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06 December 2018
In a decision that is inconsistent with the weight of Canadian and international jurisprudence, the Court of Queen's Bench of Alberta recently ordered the consolidation of arbitration proceedings without the consent of all parties. In Japan Canada Oil Sands Limited v Toyo Engineering Canada Ltd (2018 ABQB 844), the court considered whether to consolidate or stay either of two arbitrations, one domestic and one international, relating to the redevelopment and expansion of an oil sands project. The court held that it has jurisdiction to consolidate arbitration proceedings on terms it considers just and made a distinction between consent to arbitrate and procedural issues that arise from that consent. Based on that analysis, the court held that Alberta's international arbitration statute, the International Commercial Arbitration Act(1) provides jurisdiction for a court to consolidate proceedings even in the absence of consent from the parties.
Japan Canada Oil Sands Limited (JACOS) entered into an engineering, procurement and construction agreement with Toyo Engineering Canada Ltd (Toyo Canada) for the expansion and redevelopment of the Hangingstone oil sands project. Under a guarantee and indemnity agreement, Toyo Canada's parent, Toyo Engineering Construction Ltd (Toyo Japan), agreed to indemnify JACOS for losses arising from Toyo Canada's failure to perform its obligations under the engineering procurement and construction (EPC) agreement.
Numerous disputes under the EPC agreement led the parties to separately initiate arbitration: Toyo Canada commenced a domestic arbitration against JACOS, while JACOS commenced an international arbitration against Toyo Canada and Toyo Japan. JACOS subsequently applied to the court to consolidate the domestic arbitration into the international arbitration or, alternatively, for a stay of the domestic arbitration. Toyo Canada and Toyo Japan cross-applied to the court to consolidate the international arbitration into the domestic arbitration.
The court considered several issues, including:
The parties agreed that the disputes in both arbitrations were related. The preliminary issue was whether Toyo Japan was required to be a party to a proceeding between JACOS and Toyo Canada. Toyo Canada and Toyo Japan argued that the international arbitration was improperly commenced, and that Toyo Japan could not be a party because JACOS unilaterally decided to join Toyo Canada and Toyo Japan as respondents without requesting that Toyo Japan be a party to the existing arbitration.
In reference to a provision in the guarantee that provided for Toyo Japan's agreement to participate as a direct party to an arbitration in relation to the EPC agreement, the court found that the guarantee was plainly linked to the EPC agreement and that Toyo Japan's liability under the guarantee was co-extensive with Toyo Canada's liability under the EPC agreement. Further, Toyo Japan had waived any right to require JACOS to commence a proceeding against Toyo Canada as a condition to recovery under the guarantee. Accordingly, Toyo Japan was properly a party to an arbitration relating to the EPC agreement. Notwithstanding Toyo Canada and Toyo Japan's application to consolidate, the court determined that consent was not provided by Toyo Japan in the guarantee to consolidate the domestic arbitration into the international arbitration.
The court decided that it had jurisdiction to consolidate a domestic and an international arbitration by adopting a broad interpretation of the International Commercial Arbitration Act.
Section 8(1) of the International Commercial Arbitration Act provides that the court may, on application by the parties to two or more arbitration proceedings, order the arbitration proceedings to be consolidated "on terms it considers just". Toyo submitted that 'arbitration proceedings' under the International Commercial Arbitration Act meant only international arbitration proceedings, and that the court could not rely on the act to consolidate domestic and international arbitrations. The court rejected Toyo's interpretation because the International Commercial Arbitration Act and the Arbitration Act(2) (which applies to domestic arbitrations) are worded differently. The latter expressly excludes from its scope arbitrations commenced under Part Two of the International Commercial Arbitration Act. Therefore, the court found that a narrow interpretation of the term 'arbitration proceedings' would create a legislative gap.
Although the relevant provision of the EPC agreement provided for the consolidation of disputes thereunder into a single arbitration, the court did not find that the arbitration provision under the guarantee constituted Toyo Japan's consent to consolidation. The court then addressed the issue of whether it had jurisdiction under the International Commercial Arbitration Act to consolidate the arbitration proceedings in the absence of consent from all parties.
The court was persuaded by the decision in Pricaspian Development Corporation v BG International Ltd (2016 ABQB 611), which interpreted the phrase "on application of the parties" in Section 8(1) as not requiring the consent of both parties. The court found, among other things, that:
With respect to the issue of consolidating a domestic and international arbitration, the court found that the arbitrations should be consolidated in the interest of efficiency. The court also considered that JACOS and Toyo Canada had already anticipated the issue of consolidation under the arbitration provisions of the EPC agreement. Ultimately, it was held that the domestic arbitration would be consolidated into the international arbitration, with the consolidated arbitration proceeding as an international arbitration governed by the United Nations Commission on International Trade Law arbitration rules.
The Japan Canada Oil and Pricaspian decisions are inconsistent with the weight of jurisprudence which rejects consolidation without consent. Several relevant cases, commentary and instruments were not brought to the court's attention in Japan Canada Oil, including, Alberta Motor Association Insurance Company v Aspen Insurance UK Limited (2018 ABQB 207), in which the court expressly rejected the reasoning in Pricaspian and held that "the consent of the parties is a pre-requisite to consolidation". Although in some cases it may appear to be efficient, doing so risks undermining a pillar of commercial arbitration – that it is a creature of consent.
The case also side-stepped the fact that the decision to consolidate the domestic arbitration into the international arbitration absent consent resulted in statutory rights of appeal under the domestic legislation being lost to the parties to the domestic proceeding.
These two decisions are currently limited to cases under the arbitration legislation of Alberta – in particular, Alberta's International Commercial Arbitration Act. The appeal period for the Japan Canada Oil case has expired.
For now, parties and practitioners should be aware that arbitrations seated in Alberta may be subject to consolidation without consent. The Alberta Law Reform Institute is considering adopting the Uniform Law Commission of Canada's recommended uniform International Commercial Arbitration Act (which has been adopted by Ontario and British Columbia). It may be that Alberta's adoption of a new International Commercial Arbitration Act will clarify the consolidation issue for all that are concerned.
For further information on this topic please contact Matti Lemmens at Borden Ladner Gervais LLP by telephone (+1 403 232 9500) or email (email@example.com). The Borden Ladner Gervais LLP website can be accessed at www.blg.com.
Tiffany Bennet, student at law, assisted in the preparation of this article.
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