Husky was the project owner and a non-signatory, third-party beneficiary to a subcontract between its general contractor (Saipem) and its subcontractor, Technip. 

Husky commenced litigation by filing a Statement of Claim seeking to enforce certain warranty obligations as against Technip under the subcontract. Husky also advanced separate negligence claims. Husky, in doing so, was attempting to rely on what it argued was the nature of the rights conferred to it under the subcontract. Technip took issue with Husky commencing litigation, arguing that Husky was required to enforce its warranty rights pursuant to the express terms of the subcontract. The subcontract required “all disputes” under the subcontract to be arbitrated.

The application was initially heard by Applications Judge Prowse. AJ Prowse focussed on the terms of the subcontract, and held that the dispute resolution provisions, including the arbitration provisions, applied only to the contracting parties – i.e. Saipem and Technip. Thus, he dismissed Technip’s application and allowed Husky to pursue its warranty claim by court action.

Technip then appealed AJ Prowse’s decision. Justice Lema heard the appeal, and held that Husky’s warranty claims must be arbitrated, but the negligence claims could still be litigated. He found that it was within the contracting parties’ power to decide whether any conditions or terms should attach to the warranty rights it extended to Husky as a non-party. As a result, he ruled that the contracting parties limited Husky’s rights by requiring arbitration and struck Husky’s warranty-based claims.

Alberta Court of Appeal Upholds Husky’s Right to Litigate Despite Arbitration Clause

The Alberta Court of Appeal overturned the lower Court ruling that had struck Husky’s warranty claims from its Statement of Claim. The Court of Appeal also dismissed Technip’s cross-appeal, which sought to also strike Husky’s negligence claims on the basis that they too were subject to arbitration.

The Court of Appeal ruled that when a contract seeks to preclude a non-party from accessing the courts, the requirement for arbitration must be explicitly and clearly stated. In this case, the contract relied upon by Technip failed to meet that standard, allowing Husky to pursue its claims in court.

Argument + Key Issues

Husky argued that it never agreed to arbitrate warranty claims, and as a result, could not be forced into arbitration and ousted from court access. Technip countered that by suggesting in seeking to rely upon the warranty provisions of the contract, Husky was bound to all aspects of it, including the arbitration provisions.

This case raised complex issues surrounding privity of contract, contractual interpretation, and access to the courts. Generally, under the doctrine of privity, a contract cannot confer rights or impose obligations on any person except the parties to that contract. However, this doctrine can be relaxed where a non-party seeks to rely on contractual provisions that have been made for their benefit.

The court emphasized that while benefits can sometimes be extended to non-parties, imposing obligations – such as mandatory arbitration – requires unmistakeable clarity. In the absence of clear, explicit language, the law has little interest in forcing non-parties to abandon their right to litigate.

Why Clarity Matters

Thus, to the extent that it is possible to impose an obligation on a non-party to arbitrate, it must be apparent and clear. If a contract lacks explicit terms requiring a non-party to arbitrate, that non-party may pursue litigation based on their perceived rights. Later attempts to force the non-party to arbitrate could result in delays, procedural disputes, or a denial of access to justice. As was the case here, requiring Husky to arbitrate at this stage in the proceedings would result in them being too late to seek arbitration and leave them with no recourse.

As the contract at issue here did not say “Husky must pursue the warranty claim by arbitration”, it lacked the required clarity to deprive Husky of its ability to access the courts.

Takeaways

The decision from the Court of Appeal underscores the importance of precise drafting in contracts. If obligations or limitations are to be imposed on a non-party to a contract, the contracting parties cannot assume the non-party had knowledge of the circumstances that were known to the contracting parties at the time of formation, or the intent of the contracting parties. Thus, relying on the broad principles of contractual interpretation in an effort to impose obligations on a non-party will not be found sufficient by the courts.

Ultimately, access to the courts is a fundamental right and cannot be restricted by a contract unless the language seeking to impose an alternative dispute resolution path, is unmistakably clear.

If you would like advice on the interpretation and implications of contractual rights as they relate to construction projects, please contact Anthony Burden or Ben Civil in Calgary, Ryan Krushelnitzky in Edmonton, or any member of Field Law's Construction Group for guidance and assistance in this area.

Link to decision: Husky Oil Operations Limited v Technip Stone & Webster Process Technology Inc, 2024 ABCA 369