10 Sep

 

The Legacy of HOOPP – The Perils of Limitation Periods in Arbitration

 

 

By Dalton W. McGrath, Q.C., FCIArb and Michael C. O’Brien

 

It has been approximately five years since the Alberta Court of Appeal in AG Clark Holdings Ltd v HOOPP Realty Inc released its decision confirming that when parties have agreed to a mandatory arbitration clause to resolve their disputes, filing a Statement of Claim with the courts within the applicable limitation will not preserve the claim. Since its release, the decision has been cited in dozens of cases in Alberta and appears to be gaining traction outside of Alberta. Counsel are commended to read that decision (and this article) to avoid missing important limitation dates.

2019 marks the fifth anniversary of the Alberta Court of Appeal’s landmark decision in AG Clark Holdings Ltd v HOOPP Realty Inc, 2014 ABCA 20 (“HOOPP“). The HOOPP decision confirms that when parties have agreed to a mandatory arbitration clause to resolve their disputes, filing a Statement of Claim with the courts within the applicable limitation period will not preserve the claim. The party initiating the claim must commence arbitration proceedings within the applicable limitation period. The consequences for parties that file a Statement of Claim (without also serving a notice to arbitrate) are stark – the Court “must” dismiss the claim, even if the Statement of Claim was filed within the limitation period.

Since its release, HOOPP has been cited in dozens of cases in Alberta alone and it also appears to be gaining traction outside of Alberta. An analysis of the decisions post-HOOPP reveals that Courts are strictly interpreting and applying the principles established by the Alberta Court of Appeal. In particular, a trilogy of recent cases in Alberta (Lafarge Canada Inc v Edmonton; 681210 Alberta Ltd v 1335422 Alberta Ltd; and Fernandes v Jennings Capital Inc) all confirm the extent to which Courts will strike out actions where arbitral provisions apply.

Despite the dire implications arising from the Court’s decision in HOOPP, the trilogy of recent Alberta cases reveals the extent to which practitioners have failed to take heed of the importance of the HOOPP case. As these cases reveal, parties ignore HOOPP at their peril.

HOOPP

HOOPP is perhaps the most comprehensive consideration to date of the implications of filing a Statement of Claim with the courts instead of commencing arbitration proceedings where there is a mandatory arbitration clause. The Alberta Court of Appeal confirmed that the parties in HOOPP had agreed to a mandatory arbitration clause to resolve all disputes between them. Despite that, the plaintiff filed a Statement of Claim in the Alberta courts rather than referring the dispute to arbitration. An application was made to strike the claim on the basis that arbitration was mandatory and the limitation period for commencing arbitration had expired. The Court of Appeal agreed, dismissing the action.

The Court of Appeal in HOOPP confirmed that the issue of striking such claims is not discretionary – it is mandatory. According to the Court of Appeal, if parties have agreed to arbitrate a dispute, but one party has issued a Statement of Claim and has not commenced arbitration within the limitation period for arbitration, then the Court “must strike out the claim.” Nor did it matter that the Court action in HOOPP had been proceeding for several years or that numerous steps had been taken in the action. Once the applicable limitation period for commencing arbitration has passed, and no arbitration has been commenced within that time, the Court could not have any supervisory role regarding any arbitration over that dispute. The only remedy is to strike.

Despite the clarity of the Court of Appeal’s decision in HOOPP, its continued application by Alberta Courts reveals the extent to which practitioners have failed to fully appreciate the consequences of that decision. Moreover, the adoption of HOOPP outside of Alberta (in particular, in Manitoba and British Columbia) reveals the extent to which the decision is growing in national importance.

Jennings

Fernandes v Jennings Capital Inc, 2016 ABQB 594 (“Jennings“) is the most recent example of the HOOPP decision being applied and followed.[1]Jennings involved a claim brought by Mr. Fernandes, a former shareholder of Jennings Capital. The claim revolved around a unanimous shareholders agreement that contained a mandatory arbitration clause with respect to “any disagreement” between the parties relating to the agreement. Despite the mandatory arbitration clause, Fernandes filed a Statement of Claim without serving any arbitration proceedings.

The Defendants ultimately filed a Statement of Defence, however, they expressly relied on the mandatory arbitration clause and advised that they were only filing the defence because of the threat of default proceedings. Other steps were taken in the action including the exchange of documents and an application for security for costs.  With respect to each step, the defendants reiterated the mandatory arbitration clause and disputed the Court’s jurisdiction.

Relying on HOOPP, the defendants brought an application seeking to strike the action. The Court followed HOOPP and struck out all of the various claims that were captured by the mandatory arbitration clause.  Interestingly, Fernandes tried to rely on the steps taken by the defendants in the action to suggest that the defendants had “attorned” to having the dispute litigated in the Courts. The Court decisively rejected that argument.  As noted by the Court, the defendants had, from the very outset, protested the Court’s jurisdiction over the dispute. At each step in the action, the Defendants expressly stated that the matter should be arbitrated.  The Court agreed that there was no attornment.

The defendants in HOOPP took very strategic steps (for example, pleading the mandatory arbitration clause in the Statement of Defence) to avoid an attornment argument, however, the issue of acquiescence remains a live issue. It remains to be seen if the Courts of Alberta and other Canadian provinces will be willing strike an action even in those cases where the defendants fail to take steps to protest the Court’s jurisdiction.

Best Practices

The HOOPP decision, and the cases that follow it, stand as a warning that there are real consequences to parties who fail to commence arbitration proceedings within the applicable limitation timeframe.  Best practices continue to dictate that, at a minimum, parties should commence arbitration proceedings within the limitation period if the governing contract contains an arbitration clause. That is the safest way to ensure that a party does not fall victim to the continuing legacy of HOOPP.

For further information, please contact:

Dalton W. McGrath, Q.C., FCIArb           403-260-9654
Michael C. O’Brien                                 403-260-9753

[1] The authors successfully represented the Defendants in Jennings.


Dalton W. McGrath, Q.C. FCIArb is a senior litigation partner at Blakes and is routinely involved in complex and high-profile litigation and arbitration disputes.

Michael C. O’Brien is a partner in the Blakes litigation group and also has extensive litigation and arbitration experience in complex and high-profile disputes. 

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