Supreme Court of Canada
Deuterium of Canada Ltd. et al. v. Burns & Roe Inc. et al., [1975] 2 S.C.R. 124
Date: 1974-03-18
Deuterium of Canada Limited and Cape Breton Heavy Water Limited Appellants;
and
Burns and Roe, Inc.
and
Burns and Roe of Canada Limited, Allis-Chalmers Canada Limited, The Canada Valve and Hydrant Company Limited and Brown and Root Limited Respondents.
1973: May 3; 1974: March 18.
Present: Martland, Judson, Ritchie, Laskin and Dickson JJ.
ON APPEAL FROM THE SUPREME COURT OF NOVA SCOTIA, APPEAL DIVISION
Arbitration—Ouster of Jurisdiction—Effect and interpretation of ‘Scott and Avery’ Clause—Submission to arbitration, a condition precedent—Arbitration Act, R.S.N.S. 1967, c. 12.
Practice—Stay of proceedings—Concurrent writ and service of notice ex juris.
Burns & Roe of Canada contracted to provide Deuterium with engineering services in connection with the construction of a heavy water plant by Deuterium. The performance of these engineering services, which were to be paid for on a cost plus fixed fee basis, were guaranteed by Burns & Roe, Inc. The agreement provided for arbitration subject to the Arbitration Act, of Nova Scotia (R.S.N.S. 1967, c. 12) and that “Submission to arbitration… shall be a condition precedent to the bringing of any action with respect to this Agreement, but, subject to such limitation, any claim… may be adjudicated… in the Supreme Court of Nova Scotia and… in the Supreme Court of Canada.” Burns & Roe of Canada invoked the arbitration clause to claim a certain sum from Deuterium and nominated an arbitrator. Deuterium responded by nominating an arbitrator and giving notice of its intention to counterclaim against Burns & Roe of Canada and Burns & Roe, Inc. Before proceeding further with the arbitration Deuterium and a subsidiary sued, for damages in tort and contract, Burns & Roe of Canada, Burns & Roe Inc., and two other companies. Gillis J. dismissed applications for an order staying proceedings in the action and discharging the ex parte order for service ex juris on Burns & Roe, Inc. in the State of New Jersey.
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The Appeal Division however directed that all further proceedings be stayed and set aside the issuance of the concurrent writ and the service of it on Burns & Roe, Inc.
Held: The appeal should be dismissed.
Per Martland, Judson, Ritchie and Dickson JJ.: It was argued that the article providing for submission to arbitration differed from the “Scott and Avery” clause in that the latter required an “award” where the former required only a “submission”. However s. 3 of the Arbitration Act, R.S.N.S. 1967, c. 12 provides that “A submission, unless a contrary intention is expressed, shall be deemed to include… the following provisions …(h) the award to be made… shall be final and binding…,” The provisions of the agreement make the arbitration a condition of the contract to which the Court must give effect.
It is impossible to grant an application for leave to serve a concurrent writ ex juris once an application for stay of proceedings has been made.
Per Judson and Laskin JJ.: The difficulty of determining the meaning of the words “may be adjudicated… in the first instance” cannot be resolved by limiting the “Scott and Avery” words which precede them. However, to give full effect to all the words of the relevant Article, the provision for adjudication at first instance in the Courts must be read as giving the parties a choice by agreement (or perhaps by waiver) to submit their differences to the Court instead of going to arbitration. Short of agreement (or perhaps waiver) either party can invoke arbitration. Where arbitration has been invoked, the award once made cannot disappear and any subsequent proceedings taken in the Courts are simply proceedings respecting review of the award.
[Heyman v. Darwins Limited, [1942] A.C. 356; Scott v. Avery (1856), 25 L.J. Exch. 308, 5 H.L.C. 811; Cayzer, Irvine and Company Ltd. v. Board of Trade, [1927] 1 K.B. 269; Caven v. C.P.R. (1926), 95 L.J.P.C. (N.S.) 23; Guerin v. Manchester Fire Insurance Company (1898), 29 S.C.R. 139; David v. Swift (1910), 44 S.C.R. 179; Caledonian Insurance Company v. Gilmour, [1892] A.C. 85; Shirley Ford Sales Limited v. Franki of Canada Limited (1966), 55 W.W.R. 34; Doleman and Sons v. Ossett Corporation, [1912] 3 K.B. 257; Freshwater v. Western Aus-
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tralian Assurance Co., [1933] 1 K.B. 515; Morton v. Sayer(1859), 4 H. & N. 643, 157 E.R. 993; Woodall v. Pearl Assurance Co., [1919] 1 K.B. 593; Atlantic Shipping and Grading Co. v. Louis Dreyfus & Co., [1922] 2 A.C. 250; Meacham v. Jamestown, F. & C.R. Co. (1914), 105 N.E. 653, 211 N.Y. 346 referred to]
APPEAL from a judgment of the Court of Appeal for Ontario, reversing the judgment of Gillis J. and directing that all further proceedings against Burns and Roe of Canada Limited be stayed and setting aside the issuance of a concurrent writ of summons. Appeal dismissed with costs.
D.R. Chipman, Q.C., for the appellants.
Ian M. MacKeigan, Q.C., and J.M. Barker, for the respondents.
