Overlapping Arbitration And Litigation: When Can The Court Step In?

Courts have the power to enforce arbitration agreements and stay litigation in favour of arbitration. But can the reverse be true—can an arbitration be stayed in favour of litigation to avoid a multiplicity of proceedings? This article studies Canadian Natural Resources Limited v Flatiron Constructors Canada Limited, 2018 ABQB 613, where the Court stayed an arbitration and allowed overlapping litigation to proceed first. We explore the risks associated with parallel litigation and arbitration with overlapping issues, including how the Court deals with subrogated claims, litigants who are strangers to arbitration agreements, and concerns and risks inherent in overlapping proceedings.

Canadian Natural Resources Limited (CNRL) contracted with Flatiron Constructors Canada Limited (Flatiron) to design, supply and construct two tailings thickeners at CNRL's Horizon oil sands site. Flatiron retained numerous subcontractors to perform design, supply, quality control, and other tasks on the project. In May, 2014, during the course of construction, the mechanically stabilized earth walls that held the thickener tanks failed. Extensive remedial work was required to repair the damage.

CNRL and Flatiron could not agree about the cause of the failures or about who should bear the cost of the remedial work. On April 7, 2015, to ensure the remedial work was performed in a timely fashion, the parties entered into a Cost Sharing Agreement (the CSA) whereby Flatiron agreed to carry out the remedial work, both parties agreed to submit insurance claims for the loss and to arbitrate if a shortfall remained.

On May 6, 2016, CNRL and Flatiron (as co-plaintiffs) commenced an action in the Alberta Court of Queen's Bench against contractors and subcontractors involved in the design, supply and construction of the thickeners (the Court Action). While the parties sought their full respective losses associated with the failures in the Court Action, a portion of their claim was subrogated because each had made insurance claims as per the CSA.

On June 26, 2017, pursuant to the CSA, Flatiron commenced an arbitration against...