Canada – Protracted Costly Litigation Highlights “Perils Of Not Having A Dispute Resolution Mechanism Built Into A Contract”

This article first appeared on Urbas Arbitral, here.

In North Pacific Properties Ltd v. Bethel United Churches of Jesus Christ Apostolic of Edmonton, 2020 ABQB 791, Madam Justice Anna Loparco determined that the parties to an existing contract had not entered into a binding agreement to (i) extend a key date for performance or (ii) arbitrate disagreements under that extension.  Loparco J. opened and closed her reasons noting the parties’ lost opportunity to engage in less costly, less protracted dispute resolution. “In the end, this is an unfortunate tale of two well-meaning parties who had no means of resolving their disputes prior to the Closing; the result was protracted and costly litigation.  It highlights the perils of not having a dispute resolution mechanism built into a contract”.

Bethel United Church of Jesus Christ Apostolic of Edmonton (“Bethel”) and West Jasper Properties Inc. (“West Jasper”) entered into a September 1, 2006 contract of sale of land (“Land Agreement”) which stated that surface area of the land sold comprised “not less than 55 acres”.  The Land Agreement included a transfer back of 14 acres to Bethel and a mutual covenant (“Mutual Covenant”) requiring West Jasper to obtain municipal approval to subdivide the land.  The Land Agreement underwent two (2) amendments, the second of which extended the deadline to satisfy the Mutual Covenant to August 1, 2011 (“Closing Date”).

West Jasper assigned its rights and obligations in the Land Agreement to North Pacific Properties Ltd. (“North Pacific”).  West Jasper had no further involvement in the matter and was not a party to the eventual litigation.  North Pacific intended to develop the land into a residential neighbourhood. After the assignment, North Pacific discovered that the surface area was 52.65 acres and not the 55 acres stated in the Land Agreement.  With the transfer back of acreage and an unplanned provincial infrastructure expropriation of a further 2.86 acres, North Pacific received a net 35.79 acres compared to an expected 41 acres.

Before North Pacific could close the transaction, it had to satisfy the Mutual Covenant.  North Pacific and Bethel negotiated on terms to extend the Closing Date (“Extension Agreement”) and eventually North Pacific instituted litigation. 

Loparco J. likened the lawsuit to a popular wood block stacking game which draws the players into an increasingly tall but more unstable tower the longer the game lasts.  In doing so, she linked the implied instability with the absence of a dispute resolution procedure applicable to the process.

[1] This lawsuit was like a Jenga® tower: it started with the sale of not less than 55 acres of land with a transfer back of 14 acres to the Defendant. But after determining that there was a shortfall in the acres sold and then a further expropriation of another portion of the lands, the entire deal collapsed because the parties could not determine who should take less. Unfortunately, they had no prescribed means of resolving their dispute prior to closing”.

In her third to last paragraph, Loparco J. returned to her opening, and commented on the intersection of complex disputes and dispute resolution.

[425] In the end, this is an unfortunate tale of two well-meaning parties who had no means of resolving their disputes prior to the Closing; the result was protracted and costly litigation.  It highlights the perils of not having a dispute resolution mechanism built into a contract”.

Having identified the parties and the key issue, Loparco J. acknowledged that the chronology of facts provided in her reasons was lengthy but found it necessary to “explain certain details of the transaction in the order in which they occurred”.  Doing so allowed a reader to “appreciate the complexity of this litigation and relate the facts to the many legal issues raised”.

Loparco J. made some key observations.

First, when discussing the evidence at trial, she identified six (6) witnesses but cautioned the reader that “very little turns on credibility findings”.

[15] A number of individuals testified at trial.  In a case of this nature, where most of the relevant facts are introduced by documentary evidence and the issues to be resolved relate to the legal interpretation of a contract for the sale of land, very little turns on credibility findings. I will deal with any discrepancies or concerns in relation to the parties’ interpretation of the documents or the facts as required in the chronology of events and my analysis of the legal questions”.

Second, Loparco J. focused in on whether the parties had negotiated a binding agreement under the Extension Agreement to extend the closing date and whether they had agreed to arbitrate their disagreements.

At paras. 113-134, Loparco J. set out the exchanges related to whether either the Extension Agreement or the Agreement to Arbitrate had been made.   Loparco J. captured the key positions at para. 122.

