In Dow Chemical Canada ULC v Nova Chemicals, 2023 ABKB 215, Justice Woolley dismissed Dow’s Originating Application seeking, among other things, a declaration under s. 47 of the Arbitration Act RSA 2000, c A-43 that an arbitration was invalid because the arbitration agreement did not apply to the matter in dispute.
Section 47 of the Arbitration Act allows a party who has not participated in the arbitration to obtain a declaration that the arbitration is invalid and to enjoin the arbitration from proceeding.
The case law considering s. 47 or the equivalent in other jurisdictions does not set out a specific test for determining whether a party has participated in an arbitration.
Dow argued that it cannot be said to have participated in the arbitration unless it has taken one of the steps set out in the Arbitration Act under the heading “Conduct of an Arbitration”.
Nova argued that if a party takes any active steps in relation to the arbitration following service of the Notice of Arbitration (including participate in the selection of an arbitrator), then that party has participated in the arbitration.
Justice Woolley rejected both approaches.
The word “participation” is not the same as “taking a step in”. Some arbitration legislation prohibits a party from taking a “step in” court proceedings in advance of a stay. But this is different language than the word “participation”. The word “participation” means simply “to take part in something” and connotes less active engagement than the phrase “take a step in” (para 101).
The positions advanced by Dow and Nova regarding the meaning of participation were both too rigid. The assessment of whether a party has participated in the arbitration should rather be approached “objectively and practically, in light of the circumstances of a particular case” (para 102).
A framework for assessing participation
Justice Woolley set out the following factors to consider when assessing whether participation in an arbitration has in substance occurred (para 102):
- Was a notice of arbitration served on the objecting party?
- Did the notice of arbitration clearly indicate the nature of the dispute, so that the jurisdictional issue was apparent on its face?
- Did the objecting party raise any issue with respect to jurisdiction?
- What steps did the objecting party take to progress the arbitration, if any? Did any of those steps relate to the substantive issue in dispute? Did any of these steps engage with the arbitrator’s jurisdiction?
- How much time elapsed between the objecting party receiving the notice of arbitration, and raising the jurisdictional issue?
Although what informs the analysis will vary between cases, these factors provide a framework for courts to assess whether participation has occurred. These factors also allow the Court to consider such factors as implicit or explicit acknowledgment of the competence of the arbitrator to assess its own jurisdiction and the possibility of prejudice to the counterparty to the arbitration agreement (para 103).
Applying this framework, Justice Woolley found that Dow had participated in the arbitration and as such, could not rely on s. 47 of the Arbitration Act to obtain a declaration that the arbitration is invalid.
Key factors that led to the Court’s determination that Dow participated in the arbitration
Following Nova’s service of a Notice of Arbitration (which explicitly set out the matters in dispute), Dow did not raise any issue of jurisdiction for nearly 6 months after the Notice was provided.
Further, Dow appointed its own tribunal member and worked with Nova to appoint a mutually agreeable chair of the arbitral tribunal. Dow also participated in a case management meeting in which Dow set out its position on the issues in dispute.
Although Dow remained consistent in its position that jurisdiction must be determined by the court after it raised it (~6 months after it had received the Notice) and hearings before the tribunal had not yet begun, overall, Dow’s conduct and actions did not convey to Nova or the tribunal that it objected to the arbitration. Justice Woolley found that, if anything, Dow’s actions communicated that it accepted the authority of the tribunal (para 115).
Even where a party has not participated in an arbitration, the Court does not have unlimited authority to assess jurisdiction
Justice Woolley further found that, even if it was incorrect with respect to Dow’s participation, (1) the nature of the jurisdictional issue raised by the applicant and (2) the competence-competence principle precluded the Court from issuing the declaration or enjoining the arbitration in this case.
Where the issue is primarily one of contract interpretation and the facts are not undisputed or evident on the record (both the case here), the jurisdictional question of whether the arbitration agreement covers the dispute in question must be referred to the arbitral tribunal to decide in the first instance. Any judicial consideration of the issue must come after the tribunal’s assessment of the issue, and not before it. This is so even if the applicant did not participate in the arbitration proceedings.
If a party considers that it has not entered into an arbitration agreement and has not participated in arbitration proceedings, why should its right to claim judicial relief be restricted?
The principle that an arbitrator is competent to assess its own jurisdiction (the “competence-competence” principle) has very few exceptions. Although acknowledging that initially it struck her as problematic that a party who does not think the arbitration agreement applies to them (and acts consistent with this position) should be denied the full benefit of the Court’s jurisdiction, on reflection, Justice Woolley found that it is logical that this should be so (para 106).
Courts apply the competence-competence principle in cases where a party has commenced a court proceeding and another party seeks to stay or prevent those proceedings because they believe the dispute ought to be resolved through arbitration. The same principle should be recognized in the flip-side situation: where arbitration proceedings have been commenced and a party seeks to bring the matter to court instead of arbitration. The recognition of the competence of the arbitrator, particularly in relation to disputed questions of fact, is properly made in both situations (para 106).
This case underscores that a party served with a Notice of Arbitration must be diligent in identifying whether it may wish to object to arbitration being the proper forum for deciding the dispute. A party who intends to raise such a jurisdictional objection should alert the opposing party of its objection as soon as possible following receipt of the notice of arbitration or upon learning the substantive nature of the dispute.
Whether a party has “participated in the arbitration” is to be assessed “objectively and practically, in light of the circumstances of a particular case” (para 102). It cannot be determined solely on the basis of whether a party has taken particular steps in the arbitration, or solely on the basis of whether the party participated in appointing the arbitrator or tribunal.
A party found to have “participated in the arbitration” cannot rely on s. 47 of the Arbitration Act to have the arbitration declared invalid and/or to obtain an injunction prohibiting the commencement or continuation of the arbitration.
But even where a party has been found to not have participated in the arbitration, absent narrow circumstances (such as where the dispute is in relation to a pure question of law or mixed fact and law where the facts are not disputed), that party cannot turn to the court to determine the question of jurisdiction. The assessment of whether the arbitration agreement applies to the dispute in question must be first made by the arbitrator. If the arbitrator wrongly decides that the dispute falls within the scope of the arbitration agreement, its decision may be corrected by the court on application.
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