'Final and binding' and 'finally settled' terminology in contract means same thing – final
When it comes to arbitration clauses in contracts that are supposed to provide a firm solution to dealing with conflicts between parties, final is final – whether it’s “finally settled” or “final and binding,” an Ontario Court of Appeal ruling recently ruled.
In Baffinland Iron Mines LP v. Tower-EBC G.P./S.E.N.C., Justice Benjamin Zarnett, writing on behalf of the appeal court panel, rejected Baffinland’s contention that the original application judge failed to apply the “presumption of consistent expression” properly. It had argued that when the parties used “final and binding” in parts of the contract and “finally settled” in the arbitration clause, they intended the two to have different meanings.
McMillan LLP lawyer Brad Hanna, a partner in the firm’s commercial litigation practice, says the key takeaway from this decision is that parties who wish to retain the right to appeal an arbitration decision be clear and consistent in the language that is used and, ideally, should “expressly articulate whether appeals are available on questions of fact, law or mixed fact and law.
“Pay close attention to the language used in arbitration clauses. Sloppy language can lead to unintended consequences and costs.”
As well, Hanna says because this ruling upholds the idea that there is more than one way to express the same idea, courts will not permit technical rules of interpretation to override the intended objective in cases where the ordinary meaning of different phrases is clearly the same.
“It’s not really surprising that the court decided ‘finally settled’ means the same thing as ‘finally binding.” There’s really no difference in the terms.”
Baffinland terminates contract with Tower-EBC
In 2017, Baffinland Iron Mines and Tower-EBC entered into two essentially identical standard-form contracts that required TEBC to assist in constructing a railway to transport ore from Baffinland’s mine to a nearby port. Both contracts provided that disputes not capable of being settled amicably, or resolved by the Dispute Adjudication Board (whose decisions, in some circumstances, are referred to as “final and binding”), shall be “finally settled” by arbitration under the Rules of Arbitration of the International Chamber of Commerce.
When Baffinland terminated the contracts for the delay, TEBC commenced an arbitration process that challenged Baffinland’s termination. The majority of a three-member arbitral tribunal awarded more than $100 million in damages to TEBC.
Baffinland then went to the Superior Court of Justice for Ontario to appeal the award on questions of law, pointing out that a dissenting member of the three-member tribunal would have deducted about $54 million from the award because of what he described to be his “several disagreements [with the majority] about the law of Ontario which governs the contractual relations between TEBC and [Baffinland].”
The preliminary issue before the application judge was whether the contracts precluded an appeal on such questions under s. 45(1) of the Ontario Arbitration Act. This subsection provides that if an arbitration clause does not deal with appeals on questions of law, a party may seek leave of the court to appeal an award on such questions.
Says Hanna: “So what Baffinland had to prove first was that the arbitration agreement didn’t deal with appeals. And if they could prove that, then they’d say, ‘Well, now we can seek leave of the court to appeal it.’”
The application judge held the parties had expressly contracted out of all rights to appeal, given the arbitration clause language saying the dispute3 “…shall be finally settled by… arbitration” and “…shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce.”
The application judge noted that his conclusion was supported by ICC Rule 35(6), which says every award is binding on the parties, and they are obligated to carry out the award without delay. Baffinland then went to the appeal court and lost again.
The ONCA began by noting that the act contemplates three different scenarios regarding appeals to the court on questions of law:
- A process where an appeal is a right.
- An opportunity to appeal if the agreement is silent on the matter, but only with the court’s leave.
- Agreements where there is no right of appeal or opportunity to seek leave to appeal at all.
Because the arbitration clauses in this contract did not expressly provide for an appeal on questions of law, the issue identified by the appeal court was whether they were silent on the subject or whether they expressly precluded such appeals.
Baffinland argued the application judge misconstrued the contractual interpretation principle known as the presumption of consistent expression. Under that principle, it is presumed that contractual language is used consistently, with the same words meaning the same thing and, by corollary, different words must indicate an intention to refer to other things.
