International Arbitration over Domestic Arbitration?

In its recent decision, Japan Canada Oil Sands Limited v. Toyo Engineering Canada Ltd., the Court of Queen’s Bench of Alberta held that it has jurisdiction under Alberta’s International Commercial Arbitration Act (the “ICAA”) to order the consolidation of a domestic arbitration and an international arbitration without the consent of all parties involved.

In effect, the Court made a distinction between the consent to arbitrate generally, and the consent to consolidate two arbitrations, with the latter being characterized as a procedural issue.

Overview of the Facts

Japan Canada Oil Sands Limited (“JACOS”) and Toyo Engineering Canada Ltd (“Toyo Canada”) were parties to an engineering, procurement and construction agreement.

Toyo Canada was responsible for performing work related to the expansion and redevelopment of the Hangingstone oil sands project in Northern Alberta. On the same day that the agreement was signed, Toyo Canada’s parent company, Toyo Engineering Construction Ltd (“Toyo Japan”) agreed to pay the liabilities of its subsidiary under the Agreement through a guarantee and indemnity agreement (the “Guarantee”). Toyo Japan also agreed to indemnify JACOS for losses resulting from Toyo Canada’s failure to meet its obligations under the agreement.

Numerous disputes arose over the course of the project. The parties attempted to resolve their disputes over an 18-month period, with Toyo Japan participating in the negotiations. This ultimately resulted in the parties initiating two arbitration proceedings. The first, a domestic arbitration, was commenced by Toyo Canada against JACOS on July 18, 2017 (the “Domestic Arbitration”), and the second, an international arbitration, was commenced by JACOS against both Toyo Canada and Toyo Japan on July 24, 2017 (the “International Arbitration”). The international arbitration was governed by Alberta’s International Commercial Arbitration Act (the “ICAA”).

JACOS sought an order to have the two arbitrations consolidated, with the domestic arbitration being consolidated into the international arbitration (i.e., both arbitrations to proceeding as an international arbitration).

Decision

A threshold issue to be decided was whether Toyo Japan was required to be a party to the arbitrations.

Toyo Canada argued that the Domestic Arbitration “unilaterally elects to join both Toyo Canada and Toyo Japan as respondents, despite first failing to ‘request’ Toyo Japan to be a party to an existing arbitration.”[1] Justice Romaine held that the Toyo Japan could be joined to the arbitration because of a provision in the Guarantee which allowed JACOS to add the parent company as a direct party to an arbitration. Justice Romaine also found that the Guarantee was plainly linked to the Agreement. This meant that Toyo Japan’s liability under the Guarantee coextended to Toyo Canada’s liability under the Agreement, making Toyo Japan a party to the proceeding. JACOS was not required to exhaust its remedies against Toyo Canada before relying on the performance of Toyo Japan’s obligations under the Guarantee.[2]

The next issue was whether the Court had the jurisdiction to consolidate the arbitrations, and if so, how they ought to be consolidated.

Justice Romaine found that while Toyo Canada consented to the consolidation based on the language of the agreement, it never consented to consolidate proceedings through the Guarantee. Instead, the section only enabled JACOS to add Toyo Japan as a direct party to the arbitration.

The Court ultimately determined that it had that jurisdiction pursuant to section 8(1) of the jurisdiction to consolidate the arbitration absent Toyo Japan’s consent, relying on the principles enunciated in Pricaspian Development Corporation v BG International Ltd[3]:

1. Recognizing that the concept of “consent”, which is never mentioned in the wording of section 8 of the ICAA, is inapplicable to determining whether the Court has jurisdiction to consolidate;
2. Section 8 of the ICAA provides the Court with some discretion, which would not be necessary if the consent of all parties to the consolidation was required; and
3. there would be no reason for section 8(3), dealing with the agreement of parties to consolidate, if both section 8(1) and 8(3) referred merely to an agreement between the parties.[4]

The Court made the distinction between consolidation and consent to arbitrate, with consolidation being described as a procedural issue:

Toyo also submits that, since the hallmark of arbitration is consent, the court should not be able to impose a consolidation without that mutual consent, and that, just as a party cannot be compelled to participate in an arbitration, it should not be compelled by a court to consolidate existing arbitrations. Again, however there is a material difference between a decision to arbitrate and procedural issues that may arise once that mutual decision has been made.[5]

The Court determined that the two arbitrations were related, involved related parties, arose out of the same transaction, and involved similar questions of law and fact. The Court determined that in the interest of efficiency in the dispute resolution process, the best course of action was to order consolidation.[6]

Conclusion

This case highlights the difference between a procedural issue – in this case, consolidation – and the governing principle of consent to arbitration.

In this case, the Court consolidated the two arbitrations without the consent of all of the parties involved. The Alberta ICAA gave the Court jurisdiction to take this action, relying on the past interpretation of the provision in Pricaspian.

According to the Court, there is a material difference between a procedural issue and a decision to arbitrate. Courts will consider time, resources, and the overall efficiency of proceedings when deciding whether to consolidate related arbitrations, regardless of whether all parties involved have provided consent to arbitrate. Ultimately, while the principle of consent applies to the decision to arbitrate, it does not extend to consolidation.

However, it should be noted that the statutory authority to consolidate in Alberta is not found in all provincial international arbitration statutes. For example, the ICAA in British Columbia and Ontario provides that the consolidation of multiple arbitral proceedings can only occur through the consent of all involved parties.[7]

You can read more about the consolidation of arbitration proceedings and the Pricaspian decision here.

[1]Japan Canada Oil Sands Limited v Toyo Engineering Canada Ltd, 2018 ABQB 844 at para 48 [“Toyo Engineering”]

[2]Ibid at paras 56-57.

[3]Pricaspian Development Corporation v BG International Ltd, 2016 ABQB 611.

[4]Toyo Engineering at para 77.

[5]Toyo Engineering at para 100 (emphasis added).

[6]Toyo Engineering at para 115.

[7] See International Commercial Arbitration Act, RSBC 1996, c 233, s 27.0; International Commercial Arbitration Act, 2017, SO 2017, c 2, Sched 5, s 8.