Leave to Appeal Refused When the Arbitral Tribunal Empowered by ICC Arbitration Rules Bars Late-Raised Legal Argument for Procedural Fairness – #53

This post aims to summarize part of the analysis in the Court of Queen’s Bench of Alberta’s decision on TR Canada Inc v Cahill Industrial Limited, 2021 ABQB 274.

Factual Background

In August 2014, TR Canada Inc. (“TR”) was awarded a contract to be the general contractor responsible for the construction of two gas turbine generators and two heat recovery steam generators, which are connecting to the Fort Hills electrical system.

TR subcontracted the physical work to Cahill Industrial Ltd. (“Cahill”). Cahill was required to perform the “balance of plant works”, which included the electro-mechanical erection works of the project. The terms of the subcontract between TR and Cahill referred the disputes between the parties to arbitration.

A number of disputes arose between TR and Cahill during the project. Those disputes related to coordination and sequencing of the various subcontractors and works, as well as changes and additions to the scope of work.

On December 4, 2018, the pleadings of the arbitration proceeding between TR and Cahill commenced.

On August 15, 2019, the pleadings concluded.

On September 30, 2019, the opening statements of both parties were received by the Arbitral Tribunal.

From October 7, 2019 to October 19, 2019, the oral hearing was conducted by the Arbitral Tribunal.

On November 15, 2019, the joint expert statement was filed on November 15, 2019.

On November 29, 2019, the closing submissions were received by the Arbitral Tribunal.

In April 2020, all final requests of the Arbitral Tribunal were completed.

On June 23, 2020, a three-member tribunal of the International Court of Arbitration (“ICC”) rendered a decision on TR Canada Inc. v. Cahill Industrial Ltd. Cahill was awarded damages against TR for the amount of $17,908,267.25 plus GST and interests, which reflects a quantification of costs associated with delay in the work, extra expense incurred in completing the work, loss of productivity, and indirect costs for extended time on the work site.

Main Issue to Analyse

Should the court leave to appeal the arbitral decision in this case?

Court’s Analysis

1. Legislation:

Applications for leave to appeal arbitral award are governed by section 44 of the Arbitration Act, RSA 2000, c A-43. This section limits appeals to questions of law, arising from issues which are of importance to the parties to justify the appeal, and the determination of which will significantly affect the rights of the parties. This section also states that a party may not appeal an arbitral award on a question of law that the parties expressly referred to the arbitral tribunal for decision.

2. Determination of a Question of Law

The analysis in the paragraph 24 of the decision of Beta Management Inc v. Edmonton (City), 2017 ABQB 571 stated:

“A question of law is a question about a decision-maker’s appreciation of a legal test, rule, or standard. For an applicant to raise a question of law, there must be a foundation for concluding that the decision-maker erred in identifying or articulating a material legal test. Legal error would occur if a decision-maker expressly articulated a test incorrectly. A “covert” error would occur if a decision-maker expressly articulated a test correctly but in its application of the test demonstrated that it had altered the test – i.e., the test articulated and the test applied were not the same and the test applied was the wrong test. Legal error would occur if a decision-maker failed to consider evidence a legal test required it to consider. Legal error would also occur if a decision-maker made a factual finding based on no supporting evidence. In effect, such an error would alter the legal test by omitting the need for evidence supporting one or more of its elements. Further, legal error would occur if there were only a “modicum” of evidence of a fact-in-issue contrasted with a large amount of evidence to the contrary. In this instance too, there would be an alteration of the legal test through omission of the need for a proper evidential finding supporting one or more of the elements of the test. ” (underlined by the author)

Furthermore, in the context of commercial arbitration involving the interpretation of contractual provisions, the analysis in the Supreme Court of Canada’s decision on Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 has stated that contractual interpretation is a question of mixed fact and law.

3. One Error of Law Raised by TR in the Appeal

Arbitral Tribunal refused to allow TR to advance its defense based on Clause 16.6 of the Subcontract between TR and Cahill

TR was prohibited from relying upon Clause 16.6 of the Subcontract by the Arbitral Tribunal because TR had failed to specifically plead Clause 16.6 as a defence.

TR argues that the tribunal’s refusal to allow it to advance a defence according to Clause 16.6 is a breach of procedural fairness and thus a question of law. Further, TR argues that although they did not raise Clause 16.6 specifically in their pleadings, they raise Clause 16 in the blanket pleading. Therefore, the Arbitral Tribunal was bound to interpret as a whole.

Cahill argues that the Arbitral Tribunal was entitled to control its own process. Therefore, there was no breach of procedural fairness or natural justice giving rise to an error of law (Sharma v Edmonton (Police Service), 2019 ABCA 501).

A review of the history of the proceedings found that TR had never plead reliance on Clause 16.6 as a defence to Cahill’s claims in any legal proceedings. Clause 16.6 was raised only during the closing submissions. The Arbitral Tribunal was satisfied that TR’s failure to plead Clause 16.6 in advance is prejudicial to Cahill’s defence and significantly affecting the rights of Cahill because it deprives them of the opportunity to advance responsive evidence and argument (Art. 22(4) and Art. 25 (4) ICC Arbitration Rules 2021).

The Court noted that when the parties agrees to seek ICC Arbitration institution to resolve their disputes, the parties accepted that the arbitration process would be administered according to the ICC Arbitration Rules. ICC Arbitration Rules empower the tribunal to establish the process by which the dispute will be presented and heard, including with respect to the timing for filing pleadings, the hearing of evidence and the timing of submissions. During this process, TR failed to amend its pleadings at an early stage according to the timelines. Thus, the Court noted that the Arbitral Tribunal did not deny TR’s procedural fairness. Rather, “it applied its own procedural rules to the record of proceedings, and exercised its discretion, within the powers conferred on it, to bar the defence raised.” (para. 31 of the TR Canada Inc v Cahill Industrial Limited, 2021 ABQB 274)

Therefore, there are no questions of law which arise in this appeal. The application for leave to appeal should be dismissed.

Conclusion: Main Takeaways

1. Sections 19 to 25 of ICC Arbitration Rules frame the requirements of procedural fairness and empower the tribunal to control its own procedure.

2. Applicant’s failure to plead the legal argument in advance is prejudicial to Respondent’s defence and significantly affecting the rights of Respondent because it deprives it of the opportunity to advance responsive evidence and argument.

(Reminder: The purpose of this article is to provide general legal information. It does not contain a full analysis of the law nor does it constitute a legal advice on the points of law discussed. To minimize the legal risk for your business, you must take specific legal advice from a lawyer on any particular matter which concerns you. Thanks for your attention.)