Executive Summary: Key Legal and Evidentiary Issues

• The Town of Saugeen Shores sought a declaration that its dispute with the Lessee over construction delays was not arbitrable and had to be litigated.
   
• Justice Kurz held that the competence-competence principle required an arbitrator, not the court, to decide arbitrability under article 13.1 of the Lease.
   
• Articles 8.2 and 8.3 of the Lease contain broad Operating Standards language that the court found was not amenable to only superficial review.
   
• Force Majeure was defined in both the Lease and the Site Works and Servicing Agreement, and the Lessee argued the Mann Litigation qualified as such an event.
   
• Because the issue involved contractual interpretation rather than pure law, the exceptions to the competence-competence principle set out in Dell did not apply.
   
• Dismissing the application, the court found the Respondent to be the successful party and eligible to make costs submissions.
   

Facts of the case

The Corporation of the Town of Saugeen Shores (the "Town") and 2706913 Ontario Inc. (the "Lessee") entered into a lease dated December 19, 2019, for the development of Cedar Crescent Village near the Port Elgin main beach (the "Project"). Three further agreements followed: the Site Works and Servicing Agreement dated June 13, 2022 (the "SWSA"), the First Amending Agreement dated June 13, 2022, an agreement confirming the Lease dated October 11, 2022, and the Second Amending Agreement dated February 26, 2025. The Second Amending Agreement set occupancy deadlines of February 2, 2026 for the North Building and May 18, 2026 for the South Building, with total completion due September 14, 2026.

The Lessee maintained that delays stemmed from the Covid-19 pandemic, the Town's inability to deliver the described lands, and litigation brought by local resident John Mann challenging the Lease's validity (the "Mann Litigation"), which ran from late July 2025 until its dismissal on May 19, 2026. On February 2, 2026, the Lessee's counsel requested an extension for the North Building and served a Notice to Arbitrate under article 13.1, characterizing the Mann Litigation as a Force Majeure event. Rather than granting the extension, the Town issued a Notice of Event of Default under article 12.1(f) and denied that the dispute was arbitrable. The Town commenced this application on March 16, 2026, seeking a declaration that the arbitrability question belonged to the court. On May 16, 2026, the Lessee served a Supplementary Notice to Arbitrate invoking articles 8.2 and 8.3 of the Lease, prompting the Town to amend its application to address the additional issues raised.

Policy and legislative provisions at issue

Article 1.1 of the Lease defines Force Majeure as "any happening, condition or thing beyond the control of a Person which could not reasonably have been anticipated and avoided by such person which delays or prevents such person from performing any of its obligations hereunder, financial inability excepted." Article 39 of the SWSA contains a parallel force majeure carve-out from liability for delay caused by events beyond a party's reasonable control. Article 13.1 of the Lease is its arbitration clause, requiring the parties to first attempt amicable negotiation and providing that arbitration proceeds "if any arbitration is expressly permitted or expressly required under this Lease." Articles 8.2 and 8.3 govern Operating Standards, with article 8.2(e) requiring the Lessee to perform "every other reasonable act whatsoever in or about the Project to carry out the intent of this Lease," and article 8.3 permitting either party to submit an alleged failure to adhere to those standards to arbitration. Article 12.1(f), as replaced by article 2(h) of the Second Amending Agreement, defines an Event of Default tied to missed occupancy requirements, subject to a 30-day cure period. Section 17 of the Arbitration Act, 1991, S.O. 1991, c. 17, allows an arbitral tribunal to rule on its own jurisdiction, with that ruling subject to court review within 30 days under section 17(8).

Reasoning and analysis

Justice Kurz applied the competence-competence principle as articulated by the Supreme Court of Canada in Dell Computer Corp. v. Union des consommateurs, 2007 SCC 34, which directs that challenges to an arbitrator's jurisdiction be resolved first by the arbitrator unless the challenge rests solely on a question of law, or unless resolving questions of fact requires only a superficial review of the documentary record. Drawing on Uber Technologies Inc. v. Heller, 2020 SCC 16, and Peace River Hydro Partners v. Petrowest Corp., 2022 SCC 41, the court treated the dispute as one of contractual interpretation, and therefore a question of mixed fact and law, applying the framework from Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53. The Town argued that articles 8.2 and 8.3 applied only to the operational phase of the Project and that a superficial review of the record would confirm this. The Lessee countered that resolving the issue required consideration of multiple Lease provisions together with affidavit evidence, including three affidavits from the Town's Chief Administrative Officer and an affidavit from the Lessee's President, Piergiorgio Donnini, addressing the parties' negotiations and intentions.

The court found the broad wording of article 8.2(e) capable of supporting the Lessee's interpretation and not confined to superficial review as described in Uber. It noted the Lessee had sought arbitration promptly after each substantive dispute arose, undermining any suggestion of delay tactics, and observed that the Town's own factum invited the court to look beyond a superficial reading of the documents by relying on evidence of the parties' intent. The court also cited Ciano Trading and Services C.T. & S.R.L. v. Skylink Aviation Inc., 2015 ONCA 89, for the principle that unclear jurisdictional questions are better left to the arbitrator in the first instance.

Ruling and overall outcome

Justice Kurz concluded that an arbitrator selected under article 13.1 of the Lease, not the court, must determine whether the parties' dispute is arbitrable, and found it unnecessary to decide the underlying arbitrability question itself. The application brought by the Town was dismissed. The Respondent, 2706913 Ontario Inc., was identified as the successful party and was given leave to submit costs submissions of up to three pages within 14 days, with the Town permitted to respond within a further 14 days; no specific monetary amount was ordered or quantified in the endorsement.