MGW Homes Design Inc. v. Pasqualino: Non-Compliance with Notice Requirement is not Fatal to Enforcement of Statutory Adjudication Determination

As readers will recognize, the case of MGW Homes Design Inc. v. Pasqualino has recently received attention with respect to the Court of Appeal’s consideration of a novel question in the context of statutory adjudication under the Construction Act, being the appropriate appeal route for orders vacating a writ of enforcement issued in connection with an adjudicator’s determination. That decision, which we have written about here, concluded that the proper route of appeal was to the Divisional Court.

In that regard, the Divisional Court quickly released its own decision on this issue, under the citation 2024 ONSC 2852 (available here).

In particular, the Divisional Court was asked to determine whether a writ of enforcement was void and barred the enforcing party from taking any further steps for enforcement, given that party did not comply with the Construction Act’s notice requirements after filing the determination with the court.

In reviewing the Construction Act’s prompt payment provisions, the Court concluded that non-compliance with the notice requirement in this case was not fatal to enforcement, and that it was therefore open to the enforcing party to remedy its error.

Below, we review the Divisional Court’s decision and consider its implications.


MGW Homes Design Inc. (MGW) and Pasqualino referred a home renovation dispute to adjudication, which resulted in a determination requiring that Pasqualino pay MGW. Pasqualino did not comply with the determination and moved for leave to apply for judicial review, which was denied.

MGW filed the determination with the court and obtained a writ of enforcement. However, MGW failed to notify Pasqualino within ten days of the determination having been filed, contrary to s. 13.20(3) of the Act. Pasqualino then brought a motion to vacate the writ of enforcement.

The issue on the motion was whether MGW’s failure to provide Pasqualino with notice in the prescribed 10 days voided the writ, and if so, whether MGW was barred from pursuing enforcement any further.

The motion judge found in Pasqualino’s favour, on four bases: (a) a court ordered enforcement of an adjudicator’s determination is an extraordinary power; (b) similar to liens, the Act prescribes a timeframe that must be followed and leaves no room for judicial discretion; (c) strict compliance with the Act is necessary to enforce an adjudication decisions, such that without compliance, the writ is void; and (d) the 10-day notice requirement is not a suggestion or option, but rather a mandatory rule.[1]

Given MGW’s non-compliance, the motion judge found in Pasqualino’s favour, determining that MGW’s non-compliance meant the writ was void and that MGW was barred from pursuing further steps to enforce the determination.

The Divisional Court’s Decision

The Divisional Court overturned the motion judge, making several important observations in the course of its analysis.

First, the Court disagreed with the motion judge that enforcement of an adjudication determination was an extraordinary power. Enforcement of sub-judicial determinations by court order is regularly used with respect to arbitral decisions, administrative decisions, decisions under the Labour Relations Act, and references directed by a court. Each process is prescribed by the applicable legislation, necessarily curating each process to fit the specific context. With respect to adjudication, the Act’s provisions follow the general Ontario model for enforcement of administrative decisions prescribed under the Statutory Powers Procedure Act.[2]

Furthermore, the context and purpose of the adjudication provisions in “prompt payment” is to facilitate the flow of payment, making expeditious enforcement processes necessary. In that regard, the Court observed that pursuant to s. 13.20(1) of the Act, an enforcing party can file an adjudicator’s determination with a court, and that s. 13.20(3) makes it possible for the enforcement to begin before notice is given. Compared to other enforcement processes for sub-judicial decisions, the Act requires a more expeditious and less onerous process that facilitates the flow of payment and alleviates the risk of work stoppages.[3]

Second, the Court disagreed that the enforcement of prompt payment processes is analogous to the strict compliance requirements for lien claims. To the contrary, strict compliance with lien are necessary for stakeholders in making payments, securing loan advances, and releasing holdbacks; by contrast, an adjudicator’s payment direction is made after procedural timelines have been met, leaving parties with a direction that does not need to be filed with the court unless there is non-payment.

The opportunity to leave to seek judicial review is available; however, the granting of such a motion typically requires the disputed funds to be paid into court.[4] All of these aspects are in place to promote prompt payment. Additionally, there is no provision in that Act that deems a determination to expire if notice is not given that the determination has been filed with the court. Since the nature of the prompt payment provisions is to facilitate the flow of funds, the Court concluded that the notice requirement is “more properly seen as a statutorily-required courtesy than a strict condition that must be met before enforcement.”[5]

Finally, the Court disagreed that a failure to comply with the notice requirement necessarily voids the writ. Since the Act is silent on non-compliance with the notice requirement, courts have discretion in determining appropriate consequences.

Prompt payment is the driving force of adjudication, such that failure to provide notice should not undermine the core objective of prompt payment.[6] Accordingly, there is not a minimum or required sanction for failure to deliver notice,  although the Court observed that there are certain criteria that a reviewing court should consider when deciding how to exercise its discretionary powers in the face of non-compliance:

The court should consider the extent of the non-compliance, any explanation for the non-compliance, any prejudice – or absence of prejudice – to the payor arising from the failure to give notice, and any other relevant circumstances, and then should place these matters in the overall context of the dispute and the breach by the payor of its statutory obligation to make prompt payment in accordance with the Act.[7]

In this case, because the non-compliance was inadvertent and was not egregious, the Court concluded that the consequence chosen by the motion judge was too severe, and that it would offend the purpose of the prompt payment scheme to entirely deprive MGW of the ability to enforce the determination.


As with its related decision from the Court of Appeal, the Divisional Court’s decision in MGW continues to contribute to the growing body of case law on statutory adjudication under the Construction Act. Each such decision remains significant in providing guidance as to how the prompt payment framework is to be administered and how it will be applied by the courts.

In that regard, MGW is no different. The clarification provided – i.e. that failure to comply with the notice requirement is not fatal to a writ of enforcement – will be particularly beneficial to those participants in adjudication who are self-represented and not well-versed in the technicalities of the Act (in other words, those for whom it would be more likely that they are unaware of the applicable procedural steps for enforcing a determination). That being said, construction industry participants should not take this to mean that failing to provide notice of filing a determination is inconsequential; rather, as the Court made clear, the possibility of an adverse outcome remains in circumstances where the non-compliance is sufficiently egregious and/or unjustifiable.

On the other hand, however, it is not entirely clear what kind of conduct would rise to the level of justifying a decision to bar a claiming party from seeking enforcement. If the delay was egregiously long – i.e. several months – but due to inadvertence, then it seems plausible that the party seeking enforcement could convince a court to allow for the non-compliance to be remedied.

As always, best practice will of course be to comply with the Act’s timelines.

In any event, the Court’s analysis in MGW also offers a welcomed emphasis on the first principles underlying the prompt payment regime; as the Court observed, the overarching objective of the prompt payment and adjudication regime is to ensure an uninterrupted flow of payments and unimpeded progress of work, and in that regard can be distinguished from the objectives of, for example, the Act’s lien provisions. Ultimately, the Court’s conclusion strikes the right balance.

Samantha Spagnol, summer student, assisted with the preparation of this article.

[1] MGW Homes Design Inc v Pasqualino, 2024 ONSC 2852 at para 13.

[2] Ibid at para 15.

[3] Ibid at para 18.

[4] Ibid at para 21.

[5] Ibid at para 24.

[6] Ibid at paras 25-26.

[7] Ibid at para 30.

Coinbase Inc. v. Suski: Arbitrability in the Context of Conflicting Agreements – Who Decides?

In Coinbase Inc. v. Suski et al, the United States Supreme Court considered the interesting scenario of two parties having entered into multiple contracts dictating conflicting modes of dispute resolution such that it is unclear which agreement governs on this issue. The Court concluded that in such circumstances, a court – not an arbitrator – must first decide which contract applies, and therefore which mode of dispute resolution governs.[1] Given that many Canadian parties also do business in the United States, Coinbase will accordingly be of interest to Canadian readers notwithstanding that it is premised upon an underlying arbitral framework much different from that seen in Canada with respect to similar issues.


Coinbase, Inc. operates a cryptocurrency exchange platform where users can buy and sell digital currencies. In order to do so, users must create accounts and enter into a User Agreement with Coinbase. This User Agreement included an arbitration agreement, which specified that any disputes arising from the User Agreement, including issues related to its enforceability and scope, would be decided by an arbitrator:

This Arbitration Agreement includes, without limitation, disputes arising out of or related to the interpretation or application of the Arbitration Agreement, including the enforceability, revocability, scope, or validity of the Arbitration Agreement or any portion of the Arbitration Agreement. All such matters shall be decided by an arbitrator and not by a court or judge. (emphasis added).[2]

In June 2021, the respondents, having previously entered into a User Agreement, then entered a sweepstakes competition offered by Coinbase for a chance to win cryptocurrency. In agreeing to enter the sweepstakes competition, the respondents agreed to the Official Rules of the sweepstakes. The Official Rules, through a forum selection clause, designated that any controversies related to the promotion would be exclusively decided by the California courts:

The California courts (state and federal) shall have sole jurisdiction of any controversies regarding the [sweepstakes] promotion and the laws of the state of California shall govern the promotion. Each entrant waives any and all objections to jurisdiction and venue in those courts for any reason and hereby submits to the jurisdiction of those courts. (emphasis added).[3]

A conflict arose when the respondents filed a class-action lawsuit in the U.S. District Court for the Northern District of California, alleging that the sweepstakes violated various California consumer protection laws. Coinbase, invoking the Arbitration Agreement from the User Agreement, brought a motion to compel arbitration. However, the respondents argued that the forum selection clause in the Official Rules should prevail, thus requiring the dispute to be resolved in court.[4]

The District Court and the Ninth Circuit sided with the respondents, ruling that the forum selection clause in the Official Rules superseded the Arbitration Agreement in the User Agreement. Coinbase subsequently appealed to the United States Supreme Court, leading to the present case.[5]

The Supreme Court Decision

In finding for the respondents, the Court emphasized that the Federal Arbitration Act, as a core principle, endorses the fact that arbitration is a matter of contract. Indeed, the Court emphasized that arbitration agreements are “valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract”.[6] This principle ensures that arbitration agreements are on equal footing with other contracts, and are honoured based on the parties’ mutual consent.[7]

Moreover, the Court further emphasized that arbitration agreements are strictly a matter of consent. Specifically, while arbitration is a platform to resolve disputes, it can only resolve disputes which have been agreed by the parties to be submitted to arbitration. As a result, the proper analysis to be undertaken is to discern the exact scope of the parties’ agreement, in order to determine what the parties have agreed to in their contracts. In that regard, the Court acknowledged that parties can form multiple agreements concerning arbitration, which can pertain to (1) the merits of a dispute, (2) whether the dispute is arbitrable, as well as (3) who decides whether the dispute is arbitrable. In this case, the Court introduced a fourth layer: determining which contract governs when there are conflicting agreements as to who decides arbitrability (or, as the Court put it, whether the parties “agreed to arbitrate arbitrability”).[8]

The Court emphasized that determining who has the power to decide arbitrability is a crucial exercise as, usually, a party who has not agreed to arbitrate will posses the ability to go to court regarding the merits of the dispute. Thus, courts are cautious to assume that parties have agreed to arbitrate absent clear and unmistakable evidence.[9] In that regard, the United States differs from Canada and several other jurisdictions, in that the latter would generally apply the principle of competence-competence as a default rule in order to refer such a question to the arbitrator for determination (subject to some exceptions).

In any event, Coinbase argued that the User Agreement’s arbitration agreement was meant to govern all agreements moving forward, such that the parties agreed to arbitrate all subsequent disputes. On the other hand, the respondents argued that the forum selection clause in the Official Rules superseded the arbitration agreement in the User Agreement. This would mean that the parties’ intention was to send disputes related to the sweepstakes, including those regarding arbitrability, to California courts.

Moreover, Coinbase argued for the application of the severability principle, which stipulates that an arbitration or delegation provision is severable from the rest of the contract, and “unless the challenge is to the arbitration [or delegation] clause itself, the issue of the contract’s validity is considered by the arbitrator in the first instance”.[10] As a result, Coinbase argued that the Ninth Circuit should have isolated the arbitration provision and considered only arguments which were specific to that provision. However, the Court noted that this principle does not require a party to challenge only the arbitration provision. Rather, if a challenge applies equally to the whole contract and the arbitration provision, a court must address that challenge. Thus, the Court upheld the Ninth Circuit’s approach of considering both contracts to determine which agreement governed.[11]

Finally, Coinbase also argued that the User Agreement’s arbitration agreement should govern without regard to the subsequent forum selection clause in the Official Rules. The Court declined to address this argument, concluding that it was outside the scope of the question presented to the Court, given that the Court was only asked to decide whether a court or arbitrator would decide on the conflict between the two provisions – it was not asked to decide itself which agreement governed.[12]

Accordingly, the Court concluded that when faced with multiple agreements that are in conflict, the question of which contract governs must be answered by a court.[13]


Notwithstanding that Coinbase is not a Canadian case, it will nevertheless be of interest to Canadian readers given the possibility of a similar situation occurring for parties doing business in Canada (particularly where they are engaged in transactions or projects requiring multiple agreements).

That being said, readers should necessarily exercise caution in considering takeaways from this decision as it applies to Canada. As noted above, the United States differ from Canada and other jurisdictions in that the United States, in principle, does not treat competence-competence as a default rule that gives arbitrators the authority to rule on jurisdictional issues. To the contrary, the American approach is to assign that responsibility to the courts, unless there is clear and unmistakable evidence that the parties have delegated that authority to the arbitrator.

On the other hand, however, Coinbase is not necessarily a case purely about arbitrability or who has the ability to decide questions of arbitrability. As the Court observed, this was actually a case about the interpretation of conflicting agreements, to which traditional principles of contract interpretation apply, in order to answer the question of whether the parties agreed to arbitrate arbitrability issues (or in other words, whether or not there is an agreement to arbitrate). Ultimately, this question was resolved by reference to the American default rule of delegating such a question to the courts in the absence of clear and unmistakable evidence to the contrary (of which there was none in this case).

Ultimately, although the result may very well have been different if this case had occurred in Canada[14], Coinbase nevertheless offers certain fundamental takeaways for Canadian readers.

In particular, the decision confirms the necessity of ensuring uniformity in dispute resolution provisions across related documents. Ensuring that all agreements within a commercial relationship are consistent on this issue will allow parties to avoid disputes of this nature and focus on the merits of disagreements, thus saving time and resources on issues that are peripheral to the substance of a dispute. Indeed, Coinbase is a perfect example of such a risk, as the resolution of this case took several years (during which time the substance of the respondents’ class-action complaint took a back seat to this preliminary issue).

[1] Coinbase, Inc. v. Suski et al 144 S.Ct. 1186, No. 23-3 [Coinbase].

[2] Ibid at page 2.

[3] Ibid at page 3.

[4] Ibid.

[5] Ibid.

[6] Ibid at page 4.

[7] Ibid.

[8] Ibid at page 5.

[9] Ibid.

[10] Ibid.

[11] Ibid at pages 6-7.

[12] Ibid at page 8.

[13] Ibid at pages 6 and 8.

[14] See, for example, Peace River Hydro Partners v. Petrowest Corp., 2022 SCC 41 at paras 38-43.

La Française IC 2 v. Wires: Abuse of Process in Arbitral Enforcement Proceedings

In La Française IC 2 v. Wires (“La Francaise”), the Court of Appeal for Ontario has confirmed that the test for resisting enforcement of an international arbitral award is a stringent one. In allowing an application for enforcement, the Court affirmed a number of important considerations, including the timeliness of arguments and exhaustion of appeal routes, the prioritization of substance over form, as well as the role of abuse of process in order to prevent the re-litigation of issues already subject to arbitration.[1]

Below, we consider the case and its takeaways.


After entering into a bespoke funding agreement (the “Agreement“) with the respondent (Mr. Wires), the appellant (La Francaise IC 2) commenced an arbitration seated in England, and administered by the Arbitration Institute of the Stockholm Chamber of Commerce (the “SCC”), in order to obtain payment under the Agreement.[2]

The Agreement identified La Francaise by corporate registration number B148892. However, during the arbitration, La Francaise used a shortened name (“IC2 Fund”) and a different corporate registration number, B205456. During the arbitration, the arbitrator granted La Francaise security for costs against Wires.[3] The arbitrator’s award, however, referred to La Francaise using registration number B148892, which, at the time of the arbitration, referred to a corporate entity that been liquidated and placed into bankruptcy. In any event, Wires failed to pay the required security for costs.

Wires then challenged the arbitrator’s appointment before the SCC, alleging a reasonable apprehension of bias. However, the SCC dismissed this challenge, finding the challenge to be time-barred and unsubstantiated on the merits.

Following these events, Wires attempted to discontinue the arbitration, at which point La Francaise sought a dismissal of the arbitration and requested costs. The arbitrator granted the relief sought.[4]

La Francaise then applied for recognition and enforcement of the award in Ontario. In granting the application, the Superior Court of Justice affirmed La Francaise’s standing to bring the enforcement application, rejecting Wires argument that La Francaise lacked standing given due to the misnaming error regarding the bankrupt entity identified above.[5] Moreover, the Court concluded that Wires’ challenge to the arbitrator’s appointment based on alleged bias was an abuse of process, as it had already been dismissed by the SCC, and this decision was not appealed by Wires at any time prior to the proceedings before the Superior Court.[6] Consequently, the Court granted the applicant’s motion to amend the title of proceedings (to address the issue regarding the improperly named corporate entity), dismissed the respondent’s motion to dismiss or stay the application, and confirmed the enforceability of the award.[7]

On appeal to the Court of Appeal for Ontario, Wires argued that the judgment recognizing and enforcing the arbitration award should be set aside and remitted for a rehearing before the Superior Court. In advancing such a position, Wires relied on the following three main arguments:

  • first, that the application judge erred in failing to address the argument that the tribunal was improperly formed due to a lack of independence and impartiality. Additionally, Wires argued that the application judge erred in finding that the relitigating of this issue constituted an abuse of process;[8]
  • second, that the application judge erred by finding that La Francaise had standing to bring the application, and that the application judge lacked jurisdiction to rectify the misidentification of La Francaise in the award;[9] and
  • third, the application judge erred by upholding the arbitrator’s costs award, which encompassed costs settled by both parties.[10]

The Court of Appeal’s Decision

With respect to the first ground of appeal, the Court of Appeal disagreed that the application judge had erred by not allowing Wires to raise issues regarding the propriety of the tribunal. Instead, the Court concurred with the application judge’s view that permitting such an argument to be advanced would have constituted an abuse of process.[11] In that regard, the Court emphasized the broad and flexible nature of abuse of process; it is not restricted to preventing the re-litigation of issues or addressing issues that could have been raised in previous proceedings, but is more generally intended to prevent unfair use of court procedures that could bring the administration of justice into disrepute.[12]

Moreover, the Court emphasized that Wires’ challenge of the arbitrator seemed to have stemmed from the arbitrator’s unfavourable order of security for costs, rather than any real concern with the arbitrator. Further, the Court emphasized that Wires’ allegations were introduced “out of time and were not well-founded”[13], confirming that this argument failed both procedurally and substantively.

In addition, the Court observed that since this challenge was made early in the arbitration process, any valid concerns could have been addressed, and a new arbitrator appointed if necessary, through an appeal of the SCC’s decision to the English courts. However, since Wires failed to take any of the steps open to it to continue his challenge of the arbitrator’s jurisdiction, the Court found that Wires was not now able to challenge jurisdiction. These circumstances, combined with the SCC’s determination that the challenge lacked merit, supported the application judge’s decision that relitigating the issue would constitute an overall abuse of process.[14]

Regarding the second point of appeal, the Court disagreed with Wires’ assertion that the application judge had erred in identifying La Francaise as the proper party to the arbitration. The Court confirmed that the application judge’s decision had been based on the evidence at hand, including Wires’ identification of La Francaise in the arbitration request. There was no error in the application judge’s conclusion that any discrepancies in naming had been inconsequential. Thus, La Francaise had standing to bring the application, and the application judge had the jurisdiction to ascertain the appropriate parties to the award and to order its recognition and enforcement accordingly.[15]

Lastly, the Court found no fault with the application judge’s recognition and enforcement of costs in the arbitration award. The arbitrator had differentiated between settled costs of La Francaise’s counterclaim and the costs of the arbitration, ensuring that there was no over-compensation.

As a result of the above, the Court dismissed the appeal.[16]


While the result of La Francaise is perhaps unsurprising, the Court’s analysis nevertheless offers several insights.

Firstly, La Française underscores the importance of exhausting all available appeal rights in the seat of the arbitration before raising a similar challenge in an enforcement jurisdiction. While appeal rights are uncommon in the international arbitration context (given the widespread application of the Model Law), readers will nevertheless appreciate that England is a very popular seat for international arbitration and therefore makes this issue particularly relevant where an England-seated award is in turn the subject of enforcement proceedings in Ontario (and Canada more generally). Parties would do well to consider all possible appeal rights early, and track such rights if necessary, during the course of an arbitration.

Although the exhaustion of appeal rights in this case would not necessarily have allowed Wires to  overcome the Court’s other objections to the appeal, it would arguably have removed at least one obstacle.

On the other hand, however, an unsuccessful appeal in England would arguably have strengthened La Francaise’s position insofar as the bias allegations would have dismissed twice. On the facts of this case, the point may have been moot insofar as both England and Canada rely upon the IBA’s Guidelines on Conflict of Interest, such that the general framework for bias in each country is quite similar; on the other hand, however – and as we have written elsewhere – there is case law in Ontario that arguably establishes a lower bar for a finding of reasonable apprehension of bias.

In that regard, the discrepancy (if any) between English and Ontario law regarding reasonable apprehension of bias raises the interesting question of whether the Court’s reliance on abuse of process (as a means of preventing re-litigation) was grounded primarily in (1) the SCC’s conclusion that Wires’ allegations were unmeritorious, or (2) the fact that Wires’ did not appeal this conclusion under the Arbitration Act, 1996. The Court’s analysis does not make this entirely clear, but in our view, the latter basis is somewhat more persuasive given that the SCC’s decision was presumably grounded in English law (as a result of which the argument could be made that re-considering an issue under a different legal standard would not be an abuse of process).

Finally, with respect to the issue of La Francaise’s misnaming in the arbitration award and subsequent judicial proceedings, the Court has confirmed that there is a high bar for relying upon this procedural issue as a basis for resisting enforcement of an award.  La Française confirms that a minor misnaming – particularly when it does not cause confusion or prejudice to the parties involved – is unlikely to constitute a valid basis to resist enforcement. However, where the error causes confusion or prejudice, such an error may not be correctable by a court. On balance, it appears that courts can (and will) rectify procedural errors such as misnaming when they do not compromise the fairness or clarity of the arbitration process, ensuring the integrity and enforceability of arbitration awards.

We will continue to monitor the decisions of the courts as they grapple with the issue of challenges to arbitral jurisdiction.

[1] La Française IC 2 v. Wires, 2024 ONCA 171 [La Française].

[2] Ibid at para 2.

[3] IC2 Fund v Wires, 2023 ONSC 3879 [IC2].

[4] La Française, supra note 1 at paras 2-3.

[5] IC2, supra note 5 at paras 55-61.

[6] Ibid at para 91.

[7] Ibid at para 93.

[8] La Française, supra note 1 at para 5.

[9] Ibid.

[10] Ibid.

[11] Ibid at para 7.

[12] Ibid at para 8.

[13] Ibid at para 9.

[14] Ibid at para 9.

[15] Ibid at para 10.

[16] Ibid at para 11.

Canadian Flight Academy v. City of Oshawa: “With Prejudice” Label not Fatal to Settlement Privilege

The Ontario Superior Court’s recent decision in Canadian Flight Academy Ltd. v. The Corporation of the City of Oshawa, 2024 ONSC 2756,  provides a useful reminder of the law on settlement privilege, including helpful clarification that labelling communications “with prejudice” is not necessarily fatal to a claim of privilege.


The plaintiff, Canadian Flight Academy Ltd. (“CFA“) commenced an action seeking relief in respect its of leasehold interest at the Oshawa Airport, including the possibility of compensation for leasehold improvements if the Court were to find that the lease was terminated. In the course of the litigation, CFA delivered to the  defendant, the Corporation of the City of Oshawa (the “City“), a settlement offer letter (the “Letter”) marked “With Prejudice”. The Letter indicated that the offer was to remain open for acceptance until such time as CFA were to withdraw it.

Notwithstanding that the Letter was marked as “With Prejudice”, the City objected to CFA introducing the Letter at trial, on the basis that that the communication was subject to settlement privilege (and was in any event irrelevant to the issues at trial). The Court concurred with the City and found that the Letter was in fact subject to settlement privilege, and therefore could not be adduced as evidence at trial. To that end, it is not clear from the decision what evidence, or for what purpose, CFA was intending to adduce by introducing the Letter into evidence.

The Superior Court’s Decision

In determining that that the Letter was subject to settlement privilege and could not be admitted as evidence, the Court undertook a brief but helpful review of the relevant case law and underlying principles in relation to settlement privilege.