Baffinland argued that, because the contracts refer to some decisions of the Dispute Adjudication Board as being “final and binding” - language which has long been held to preclude appeals - but the arbitration clauses use the expression of “finally settled,” the presumption of consistent expression principle requires giving “finally settled” a different meaning than “final and binding.”
However, the appeal court rejected this argument, noting that “the interpretation of contracts has evolved towards a practical, common-sense approach not dominated by technical rules of construction” and that courts are to “give effect to the intent of the parties by reading the contract as a whole, giving the words used their ordinary and grammatical meaning, in light of the factual matrix.”
No error in ruling that agreement precluded appeals of arbitration awards
Justice Zarnett wrote that the application judge made no reversible error in correctly concluding that the arbitration agreement precluded appeals to the court on any question, including questions of law.”
The appeal court pointed out that the presumption of consistent expression may be a helpful interpretive tool. Still, it is essential not to treat the presumption of consistent expression as a dominating technical rule of construction that overwhelms the interpretation of a contract based on “ordinary and grammatical” meaning of its text.
The appeal court then held that the presumption of consistent expression should not bar the use of differently worded but mutually reinforcing phrases that can only be understood to mean the same thing.
Also, the ordinary and grammatical meaning of “finally settled,” when viewed in the context of the contractual dispute resolution process, clearly means no further recourse by appeal in the same way as “final and binding.”
The presumption of consistent expression should not, Justice Zarnett wrote, “be seen to bar the use of differently worded but mutually reinforcing phrases which can only be understood to have the same meaning.”
Even if the presumption of consistent expression were applied in this case, the appeal court ruled it would result in the same conclusion. Both phrases employ the same word (“final”) accompanied by the additional word “binding” in one instance, in the other, “settled.”
In such circumstances, the presumption of consistent expression militates towards giving the words “final” and “finally” the same meaning unless the additional words suggest something different. The word “settled,” like the words “conclusive” and “binding,” reinforces the meaning of “final” and does not suggest anything different.
The ONCA also rejected Baffinland’s second argument: that inconsistent contractual terms must be reconciled in accordance with the priority to which the parties have agreed.
Baffinland argued that the contracts specified, for the purposes of interpretation, that their provisions, including the arbitration clauses, have priority over other documents incorporated by reference. These would include the ICC Rules, one of which precludes appeals.
Like the application judge, however, the appeal court held that the phrase “finally settled” is entirely consistent with ICC rules that say parties “undertake to carry out any award without delay and shall be deemed to have waived their right to any form of recourse.”
Given that there is no inconsistency between the language of the arbitration clauses and the ICC Rules incorporated by reference, the appeal court ruled this principle was inapplicable, and the appeal court ruled that the arbitration clauses dealt with appeals on questions of law by expressly precluding them.
Key takeaway is 'be careful' when wording appeal clauses
Hanna advises that, based on this decision, those who draft arbitration clauses in contracts be careful when doing so and obtain the advice of a litigator., noting that commercial lawyers typically draw up contracts.
Had the relevant arbitration clauses in the Baffinland case been consistent with the rest of the contract, Baffinland might not have sought leave to appeal the arbitral award in the first place, which would have resulted in cost savings for both parties.
“The punch line is knowing what rights of appeal you want to have or do not want to have, and make sure you have the correct and consistent language in your contract and arbitration clause to give effect to the appeal you want to have.”
He adds that given the term “final and binding” has been judicially interpreted many times, it might make sense to use “tried and true” expressions already tested in court. “You can provide for any level of appeal or no level of appeal in arbitration, the point simply is to know what you want before you sign the contract and then provide for it in the agreement.
Hanna notes that arbitration is still a popular way of settling disputes, and courts are trying to promote getting cases out of the court system. He also indicates the decision reflects the “continued deference” courts give to arbitration clauses to provide a private and efficient means for resolving disputes.
“So in finding that finally, settled means the same thing as final and binding, the court reinforces this deference.”