The judgment of Martland, Judson, Ritchie and Dickson JJ. was delivered by
RITCHIE J.—This is an appeal from a judgment of the Appeal Division of the Supreme Court of Nova Scotia reversing the judgment rendered at first instance by Gillis J. in the Trial Division, and directing that all further proceedings by the appellants against Burns and Roe of Canada Limited be stayed and setting aside the issuance of a concurrent writ of summons and the service of notice thereof on Burns and Roe Inc. in the State of New Jersey in the United States of America.
The disposition to be made of the application of Burns and Roe of Canada Limited for a stay of proceedings and of Burns and Roe Inc.’s application to set aside the order of service ex juris are the only two questions presently before this Court pursuant to the orders granting leave to appeal, and it appears to me that these questions are to be considered in isolation from any issues which might arise between Deuterium of Canada Limited (hereinafter referred to as “Deuterium”) and Cape Breton Heavy Water Limited on the one hand and any one or more of the companies named or joined as parties defendant in this action on the other hand.
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I am satisfied, as will hereafter appear, that the dispute between the parties arises out of the performance of a contract originally concluded between Deuterium and Burns and Roe Inc. for the design, engineering and certain other services associated with the planning and construction of a plant for the manufacture of heavy water at Glace Bay, Nova Scotia. The original contract was made between these parties on March 12, 1964 and some time in December of that year the respondent, Burns and Roe of Canada Limited also executed this contract which had been to some extent rewritten but which was by agreement made effective as of March 12, 1964. Under this latter contract Burns and Roe of Canada Limited is described as “engineer” and it is clearly contemplated that this company is to provide Deuterium with all engineering services upon its heavy water plant with the option of sub‑contracting some or all of these services to Burns and Roe Inc., which latter company executed the agreement as “guarantor” of the contract and of the services to be supplied by Burns and Roe Limited. This agreement was the only one produced in evidence and, like the learned trial judge, I have neither seen nor considered any earlier documents which may have existed. Article 1 of the agreement contains the following:
1. The Company (i.e. Deuterium of Canada Limited) undertakes to construct and complete the plant and to commence the provision and delivery of heavy water at the said rate of 200 tons per annum not later than July 31, 1966.
The plant is to be designed for continuous future production capacity of at least 400 tons of heavy water per year with provision by the convenient omission of certain equipment and structures to a reduced production rate of at least 200 tons per year.
The “initial plant” contemplated under the agreement was accordingly limited to a capacity of 200 tons per annum, but in view of the fact that the present appellants now contend that extensions which were subsequently made to the plant were not governed by the terms of the original agreement, I think it desirable to refer
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to Article VI thereof which indicates that the parties had such extensions in contemplation as a part of the work which might be performed under the contract. Article VI reads as follows:
VI:
The COMPANY may, at any time by a written order, and without prior notice, make changes within the general scope of the work to be performed under this Agreement, including without limitation changes necessitated by the expansion of the annual production capacity of the PLANT from 200 tons up to 400 tons. If any such change causes an increase or decrease in the estimated cost of or the time required for the performance of any part of the work under this Agreement, whether changed or not changed by any such order, or otherwise affects any other provision of this Agreement, an equitable adjustment shall be made (i) in the estimated cost or performance schedule or both, (ii) in the amount of any fixed-fee to be paid to the ENGINEER, and (iii) in such other provisions of this Agreement as may be so affected, and this Agreement shall be modified in writing accordingly. NOTWITHSTANDING the foregoing, no change in the ‘plant concept’ made by the COMPANY and communicated to the ENGINEER thirty (30) days before September 1, 1964, shall be deemed a basis for an increase in the fixed-fee payable to the ENGINEER hereunder.
Any claim by the ENGINEER for adjustment made under this Article must be submitted in duplicate to the COMPANY within thirty (30) days from the date of receipt by the ENGINEER of the notification of change. Said claims shall set forth the nature and amount of increased or decreased costs, if any, and the change in performance schedule, if affected. If the above change order, issued by the COMPANY, adds to or decreases the duties or the responsibilities of the ENGINEER, as set forth in Article II herein or as previously thereto amended, the ENGINEER may include in the aforesaid claim a request for adjustment of fee. Failure of the COMPANY and ENGINEER to agree to any adjustment shall be a dispute to be settled in the manner set forth in Article VIII herein. However, nothing in this clause shall excuse the ENGINEER from proceeding with the work as changed.
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The expansion of the plant which the appellants claim to be outside the terms of the original agreement is an extension or a supplement to the “initial plant” which is designated the “X” extension and an additional plant adjoining the initial plant which is referred to as the “Y” extension. After quoting Article VI of the agreement, Gillis J. made this comment:
This provision must mean that by simple notice the agreement for engineering services could be made applicable to services upon “X” and “Y” extensions.
It appears to me that in or about September, 1966, the Deuterium Company required the services of Burns and Roe of Canada Limited under the agreement to be extended to the so‑called “X” and “Y” extensions which would provide for increased capacity, and there were no doubt discussions between Deuterium and the Burns and Roe Companies with respect to the preparation and execution of a separate contract dealing with the “X” and “Y” extensions, but these discussions came to naught and it appears to me that Burns and Roe Companies undertook to perform the engineering services in connection with the extensions under the original agreement.
I think it important at this stage to note that Cape Breton Heavy Water Limited, which is a wholly owned subsidiary of the Deuterium Company, was incorporated in March, 1967 and that in June of that year Deuterium executed a lease to that company of the land upon which the “Y” extension was to be built. In addition to this, after its incorporation, Deuterium appears to have charged all expenses in connection with the operation to the new company. This was, in my view, nothing more than a book-keeping procedure and although the new company’s existence was known to the Burns and Roe Companies as the lessee of the “Y” extension property, the respondents never had any relationship with that company and the work done and services performed by them were all done
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and performed pursuant to the original contract with Deuterium.