Broadly speaking, settlement proceedings are enhanced through open and honest communication between parties, which is enabled through the assurance that what is said in negotiations is inadmissible in court. Settlement privilege is endorsed by public interest in promoting candid communications between parties in order to increase the likelihood of a settlement, ultimately reducing time spent litigating disputes.[1]

Furthermore, settlement privilege has two purposes: it reduces the ability for parties to unfairly admit any admissions made during settlement negotiations, and it allows parties to speak freely during negotiations without the need to carefully monitor the content of their discussion. Thus, for the rule to truly encourage candid negotiations, the application of the settlement privilege must be broad, and the exceptions to the exclusionary rule must be narrow.[2]

Finally, the Court made two further observations: first, that settlement privilege belongs to both parties, such that it cannot be unilaterally waived by just one of them; and second, that if the contents of the communication is in furtherance of settlement and therefore privileged, it makes no difference whether the communication is marked ‘with prejudice’ or ‘without prejudice’. Rather, the assessment of privilege turns on the substance of the communication.[3]

Turning to the applicable test, the Court observed that a three-part test applies for determining whether settlement privilege applies to a given communication:

1) there is a litigious dispute;

2) the communications were made with the express or implied intention that they would not be disclosed in a legal proceeding in the event negotiations failed; and

3) the purpose of the communications is to attempt to effect a settlement.[4]

In this instance, there was obviously a litigious dispute, and the Letter was unambiguously an offer, such that the first and third criteria were not points of controversy.

On the second criterion, however, the Court observed that failing any specific stipulation within the Letter that it would be disclosed in the legal proceeding, it was “understood and implied” that such correspondence would not be disclosed in the proceeding, except in accordance with the Rules. Furthermore, the Court rejected CFA’s position that an offer to settle which does not receive a response is excepted from settlement privilege; to the contrary, The fact that an offer has been made but not responded to by the opposing party does not transform the document – if the letter sets out a proposal for settlement – it is privileged.

On the foregoing basis, the Court concluded that the Letter would not be admitted as evidence at trial.


While the Court’s decision does not canvas new ground, it is nevertheless a helpful reminder for parties that labels applied to settlement-related correspondence are not necessarily determinative of their evidentiary status. To the contrary, Canadian Flight Academy Ltd confirms that courts will be reticent to allow settlement-related communications into the record (other than for the purposes of determining costs, after liability is determined), even in the face of language suggesting that the communication is intended to be on the record.

In that regard, the Court’s discussion of the second criterion identified above is an interesting one, in that it seems arguable that the application of a “with prejudice” label could, at least in theory, plausibly support an inference that the party sending the communication intended to rely on that correspondence as part of the record at a later date. As the Court’s decision suggests, however, this may not be sufficient. Accordingly, to the extent that a party wishes to rely on a settlement offer at a later date if that offer is not accepted, they would be well advised to make that intention clear in the offer itself (or associated correspondence).

Finally, it bears noting that, had CFA wished to ensure that the offer was “on the record” and able to be referenced at trial, there are other avenues (including submitted a formal offer to settle under Rule 49 of the Rules of Civil Procedure).

This case provides parties with a good reminder to carefully consider for what purpose, and when, they intend to reference an offer to settle on the record. Evidently, best practice is to be explicit as to one’s intentions to reference with prejudice correspondence and/or settlement offers.

Samantha Spagnol, summer student, assisted with the preparation of this article.

[1] Sable Offshore Energy Inc. v. Ameron International Corp., 2013 SCC 37 and Union Carbide Canada Inc. v. Bombardier Inc., 2014 SCC 35, at para 31.

[2] Bellatrix Exploration Ltd. v. Penn West Petroleum Ltd., 2013 ABCA 10, at paras 27 and 28.

[3] Leonardis v. Leonardis, 2003 ABQB 577 at paras 5 and 6.

[4] Re Hollinger Inc., 2011 ONCA 579, at para 16.

The Duty to Defend in Long-Tail Claims: An initial review of the Ontario Court of Appeal’s decision in Loblaw Companies Limited v Royal & Sun Alliance Insurance Company of Canada


On February 27, 2024, the Ontario Court of Appeal (ONCA) provided guidance – and some issues for further consideration – in Loblaw Companies Limited v Royal & Sun Alliance Insurance Company of Canada, 2024 ONCA 14, addressing the allocation of defence costs, self-insured retentions, and the management of conflicts of interest for liability insurers and insureds.[1]

This article is the first in a multi-part series discussing key take-aways from Loblaws. Below, we briefly summarize the background, the issues addressed by the ONCA, and delve into the Court’s reasoning regarding the allocation of defence costs among liability insurers.


The ONCA’s decision arises out of five underlying opioid class actions alleging negligence in the manufacture, distribution, and sale of opioids in Canada since 1995. Loblaw Companies Limited, Shoppers Drug Mart Inc., and Sanis Health Inc. (together, “Loblaws”), all named as defendants in the class actions, sought coverage from their primary and excess insurers (the “Insurers”).[2]

Loblaws was continuously insured by the Insurers over the relevant period – although individual coverage periods ranged from eight months to over 14 years, policies were subject to different self-insured retentions (SIRs), and different coverage available under each policy.[3]

Each insurer had acknowledged a duty to defend Loblaws in the underlying actions, subject to satisfaction of the applicable SIR. In addition, some insurers only extended coverage to Loblaws pursuant to a reservation of rights letter, particularly concerning alleged intentional acts of the insured. Dissatisfied with this arrangement, Loblaws applied for a declaration that each insurer had a duty to defend Loblaws in the class actions and that Loblaws could select any single policy under which there was a duty to defend, requiring the chosen insurer to defend all claims.[4]

The Application Judge’s Decision

The application judge held that:

  • Loblaws was entitled to coverage for all reasonable defence costs associated with the class actions from any one insurer. Contrary to a pro rata allocation based on each insurer’s time-on-risk, the application judge allowed each respondent to choose any single policy for defence, with the selected insurer required to defend all claims, even those falling outside its coverage period, subject to equitable contribution between Insurers.[5]
  • Loblaws was not entitled to coverage until it had exhausted an SIR. However, once an SIR had been exhausted and coverage had been engaged, ongoing defence cost contributions of the triggered insurer could be used to erode the SIRs of other insurers.[6]
  • Loblaws was entitled to relief from forfeiture for defence costs incurred prior to its tender of the claims to the Insurers.[7]
  • Given the reasonable apprehension of a conflict, and the lack of adequate handling protocols, only insurers who had signed the Defence Reporting Agreement (DRA) were entitled to receive privileged defence information.

The Court of Appeal’s Decision

On appeal, the Court overturned the application judge in many respects, holding that:

  • A time-on risk approach rather than an “all-sums” approach should be applied to the contributions of insurers to the defence of Loblaws.
  • Satisfaction of one SIR does not permit the insured to then apply defence costs paid by one insurer to the erosion of another SIR. The insured must satisfy each SIR before coverage will be triggered under the respective policy.
  • An insured is not entitled to relief from forfeiture with respect to voluntarily incurred pre-tender defence costs where an insurer subsequently confirms its duty to defend.
  • An insured is entitled to a “conflict free defence”. Given the nature of the claims advanced and the reservations taken by certain insurers, the application judge’s decision upholding the use of the DRA and the information to which the insurers were entitled, was reasonable in the circumstances.

Below, we take a closer look at the Court’s reasons with respect to the defence cost obligations of Loblaws primary insurers.

The Duty to Defend in Long-Tail Claims

The Duty to Defend Stems from the Pleadings

It is trite law in Canada that where there is a possibility that the claim as pled could fall within the coverage provided by the policy, the insurer’s duty to defend will be triggered.[8] Where the claim in question arises out of a discrete “occurrence” and therefore falls within only one policy period, such an analysis is relatively straight forward: the insurer on risk for the policy period will be obligated to defend the insured. However, with long-tail claims involving continuous or progressive injury spanning many years, multiple policies and insurers, and consecutive rather than concurrent coverage, the analysis becomes more complex. As the ONCA described it, this is “among the thorniest problems in insurance law.”[9]

Contractual Bargain in Insurance Agreements

Applying the duty to defend analysis, the ONCA found that the application judge erred in allowing Loblaws to select one policy to provide coverage for defence costs for all claims arising during the entire period of the class action.[10] First noting that the policies in question were liability policies which provided coverage for occurrences arising during the policy period, the ONCA emphasized that insurance agreements are a contractual bargain, with coverage provided for a specific time period in accordance with the terms of the policy.[11] Applying this lens, the ONCA found that the application judge departed from the language of the insurance policies by extending one insurer’s obligation to defend the insured for claims arising from conduct outside the period specified in the policies. This contravened the contractual framework of the policies, which were designed to cover risks within defined temporal parameters.[12]

Relying on this contractual foundation, the ONCA further found that the application judge erroneously classified insurers as concurrent rather than consecutive insurers, leading to an inappropriate expansion of the coverage available under any one policy. As clarified by the ONCA, consecutive insurers are only liable for claims stemming from conduct occurring within their policy periods. Should multiple claims arise across multiple policy periods, the appropriate approach is to identify the insurers on risk at the time the occurrence arose rather than to paint all insurers with the same brush and leave the insurers to sort out contribution between themselves.[13]

Rejection of All-Sums Approach

The ONCA’s focus on the contractual bargain between the insurer and insured, was further buttressed by the ONCA’s confirmation that the “all sums” approach to coverage has generally been rejected by Canadian courts.  The “all-sums” theory of allocation argues that each insurer is responsible for covering all defence costs incurred by an insured in the defence of a covered claim, allowing the insured to choose the policy with the best coverage and compel that insurer to pay all costs. The chosen insurer must then seek contributions from other insurers.

Moreover, a potential conflict of interest arises when insurers are obligated to defend claims beyond their policy parameters, as required by an “all-sums” approach. Conflicts arise when insurers must defend claims outside their policy coverage as their interest is to have liability found on grounds not covered by the policy. This misalignment of interests can compromise the defence. Mandating an insurer to defend claims that fall outside the policy’s coverage places the insurer in a position where it must advocate for claims that would be beneficial for it to fail, potentially creating a conflict of interest. [14]

In rejecting this approach, the ONCA endorsed a pro rata “time on risk” approach in line with the consecutive nature of the coverage available to Loblaws. [15] Unlike the “all sums” approach, a pro rata “time on risk” allocation of defence costs – i.e. insurers sharing in the defence of the insured based upon their proportionate time insuring the insured – is both better aligned with the contractual basis for coverage and has salutary policy implications as it ensures early participation of all insurers, fostering a stronger defence and encouraging settlement while mitigating the potential for conflicts in the defence.[16] This approach recognizes that it is not appropriate for an insurer with minimal exposure to control the defence and associated costs.[17]


What is not discussed in the ONCA’s decision confirming the application of a “time on risk” analysis to the sharing of defence costs between insurers, but is a relevant concern in applying the analysis to other cases of consecutive insurers is the trigger theories underlying the claim.

As set out in Alie v Bertrand, 2002 CanLII 31835 (ONCA), when considering whether an occurrence has arisen during a policy period for the purpose of determining whether a liability policy is engaged, a Court may consider and apply any one of four “trigger” theories as the situation may dictate being: exposure, manifestation, injury in fact, and continuous.[18] Where, as in the case of Loblaws, multiple injuries are alleged to occur to a class of plaintiffs over the entire class period, it likely makes sense to apply the exposure or continuous trigger theories thereby engaging all insurers who provided coverage during the class period and permitting a straightforward time on risk analysis.

With this in mind, one should be cautious in applying a blanket approach to other scenarios. For instance, a construction claim may allege resulting damage arising out of the work of a contractor on site, with the damage occurring over multiple policy periods. While the contractor may be insured by multiple policies during the period in which damage occurred, it may be more appropriate to apply the “injury in fact” trigger to find that the “occurrence” arose during only one policy period such that there is no requirement for a time on risk analysis.

A further question arises as to the appropriate manner of proceeding. While here the insured applied for a finding that it was entitled to call upon a single policy, often it will be an insurer who has been tagged for coverage that will seek equitable contribution from other consecutive or concurrent insurers – often times on a “time on risk” basis. The decision in Loblaws would indicate that the obligation is now squarely on the insured to ensure that all potentially responsive insurers are engaged and contributing, especially, as will be discussed in the next part of this series, where each policy is subject to deductible obligations.

[1] Loblaw Companies Limited v Royal & Sun Alliance Insurance Company of Canada 2024 ONCA 145 [Loblaw].

[2] Ibid at paras 1-5, 35.

[3] Ibid at para 7 and 36.

[4] Ibid at para 5.

[5] Ibid at para 46.

[6] Ibid at para 117.

[7] Ibid at para 144.

[8] Ibid at para 88.

[9] Ibid at para 65.

[10] Ibid at para 68.

[11] Ibid at paras 69-75.

[12] Ibid at paras 73.

[13] Ibid at paras 76-78

[14] Ibid at para 113.

[15] Ibid at para 108.

[16] Ibid at para 114.

[17] Ibid at para 115.

[18] Alie v Bertrand, at para 93; See also, Privest Properties Ltd. v Foundation Company of Canada Ltd., 1991 CanLII 2346 (BCSC)

Earthco v Pine Valley: Contractual and Statutory Interpretation Collide in the Sale of Goods

(“Earthco”) recently rendered a decision on contracting party’s ability to contract out of a statutorily implied condition under Ontario’s Sale of Goods Act, providing important clarification on the extent to which an exclusion clause must be explicit in order to successfully oust the application a statutorily-implied term. Below, we review the decision and provide key takeaways with respect to the sale of goods and use of exclusion clauses, both of which are highly relevant for the construction industry.


The City of Toronto (the “City”) hired Pine Valley Enterprises Inc. (“Pine Valley”) as the contractor for a flood remediation project, which included the removal and replacement of topsoil for drainage purposes. Pine Valley in turn subcontracted with Earthco Soil Mixtures Inc. (“Earthco”), to supply topsoil with a specified composition (which composition had been specified by the City’s consultant for the project, presumably under the prime contract).

Earthco – whose sales process normally involved a multi-stage testing process prior to contract execution – provided Pine Valley with laboratory reports from different topsoil samples taken roughly six weeks before Pine Valley’s initial solicitation, but specifically warned Pine Valley against purchasing the topsoil without Earthco having the opportunity to conduct its usual testing process. Despite this warning, Pine Valley was seeking delivery of topsoil on an urgent basis, as it had already missed certain project milestones and was looking to avoid the application of liquidated damages by the City under the prime contract. Pine Valley therefore insisted on immediate delivery of the topsoil, rather than waiting for updated test results (in other words, the parties entered into a sale by description).

As a result, the parties agreed to add two clauses to their subcontract, which stated that Pine Valley had the right to test and approve the material before it was shipped, and that if it waived those rights, Earthco would not be responsible for the quality of the material once it left its facility (the “Exclusion Clauses”):

 6) [Pine Valley] has the right to test and approve the material at its own expense at our facility before it is shipped and placed. Please contact [Earthco’s sales manager] to arrange.

7) If [Pine Valley] waives its right to test and approve the material before it is shipped, Earthco Soils Inc. will not be responsible for the quality of the material once it leaves our facility.

After the topsoil was delivered and placed on the project site, water ponding occurred over the topsoil in question. Subsequent testing by Pine Valley revealed that there was substantially more clay in the topsoil than the initial test results had indicated. As a result, Pine Valley had to remove and replace the topsoil supplied by Earthco. The City subsequently levied liquidated damages against Pine Valley; Pine Valley consequently sued Earthco for damages, alleging that it did not receive topsoil consistent with the initial test results.

Decisions of the Courts Below

At trial, the key issue was whether the Exclusion Clauses were sufficiently clear and explicit to oust the implied term established by s. 14 of the Sale of Goods Act, which stipulates that where there is a contract for the sale of goods by description, then there is an implied condition that the goods will correspond with the description.

The trial judge dismissed Pine Valley’s action. He found that although Pine Valley did not get the topsoil for which it had contracted (because of the discrepancy between the topsoil that was promised and the topsoil that was delivered), the Exclusion Clauses met the requirements of an “express agreement” according to section 53 of the Sale of Goods Act, which allows parties to contract out of the implied condition under section 14. Importantly, the trial judge reached this conclusion despite the fact that the Exclusion Clauses did not explicitly mention that they were added to the contract for the purpose of contracting out of section 14 of the Sale of Goods Act; in that regard, the trial judge found that Pine Valley was an experienced purchaser of soils, such that Pine Valley’s waiver of testing meant it deliberately assumed the risk that the soil would not meet the required specifications.

On appeal, the Court of Appeal disagreed with the trial judge, and instead found that the Exclusion Clauses were not sufficiently clear to exempt Earthco from liability under section 14. In particular, the Court of Appeal identified three errors of law:

  • first, in interpreting the exclusion clauses, the trial judge failed to take into account the nature of the implied condition in s. 14, which relates to the identity of the goods rather than their quality;
  • second, the trial judge failed to properly interpret the meaning of the requirement that “explicit, clear and direct language” must be used to exclude a statutory condition; as a result, he did not give proper effect to the Exclusion Clauses’ failure to refer to the identity of the goods or to statutory conditions; and
  • third, the trial judge erred by reading the language of the Exclusion Clauses in broader terms than their actual words and, in doing so, considered the contract’s factual matrix (also known as the surrounding circumstances) beyond its permissible use.

The Court of Appeal therefore allowed the appeal. Earthco then sought and was granted leave to appeal to the Supreme Court of Canada.

The Supreme Court’s Decision

The Supreme Court rendered two judgments, with a 6-judge majority allowing the appeal and finding that the Exclusion Clauses were sufficient to oust the application of s. 14 of the Sale of Goods Act, with Côté J. writing in dissent that the Exclusion Clauses did not oust the implied term of that statutory provision.

Writing for the majority, Martin J first observed with respect to the standard of review. that the Court of Appeal was incorrect in identify the foregoing as either errors, or errors of law in particular. In doing so, the Court of Appeal sought to create general principles of law that would govern the interpretation of all exclusion clauses ousting implied conditions in a contract of sale, while also diminishing the role of the factual matrix in giving meaning to exclusion clauses (contrary to the fundamental principles of contractual interpretation set out in Sattva).

With respect to the Sale of Goods Act, the majority identified three key aspects of that legislation: fitness for purpose, merchantability, and correspondence with description, all of which address the negative effects of caveat emptor. The legislation implies these statutory protections as contractual conditions rather than warranties, which in turn gives an innocent party (in circumstances of a breach of condition) the option to either (1) treat the contract as repudiated, or (2) treat the breach of the condition as a breach of warranty and claim damages.

With respect to the condition at issue in this case – the implied condition that the goods sold by description will correspond with their description – the “description” is tied to identity and only protects those terms which identify the subject matter of the sale. In that regard, Canadian law distinguishes between traits that go to the identity of the goods (which pertains to their description), and those which go to the quality of the goods (which pertains to merchantability and fitness for purpose). The identity of a good should not be conflated with all the words used as descriptors, and instead is limited to “words whose purpose is to state or identify an essential part of the description of the goods”. In other words, quality is a matter of degree, while identity is a matter of kind.

That being said, the majority observed that the Sale of Goods Act is equally clear (at s. 53) that parties are able to contract out of these implied conditions, so long as those parties do so by “express agreement”, conduct, or usage (i.e. commercial custom). Given the nature of the Sale of Goods Act, the majority observed that it was necessary to review s. 53 of the Act alongside the relevant common law on contracts in order to determine whether an “express agreement” was reached in this case.

In that regard, the majority concluded that there were no special interpretive considerations that applied by virtue of the Sale of Goods Act applying, and rejected the proposition that Earthco needed to have explicitly excluded liability for conditions as to the identity of the soil. Furthermore, the term “express” does not refer to what the agreement must say, or to the required level of clarity of specific contractual clauses. Section 53 refers to an “express agreement”, and not the use of “express language ”, as a result of which it does not constitute a qualitative requirement about the specificity of language. Rather, the majority concluded that it will be “express” if it is made in distinct and explicit terms and not left to inference.

Instead, determining what qualifies as an “express agreement” is informed by the basic principles of contractual interpretation, such as those set out in Sattva and the law concerning exclusion clauses, as set out in Tercon, with the paramount consideration being the ascertaining of the parties’ objective intentions. This was particular true in circumstances where s. 57(1) of the Sale of Goods Act explicitly stipulates that common law rules continue to apply to the sale of goods, except in so far as those rules are inconsistent with the express provisions of the Sale of Goods Act.

To that end, the majority observed that although the law recognizes a difference between quality of goods and their identity, courts should not impose an unrealistic burden on contracting parties to be aware of, and fully understand, the legal characterization and consequences of the words they use to express themselves, although in some circumstances, sophisticated parties negotiating through lawyers may know all about the legal difference between conditions and warranties.

Therefore, in the particular context of this case, the majority concluded that although the Exclusion Clauses only explicitly referred to Pine Valley assuming responsibility for the quality of the soil, the surrounding circumstances of the parties’ agreement – including the fact that Pine Valley was an experienced commercial buyer of soil, and that the parties made bespoke edits to the contract without the input of legal professionals. As a result, the Exclusion Clauses applied in this case, and Earthco was not liable to Pine Valley for the incompetent topsoil.

In dissent, Côté J differed from the majority in concluding that the Exclusion Clauses were not sufficiently clear and unambiguous to exclude liability with respect to the identity of the goods. In that regard, the dissent the word “quality” in the Exclusion Clauses could not be taken to include both quality and identity, as this would change the word from its ordinary and grammatical meaning.

In addition, with respect to the meaning of the term “express agreement”, the dissent placed greater emphasis on the statutory interpretation of the term (as opposed to the majority’s focus on contractual interpretation), observing that the dominant approach to  statutory interpretation is to interpret words in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the applicable Act, the object of the Act, and the intention of the legislature. In circumstances where the words of a provision are “precise and unequivocal”, the ordinary meaning of the words plays a dominant role in the interpretive process. Accordingly, and although not explicitly stated, the dissent appears to have placed greater emphasis on plain and ordinary meaning of the relevant words than the majority. On that basis, the dissent would have dismissed the appeal.


Earthco is necessary reading for those practicing in the construction industry, given the extent to which the sale of goods makes up a critical component of all construction projects. Needless to say, it is therefore highly relevant.

On the one hand, the result in Earthco is to some extent unsurprising as an issue of contractual interpretation, in the sense that the majority reaffirmed the primacy of Sattva and its subsequent case law. In that regard, the Court was consistent with other recent cases in which it was asked to consider the applicable rules of interpretation in specific contexts, such as its review of the law on releases in Corner Brook (City) v. Bailey. Accordingly, Earthco simply follows suit in that sense.

On the other hand, however, this conclusion also understates the extent to which the majority and dissenting decisions offer several interesting points to consider.

First, Earthco offers an intriguing example of the difficulties in determining the appropriate balance between contractual interpretation and statutory interpretation, where the contract in question is governed by a specific piece of legislation. This was particular true in the sale of goods context since, as both the majority and dissent observed, the Sale of Goods Act specifically incorporates the common law of contracts by reference. As noted above, the majority and dissent appeared to differ as to which of the two modes of interpretation should take primacy over the other in interpreting s. 14 of the Sale of Goods Act, with the majority prioritizing contractual interpretation and the dissent prioritizing statutory interpretation.

Second, the particulars of Earthco appear to have made it especially challenging to draw a clear distinction between the identity of the goods and their quality, given that the goods (i.e. the topsoil) were required to be composed of a specific collection of soils. In circumstances where goods are a composite of several different components, it is arguably unclear from Earthco whether there is any bright-line rule or guidance as to when a discrepancy between the goods as described versus the goods received will go to the very essence of the goods and rise to the level of incorrect identity. As always, best practice will be to articulate this point clearly in the terms of the relevant contract, but for borderline cases, it appears that it may remain a challenge.

Finally, with respect to the majority’s interpretation of the term “quality” as it appears in s. 14 of the Sale of Goods Act, this may also present a challenge insofar as there may be some circumstances in which it is unclear on the facts of a given case whether the contracting parties are referring to “quality” in the broad and general sense (i.e. potentially inclusive of identity), or whether they are using the term in the technical sense contemplated by the legislation (i.e. distinct from identity). It is plausible that parties without legal counsel might have the technical definition in mind when negotiation a contract for the sale of goods, just as it is plausible that parties with legal counsel advising them on the negotiation of such a contract might not appreciate the technical definition – through inadvertence or otherwise – and have in their contemplation the more expansive, general concept of “quality”. As the majority explained, it will depend upon the surrounding circumstances of each case.

Ultimately, parties in the construction industry will need to be especially mindful of the Sale of Goods Act, and particularly the distinction between quality and identity, when negotiating contracts for the sale of goods (along with any exclusionary clauses contained within such contracts). Because the interpretation of these issues turns so heavily upon the surrounding circumstances at the time of contract formation, parties will be well advised to ensure that the surrounding circumstances weigh in their favour.

MGW-Homes Design Inc. v Pasqualino: The Proper Appeal Route for Judgments Involving Statutory Adjudication

In the recent decision of MGW-Homes Design Inc. v Pasqualino, the Court of Appeal for Ontario was presented with the novel question of the appropriate appeal route for orders vacating a writ of enforcement issued in connection with an adjudicator’s determination under the Construction Act.

In keeping with the relevant case law, the Court adopted a broad interpretation of the term “judgement” under s. 71 of the Construction Act in concluding that the appeal properly lay before the Divisional Court.

Below, we review the decision and consider its implications.      


