Date: 20011106
Docket: SH 169033
2001
IN THE SUPREME COURT OF NOVA SCOTIA
[Cite as: Self v. Abridean Inc., 2001 NSSC 191]
BETWEEN:
ANTON SELF
RESPONDENT/PLAINTIFF
-and-
ABRIDEAN INC., SEAN PATRICK SEARS, 3040906 NOVA SCOTIA LIMITED, JEFFERY SLIVOCKA, CHARLES GUNN, STEPHEN LOCKYER AND LIONEL CONACHER
APPLICANTS/DEFENDANTS
D E C I S I O N
HEARD BEFORE: The Honourable Justice M. Heather Robertson, in Special Chambers, on September 11, 2001, at Halifax, Nova Scotia
DATE OF
WRITTEN DECISION: November 6, 2001
COUNSEL: Tim Hill, for the respondent/plaintiff
Colin D. Bryson, for the applicants/defendants
ROBERTSON, J.:
[1] This is an application made pursuant to s. 9(1) of the Commercial Arbitration Act, R.S.N. 1999, Chapter 5 and for an order pursuant to s. 12(1) of that Act appointing an arbitrator. The applicants seek only to stay certain causes of action contained in the statement of claim. The applicants rely on the arbitration clause found in the Shareholders’ Agreement & Escrow Agreement which provided for the appointment of a single arbitrator.
[2] The respondent resists the application saying the action is a claim of wrongful dismissal pursuant to an employment contract and that many of the claims and counterclaims are not matters dealt with in either of the Shareholders’Agreement or Share Purchase and Escrow Agreement. As well, they say there are factual issues requiring a determination of credibility not suitable for determination on the application.
[3] The background facts have been summarized by the applicants as follows:
· In early 2000, the Plaintiff, Anton Self (“Self”) and others (the Defendants other than abridean Inc.), agreed to and did get together and form an infrastructure software company known as abridean Inc. (“abridean”).
· Self entered into an employment agreement (the “Employment Agreement”) with abridean, a term of which entitled Self to purchase two million shares in abridean, with 10% interest, which he did for the sum of $25,000.00. These shares were subsequently reduced to 200,000 shares by a 10 to 1 reverse stock split.
· In September 2000, Self and the other founding shareholders of abridean entered into a Shareholders Agreement (Exhibit “A” to the Affidavit of Sean Sears).
· On September 22, 2000, Self and the other founding shareholders of abridean entered into a “Share Purchase and Escrow Agreement” (Exhibit “B” of the Affidavit of Sean Sears). Section 3 of this “Escrow Agreement” gave abridean the right to repurchase 80% of Self’s shares in abridean, at their original purchase price (of $20,000.00) if, inter alia, Self resigned his employment with abridean or was fired for just cause. Abridean’s right to repurchase Self’s shares would lapse to the extend (sic) of 20% of Self’s shares for each year of employment completed by Self after September 22, 2000. Abridean would lose this repurchase right entirely if Self was dismissed without just cause or constructively dismissed by abridean.
· Both the Shareholders Agreement and the Escrow Agreement contain the following arbitration clause:
Arbitration
During the term of this Agreement, in the event of a disagreement or dispute among the parties with respect to any matter contained in this Agreement, the parties agree to negotiate for a period of thirty (30) days to settle such dispute. In the event such parties are unable or unwilling to settle this dispute within the thirty (30) day period, they agree to refer such dispute to a single arbitrator appointed to and acting according to the provisions of the Commercial Arbitration Act. The parties agree that the decision of the arbitrator will be final and binding upon them.
· On or about September 29, 2000, Self’s employment with abridean ended. Abridean claims that Self resigned. Self claims that he was fired without just cause or, alternatively, that he was constructively dismissed. Abridean states that if there is a finding that he was dismissed, then it had just cause.
· In October 2000, Self demanded that abridean issue his 200,000 shares of abridean to him. Self also advised abridean that he had entered into an agreement with a third party to sell 160,000 (80%) of his shares in abridean for the sum of US $360,000.00. Abridean refused to issue any shares to Self.
In this proceeding, Self has commenced action against abridean for:
· Damages for wrongful dismissal and other monies owed under the Employment Agreement;
· A declaration that he is entitled to 100% ownership of his 200,000 shares of abridean;
· Damages for the lost opportunity to sell his 160,000 shares in abridean to a third party.
Abridean is defending on the following grounds.
With respect to the claim for wrongful dismissal:
· That Self’s rights under the Employment Agreement were always conditional upon Self, an American citizen, obtaining the requisite legal status to work in Canada, which he did not do. Accordingly, Self was not legally employed and cannot sue for breach of the Employment Agreement.
