22 Feb

Third Parties to Arbitration Agreements

By David Tupper and Stefani Wesley

Third parties who are strangers to an arbitration agreement, but involved in or allegedly responsible for the underlying issues in an arbitration, can significantly affect the course of an arbitration. Many arbitrations would, if in the courts, be multi-party cases. Typically, however, in an arbitration unless there is a drag-along provision in contracts between, for example, a contractor and a sub-contractor, third parties cannot be compelled to participate. Nonetheless two cases, demonstrate that in certain circumstances, third parties to an arbitration agreement can be compelled to give discovery evidence and may be able to rely on an arbitration clause to stay related litigation.

  • Third Parties can be Compelled to Produce Evidence

In Jardine Lloyd Thompson Canada Inc v Western Oil Sands Inc, the Alberta Court of Appeal held that third parties to arbitration agreements can be compelled to produce evidence in an arbitration.(1)

Western Oil Sands Inc. (“Western”) submitted a claim under an insurance policy issued by underwriters. The underwriters denied the claim. Western commenced arbitration against the underwriters, pursuant to an arbitration clause in the insurance policy. In their defence, the underwriters alleged that Western’s agent and broker, Jardine Lloyd Thompson Canada Inc. (“JLT”), made misrepresentations in obtaining the insurance policy. JLT was not a party to the insurance policy or the arbitration. SJO Catlin (“Catlin”), one of the underwriters, applied to the tribunal for an order:

  1. Compelling four JLT employees to appear for examinations for discovery; and
  2. Directing that a confidential “mutual co-operation agreement” between Western and JLT (the “Standstill Agreement”) produced.

The tribunal granted the orders sought.

The primary issue on appeal was whether the tribunal had jurisdiction to allow Catlin’s applications.

The ABCA held that, under the UNCITRAL Model Law, parties may draft arbitration agreements to suit their needs. However, if an arbitration agreement is silent, the tribunal has broad procedural discretion to conduct the arbitration in any manner it sees fit. This discretion has few limits, and includes the ability to determine the admissibility, relevance, materiality and weight of any evidence. The ABCA noted that the insurance policy did not limit the scope of examinations for discovery. Rather, it stated that examinations for discovery shall be conducted in accordance with the Alberta Rules of Court. Therefore, the ABCA held that the tribunal had jurisdiction to compel the JLT employees to appear for examinations for discovery.

With respect to the Standstill Agreement, the ABCA held that tribunals may seek the court’s assistance to obtain relevant evidence. However, the court is not obliged to provide assistance. Ultimately, the ABCA held that Western must produce the Standstill Agreement.

Leave was sought to appeal the decision of the ABCA to the Supreme Court of Canada but was refused.

  • Non-Signatories can be Parties

In Northwestpharmacy.com Inc v Yates, the Supreme Court of British Columbia held that non-signatories can be parties to arbitration agreements.(2)

Northwestpharmacy.com Inc. (“NWP”) entered into a contract with Omega Group Inc. (“Omega”). The contract contained an arbitration clause, for which NWP negotiated. The arbitration clause stated that “all disputes arising out of or relating to” the contract shall be settled by arbitration. A dispute arose and, rather than commencing an action against Omega, NWP commenced an action against the principals of Omega (the Yates and Tozman Defendants) and other related parties. Justice Macintosh repeatedly speculated that the NWP did so in an attempt to avoid the arbitration clause. The Yates and Tozman Defendants applied to stay the action in favour of arbitration. To be successful, the Yates and Tozman Defendants had to persuade the Court, that they should have the benefit of the contract’s arbitration clause.

Justice Macintosh held that, in certain circumstances, non-signatories can be parties to arbitration agreements. Such circumstances include when the plaintiff treats the defendant as the true party to the contract. Throughout the dispute, NWP asserted that the Yates and Tozman Defendants were the true parties to the contract. Accordingly, Justice Macintosh stayed the action in favour of arbitration. In other words, strangers to the arbitration agreement were able to rely on the arbitration clause to stay related litigation.

  • Key Takeaways

The key takeaways from the cases above are:

  1. If an arbitration agreement is silent, the tribunal has broad procedural discretion to conduct the arbitration in any manner it sees fit, including by compelling discovery of third parties;
  2. Party status may be construed broadly in certain cases; and
  3. A party cannot avoid an arbitration agreement by selective pleading.

 


(1) Jardine Lloyd Thompson Canada Inc v Western Oil Sands Inc, 2006 ABCA 18

(2) Northwestpharmacy.com Inc v Yates, 2017 BCSC 1572


 

David Tupper has arbitrated extensively in a variety of areas, including construction disputes, insurance disputes and real estate disputes.

Stefani Wesley is a student-at-law at Blake, Cassels & Graydon LLP. She obtained her JD from Queen’s University and has been an active volunteer in a number of legal areas.

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