“If one voluntarily picks up a stem with thorns, one is also voluntarily, and necessarily, picking up the thorns,” outlined the Alberta Court of King’s Bench (the “ABKB”), in ruling that a third-party beneficiary to a contract between a general contractor (the “GC”) and subcontractor was bound by the contract’s arbitration clause, resulting in a time-barred claim.¹

In the construction industry, where a tangled web of inter-related contracts can be the norm, questions often arise as to whether a non-party seeking to avail themselves of benefits in one contract is also subject to its various restrictive covenants. In the Husky case discussed below, the ABKB clarified that parties take the good and they take the bad.

Facts

Husky, a project owner, was a third-party beneficiary to a subcontract between its general contractor and a subcontractor (the “Contract”). Husky sought to litigate contractual warranties in the Contract against the subcontractor (“Technip”). However,  the Contract required “all disputes” to be arbitrated.

As Husky was a non-party to the Contract, it argued that its rights are freestanding, not subject to any conditions or limitations. And since Husky was neither named in nor agreed to the arbitration clause, it took the position that an arbitrator would only have jurisdiction over the actual parties to the Contract.

In response, Technip argued that Husky received a qualified or limited right that was tied to an associated burden. Specifically, Husky could not avail itself to its contractual right to enforce warranties while simultaneously freeing itself from the mode of enforcement. Per Technip, if Husky were to enforce its third-party rights under the Contract, those rights could only be enforced via arbitration.

At first instance, the Applications Judge agreed with Husky, concluding the Contract could not impose an arbitration burden on a non-signatory party. But the ABKB disagreed.

Analysis 

Interpreting the Contract - The ABKB distinguished between the Contract’s dispute resolution provisions that apply to signatory and non-signatory parties. The Court opined that the Contract seemed to create rights for only one person beyond the GC-Technip parties – Husky. Thus, rendering Husky the captured party to the wider scope, “all parties” provision. There was no evidence that the contracting parties would have extended the warranty right to Husky, absent the associated arbitration duty.

It was Technip’s decision, subject to the GC’s approval, to extend a limited warranty right to Husky, without consideration in return. According to the ABKB, if Husky did not wish to arbitrate warranty disputes, it should not have brought a warranty claim against Technip. In fact, Husky was free to and pursued enforcement of its contract with the GC.²

As such, the Contract, by way of an arbitration clause, did not impose a burden on Husky, but, rather, this was a consequence of a voluntary decision by Husky to enforce the warranty.

Estoppel - Husky argued that Technip never invoked the subject dispute resolution provision upon receipt of both its warranty claim in 2015 and Statement of Claim in 2017. According to Husky, Technip, by conduct, represented that the applicable provisions did not apply, upon which Husky relied.

The Court disagreed, finding Technip never encouraged Husky to start warranty litigation, to attorn to that litigation, or to discourage Husky from arbitrating the warranty disputes. Husky was found responsible for its own decision to start litigation.

Limitations - The ABKB found that Husky’s warranty claim via arbitration was time-barred, as more than two years had elapsed. Relying on Lafarge Canada Inc v Edmonton (City),³  the proper remedy was to dismiss rather than stay Husky’s claim.

The Court also considered whether a remedial order was appropriate, but ultimately decided it was too late. Husky never raised the argument that if it was required to arbitrate any claims against Technip, the deadline to arbitrate had not expired.

Takeaways

The wording and scope of the Contract’s dispute resolution provisions played a pivotal role in deciding this case. Contracting parties ought to pay close attention to the formation of their dispute resolution provisions to best capture their intent.

Emphasized is the principle that a non-party taking up a contractual right may also have to take up the associated burdens. As such, third-party beneficiaries should thoroughly review dispute resolution provisions to assess their modes of enforcement, as not doing so may result in the expiry of a limitation period or other undesired results.

In our view, the Court also appears to be assigning a fair deal of weight to the initial bargaining and consideration of the original contract. What the Court is saying here, explicitly and implicitly, is that the subcontractor advanced the warranty as part of a complete agreement which included arbitration provisions presumably of benefit to them. No party (or non-party) should be allowed to ignore ‘inconvenient’ provisions which were part of the original bargain but seek the benefits of other provisions which may not have been given otherwise.  

The Court also found that if Husky’s non-signatory contractual rights were to be assigned, subject to bankruptcy, or receivership, the assignee, trustee, or receiver would not be free of the arbitration obligation. Given the current rising rate of developers going bankrupt in the province of Ontario, this case could serve as persuasive authority for the proposition that contractual rights cannot be reaped for their benefits while nullifying their burdens.

 

---

1. Husky Oil Operations Limited v. Technip Stone & Webster Process Technology Inc, 2023 ABKB 545 at para 40.
2. Husky Oil Operations Limited v. Saipem Canada Inc, 2017 ABQB 489.
3. 2015 ABQB 56 at para 24.