MGW-Homes Design Inc. (“MGW“) supplied labour and materials for Mr. Pasqualino’s home renovation, after which a dispute arose.[1] MGW consequently registered a lien and issued a statement of claim, which Mr. Pasqualino then vacated, followed by the delivery of a statement of defence and counterclaim.[2]

MGW initiate statutory adjudication under the Construction Act[3], which ultimately resulted in a determination that Mr. Pasqualino was required to pay MGW.[4] He did not pay, but instead sought leave for judicial review of the determination, which the Superior Court denied.[5]

As readers will appreciate, under section 13.15 of the Construction Act, the adjudicator’s decision is binding on the parties until a court, an arbitrator, or a written agreement between the parties confirms or changes the adjudicator’s determination. MGW accordingly obtained a writ of enforcement for the determination, by filing the determination with the court within the statutory deadline, but in doing so, MGW failed to give notice of the filing to Mr. Pasqualino as required under section 13.20(3) of the Construction Act.[6]

On the basis that MGW failed to provide notice, Mr. Pasqualino brought a motion to vacate the writ.[7] Mr. Pasqualino was successful on the motion, as the motion judge found that the “failure to give notice of filing the adjudicator’s determination with the court was fatal to the writ”.[8] The writ was ordered to be set aside, and the motion judge barred MGW from taking any steps to enforce the adjudicator’s order, including re-filing any writs of execution, MGW was also ordered to pay costs to Mr. Pasqualino.[9]

MGW appealed the orders given by the motion judge. Given that the parties had identified a preliminary issue as to the proper appeal route, MGW perfected its appeal in both the Divisional Court and the Court of Appeal.

This case comment addresses the Court of Appeal decision.

The Court of Appeal’s Decision

On appeal to the Court of Appeal, and although MGW raised substantive arguments, the Court addressed only the preliminary issue related to the proper route of appeal given that it was, in the view of the Court, dispositive of the entire appeal.

In brief, the issue was whether the order vacating the writ of enforcement fell within the definition of a “judgement” under section 71 of the Construction Act; as if it did, then the appeal was properly before the Divisional Court rather than the Court of Appeal.

Mr. Pasqualino raised several arguments in support of the proposition that the Court of Appeal was the correct venue, including: (1) that the motion judge’s order was a “final order” because it extinguished a substantive right, thus bringing it within the scope of 6(1)(b) of the Courts of Justice Act; and (2) that section 71(1) of the Construction Act is an exception to the normal appeal process under the Courts of Justice Act, and that it should therefore be interpreted narrowly.[10]

Regarding the first point, the Court concluded (by reference to prior case law) that the Construction Act’s appeal provision was “a provision under a special act dealing with construction liens, [and therefore] takes precedence over the appeal provisions in the Courts of Justice Act, which is a general act dealing with appeals from the final order of a superior court judge”. Although not explicitly stated, this appears to have also implicitly referred to s. 6(1)(b)(ii) of the Courts of Justice Act, which creates an exception for “an order from which an appeal lies to the Divisional Court under another Act” such as the Construction Act.

Regarding the latter point, the Court disagreed, finding that a narrow interpretation would “undermine the purpose of efficiency and would be contrary to case law interpreting appeal provisions”.[11] Instead, the Court referred to a line of case law interpreting the term “judgement” broadly; in both Bird Construction Co. v. C.S. Yachts Ltd. and Villa Verde L.M. Masonry Ltd. v Pier One Masonry Inc., the Court confirmed that “provisions under a special act dealing with construction liens, takes precedence over the appeal provisions in the Courts of Justice Act“.[12]

Furthermore, those cases interpreted “judgment” under s. 71 broadly, without limiting the scope of that interpretation to lien claims.[13] Rather, that case law established (among other things) that “judgment” could include trust claims, and that an order dismissing an action after the plaintiff’s claim for a lien had expired constituted a “judgment” notwithstanding the fact that it was referred to as an order, and notwithstanding the fact that it was made without a trial having taken place.

This was best encapsulated in TRS Components Ltd. v. Devlan Construction Ltd., where the Court of Appeal confirmed a broad definition of “judgement” under the Construction Lien Act:

In our view, “judgment … under this Act” in s. 71 includes a judgment granted in an action commenced and continued under Part VIII of the Act, including any counterclaim, crossclaim or third party claim, unless the action or any part of the action is removed from the construction lien proceeding, and directed to proceed under the Rules.[14]

Thus, given the Construction Act’s underlying objective of efficiency, along with the trend of interpreting “judgement” broadly, the Court of Appeal concluded that there was no clear reason for deviating from the norm established by prior case law.

The Court of Appeal therefore held that “adjudication under part II.1 of the Construction Act is a ‘proceeding under the Act’ and the motion judge’s order on the enforceability of the adjudicator’s determination is a ‘judgement…under [the] Act’”[15], such that the appeal properly lay before the Divisional Court.


Given the relative youth of statutory adjudication in Ontario, court decisions on the subject remain relatively rare, and the relevant body of case law therefore remains somewhat sparse.

Consequently, court decisions addressing adjudication are highly valuable; MGW is no different in that regard (as was the case with the Superior Court’s decision when it was released in 2022[16]).

It is perhaps unsurprising, and made good sense, for the Court to continue the trend of interpreting the term “judgement” broadly with respect to procedures available under the Construction Act, in that it avoids the confusion that might arise from different appeal routes for different procedures in under the Construction Act.  This is equally true of the underlying goal of efficiency shared by statutory adjudication and the Construction Act more broadly.

That being said, it is perhaps understandable to some extent why parties might, at first blush, view the proper interpretation of “judgment” under the Construction Act differently. Specifically, the term “judgment” is undefined in the Construction Act, as a result of which the Court turned to the existing case law interpreting that term. However, Part VII of the Construction Act – which as the Court observed, applies to lien claims – stipulates at s. 50(2) that the Courts of Justice Act and the Rules of Civil Procedure apply to lien actions, except to the extent those former two are inconsistent with the Construction Act.

Given that the Construction Act does not define “judgment”, it may very well be normal for parties to in turn refer to the Courts of Justice Act for the definition of “judgment”, which that legislation defines as “a decision that finally disposes of an application or action on its merits and includes a judgment entered in consequence of the default of a party” (emphasis added). Arguably, this may have been an alternative means of distinguishing the case law interpreting “judgment” in the context of lien actions, although it is debatable whether the Courts of Justice Act being “inconsistent with” the Construction Act includes the case law under the Construction Act.

In any event, as the Court of Appeal and MGW rightly observed, this would not apply to breach of trust claims (among other things), making this point somewhat academic.

Accordingly, on balance, the decision in MGW is a welcome one. We look forward to seeing how the case law on statutory adjudication continues to develop.

Samantha Spagnol, summer student, assisted with the preparation of this article.


[1] MGW-Homes Design Inc v Pasqualino, 2024 ONCA 422, at para 5 [MGW].

[2] Ibid.

[3] Ibid at para 6.

[4] Ibid at para 9.

[5] Pasqualino v. MGW-Homes Design Inc, 2022 ONSC 5632 [Pasqualino].

[6] MGW, supra note 1 at para 10.

[7] Ibid at para 11.

[8] Ibid at para 12.

[9] Ibid.

[10] Ibid at para 24.

[11] Ibid.

[12] Bird Construction Co Ltd v CS Yachts Ltd and Tennyson, 38 OAC 147 at para 9 [Bird Construction]; Villa Verde LM Masonry Ltd v Pier One Masonry Inc, 2001 CanLII 7060 (ONCA) at para 9 [Villa Verde].

[13] Supra note 1 at 26.

[14] TRS Components Ltd v Devlan Construction Ltd, 2015 ONCA 294 at para 18 [TRS].

[15] Ibid at para 36.

[16] Pasqualino, supra note 5.

TruGrp Inc. v. Karmina Holdings Inc. Re-evaluating Standard Language in Letters of Credit for Lien Security

In the construction industry, letters of credit serve a vital function as project security and as a means of securing lien claims, in both cases facilitating the flow of funds. In the context of lien claims specifically, their longstanding use has led to standard language that is employed by parties vacating liens.

The language used in such instruments is arguably so standard and so commonly understood, that it might even be said to be immune from scrutiny – or, if not immune, highly resistant due to common understanding and use. Notwithstanding one’s expectation, however, they would be wrong. Specifically, and interestingly, the common language utilized in standard form lien security letters of credit has recently come under scrutiny in a Superior Court of Ontario case named TruGrp Inc. v. Karmina Holdings Inc.,[1] (“TruGrp”).

In TruGrp, the plaintiff has raised the issue of whether the standard language used in a relatively basic letter of credit (issued by a well-known banking institution) was, in fact, consistent with the applicable legislative framework governing letters of credit employed for vacating liens. The Court provided a partial decision in TruGrp and below, we consider the implications of this decision and how it may impact the use of letters of credit in this context.


TruGrp Inc. (“TruGrp”) (a subcontractor specializing in building restoration and maintenance) moved to set aside an order obtained by Karmina Holdings Inc. (“Karmina”) that vacated TruGrp’s two claims for lien and certificate of action, which motion was initially decided on an ex parte basis. The order to vacate utilized a letter of credit from the Bank of Montreal (“BMO”) as security for TruGrp’s liens.

On the set-aside motion, TruGrp expressed concerns over the language in the approved security – i.e., a letter of credit – suggesting that the letter might not constitute sufficient security for its liens. This concern was allegedly supported by an email from the Accountant of the Superior Court of Justice (the “Accountant”), in which the Accountant expressed a similar opinion (as detailed below). In the alternative, TruGrp requested direction from the Court in respect of how to address the Accountant’s concerns.[2]

Karmina, the registered owner of the liened property in Hamilton, opposed the motion. It argued that TruGrp misunderstood the nature of irrevocable letters of credit, which have been commonly used as lien security for decades[3] (a point these authors note is relatively uncontroversial).

The core dispute was therefore whether the form of the letter of credit was consistent with certain provisions of the Construction Act,[4] and with the Accountant’s role as “custodian” as specified in O Reg 191/95 under the Public Guardian and Trustee Act.[5]

Specifically, the common form of the letter of credit allows the issuing bank to opt out of renewing the credit, provided that they must (1) notify the Accountant at least thirty days in advance and (2) substitute a bank draft for the amount of the credit minus any payments already made. TruGrp argued that this provision introduced a contingency in the security that conflicted with the Construction Act, and imposed inappropriate duties on the Accountant, contrary to the Public Guardian and Trustee Act. Karmina disagreed, and presented a series of procedural challenges to the motion.

The Superior Court’s Decision

The core of TruGrp’s motion centered on the terms related to expiry and renewal in the letter of credit, previously approved by the Court as adequate security for TruGrp’s lien claims in respect of Karmina’s motion to vacate.

The letter stipulated that it would expire on July 6, 2024, but included provisions for automatic annual renewal unless BMO provided a 30-day prior notice of non-renewal to the Accountant, accompanied by a bank draft for the net remaining amount of the lien, effectively ensuring continuity of security.

The letter of credit’s stipulations included three pertinent factors: (i) its expiry date, (ii) the condition of automatic renewal for successive one-year periods, and (iii) BMO’s prerogative to cease renewal by notifying the Accountant and submitting a substitute bank draft for the remaining balance.[6] However, an email from the Accountant indicated that any replacement bank draft would require a court order pursuant to subrule 72.03(2) of the Rules (which provision governs how funds or securities held by the Accountant are managed and released).[7]

TruGrp argued that this requirement to seek a court order under 72.03(2) created a potential gap in security if BMO opted not to renew the letter of credit and the Accountant subsequently refused to accept the replacement bank draft without a court order, leading to a scenario where there could be no enforceable security for TruGrp’s lien.

This concern was heightened by Karmina’s ongoing efforts to sell the liened property, which could have resulted in TruGrp losing its secured position vis-à-vis the property, a scenario that would undermine the intent of the Construction Act to protect lien holders.[8]

Procedural context of motion

For decades, Ontario courts have accepted either lien bonds or letters of credit as “security” (as that term appears in section 44(1) of the Construction Act), despite that term not being defined in the Construction Act. Lien bonds (which were not the form of security in the present case) are specifically addressed in O Reg 303/18 under the Construction Act, prescribing Form 21 as the bond form, which, although outdated in referring to the “Accountant of the Ontario Court,” still effectively binds the principal and the surety in an obligation to the Accountant to cover any payment deficiencies on liens and associated costs.[9]

Conversely, while no specific form for letters of credit is prescribed under section 44, they are still viewed as acceptable security, especially when such letters of credit adhere to international commercial conventions as outlined in section 44(5.1) of the Act.[10] The Court in TruGrp found that the language in the BMO letter of credit was consistent with the industry standard. In the motion at hand, the Court in fact acknowledged its previous endorsement of that form of letter of credit in Sundance Development Corporation v. Islington Chauncey Residence Corp.[11]

During Karmina’s initial ex parte motion to vacate, the Court expressed reservations about the letter of credit proposed by Karmina, with respect to (1) the vagueness of its requirements regarding the Accountant’s actions in drawing on the letter and (2) its failure to append the international commercial convention to which it referred. These issues were resolved with an amended letter from BMO, leading to its approval and the subsequent vacatur of the two TruGrp liens.[12]

Following receipt of the order to vacate, Karmina took the necessary steps to clear the lien claims from the property title, and TruGrp was duly informed through delivery of the Court’s issued and entered order, and the Accountant’s receipt of the posted letter of credit.

Despite this, TruGrp took steps to contest the sufficiency of the letter as security before and after the order (which resulted, for example, in the email from the Accountant). Their subsequent direct communications with the Accountant confirmed the need for a court order to modify or release the letter of credit, prompting the motion at issue in this case.[13]

As of the date of the motion, TruGrp’s liens were attached to the BMO letter of credit maintained by the Accountant, consistent with section 44(6) of the Construction Act.

Procedural challenges to motion

Karmina raised five procedural challenges against TruGrp’s motion: (1) the motion’s issues were res judicata and an abuse of process; (2) TruGrp failed to present any new evidence that could have altered the initial ruling; (3) TruGrp did not file the motion promptly, causing prejudice to Karmina; (4) the motion’s request to reinstate the lien claims could disrupt public policy by creating turmoil in the construction bar; and (5) the issue was moot, such that the Court should not hear the motion.[14]

Addressing the first challenge, the Court found that the motion’s issues were neither res judicata nor an abuse of process. The decision to vacate TruGrp’s lien claims was not based on a contested hearing but on an ex parte motion, making the case law cited by Karmina distinguishable. TruGrp directly challenged the vacating order under specific procedural rules, and did not make a collateral attack.[15]

With respect to the second challenge, while TruGrp’s evidence regarding the Accountant’s position on the letter of credit may have been ambiguous and hearsay, TruGrp’s arguments about the inconsistencies between the letter of credit’s language and statutory obligations were new and relevant, not presented during the original motion, such that this challenge was also dismissed by the Court.[16]

Regarding the third challenge, despite Karmina’s delay claim, the Court concluded the motion was filed in a reasonably timely manner, considering TruGrp had signaled its intention to challenge in a timely manner and had been actively communicating with the Accountant and Karmina about the issue.[17]

Interestingly, on the fourth challenge, i.e., public policy concerns, the Court found that the potential public policy concerns of overturning the vacating order were outweighed by the need to review whether the approved form of security (1) complied with the Construction Act and (2) did not improperly burden the Accountant.[18]

Regarding the fifth and final challenge concerning mootness, the Court did not find the motion moot. Rather, it found that the dispute over the letter of credit’s renewal conditions remained relevant and tangible, affecting ongoing security practices under the Construction Act.[19]

Accordingly, considering the totality of the circumstances – including the adversarial nature of the ongoing dispute over lien security, judicial economy, and the court’s role in ensuring legal compliance – the Court decided to hear the motion. This decision aligned with the Court’s responsibility to address significant legal issues when they arise, ensuring that relevant practices adhere to statutory frameworks and the underlying intent of the Construction Act. Thus, the Court dismissed Karmina’s procedural objections and allowed the motion to proceed on its merits, focusing on the sufficiency and legality of the form of the letter of credit.

Sufficiency of Letters of Credit

The core issue was whether BMO’s letter of credit provided sufficient security under section 44 of the Construction Act, and whether the Court’s approval of this security conflicted with the Accountant’s statutory role as set out in the Public Guardian and Trustee Act.

Both parties acknowledged the absence of case law specifically addressing the form of letter of credit commonly used as lien security, with only two cases being partially relevant, but neither addressing of them the standard renewal and expiry provisions directly.

TruGrp contended that the typical form of the letter of credit, used by BMO in the letter of credit at issue in this motion, was an uncertain security form contrary to the intent of the Construction Act, which aims for consistent and reliable security until a lien is finally resolved. TruGrp argued that the renewal terms introduced uncertainties harmful to lien claimants, potentially leaving them without continuous security. Further, TruGrp argued that the obligations imposed on the Accountant by the letter of credit conflicted with the statutory definition of the Accountant’s role as merely a “custodian,” which term assumed that the Accountant would not assume any active duties unless specified by a court order.[20]

Karmina, on the other hand, defended the Court’s approval of the letter of credit, emphasizing decades of precedent without any issue arising, and arguing for a broader interpretation of “custodian” that would include managing the securities actively, not just passively holding them.

Given the implications for the Accountant’s role and the novelty of the legal issues presented, the Court found it inappropriate to decide the motion at hand without the Accountant’s input. The Accountant was not initially notified of the motion, with its absence becoming notable given its central role in the dispute. Further, BMO was also to be given notice of the motion, due to its direct involvement as the issuer of the letter of credit.[21]

Karmina suggested dismissing the motion to allow for a re-filing with proper notices, but the Court concluded that approach would be inefficient given the existing proceedings and submissions. Instead, the Court elected to adjourn the motion indefinitely until the Accountant and BMO could provide their positions, and a further hearing could be scheduled if necessary.

The Court therefore ordered that both the Accountant and BMO be served with motion records and the motion reasons within fourteen days, with instructions for arranging a case conference if they chose to engage. This was to ensure a comprehensive review and fair opportunity for all affected parties to contribute to the resolution of this matter.

If neither the Accountant nor BMO take a position, the Court noted that it would proceed to decide based on the existing submissions.


TruGrp v. Karmina presents an interesting and somewhat atypical issue regarding the use of relatively standard form letters of credit as lien security. This dispute accentuates the critical nature of understanding the legal and procedural frameworks that govern financial securities in construction projects by highlighting the complexities involved when traditional financial instruments such as letters of credit intersect with specific statutory roles and requirements, such as those of the Accountant in lien matters under the Public Guardian and Trustee Act.

For industry stakeholders, this case is also a reminder of the importance of ensuring that financial securities are drafted to meet the specific requirements of governing legislation, as well as its underlying policy rationale(s). The potential for a letter of credit to fail in providing sufficient security due to its terms not aligning with statutory duties (even in circumstances where already accepted by the Court in one sense) could lead to significant financial exposure and operational risks.

The consequences of such a failure are potentially severe. Financially, if a letter of credit is deemed insufficient, the party relying on it for security (typically the subcontractor or supplier) faces the risk of non-payment and a lack of collateral on which to rely (e.g., the original liened property). This scenario can escalate into cash flow problems, delayed project timelines, and, in a worst-case scenario, insolvency if the funds tied to the project are significant relative to the claimant’s operational capacity.

TruGrp also underlines a predicament for intermediate parties, such as general contractors, who depend on the reliability of these financial instruments to fulfill their contractual duties to vacate liens. As readers will appreciate, general contractors often rely on letters of credit to vacate liens and satisfy their obligations to project owners. If these instruments are found to be unenforceable due to non-compliance with statutory requirements, general contractors may find themselves without reliable security – – particularly some contractors who cannot, for example, access a lien bond for one reason or another. This exposure could leave them vulnerable to subsequent claims from subcontractors for non-payment, and breach of contract claims from property owners due to unvacated liens.

Moreover, there is a broader industry impact to consider. Repeated instances where letters of credit fail to align with statutory requirements could lead to a loss of trust in these instruments as reliable forms of financial security in construction projects altogether. This may force industry participants to favour alternative forms of security and could prompt regulatory changes to better define the use of such financial tools.

We await with interest to see if the Accountant and/or BMO participate in the motion in question, and what its ultimate outcome will be with respect to the appropriate language for use in letters of credit as lien security.

[1] 2024 ONSC 2165 (CanLII) (“TruGrp v Karmina”).

[2]TruGrp v Karmina at para 1.

[3] TruGrp v Karmina at para 2.

[4] RSO 1990, c C.30.

[5] RSO 1990, c P.51.

[6] TruGrp v Karmina at para 11.

[7] TruGrp v Karmina at para 12.

[8] TruGrp v Karmina at para 13.

[9] TruGrp v Karmina at paras 15-16.

[10] Typically, letters of credit in Ontario will refer to the ICC Uniform Customs and Practice for Documentary Credits (known as “UCP 600”). In that regard, Bruce Reynolds’ and Sharon Vogel’s seminal report on the Construction Lien Act, as it then was (Striking the Balance – available here) recommended that letters of credit that reference international commercial conventions should be accepted, provided that (among other things) the letter is unconditional and that the applicable convention is written into the terms of the letter of credit (see pg. 280).

[11] 2021 ONSC 241.

[12] TruGrp v Karmina at para 20.

[13] TruGrp v Karmina at para 23.

[14] TruGrp v Karmina at para 25.

[15] TruGrp v Karmina at paras 26-27.

[16] TruGrp v Karmina at paras 28-29.

[17] TruGrp v Karmina at para 30-32.

[18] Ibid at para 33.

[19] Ibid at paras 34-36.

[20] Ibid at paras 45-48.

[21] Ibid at paras 56-58.

Campbell v. Toronto Standard Condominium Corporation No. 2600: Constructive Fraud is Not Fraud for the Purpose of Set-Aside Applications

In Campbell v. Toronto Standard Condominium Corporation No. 2600, 2024 ONCA 218, (“Campbell“) the Court of Appeal for Ontario considered the proper interpretation of the term “fraud” as it appears in the appeals and set-aside provisions of the Arbitration Act, 1991, S.O. 1991, c. 17 (the “Arbitration Act”), finding that the term – which is undefined in that legislation – does not encompass constructive fraud. Below, we review the takeaways from Campbell with respect to the meaning of fraud and the circumstances that permit an application to set aside an arbitral award.

Factual Background

From December 2018 to February 2021, a dispute arose between the owners of a condominium unit in a particular building (identified as the “Respondents” in this matter) and the condominium corporation for that building, Toronto Standard Condominium Corporation No. 2600 (the “Condo Corporation“). The parties’ dispute originated from complaints received by the Condo Corporation about excessive noise from the Respondents’ unit, and subsequently regarding the use of the unit as a short-term rental.

The parties initially agreed to proceed with mediation, but ultimately no mediation occurred because the Respondents withdrew their consent. In October 2020, the Condo Corporation wrote a cease and desist letter to the respondents demanding that they cease using their unit for short-term rentals. A month later, the Condo Corporation delivered a notice of arbitration pursuant to the Condo Corporation’s declaration. By February 2021, the Respondents were in the process of selling the unit – which would effectively resolve nearly all of the parties’ substantive issues – but there remained a live issue as to whether the Condo Corporation was entitled to its legal costs incurred in pursuing the Respondents.

On March 4, 2021 – the same day that the Respondents signed a conditional agreement for the sale of the unit – the parties entered into an arbitration agreement for the resolution of (1) the alleged contraventions of the rules regarding short-term rentals, and (2) the issue of all costs as incurred by the parties. The arbitration agreement stipulated that there would be no right of appeal, and specified that the parties agreed not to appeal to attempt to set aside any aspect of the Arbitration award (although not specifically addressed by the Court of Appeal in its decision, this latter agreement was obviously unenforceable given that the Arbitration Act’s set-aside provisions are not waivable).

The arbitration was completed in writing by August 2021, and the arbitrator rendered his decision on September 6, 2021, awarding the Condo Corporation $30,641.72 in costs on a partial indemnity basis.

The Application Judge’s Decision

57 days after the arbitrator delivered his decision, the Respondents commenced a set-aside application in the Superior Court under Section 46(1) of the Arbitration Act to set aside the award on the basis of fraud by the Condo Corporation, and constructive fraud by the arbitrator. Notably, this was despite the fact that the deadline for commencing a set-aside application, which is 30 calendar days from the date of delivery of the arbitrator’s award, had passed. That being said, this statutory time limit also contains an exception for set-aside applications based on allegations of corruption or fraud.

Sections 46(1)(9) and Section 47 of the Arbitration Act provide in relevant part as follows:
46 (1) On a party’s application, the court may set aside an award on any of the following grounds:
  1. The award was obtained by fraud.
47 (1) An appeal of an award or an application to set aside an award shall be commenced within thirty days after the appellant or applicant receives the award, correction, explanation, change or statement of reasons on which the appeal or application is based.
(2) Subsection (1) does not apply if the appellant or applicant alleges corruption or fraud. [emphasis added]

Although the application judge concluded that there was no actual fraud in this case, he concluded that the arbitral award was obtained by constructive fraud, as the arbitrator had adjudicated issues beyond those set out in the arbitration agreement.

In that regard, the application judge concluded that there was no fraud in the well-established legal definition of “deceit and dishonesty”.[1] By contrast, he found that there was constructive fraud given that this term ” does not necessarily involve dishonesty or moral fraud in the ordinary sense, but a breach of [the] sort that would be enforced by a court of conscience”, but rather focuses more on unfairness than deceit.[2]

On the facts of this case, the application judge concluded that the arbitrator had adjudicated beyond the scope of the parties’ arbitration agreement by looking at substantive issues beyond the narrow issue of costs. Although such a conclusion would normally be considered to raise a jurisdictional issue, and potentially an issue as to deprivation of natural justice, the application judge found that it amounted to constructive fraud insofar as it was “‘unconscionable and unfair’ that the Condo Corporation ‘lured their legal counsel, and the Arbitrator’ into adjudicating issues beyond those of costs” by delving into substantive issues beyond costs.[3]

Accordingly, the application judge concluded that  the term “fraud” as it appears in the Arbitration Act includes constructive fraud, and set aside the award.

