Parties seeking to avoid arbitration clauses beware: Ontario Superior Court further showcases "hands off" approach to arbitration

The Ontario Superior Court in Cruickshank Construction Ltd. v. The Corporation of the City of Kingston, 2022 ONSC 5704 dismissed the City of Kingston's cross-application seeking a declaration that Cruickshank Construction's notice of arbitration was statute barred under the Limitations Act, 2002^[i] and that pre-arbitration steps pursuant to the arbitration agreement between the parties were not properly followed.

Background

The City of Kingston contracted Cruickshank Construction to perform construction services for the City. Under the construction contract, the parties agreed to solve disputes as between them through arbitration. When a dispute arose, Cruickshank Construction applied to the Court to appoint an arbitrator. In response, the City of Kingston cross-applied asking the Court to determine if an arbitrator had jurisdiction to hear the dispute, and whether its limitations defence was valid. The City of Kingston also argued that Cruickshank Construction did not properly follow pre-arbitration steps.

The City of Kingston did not deny that there was a valid arbitration agreement between it and Cruickshank Construction. The City of Kingston also did not sue Cruickshank Construction on the merits of the construction dispute, nor did it have grounds to prevent an arbitration under section 48 of the Arbitration Act.^[ii]

Rather, the City of Kingston simply cross-applied asking the Court for an interpretation of the jurisdiction of an arbitrator under the arbitration agreement between it and Cruickshank Construction, using the summary application process as set out under Rule 14.05 of the Rules of Civil Procedure.^[iii]

The Superior Court decision

On the issue of an arbitrator's jurisdiction regarding the limitations defence, the Court stated "the fact that there may be a defence on the merits available to a party does not undermine the jurisdiction of an arbitrator."^[iv] Further, the Court noted that the Supreme Court of Canada's decision in TELUS Communications Inc. v. Wellman, 2019 SCC 19 clarified the need for courts to adopt a more "hands off" approach to arbitration: "[t]he policy that parties to a valid arbitration agreement should abide by their agreement goes hand in hand with the principle of limited court intervention in arbitration matters."^[v]

Given the above, the Court explicitly stated that section 6 of the Arbitration Act is the "dominant" approach to the case at bar. Parties are not to be encouraged to sue to avoid letting an arbitrator decide the merits of a claim. The Court did not see how coming before it would be more efficient, affordable or proportionate than going to arbitration. Whether a claim is statute barred is a question of admissibility of a claim, not a question of jurisdiction.

The Court made it clear that it "enforces arbitration agreements and assiduously respects the competence-competence principle."^[vi] Section 17(1) of the Arbitration Act specifically affords arbitrators the ability to rule on their own jurisdiction and then decide the issues before them. As such, there are only "narrow circumstances" as to when a court may rule on an arbitrator's jurisdiction.

On the issue of procedural pre-conditions to arbitration, the Court noted that a jurisdictional argument could be raised if it was found that Cruickshank Construction failed to adhere to the procedural steps mandated by the arbitration agreement.  However, given that the nature of the case was not appropriate for summary application, the Court left this issue to be decided by an arbitrator.

Key takeaways

1. The Cruickshank Construction decision makes it clear that courts will scrutinize parties who try and avoid arbitration agreements, such as jurisdictional arguments as to limitation periods.
2. A limitations defence is not a question of jurisdiction, but rather a question of admissibility of a claim, which is best determined by an arbitrator.
3. When a party raises an issue of non-compliance with procedural pre-conditions to arbitration, if the issue is heavily fact-laden and thus arguable, the issue is best left to the determination of an arbitrator.
4. Contracting parties want certainty when it comes to dispute resolution clauses. This case is an important reminder that careful drafting is critical to ensure interpretive pitfalls, such as enforceability, do not occur wherein parties are subject to interpretations contrary to their expectations.