In Consolidated Contractors Group S.A.L. (Offshore) v. Ambatovy Minerals S.A., 2017 ONCA 939, the respondent was constructing a mine. The appellant was contracted by the respondent to build a pipeline. The construction contract contained a three stage dispute resolution process, being: 1) disputes were to be determined by the respondent’s supervising engineer; 2) if the dispute was not resolved, it would be referred to adjudication by a sole adjudicator; and 3) if a party did not accept the adjudication, it could refer the dispute to arbitration pursuant to the International Commercial Arbitration Act, R.S.O. 1990, c. I.9, which incorporates the Model Law.
Problems arose in the project. The appellant alleged that the respondent had breached the contract. The appellant sought an extension of the time for performance, compensation for its costs arising from delay, and compensation for additional work.
The appellant submitted its claims to the respondent’s engineer for determination. After the appellant disputed the engineer’s decision, the respondent suggested that the dispute skip adjudication and proceed directly to arbitration, by-passing adjudication. The appellant agreed. The respondent then advanced a counterclaim for liquidated damages due to the appellant’s failure to complete the project on time, and for additional costs caused by the appellant’s failure to properly complete its work. The appellant agreed that the respondent’s claim for liquidated damages could proceed directly to arbitration. However, the parties could not agree whether the respondent’s counterclaim for additional costs could proceed directly to arbitration.
The arbitral tribunal agreed to hear all of the respondent’s crossclaims. Ultimately, the tribunal rejected most of the appellant’s claim for an extension of time and delay costs. The tribunal awarded the respondent nearly $25 million for the counterclaims.
The appellant first applied to the Ontario Superior Court to set aside the arbitral award. The appellant’s application was dismissed. On appeal to the Court of Appeal, the Court considered, inter alia, the appellant’s argument that the tribunal did not have jurisdiction to hear the the respondent’s counterclaim for additional costs on the basis that the counterclaim had not gone through the first two stages of the contract’s dispute resolution clause.
The Court of Appeal rejected that argument. It considered that Article 34(2)(a)(iii) of the Model Law, which required the court to consider whether the award deals with a “dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration”. The Court of Appeal stated that Article 34(2)(a)(iii) of the Model Law was limited to “true” errors of jurisdiction. The Court of Appeal held that the respondent’s counterclaims were clearly the proper subject of arbitration under the contract. The only issue was when the counterclaims would be arbitrated. As a result, the Court of Appeal determined that tribunal’s decision to determine the counterclaims was not reviewable under Article 34.