The Court of Appeal’s decision

On appeal, the Condo Corporation took the position that the application judge had erred in the interpretation of the term “fraud”, insofar as he concluded that it encompasses constructive fraud. The Court of Appeal allowed the appeal, concluding that the application judge had erred in expanding the definition of “fraud” to include constructive fraud.

In that regard, the Court of Appeal noted that while the arbitrator did determine substantive issues, it was both “appropriate and necessary for him to consider factors such as the history and the nature of the complaints, the length of the proceedings, and the reasonableness of the parties’ conduct in exercising his cost discretion” pursuant to Section 54 of the Arbitration Act.[4]

With respect to whether the term “fraud” should be construed so as to encompass constructive fraud, the Court of Appeal observed that because the term “fraud” has an established legal meaning at common law, it was incumbent upon the legislature to use clear language in order to displace this well-understood meaning. In other words, if the legislature had intended to expand the meaning of “fraud” in the Act in order to include constructive fraud, then the legislature would have made this explicit in the language of the Act.[5] It did not, meaning that as a matter of statutory interpretation, “fraud” could not include constructive fraud.

Furthermore, the Court of Appeal observed that expanding the meaning of “fraud” to include constructive fraud would be at odds with the relevant case law on the Arbitration Act’s set-aside provisions, which are not intended as an alternative appeal route. To allow such an interpretation would risk undermining the principles of efficiency and finality that have been consistently emphasized by the case law. Therefore, this too was a basis upon which to reject the inclusion of constructive fraud within the concept of “fraud”.

Finally, the Court of Appeal noted from a policy perspective, the Arbitration Act clearly intended that there should be limited court intervention in arbitral matters. To the extent that an arbitration agreement allows for any appeal rights, courts are required to avoid strategic attempts to broaden the scope of the appeal by turning questions of mixed fact and law into questions of law, and are required to guard against strategic attempts to enlarge the scope of an appeal beyond what the parties have agreed to.

Bearing all of the foregoing in mind, the Court of Appeal concluded that “fraud” should not be interpreted to include constructive fraud, and that in reality, the Respondents in this case were simply seeking to circumvent the time limit for a set-aside application by alleging fraud and constructive fraud. Accordingly, the Court of Appeal allowed the appeal, restoring the arbitral award.


Campbell is a useful reaffirmation of the basic principles of arbitration, including most prominently that court intervention is intended to be limited. In that regard, the Court’s decision not to include constructive fraud within the concept of “fraud” under Ontario’s domestic arbitration legislation is a positive step, insofar as the alternative would appear far less desirable. Notwithstanding that the facts of this case were arguably somewhat unusual, it is not difficult to envisage an alternate outcome in which parties would exploit the inclusion of constructive fraud as a means of avoiding the Arbitration Act’s set-aside deadline in order to draw out dispute resolution even further. This is particularly true in circumstances where Sections 46(1)(9) and Section 47 of the legislation do not provide a deadline for bringing applications based on fraud, meaning that the standard two-year limitation period would presumably apply.

In the circumstances, the Court of Appeal has rightly continued to uphold arbitration as a means of private dispute resolution and not simply a dress rehearsal for court proceedings.

[1] Campbell v. Toronto Standard Condominium Corporation No. 2600, 2024 ONCA 218, at para 24 [“Campbell“].

[2] Campbell, at para 24.

[3] Campbell  at para 24.

[4] Campbell, at para 61.

[5] Campbell, at para 54.

Eurobank Ergasias S.A. v. Bombardier Inc: Letters of Credit and the Fraud of Third Parties


Eurobank Ergasias S.A. v Bombardier Inc is an important decision of the Supreme Court of Canada addressing letters of credit. In this decision, the Court has provided guidance on the relationship between the autonomy principle and the fraud exception as these principles apply to letters of credit in circumstances where an issuing bank is asked to honour a demand for payment in the face of fraudulent conduct by a third party.


The underlying dispute involved two contracts between the Hellenic Ministry of Defense, or “HMOD” (as purchaser), and Bombardier Inc. (as seller). The first contract was a procurement agreement for the purchase of aircrafts; the second agreement was an offsets contract, which stipulated that Bombardier would subcontract some of its work to Greek companies, failing which it would be liable to pay liquidated damages to HMOD.[1] Disputes arising from the offsets contract were to be settled pursuant to the rules of the International Chamber of Commerce (the “ICC”).[2]

Payment of the liquidated damages was guaranteed by a letter of credit issued by a predecessor company of Eurobank Ergasias S.A., a Greek bank (“Eurobank”), in favour of HMOD (the “Greek Letter of Guarantee”), which letter was governed by Greek law.[3] Subsequently, the National Bank of Canada issued a second letter of credit in favour of Eurobank, ensuring reimbursement for any amounts Eurobank might need to pay HMOD under the Greek Letter of Guarantee (the “Canadian Letter of Counter-Guarantee”).[4] This letter of guarantee was governed by Quebec law.

Ultimately, Bombardier determined that it could not satisfy its subcontracting obligations because of an insufficient number of available and qualified Greek companies. As a result, Bombardier claimed that it should not be liable for liquidated damages; HMOD disagreed. The parties therefore initiated ICC-administered arbitration proceedings. After the arbitration had begun, HMOD formally undertook to Bombardier and the arbitral tribunal not to demand payment under the Greek Letter of Guarantee for as long as the arbitration remained ongoing.

Despite its undertaking, HMOD delivered multiple demands to Eurobank under the Greek Letter of Guarantee prior to the tribunal’s final award.[5] In response, Bombardier obtained a procedural order from the tribunal ordering HMOD to abstain from demanding payment under the Greek Letter of Guarantee. Bombardier then obtained an injunction from the Superior Court of Quebec to prevent payment under the Greek Letter of Guarantee and the Canadian Letter of Counter-Guarantee until the final award was issued, because it was not sure whether HMOD would comply with the procedural order.

Nevertheless, HMOD continued to demand payment. In the days prior to the issuance of the tribunal’s final award, HMOD delivered a further demand to Eurobank in which it advised that if Eurobank failed to pay HMOD within one day, then the Greek state would pursue civil and criminal measures against the responsible officers and employees of Eurobank. One day later, Eurobank paid HMOD under the Greek Letter of Guarantee, and then sought reimbursement from the National Bank of Canada under the Canadian Letter of Counter-Guarantee.[6]

The tribunal’s final award nullified the offsets contract on the basis that it violated European Union law, as a result of which the liquidated damages provisions were void.[7] Subsequently, Eurobank initiated proceedings in Greek courts to recover the funds paid to HMOD, but was unsuccessful.[8] In brief, the Greek courts ruled that HMOD’s actions did not constitute fraud under Greek law.

Meanwhile, in the Quebec courts, Bombardier sought to prevent the National Bank of Canada from paying Eurobank under the Canadian Letter of Counter-Guarantee, citing the fraud exception.[9] The trial judge determined that HMOD’s conduct in obtaining payment under the Greek Letter of Guarantee was fraudulent, and Eurobank’s awareness of this fraud (which the trial judge found as a fact) rendered its demand for payment under the Canadian Letter of Counter-Guarantee fraudulent as well.[10] Consequently, the trial judge enjoined the National Bank of Canada from making any payments to HMOD under the Canadian Letter of Counter-Guarantee.[11]

On appeal, the Quebec Court of Appeal upheld the trial decision, reasoning that the Canadian bank was not obligated to pay the Greek bank under the Canadian Letter of Counter-Guarantee because the Greek bank had prior knowledge of HMOD’s fraudulent conduct associated with the payment under the Greek Letter of Guarantee.[12] The lone dissenting judge concluded that Eurobank should not be held responsible for HMOD’s fraud, given that it had no way of knowing that HMOD expected to lose at arbitration or that HMOD intended to keep the funds even if it lost; while Eurobank may have had “suspicions” of fraud, this was not sufficient to rise to the level of knowledge necessary to hold Eurobank responsible. Eurobank then sought and was granted leave to appeal to the Supreme Court.

The Majority Decision

The Nature of Letters of Credit

Justice Kasirer, for the majority, observed that the legal distinction between demand guarantees and standby letters of credit is largely semantic. Legally, demand guarantees and standby letters of credit are indistinguishable, with the latter falling within the definition of demand guarantees.[13] (The dissent, from Justice Côté, disagreed, observing that while letters of credit protect against non-payment, demand guarantees protect against non-performance or part-performance.)

The majority observed that letters of credit – particularly standby letters of credit – are commonly used in both domestic and international commercial transactions in order to mitigate risk. In that regard, a letter of credit does not replace the customer’s obligation to pay the beneficiary under the contract; rather, it acts as an additional layer of security. A demand for payment typically arises when there is an alleged failure by the customer to fulfill their contractual duties, with the operative principle being “pay now, argue later”.[14] From a judicial perspective, courts are “slow to interfere” with letters of credit, out of concern that such interference might impair the reliance that international business places upon them.

The majority then reaffirmed that the two key principles governing letters of credit are (1) the autonomy principle and (2) strict compliance.

The autonomy principle refers to the proposition that a letter of credit contains an independent obligation of the issuing bank in favour of the beneficiary, unaffected by the performance or existence of the underlying contract between the beneficiary and the issuing bank’s client. This principle ensures certainty in credit transactions, as the issuing bank’s duty to pay is solely based on the terms outlined in the letter of credit; they need not inquire into the performance of the underlying contract.[15]

The rule of strict compliance dictates that the bank’s duty to make payment is conditional upon the beneficiary submitting documents that precisely conform to the requirements specified in the letter of credit, and which must also be consistent with each other. There is next to no room for error on this point, although courts do have minimal tolerance for immaterial discrepancies in exceptional cases.[16] That being said, if the issuing bank pays the beneficiary without evaluating the documents to ensure that they strictly conform to the requirements set out in the letter of credit, then the bank runs the risk of not being reimbursed by their client.

The Fraud Exception

Importantly, the majority also reaffirmed that fraud remains the only exception to the obligation to honour demands on letters of credit that is recognized in Canada, and “must import some aspect of impropriety, dishonesty or deceit”.[17] In that regard, the majority emphasized that this exception was identical in both common law and civil law systems, which underscores “the desirability of as much uniformity as possible in the law with respect to these vital instruments of international commerce”.[18]

Furthermore, a mere absence of good faith may not be sufficient; there must be some aspect of impropriety, dishonesty, or deceit.[19] The fraud exception permits non-payment if fraud by the beneficiary is sufficiently proven or brought to the attention of the issuing bank before payment. The standard for proving fraud is set high, in order to strike a balance between safeguarding the autonomy of letters of credit and deterring fraud. This exception applies not only to the original letter of credit, but also to counter-guarantees (the latter of which was particularly relevant in this case).[20]

In this case, Eurobank argued that the trial judge and the majority in the Court of Appeal had erred in applying the fraud exception, given that the Greek courts had found no fraud in HMOD’s demand for payment under the Greek Letter of Guarantee, and that even if fraud had occurred, it did not affect Eurobank’s right to demand payment under the Canadian Letter of Counter-Guarantee. Rather, the principle of autonomy suggested that the Canadian Letter of Counter-Guarantee should have been treated distinctly. In addition, Eurobank argued that there was no proof that Eurobank was aware of HMOD’s alleged fraud.[21]

However, the majority disagreed with Eurobank and HMOD, emphasizing that Eurobank had not identified a palpable and overriding error for appellate intervention, and that in this transaction, both letters of credit were intimately linked to one another such that fraudulent conduct in respect of one letter could be relevant to an assessment of the other.[22]

Further, the trial judge was entitled to deference with respect to his conclusions that (1) HMOD demanded payment under the Greek Letter of Guarantee despite having no right to do so, which constituted fraud, and (2) Eurobank knew of and participated in the fraud by making payment.[23] This was notwithstanding that Greek courts had concluded there was no fraud, because the Greek judgments had not been formally recognized by Quebec courts and were thus unenforceable in Quebec (although they were admissible as fact evidence).[24]

Notably the majority observed that while the fraud of a third party typically does not engage the fraud exception, the beneficiary may be deemed complicit if they have clear knowledge of the third party’s fraud and participated in that fraud.[25] Indeed, participation in the fraud is paramount, as knowledge of fraud without participation will not suffice to invoke the exception.[26] Participation may take the form of honouring a demand for payment in improper situations, such as (1) where the beneficiary is aware of the fraud but then nonetheless demands payment under the letter of credit,[27] and (2) by knowingly presenting fraudulent documents to the issuer.[28] In such instances, the fraud becomes the beneficiary’s own, justifying non-payment under the letter of credit.

Ultimately, the majority concluded that the fraud exception applied in this case to enjoin Eurobank from drawing down on the Canadian Letter of Guarantee. HMOD had demanded payment under the letter despite knowing it had no right to do so, contravening orders from the ICC Arbitral Tribunal and the Quebec Superior Court.[29] Eurobank had knowledge of HMOD’s fraudulent activities, but nonetheless made payments under the Greek Letter of Guarantee. The majority therefore concluded that Eurobank’s knowledge of and participation in the fraud thereby attributed HMOD’s fraudulent conduct to Eurobank itself.

Lastly, the majority dismissed Eurobank’s argument that they were acting under duress, finding that it voluntarily chose to participate in the fraudulent activities despite being aware of the circumstances.[30] Consequently, the fraud exception applied to prevent Eurobank from drawing down on the Canadian Letter of Counter-Guarantee.

The Dissent

In dissent, Justices Côté and Karakatsanis would have allowed the appeal.[31] The dissent differed from the majority primarily on two points: first, the factual finding that Eurobank knew of and participated in the fraud; and second, the extent to which the Greek judgments should be given weight. In particular, the dissent concluded that the decisions of the Greek courts, which found no fraud in the demand for payment under the Greek Letter of Guarantee, should be given weight and not disregarded due to the principle of international comity, and particularly given that foreign judgments are prima facie proof of the reported facts contained in those judgments, such that Eurobank ought not to be found to have known of or engaged in fraud itself.[32]

Moreover, the dissent highlighted the nature of demand guarantees as contracts established at the request of a principal where the guarantor (usually a bank) irrevocably promises to pay the beneficiary on demand, regardless of any disputes between the principal and the beneficiary.[33] The guarantor’s obligation to pay was triggered solely by the terms and conditions specified by the principal, and the guarantor’s role was to ensure compliance with those terms, without delving into the underlying contract’s disputes.[34]

Further, the dissenting justices emphasized the high bar for proving fraud in order to prevent payment under a demand guarantee, stating that fraud must be blatantly apparent and, under Quebec law, must involve an aspect of public order. The dissent found that fraudulent conduct by a third party should not necessarily prevent an innocent beneficiary from demanding payment under the guarantee.[35]

Finally, the dissent concluded that the judgments of the Greek courts should have been considered as factual constraints by the Quebec courts, even if those judgements were not formally recognized, and therefore should not have been ignored by Canadian courts.[36] Eurobank’s payment under the Greek Letter of Guarantee, based on the Greek court’s decision, therefore should not have been deemed fraudulent. Based on the principle of comity, Eurobank should have been considered an innocent beneficiary under the Canadian Letter of Counter-Guarantee, as it had no clear or obvious knowledge of any alleged fraud at the time of payment.[37] Thus, the dissent concluded that the fraud exception did not apply in this case, and that the appeal should have been allowed.[38]


As the foregoing suggests, Eurobank provides a thorough articulation of the Canadian law on letters of credit. Furthermore, the case clearly articulates the threshold for applying the fraud exception to letters of credit. Mere allegations or suspicions of fraudulent conduct are insufficient; compelling evidence demonstrating fraud, and the beneficiary’s knowing participation, is required. This stringent standard safeguards the autonomy principle, while addressing instances of clear misconduct that undermine the letter of credit’s purpose.

The majority decision also offers a helpful clarification as to the requisite nature of the fraud itself. While fraud in the context of letters of credit might arguably be more common with respect to the documents tendered by the beneficiary to the issuing bank, the fraud exception can also be engaged by fraud in the underlying transaction between the beneficiary and the issuing bank’s client (as was the case in Eurobank).

In addition, the majority’s confirmation that breach of a procedural order from an arbitral tribunal can constitute grounds for fraud (although there must be an element of dishonesty or impropriety) reaffirms judicial support for the legal force of such procedural orders.

Finally, with respect to international comity, Eurobank highlights the limitations of extra-jurisdictional judgments within Canada, given their status as issues of fact rather than law (and the trial judge’s ability to assign weight to such judgments accordingly).

[1] Ibid at para 21.

[2] Ibid at para 24.

[3] Ibid.

[4] Ibid at para 22.

[5] Ibid at para 25.

[6] Ibid at para 34.

[7] Ibid at para 36.

[8] Ibid at para 42.

[9] Ibid at paras 44-45.

[10] Ibid at para 46.

[11] Ibid at para 48.

[12] Ibid at para 54.

[13] Ibid at para 69.

[14] Ibid at para 70.

[15] Ibid para 74-76.

[16] Ibid at paras 77-79.

[17] Ibid at para 115.

[18] Ibid at para 84.

[19] Ibid at para 115.

[20] Ibid at paras 80-87.

[21] Ibid at paras 89-90.

[22] Ibid at para 138

[23] Ibid at paras 92, 108-111.

[24] On this point, the majority engaged in a detailed analysis under Quebec law as to why the trial judge was entitled to give the Greek judgments little evidentiary weight, particularly in circumstances where the Greek appellate courts gave no weight to the decisions of the Superior Court of Quebec and the Court of Appeal of Quebec: para 109.

[25] Ibid at para 129

[26] Ibid at para 131.

[27] Ibid at para 130.

[28] Ibid at para 131.

[29] Ibid at para 134.

[30] Ibid at para 142.

[31] Ibid at para 157

[32] Ibid at para 235. The dissent also provided a detailed analysis under Quebec law of how foreign judgments are to be treated as findings of fact and which factors are appropriately considered in assigning weight to those findings of act. However, given that this case comment is intended for a common law audience, we do not discuss the dissent’s analysis on this point in detail.

[33] Ibid at para 240.

[34] Ibid.

[35] Ibid at para 259.

[36] Ibid at para 248.

[37] Ibid.

[38] Ibid at para 299.

IBA Guidelines on Conflicts of Interest in International Arbitration: Recent Amendments


As arbitration practitioners will appreciate, the International Bar Association’s Guidelines on Conflicts of Interest in International Arbitration (the “IBA Guidelines”)[1] are widely considered to be the authoritative resource on conflicts of interests for arbitrators; as such, they are a topic of particular interest. The IBA Guidelines were initially published in 2004, and were revised in 2014. Given the passage of another ten years, the IBA Guidelines were therefore ripe for further revision. Arbitration has continued to grow as a preferred mechanism for dispute resolution and the law on conflicts of interest has continued to evolve, such that those participating in arbitration will wish to ensure that the most recent changes are adhered to.

The IBA Guidelines are used by legal professionals across common law and civil law jurisdictions, and have been recognized as persuasive authority in Canadian courts.[2] As noted in the foreword in the IBA Guidelines, they are “recognised as a solid soft law instrument reflecting standards expected to apply to impartiality and independence of arbitrators, as well as disclosures in specific circumstances.”[3] While the IBA Guidelines do not override any applicable legislation or rules chosen by parties, they can be used as general guidance for practitioners and can be binding by agreement by the parties.

The IBA Guidelines are comprised of two parts. Part I set outs the “General Standards” regarding impartiality, independence and disclosure, along with accompanying explanatory notes on those standards. Part II provides three different non-exhaustive lists of situations that may occur in arbitration. The lists are broken down into Red, Orange, and Green, and are commonly known as the Traffic Light system (i.e. red means stop, orange means caution, and green means go).

While the recently revised IBA Guidelines (the “2024 Guidelines”) offer relatively modest amendments to both Part I and Part II, below we highlight some of the key changes and consider their implications.

Part I Changes

Changes were made to the following Sections in Part I:

(3) Disclosure by the Arbitrator

The 2024 Guidelines now expressly provide that “in determining whether facts or circumstances should be disclosed, an arbitrator should take into account all facts and circumstances known to the arbitrator.”[4] While similar language was in the explanatory notes in the 2014 version, this has now become an express obligation of the arbitrator.

Another critical change in the 2024 Guidelines is with respect to professional secrecy rules affecting an arbitrator’s duty to disclose. The 2024 Guidelines now provide that if an arbitrator must make disclosure, but is prevented from doing so by professional secrecy rules or other rules of practice or professional conduct that preclude disclosure, the arbitrator should reject the appointment or resign.[5]

Lastly, the 2024 Guidelines have clarified that a failure to disclose when required does not automatically result in a conflict of interest. In particular, the new rule provides that an “arbitrator’s failure to disclose certain facts and circumstances that may, in the eyes of the parties, give rise to doubts as to the arbitrator’s impartiality or independence, does not necessarily mean that a conflict of interest exists, or that a disqualification should ensue.”[6]

(4) Waiver by the Parties

The 2024 Guidelines have introduced a new rule which incentivizes parties to conduct investigations into any potential conflicts of interest. The 2024 Guidelines provide that a party is deemed to have learned of any facts or circumstances that could constitute a potential conflict of interest for an arbitrator that a “reasonable enquiry” would have yielded if conducted at the outset or during the proceedings.[7]

(5) Relationships

In general, the recent amendments have broadened the relationship considerations throughout the 2024 Guidelines with respect to the arbitrator’s employment. For example, the term “or employer” has been added throughout the 2024 Guidelines when a rule makes reference to an arbitrator’s law firm (i.e. the Guidelines no longer assume that employment related conflicts of interest only arise via employment at a law firm).  In addition, the 2024 Guidelines provide a modern description of the concept of a “law firm” to account for the evolution in the structure of legal practices.[8]

The 2024 Guidelines have also created a new general rule that “[a]ny legal entity or natural person over which a party has a controlling influence may be considered to bear the identity of such party.”[9]

(6) Duty of the Parties

The 2024 Guidelines have amended the list of relationships that a party must disclose to the arbitrator so as to include any relationship between the arbitrator and “a person or entity over which a party has a controlling influence”,[10] and a party must disclose any relationship between the arbitrator and “any other person or entity it believes an arbitrator should take into consideration when making disclosures”.[11] This accordingly encompasses a very broad scope of potential relationships, although it does not extend as far as relationships that the parties ought to have known about, thus refraining from introducing a more challenging (and fraught) standard for parties to meet.

A new accompanying explanatory note to Section (7) also provides that the parties are required to explain the persons’ and entities relationship to the dispute “[w]hen providing the list of persons or entities the parties believe an arbitrator should take into consideration when making disclosures”.[12]

Part II Changes

In Part II, the Red Lists (both Waivable and Non-Waivable) did not undergo any significant substantive change. Notably, though, the 2024 Guidelines for the Red List have clarified that an “affiliate” also includes “an individual having a controlling influence on the party in the arbitration, and/or any person or entity over which a party has a controlling influence”.

The majority of the substantial changes in the 2024 Guidelines in Part II were to the Orange List. As readers will appreciate, the Orange List is a “non-exhaustive list of specific situations that, depending on the facts of a given case, may, in the eyes of the parties, give rise to doubts as to the arbitrator’s impartiality or independence.”[13]

The following situations were added to the Orange List:

  • The arbitrator has, within the last three years, been appointed to assist in mock-trials or hearing preparations on either (1) two or more occasions by one of the parties on an unrelated matter[14] or (2) more than three occasions by the same counsel, or the same law firm.[15]
  • The arbitrator serves or has served as counsel in another arbitration on a related issue or matter involving one of the parties, or an affiliate of one of the parties.[16]
  • The arbitrator currently serves as an expert for one of the parties in an unrelated matter or has, within the past three years, acted as an expert for one of the parties in an unrelated matter[17] or has been appointed as an expert on more than three occasions by the same counsel, or the same law firm.[18]
  • An arbitrator and counsel for one of the parties or an arbitrator and their fellow arbitrator(s) currently serve together as arbitrators in another arbitration.[19]
  • The arbitrator has been associated with an expert in a professional capacity, such as a former employee or partner,[20] or is currently instructing an expert appearing in the arbitration proceedings for another matter where the arbitrator acts as counsel.[21]
  • The arbitrator has publicly advocated a position on the case through social media or on-line professional networking platforms.[22]

The Green List only had one notable change, which was the addition of the following situation: “The arbitrator, when acting as arbitrator in another matter, heard testimony from an expert appearing in the current proceedings.”[23]


Although the overall changes to the IBA Guidelines are modest, the Orange List will of course be the subject of particular interest given the more extensive additions to it. In that regard, the additions reflect a number of circumstances that are not uncommon in the construction context, insofar as it is a relatively small bar both domestically and internationally such that the repeat appointments of arbitrators and experts is not uncommon. In the international context, it is not uncommon for counsel to act as arbitrators or legal expert witnesses in other matters, such that there is a heightened possibility of the new Orange List categories being engaged.

It is possible that the recent amendments to the IBA Guidelines may have a larger impact on the construction industry than others, given the nature and use of construction arbitrators and the pool of arbitrators to draw from. Given recent case law in Ontario finding that the IBA Guidelines are of persuasive value, even where the parties have not agreed they are applicable to their arbitration,[24] and given the degree of uncertainty as to what will qualify as a reasonable apprehension of bias in the arbitration context,[25] legal practitioners of the construction bar should therefore be particularly conscious of the IBA Guidelines irrespective of whether or not the construction contract specifies that the IBA Guidelines are binding.

