No Recourse

The recent decision of the Alberta Court of Appeal in Babcock & Wilcox Canada Ltd. v. Agrium Inc. is important for all parties contracting in the construction industry. The case upheld the general proposition that where a contract requires a dispute to be determined by arbitration, the party seeking a remedy must commence the arbitration proceedings within the applicable timeframe. That timeframe is set out by either the Arbitration Act (which incorporates the limitation periods established by the Limitations Act) or the contract itself. The failure to commence proceedings within the timeframe will result in the party’s loss of its right to pursue a remedy through both the arbitration process and the courts.

The Babcock & Wilcox case has potential ramifications for litigants across the country. The court dealt with the Alberta Arbitration Act, which is an adoption from the Uniform Law Conference of Canada’s Uniform Arbitration Act — an Act also adopted by the provinces of Ontario, Saskatchewan, New Brunswick, Prince Edward Island, Manitoba and Nova Scotia.

In the Alberta case, a contractor, Babcock & Wilcox Canada, entered into a contract to perform construction work for the owner, Agrium Inc.

The contract contained the following arbitration clause: “Any dispute or difference arising between the parties hereto as to the construction of this Agreement, the rights, duties or obligations of either party hereunder or any matter arising out of or concerning the performance of the Work by or the compensation to the Contractor, in accordance with the terms and conditions hereof, shall be submitted to arbitration and settled by the award of a single arbitrator (the “Arbitration Agreement”).”

In September 1999 a number of disputes arose between Babcock & Wilcox and Agrium. They agreed that Babcock & Wilcox would complete the project and any unresolved issues would be settled later by arbitration. The work was completed on October 2, 1999.

On September 25, 2001 Babcock & Wilcox filed a Statement of Claim in order to sue Agrium in court but it did not serve Agrium with the documents. Then on May 14, 2002 Babcock & Wilcox served Agrium with a “Notice to Arbitrate” to commence arbitration proceedings. On May 23, 2002 Babcock & Wilcox finally served Agrium with the Statement of Claim to sue. What essentially happened here was that the contractor sued Agrium and then commenced arbitration proceedings over the same dispute.

Agrium took steps to have the court declare that Babcock & Wilcox could not commence either arbitration or court proceedings. In doing so, Agrium argued that the lawsuit should be dismissed because the contract required that the parties resolve their differences by arbitration.

Agrium further argued that the arbitration proceedings commenced by Babcock & Wilcox should also be dismissed because the proceedings were started more than two years after the dispute arose. This time lapse was outside the applicable period set by the Limitations Act.

The Alberta Court of Appeal agreed with Agrium’s arguments. The court found the following:

1. Where a contract has an arbitration clause that makes arbitration mandatory, the parties’ dispute must be resolved by arbitration proceedings. The parties cannot, therefore, commence a lawsuit over a dispute covered by that same arbitration clause. If a party does begin a lawsuit notwithstanding the arbitration clause, the court must “stay,” that is, put on hold, the lawsuit unless one of the following very narrow exceptions apply:

(a) a party agreed to the arbitration clause while under a legal incapacity;

(b) the agreement to arbitrate is itself 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; or

(e) the matter in dispute is a proper one for default or summary judgment, that is, the proper outcome is so obvious and the matter is capable of being determined without a trial.

2. The limitation periods applicable to the commencement of a lawsuit apply equally to the commencement of arbitration proceedings. Since Babcock & Wilcox started arbitration proceedings more than two years after the dispute arose, it lost its right to arbitrate its claims. Where the right to arbitrate is extinguished through the expiry of the limitation period, as was the case here, it is appropriate for the court to dismiss the lawsuit outright as opposed to merely staying the litigation, even if that results in leaving a party with no recourse whatsoever.

Since Babcock & Wilcox did not initiate arbitration proceedings within two years from the date the work was completed, it lost its right to arbitrate. Further, since the issues the company raised in the lawsuit were matters required to be determined through arbitration, it also could not litigate. Consequently, it had lost all recourse against Agrium and was unable to obtain a remedy of any kind.

The practical outcome for Babcock & Wilcox shows that failing to begin arbitration proceedings within the specified time period will not allow that party to simply avail itself of a remedy through the litigation process.

Debra Curcio Lister is an associate with the law firm of Miller Thomson LLP in Edmonton.