· That, in the alternative, Self resigned and / or abridean had just cause.
· Self has recovered all money that he is entitled to under the Employment Agreement.
With respect to Self’s claim for the 200,000 shares of abridean and damages for the lost opportunity to sell 160,000 of those shares to a third part:
· Self has no right to the shares as, his right to the shares is conditional upon him having obtained the required legal status to work in Canada.
· In the alternative, as a result of Self’s resignation, 160,000 of his shares are subject to abridean’s repurchase rights, which rights still exist. Abridean states that the alleged purchaser would not have purchased the 160,000 shares knowing this.
· Any claims with respect to the rights under the Shareholders Agreement or Escrow Agreement are to be resolved by arbitration.
There have been some negotiations between the parties. The respondent has however, refused to arbitrate any portion of the proceed.
[4] The application for the partial stay of proceedings and for the appointment of the arbitrator is made pursuant to the Commercial Arbitrator Act. The relevant provisions of the Act are as follows:
(8) No court may intervene in matters governed by this Act, except for the following purposes as provided by this Act:
(a) to assist the arbitration process;
(b) to ensure that the arbitration is carried out in accordance with the arbitration agreement;
(c) to prevent manifestly unfair or unequal treatment of a party to an arbitration agreement;
(d) to enforce awards.
(9)(1) where a party to an arbitration agreement commences a proceeding a court in respect of a matter in dispute to be submitted to arbitration under the agreement, the Court shall, on the motion of another party to the arbitration agreement, stay the proceeding.
(2) The Court may refuse to stay the proceeding pursuant to ss. (1) only in the following cases:
(a) a party entered into the arbitration agreement while under a legal incapacity;
(b) the arbitration agreement is invalid;
(c) the subject matter of the dispute is not capable of being the subject matter of arbitration pursuant to the law of the province;
(d) the motion to stay the proceeding was brought with undue delay;
(e) the matter in dispute is a proper one for default or summary judgment.
(5) The court may stay the proceeding with respect to the matters in dispute dealt with in the arbitration agreement and allow the proceeding to continue with respect to other matters if the court finds that
(a) the agreement deals with only some of the matters in dispute in respect of which the proceeding was commenced; and
(b) it is reasonable to separate the matters in dispute dealt with in the agreement from the others.
[5] The respondent has raised three issues:
1. Whether or not the motion to stay the proceeding was brought with undue delay;
2. Whether or not the matter in dispute is a proper for one default or summary judgment; and
3. Whether reviewing the scheme of the Act as a whole the court ought to exercise its discretion to deny this application.
[6] The respondent acknowledges that unlike the provisions of the Arbitration Act, R.S.N.S. 1989, c. 19, which provides that an application for stay must be made prior to the applicants entering an appearance (i.e. prior to the defendant filing a defence to the action) the Commercial Arbitrator Act does not contain such a clause.
[7] With respect to the whether the matter in dispute is a proper one for default or summary judgment the respondent acknowledges that the applicants would be able to raise a “reasonably arguable” defence so as to avoid summary judgment. Carl B. Potter Limited v. Antil Canada Ltd et al (1976), 15 N.S.R. (2d) 408 (A.D.); Bank of Nova Scotia et al v. Dombrowski (1977), 23 N.S.R. (2d) 532 (A.D.).
[8] Accordingly the sole issue the court is left to determine is whether in all the circumstance the court ought to exercise its discretion to deny this application.
RELEVANT CASE LAW:
[9] Generally the courts have found that where matters in dispute in litigation are inextricably bound to matters which the parties have agreed to arbitrate, the courts will not intervene in the arbitration process. The onus of showing that the case is not a fit one for arbitration falls upon the party resisting the stay of proceeding.