Mr. James Smart, the Secretary-Treasurer of Deuterium filed an affidavit in this action upon which he was cross-examined at some length, and it is apparent that he contended that the engineering work on the “X” and “Y” extensions was carried on by Burns and Roe Canada Limited not under the agreement of March 12th, but under what he referred to as the “new unsigned draft”. On this issue I adopt the view expressed by Mr. Justice Cooper in the Appeal Division as follows:
I think it too obvious for any comment that, in the circumstances here present, a suggested or proposed agreement cannot be given effect as an executed contract. Counsel for the respondents contended in argument before us that the engineering services for the “X” and “Y” extensions were performed on a quantum meruit basis. I reject this argument. I regard the true situation as one where the parties negotiated without reaching any finality for a further agreement in writing. When those negotiations failed the parties carried on under the agreement of March 12, 1964 modified as necessary and as provided for therein by such orders and authorizations as were necessary in view of the expansion of the plant capacity and as contemplated by Article VI of the Agreement of March 12, 1964.
It will be apparent from what I have said that I regard the provisions of the original agreement as governing all the relations between the parties in respect of the Glace Bay plant and in this regard perhaps the most vital provision for the purposes of this litigation is contained in Article VIII which reads as follows:
ARTICLE VIII—DISPUTES
Any dispute, unresolved claim or failure to agree between the COMPANY on one hand and the ENGINEER and/or the GUARANTOR on the other hand which cannot be informally resolved or settled between the parties within thirty (30) days from the time such controversy is made known as such to all parties in writing shall, at the option of the COMPANY or the ENGINEER be considered a dispute to
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be settled by a submission to two arbitrators, one nominated by the COMPANY and the other by the ENGINEER, under the provisions of the Arbitration Act of Nova Scotia, and the award made pursuant to such provisions shall, as provided therein, be final and binding on the parties and may, by leave of the Supreme Court of Nova Scotia or a single judge therof, be enforced in the same manner as a judgment or order to the same effect, subject nevertheless to such rights of modification, correction or vacation or of appeal from any judgment entered thereon as may be provided by law. Unless otherwise expressly provided by statute, all required notices shall be served in writing, personally or by registered mail.
Submission to arbitration pursuant to the provisions of this Article VIII shall be a condition precedent to the bringing of any action with respect to this Agreement, but, subject to such limitation, any claim against the COMPANY on the one hand, the ENGINEER and/or the GUARANTOR on the other hand or vice versa may be adjudicated, both in the first instance and upon review, in appropriate proceedings in the Supreme Court of Nova Scotia and, if any party asserts such an appeal, in the Supreme Court of Canada.
Section 5 of the Arbitration Act, R.S.N.S. 1967, c. 12, reads as follows:
5. If any party to a submission, or any person claiming through or under him, commences any legal proceedings in any court against any other party to the submission, or any person claiming through or under him, in respect to any matter agreed to be referred, any party to such legal proceedings may, at any time after appearance, and before delivering any pleadings, or taking any other steps in the proceedings, apply to that court to stay the proceedings, and that court, or a judge thereof, if satisfied that there is no sufficient reason why the matter should not be referred in accordance with the submission, and that the applicant was, at the time when the proceedings were commenced, and still remains, ready and willing to do all things necessary to the proper conduct of the arbitration, may make an order staying the proceedings.
The very comprehensive review of the authorities contained in the reasons for judgment of the learned judge of first instance appears to me to be limited to a consideration of
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cases of contracts containing arbitration clauses which did not include a provision making the arbitration award “a condition precedent to the bringing of any action”. With the greatest respect, it appears to me that Mr. Justice Gillis gave no consideration to the very substantial body of law which recognizes the far-reaching effect of a clause making arbitration a condition precedent. The law in this regard was summarized by Lord Wright in Heyman v. Darwins Limited at p. 377 where he said:
The contract, either instead of or along with a clause submitting differences and disputes to arbitration, may provide that there is no right of action save upon the award of an arbitrator. The parties in such a case made arbitration followed by an award a condition of any legal right of recovery on the contract. This is a condition of the contract to which the court must give effect, unless the condition has been ‘waived’, that is, unless the party seeking to set it up has somehow disentitled himself to do so.
This proposition has been widely accepted since the case of Scott v. Avery, and the clauses making arbitration a condition precedent to the bringing of an action have long been classified as “Scott v. Avery Clauses.”
The difference between this type of clause and an ordinary arbitration clause is well described by Scrutton L.J. in Cayzer, Irvine and Company v. Board of Trade, where he said at p.293:
…the difference between the Scott v. Avery case and the ordinary arbitration is that whereas in ordinary arbitrations you cannot bring an action at law, except by leave of the Court, because of the arbitration clause, in a Scott v. Avery case you cannot bring an action at law, because no cause of action arises until the award is in fact made.
In the Scott and Avery case the clause provided that no party should
be entitled to maintain any action at law or suit in equity on his policy until the matters in dispute shall
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have been referred to and decided by arbitrators… and then only for such sum as the said arbitrators shall award, and the obtaining of the decision of such arbitrators on the matters and claims in dispute is hereby declared to be a condition precedent to the right of any member to maintain any such suit or action.
