear appeals therefrom, should any dispute arise and not be resolved by arbitration. . . . General Condition 41.6(

b) specified that 41.6 (b). . . the arbitration will take place in Edmonton, Alberta and will be conducted in accordance with the Arbitration Act (Alberta), or any successor legislation thereto. The decision of the arbitrator(

s) will be final and binding on the Parties to the arbitration and no appeal will be taken from any determination unless the determination contains an error of law which results in a determination that is patently unreasonable. [ 21 ] In light of these provisions, Surerus argues that the appropriate law governing their request is the Alberta law and that this court ought to defer to the process outlined in the Alberta Arbitration Act , having taken judicial notice of the provisions of that A ct and the Judicature Act of Alberta. [ 22 ] Failing acceptance of the application of the Alberta Arbitration Act , or this court’s jurisdiction to grant a stay pursuant to that Act , Surerus urged this court to consider that a stay is appropriate pursuant to The Arbitration Act of Manitoba and the inherent jurisdiction of the court in Manitoba, including the jurisdiction of the master to hear this motion.

As noted, Surerus relies on case law, including Bloomer Hotel Corp v Boehm Hotel Corp . , Hopkins v. Ventura Custom Homes Ltd and a series of other cases as justification for the partial stay.

[ 23 ] With respect to the plaintiff’s rights, Surerus submits that the partial stay being sought would not prejudice Tundra in the circumstances. They argue that the substance of the issue of apportionment of liability is specifically the subject matter of ongoing arbitration proceedings between itself and Enbridge and the court should defer to that process. The relief being sought in this motion is very narrow and deals only with that issue. A partial stay will not, says Surerus, impact Tundra’s right to proceed with the within action and to get a determination on quantum and liability.

It will only prohibit Tundra from obtaining a determination on apportionment of liability, if any, as between the parties.

Given the positive financial position of all parties, Surerus suggests Tundra’s judgment would be recoverable in any event, and Tundra would therefore, not be unduly impacted by the stay. [ 24 ] Tundra, on the other hand, strongly contests the motion as impacting its ability to proceed to a full and final resolution, including the right to discover both parties on the entirety of matters at issue, and to have a judgment at the end of the day that is fully recoverable without any further delay.

Most importantly, Tundra points out that a stay pursuant to The Arbitration Act of Manitoba and/or Alberta is not mandatory in these circumstances, nor is it available they say, given that Tundra is not a party to the arbitration agreement. Tundra points out that it did not contract for its rights to be dealt with in any other forum, and it is not prepared to accede to that jurisdiction in the circumstances. The stay provision simply does not apply. [ 25 ] For its part, Enbridge agrees with Tundra that a stay is not appropriate given Tundra is not a party to the arbitration agreement.

Further, Enbridge submits that the matters at issue in the Surerus arbitrations are not the same in pith or substance as the matters at issue in this hearing. [ 26 ] Enbridge argues that the matters relating to obtaining proper insurance coverage pursuant to its contract with Surerus and the indemnification issues that are live in the Surerus arbitrations are not the same as the question of apportionment of liability to Tundra in the case at hand. Nothing related to the issues surrounding insurance as raised by Surerus in its arbitration pleadings are at issue in this action says Enbridge.

Further, indemnification under the contract, the primary subject matter in Enbridge’s arbitration pleadings, may flow regardless of a ruling on apportionment of liability in this action. The Surerus arbitrations do not in any way address the issues that Tundra is raising as between the plaintiff and the two defendants in this case. Therefore, Enbridge submits, the stay provisions of either Arbitration Act , do not apply and the relief sought should be denied.

Analysis and Conclusion [ 27 ] As a starting point, in addressing my jurisdiction to grant the relief sought, I have considered whether or not the Arbitration Act of Alberta governs my jurisdiction and authority in the circumstances. In this respect I need look no further than the definition of court in the Alberta Judicature Act , and as that term is used in the Alberta Arbitration Act , for guidance. Court, in those Acts, is clearly defined as the Court of Queen’s Bench of Alberta.

The Judicature Act and the Arbitration Act (Alberta) do not provide jurisdiction to the master of The Court of Queen’s Bench of Manitoba to grant a stay. In my view, despite judicial notice of those provisions, the Arbitration Act of Alberta does not, and cannot apply in the circumstances. [ 28 ] Further, I am satisfied that there is no inherent jurisdiction in the master, a creature of statute, to grant a stay of proceedings generally. The master must find its authority directly in statute or the court rules.

Having said that, in this case I have accepted that I have the jurisdiction to hear the motion pursuant to the Manitoba Court of Queen’s Bench Rules , specifically 37.02(2), combined with the powers under The Arbitration Act of Manitoba. [ 29 ] Rule 37.02(2) grants the masters in Manitoba the authority to hear any motions except those specifically excluded in the rules or statute. Neither The Arbitration Act of Manitoba itself, nor any of the other rules referred to expressly restrict that jurisdiction.

Given that, and in consideration of the process followed in the Bloomer Hotel Corp v Boehm Hotel Corp , I am persuaded that I have authority to consider the applicability of the provisions of The Arbitration Act of Manitoba to this case. [ 30 ] As a result of having determined there is jurisdiction to hear this motion, I must then consider whether the request for a partial stay in these circumstances is appropriate.