[10] In Stokes-Stephens Oil Co v. McNaught, [1918], 44 D.L.R. 682 (S.C.C.) the court considered an arbitration clause which provided for the arbitration of “any dispute, difference or question between the parties hereto...touching...the construction, meaning or effect of these presents or anything herein contained or the rights or liabilities of the parties...”. The court held as follows:
I think the parties to this agreement intended at the time it was entered into that all questions that might arise between them touching the subject matter of the contract should be settled without proceeding before the courts. (p.683)
Once the conclusion is reached that the agreement for arbitration is wide enough to embrace the claims presented in the action, it is the prima facie duty of the court to allow the agreement to govern...and the onus of shewing that the case is not a fit one for arbitration is thrown on the person opposing the stay of proceedings. (emphasis added) (pp.690-691)
The parties have agreed to determine that they will have arbitrators to decide their claims, instead of resorting to the ordinary courts of the land. It is our duty, therefore, to act upon that agreement. It is highly desirable...that “where an arbitration of any sort has been agreed to between the parties those claims should be held to apply.” (emphasis added) (pp.692)
[11] In Bakorp Management Limited v. Pepsi-Cola Canada Ltd., [1994] O.J. No. 873 (Gen.Div.) the court interpreted s.7 of the Ontario Arbitration Act, S.O. 1991, c.17 and commented:
Clearly the Court should act with great caution before interfering with an arbitration, especially when agreed to between two such experienced parties with immensefinancial resources ... where matters in dispute in litigation are inextricably bound up with matters which the parties have agreed to arbitrate, the Courts will refuse to permit such multiplicity of proceedings and will stay the litigation. (at p. 12).
Section 7 of the Ontario Act is worded practically the same as section 9 of the Nova Scotia Act.
[12] Other cases cited in support of the position that where parties agree in a contract to resolve their disputes by arbitration, it is the prima facie duty of the court to enforce the agreement are; Nova Construction Limited v. St. Lawrence Cement (1990), 95 N.S.R. (2d) 211 (S.C., T.D.), Boychuch Construction v. St. Paul’s Separate School District (1966), 56 D.L.R. (2d) (Sask. Q.B.), Lamont v. Wright [1943] 1 D.L.R. 619 (Ont. H.C.), Madorsky v. Zelinka, [1947] 1 W.W.R. 654 (Alta. S.C.), Roy v. Boyce (1991) 57 B.C.L.R. (2d) 187 (B.C.S.C.), Prince George (City) v. McElhanney Engineering Services Ltd. (1995), 9 B.C.L. R.(3d) 368 (B.C.C.A.), and Kints v. Kints, [1998] O.J. No. 3244 (Gen.Div.)
[13] In some circumstances where the claims are varied or where the claims are not specifically referred to or contemplated by the arbitration agreement, the courts have used their discretion and denied a stay of proceedings pursuant to arbitration statutes.
[14] In Angelo Breda Limited v. Guizzetti, [1995] O.J. No. 3250 (Gen. Div.) the Ontario Court dealt with an application such as that before the Court. There were a number of agreements in issue containing arbitration clauses. The claims were varied and had some similarities to those advanced here. There was an issue of oppressive conduct on the part of the majority against the minority as is the case here. The Court in referring to section 7(5) of the Ontario Act (s.9(5) in Nova Scotia) stated (at p. 7):
In my view therefore, the court must look to s.7(5) to determine the stay question based on the criteria set ut therein: that is the court may stay only the issues raised by the applicants which are covered by valid subsisting arbitration agreements and allow the other issues to proceed in the current action. However, in my view, it is not reasonable to separate the matters dealt with in the arbitration agreements from the other matters raised. This is clearly one large dispute wherein these business venturers have come to the point where they are no longer able to continue to develop their joint venture business together. It would be unfair to all concerned to have dispute resolution processes proceeding on more than one front at the same time with the clear probability of overlap in effort and cost and possibly inconsistent findings.
The court exercised its discretion to refuse the stay sought.
[15] Other cases that where a stay was denied pursuant to the exercise of the court’s discretion are: T1T2 Limited Partnership et al v. Canada, [1994] O.J. No. 2614 (Gen. Div.) and Jaffasweet Juices Limited v. Michael J. Firestone & Assoc. [1996] O.J. No. 533 (Gen. Div.) where the allegations of unlawful interference with one party’s contractual relations with a third party and where the arbitration agreement in question provided for the parties agreement to submit any and all claims or disputes arising out of the business relationship between them, to arbitration. The court noted at p. 2:
The parties could hardly have envisaged, as a subject matter for arbitration, what one party considers to be a subsequent assault on the integrity of the very relationship.
The Court went on to note:
Even if it could not be said (which) I am not prepared to find), that the dispute fell within the terms of the terms of the arbitration clause, it would be unwise, in my view, to exercise the discretionary power of the court, to grant a stay in these circumstances. This is surely not the type of claim that the arbitrator contemplated when he accepted the engagement.
[16] The court refused to stay the action.