It was argued in the present case that the terms of Article VIII differed from the Scott and Avery clause in that the latter required an “award” by the arbitrators as a condition precedent to the bringing of an action, whereas Article VIII requires only a “submission” and that in the present case such a submission had indeed been made by both parties. It is plain, however, as Mr. Justice Cooper pointed out in his reasons for judgment, that Article VIII envisages a submission under the Arbitration Act of Nova Scotia and it is provided by section 3(h) of that statute:
A submission, unless contrary intention is expressed therein, shall be deemed to include, so far as they are applicable to the reference under the submission, the following provisions, that is to say:…
(h) the award to be made by the arbitrators or umpire shall be final and binding on the parties and persons claiming under them respectively;…
The case of Scott v. Avery is thoroughly discussed in the judgments of Mr. Justice Coffin and Mr. Justice Cooper of the Appeal Division, (see particularly Mr. Justice Coffin at 21 D.L.R. (3d) at pp. 374 and 375), but at the risk of some repetition, I think it convenient to refer to what Lord Shaw said in Caven v. Canadian Pacific Railway, a case which came before the Privy Council on appeal per saltem from the Appellate Division of the Supreme Court of Alberta. In that case it was held that although there was a clause in the contract in question requiring an investigation before the bringing of an action, such an investigation and a determination based thereon had been made and although under these circumstances the case of Scott v. Avery was held not to apply, Lord Shaw nevertheless delivered himself of the following comments at
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p. 27, where he said:
Scott v. Avery, no doubt, is read as having decided that parties cannot, by contract, oust the Courts of their jurisdiction. But it also decided that any person may covenant that no right of action shall accrue until a third person, contractually appointed and selected, has decided on any difference that may arise between himself and the other contracting party. It is a mistake to treat Scott v. Avery as being confined to the question of insurance, or even building contracts, and to the ascertainment, by conventional arbitral arrangements, of sums due as being a condition precedent to maintaining an action. Said the Lord Chancellor (Lord Cranworth) (5 H.L.C. at 847): ‘Now this doctrine depends upon the general policy of the law, that parties cannot enter into a contract which gives rise to a right of action for the breach of it, and then withdraw such a case from the jurisdiction of the ordinary tribunals. But surely there can be no principle or policy of the law which prevents parties from entering into such a contract as that no breach shall occur until after a reference has been made to arbitration. It appears to me that in such cases, as that, the policy of the law is left untouched.’
Lord Shaw later referred to the principle as stated by Lord Campbell in the same case at 5 H.L.C. 852 where he said:
…what pretence can there be for saying that there is anything contrary to public policy in allowing parties to contract, that they shall not be liable to any action until their liability has been ascertained by a domestic and private tribunal, upon which they themselves agree? Can the public be injured by it? It seems to me that it would be a most inexpedient encroachment upon the liberty of the subject if he were not allowed to enter into such a contract.
In conclusion Lord Shaw observed:
In the opinion of the board, the doctrines thus cited from Scott v. Avery are not only sound, but they are clearly applicable, not only to the plaintiffs, but to the defendants in a suit.
Twenty-eight years before this latter decision was rendered, the principles embodied in the
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case of Scott v. Avery had been approved in this Court in the judgment rendered on behalf of the majority by Sir Henry Strong in Guerin v. Manchester Fire Insurance Company, which is referred to by Mr. Justice Cooper at 21 D.L.R. (3d) p. 595, and where there was a clause in a policy of insurance which provided that no suit or action brought against the Company for the recovery of any claim under the policy “shall be sustainable in any court of law or equity until after an award shall have been obtained fixing the amount of such claim in the manner above provided.” In the course of the reasons for judgment Sir Henry Strong observed:
The law of England provides that any agreement renouncing the jurisdiction of legally established courts of justice is null, but nevertheless in the case of Scott v. Avery, the House of Lords determined that a clause of this nature and almost in the same words as that before us making an award a condition precedent, was perfectly valid and that no action was maintainable until after an award had been made.
This Court also approved the Scott v. Avery principle in the case of David v. Swift, where it was found that the provision for arbitration did not amount to a condition precedent, but Mr. Justice Davies, speaking for the majority of the Court, had occasion to refer to what had been said by Lord Herschell in Caledonian Insurance Company v. Gilmour, at p. 90, in a case where arbitration was found to have been made a condition precedent to the bringing of an action. It was there said:
This condition is expressly incorporated in the body of the policy, and must be read into that part of it which alone provides for the payment of money by the company, with the same effect as if it had been specifically inserted there, and the obligation had been in terms qualified by it.
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I think this circumstance was overlooked in the Court below. The question is not whether where a contract creates an obligation to pay a sum of money it is a good answer to an action to recover it that disputes have arisen as to the liability to pay the sum, and that the contract provides for the reference of such differences to arbitration, but whether where the only obligation created is to pay a sum ascertained in a particular manner, where, in other words, such ascertainment is made a condition precedent to the obligation to pay, the Courts can enforce an obligation without reference to such ascertainment? If they could do so they would not be enforcing the contract made by the parties, but one of a different nature.
Many other cases to the same effect are cited in the judgments of Mr. Justice Coffin and Mr. Justice Cooper in the Appeal Division, and while I do not think that any benefit can be obtained by multiplying authority, it is perhaps well to refer to Shirley Ford Sales Limited v. Franki of Canada Limited, at pp. 37 and 38 where Mr. Justice Greschuk of the Supreme Court of Alberta applied the Scott v. Avery rule and noted the distinction between the clause in that case and an ordinary arbitration clause.