[122] North Pacific arranged to have a more formal amending agreement prepared.  However, another misunderstanding was brewing.  North Pacific believed that the Grange Letter agreed to arbitration to resolve the dispute on the contractual interpretation, whereas Bethel’s position was that the nuance in the language used (i.e., alternatives to arbitration) merely indicated it would consider arbitration alternatives but that there was no agreement to arbitrate”.

At paras 137-167, she determined that the parties were not ad litem on the Extension Agreement and it was therefore void for uncertainty. 

[163] In the case at bar, the letters between counsel were working at cross-purposes: North Pacific was seeking to alter the Land Agreement in a fundamental way (e.g., by adding arbitration and removing deadlines) and Bethel was trying to minimize the changes required (e.g., by agreeing to short extensions and offering ways to keep legal costs to a minimum)”.

Third, at paras 168-171, she then considered whether there was an agreement to arbitrate.  In approaching the issue in this manner, she clearly endorsed the doctrine of separability.  Based on the same exchanges noted in her analysis regarding the Extension Agreement, she drew the same conclusion, determining the parties were not ad litem on their choice of dispute resolution.

A key, earlier observation identified the gap in the parties’ respective positions.

[122] North Pacific arranged to have a more formal amending agreement prepared.  However, another misunderstanding was brewing.  North Pacific believed that the Grange Letter agreed to arbitration to resolve the dispute on the contractual interpretation, whereas Bethel’s position was that the nuance in the language used (i.e., alternatives to arbitration) merely indicated it would consider arbitration alternatives but that there was no agreement to arbitrate”.

In light of all the exchanges, Loparco J. determined that the parties had not agreed to arbitrate their disputes.

[169] I find the wording of Mr. Grange’s August 4th reply open to two different interpretations and therefore unclear on its face. 

[170] Mr. Grange’s words could be read as Bethel simply adding a pre-condition to arbitration (i.e., the parties will first sit down to narrow the issues prior to attending arbitration); or, it could be interpreted as Bethel saying that it does not wish to incur the costs of arbitration and believes the parties should first try to resolve the issues on their own before deciding to commit to arbitration (i.e., explore arbitration alternatives).  Mr. Grange testified credibly to the latter interpretation, which I accept.[10]

[171] Given that Mr. Burek’s letter makes it clear that there can be no Extension Agreement without such clause, and given that the Parker Letter merely mentioned it without clearly accepting it as an amendment to the prior proposal (which he agreed to in his July 29 voicemail) this lends further support to my conclusion that the parties were not ad idem on any agreement to arbitrate”.

In her analysis, Loparco J. concluded that the Bethel was not against arbitration, it had simply not agreed to it due to insufficient time to consider the cost savings.  Loparco J. also noted that the amendments had to be in writing and signed by the parties and neither condition had been met.

urbitral note – First, taken by itself, the necessary factual analysis involving the agreement to arbitrate might have justified deferring first determination of jurisdiction to arbitration as urged by the Supreme Court in Dell Computer Corp. v. Union des consommateurs, 2007 SCC 34 (CanLII), [2007] 2 SCR 801 and Seidel v. TELUS Communications Inc., 2011 SCC 15 (CanLII), [2011] 1 SCR 531.  However, neither party invoked the arbitration agreement and the facts relating to the existence of the arbitration agreement were the same as those intertwined with the extensive facts relating to the existence of the extension agreement. 

The complexity of the facts was well outside the “superficial consideration of the documentary evidence in the record” and Loparco J. also remarked that the case had little issue of credibility and most of the facts were drawn from the extensive documents filed.  Loparco J.’s decision to include a section, albeit brief, on the agreement to arbitrate fit in well with her opening and closing comments. At para. 1 she mentioned that “[u]nfortunately” the parties had “no prescribed means of resolving their dispute prior to closing” and at para. 425 characterized the litigation as “protracted and costly” and “an unfortunate tale” which “highlights the perils of not having a dispute resolution mechanism built into a contract”.

 

                        author

Daniel Urbas

Daniel Urbas is an experienced litigator, arbitrator and mediator with over 25 years of dispute resolution experience. He has earned a variety of repeat, annual peer recognitions including “Leading Lawyer” in “Commercial Arbitration” in the 2019 edition of the Lexpert ® / American Lawyer Guide to the Leading 500 Lawyers… MORE >

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