Parties are increasingly choosing to submit complex commercial disputes to arbitration. Alongside the growing popularity of arbitration is the development of judicial principles which help to facilitate arbitration's policy goals of efficiency and certainty. The principle of competence-competence, a pillar of international arbitration, is integral to this developing body of case law. The Court of Queen's Bench of Alberta recently issued a decision in Husky Oil Operations Limited v Saipem Canada Inc, in which it applied this principle in the context of a parallel litigation and arbitration dispute resolution procedure.(1) By definition, these parallel dispute resolution procedures give rise to a complex interplay between the jurisdiction of the courts and arbitral tribunals. As a result, Husky Oil is an excellent case study for observing the practical application of the competence-competence principle and can serve as a useful tool for both domestic and international arbitration practitioners.
Competence-competence principle and jurisprudence
The competence-competence principle is a well-known hallmark of arbitration. Generally speaking, the principle gives arbitrators the right of first rule on preliminary challenges to their jurisdiction.(2) The Ontario Court of Appeal has succinctly described the principle as follows: "the rationale behind the competence-competence principle is that unless it is clear as a matter of law that the arbitrator does not have jurisdiction, the issue of jurisdiction should be decided by the arbitrator".(3) The principle has been explicitly adopted in a number of pieces of domestic(4) and international arbitration(5) legislation in different Canadian jurisdictions.
The application of the competence-competence principle by a court faced with a preliminary challenge to an arbitrator's jurisdiction was addressed by the Supreme Court in Dell Computer Corp v Union des consommateurs. The issue in Dell was whether a class action lawsuit brought against a retailer by its customers should be referred to arbitration pursuant to an arbitration clause in the standard terms and conditions of the retailer's sales contracts. In order to resolve this issue, the court articulated the general rule that a court seized with a preliminary challenge to an arbitrator's jurisdiction must refer the challenge to the arbitrator.(6) The only exceptions to this general rule are when:
- the jurisdictional challenge is based solely on a question of law;(7) or
- the challenge gives rise to a question of mixed fact and law which can be resolved on the face of the evidentiary record.(8)
However, the court added the caveat that even these exceptions to the general rule are subject to a court's discretion to refer pure questions of law or questions of mixed fact and law which can be resolved on the face of the evidentiary record to the arbitrator where the court considers referral to be in the arbitration's best interest.(9)
Facts and procedural background
The dispute in Husky Oil arose in the context of a large commercial construction project. In 2010 Husky Oil Operations Limited entered into a contract with Saipem Canada Inc, pursuant to which Saipem agreed to provide engineering, procurement and construction services to build certain facilities for Husky's Sunrise Energy Project.(10) The contract included provisions which prescribed a parallel dispute resolution procedure.(11) Specifically, the dispute resolution provisions provided that disputes concerning a small list of delineated topics would be submitted to arbitration and that any disputes not falling within that list of delineated topics would be litigated before the Alberta courts (the arbitration agreement).(12)
In March 2015 Husky purported to terminate the contract.(13) Shortly thereafter, Husky filed an action against Saipem in the Court of Queen's Bench of Alberta seeking damages in excess of C$1.325 billion for construction delays and increased costs (the Husky action).(14) Subsequently, Saipem filed a separate action in the Court of Queen's Bench of Alberta against Husky and its partners in the Sunrise Energy Project seeking damages in excess of C$800 million for construction delays and increased costs (the Saipem action).(15)
Several months after filing its action, Husky commenced arbitration proceedings against Saipem seeking a C$45 million credit for changes to the scope of work under the contract.(16)
Eventually, Saipem brought an application before the Court of Queen's Bench of Alberta to stay the arbitration.(17) Saipem supported this application by relying on the court's powers under the Arbitration Act(18) and its residual powers under the Judicature Act.(19) In response to Saipem's application to stay the arbitration, Husky made a cross-application for a partial stay of the Saipem action.(20) Husky supported its cross-application by arguing that some of the issues in the Saipem action were also the subject of the arbitration.(21)
The court determined that the offsetting applications gave rise to the following issues, several of which involved Saipem making preliminary challenges to the arbitration's jurisdiction:
- Had the arbitration agreement become invalid because Husky had repudiated the contract?
- Had Husky waived its right to arbitration by attorning to the jurisdiction of the Court of Queen's Bench of Alberta?
- Were the claims contemplated in the arbitration within the scope of the arbitration agreement?