I am in agreement with Mr. Justice Coffin and Mr. Justice Cooper that Article VIII of the agreement here under consideration had the effect of making an arbitration award a condition precedent to the bringing of any action and as that agreement had not been complied with, the appellants had no cause of action against Burns and Roe of Canada Limited and that action should accordingly be stayed.
The finding of the learned judge at first instance that there was here sufficient reason why the matter should not be referred, in accordance with the submission pursuant to s. 5 of the Arbitration Act, was based first on his conclusion that the “X” and “Y” extensions were not governed by the contract; secondly that complicated questions might arise involving possible questions of law; and thirdly that the other parties defendant had separate contracts
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with Deuterium which contained arbitration clauses and might give rise to conflicting findings by different arbitrators. As I have said, I agree with the members of the Appeal Division that the “X” and “Y” extensions were carried out pursuant to the original agreement and I do not think that agreements with other parties which may or may not contain a condition precedent provision should affect the rights of the respondents under their contract.
The fact that complicated issues might arise before the arbitrators was, as Mr. Justice Gillis has indicated, a circumstance which might have constituted a sufficient cause for denying a stay of proceedings if there had not been a Scott and Avery clause in the original agreement, but I am satisfied that Article VIII is, as Lord Wright said in Heyman v. Darwins Limited, supra: “A condition of the contract to which the Court must give effect”.
There may be cases where it would be palpably futile and ineffective to submit the matter to arbitration and in such event it might be desirable to refuse a stay of proceedings under s. 5 notwithstanding the existence of a Scott and Avery clause, but in my opinion this is not such a case and indeed I am satisfied that where, as here, a contract has been concluded between two substantial corporations, acting at arm’s length and no doubt with advice, it would constitute an encroachment on freedom of contract if it were held that the courts were at liberty to interfere with a condition precedent freely accepted by both parties for the purpose of limiting the conditions under which an action could be brought under the contract.
For all these reasons, I am of the opinion that the order of the Court of Appeal directing a stay of proceedings against Burns and Roe of Canada Limited should be affirmed.
As to the second portion of this appeal dealing with the application for leave to serve a
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concurrent writ out of the jurisdiction upon Burns and Roe Inc., I agree with Mr. Justice Coffin, speaking for the majority of the Appeal Division, that it is impossible to grant the application for such leave once the application for a stay of proceedings had been made and I adopt the following sentence from the penultimate paragraph of his reasons for judgment where he says, (see 21 D.L.R. (3d) at p. 585):
When one accepts the view that under a Scott v. Avery clause there is no right of action until the condition precedent has been satisfied, he is forced to say that no application for leave to issue the writ ex juris can be granted until the terms of the Scott v. Avery clause have been met.
In view of all the above, I would dismiss these appeals. The respondents will have their costs in this Court, but I would not disturb the disposition of costs made by the Appeal Division.
Judson J. also concurred in the judgment of
LASKIN J.—The two appeals before us, brought here by leave of this Court, relate to (1) an order of the Nova Scotia Supreme Court, Appeal Division, granting to Burns and Roe of Canada Limited a stay of proceedings against it by the appellants, and (2) an order of that Court setting aside an order against Burns and Roe, Inc. for the issue and service of a concurrent writ of summons ex juris. Both orders in appeal here were in reversal of orders of Gillis J., who refused a stay of proceedings and refused to set aside an order for the issue of a concurrent writ and service of notice thereof ex juris upon the respondent Burns and Roe, Inc. which were directed by Cowan C.J.T.D.
The matters in appeal arise out of certain engineering obligations undertaken by Burns and Roe of Canada Limited, of which Burns and Roe, Inc. became guarantor, in respect of the construction of a heavy water plant by the appellant Deuterium of Canada Limited. I shall
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refer in more detail later to the respective obligations of the various parties, but it is sufficient for the moment to say that the issues now before this Court were precipitated by a dispute between Burns and Roe of Canada Limited and Deuterium of Canada Limited as a result of which the former invoked an arbitration clause in the contract between them, and by notice of January 19, 1970 claimed a certain sum from the latter and nominated an arbitrator. Deuterium of Canada Limited in turn nominated an arbitrator and gave notice at the same time of its intention to submit against the two Burns and Roe companies a counterclaim, of which no details were given then or later. Before any further steps were taken in the proposed arbitration, Deuterium of Canada Limited and its subsidiary Cape Breton Heavy Water Limited brought action on March 4, 1970 claiming damages in tort and in contract against the two Burns and Roe companies and against two other companies, Allis-Chalmers Canada Limited and Canada Valve and Hydrant Company Limited (which was substituted for A.C. Forr Canada Limited, originally named as a defendant), which were suppliers of parts for the construction project. On March 6, 1970, Cowan C.J.T.D. gave leave to issue a concurrent writ in the action and to serve notice thereof ex juris upon Burns and Roe, Inc., in the State of New Jersey. The general contractor for the project, Brown and Root Limited, was later added as a party defendant.
I have had the advantage of reading the reasons drafted by my brother Ritchie before preparing my own and I reach the same conclusion that he has reached. The substantial question before this Court is whether the contract between the parties contains a so-called “Scott and Avery” clause, and, even if it does, whether in view of the complexity of the issues sought to be litigated by the appellants, having regard to the parties involved, and having regard to the Arbitration Act, R.S.N.S. 1967, c. 12, the action should be stayed pending the outcome of the
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proposed arbitration between the appellant Deuterium of Canada Limited and the two Burns and Roe companies.