[1] International Bar Association Guidelines on Conflicts of Interest in International Arbitration dated February 2024 (“2024 Guidelines”).

[2] See, for example, Aroma Franchise Company Inc. et al. v. Aroma Espresso Bar Canada Inc. et al., 2023 ONSC 1827 at para 33; and Vento Motorcycles, Inc. v. United Mexican States, 2023 ONSC 5964 at para 107.

[3] 2024 Guidelines, Foreword, pg. 2.

[4] 2024 Guidelines, Part I, Section (3)(a).

[5] 2024 Guidelines, Part I, Section (3)(e).

[6] 2024 Guidelines, Part I, Section (3)(g).

[7] 2024 Guidelines, Part I, Section (4)(a).

[8] 2024 Guidelines, Part I, Section (6), Explanatory Note (a).

[9] 2024 Guidelines, Part I, Section (6)(c).

[10] 2024 Guidelines, Part I, Section (7)(a).

[11] 2024 Guidelines, Part I, Section (7)(a).

[12] 2024 Guidelines, Part I, Section (7), Explanatory Note (a).

[13] 2024 Guidelines, Part II, pg. 14.

[14] 2024 Guidelines, Part II, Section 3.1.4.

[15] 2024 Guidelines, Part II, Section 3.2.10.

[16] 2024 Guidelines, Part II, Section 3.1.5.

[17] 2024 Guidelines, Part II, Section 3.1.6.

[18] 2024 Guidelines, Part II, Section 3.2.9.

[19] 2024 Guidelines, Part II, Sections 3.2.12 and 3.2.13.

[20] 2024 Guidelines, Part II, Section 3.3.2.

[21] 2024 Guidelines, Part II, Section 3.3.6.

[22] 2024 Guidelines, Part II, Section 3.4.2.

[23] 2024 Guidelines, Part II, Section 4.5.1.

[24] Aroma at para 33.

[25] See our article on the Aroma decision here, for further discussion.

Proposed National Building Code Changes for Encapsulated Mass Timber Buildings

Mass timber construction is a fast-emerging method in the construction industry, both in Canada and abroad; unsurprisingly, proposed regulatory changes to expand its use have therefore been the subject of significant interest and discussion within the industry. In particular, the proposed regulatory changes will bring greater alignment amongst Canadian model codes, with the goal of fostering harmonization between the national and provincial codes on the use of mass timber. Below, we review these proposed changes, and provide our takeaways on the awaited development of mass timber as an alternative method of construction.


Mass timber buildings, which are easily spotted by their wooden aesthetic and biophilic design, use thick layers of engineered wood as structural load-bearing components such as beams, columns, and panels. In recent years, mass timber has received increased attention due to its role in sustainable construction (i.e. via the embodied carbon stored in the timber and the responsible forestry practices used as part of the manufacturing process), coupled with the cost and time efficiencies flowing from the increased use of prefabricated mass timber products. As a result, the adoption of mass timber construction continues to rise.[1]

In fact, the number of mass timber projects has increased two-fold since 2015, coinciding with changes to the National Building Codes (which, as discussed below, include a building code, fire safety code, and others), and in particular, the inclusion of permitted height allowances of up to six storeys for mass timber projects; in 2020, this was increased to a permitted height of up to 12 storeys.[2]

The Regulatory Landscape

However, the regulatory regime continues to evolve, portending more changes on the horizon for mass timber. In particular, the National Research Council (“NRC“) – a Federal Crown Corporation – publishes model codes (including a building code, fire safety codes, and plumbing and energy codes) for adoption by provincial and territorial authorities. Provinces and territories can then adopt these model codes in their entirety and modify them as they see fit, or they can publish their own independent code(s) that may or may not be based on the national model code(s). Manitoba, Saskatchewan, New Brunswick, Nova Scotia, Prince Edward Island, and the Territories have all adopted these model codes, while British Columbia, Alberta, Ontario, and Quebec have published their own independent codes.[3]

Earlier this year, the Canadian Board for Harmonized Construction Codes (“CBHCC”) hosted a public comment period led by the Joint Task Group for Harmonized Variations for Mass Timber (“JTG-HVMT”), which includes the provinces of British Columbia, Ontario and Quebec, on proposed changes to the National Building Code (the “NBC”) in relation to encapsulated mass timber construction (“EMTC”). The proposed changes were developed on an expedited basis to meet provincial needs and will be considered by the CBHCC after feedback has been analyzed and next steps are determined.

The CBHCC is made up of representatives from provincial, territorial, and federal public services and is responsible for developing the National Model Codes, which are subsequently published by the NRC. The CBHCC provides a forum for the provinces to provide input with respect to proposed changes to a given model code, so as to promote the harmonization of codes between jurisdictions. Notably, this is a rare instance of a province-driven proposal being hosted by the CBHCC and represents a noteworthy change in the code development process that (1) appears to be more responsive to provincial priorities and (2) creates consistency amongst various codes across Canada’s jurisdictions.[4]

In short, there appears to be a broad consensus at the provincial and federal level to expand the use of mass timber in order to allow for greater building occupancy, allow for taller mass timber buildings, and varying encapsulation requirements dependent on the building archetype and height.

Key Proposed Changes

In relevant part the key proposed changes to the NBC relate to Encapsulated Mass Timber Construction (“EMTC“). Under the NBC, EMTC is defined as the “type of construction in which a degree of fire safety is attained by the use of encapsulated mass timber elements with an encapsulation rating[5] and minimum dimensions for structural members and other building assemblies”. This often translates to a lower quantity of exposed wood surfaces, but greater levels of fire protection, as the limiting of exposed surfaces will delay ignition and combustion.

By contrast, EMTC is different than two other widely-known mass timber construction methods, known as “combustible construction”[6] and “heavy timber construction”[7]. Both combustible construction and heavy timber construction, which often have larger areas of timber exposure, each only stipulate a fire resistance rating of under 45 minutes, which mean that they fall below the degree of fire protection required of EMTC. In other words, combustible construction and heavy timber construction offer less fire safety protection than EMTC; as a result, they pose a greater hazard than EMTC, and are more restricted in their usability. In particular, these two types of construction have a lower permissible storey height in order to ensure compliance with fire safety standards, but provide some flexibility through the availability of larger areas of exposed timber surfaces.

In summary, the proposed changes to the NBC would permit EMTC to be employed in (i) buildings up to 18 storeys with a 70-minute minimum encapsulation rating, (ii) buildings up 12 storeys with a 50-minute minimum encapsulation rating, and/or (iii) buildings up to 6 storeys with a 0-minute encapsulation rating – across 7 new building “archetypes”.[8]

There are 6 proposed changes in total:

  • EMTC Proposed Change 01: EMTC, Various Heights and Occupancy Types, Sprinklered — New Construction Article Summarizing All EMTC Building Types. This proposal introduces changes to several new building archetypes and to reflect the increase of maximum building heights, along with sprinkler requirements for all proposed buildings.
  • EMTC Proposed Change 02: Encapsulation of Mass Timber Elements — Encapsulation of Mass Timber Elements. This proposal introduces two other encapsulating ratings, being 0-minute and 70-minute ratings, which are now in addition to the existing 50-minute rating for EMTC.
  • EMTC Proposed Change 03: Encapsulation Materials — Prescriptive Option for 70 min Encapsulation Rating. This proposal allows for the 70-minute encapsulation rating to be achieved through the construction of two layers of 5/8″ Type X gypsum wallboards.
  • EMTC Proposed Change 04: Encapsulation Cladding — Tiered permissions for combustible cladding. This proposal introduces the types of cladding to be used on the exterior wall of an EMTC building, and specifically the allowance of 100% combustible cladding where the building is less than 4 storeys – and lower cladding permissions as the building height increases.
  • EMTC Proposed Change 05: Major Occupancy Fire Separations — Removal of requirements for higher fire-resistance rating (FRR) in EMTC major occupancy separations. This proposal removes existing requirements for higher fire-resistance rating in major occupancy fire separations of EMTC buildings, on the basis that such requirements are outdated and inconsistent with modern fire safety principles.
  • EMTC Proposed Change 06: Additional Requirements for EMTC — Revised measures for protection of EMTC during construction. This proposal defines the requirements related to the construction and assembly of encapsulated mass timber projects, and standards related to exposed surfaces during the construction phase.

These proposals are based on the International Building Code (“IBC”) 2021 elements, and the existing historical limits for buildings and fire safety principles in practice from the NBC. The joint task force had also independently commissioned a transferability report to compare the EMTC provisions in the IBC and their applicability to the Canadian context. The transferability report concluded that the NBC can adopt some of the fire and structural provisions with a handful of conservative modifications. By way of example, the IBC recommends that IV-B (Mass timber protected exterior, limited exposed timber interiors) allow for 100% mass timber ceilings and integral beams, whereas the NBC continues to require no more than 25% exposure of similar areas.


As focus shifts towards greater Environmental-Social-Governance (ESG) goals, more businesses are considering sustainable construction materials in their construction plans. EMTC is likely to gain further traction following the 28th Conference of the Parties to the UN Framework Convention on Climate Change (commonly known as “COP28”, which was held in November and December of 2023 in Dubai) as the environmental and financial benefits of building with mass timber continue to offer an appealing avenue for the various jurisdictions to explore in order to meet those requirements.

These proposed changes collectively improve the viability of EMTC as a viable construction method by establishing clear performance criteria, and it therefore stands to reason that it will encourage even wider adoption of EMTC in future Canadian projects. This will naturally be of interest to the construction industry as a whole, including those seeking low carbon alternatives to traditional construction materials and methods at a time when the regional, national, and international markets continue to struggle through supply chain disruptions and material shortages.

The JTG-HVMT public review and consultation closed on February 16, 2024. Subject to comments received, these changes are expected to be adopted by provinces as early as spring 2024. As of now, Ontario has not decided whether to adopt the proposed changes based on this initiative, and the province will likely undertake a technical review of the proposed changes. We await with interest to see how Ontario and other provinces proceed with this initiative.

[1] According to the 2021 State of Mass Timber Buildings in Canada Report, there were nearly 800 mass timber projects built or under construction across Canada as of 2021:

[2] National Building Code, Division B Part 3 Fire Protection, Occupant Safety and Accessibility, s. 3.1.6 Encapsulated Mass Timber Construction.

[3] For example, the Ontario Building Code incorporates approximately 60% of the NBC.

[4] In this context, “public review” refers to members of the public submitting comments/feedback, via an online portal, on each of the proposed changes, including whether they should be approved, altered (and if so, how), or rejected.

[5] Under the NBC, the “encapsulation rating” is the amount of time that a material or assembly will delay the ignition and combustion of encapsulated mass timber when it is exposed to fire under specific test conditions and performance criteria.

[6] “Combustible construction” means construction that does not meet the requirements or criteria for (1) “non-combustible construction” as set out in the CAN/ULC-S114 “Standard Method of Test for Determination of Non-Combustibility in Building Materials” or (2) encapsulated mass timber construction.

[7] “Heavy timber construction” means combustible construction in which a degree of fire safety is attained by placing limitations on the sizes of wood structural members and on the thickness and composition of wood floors and roofs and by the avoidance of concealed spaces under floors and roofs.

[8] In essence, an “archetype” – which term does not carry an authoritative definition – is generally understood to refer to a building categorized according to a combination of (1) its function (e.g. residential single family, residential multi-family, office, commercial, etc.), and (2) its occupancy capacities (such as building height and floor/mass ratio, and how many units or individuals can occupy each floor).

Bennington Financial Corp. v. Medcap Real Estate Holdings Inc.: The Limits of the Immediate Disclosure Rule

Over the past several years, much has been made in Ontario about the importance of proper and timely disclosure of settlement agreements amongst parties in litigation proceedings. These disclosure requirements are critically important and present a significant risk both to clients and lawyers if not managed properly and in accordance with the requirements of the Court.

As a reminder to readers, as reaffirmed in March 2018 by the Ontario Court of Appeal’s decision in Handley Estate v. DTE Industries Limited , parties to a settlement agreement in Ontario must immediately disclose the existence of a settlement agreement in circumstances where that agreement alters the litigation landscape. We previously discussed the immediate disclosure of settlement agreements in the context of lien matters here.

Understanding the breadth of these requirements and how the Court interprets this duty is therefore also of significant importance. In that regard, recently in Bennington Financial Corp. v. Medcap Real Estate Holdings Inc., 2024 ONCA 90,[1] the Court of Appeal for Ontario refused to expand the interpretation of the immediate disclosure rule for settlement agreements. In upholding the Superior Court’s findings, the Court reaffirmed that the rule should only be invoked when settlement agreements have the potential to significantly change the litigation landscape. Below, we review the case and consider the implications of this decision for construction disputes.


Bennington Financial Corp involved separate actions initiated by two corporate entities being Bennington Financial Corp. (“Bennington“) and Heffner Investments Limited (“Heffner“), both actions being commenced against Medcap Real Estate Holdings Inc. (“Medcap“). These actions stemmed from alleged defaults by Medcap on equipment leases and collateral mortgages related to fitness equipment and monetary advances which were made to entities controlled by a Mr. Cardillo, who was associated with Medcap and also related fitness chain known as Premier Fitness. The disputes also involved mortgages on a commercial real estate space (discussed in more detail below).

Bennington’s claim related to equipment leases and monetary advances made to Premier Fitness, alleging defaults that led to Medcap owing more than $13 million. These claims were substantiated by collateral mortgages granted by Medcap to Bennington.

For its part, Heffner alleged that it also leased equipment and advanced loans to Medcap, leading to a separate action against Medcap for the recovery of amounts owing.[2]

Mortgages and Property Involvement

A focal point of the disputes was a property located in Hamilton, Ontario owned by Medcap (the “Wentworth Property“). This property was encumbered with multiple mortgages, including those held by 2503866 Ontario Inc. (alleged to be controlled by Mr. Cardillo), Heffner, another company known as Physiomed, and Bennington, with the priority of mortgages in that order. The legitimacy of these mortgages was contested by Medcap, adding another layer of complexity to the litigation.[3]

Settlement Efforts

Over the course of litigation, as is often the case, the parties engaged in settlement discussions, with a pivotal issue being an alleged undocumented agreement among the plaintiffs (Bennington, Heffner, and others) not to settle with Medcap individually. This agreement not to settle purportedly required any settlement with Medcap by any of the executing parties to be collective, encompassing all claims against Medcap.

Medcap’s Motions and Allegations of Abuse of Process

Medcap moved to dismiss or stay the actions of Bennington and Heffner, arguing that the undisclosed agreement among the plaintiffs to require a collective settlement constituted an abuse of process. Medcap’s argument hinged on the immediate disclosure rule – i.e. the principle that settlement agreements reached between some parties to litigation, but not others, must be immediately disclosed to non-settling parties if they “entirely change the litigation landscape”.[4]

Given the nature of this particular “settlement” agreement, Medcap had the dubious task of having to argue not only that the ‘agreement’ changed the litigation landscape, but also that there was in fact a settlement agreement in the first place in order to apply the rule of immediate disclosure.

The Superior Court’s Decision

The issues before the motions judge at the Superior Court were as follows:

  1. Was there a settlement agreement;
  2. If so, did it change the litigation landscape significantly; and
  3. Was the agreement immediately disclosed.

Did a settlement agreement exist?

Heffner contended there was no formal settlement agreement, maintaining that while creditors could negotiate independently with Medcap, the only obligation Heffner had to Bennington, Physiomed and Wilson was to negotiate with Medcap in good faith.[5]  Bennington argued that there was never a true agreement, and that it was at best an understanding each of the parties came to independently, realizing they were better off working together, but they could each negotiate their own settlement.[6] It was on the evidence of Bennington’s affiant, in cross-examination, that the Court found a settlement agreement existed. In essence, the agreement was that Bennington, Heffner and Physiomed agreed to have a united front and to take the position that settlement with Medcap required settlement with all of them; settle with one, settle with all.[7]

Further, the Court found that this agreement, while not formally documented, was sufficiently evidenced by the parties’ actions and statements so as to constitute a “settlement agreement” for the purpose of the test.[8]

Did the agreement change the litigation landscape?

The critical portion of the Superior Court’s analysis was whether the agreement “significantly altered the litigation landscape”. On this point, the Court considered whether the plaintiffs’ agreement changed their adversarial positions into cooperative ones, thereby impacting the fairness and integrity of the court process. The Court also scrutinized whether the agreement incentivized cooperation among the plaintiffs against Medcap, and if it affected Medcap’s ability to defend itself or settle the claims individually.

Given the generality of the language in the phrase “significantly altered the litigation landscape”, the Court considered both the values that the rule is meant to advance, as well as the fact-specific nature of the inquiry. In this regard, the Court concluded that the factors which assist in determining whether a settlement agreement needs to be disclosed immediately include the following:

  1. the configuration of the litigation;
  2. the claims between the parties;
  3. the relationship between the parties and their orientation in the litigation;
  4. the terms of the agreement;
  5. whether the agreement is inconsistent with the pleadings or with the position(s) taken during litigation;
  6. whether the terms of the agreement alter the apparent relationships between the parties to the litigation that would otherwise be assumed from the pleadings or expected in the conduct of the litigation;
  7. whether the agreement changes the adversarial position of the parties into a cooperative one whereby the party is incentivized to cooperate with a former adversary;
  8. whether the agreement impacts the litigation strategy of the non-settling party; and
  9. the values the rule is meant to advance:
    1. preserving fairness to the parties;
    2. preserving the integrity of the court process; and
  • allowing the court to know the reality of the adversity between the parties.[9]

Ultimately, the Court concluded that the agreement among the plaintiffs did not fundamentally alter the adversarial relationship among the parties in a way that would significantly change the dynamics of the litigation. On this basis, it did not meet the threshold that would require immediate disclosure.

To the contrary, the plaintiffs’ actions – while coordinated – did not convert their relationship with Medcap from adversarial to cooperative in the context of undermining the fairness or integrity of the litigation process. The plaintiffs remained separate entities with distinct claims, and their agreement to negotiate collectively did not diminish Medcap’s ability to defend itself or engage in settlement negotiations.

Was the agreement disclosed immediately?

Notwithstanding that the Court considered disclosure was not necessary, it nevertheless considered (presumably in the interest of providing fulsome reasons on appeal) the allegations made that the agreement was not disclosed immediately.

Medcap alleged that the agreement should have been disclosed, but was not until cross-examinations on the motion(s). For their part, Bennington and Heffner alleged that Medcap should have known about the agreement from their past conduct. Ultimately, the Court concluded that the agreement was not disclosed immediately, although this point was ultimately moot given the Court’s finding on the prior issue.

With respect to Medcap’s abuse of process claim, the Court emphasized the necessity of balancing the need for disclosure with the parties’ freedom to strategize and negotiate settlements. In that regard, requiring immediate disclosure of the kind of agreement would unduly restrict the parties’ ability to conduct their litigation and negotiate settlements.

The Court stressed that the agreement did not mislead the court or disadvantage Medcap in a manner that would justify labeling the plaintiffs’ conduct as an abuse of process. The essence of the litigation, the claims, and the defenses remained unchanged by the plaintiffs’ agreement. Therefore, the Court dismissed Medcap’s motions to stay or dismiss the proceedings.[10]

Medcap appealed to the Court of Appeal.

The Court of Appeal’s Decision

On appeal, Medcap took a different approach, departing from the approach taken in Superior Court (and most often taken by similarly situated litigants) in respect of altering the litigation landscape. Specifically, counsel for Medcap argued that “agreements that fetter, clog, or frustrate, settlement must be disclosed.” In this regard, Medcap was looking to broaden the rule for immediate disclosure to encapsulate the situation it found itself in with Heffner and Bennington.

The Court did not provide precise definitions for these terms as advanced by Medcap, but concluded that their adoption would represent a “dramatic and unwarranted expansion of the properly narrow rule”.[11] Having refused to broaden the rule, the Court of Appeal therefore agreed with the motions judge and dismissed Medcap’s appeal.

In rendering its decision, the Court considered the purpose of the disclosure rule, emphasizing that it is premised on ensuring the litigation process remains fair and transparent, particularly when agreements may potentially alter the strategic behaviour of parties from being opponents to collaborators.[12]

The core of the Court’s analysis centered on the motions judge’s application of these principles to the facts at hand, particularly among the respondents (Heffner and Bennington) and a third-party creditor.

The Court reviewed the motion judge’s conclusion that the settlement agreement did not require immediate disclosure, observing that his conclusion was based on the finding that the agreement did not compel the respondents to support each other beyond the cooperation typically expected in litigation, nor did it modify their adversarial relationship with Medcap.[13]

Further, the Court found no palpable and overriding error in the motion judge’s finding that the respondents were not adverse to one another and that their collective strategy did not significantly alter the litigation landscape against Medcap. These findings were critical in determining whether the immediate disclosure rule was triggered.[14]

In the result, the Court’s agreement with the motions judge demonstrated that not all agreements among litigating parties necessitate disclosure, let alone immediate disclosure. Rather, the agreements that require such disclosure remain strictly those that transform the litigation landscape in such a way that significantly alters the dynamics of litigation do.

This distinction is vital for maintaining the balance between the strategic freedom of parties to negotiate and settle disputes and the overarching need to ensure fairness and transparency in the judicial process. It also furthers the Court’s general position that the rule, which strictly applied with no discretion, is only to be applied in narrow circumstances.


As noted above, the Court of Appeal’s decision in Bennington provides important clarification on the boundaries of the immediate disclosure rule: the rule is invoked only when an agreement shifts the parties’ position from adversarial to co-operative, in a manner that could potentially disadvantage the other parties or mislead the court.

Both the Superior Court and Court of Appeal’s decisions suggest that this distinction is vital in preserving the strategic autonomy of parties engaged in litigation. It acknowledges that while transparency is fundamental, the ability of parties to negotiate, strategize, and settle disputes is equally important.

Autonomy in litigation is essential for allowing parties to effectively manage their strategies within the confines of the Rules of Civil Procedure and established jurisprudence. A lack of autonomy could complicate litigation and settlement processes, potentially hindering cooperation and collaboration among parties and affecting the overall possibility of reaching settlements.

As well, in the construction context, particularly as it relates to lien proceedings that involve multiple claimants and are intended to be conducted as a form of class proceeding, Bennington offers important guidance on the management of settlement agreements and collective bargaining strategies – which is an issue that comes up regularly in such proceedings.

Construction projects often involve a web of contractual relationships, with numerous parties across several levels of the construction pyramid, each potentially holding lien rights in the event of disputes. Given the complexity of these relationships, the principles outlined in this decision reiterate the importance of transparency and the potentially harsh consequences of undisclosed settlement agreements.

That said, this decision also clarifies that such agreements require disclosure only when they transform the litigation landscape in a manner that might disadvantage other parties or mislead the court. This creates a nuanced threshold for determining when the strategic cooperation among lien claimants crosses into territory that could potentially affect the fairness and integrity of the judicial process.

Construction stakeholders often enter into various forms of agreements during the course of litigation, including those aimed at coordinating their approach to settlement negotiations or litigation strategies, as well as agreements by mid-level claimants to settle with their subtrades and take an assignment of the subtrades’ claims. Ironically, rather than potentially “fetter, clog, or frustrate” settlement, such a scenario would arguably facilitate settlement among the remaining parties (insofar as there are fewer of them) and would therefore seem to be on-side of the appellant’s proposed expansion of the immediate disclosure rule.

On the other hand, the Court of Appeal’s decision to reject this broad interpretation nevertheless affirms that construction stakeholders can continue to negotiate and enter into agreements with one another and provides comfort that not all such agreements have the effect of complicating settlement negotiations needs to be disclosed.

Ultimately, because the test for disclosure remains somewhat vaguely worded and heavily fact-dependent, parties will need to remain mindful of whether their settlements meet the threshold for disclosure. While the Court has refrained from expanding the rule to include agreements that merely complicate settlement efforts, parties are still required to disclose any agreements that significantly alter the adversarial dynamics of a case in a way that could disadvantage other parties or mislead the court. It also remains open that the Court may modify the test in future cases, if the fact scenario withstands scrutiny and provides sufficient policy reasons to justify such an expansion.

On this basis, construction industry participants must remain vigilant in settlement processes and continue to carefully consider how their agreements affect the overall litigation landscape, and whether they could be seen as transforming adversarial relationships in a manner that necessitates disclosure. In this regard, we recommend reaching out to qualified counsel to work through settlement agreements and negotiations – particularly when engaged in settlement based processes such as negotiation or mediation.

[1] 2024 ONCA 90 [Bennington Financial Corp].

[2]  2023 ONSC 2742 at paras 8-11 [Bennington].

[3] Ibid at para 12.

[4] Skymark Finance Corporation v. Ontario, 2023 ONCA 234, at para 46.

[5] Bennington, supra note 2 at para 32.

[6] Ibid at para 33.

[7] Ibid at para 35.

[8] Bennington, supra note 2 at paras 32-38.

[9] Ibid at paras 39-69.

[10] Ibid at para 74.

[11] Bennington Financial Corp, supra note 1 at para 15.

[12] Ibid at para 14.

[13] Ibid at para 16.

[14] Ibid at para 17.

CVV v CWB: The Nature of Set-Aside Applications and Adequacy of the Tribunal’s Reasons

It is well established that parties seeking to set aside an arbitral award for a breach of natural justice face significant hurdles. In CVV & 10 Ors v CWB (“CVV”),[1] Singapore’s Court of Appeal addressed how parties often misapprehend the process and treat it effectively as an appeal on the merits, when it is in fact a much more limited review with a relatively high bar to success. Notably, the Court also provided guidance on whether an award can be attacked on the basis of inadequacy of the tribunal’s reasons (that is, lack of sufficient reasons), which will be of significant interest to Canadian readers. Below, we review the case and its takeaways.


