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17 January 2019
In South Coast British Columbia Transportation Authority v BMT Fleet Technology Ltd(1) the British Columbia Court of Appeal declared a notice to arbitrate a nullity because it sought to commence four separate arbitrations against three different parties under four separate arbitration agreements. The Court of Appeal held that the notice to arbitrate was a nullity because:
The parties' dispute arose from four related contracts for the design and construction of a new passenger ferry to run between downtown Vancouver and North Vancouver, British Columbia. Each of the contracts contained an arbitration agreement, as follows:
On 1 April 2011 the claimant delivered a notice to arbitrate to the British Columbia International Commercial Arbitration Centre (BCICAC) accompanied by the fee to commence a single arbitration (the 2011 notice). The 2011 notice named all three respondents as parties to the dispute and sought to arbitrate disputes arising from all four contracts in a single arbitration proceeding before a "single arbitrator [who was] familiar with construction law". The BCICAC accepted the claimant's 2011 notice and sent a letter to the parties stating, "[t]his arbitration is deemed to have commenced on April 4, 2011".
One of the respondents promptly objected to the single notice, advising the BCICAC that it refused to arbitrate any dispute with the claimant with any other parties, given that it had its own separate arbitration agreement. Shortly after, the BCICAC advised the claimant that separate notices to arbitrate had to be filed if the claimant wanted to proceed, since the respondents were not bound by a single contract. The claimant did not file separate notices to arbitrate.
In August 2016 the claimant applied to court for the appointment of an arbitrator in the single arbitration it had purported to commence in 2011. The respondents' response included that they did not consent to a consolidated arbitration and that the 2011 notice was a nullity because it was contrary to Section 21 of the Arbitration Act which requires all parties to consent to the consolidation. In February 2017 the claimant:
The claimant's application also sought a declaration that the three arbitrations had been commenced effective 1 April 2011 in addition to amending its relief to request an order appointing the same arbitrator for all three arbitrations.
The lower court granted the claimant's application.(3) Although the court accepted the claimant's admission that it had in fact commenced a consolidated arbitration based on its misreading of Section 21 of the Arbitration Act – which requires all parties to consent to consolidation – the court based its decision on other factors. The lower court reasoned that, although its inherent and statutory jurisdiction to correct irregularities in judicial proceedings does not have a direct equivalent in arbitration, the informality of the arbitration process meant that the procedural rules were more akin to "guidelines than a robust procedural code defining all the rules of the game".(4) Focusing on, as it held, the "substance of the matter", the lower court found that the 2011 notice contained all of the information necessary to commence four separate arbitrations; therefore, the single notice was merely an irregularity of form and did not prevent the arbitrations from commencing as of 1 April 2011. The lower court also ordered the appointment of the same arbitrator in the three extant arbitrations. The respondents appealed.
The Court of Appeal held that the central question before it was whether the lower court had erred in failing to apply Section 21 of the Arbitration Act. The Court of Appeal held that the lower court did not address the implications of Section 21 of the Arbitration Act in the circumstances before it. The lower court also did not assess whether consolidation absent the consent of all of the parties fundamentally changed the character of the arbitration from what had originally been agreed by the parties in their separate agreements to arbitrate.
The Court of Appeal reviewed jurisprudence and commentary on consolidation and multi-party proceedings and held that the general principle governing multi-party proceedings is that, apart from statute law and absent consent, an arbitration must be limited to the parties and disputes covered by the arbitration agreement between them. The Court of Appeal observed that except for Section 21, the Arbitration Act refers to the terms 'arbitration' and 'arbitration agreement' only in the singular. In contrast, Section 21 references 'disputes' and is the only provision in the Arbitration Act that expressly addresses joint arbitration of disputes arising under separate arbitration agreements. As such, the Court of Appeal held that unless the conditions of Section 21 are met, including obtaining consent from all of the parties to the consolidation, arbitrations cannot be consolidated.
The Court of Appeal concluded that the 2011 notice was contrary to the Arbitration Act and the parties' contracts and therefore a nullity. The Court of Appeal also noted that the claimant could not have regularised its reference to arbitration merely by filing four copies of the same notice (as had been suggested by the lower court). The Court of Appeal allowed the appeal and dismissed the claimant's application.
The Court of Appeal's decision is consistent with the prevailing view internationally that consolidation of arbitrations cannot occur unless all parties to the multiple arbitrations consent. Practitioners and parties entering into multiple contracts relating to the same subject matter or project should consider whether it is desirable to have all potential disputes arising under the multiple contracts arbitrated in one proceeding. Either way parties should give careful consideration - and seek appropriate advice - when drafting arbitration agreements in these circumstances.
For further information on this topic please contact Craig R Chiasson or Jennifer Choi by telephone (+1 604 687 5744) or email (firstname.lastname@example.org or email@example.com). The Borden Ladner Gervais LLP website can be accessed at www.blg.com.
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