It will be convenient hereafter to refer to the various parties as Deuterium, Cape Breton, BR Canada, BR U.S., Allis-Chalmers, Canada Valve and Brown and Root respectively.
By an agreement dated March 12, 1964, but executed later in 1964, Deuterium engaged BR Canada to supply the engineering services in connection with the construction of a heavy water plant by Deuterium. BR U.S. guaranteed the performance of the engineering services which were to be paid for on a cost plus fixed fee basis. The contract contemplated construction of an initial stage plant with a capacity of 200 tons of heavy water per year but it contemplated expansion to 400 tons per year (the appellant alleges that it was to 425 tons per year, but this difference is immaterial for present purposes). I am satisfied to accept the conclusion of the Nova Scotia Supreme Court, Appeal Division, that what were called the X and Y extensions, on which work was performed by BR Canada at Deuterium’s request in 1966, were governed by the terms of the original contract. Cape Breton, which was incorporated in 1967, leased from Deuterium the land on which the Y extension was built and was charged by Deuterium for payments for services but never had any direct contractual relationships with either of the Burns and Roe companies. Allis-Chalmers entered into a contract with Deuterium to supply compressor units to the plant and Canada Valve contracted with Deuterium to supply valves.
By its notice of arbitration of January 19, 1970, BR Canada claimed $353,303.98 plus interest and named its arbitrator, all pursuant to Article VIII of the original contract. In giving notice of a proposed counterclaim and naming its arbitrator, Deuterium also invoked Article
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VIII. It appears that Allis-Chalmers also gave notice of arbitration to Deuterium, apparently under an arbitration clause in its contract, claiming $61,660.09.
It is undisputed that the plant was a failure, producing no heavy water, and it has been dismantled. Deuterium’s action of March 4, 1970 involved claims against the Burns and Roe companies to fix them with liability for the failure and claims against Allis-Chalmers and Canada Valve for breach of warranty; and, because Brown and Root was added as a defendant, it is a fair inference that Deuterium intends to claim against it as well in respect of the construction contract. There are thus a series of claims involved in one comprehensive action against a number of defendants arising out of a number of contracts relating to the same projects, some of the claims sounding in tort as well as in contract.
Article VIII of the arbitration clause in the original contract with the Burns and Roe companies reads as follows:
Any dispute, unresolved claim or failure to agree between the company on one hand and the engineer and/or guarantor on the other hand which cannot be informally resolved or settled between the parties between thirty (30) days from the time such controversy is made known as such to all parties in writing shall, at the option of the company or the engineer be considered a dispute to be settled by a submission to two arbitrators, one nominated by the company and the other by the engineer, under the provisions of the Arbitration Act of Nova Scotia, and the award made pursuant to such provisions shall, as provided therein, be final and binding on the parties and may by leave of the Supreme Court of Nova Scotia or a single judge thereof, be enforced in the same manner as a judgment or order to the same effect, subject nevertheless to such rights of modification, correction or vacation or of appeal from any judgment entered thereon as may be provided by law. Unless otherwise expressly provided by statute, all required notices shall be served in writing, personally or by registered mail.
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Submission to arbitration pursuant to the provisions of this Article VIII shall be a condition precedent to the bringing of any action with respect to this agreement, but, subject to such limitation, any claim against the company on the one hand, the enginner and/or the guarantor on the other hand or vice versa may be adjudicated, both in the first instance and upon review, in appropriate proceedings in the Supreme Court of Nova Scotia and if any party asserts such an appeal, in the Supreme Court of Canada. For such purpose the engineer and the guarantor hereby irrevocably consent and submit, both as to person and subject matter, to the jurisdiction of the Supreme Court of Nova Scotia and to the entry of any judgment rendered in any such proceedings, subject always to the rights of appeal as aforesaid. If any judgment is recovered against the engineer and/or guarantor in any such proceedings in the Supreme Court of Nova Scotia or in any appeal therefrom, the engineer and guarantor as the case may be, further irrevocably agree that they will neither contest such judgment in any jurisdiction where the company deems realization of such judgment necessary or desirable, nor oppose such realization, nor will they raise in such jurisdiction any defence to such judgment or realization by way of set-off, counterclaim or denial of the jurisdiction of the Supreme Court of Nova Scotia. The engineer and the guarantor hereby appoint of Nova Scotia, or such other person whose name and address they may subsequently give to the company in writing as their agent duly authorized by them to accept service of any process in connection with any such proceeding in the Supreme Court of Nova Scotia or the Supreme Court of Canada and to enter any necessary appearance on their behalf, and the engineer and the guarantor hereby consent that service of any such process on said or such other agent shall constitute service upon the engineer at its address at 25 King Street West, Toronto 1, Ontario, and upon the guarantor at its address at 160 West Broadway, New York, N.Y., or at such other addresses as are subsequently furnished to the company by the engineer and the guarantor.
For all purposes this agreement shall be governed by the laws of the Province of Nova Scotia.
Following the commencement of the action against it and after its appearance thereto, BR
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Canada moved under s. 5 of the Nova Scotia Arbitration Act for a stay of proceedings. BR U.S., after service of the notice of the writ upon it moved to set aside the service ex juris. I am satisfied that the disposition of the issue of service ex juris depends on what disposition is made of the application for a stay of proceedings; this was the view taken by the Appeal Division and I agree with it.
