Limits on the Presumption of Consistent Expression in Contracts: Baffinland Iron Mines v. Tower-EBC

Summary

In this article, we consider the Court of Appeal for Ontario’s recent decision in Baffinland Iron Mines LP v. Tower-EBC G.P./S.E.N.C., 2023 ONCA 245 and its impact on the presumption of consistent expression in contractual interpretation. In this case, and in the context of a motion to quash, the Ontario Court of Appeal considered whether two similarly phrased expressions in a construction contract, “finally settled” and “final and binding”, had different meanings. The Court of Appeal found that that these two non-identical terms were to be interpreted to have the same meaning relying on, among other things, the Supreme Court of Canada’s decision in Sattva.

Below, we discuss some of the implications of the contractual interpretation principle in the context of contractual drafting, and consider it in conjunction with other principles utilized in interpreting, among other things, construction contracts.

Brief Factual Background

Baffinland Iron Mines LP and Baffinland Iron Mines Corporation (collectively “BIM”) owned and operated the Mary River Mine on Baffin Island in Nunavut. Tower-EBC G.P./S.E.N.C., (“TEBC”) was a general partnership formed between EBC Inc. and Tower Arctic Limited to perform earthworks on the project for BIM, which includes a railway for the transportation of ore.

To that end, BIM and TEBC entered into two separate FIDIC contracts that were modified in certain respects for this particular project, although relevant to the case, the dispute resolution provisions were not modified from the standard FIDIC language. In relevant part, the dispute resolution provisions provided as follows:

Unless settled amicably, any dispute in respect of which the [dispute adjudication board’s] decision (if any) has not become final and binding shall be finally settled by international arbitration. Unless otherwise agreed by both Parties:

(a) the dispute shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce,

(b) the dispute shall be settled by three arbitrators appointed in accordance with these Rules, and

(c) the arbitration shall be conducted in the language for communications defined in Sub-Clause 1.4 [Law and Language]. [emphasis added]

International Chamber of Commerce (ICC) Rule 35(6) was also relevant to any arbitration under the contracts. Specifically, Rule 35(6), which was incorporated by reference into the contracts, provided in relevant part:

Every award shall be binding on the parties. By submitting the dispute to arbitration under the Rules, the parties undertake to carry out any award without delay and shall be deemed to have waived their right to any form of recourse insofar as such waiver can validly be made. [emphasis added]

Ultimately, BIM terminated the contracts with TEBC due to delays. Unsurprisingly, TEBC initiated arbitration (that is, the parties did not first proceed to a dispute adjudication board for a final and binding decision, nor did they agree to settle), challenging the validity of BIM’s right to terminate and claimed for damages arising from the termination.

The arbitral tribunal made an award in TEBC’s favour exceeding $100 million.

Decision of the Court Below

BIM sought leave under the Arbitration Act, 1991 to appeal on the arbitral award, based on alleged errors of law. BIM’s position before the application judge was that the words “final and binding” in the dispute resolution provision of the modified FIDIC contracts related to the dispute adjudication board were intended to prohibit any appeal or otherwise preclude either party from further recourse, whereas the words “finally settled” in respect of the arbitration portion of the dispute resolution clause must necessarily have meant something different given the different choice of words. As a result, in relation to arbitration, BIM argued that the parties must have intended something other than to preclude appeals from any arbitration. TEBC disagreed, asserting that the contracts prohibited any form of appeal from an arbitral award.

The application judge found that the dispute resolution provision precluded any form of appeal as submitted by TEBC. In relevant part, he rejected BIM’s argument that “final and binding” and “finally settled” necessarily meant two different things because different words were used, concluding instead that the two expressions shared the same intent of precluding appeals. He also rejected BIM’s argument that ICC Rule 35(6), whose language BIM acknowledged precluded appeals, was in conflict with s. 20.6 and was overridden by it – in other words, Rule 35(6) supported the proposition that appeals were prohibited. As a result, the application judge quashed BIM’s application for leave to appeal.

The Court of Appeal

On a motion to quash raised by TEBC in respect of BIM’s further appeal, the Court of Appeal heard arguments from both parties as to whether or not it was appropriate for the appellate court to consider a denial of leave to appeal by the Superior Court. While not relevant to this article, the Court of Appeal reviewed the general rule against such further appeals and the specific exceptions to same.

