DISPUTE RESOLUTION PROVISION DEEMED TO APPLY AS A MATTER OF ‘SOUND COMMERCIAL PRINCIPLE’ AND ‘GOOD BUSINESS SENSE’

Bombardier Transportation Canada Inc. v Metrolinx 2017 ONSC 2372 (CanLII)

An Ontario Superior Court decision determined that a dispute resolution provision was not ousted by the ‘Notwithstanding anything to the contrary in this Contract’ language in a termination provision. The judgement cited that doing otherwise would have absurd consequences and render the contractual dispute resolution procedure meaningless.

Drafters should be aware that commercial contracts will be interpreted in accordance with sound commercial principles and good business sense. If any disputes are to be excluded from the dispute resolution process, this must be clearly and expressly stated in the contract, and should make sense within the context of the contract.

In Bombardier Transportation Canada Inc. v. Metrolinx, 2017 ONSC 2372 (CanLII) Bombardier, contracted with Metrolinx to provide Light Rail Vehicles (LRVs) for planned expansions to Toronto’s transit system. Bombardier faced several delays which significantly affected its ability to meet its contractual obligations. Metrolinx issued a Notice of Default, and argued that the contract expressly permitted them to terminate for material default and that this determination was not subject to the dispute resolution provisions. The contract provided that that “MTX may terminate the Contract for material default, ‘Notwithstanding anything to the contrary in this Contract’…” and Metrolinx argued that this meant that their decision to terminate for material breach was not subject to arbitration. The court held that it would not make commercial sense to exclude termination for material default from the dispute resolution process as it is one of the most serious disputes possible, and doing so would render the dispute resolution process ineffective. The court stated: “It would also mean that an $880 million negotiated commercial agreement could be terminated by MTX based solely on a determination made by its own representative. BTC would have no means of challenging that determination. This is a commercially absurd result in the face of the broadly-worded dispute resolution process that provides for ultimate determination by an impartial expert arbitral panel.” The court should adopt an interpretation of a negotiated commercial agreement that is in accordance with sound commercial principles and good business sense.

To read the full case on CanLII, click here.