In CVV, CWB[2] was engaged as an asset advisor by Singaporean fund manager CVQ, and claimed that CVQ had failed to pay it certain fees. CVQ and subsidiaries of two of its funds (collectively, the “Claimants”) brought the dispute to arbitration.

A tribunal dismissed their claims and allowed counterclaims by CWB for payment of the advisory fees, and in particular, a “Performance Fee”. The Claimants then came to court to have the award against them set aside on the grounds of a breach of natural justice.

The “crux” of their argument was that the tribunal “breached the fair hearing rule by failing to apply its mind and/or to give reasons for its decision on essential issues in the Award”.[3] Their application was dismissed at first instance, and – as discussed below – by the Court of Appeal.

The Decision

Readers will recall from our recent article on CZT v CZU[4] that a party challenging an award in Singapore on the grounds of natural justice must show:

  • Which rule of natural justice was breached;
  • How it was breached;
  • In what way the breach was connected to the making of the award; and
  • How the breach prejudiced its rights.[5]

In CVV, the Court also identified a common reason for unsuccessful challenges, namely that the applicant argues the merits of the award:

From a brief survey of Singapore cases, a significant majority of such applications have been unsuccessful because those challenges were found in substance to have engaged the merits of the award. When a dissatisfied party relies on an alleged breach of the rules of natural justice, it is crucial to bear in mind that the typical grounds on which a litigant may challenge a judgment are quite different and distinct from those which apply in the context of an arbitral award. The failure to properly appreciate this vital distinction is usually the reason why the challenge is ultimately unsuccessful.[6] [emphasis added]

The Court offered the following admonition:

For better or for worse, parties in an arbitration must accept the consequences of their choice of the arbitral tribunal as regards the merits of the award, irrespective of the degree of their dissatisfaction with the outcome in the award.[7] [emphasis added]

The Court also observed that finality is “[o]ne of the key virtues” of arbitration, but that this seems only to be “appreciated by the winning party because dissatisfied parties are increasingly seeking the court’s assistance and intervention to set aside arbitral awards.”[8]

Against that backdrop, the Court addressed four arguments from the Claimants.

First, the Claimants alleged that the tribunal did not consider whether the Performance Fee was due and payable. The Court rejected this argument, finding that the tribunal was not required in its award to individually address each submission from the Claimants.

Second, the Claimants alleged that the tribunal used inconsistent dates for the end of the life of one of the funds. The Court found this did not show that the tribunal failed to apply its mind to essential issues. In fact, the Court concluded the use of two dates was “readily explicable on the facts and d[id] not show that [the tribunal] made inconsistent findings”.[9] The use of different dates was a byproduct of the Claimants’ refusal to provide its own calculations for the advisory fees at issue. The tribunal had relied on the calculations of CWB’s expert, and he had employed dates that differed from the tribunal’s.

Third, the Claimants argued that the tribunal failed to consider its objections to calculations by CWB’s expert regarding various advisory fees. The Claimants pointed to the fact that the tribunal mistakenly stated in the award that the Claimants had failed to challenge his calculations until closing submissions, when they had in fact challenged them in his cross-examination.

The Court concluded that this was “at most an error of fact which would not justify setting aside the award.”[10] The Court then distinguished Front Row Investment Holdings (Singapore) Pte Ltd v Daimler South East Asia Pte Ltd,[11] a case in which an award was set aside. In that case, the arbitrator was “under the erroneous impression that the respondent had ceased to rely on several pleaded points in its counterclaim for misrepresentation, and consequently failed to have regard to the respondent’s submissions on the issue”.[12] By contrast, in CVV, the tribunal had not “failed to have regard to the Claimants’ case.”[13]

Fourth, the Claimants argued that the tribunal did not consider whether CWB’s claims were awarded as a debt or as an award for damages. The Court found that the Claimants did not argue before the tribunal that such a distinction was important, and that therefore the tribunal did not breach the fair hearing rule.

The Court also addressed another key question, being the sufficiency of a tribunal’s reasons (i.e. the extent to which the tribunal must give reasons in order to comply with natural justice). While the Court agreed with the Claimants that a tribunal must give reasons, it cautioned that, in Singapore, “it is not settled in the case law whether a tribunal’s failure to give adequate reasons is itself a reason to set aside an award”,[14] and it is “not entirely settled what the content of a tribunal’s duty to give reasons is.”[15]

The Court rejected the notion that an arbitral tribunal should be held to the “judicial standard” because, unlike arbitration, court proceedings are generally (1) open to the public, and “justice must not only be done but it must be seen to be done”, and (2) open to appeal, such that the reviewing court must be able re-examine the merits.[16] Rather, what is required of a tribunal “will depend upon the nature of the dispute and the particular circumstances of the case”.[17]

However, the Court ultimately decided not to address this point definitively, because it found that the Claimants relied on the alleged insufficiency of the tribunal’s reasons in order to demonstrate that the tribunal’s failed to “apply its mind” to the issues.[18] Echoing the Court in CZT v CZU, the Court of Appeal noted that “the inadequate provision of reasons and explanations is, without more, a mere error of law and an allegation of the same is therefore incapable of sustaining a challenge against an award”,[19] given that a mere error of law is not itself a breach of natural justice.


CVV is instructive as to the finality of arbitral awards. It is broadly recognized that a set-aside application is not an appeal on the merits or a re-litigation of the dispute, but for whatever reason, it seems that this misapprehension persists in many jurisdictions (including in Canada). In that regard, errors of law or of fact may not be sufficient to warrant the setting aside of an award, and the fair hearing rule does not hold arbitrators to a standard of perfection.

As a practical matter, dissatisfied parties will therefore need to consider whether the potential errors they have identified in the award rise to the level of a breach of natural justice. As well, it is worth keeping in mind that the “fairness” of a hearing is often in the hands of the parties themselves. In CVV, the Claimants appear to have made a tactical decision not to provide their own calculations of the advisory fees. This decision apparently backfired, and the Court was unsympathetic to their complaints. Therefore, it will behoove parties to ensure from the very start of an arbitration that they craft a procedure with opposing parties and the tribunal in order to ensure that they are satisfied that the matter will proceed in a manner consistent with what they believe will ensure a fair hearing. Seeking out a procedural unfairness ex post facto is rarely a recipe for success, and parties should therefore proceed with that in mind.

In addition, the question of sufficiency of reasons is, of course, highly relevant to Canadian readers. It is unfortunate, although perhaps unsurprising, that the Court avoided deciding the question, given how difficult it would be to determine the content of the duty to provide reasons, particularly in the abstract and without the issue having been fully briefed by the parties. It is entirely common in the construction law context, particularly in the case of dispute adjudication boards – the status of which remain uncertain in Canada as to whether they qualify as arbitration or expert determination – for parties to agree that the tribunal or board shall only provide limited reasons (or in some instances, no reasons) in the interest of delivering a decision swiftly, such that the parties cannot subsequently complain on this basis. On the other hand, in circumstances where the tribunal or board’s duty to provide reasons is ill-defined, it should perhaps come as no surprise that parties may seek to use a lack of detailed reasons as the basis for attacking an award.

Similarly, it would seem reasonable to treat the content of the duty as contextual. For instance, given that Ontario’s Arbitration Act, 1991[20] permits appeals on questions of law with leave (and on questions of fact or mixed fact and law, if the arbitration agreement so provides), then the tribunal’s reasons would presumably need to be held to a higher standard in order to allow for the appellate court to be able to scrutinize the tribunal’s reasons. This has already occurred in prior Ontario case law where awards have been appealed, and interestingly, courts in that context have applied case law from the labour arbitration, administrative law, and even criminal law contexts in order to conclude that a failure to provide sufficient reasons is an error of law, effectively holding tribunals to the same standard as courts.[21]

On the other hand, however, this perhaps speaks to the idiosyncrasies of Ontario’s domestic arbitration legislation since, as readers, will appreciate, its international domestic legislation – just like other Model Law-based legislation – does not allow for appeals of any kind. Accordingly, this too may speak to the need for overhauling Ontario’s domestic arbitration legislation, in order to align it with international norms and avoid bringing it too close in form to litigation.[22]

[1] CVV and others v CWB, [2023] SGCA(I) 9.

[2] In keeping with convention, the Court anonymized the parties.

[3] CVV and others v CWB, [2023] SGCA(I) 9 at para 25.

[4] CZT v CZU, [2023] SGHC(I) 22.

[5] CVV and others v CWB, [2023] SGCA(I) 9 at para 29, citing Soh Beng Tee & Co Pte Ltd v Fairmount Development Pte Ltd, 2007 SGCA 28.

[6] CVV and others v CWB, [2023] SGCA(I) 9 at para 2.

[7] CVV and others v CWB, [2023] SGCA(I) 9 at para 3.

[8] CVV and others v CWB, [2023] SGCA(I) 9 at para 1.

[9] CVV and others v CWB, [2023] SGCA(I) 9 at para 56.

[10] CVV and others v CWB, [2023] SGCA(I) 9 at para 62.

[11] Front Row Investment Holdings (Singapore) Pte Ltd v Daimler South East Asia Pte Ltd, [2010] SGHC 80.

[12] CVV and others v CWB, [2023] SGCA(I) 9 at para 62.

[13] CVV and others v CWB, [2023] SGCA(I) 9 at para 62.

[14] CVV and others v CWB, [2023] SGCA(I) 9 at para 32 (italics in original).

[15] CVV and others v CWB, [2023] SGCA(I) 9 at para 33 (italics in original).

[16] CVV and others v CWB, [2023] SGCA(I) 9 at paras 33-34.

[17] CVV and others v CWB, [2023] SGCA(I) 9 at para 34, citing the High Court of Australia in Westport Insurance Corporation v Gordian Runoff Ltd, [2011] HCA 37.

[18] CVV and others v CWB, [2023] SGCA(I) 9 at para 35.

[19] CVV and others v CWB, [2023] SGCA(I) 9 at para 35 (emphasis added).

[20] Arbitration Act, 1991, SO 1991, c 17, s 45.

[21] See, for example, Wang v. Takhar, 2019 ONSC 5535 at paras 46-47 at 56-60. See also Farmer v. Farmer,  2021 ONSC 5913, where the Court relied upon s. 38(1) of the Arbitration Act, 1991 – which stipulates that “an award… shall state the reasons on which it is based” – and s. 40(1) and (2), which state that a tribunal may be compelled to give an explanation to the Court, before turning at paras 110-116 to a discussion of sufficiency of reasons that relies upon case law from the criminal law context. This latter case was a family law decision, which imports different policy considerations, but which in turn speaks to the proposition that family law arbitration might more appropriately be dealt with by its own legislation rather than together with commercial arbitration.

[22] Consider for example, that in The Bay Hotel and Resort Ltd and another v Cavalier Construction Co Ltd. And another, [2001] UKPC 34, the House of Lords determined that in respect of a private arbitration regarding the construction of a hotel resort in Turks and Caicos governed by the Construction Industry Arbitration Rules of the American Arbitration Association, the tribunal’s award contained sufficient reasons notwithstanding that it was five paragraphs in length and contained minimal substantive analysis (what the House of Lords referred to as “lean and unembellished”).

CZT v CZU: Arguments not Pleaded and Ex Parte Communications in Arbitration

Parties seeking to set aside arbitral awards face an uphill battle, even when one of the arbitrators on the tribunal has alleged “serious procedural misconduct” by their fellow panelists.

In CZT v CZU (“CZT”),[1] the plaintiff sought to have an award set aside in light of allegations by an arbitrator against the other two tribunal members, on the basis that those other arbitrators breached the rules of natural justice. A panel of three judges of Singapore’s International Commercial Court (“SICC”) dismissed the plaintiff’s application. In doing so, the Court succinctly explained the requirements of the fair hearing rule, which it described as a pillar of natural justice. Below, we consider this case’s implications.

Factual Background

In brief, the plaintiff had entered into a contract with the defendant to deliver certain component packages that included materials, machinery and equipment, which the defendant subsequently alleged were defective. The defendant commenced arbitration proceedings in accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce (“ICC”) in Singapore. The majority of a tribunal of three (the “Majority”) found in favour of the defendant.

The ICC sent the final award, reflecting the Majority’s decision, to the parties. On that same day, the dissenting arbitrator (the “Minority”) sent a copy of his dissenting opinion to the parties.

On this point, CZT v CZU may be familiar to some readers. We previously covered an initial step in this proceeding, which related to summons filed by the plaintiff against the three arbitrators for production of their records.[2] Those summons were dismissed by the same judges of the SICC in a benchmark decision on deliberative secrecy.

Thereafter, the plaintiff brought an application to have the Majority’s award set aside under Singapore’s International Arbitration Act 1994,[3] arguing, among other things, that the Majority “acted in breach of natural justice”.[4]

The Court’s Decision

The plaintiff made three arguments before the Court:

  • The Majority failed to consider critical arguments made by the plaintiff in the arbitration;
  • The Majority reached conclusions in the final award based on facts or matters that were not argued by the parties during the arbitration and wrongly attributed arguments and positions to the parties that were not supported by the arbitration record; and
  • There was a reasonable suspicion of bias on the part of the Majority.[5]

Citing Singapore’s Court of Appeal in Soh Beng Tee & Co Pte Ltd v Fairmount Development Pte Ltd,[6] the Court held that the party challenging an award as having breached the rules of natural justice must establish:

  • Which rule of natural justice was breached;
  • How it was breached;
  • In what way the breach was connected to the making of the award; and
  • How the breach prejudiced its rights.[7]

The Court also held that the “two pillars of natural justice” are that (1) an adjudicator must be disinterested and unbiased, and (2), parties must be given adequate notice and opportunity to be heard, i.e., the “fair hearing rule”.[8]

The Court then explained the requirements of the fair hearing rule:

To comply with the fair hearing rule, the tribunal’s chain of reasoning must be: (a) one which the parties had reasonable notice that the tribunal could adopt; and (b) one which has a sufficient nexus to the parties’ arguments. A party has reasonable notice of a particular chain of reasoning (and of the issues forming the links in that chain) if: (i) it arose from the parties’ pleadings; (ii) it arose by reasonable implication from their pleadings; (iii) it is unpleaded but arose in some other way in the arbitration and was reasonably brought to the party’s actual notice; or (iv) it flows reasonably from the arguments actually advanced by either party or is related to those arguments.[9]

In that regard, the “overriding burden is on the applicant to show that a reasonable litigant in his shoes could not have foreseen the possibility of the reasoning of the type revealed in the award.”[10] The Court added, “The arbitrator is not expected to consult the parties on his thinking process before finalising his award unless it involves a dramatic departure from what has been presented to him.”[11]

In short, it must be “plain that the reasoning of the Tribunal was something so far outwith the contemplation of the parties as a course that the Tribunal could follow that it could not have been foreseen as flowing from what was argued.”[12]

The Court also stated that it is “axiomatic that an error of law or fact in the award does not amount to a breach of natural justice”,[13] and a court will only intervene if the tribunal “failed to consider an issue at all” (emphasis in original).[14]

With this high bar in mind, the Court found that the Majority considered all the issues to some extent. Further, it found that there was no causal connection between the alleged breach and the award, and that there was in any event no prejudice to the plaintiff.

The Court also acknowledged that the Majority did rely on some facts or matters that were not pleaded or argued, but that there was no causal connection between these alleged breaches and the award, and no prejudice to the plaintiff. The Court also rejected the plaintiff’s strict approach and found, for instance, that the Majority was entitled as part of its comparative analysis to refer to contractual provisions about which it had heard no argument.

On the question of bias, the Court found the allegation to be one of apparent, rather than actual, bias. The Court rejected the Minority’s bare allegations against his colleagues, including his claim that the Majority had concealed its true ratio decidendi (i.e., had falsified the basis of its decision). The Court noted that the “Minority’s frustration at not having been able to persuade the Majority to his views is palpable” but that “that is clearly no reason for this Court to intervene.”[15]

The Court also rejected the plaintiff’s argument that an ex parte phone call from a member of the Majority to the defendant’s counsel after the final award created a reasonable suspicion of bias. This member of the Majority called counsel for both parties separately to discuss the Minority’s dissent, which had been unilaterally distributed by the Minority and did not form part of the final award in the ICC’s view.

While the plaintiff argued that the phone call to the defendant contravened the tribunal’s own procedural order, the Court pointed out that the procedural order only prohibited counsel from reaching out to the tribunal ex parte, and not vice versa. The Court concluded that the call, and a subsequent email in which the member acknowledged making the call, evidenced his “unhappiness” with the Minority’s dissemination of his dissent.[16]


Given that Singapore and Canada are both Model Law jurisdictions, this case is of significant relevance to Canadian readers (particularly as a coda to the Court’s prior decision in this matter). Given that the plaintiff relied in large part upon the same factual allegations that it advanced in its unsuccessful summons application, it is therefore perhaps unsurprising that the result in this set-aside application was the same.

On the other hand, some of the salient points of the decision raise the question of whether it might be decided similarly in Canada, where many jurisdictions have jealously protected parties’ rights to make their case and respond to the case against them (consistent with Article 34(2)(a)(ii) of the Model Law, to which the Court referred in CZT). As a result, it is not unheard for an award to be set aside[17], or a trial judgment to be overturned or remitted back to the trial judge, in similar situations on the basis that the arbitrator or judge deprived the parties of the opportunity to fully brief their case. Notwithstanding that the Court in CZT similarly emphasized the importance of parties having sufficient opportunity to be heard, it would seem that Singaporean courts contemplate a somewhat higher threshold for finding a violation.

On the other hand, the Court in CZT took a nuanced view of this issue, distinguishing between an award dealing with an issue not raised by the parties (and therefore outside the terms of submission to arbitration, contrary to Article 34(2)(a)(iii) of the Model Law), versus an award dealing with arguments not raised by the parties (which goes to the issue of a breach of natural justice). This, in particular, is an important distinction for parties to bear in mind when considering whether to apply for set-aside, and how to plead in such an application.

As well, the Court acknowledged that the Majority relied on facts or matters that were not pleaded or argued, but found that this was not grounds for setting aside the award because it had not affected the outcome. Readers will recall that in the recent Ontario Divisional Court decision in Ledore v Dixin[18] (discussed here), the Court found that parties to an interim construction dispute adjudication under Ontario’s Construction Act[19] had “the right to be heard on the determinative issue”.[20] This is potentially consistent with CZT, in that both decisions would require the parties be allowed to make submissions on any determinative issue.

CZT also makes clear that it is incumbent upon parties (and particularly counsel) to anticipate the possibility of the tribunal employing reasoning that does not necessarily flow solely from the issues and arguments raised by counsel, so long as it is not “a dramatic departure from what has been presented” to them. In that regard, it would behoove parties to retain counsel with ample experience in the type of dispute at issue.

It is also noteworthy that the Court found that the tribunal’s procedural order did not apply to ex parte communications from the tribunal. This may meet the letter of the procedural order, but perhaps not its spirit insofar as the underlying rationale for a prohibition on ex parte communications – procedural unfairness – would arguably apply regardless of who initiates the communication in question. That said, the Court’s thinking may have been influenced by the fact that the communications occurred after the award was issued, and the fact that the tribunal contacted both parties on the same day, implying reciprocity.

In any event, it is evident from the decision that there is a heavy burden on an applicant to set aside an award on the basis of a breach of natural justice. Arbitrators are not held to a standard of perfection – on either questions of fact or of law. Accordingly, parties to an arbitration may want to err on the side of over-inclusivity rather than under-inclusivity in their submissions.


[1] CZT v CZU, [2023] SGHC(I) 22.

[2] CZT v CZU, [2023] SGHC(I) 11.

[3] International Arbitration Act 1994 (2020 Revised Edition).

[4] CZT v CZU, [2023] SGHC(I) 22 at para 22.

[5] CZT v CZU, [2023] SGHC(I) 22 at para 26.

[6] Soh Beng Tee & Co Pte Ltd v Fairmount Development Pte Ltd, 2007 SGCA 28.

[7] CZT v CZU, [2023] SGHC(I) 22 at para 28.

[8]CZT v CZU, [2023] SGHC(I) 22 at para 30.

[9] CZT v CZU, [2023] SGHC(I) 22 at para 33.

[10] CZT v CZU, [2023] SGHC(I) 22 at para 34.

[11] CZT v CZU, [2023] SGHC(I) 22 at para 34.

[12] CZT v CZU, [2023] SGHC(I) 22 at para 60.

[13] CZT v CZU, [2023] SGHC(I) 22 at para 27.

[14] CZT v CZU, [2023] SGHC(I) 22 at para 40.

[15] CZT v CZU, [2023] SGHC(I) 22 at para 100.

[16] CZT v CZU, [2023] SGHC(I) 22 at para 106.

[17] See, for example, our case comment on Mattamy (Downsview) Limited v. KSV Restructuring Inc. (Urbancorp), 2023 ONSC 3012, available here.

[18] Ledore Investments v Dixin Construction2024 ONSC 598.

[19] Construction Act, RSO 1990, c C.30.

[20] Ledore Investments v Dixin Construction2024 ONSC 598 at para 28.

Tam v. PD Plumbing & Heating Ltd.: Recent Developments in the Law Surrounding Want of Prosecution in Builders Lien Actions

It is well established law that builders lien actions in British Columbia are special cases that require expeditious prosecution.[1] In the recent decision of Tam v. PD Plumbing & Heating Ltd.[2] (“Tam”), the British Columbia Court of Appeal has confirmed that lien claimants must be prepared to prosecute their claims diligently, failing which they could face severe consequences. Below, we consider the case, provide our key takeaways and provide an update on the recent developments in the law surrounding applications for want of prosecution.

The Facts

In Tam, Betty Sui Fan Tam and Alexander Ming Tam (the “Tams”) entered into a contract with PD Plumbing & Heating, doing business as Kmpas Plumbing Ltd (“PD Plumbing”) for the provision of plumbing work and the installation of air conditioning (“the Work”) in a home owned by the Tams. After PD Plumbing completed the Work, a dispute arose due to the alleged non-payment by the Tams, and PD Plumbing registered a Claim of Lien against the title to the home. Approximately one year later, PD Plumbing sought to enforce its lien by filing a Notice of Civil Claim and Certificate of Pending Litigation. [3]

After the Tams delivered a response to the claim, the litigation stalled. PD Plumbing delivered its list of documents in the months that followed. However, after that, no steps were taken in the litigation for six years, at which point PD Plumbing filed a notice of intention to proceed. The Tams subsequently brought an application to dismiss the claim for want of prosecution. [4]

British Columbia Supreme Court Analysis

In the Supreme Court, the Application Judge, Justice Sharma, began by outlining the factors the Court will consider in an application for a want of prosecution, which are:

  1. The length of delay and whether it was inordinate;
  2. Any reasons for the delay;
  3. Whether the delay has caused prejudice or made a fair trial impossible; and
  4. Whether, on balance, justice requires dismissal of the action. [5][6]

With respect to the first factor, the Court observed that a delay is inordinate if it is uncontrolled, immoderate, or excessive. The starting point for determining delay is generally considered from the time an action is commenced. [7] PD Plumbing admitted that the delay was inordinate but attempted to justify its delay in litigating the action.[8] The Court then turned to consideration of the second factor: whether the delay was inexcusable in this case. PD Plumbing took the position that the cost of the litigation, relative to the amount of the claim, did not make it financially feasible to move forward with the litigation. In response, the Tams referred to prior authority that indicated that a litigant hoping to settle a claim as a reason for not moving forward with the litigation is not a reasonable excuse for delay.[9] However, Justice Sharma distinguished the prior authority primarily on the basis that there was evidence that the Tams had previously acknowledged it owed money to PD Plumbing. As a result, the Court concluded that it was not unreasonable for PD Plumbing to have delayed the litigation in the hope the Tams would pay the amount owing, given the cost of moving the litigation forward relative to the size of the claim.[10]

Justice Sharma then went on to examine the third factor, prejudice. Once a defendant has established that there was an inordinate and inexcusable delay, a rebuttable presumption of prejudice arises that the plaintiff must rebut.[11] When considering prejudice, the primary consideration is a defendant’s ability to develop a defence.[12] However, previous jurisprudence has also found that the presence of a Certificate of Pending Litigation can lead to a presumption of prejudice.[13] Despite such authority, the Justice Sharma was unconvinced and was of the opinion that the mere existence of a Certificate of Pending Litigation was not sufficient to demonstrate prejudice and found that the Tams had not proven any actual prejudice. She suggested that while a rebuttable presumption of prejudice could be raised if the first two factors of the test were met, the entire burden was not shifted onto PD Plumbing. Instead, she opined that the case was to be looked at as a whole.[14]

In deciding not to dismiss the action, Justice Sharma found that the interests of justice could not justify the use of such a draconian remedy. She was of the opinion that the reason for the delay put forward by PD Plumbing was not so inexcusable and that the delay itself did not give rise to a presumption of prejudice. Moreover, Justice Sharma was of the view that even if a presumption of prejudice was raised, there was insufficient evidence to demonstrate actual prejudice, which ultimately was “problematic in terms of the ultimate balancing” of the interests of justice. Justice Sharma dismissed the Tams’ application for want of prosecution. The Tams appealed the decision to the British Columbia Court of Appeal.[15]

British Columbia’s Court of Appeal’s Analysis

At the Court of Appeal, the primary issue on appeal was whether Justice Sharma erred in her application of the test for want of prosecution. [16]

Although it served as obiter dictum, the Court of Appeal discussed the inordinate delay in this case. The Court of Appeal found that the actions by PD Plumbing had not only shown an inordinate delay in prosecuting the action but demonstrated an overall lack of commitment to moving the action forward in accordance with the Supreme Court Civil Rules. More specifically, the Court of Appeal highlighted the lien claimant’s delay in commencing the action until just shortly before the limitation period expired and their failure to participate in the appeal process.[17]

The Court of Appeal then considered whether the delay was inexcusable and found that Justice Sharma had erred in accepting PD Plumbing’s explanation for delays in the litigation. PD Plumbing had essentially admitted that it never intended to proceed with the action, and in the Court of Appeal’s opinion, attempting to leverage a settlement was not an excuse for unduly dragging out litigation.[18]

In considering prejudice, the Court of Appeal observed that although there may have been no prejudice to the Tams’ ability to develop a proper defence, the interference in property rights created by the Claim of Lien and Certificate of Pending Litigation gave rise to a presumption of prejudice that PD Plumbing failed to rebut.[19]

The Court of Appeal concluded that the interests of justice weighed in favour of dismissing the claim given the amount of time that had passed since the completion of the Work, the delays in prosecuting the action, the admissions by PD Plumbing that it never intended to proceed with the claim, and PD Plumbing’s failure to appear at the appeal. [20]

The Court of Appeal ultimately overturned the Application Judge’s ruling and ordered that the action be dismissed for want of prosecution. [21]


This decision provides some key takeaways for lien claimants prosecuting lien actions in British Columbia.