Ultimately, the Court of Appeal decided to hear the motion and in doing so, upheld the application judge’s decision, agreeing that the contracts precluded appeals on any question of law. In relevant part, the Court focused on a key principle of contractual interpretation – namely, the presumption of consistent expression.

In brief, and as noted by the court, although the presumption of consistent expression assumes that identical contractual terms share the same meaning, and different terms are intended to convey a different meaning, a contractual drafter may nevertheless use multiple expressions to convey the same thing.

In that regard, BIM again argued that “final and binding” (which was utilized in respect of decisions of the Dispute Adjudication Board) must mean something different than “finally settled” (which was utilized in respect of arbitration decisions). BIM submitted that the court erred in failing to apply the presumption of consistent expression which required giving “finally settled” a different meaning.

Notwithstanding this presumption, the Court observed that the fundamental holding of the Supreme Court of Canada in Sattva v Creston Moly Corp still governs – namely, that the “primary concern of contractual interpretation is to give effect to the intent of the parties by reading the contract as a whole, giving the words used their ordinary and grammatical meaning”.

To that end, when the ordinary meaning of different words or phrases is the same, the presumption cannot be applied to force a different meaning onto one set of words. The Court observed that “although the presumption of consistent expression may in some cases be helpful in illuminating the parties’ intention, it is important not to treat the presumption as a dominating technical rule of construction that overwhelms the interpretation of a contract based on the ordinary and grammatical meaning of its text.”

Bearing the foregoing in mind, the Court concluded that in relevant part, the terms “final and binding” and “finally settled” both contain the same, critical word – “final”, or “finally”. This word, which yields the same meaning of “admitting of no further disputation”, thereby excluded any right of appeal. In that regard, the Court noted that the presumption of consistent interpretation was in fact applied by the application judge to the key word, and that the addition of the words “binding” and “settled” did not materially change the meaning (although in theory, it might have been possible that a sufficiently clear modifier could have altered the meaning of “final”).

Thus, the presumption applied in this case in relation to the word “settled” in “finally settled” to convey that arbitration would be the ultimate level of recourse (subject to any statutory rights of set-aside, of course).

Analysis

Overall, the Court in Baffinland reached a relatively straightforward result that is consistent with the state of the law on contractual interpretation following Sattva. As noted in the decision itself, the technical rule of the presumption of consistent expression cannot dominate the fundamental principle that contractual interpretation is primarily concerned with giving effect to the intent of the parties. Thus, while a Court might find (as it did in this case) that the presumption operated in a manner consistent with the parties’ intent in precluding appeals, it is easy to imagine a scenario in which the presumption would have to give way.

That being said, Baffinland does serve as a useful cautionary tale to parties drafting dispute resolution provisions – particular on complex construction projects, where the applicable contract often provides for multiple different forms of dispute resolution either sequentially (i.e., as part of a stepped dispute resolution clause) or as alternatives.

One obvious takeaway for readers is that in drafting dispute resolution provisions, aim to use consistent terminology to the extent possible. Had that been the case in Baffinland, the parties likely could have avoided expending significant resources and time in pursuing the attempted appeal. In other words, there should be no dispute over the differences in language created by the use of terminology such as “final and binding” or “finally settled”. Despite the common sense similarities between these two phrases (and the further inclusion of preclusive language in ICC Rule 35(6)), both parties ultimately had to undergo considerable expense in having to make such arguments before the courts following a lengthy arbitration.

Finally, and further considering the ICC language noted above, drafters would be well advised to be mindful of any potential implications of incorporating other terms or documents by reference into their dispute resolution provisions (and conflict of terms provisions) lest it create any confusion as to priority of terms. This proved not to be an issue in Baffinland given the Court’s finding that the ICC Rules regarding the finality of arbitration were consistent with the dispute resolution provision, it is equally easy to foresee a situation in which such provisions would be in conflict and the contract’s conflict of terms provision(s) are not of assistance. In such a circumstance, parties could easily fall into dispute as to the proper interpretation of the contract with no clear answer. Again, clear drafting – including consideration of the full scope and impact of documents incorporated by reference, such as institutional arbitral rules – is best practice.

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