For the reasons that follow, I find it is not. [ 31 ] On a review of the relevant provisions of The Arbitration Act of Manitoba, certain foundational conditions must be in place before a stay is granted.

In fact, where the foundational conditions are present, in accordance with The Arbitration Act of Manitoba (hereinafter the Act ), a stay is mandatory and subject only to discretion of the court to deny the stay where the party seeking to contest the stay has persuaded the court that one or more of the listed exceptions in section 7(2) apply. [ 32 ] It is clear that the legislation itself, and the supporting case law encourage the courts to give deference to the parties’ intention in an agreement to arbitrate wherever appropriate. I accept this principle.

However, as set out below, it is my view that certain of the conditions necessary to grant such a stay are not present in this case, and ought not be inferred in the circumstances. [ 33 ] One of the foundational principles to the application of a stay pursuant to section 7(1) of the Act is that “a party to an arbitration agreement” must be one of the parties that commenced the proceeding in court that is the subject of the stay request. With respect to this principle, in this case Tundra is neither a party to the arbitration clause, nor the Surerus arbitrations.

Tundra, the party who brought the court proceeding, did not contract with either of the defendants for the benefit of arbitration to resolve any disputes as between them.

As a result, in my view, section 7(1) of the Act does not apply and therefore, there can be no mandatory stay, in whole or in part, of the proceedings before the court. [ 34 ] While Surerus did refer to some cases involving stays which have been granted by the courts, in preference of an arbitration clause, where some or all of the parties of the court proceedings are not parties to the arbitration agreement, it is my view that all of these cases are distinguishable on their facts. Specifically, in the cases relied on by Surerus where non-parties to the arbitration agreement

were involved in court proceedings, and the matters were still stayed in preference of arbitration, the non-parties were generally one or more of the defendants to the court proceedings, not the party bringing the proceedings in the first instance. [ 35 ] Further, in the one case presented by Surerus where the plaintiff in the court proceeding was not specifically a party to the arbitration agreement, but a stay was granted by the court nonetheless, the court considered that plaintiff’s strong legal relationship to one of the parties to the arbitration agreement, and granted the stay on that basis, (see Yaworski v Golwling Lafleur Henderson LLP, 203 ABCA 21, Tab 18 of the Surerus’ Book of Authorities, court document 22). [ 36 ] In my view, having considered all of those cases, a

section 7 stay under the Act ought to be granted only where a party to the arbitration agreement, or a directly related party, has commenced an action in court when he or she has otherwise agreed to pursue the same, or a similar matter in arbitration. As noted, this is not the case here. This case involves a third party, who is entirely unrelated to the arbitration agreement at issue, and who has brought these proceedings to answer the question of liability to it for losses and damages suffered as a result of an alleged breach.

Section 7 of the Act does not apply in the circumstances and therefore, a stay is not appropriate in this case. [ 37 ] However, even if my analysis of the foundational requirement for Tundra to be a party to the arbitration agreement for section 7(1) of the Act to apply is found to be incorrect, I would still find the requested stay inappropriate in these circumstances. I base this on the applicable legal test for granting a stay in like circumstances. [ 38 ] In this respect, I accept that the two-step analysis as set out in the Hopkins case is the governing test.

Step one of that test includes a consideration of the substance of the dispute pursuant to the arbitration agreement, and a determination of whether or not that dispute is the same as, or similar to the one before the court. If the answer is no, then a stay is not appropriate.

If it is yes, then the court would turn to an analysis under section 7(2) of the Act to determine if any of the listed factors exist to persuade the court to exercise its discretion and deny a stay. [ 39 ] In this regard, Tundra’s dispute, the dispute before the court, is at its core a question of whether or not the defendants, or either of them, are liable to Tundra for their actions.

To the contrary, at the core of the Surerus arbitrations are the questions of whether or not proper insurance coverage was obtained by Enbridge pursuant to the terms of the contract between Surerus and Enbridge, and whether, if liability of any kind is found to exist in this action for work done pursuant to the contract between them, Enbridge is entitled to indemnity from Surerus.

The later two issues to be considered in the Surerus arbitrations are different than the question of apportionment of liability in this action, and further, they will still be at issue even if the within action leads to a determination of specific apportionment of liability between these three parties. [ 40 ] As a result, I have been persuaded that the matters at dispute in the Surerus arbitrations are not the same, in pith or substance, as the matter at issue in this litigation. A stay is not appropriate, even on a liberal

interpretation of the arbitration agreement as is suggested in the Hopkins case. [ 41 ] Finally, even if I was persuaded that the matters were the same or similar, and that section 7(1) of The Arbitration Act of Manitoba did apply, section 7(2) of the Act suggests the court may exercise discretion to refuse a stay where, amongst other things, the subject matter of the dispute is not capable of being the subject of arbitration under Manitoba law.

In this respect, it is clear that the parties to the arbitration agreement have chosen Alberta law as the appropriate and governing law for all disputes under that agreement. Therefore, the subject matter of the Surerus arbitrations is not capable of being subject to Manitoba law. In these circumstances, I would exercise my discretion pursuant to section 7(2) of the Act to refuse to stay the proceedings. [ 42 ] Given my findings, the plaintiff ought to be allowed its costs of the within motion on a tariff basis, payable by the defendant Surerus.

With respect to the costs of the defendant Enbridge, those costs ought to be left in the cause. K. L. Clearwater Master