First, the Court of Appeal appears to have signalled that inordinance of delay in builders lien actions will be measured from the date a Claim of Lien is filed. In the oft-cited case of Wiegert v Rogers[22], the Court of Appeal observed that when determining whether a delay is inordinate, although there is no universal rule when time starts to run, the date when the action is commenced is usually the starting point to measure delay.[23] However, in Tam, when determining inordinate delay, the Court of Appeal specifically referred to PD Plumbing’s failure to commence an action until just before the Builders Lien Act’s limitation period expired in considering whether or not the delay was inordinate.

Second, the Court of Appeal confirmed that actual prejudice exists in lien actions due to the interference with a defendant’s property rights. It is important to note that British Columbia’s Court of Appeal subsequently revised the test for want of prosecution in Giacomini Consulting Canada Inc. v. The Owners, Strata Plan EPS 3173,[24] and removed the requirement of establishing prejudice in relation to an application for a dismissal for want of prosecution [25] (“Revised Test”). The Revised Test now asks:

  1. Has the defendant established that the plaintiff’s delay in prosecuting the action is inordinate?
  2. Is the delay inexcusable? [26]
  3. Whether, on balance, justice requires dismissal of the action. [27]

Notably, one of the factors the Court will consider in making a determination in relation to whether justice requires dismissal of the action is the “impact of the delay on a defendant’s professional, business, or personal interests.” The writers are, therefore, of the view that the substantial interference in property rights created by a Claim of Lien and Certificate of Pending Litigation is a consideration the Court will make when determining whether the interests of justice suggest dismissing an action for want of prosecution.

Lien claimants should be well prepared to prosecute their claim, including budgeting for the legal costs associated with doing so. In Tam, the Court of Appeal was unsympathetic about the fact that taking steps in the action would outweigh any potential recovery.  Therefore, lien claimants would be well served by consulting counsel who has experience dealing with builders liens and can provide strategic advice on enforcing their claim as well as alternative means of resolving their disputes earlier in the litigation by way of alternative dispute resolution mechanisms, such as mediation or engaging in negotiations with the other party.

[1] DEB Construction Ltd. v Mondiale Development Ltd., 2023 BCSC 1167 at para 26.

[2] 2023 BCCA 457 [Tam BCCA].

[3] PD Plumbing & Heating Ltd. v Tam, 2021 BCSC 2078 at paras 2-7 [Tam BCSC].

[4] Ibid at paras 7-9.

[5] The most important factor to be considered in an application of want of prosecution are the interests of justice.

[6] 0690860 Manitoba Ltd v Country West Construction Ltd, 2009 BCCA 535 at para 27.

[7] Callan v Cooke, 2020 BCSC 290 at paras. 74–75.

[8] Tam BCSC at paras 13-14.

[9]  North Shore Law LLP v. Cassidy, 2020 BCSC 1658 [North Shore]

[10] Tam BCSC at paras 16-19.

[11] Canadian National Railway Company v. Chiu, 2014 BCSC 75 at para 13.

[12] Tam BCSC at para 22.

[13] North Shore, supra note 10 at para 26.

[14] Tam BCSC at paras 26-28.

[15] Ibid at paras 30-33.

[16] Tam BCCA at paras 23-24.

[17] Ibid at para 27.

[18] Ibid at para 28.

[19] Ibid at paras 29-30.

[20] Ibid at para 31.

[21] Ibid at para 32.

[22] 2019 BCCA 334.

[23] Ibid at para 32.

[24] 2023 BCCA 473.

[25] Ibid at para 65.

[26] Ibid at para 69.

[27] Ibid at para 70.

Ledore v Dixin: Procedural Fairness and the Limits of Rough Justice

In Ledore Investments v Dixin Construction[1],on an application for judicial review, the Ontario Divisional Court was asked to consider whether an adjudication under Ontario’s Construction Act (the “Act”) should be set aside on the basis that the parties did not have an opportunity to make submissions on a determinative issue.

After reviewing the facts and the relevant law, the Court made a rare decision to remit the matter back to the adjudicator for further consideration on the basis that the conduct of the adjudication amounted to a breach of procedural fairness. Below, we consider the implications of this case in respect of the decision itself as well as broader implications on the adjudication regime as a whole – particularly given the intersection of the underlying principle of rough justice and the conflicting boundaries of procedural fairness.


This case involved both the adjudication and prompt payment provisions of the Act. Here, Ledore Investments Limited, carrying on business as Ross Steel Fabricators & Contractors (“Ross Steel”), was a subcontractor on a project at Lambton College. In respect of that project, and relevant to the dispute between the parties, Ross Steel submitted three invoices to the contractor, Dixin Construction (“Dixin”), which went unpaid notwithstanding the prompt payment requirements of the Act. The invoices totalled $349,263.57, inclusive of HST and holdback.

Dixin had received payment from the owner in respect of the work performed by Ross Steel, but failed in turn to pay Ross Steel or, alternatively, to provide Ross Steel with a Form 1.3 “Contractor Notice of Non-Payment if Dispute” within the prescribed timeframe. Such a notice would have exempted Dixin from the requirement to pass down payments from the owner under the Act’s prompt payment provisions. Having not provided such notice, and in normal circumstances, the prompt payment requirements of the Act would ostensibly have been triggered so as to require Dixin to make payment down the chain to Ross Steel.

However, not long after the third invoice was issued by Ross Steel (with the first two invoices having gone unpaid), Dixin noted Ross Steel in default and subsequently terminated its subcontract. Dixin’s rationale for this default and termination appears to be that Ross Steel “had failed to agree to a schedule for the performance of the subcontract, had failed to perform its subcontract in a timely manner, and that its work also required repair.” In respect of this issue, Dixin claimed set-off against Ross Steel.

Ross Steel then referred the dispute to interim adjudication under section 13.7(1) of the Act. The adjudicator assigned by Ontario Dispute Adjudication for Construction Contracts (“ODACC”) permitted only written submissions from the parties. Ross had not previously referred the prior invoice non-payment issues to adjudication, notwithstanding its entitlement to do so.

In this post termination adjudication, the adjudicator concluded that Dixin was not required to pay the invoices. However, and importantly, the adjudicator made this decision for reasons not raised by either party.

In particular, the adjudicator found that the invoice that Dixin had delivered upstream to Lambton College (the Owner) was not a ‘proper invoice”’ as defined in the Act. (That is to say, the adjudicator questioned an invoice that was not in dispute.) As a result, the Adjudicator determined that the prompt payment regime (including requirements for a notice of non-payment to have been issued) was not yet engaged.

The adjudicator expressly acknowledged that neither party had raised this issue, but did not solicit further submissions from either party on this point. The adjudicator instead suggested that Ross Steel “relaunch” the adjudication on a fresh basis, i.e., that Dixin failed to deliver a proper invoice to the owner and that this resulted in a breach of the subcontract and/or the Act.

The adjudicator also concluded that, if the prompt payment regime had been engaged, he would have found that Dixin was required to pay the invoices and was not entitled to set-off against them. This was primarily given that Dixin had failed to give appropriate notice of non-payment in respect of any of the three invoices issued by Ross Steel.

Unsatisfied with the possibility of returning to the beginning of the adjudication process, Ross Steel elected to seek leave from the Divisional Court under section 13.18(1) of the Act for judicial review of the decision. Under section 13.18(5), an adjudicator’s determination can only be set aside on the following grounds:

  1. The applicant participated in the adjudication while under a legal incapacity.
  2. The contract or subcontract is invalid or has ceased to exist.
  3. The determination was of a matter that may not be the subject of adjudication under this Part, or of a matter entirely unrelated to the subject of the adjudication.
  4. The adjudication was conducted by someone other than an adjudicator.
  5. The procedures followed in the adjudication did not accord with the procedures to which the adjudication was subject under this Part [i.e. Part II.1 of the Act], and the failure to accord prejudiced the applicant’s right to a fair adjudication.
  6. There is a reasonable apprehension of bias on the part of the adjudicator.
  7. The determination was made as a result of fraud.

Importantly, leave to judicial review is intended to be given rarely and only in respect of the above noted grounds. The general intent of the legislation is to allow rough justice and to provide deference to adjudicators except in the strictest of enumerated circumstances. Notwithstanding the rarity of this relief, and that it has not actually been provided for in any case to date, Ross Steel was granted leave to seek review based on grounds nos 3 and 5.

The Court’s Decision

The Court only found it necessary to consider ground no 5: that the applicant’s right to a fair adjudication was prejudiced by procedures that did not accord with the prescribed procedures.

While Part II.1 of the Act itself did not “expressly incorporate principles of procedural fairness”, section 13.6 (in Part II.1) did state that an adjudication shall be conducted in accordance with procedures set out in regulations.[2] O Reg 306/18 in turn provides a code of conduct for adjudicators that includes principles of procedural fairness. Therefore, the Court concluded that procedural fairness applied.

The Court also indicated that any “serious breaches” of procedural fairness would also necessarily fall with the Divisional Court’s jurisdiction.

The Court acknowledged that procedural fairness for an adjudication under the Act did not require “a full range of procedural protections”,[3] and that it was necessary to consider the statutory context and the prompt and abbreviated nature of the adjudicative process. However, it found that “the right to be heard on the determinative issue is a central component of even more limited procedural protections”,  adding:

It is a legal truism in our system of justice that it is fundamentally unfair, and quite possibly unreliable, for a judicial officer or adjudicator to reach a conclusion in his or her reasons for judgment in a proceeding based on an issue that has not been pleaded or relied upon by a party to the proceeding.[4]

The Court observed that it was “fundamentally unfair” to determine the dispute on an issue that neither party spoke to, because “the losing party has had no opportunity to know the case it has to meet, or to address the issue that has been determined to be decisive”.[5] The Court also noted that Dixin had not even submitted to the adjudicator any invoices that it had submitted to Lambton College.

In the Court’s view, the problem with the adjudication was not so much that the parties did not raise the issue, but more so that the adjudicator’s determination was not tested by the adversarial process. The Court noted that both parties could have “offered valuable insights to the adjudicator, had they been given the opportunity”.[6]

The Court concluded that the statutory scheme “does not preclude an adjudicator from requesting further written submissions on the determinative issue”,[7] and suggested that the adjudicator could have invited submissions on the following:

  1.    whether, even though Dixin had received payment from the College, its failure to issue a “proper invoice” to the College should allow it to withhold payment to Ross Steel;

  2.    what, if anything, in the Act required the use by a contractor of a “proper invoice” to an Owner to engage the rest of the prompt payment scheme; and

  3.    what effect a requirement to issue “proper invoices” to engage the prompt payment provisions would have on the policies and legislative choices that lie behind Part I.1 of the Act.[8]

The Court also rejected the idea advanced by Dixin that the adjudicator’s power to “tak[e] the initiative in ascertaining the relevant facts and law” overrides “an experienced party’s fundamental right to be heard on the determinative issue.”[9]

In terms of a remedy, the Court declined to substitute its analysis for that of the adjudicator, instead remitting the matter to the adjudicator for further consideration.


At first blush, the result in Ledore appears intuitively correct insofar as the right to be heard, to make one’s case, and to respond to the case against them are fundamental principles of the adversarial system of dispute resolution. On balance, the Court’s conclusion is therefore a reasonable one, and is consistent with the proposition that judicial review is to be rarely sought (and relief rarely granted) with respect to adjudication.

That being said, the Court’s analysis nevertheless highlights certain issues regarding how the structure and intent of the adjudication regime are meant to interact with principles of fairness rooted in the more traditional format of adversarial dispute resolution.

First, it is notable that the issue of whether an invoice is a “proper invoice” is arguably a straightforward inquiry that requires limited scrutiny and might not admit competing interpretations. In particular, the Act stipulates that a “proper invoice” must include the following (in addition any other requirements stipulated by the parties’ contract):

  1. The contractor’s name and address.
  2. The date of the proper invoice and the period during which the services or materials were supplied.
  3. Information identifying the authority, whether in the contract or otherwise, under which the services or materials were supplied.
  4. A description, including quantity where appropriate, of the services or materials that were supplied.
  5. The amount payable for the services or materials that were supplied, and the payment terms.
  6. The name, title, telephone number and mailing address of the person to whom payment is to be sent.
  7. Any other information that may be prescribed in the Act.

It seems at least arguable that these types of information are not readily susceptible to interpretation or debate – either an invoice contains this information, or it does not.

On the other hand, as the Court observed, the nature of the submissions that the adjudicator could have sought from the parties was not limited to simple review of invoices, but rather went to the interpretation of the Act’s adjudication provisions themselves, as well as their underlying policy and legislative choices. These issues would be more susceptible to robust debate, but they in turn raise a further issue with respect to the accessibility of adjudication: whereas sophisticated parties with counsel would be capable of delivering submissions on this point, it is highly unlikely that those parties at the bottom of the construction pyramid – in other words, that most vulnerable class of persons for whom adjudication was intended to provide the greatest benefit – would retain counsel, or be able to meaningfully argue over the provisions of the Act or its policy objectives.

Put differently, an interesting counterfactual to consider is if the parties in this case had been third- and fourth-tier subtrades operating as sole proprietorships, and engaging in adjudication without counsel. In that scenario, it is debatable whether seeking further submissions from the parties on the proper interpretation or policy objectives of the Act would have provided a meaningful benefit to either of the parties or the adjudicator. To the contrary, it stands to reason that the parties might very well have limited themselves to whether the contents of the invoices included all of the relevant information.

Second, it is also noteworthy that the Court concluded that Dixin’s argument that the adjudicator’s ability to undertake certain inquisitorial activities – such as ‘ascertaining the relevant facts and law’, pursuant to s. 13.12(1) of the Act – did not “override an experienced[10] party’s fundamental right to be heard on the determinative issue”. This argument seems correct insofar as the balance of s. 13.12(1) does not explicitly endow the adjudicator with plenary authority to determine the adjudication’s procedure, although on the other hand, it does authorize the adjudicator to issue “directions respecting the conduct of the adjudication” (emphasis added). It is not clear on the face of the provision whether and to what extent “conduct” is meant to be analogous to “procedure”, although it seems at least debatable (and consistent with the Court’s observation that deference is owed to the procedure chosen by the adjudicator). Ultimately, it seems that an adjudicator does have a broad procedural discretion under the Act, but not a limitless discretion.

Similarly, it is at least arguable that the adjudicator’s ability to “tak[e] the initiative in ascertaining the relevant facts and law” extended to making findings of fact and/or law, and in that sense, could credibly support the proposition that the adjudicator was entitled to conclude whether an invoice was a “proper invoice” without hearing submissions; ultimately, this point is illustrative of the tension between a quasi-inquisitorial model and the adversarial model (and culture) within which it resides. Given the latter, it is unsurprising that the Court erred on the side of a robust right to be heard – particularly in circumstances where the finding in question – that Dixin did not deliver a proper invoice to Lambton College – related to an issue not raised by the parties.

Interestingly, it is also notable that the Court’s acknowledgement of the adjudicator’s inquisitorial powers arguably undermines its reliance on the case law supporting the right to be heard, and again speaks to the tension of an inquisitorial model in an adversarial system. In particular, in support of the proposition that an adjudicator reaching a conclusion based on an issue not pleaded or relied upon by a party, the Court relied upon case law to the effect that

It is potentially unreliable because, in a system in which the adversarial process is relied upon to reach the best and most thoroughly considered determination, a decision that has not been tested in that framework cannot be trusted to have had its flaws exposed and addressed.[11] [emphasis added]

As noted, statutory adjudication under the Act is not purely adversarial, and as a result, it is arguable that the relevant case law might therefore have been of less persuasive value.

Ultimately, and although the result in Ledore v Dixin is both intuitively and legally reasonable, it nevertheless raises some concerns as to the underlying principle of adjudication as a quicker, “rough justice” approach.

If procedural fairness dictates that parties are always entitled to a right to be heard on a “determinative issue”, then it may be easy to envision sophisticated parties raising technical points of law and policy as “determinative” in an attempt to obtain a tactical advantage over less experienced, self-represented counterparties to adjudication.

This would run the risk of ‘over-legalizing’ adjudication – thus dissuading parties at the bottom of the construction pyramid, whom adjudication was intended to benefit – and of extending timelines in adjudication so that parties could properly brief any legal or policy issues raised by the adjudication. If taken too far, this could defeat the very purpose of adjudication itself and lead to more cases ending up back in courts across Ontario – where resources are already limited. We await with interest to see how the adjudication case law continues to develop in Ontario.

[1] Ledore Investments v Dixin Construction, 2024 ONSC 598.

[2] Ledore Investments v Dixin Construction, 2024 ONSC 598 at para 25.

[3] Ledore Investments v Dixin Construction, 2024 ONSC 598 at para 27.

[4] Ledore Investments v Dixin Construction, 2024 ONSC 598 at para 28.

[5] Ledore Investments v Dixin Construction, 2024 ONSC 598 at para 29.

[6] Ledore Investments v Dixin Construction, 2024 ONSC 598 at para 32.

[7] Ledore Investments v Dixin Construction, 2024 ONSC 598 at para 35.

[8] Ledore Investments v Dixin Construction, 2024 ONSC 598 at para 32.

[9] Ledore Investments v Dixin Construction, 2024 ONSC 598 at para 36.

[10] It is not clear from the Court’s analysis whether the reference to an “experienced party’s right” (emphasis added) is meant to suggest that the right to be heard in the adjudication context is more robust for experienced parties than inexperienced ones; presumably, such a fundamental right would apply equally to inexperienced parties, notwithstanding our observation above that inexperienced parties would not be as well-positioned to discuss legal and policy issues as experienced parties.

[11] Ledore Investments v Dixin Construction, 2024 ONSC 598 at para 29.

Schickedanz v. Wagema Holdings: The Costs of Arbitral Costs Awards

In Schickedanz v. Wagema Holdings Limited, 2023 ONSC 7219, the Ontario Superior Court of Justice dismissed an appeal of an arbitrator’s costs award. The Court emphasized that there is a high bar for overturning a costs award, as the decision-maker at first instance (i.e. the arbitrator) is in the best position to determine costs. The Court also found that, unless expressly stated otherwise in the arbitration agreement, an arbitrator may award reasonable legal fees without reference to any court scale. Below, we review the case and consider the implications of this decision in the construction industry.

Factual Background

The underlying dispute in this case involved five siblings who were equal shareholders of Wagema Holdings Limited (the “Wagema Respondent”).

In the fall of 2020, one of the siblings, Charlotte Schickedanz, and her holding company, Wagema Holdco (CDS) ULC (together, the “Appellants”), commenced litigation proceedings against the Wagema Respondent, Ms. Schickedanz’s brothers and their respective holding companies (the “Brothers”), a global law firm (the “Firm”), and the responsible partner at the Firm.

Ultimately, all the claims were consolidated into a single arbitration. For this purpose, the parties executed an arbitration agreement in April 2021 (the “Arbitration Agreement”). In the Arbitration Agreement, the parties agreed that the arbitration would be governed by the Arbitration Act, 1991, S.O. 1991, c. 17 (the “Arbitration Act”) and that all parties would have appeal rights from any final decision in the arbitration. With respect to the conduct of the arbitration, the parties agreed that the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 (the “Rules”) would govern.

In December 2020, the Wagema Respondent retained the Firm to provide corporate advice to the Wagema Respondent in connection with the litigation commenced by Ms. Schickedanz against the Wagema Respondent in the aforementioned arbitration (the “Litigation Support Retainer”). The Firm had previously been retained by the Wagema Respondent as legal counsel in relation to a corporate reorganization and unanimous shareholder agreement in 2018.

On March 23, 2021, counsel for the Appellants sent a letter to counsel for the Firm and the Wagema Respondent regarding the Litigation Support Retainer. In this letter, counsel for the Appellants objected to an invoice sent by the Firm to the Wagema Respondent as: (a) it was unclear what the nature of the professional services were, and the Appellants did not know why the Firm would invoice the Wagema Respondent for Ms. Schickedanz’ litigation or in such high amounts; (b) the Wagema Respondent indicated that it would not take an active role in the litigation, and had a different law firm acting as litigation support; and (c) if the Firm was assisting the Brothers in litigation, those fees should be charged directly to those co-defendants, not the Wagema Respondent.

Counsel for the Wagema Respondent responded on April 7, 2021. The letter explained that the services were provided to assist the Wagema Respondent in “considering and, if necessary, responding to the arbitration and civil proceedings” commenced by the Appellants. In addition, counsel for the Wagema Respondent noted that although the Wagema Respondent did not intend to play an active role in the litigation, it believed that it was in “the company’s best interests that documents and information in [the Firm’s] possession as [the Wagema Respondent’s] corporate counsel be made available to, among other things, facilitate an expeditious determination of the matters in dispute.” Accordingly, the Wagema Respondent believed “that these costs are expenses incurred on behalf of the company and should be paid by the company.”

Later in 2021, the Appellants ultimately advised they were willing to dismiss the arbitration on consent and on a without-costs basis. However, the Brothers advised they were unwilling to settle the matter on a without-costs basis, as a result of which both the Brothers and the Wagema Respondent brought motions before the arbitrator for costs.

On October 8, 2021, the arbitrator released his costs award (the “Award”). In the Award, among other things, the arbitrator awarded $172,150.34 in costs to the Wagema Respondent for the legal expenses paid to the Firm pursuant to the Litigation Support Retainer.

The Appellants then commenced an appeal of this Award.

Motion to Quash the Appeal

In June 2022, the Wagema Respondent brought a motion to quash the appeal on the ground that leave to appeal was not sought pursuant to section 133(b) of the Courts of Justice Act, R.S.O. 1990, c. C.43 (the “CJA”).

The motion judge noted that the parties had negotiated and agreed upon a broad appeal process, without carving out a leave requirement for costs, and imposing a leave requirement would amount to judicial interference with the parties’ right to contract. After reviewing section 133(b) of the CJA and the Arbitration Act, she was not persuaded that leave to appeal was required.

Ultimately, the motions judge dismissed the motion to quash as she was “not satisfied that the appeal was devoid of merit nor that there was no likelihood that, if leave was required, it would not be granted in this case.” If leave was required, the application for leave could be dealt with by the judge hearing the merits of the appeal.

The Superior Court’s Decision

The Court dismissed the appeal, as the Appellants failed to show that the arbitrator made an error in principle or that the Award was plainly wrong.

Leave to Appeal

As a preliminary matter, the Court addressed the issue of whether leave to appeal an arbitral costs award is required. In the Courts view, leave to appeal was not required in this case.

The Wagema Respondent relied on section 133(b) of the CJA, which provides that “[n]o appeal lies without leave of the court to which the appeal is taken […] where the appeal is only as to costs that are in the discretion of the court that made the order for costs”. However, the Court noted that the CJA only referred to a court, not a tribunal or arbitrator, and found that the CJA drew a distinction between a tribunal and a court.

The Court confirmed that “[l]eave to appeal an order as to costs is granted sparingly and only where there are strong grounds on which the appellate court could find that the decision-maker at first instance erred in exercising their discretion because they made an error in principle or their decision is plainly wrong”.

The Court then held that leave to appeal was not required in this case for the following reasons:

  1. By its clear language, subsection 133(b) of the CJA only applies to costs awards made by a court.
  2. Section 45 of the Arbitration Act deals with appeals from an arbitral award. It does not draw a distinction between (1) an appeal regarding the substantive disposition of the award, and (2) an appeal as to costs only.  Further, the Arbitration Act does not refer to subsection 133(b) of the CJA, even though it refers to other provisions of the CJA, when relevant: see sections 45(6) and 57 of the Arbitration Act.
  3. As pointed out by the motions judge, the parties had negotiated and agreed upon broad appeal rights, without carving out a leave requirement for costs. The appeal rights were set out in section 12 of the Arbitration Agreement, in which the parties agreed that they had appeal rights from any final decision in the Arbitration, including on a question of fact, law or mixed fact and law. Subsections 45(2) and (3) of the Arbitration Act allow a party to appeal an award to the court on such questions “[i]f the arbitration agreement so provides”.