[17] In particular, the respondent relies upon the recent case of the Wat-Char Holdings Limited v. Deltram Corp. [1999] O.J. No. 109 (Gen. Div.). In that case the plaintiff had commenced an action for dissolution of a corporation, distribution of its assets and other relief. The defendants applied to stay the action on the basis of an arbitrator clause in the shareholders’ agreement that was broadly worded. However, there were several shareholder agreements involving different parties. The court stated at p. 5:
¶¶ 35 In the present case, in order for me to refer the matter for arbitration under one of the particular agreements, as opposed to another of the particular agreements, involving different parties, I would be required to make a finding of fact which would impact significantly on the substantive rights of the parties to the litigation. To make such a finding of fact would require, among other things, an assessment of the credibility of the parties as evidenced by their affidavits and cross-examinations. To be sure, this assessment would be aided by a careful analysis of the wordings of the agreements, the undisputed aspects of the history of the relationship of all the parties, reference to the reasonableness or tenability of the assertions put forward in argument and the like.
¶¶ 36 However, though it would be theoretically possible to resolve this matter by assessing credibility by resort to the written record before me, it would be fundamentally unfair to both of the parties to do so. The "shift" in policy to which I referred, echoing the comments of Blair J. in Deluce, towards requiring "parties to agreements containing arbitration clauses" to resort to arbitration rather than the court, is undoubtedly a laudable aim. Anything that simplifies and expedites private disputes while minimizing costs, provided that fundamental justice or fairness is maintained, cannot be criticized. The difficulty here, however, is that if I grant the stay that is requested, I am effectively endorsing the credibility position of one of the parties based only on a written record.
The court found that “there is no doubt in my mind that here is a genuine, credibility-based, factual dispute that can only be fairly, or justiciably, resolved by a full trial on the merits.” The court refused to stay the action.
[18] In the present case the respondent had entered into a contract of employment that did not include an arbitration clause. It did include an “all inclusive provision.”
Lastly, please understand that this letter will constitute a binding agreement between you and Abridean. You should consult with your own attorney. The terms of this offer supercede all prior oral and written communications between you and the Company.
[emphasis in the original]
[19] The respondent says there was no agreement to arbitrate any dismissal issue and that the letter was a complete agreement making no mention of arbitration. Further, they argue that it would not be reasonable for the court to grant the stay in circumstances where:
· a stay would result in two dispute resolution processes operating simultaneously with the attendant additional cost burden and risk of contrary or inconsistent findings;
· where matters in dispute are clearly not included in those agreed to be arbitrated;
· where the alleged conduct of a party was not of a nature contemplated in the agreement to arbitrate;
· and where the application itself involves an assessment of credibility as a precondition to ascertaining whether the arbitration agreement was intended to cover the dispute in issue.
[20] In the circumstances of this case I find that the issue of whether or not the respondent was fired for just cause is critical to the issue of share ownership and entitlement. They are inextricably bound and were contemplated in the terms of the Escrow agreement sought to be arbitrated.
[21] Section 3 of the Escrow agreement gave abridean the right to purchase 80% of Self’s shares of abridean, at their original purchase price (of $20,000.) if inter alia, Self resigned his employment with abridean or was fired for just cause. Abridean’s right to repurchase Self’s shares would lapse to the extent of 20% of Self’s shares for each year of employment completed by Self after September 22, 2000. Abridean would loose this repurchase right entirely if Self was dismissed without just cause or constructively dismissed by abridean.
[22] Where the issue of just cause and share repurchase rights is so clearly contemplated by the Escrow agreement as an arbitral issue, it would be inappropriate for the court to intervene in that process. While there may be some factual disputes and issues of credibility, there are none before me evidenced sufficient to warrant interference in the arbitration process. In a broadly worded arbitration clause they agreed “in the event of disagreement or dispute among the parties with respect to any matter contained in the Agreement” an arbitration would ensue according to the provisions of the Commercial Arbitration Act. They agreed that such a decision would be final and binding upon them.
[23] The arbitration process will not preclude the respondent from litigating other claims but it will resolve the share entitlement issue. That will necessitate a determination by the arbitrator on the issue of just cause and subsequently the respondent will be bound by that finding. It will not however, result in the risk of contrary or inconsistent findings as the matter will have been determined.
[24] The Commercial Arbitration Act was passed by the Nova Scotia Legislature on June 4, 1999 and received royal assent on June 17th of that same year. It is an important piece of legislation which provides a much needed alternate dispute resolution to that of costly litigation before the courts. In the circumstances of this case fundamental issues of shareholder entitlement can and should be arbitrated pursuant to the agreement and may well lead to an early resolution of the litigation. Therefore, I will allow the application and grant the order in the form provided by the applicant.
[25] The parties may address the court on the subject of costs.
J.