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Court Denies Right to Arbitrate
Published in the October 2009 issue of Litigation Notes - View Article
The Ontario Court of Appeal orders specific performance of a contract for the sale of a property. The Court applies the doctrine of part performance to exclude the requirement in the Statute of Frauds that the agreement must be signed by the vendor.
H&H Marine Engine Service Ltd. (“H&H”) is a British Columbia company that manufactures marine engine parts. In 2006, H&H entered into two separate contracts to supply engine parts to Volvo Penta of the Americas Inc. (“Volvo”). The first contract was referred to as the “Iron Manifold Project” and the second contract was referred to as the “Aluminum Project”.
The parties signed a Mutual Confidentiality, Non-Solicitation and Non-Compete Agreement but did not execute a formal contract relating to the supply of the parts. Rather, Volvo issued purchase orders and H&H issued invoices.
The purchase orders issued by Volvo in connection with the Iron Manifold Project consisted of two pages. The first page contained no reference to arbitration but did contain a printed statement drawing the reader’s attention to General Purchasing Terms and Conditions to be found on the reverse side. The evidence was that in placing orders, Volvo faxed only the front page of the purchase order to H&H. H&H did not ask for, and did not receive, the General Purchasing Terms and Conditions until after a dispute arose with respect to the Iron Manifold Project. The General Purchasing Terms and Conditions provided that in the event of a dispute, a non-binding mediation would be conducted and if that were unsuccessful, an arbitration would be held in Washington, D.C., subject to the commercial arbitration rules of the American Arbitration Association.
Evidence was also adduced to the effect that Volvo regularly contracted with its marine parts suppliers in accordance with a different set of conditions, known as General Purchasing Conditions. The General Purchasing Conditions differed from the General Purchasing Terms and Conditions found on the reverse side of the purchase orders. Under the General Purchasing Conditions, disputes were to be governed by Swedish substantive law and settled by arbitration conducted in Gothenburg, Sweden, in accordance with the rules of the Arbitration Institute of the Stockholm Chamber of Commerce.
The General Purchasing Conditions were provided by Volvo to H&H in connection with the Aluminum Project in November of 2006. They were supplied further to a discussion relating to payment for the tooling for the project and indeed were somewhat modified at the request of H&H.
After the dispute arose in connection with the Iron Manifold Project, Volvo wrote to H&H, reserving its right to commence an arbitration in Washington, D.C., as provided in the purchase orders. Only after legal action was commenced did Volvo assert a right to arbitrate in Sweden in accordance with the General Purchasing Conditions.
Volvo moved for a stay of the proceedings pursuant to British Columbia’s International Commercial Arbitration Act (“ICAA”), a statute modeled on the United Nations Commission on International Trade Law (UNCITRAL) Model Arbitration Law (“Model Law”). H&H took the position that the ICAA did not apply because there was no valid arbitration agreement between the parties.
Volvo relied exclusively on the General Purchasing Conditions and asserted its right to arbitrate in Sweden.
The first issue for the Court to decide was its own jurisdiction to rule on the existence of a valid arbitration agreement. Section 16 of the ICAA, which is based on Article 16 of the Model Law, provides that an arbitral tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement. However, the Court had a couple of problems in applying this principle. Firstly, Section 16 of the ICAA only applies if the place of arbitration is in British Columbia. Secondly, there was no evidence adduced with respect to the Rules of the Arbitration Institute of the Stockholm Chamber of Commerce and whether it was vested with the authority to determine its own jurisdiction.
Consequently, the Court considered that it should determine whether a valid arbitration agreement existed before applying the ICAA and referring the matter to arbitration. In this case the Court concluded that there was no evidence that consensus ad idem had been reached between the parties regarding the incorporation of the General Purchasing Conditions on the Iron Manifold Project. The Court commented that it was striking that the Defendants had asserted the existence of a different arbitration agreement based on different conditions until after the proceedings had been commenced. This was fatal to their stay application and it was dismissed.
Readers may wish to compare this decision to the case of Wembly Marketing Ltd. v. Itex Corporation in the December 2008 edition of Litigation Notes under the heading “Read Before Signing”. Had Volvo relied on the General Purchasing Terms and Conditions on the reverse side of the purchase orders, one wonders whether H&H would have been bound by them.
H&H Marine Engine Service Ltd. v. Volvo Penta of the Americas, Inc., 2009 BCSC 1389 (CanLII)