As subsection 133(b) of the CJA only applies to courts, and as there is no leave requirement imposed by the Arbitration Act with respect to costs award appeals, the parties were not required to seek leave to appeal the Award.

Applicable Test for Setting Aside a Costs Award

The Court set out the applicable test for setting aside a costs award as follows:

A court should set aside a costs award on appeal only if the decision-maker made an error in principle or if the costs award is plainly wrong.

The Court noted that costs awards are “notoriously difficult to appeal because they represent the decision-maker’s exercise of judgment as to the overall justice of the situation that they saw unfolding before them”. In that regard, a “reviewing court must be mindful that a costs award is a discretionary order and the decision-maker at first instance is in the best position to determine the entitlement, scale and quantum of any such award.”

Scale of Costs

The appellants argued that the arbitrator had made a reversible error by holding that cost recovery on a full indemnity basis was the normal practice in commercial arbitrations.

First, the Court noted that while Section 54 of the Arbitration Act states that an arbitral tribunal may award the costs of an arbitration, it does not refer to the Rules or the concept of scale of costs.

In granting costs to the Wagema Respondent, the arbitrator had relied on J. Brian Casey’s well-known textbook, Arbitration Law of Canada: Practice and Procedure for the proposition that the practice under domestic arbitrations is to award reasonable legal fees without reference to any court scale. The Court found that the general principles in that textbook were consistent with the language in section 54 of the Arbitration Act, and that there was support in the case law in other provinces that full indemnity is the norm for commercial arbitration.

The Court then considered a number of decisions the Appellants relied upon to argue against the above proposition, and found that all of the cases could be distinguished.

The Court found that, in light of the uncertainty in the authorities and the absence of any clear rule, the arbitrator did not make an error in principle and was not plainly wrong when he decided to award the Wagema Respondent its full legal expenses as the costs of the arbitration. The arbitrator did not infringe the Arbitration Act and exercised his discretion judicially, and not irrationally or whimsically.

Although the Appellants argued that the arbitrator had to proceed in accordance with the Rules of Civil Procedure as provided for in the Arbitration Agreement, the Court agreed with the arbitrator’s conclusion that the Arbitration Agreement only referred to the Rules in how the arbitration would be conducted by the parties, not with regard to how costs would be governed. Instead, the arbitrator concluded that he was to be guided on costs by the Arbitration Act. The Court found that it was open to the arbitrator to interpret the Arbitration Agreement in the way that he did. The Appellants did not raise any error in principle or show that the arbitrator was plainly wrong on that point.

Finally, the Court affirmed that appellate intervention solely based on quantum is problematic, as there is no meaningful way to determine when a number is too high. The amount of the costs award alone is not enough to show that the award is unreasonable or that there was an error in principle. Again, the Court emphasized that the decision-maker at first instance is in the best position to determine the quantum of any costs award.

Costs for Work Done by the Firm Pursuant to the Litigation Support Retainer

At the hearing, the Appellants also argued that the arbitrator made two other reversible errors: (1) allowing the Wagema Respondent to recover the Firm’s “litigation support” fees, as the Firm’s fees were excessive for an arbitration that did not progress beyond the production stage; and (2) allowing the Firm to recover its own arbitration costs indirectly through the Wagema Respondent, despite the Firm’s agreement to a without-costs withdrawal.

With respect to the Appellants’ argument that the fees were excessive, the Court again observed that the arbitrator was in the best position to determine the reasonableness of the fees. The arbitrator’s decision that the services were appropriate and the fees were reasonable did not disclose any error in principle.

With respect to the second alleged error, the Appellants complained that the arbitrator did not address their following arguments: “(i) the costs paid pursuant to [the Firm’s] Litigation Support Retainer should have been [the Firm’s] costs as a litigant and were improperly diverted to [the Wagema Respondent], and (ii) such costs were not recoverable given the settlement between [the Firm] and the Appellants.”

In response to this argument, the Court noted three key points:

  1. The amounts charged by [the Firm] pursuant to the Litigation Support Retainer did not include the fees paid by [the Firm] for its own counsel in the litigation […].
  2. When the Appellants and [the Firm] agreed to a without costs dismissal at the end of July 2021, the Appellants had known for more than four months that [the Firm] was doing litigation support work for [the Wagema Respondent] and invoicing [the Wagema Respondent] for that work.
  3. [The Firm] was the repository of virtually all of [the Wagema Respondent’s] relevant corporate records. Since [the Wagema Respondent] was [the Firm’s] client with respect to these documents, the documents were within [the Wagema Respondent’s] power or control for the purposes of production.

The Court found that the arbitrator had adequately addressed this argument. The arbitrator found that the work done by the Firm pursuant to the Litigation Support Retainer was work that would have had to be done by a law firm representing the Wagema Respondent regardless, and that if other counsel had done the work under the applicable tight timeframe, the cost would have been higher than that paid to the Firm.

The Court found no error in principle, and that the arbitrator was not plainly wrong in his conclusion that the assistance provided by the Firm to the Wagema Respondent and its litigation counsel to bring litigation counsel up to speed and to produce documents was an appropriate expense. The arbitrator was in the best position to make this factual determination.


For arbitration practitioners, Schickedanz is a helpful reminder for parties to specifically turn their minds to the issue of costs when drafting an arbitration agreement and/or Procedural Order #1. In large construction disputes, where costs can (and often do) run several millions of dollars, identifying the limits (if any) on the tribunal’s authority to award costs may have a significant impact. This is particularly true when one considers that in arbitration, the parties will also have to pay the costs of one or three arbitrators, the costs of having an institution administer the arbitration (if the parties so choose), and the costs of any experts the tribunal might retain for itself. This latter set of costs, which do not exist in litigation, can in and of themselves add significant sums to the costs award.

That being said, and contrary to the Court’s observation of commercial arbitration that full indemnity costs are the norm, it is more common in the construction context (where arbitrations typically include a multitude of different disputes) for an award to apportion costs between the parties based on their relative success in the arbitration as well as the manner in which they conducted themselves throughout proceedings (e.g. did they facilitate or obstruct the efficient and economical resolution of the dispute).

Furthermore, and as noted by the Court in Schickedanz, institutional rules will typically stipulate that the costs award will allocate the parties’ “reasonable” legal fees and expenses, such that there are typically safeguards against excessive fees (unless the parties contract out of such provisions). Thus, the costs regime in arbitration is not without guardrails, and it is unusual – albeit possible, as Schickedanz confirms – in practice for costs to be awarded on a full indemnity basis. In the authors’ experience, full indemnity costs in construction arbitrations are highly unusual, which may be attributable to the use of institutions and/or procedural orders stipulating that costs are to be apportioned.

In any event, as the foregoing makes clear, courts are reluctant to overturn arbitral awards, as decision-makers of first instance (both in litigation and arbitration) are entitled to significant deference on this issue. Despite arbitration generally being understood to offer greater flexibility compared to litigation, this flexibility can in fact cut both ways if parties do not specifically consider how they might be best served by reducing that flexibility.

On the issue of costs, parties will therefore now be acutely aware that courts will often enforce an award functionally the same way as a lower court’s decision. In order for a court to overturn an arbitrator’s costs award, a party must prove that the arbitrator made an error in principle or that the costs award was plainly wrong. As such, parties should ensure that all relevant cost arguments are heard at first instance, even if there is a broad right to appeal (as there was in this case).

Finally, it is significant that the Court recognized that an arbitral costs award may be for all reasonable legal costs for the arbitration. Despite costs commonly being restricted to the partial indemnity or substantial indemnity scale at court, Schickedanz confirms that arbitrators do not have the same restrictions and may award full indemnity in the absence of language to the contrary in the arbitration agreement or procedural order(s) (which may incorporate institutional rules).

In that regard, the outcome of Schickedanz may also be attributable in part to the brevity with which the Arbitration Act deals with the power to award costs, as it simply states that “an arbitral tribunal may award the costs of an arbitration” (emphasis added). As compared to institutional rules that deal with costs more comprehensively (including for example, ADRIC, LCIA, and ICC) and specifically address apportionment on the basis of relative success, the Arbitration Act is much less robust in this regard. Accordingly, Schickedanz reinforces the necessity, as expressed by others in Ontario’s arbitration bar, of updating Ontario’s arbitration legislation on this issue and many others.

Clock’s Ticking – 3 Gill Homes Inc. v. 5009796 Ontario Inc. (Kassar Homes), ‘Time is of the Essence’ Clauses and “Harsh” Outcomes

The Court of Appeal for Ontario’s recent decision in 3 Gill Homes Inc. v. 5009796 Ontario Inc. (Kassar Homes) (“3 Gill Homes“)[1] reminds parties to a contract that breach of a “time is of the essence clause” – even a breach by a matter of minutes – is sufficient to justify termination of the contract.

Although the Court’s reasons are straightforward and apply the well-accepted rules of contractual interpretation, this decision nevertheless raises certain questions as to the nature of a termination on such a strict reading of the contract, which we consider below.

Factual Background

On July 4, 2020, the appellant entered into three agreements for purchase and sale (“APS“) for the construction of three separate residential homes. While two of the APSs closed without issue, the third (which was the subject of this appeal) did not.

The APS at issue was scheduled to close on August 31, 2021, but experienced construction delays which prevented the closing as set out in the terms of the APS. The APS contained the following termination and “time is of the essence” clauses:

16.02 Upon default by the Purchaser, in addition to any other rights or remedies which the Vendor may have, the Vendor, at its option, shall have the right to declare this Agreement null and void and in such event, all monies paid hereunder and monies paid or payable for extras and/or upgrades ordered by the Purchaser, whether or not installed in the Property, shall be forfeited to the Vendor, without prejudice to the Vendor’s rights to bring such further or other action as may be available to it as a result of such breach. It is understood and agreed that the rights contained herein on the part of the Vendor are in addition to any other rights which the Vendor may have at law, in equity or under any other provisions of this Agreement, and the Vendor expressly has the right to exercise all or any one or more of the rights contained in this Agreement, at law or in equity, without prejudice to the subsequent right of the Vendor to exercise any remaining right or rights at law, in equity or in this Agreement…


17.04 Time shall be of the essence of this Agreement in all respects, and any waiver, extension, abridgement or other modification of any time provisions shall not be effective unless made in writing and signed by the parties hereto or by their respective solicitors who are hereby expressly authorized in that regard. [emphasis added]

However, and of note, neither party exercised their right to terminate the APS notwithstanding the delay in achieving closing.

After missing the original closing date, the parties amended the APS, changing the closing date to January 28, 2022. The amended APS included a “time is of the essence” clause similar to that included in the original APS.

As the January closing date approached, the respondent delivered multiple reminders about the importance of timely payment, with the deadline for payment of the closing funds (the “Funds”) being 3:00PM on January 25, 2022. The day before closing, the appellant requested an extension to the closing date, but the respondent denied any extension (as it was permitted to do based on the terms of the APS). At the same time, the respondent reiterated the importance of the appellant paying the Funds by 3:00PM the next day, as was required under the terms of the APS. Crucially, the respondent also advised the appellant that failure to pay the Funds by the deadline would result in the termination of the APS.

On the closing day, at 2:47PM, counsel for the appellant advised counsel for the respondent that the Funds had been obtained, and that banking procedures were underway to transfer the Funds to the respondent. However, at 3:10PM, with the Funds having not yet been transferred, the appellants were advised that the transaction would not close because the payment deadline had been missed. The funds were ultimately transferred at 3:35PM, but were rejected and returned by the respondent. The respondent then terminated the APS on the basis that the appellant failed to pay the Funds by the deadlines as set out in the APS.

The Application Judge’s Decision

The appellant sought a declaration that the respondent had breached the APS by refusing to accept the transfer of funds. In the alternative, the appellant sought a declaration that the APS was unconscionable and termination could not be enforced. The appellant also claimed that it was entitled to damages in the form of lost profits because the property had been resold by the time of the lawsuit.

The application judge found that pursuant to the terms of the APS, the appellant had a strict requirement to close (e.g. deliver the Funds) before 3:00PM on January 28, 2022.

Since the property was within the land titles system, the application judge deemed the use of the electronic registration system mandatory, thus engaging another provision of the APS which dictated that the respondent would not be required to release the transfer or deed for electronic registration unless the Funds had been remitted to the respondent’s lawyer by 3:00pm on the closing date. The judge found that this provision obliged the appellant to pay the Funds by the time and date specified under the APS, and as such, the respondent was entitled to terminate the APS because of the late payment. While the result seemed harsh, the application judge found that it was not unfair for the respondent to enforce the payment deadline in light of the time is of the essence clause.

With respect to unconscionability, the application judge found that there was no evidence of unequal bargaining power, as demonstrated by the successful closing of the two other APSs. The application judge also noted that while the court has equitable jurisdiction to grant relief as against a breach of a time is of the essence clause, such relief would require evidence of unfair or unjust conduct by the party enforcing the clause, and such unfair or unjust conduct was absent in this case.

Finally, the application judge found that even if the appellant had succeeded in its claims, the issue of damages could not be addressed based on the written record, as the property in question had been sold. The value of the property was in dispute, requiring a full trial to resolve.

Issues on Appeal

The appellant raised “approximately” 22 grounds of appeal, which the Court of Appeal grouped into the following questions:

  1. Did the application judge err in finding that 3:00 p.m. was the payment deadline under the APS?
  2. Did the application judge err in finding that, in respect of the closing payment, time was of the essence?
  3. Did the application judge err in finding that the payment deadline was not unconscionable?
  4. Were the reasons of the application judge sufficient to permit appellate review?
  5. Did the application judge err in finding that damages could not be fairly and justly determined on a written record?

The Court of Appeal’s Decision

The Court of Appeal found that while the result was harsh for the appellant, it was neither unconscionable nor unfair. The clear language in the APS, together with the repeated warnings given by the respondent, meant that the appellant was well aware of the consequences for a failure to pay the Funds by the deadline.

While the appellant argued that the application judge erred in interpreting the APS, particularly regarding the closing time, the Court of Appeal agreed with the application judge’s findings. Specifically, the Court of Appeal found that the APS was clear and required that the Funds be received by 3:00 p.m. on the closing date when electronic registration was mandatory. The Court of Appeal further found that altering the closing time would be an unwarranted intervention by the Court and deviate from the bargain struck between the parties.

Regarding the time is of the essence clause, the Court emphasized that such a clause is “engaged where a time limit is stipulated in a contract… mean[ing] that a time limit in an agreement is essential such that breach of the time limit will permit the innocent party to terminate the contract” upon a breach. [2]

While the appellant argued that the clause had not been strictly enforced in prior transactions between the parties, the Court noted that the November 2021 amendment to the APS made the closing deadline firm. Moreover, according to the Court, the exchanges between the parties leading up to January 28, 2022, demonstrated their shared understanding of enforcing the closing date and time. As such, the Court found no error in the application judge’s reliance on the time is of the essence clause.

With respect to the appellant’s argument that the provision was unconscionable, the Court concluded that there was no basis to interfere with the application judge’s findings, particularly considering the parties’ prior transactions and their sophistication in real estate matters.

Lastly, the Court acknowledged the possibility of the Court’s equitable jurisdiction to relieve against the breach of a time provision, but found that such relief would require an evidentiary foundation showing unfair or unjust action by the respondent, which was lacking in this case.


As many commentators have observed, along with the Court of Appeal itself, the outcome of 3 Gill Homes is arguably a harsh one given that the closing deadline was missed by a matter of minutes. The most obvious takeaway is therefore, of course, that parties would be well advised to ensure strict compliance with contractual timelines, particularly where a time is of the essence clause is included in an agreement.

That being said, 3 Gill Homes also raises other interesting questions that, although not presented to the Court, might colour the impact of this case.

First, it is notable that in this case, the time is of the essence clause and related provisions only gave the respondent the option – that is, the discretion – to terminate the APS in case the deadline was missed. In other words, the missing of the deadline did not automatically result in the termination of the APS. As readers will appreciate, this therefore required that the respondent exercise its contractual discretion to terminate the APS for failure to meet the contractual timeless reasonably.

As the Supreme Court of Canada made clear in Wastech, a contractual discretion is exercised reasonably if it is exercised in a manner consistent with the purpose(s) for which it was conferred. On the facts of 3 Gill Homes, it was clear that the parties’ communications and conduct placed a high priority on the deadline being respected; however, it is not clear why this was the case, leaving open the question of whether the appellant might have been able to advance a credible argument that terminating the APS was inconsistent with the purpose of the respondent’s discretion to do so.

In that regard, it is interesting to note that the Supreme Court’s analysis in Wastech indicates that determining the purpose of a contractual discretion flows from a review of the contract itself,[3] but the Court did not reference consideration of the parties’ subsequent conduct as part of this analysis. In 3 Gill Homes, the Court of Appeal (and the application judge) considered the parties’ subsequent conduct to be instructive regarding a number of issues, including the proper interpretation of the time is of the essence clause and the unconscionability issues, which presumably falls under the general proposition, applicable in certain circumstances, that the parties’ subsequent conduct may be relevant to the interpretation of a contract.[4] It will be interesting to see whether future decisions consider the subsequent conduct of the parties in the interpretation of a contractual discretionary clause.

On the other hand, there have been no specific pronouncements from Canadian courts as to  whether a contractual right to terminate a contract is even subject to the duty to exercise a contractual discretion in good faith, insofar as it seems this issue has not been considered in Canada at the appellate level outside of the employment context.[5] The Supreme Court in Bhasin observed that “[c]lassifying the decision not to renew the contract [where the defendant had to give notice of non-renewal] as a contractual discretion would constitute a significant expansion of the decided cases under that type of situation”[6], so it is possible that a court might view the discretion to terminate a contract in similar terms.[7]

This issue also raises the further question as to the nature of the discretion to terminate the agreement – specifically, whether it is relevant that the discretion is contractual or at common law.

As noted above, the APS in 3 Gill Homes contained a provision that explicitly entitled the respondent to terminate the APS if the appellant defaulted on its obligations under the APS (including its obligations with respect to timely delivery of the Funds). In this regard, it is unclear whether the respondent terminated the contract purely on the basis of the time is of the essence clause, or on the basis of the discretionary termination clause.

Conversely, and as the Court of Appeal noted, a time is of the essence clause has the effect of making the breach of any contractual time limit a basis upon which the innocent party can terminate the contract. This is because a time is of the essence clause makes a contractual time limit into a condition rather than a warranty, which at common law entitles the innocent party to treat the contract as at an end.

As a result, it is unclear whether a common law discretion to terminate a commercial contract would attract the same restrictions as a contractual discretion to do so, particularly in the context of the possible requirement to exercise a termination clause in good faith. Again, this point does not appear to have received consideration in Canada, particularly given the recency of Wastech. The England & Wales High Court considered a similar issue in MSC Mediterranean Shipping Co SA v. Cottonex Anstalt [2016] EWCA 789, where it determined that a common law right to terminate for repudiatory breach is subject to requirements of good faith, but the Court of Appeal overturned the High Court on this point such that there would seem to be no guidance in that regard.

Ultimately, since these issues were not raised by the parties, determination will have to wait for a future decision. However, it bears keeping in mind that this case stands for the simple principle that parties should be held to their bargains (harsh though the result may be).

[1] 2024 ONCA 6 (CanLII) [“3 Gill Homes“]

[2] Ibid at paras 24-27, citing Di Millo v. 2099232 Ontario Inc., 2018 ONCA 1051 at para. 31.

[3] Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, 2021 SCC 7at paras 71-72.

[4] Shewchuk v. Blackmont Capital Inc., 2016 ONCA 912.

[5] The issue was considered by the Court of Appeal of Alberta in Styles v Alberta Investment Management Corporation, 2017 ABCA 1. There, the Court of Appeal determined that there was no common law obligation to exercise contractual discretionary powers reasonable, and therefore that an employer had no obligation to exercise a discretion reasonably to terminate an employee without cause – in part, because termination without cause is not a breach of contract. As a result, the Court of Appeal concluded that termination without cause cannot be considered a “discretion”: para 41. Notably, this decision was rendered prior to Wastech, so it is unclear to what extent the Court of Appeal’s reasoning still applies.

[6] Bhasin v. Hrynew, 2014 SCC 71 para 72.

[7] In England, this issue has been considered (albeit in the context of an implied term). Specifically, in Monde Petroleum SA v. Westernzagros Ltd [2016] EWHC 1472, the High Court considered whether a contractual right to terminate was subject to an implied term that the party terminating must act in good faith. The Court decided that it was not subject to such an implied term, and interesting, distinguished a termination right from a contractual discretion.

New Return-to-Work Obligations for Both Employers and Employees in British Columbia

In 2022, the BC legislature introduced Bill 41 which set out a host of amendments to the Workers Compensation Act, RSBC 2019 c.1. The final group of these amendments, dealing with return-to-work obligations, came into force on January 1, 2024 and are touted by the provincial government and WorkSafeBC as encouraging the speedy, safe, and supported return to work of employees injured on the job. The aim of these amendments is to minimize the disruptive impact of workplace injuries on both employers and workers.

These amendments create two separate obligations: (1) the duty to cooperate[1] and (2) the duty to maintain employment[2]. The former applies to both employers and workers while the latter applies primarily to employers.

The Duty to Cooperate

The duty to cooperate imposes obligations on employers and workers to work with each other and WorkSafeBC to ensure a timely and safe return to work following injury. It focuses on maintaining open lines of communication.

Employer obligations include:

  • Contacting the worker as soon as practicable following injury;
  • Maintaining communication with the worker throughout the injury period, as appropriate in the circumstances;
  • Identifying suitable work for the worker that restores their full wages, if possible;
  • Providing WorkSafeBC with required information regarding the worker’s return to, or continuation of work; and
  • Cooperating in the return-to-work process.

Similarly, injured workers are obligated to contact their employer following injury, maintain communication, and work with their employer to identify suitable work. The duty to cooperate also imposes a further obligation on workers to not unreasonably refuse to accept suitable work.

Where a dispute arises between an employer and worker regarding the worker’s return, an application can be made to WorkSafeBC who will make a determination within 60 days. WorkSafeBC also has discretion to suspend a worker’s compensation payments until they comply with the process.

The duty to cooperate applies to claims with injury dates on or after January 1, 2022.

The Duty to Maintain Employment

The duty to maintain employment applies primarily to employers with 20 or more workers.

Where a worker has been continuously employed (full or part-time) with an employer for at least 12 months prior to injury and that worker becomes disabled from earning full wages at their pre-injury work due to a workplace injury, the employer is obligated to maintain the employment of the injured worker.

The nature and scope of the duty to maintain employment depends on the circumstances:

  • Where a worker is fit to carry out the essential duties of their work, with or without accommodation, an employer must offer the worker their pre-injury work or an alternative that is comparable in duties and earnings.
  • Where a worker is not fit to carry out the essential duties of their pre-injury work, but is able to work in some capacity, an employer must offer the worker the first suitable work that becomes available.

Further, an employer who is subject to the duty to maintain employment must make any changes to the work or workplace that are necessary to accommodate a worker, to the extent that they do not cause undue hardship.

Where it is unclear or a dispute arises as to the employer’s obligations to maintain employment, WorkSafeBC will provide guidance and collaborate with the parties to identify possible solutions.

The duty to maintain employment applies to claims with injury dates on or after July 1, 2023 and continues until the second anniversary of the date of injury. At that time, if the worker has not returned to work, the employer’s obligations end. If the worker has returned to work and is carrying out suitable work, the employer’s obligation to offer pre-injury or alternative work ends. However, the obligation to accommodate the worker’s injury is ongoing.

Finally, an employer who terminates the employment of a worker who has returned to pre-injury work, suitable work, or alternative work for less than six months will be deemed to have failed their duty to maintain employment, unless the employer can establish that the termination was unrelated to the injury.

Failure to Comply

Where WorkSafeBC determines that an employer has failed to comply with their duty to cooperate and/or maintain employment, the employer may be subject to one or more administrative penalties.

Employers who feel that a worker is not meeting their duty to cooperate should contact WorkSafeBC. WorkSafe BC will then work with all parties to clarify obligations. If WorkSafeBC determines that a worker has unreasonably refused an offer of suitable work, their wage loss benefits may be reduced or suspended.

Unionized Employees and Fixed-Term Contracts

Unions should take note that the duty to maintain employment will override collective agreement terms (with the exception of terms regarding seniority) where the legislated duty provides greater benefit to the worker than the collective bargaining agreement. Unionized employers should review their collective bargaining agreements to determine whether the duty to maintain employment will override any agreement terms.

The duty to maintain employment is not intended to extend to fixed-term contracts. However, where a fixed-term employment arrangement has been repeatedly renewed over an extended period of time, WorkSafeBC may find that the duty to maintain employment extends beyond the fixed term. Employers should contact WorkSafeBC to determine their obligations regarding any specific instance of renewed fixed-term contracts.

Take Aways

The duty to cooperate and duty to maintain employment are intended to encourage a smooth and safe transition from injury back to work. At this stage, WorkSafeBC has communicated their desire to work with employers and workers to fulfill their obligations under the new amendments rather than seeking to penalize those who do not comply.

Employers should review their internal policies with respect to workplace injuries to ensure that proper three-way communication (employer-worker-WorkSafeBC) is in place. Further, on report of a workplace injury, employers should turn their mind to the necessity of maintaining the worker’s job, including identifying suitable alternate work and accommodations. Managers should also be trained on the new obligations and resulting internal policies.

Our Workplace Group lawyers would be happy to help you navigate the new return-to-work duties, review and revise your policies, and train your staff.

[1] Section 154.2.

[2] Section 154.3.