Section 5 of the Arbitration Act is in these terms:
If any party to a submission, or any person claiming through or under him, commences any legal proceedings in any court against any other party to the submission, or any person claiming through or under him, in respect to any matter agreed to be referred, any party to such legal proceedings may, at any time after appearance, and before delivering any pleadings, or taking any other steps in the proceedings, apply to that court to stay the proceedings, and that court, or a judge thereof, if satisfied that there is no sufficient reason why the matter should not be referred in accordance with the submission, and that the applicant was, at the time when the proceedings were commenced, and still remains, ready and willing to do all things necessary to the proper conduct of the arbitration, may make an order staying the proceedings.
This provision is taken directly from s. 4 of the English Arbitration Act, 1889, 52 & 53 Vict., c. 89. It must be remembered that prior to the Common Law Procedure Act of 1854 and prior to the 1889 Arbitration Act, a promise to arbitrate was not directly or indirectly enforceable to compel arbitration, and hence, although breach of the obligation was itself actionable, an action taken in defiance of an arbitration clause would not be stayed: see Doleman & Sons v. Ossett Corporation.
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Gillis J. came to the conclusion that he should, in the exercise of discretion, refuse a stay. In his reasons, he made the following findings: (1) there were complex issues to be decided as between the appellants and the two Burns and Roe companies; (2) there was the probability of liability on the part of one or both of Allis-Chalmers and A.C. Forr Canada Limited (now Canada Valve); (3) the contracts with these additional defendants contained arbitration clauses, and if a stay should be granted, there may be three arbitration tribunals set up which may reach inconsistent findings of fact relative to fault in respect of the whole of the damage suffered by the appellants.
So far as the initial stage plant was concerned, it was the conclusion of Gillis J. that there was a requirement of arbitration, that there had been actual notice thereof and a submission to arbitration by the two parties involved. Gillis J. stated that, prima facie, the parties should be left to their agreement, but s. 5 of the Arbitration Act empowered a judge to order a stay “if satisfied that there is no sufficient reason why the matter should not be referred to arbitration”. In his view, the question to be determined was whether there were sufficient reasons why the discretion of the Court should not be exercised in favour of a stay.
One of the reasons given by him for denying a stay was founded on his finding (which the Appeal Division did not accept) that the X and Y extensions were not subject to the original contract or to its arbitration provision. A second reason was that the question of the relationship of BR Canada and BR U.S. to each other, and of each of them to the appellants, relative to the contract and the performance of services, was of great complexity involving questions of direct and vicarious liability. Although complex issues were submissible to arbitration, several references to the Court under s. 20 of the Arbi-
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tration Act might be necessary to settle questions of law, whereas all issues were now before the Court in one action. The third and most compelling reason for Gillis J. was the fact that there were multiple party defendants, having agreements with Deuterium which included arbitration clauses and there was therefore the likelihood of several different arbitration tribunals with the possibility of inconsistent findings. Relying on English authority, Gillis J. concluded that on all the facts in evidence it would be unfair to allow the arbitration to proceed.
In reversing Gillis J., the Appeal Division proceeded on the basis that Article VIII of the governing contract made submission to arbitration, and a consequent award, a condition precedent to any action, that this was a valid “Scott and Avery” clause which could not be overcome under s. 5 of the Nova Scotia Arbitration Act, and hence a stay of proceedings was compelled. Coffin J.A., who delivered the opinion of the Appeal Division (although there were concurring reasons by Cooper J.A.), said this in the course of his reasons:
Were these proceedings governed by the English Arbitration Act, my inclination would be to follow the opinion of Lord Denning [in Taunton-Collins v. Cromie, [1964] 2 All E.R. 332] and allow the action to proceed.
The reference to the English Arbitration Act was a reference to s. 25(4) of the Act of 1950, 14 Geo. VI, c. 27, (similar to s. 3(4) of the English Act of 1934, 24 & 25 Geo. V, c. 14) which is as follows:
25(4) Where it is provided (whether by means of a provision in the arbitration agreement or otherwise) that an award under an arbitration agreement shall be a condition precedent to the bringing of an action with respect to any matter to which the agreement applies, the High Court, if it orders (whether under this section or under any other enactment) that the agreement shall cease to have effect as regards any
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particular dispute, may further order that the provision making an award a condition precedent to the bringing of an action shall also cease to have effect as regards that dispute.
This provision purports to put the Court in the same position to allow an action to proceed, notwithstanding that an arbitration award is a condition precedent to a cause of action (the Scott and Avery clause) as it would be if there was merely a promise to arbitrate. There is no such provision in the Nova Scotia Arbitration Act, but Gillis J. did not appear to think that express reference to the Court’s power to disregard a Scott and Avery clause was necessary. It was certainly his view that s. 5 of the Nova Scotia Arbitration Act provided an adequate basis of authority for the exercise of his discretion to refuse a stay of the action.
The difficulty with this conclusion is shown in the reasons of Romer L.J. in Freshwater v. Western Australian Assurance Co. at p. 528, a case decided shortly before the enactment of the English Arbitration Act of 1934 which gave the Courts the power to refuse a stay notwithstanding a Scott and Avery clause. Romer L.J. said this:
I think that this action ought to be stayed, and for this reason. If the action goes on and the defendants can satisfy the Court that arbitration was a condition precedent to the action being brought against the insurance company, the condition precedent to their being liable to the plaintiff, the judge, so far as I can see, would have no course open to him but to dismiss the action with costs. If, on the other hand, we now stay these proceedings, the matter will go to arbitration; it will no longer be open to the insurance company to avail themselves of the defence that there has been no performance of the condition precedent relating to the making of an award, and this difficult and important question of law may, and I have no doubt will, as was pointed out by the Master of the Rolls, be raised for the decision of the Court on a case stated.
