Clause required parties to arbitrate disputes in connection with subcontract in Germany
In proceedings arising from a plant that shut down allegedly due to equipment defects, the Alberta Court of Appeal stayed the contractor’s entire third-party claim against the subcontractor under the province’s International Commercial Arbitration Act, 2000 (ICAA).
In May 2012, Orica Australia Pty Ltd contracted with ARVOS GmbH – a German corporation and the respondent in Arsopi v ARVOS GmbH, 2026 ABCA 49 – to design and manufacture a waste heat exchanger and superheater, to be installed at an ammonium nitrate plant in Carseland, Alberta.
ARVOS subcontracted with the Portugal-based appellants (collectively, Arsopi) to manufacture the equipment. Incorporating ARVOS’s general purchasing terms and conditions, the subcontract stipulated that German law governed the agreement and required the parties to arbitrate all disputes arising out of or in connection with the subcontract in Germany.
The equipment was delivered to Orica Australia, then sold to Orica Canada Inc, which operated a plant producing ammonium nitrate and products for Orica International Pte Ltd. In late 2014, the plant had to shut down, allegedly due to equipment issues.
In March 2017, Orica brought a statement of claim against ARVOS, asserting that:
- Equipment defects caused the plant to close
- ARVOS negligently carried out its manufacturing duties, resulting in the defects
- ARVOS negligently misrepresented its abilities
- Due to the tortious conduct, Orica incurred repair, supply, and freight costs, as well as lost carbon credits, revenue, and business opportunities
Orica’s statement of claim did not include Arsopi as a defendant.
ARVOS filed a statement of defence denying liability. ARVOS also brought a third-party claim against Arsopi. According to the third-party claim, if ARVOS were liable to Orica, then Arsopi would be liable to ARVOS under common law and contractual obligations.
In the third-party claim, ARVOS partly relied on the statutory right of contribution under s. 3(1)(c) of Alberta’s Tort-Feasors Act, 2000 (TFA), which allowed a tortfeasor named as a defendant to recover a contribution from another tortfeasor who was not added as a defendant, but who would have likewise been liable to the plaintiff if included as a defendant.
Citing the subcontract’s terms and conditions, Arsopi applied to strike or stay the third-party claim under the ICAA.
In February 2024, Justice D.J. Reed stayed the tort and contract claims but not the TFA claim. On appeal, Arsopi alleged error in the chambers judge’s refusal to stay or strike the entire third-party claim.
Third-party claim wholly stayed
The Court of Appeal of Alberta allowed the appeal and stayed the entire third-party claim.
The appeal court said the chambers judge should have applied the principles in Kaverit Steel and Crane Ltd v Kone Corporation, 1992 ABCA 7, to determine whether the arbitration clause’s scope covered the TFA claim, based on its relationship to the subcontract and its arbitration clause.
Citing Kaverit, the appeal court ruled that the judge should have also stayed the TFA claim, which fell within the arbitration clause’s scope as a dispute “arising out of or in connection with” the subcontract.
The appeal court saw an error in the judge’s characterization of the TFA claim as a claim between Orica and Arsopi, when Orica did not sue Arsopi directly.
According to the appeal court, under Alberta law, a TFA claim was a right belonging to ARVOS as the defendant tortfeasor and was fundamentally between ARVOS and Arsopi, the parties bound by the arbitration clause.
The appeal court explained that the judge’s error in characterizing the TFA claim led to:
- his conclusion that the TFA claim fell beyond the scope of ARVOS’s and Arsopi’s arbitration clause
- his misapplication of the Kaverit principle providing that an arbitration agreement could not bind non-parties without their consent, submission, or a governing law stating otherwise
Given its conclusion regarding the TFA claim, the appeal court deemed it unnecessary to rule on Arsopi’s remaining appeal grounds, including the judge’s findings regarding German law and his interpretation of their expert report.
Lastly, the appeal court determined that the chambers judge should have stayed the TFA claim under s. 10 of the ICAA for the same reasons he stayed the third-party claim’s other claims.