- Were the claims contemplated in the arbitration limitation-barred?
- Would the arbitration result in the unfair and unequal treatment of Saipem such that the arbitration should be stayed?
- Should a stay of all or part of the Saipem action be granted?
The court ultimately dismissed both Saipem's application to stay the arbitration and Husky's cross-application to partially stay the Saipem action.
Before addressing the first five of the six issues raised by the applications, the court acknowledged the general rule articulated in Dell. In particular, the court emphasised the exception to the general rule that a court has discretion not to refer a jurisdictional challenge to the arbitrator only where the challenge involves either a pure question of law or a question of mixed fact and law which can be resolved on the face of the evidentiary record.(22)
The first issue that the court addressed was whether the arbitration agreement had survived Husky's purported termination of the contract.(23) The corollary to this argument was that if the arbitration agreement was invalidated due to the termination of the contract, there was no jurisdiction for the arbitration to proceed. The court found that this issue gave rise to a question of mixed fact and law which could not be resolved on the face of the limited evidentiary record before it. Accordingly, the court referred this issue to the arbitrator pursuant to the general rule applied in Dell.
Second, the court considered whether Husky had waived its right to arbitration by attorning to the court's jurisdiction.(24) If Husky had attorned, then it had waived its right to submit any issues that it had consented to being resolved in the Saipem or Husky actions to the arbitration. Ultimately, the court determined that whether Husky had attorned to the court's jurisdiction was a question of mixed fact and law which could not be resolved on the face of the limited evidentiary record before it.(25) As a result, the court referred this issue to the arbitrator pursuant to the general rule applied in Dell.
Third, the court considered whether several of the claims which Husky had submitted to the arbitration were within the small list of arbitrable topics delineated in the arbitration agreement. The parties took contrasting positions regarding the interpretation of the delineated list of arbitrable topics, with Saipem endorsing a narrow reading and Husky endorsing a broader reading.(26) Ultimately, the court held that the question of whether the claims that Husky had submitted to the arbitration were within the scope of the delineated list of arbitrable topics in the arbitration agreement constituted a preliminary jurisdictional challenge which must be resolved by the arbitrator on first instance.(27)
Fourth, the court addressed whether the claims that Husky had submitted to the arbitration were limitation barred.(28) Saipem's argument was that Alberta case law dictates that the determination of a limitation period is a threshold issue which must be decided by the courts.(29) Despite Saipem's argument, the court held that an arbitrator has jurisdiction to consider limitations issues and that the limitations argument posed by Saipem gave rise to a question of mixed fact and law which could not be resolved on the face of the limited evidentiary record before it.(30) Accordingly, the court referred the limitations issue to the arbitrator in accordance with the general rule applied in Dell.
The final issue that the court considered in Husky Oil was whether allowing the arbitration to proceed would result in the unfair or unequal treatment of Saipem. This issue invoked Sub-section 6(c) of the Arbitration Act, which permits a court to intervene in an arbitration to prevent the "manifestly unfair or unequal treatment of a party to an arbitration agreement".(31) Saipem essentially argued that allowing the arbitration to proceed would render it unfairly or unequally treated for the following reasons:
- The arbitration considered the same issues as the Husky Action; therefore, allowing it to proceed risked creating a multiplicity of proceedings.(32)
- Husky's partners in the Sunrise Energy Project were not parties to the arbitration, which created a danger of inconsistent findings.(33)
Despite Saipem's arguments, the court found that Saipem had failed to demonstrate the prospect of any manifestly unfair or unequal treatment necessary for the court to stay the arbitration.(34) On this point, the court stated that "there is nothing inherently unfair in allowing parallel arbitration and litigation proceedings where that is what was agreed to by the parties to the contract".(35) Ultimately, the court referred the issues of multiplicity of proceedings and inconsistent findings to the arbitrator on the basis that they gave rise to issues of mixed fact and law which could not be resolved on the face of the evidentiary record before the court.(36)
Husky Oil has implications for practitioners of both domestic and international arbitration. The reasoning employed in Husky Oil demonstrates a strong adherence to the competence-competence principle and a commitment to the policy of non-interference with arbitration. Further, because Husky Oil arose in the context of a parallel dispute resolution procedure, the decision provides a number of clear examples of questions of mixed fact and law which will be referred to an arbitrator on first instance. As a result, Husky Oil is useful for any arbitration practitioner faced with a preliminary challenge to an arbitrator's jurisdiction.
This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.