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It appears to me, therefore, that what must be decided is whether the Scott and Avery clause should continue to be recognized and, if so, whether Article VIII in question here is such a clause.
As to the first point, although Scott v. Avery itself, was narrowly construed a few years later in Horton v. Sayer, as limiting the condition precedent to action to the amount due, it has been taken in a succession of later cases, including cases in this Court, as enabling parties to a contract validly to make a reference to arbitration of all disputes thereunder, whether involving questions of law or not, and an award thereon a condition precedent to resort to the Courts: see Woodall v. Pearl Assurance Co., at pp. 607-8; Atlantic Shipping and Trading Co. v. Louis Dreyfus & Co.; Guerin v. Manchester Fire Insurance Co.16
In a well known judgment on the subject under discussion, Meacham v. Jamestown, F.&C.R. Co., Cardozo J., in separate concurring reasons in a refusal by the New York Court of Appeals to uphold a Scott and Avery clause, said this (at p. 655):
An agreement that all differences arising under a contract shall be submitted to arbitration relates to the law of remedies, and the law that governs remedies is the law of the forum. In applying this rule, regard must be had, not so much to the form of the agreement, as to its substance. If an agreement that a foreign court shall have exclusive jurisdiction is to be condemned it is not saved by a declaration that resort to the foreign court shall be deemed a condition precedent to the accrual of a cause of action. A rule would not long survive if it were subject to be avoided by so facile a device. Such a contract, whatever form it may assume, affects in its operation the remedy alone… Whether the attempt to bring
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about this result takes the form of a condition precedent or a covenant it is equally ineffective.
Legislation in New York State, subsequently enacted, has changed the picture there, and it may be stated generally that many American States have legislation which authorizes the Courts to stay an action pending arbitration even if there is no Scott and Avery clause: see Corbin on Contracts, Vol. 6A (1962), s. 1435.
The position in Nova Scotia, absent such legislation as exists now in England, is to deprive the Courts of jurisdiction over the merits of a commercial dispute where arbitration and award are a condition precedent to action and to leave to them only the jurisdiction to review the award. This is not because of legislation which alone compels this result (as is the case in labour-management relations) but because of the acceptance of a broad view of Scott v. Avery as not being contrary to any public policy respecting the jurisdiction of the ordinary Courts.
In the face of arbitration statutes which, like that in Nova Scotia and others elsewhere in Canada, are designed to place private arbitration on a regulated footing, I am not prepared at this date to revert to a common law policy of jealous reaction to the attempted supersession of the original jurisdiction of the ordinary Courts. It remains therefore to consider whether Article VIII in the present case provides escape from the discretionary authority to allow an action to proceed.
Article VIII provides for submission of unresolved disputes to arbitration by two arbitrators (one nominated by each party) under the Nova Scotia Arbitration Act and that the award, pursuant to the Act, shall be final and binding, subject to such rights of modification, correction or vacation or of appeal from any judgment entered thereon as may be provided by law. It
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then goes on to make submission to arbitration as aforesaid a condition precedent to the bringing of any action with respect to the contract; and this is followed immediately by these words:
but subject to such limitation, any claim against the company [i.e. Deuterium], the Engineer [i.e. BR Canada] and/or the Guarantor [i.e. BR U.S.] or vice versa may be adjudicated, both in the first instance and upon review in appropriate proceedings in the Supreme Court of Nova Scotia and, if any party asserts such an appeal, in the Supreme Court of Canada.
I confess to great difficulty in understanding how a claim “may be adjudicated at first instance” if arbitration and award are a condition precedent to any action. As a condition precedent, the award when made does not disappear, and any subsequent proceedings taken in the Courts are simply proceedings respecting review of the award. Warrington L.J. in Woo-dall v. Pearl Assurance Co., at p. 608 put it as follows:
…Where arbitration followed by an award is a condition precedent to any other proceedings being taken, any further proceedings then [are], strictly speaking, not upon the original contract but upon the award made under the arbitration clause.
Neither Coffin J.A. nor Cooper J.A. who gave reasons in this case in the Nova Scotia Supreme Court, Appeal Division, dwelt upon the words “may be adjudicated at first instance” in Article VIII. There is a brief reference in the reasons of Coffin J.A. to the clause in which these words appear, as follows:
The words of the Article whereby the parties accept the jurisdiction of the Court come immediately after the condition precedent and begin by saying “but, subject to such limitation”.
I am of the opinion that the difficulty of determining the meaning of the words in Article
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VIII, “may be adjudicated at first instance”, cannot be resolved by limiting the clear “Scott and Avery” words which precede them. It is my view that in order to give effect to all the words of Article VIII, the provision for adjudication at first instance in the Courts must be read as giving the parties a choice by agreement (or perhaps by waiver) to submit their differences to the Court instead of going to arbitration. Short of agreement (or perhaps waiver) either party may invoke arbitration, with the consequences set out in Article VIII.
In the result, I would dismiss the appeal and make the same disposition of costs as proposed by my brother Ritchie.
Appeal dismissed with costs.
Solicitor for the appelants: D.R. Chipman, Halifax.
Solicitor for the respondents: I.M. MacKeighan, Halifax.
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