ONTARIO – An arbitration clause implicitly includes the power to award damages unless a contrary intention appears.  A commercially unreasonable interpretation of the arbitration clause will not oust the arbitrator’s jurisdiction. Where an arbitration agreement provides that all disputes are subject to arbitration, correctable procedural irregularities do not oust the arbitrator’s jurisdiction.  Application under Arbitration Act, 1991 s. 17(8) challenging jurisdiction of the arbitrator dismissed.

PCL Constructors v. Johnson Controls
2022 ONSC 1642 March 15, 2022
Superior Court of Justice (B. Conway J.)

In this case, the Court heard applications arising from separate decisions of two arbitrators. In each case, the arbitrator held that he had jurisdiction to determine the dispute.

PCL Constructors Canada Inc. (“PCL”) and Johnson Controls Canada LP (“Johnson”) were constructing two hospitals, Humber River Regional Hospital and Milton District Hospital, under various agreements with the Ontario government’s project company. The obligations of the parties were governed by 1) a Design Build Agreement; 2) a Facility Maintenance and Services Agreement; and 3) a Facility Co-ordination Agreement (“FCA”).

The FCA, the key document in this case, sets out the steps to be followed by the parties if one of the parties became aware of a “Defect” that it believes is in whole or in part a “Construction Defect”. The FCA contained a dispute resolution procedure (“DRP”): para. 6. The DRP provided for binding arbitration, including the process for selecting an arbitrator, the jurisdiction and powers of the arbitrator: para. 7.

In the Humber arbitration, Johnson alleged construction defects in respect of the elevators, which were denied by PCL. PCL objected to Arbitrator David McCutcheon’s jurisdiction on the basis that 1) Johnson had failed to comply with steps in the FCA; and 2) that the arbitrator’s jurisdiction was limited to determining whether an alleged Defect is a Construction Defect and that he had no jurisdiction to determine any of the remedies Johnson was seeking. The arbitrator dismissed both aspects of PCL’s motion: paras. 10-12.

In the Milton arbitration, Johnson alleged construction defects related to issues with the humidification system and a sanitary pipe failure. PCL objected to Arbitrator Duncan Glaholt’s jurisdiction on the same two grounds as in the Humber arbitration: para. 13-14. The arbitrator dismissed both aspects of PCL’s motion: paras. 15-17.

Standard of Review

The Court held that the standard of review on an application under section 17(8) of the Arbitration Act, 1991 to review an arbitrator’s decision as to jurisdiction is correctness: paras. 20-24.

Analysis

Conway J. took the following factors into account in holding that both arbitrators were correct to conclude that they had jurisdiction to hear the arbitrations and to grant a remedy in damages: paras. 25-32

1. All disputes, without exception, were subject to arbitration in the first instance. Therefore, relying on Consolidated Contractors Group S.A.L. v. Ambatovy Minerals S.A., 2016 ONSC 7171, para. 33, the issue is not whether a dispute will be arbitrated but when it becomes subject to arbitration.
2. In the Humber arbitration,
   PCL was fully aware of the elevator issues to be determined at the arbitration.
   The expert report relied on by Johnson met the requirements of the DRS.
3. In the Milton arbitration, the arbitrator correctly held that, even though the expert report was not compliant with the FCA, this was a correctable irregularity and not a jurisdictional issue nullifying the arbitration.

Conway J. agreed with the arbitrators that the each of them had jurisdiction to decide whether there was a defect and to grant a remedy. The Court relied on Desputeaux v. Éditions Chouette (1987) inc., 2003 SCC 17, para. 35 for the proposition that an arbitration clause implicitly includes the power to award damages unless a contrary intention appears: paras. 33-37.

The Court rejected, as commercially unreasonable, a restrictive reading of the arbitration clause, which would have required separate arbitrations to resolve every construction defect. The interpretation proposed by PCL ran contrary to the express intention of the parties to “proceed with the arbitration expeditiously, including in respect of any hearing”: para. 41.

Conway J. rejected Johnson’s request for declaratory relief to determine the scope of the parties’ rights under s. 4.1(a)(xiii) of the FCA, which permitted a party, within 30 days of the arbitrator’s Determination of the Defect Dispute, to apply to the Court “to decide on the Defect Dispute”. The Court held, inter alia, that it was premature to do so before the issues had crystallized, and the arbitration was heard: paras. 43-48.