Alberta – Restrictive interpretation of exceptions to stay applications – #754

In 2329716 Alberta Ltd. v Jagroop Randhawa, 2023 ABKB 297, the Court of King’s Bench stayed interim and injunctive relief applications pending a resolution of the parties’ dispute in arbitration. The Court found that the Respondent’s application for interim and injunctive relief related to arbitrable matters covered by the arbitration clause in the parties’ agreement, and that the summary judgment exception in ss. 7(2)(e) of the Alberta Arbitration Act did not apply because: (a) there had been no application for summary judgement; and (b) the Applicant did not attorn to the Court’s jurisdiction by seeking declaratory orders (in a previous proceeding that had been dismissed on procedural grounds) and injunctive relief (at the stay application hearing).

The basic facts of the dispute were as follows. The parties were shareholders in a corporation. A dispute arose as to whether a buy-sell transaction had occurred pursuant to a shotgun provision in the shareholder agreement. The purchasers argued that the transaction had closed, that they had acquired control of the corporation and that they were entitled to carry on business as if the vendors were no longer shareholders and directors. The vendors, however, argued that the transaction had not closed because of the purchaser’s late payment of the purchase price and failure to tender all required closing documents, that they had been improperly excluded from important business decisions and that they were entitled to relief from oppressive conduct by the purchasers. 

The purchasers initially applied to the Court (Commercial List) for an order declaring that the transaction had closed. Their application was dismissed as not suitable for the Commercial List (see 2023 ABKB 202). The vendors subsequently applied to the Court for interim relief (rectification of Corporate Registry Record, nullification of certain transactions, etc.) pending the resolution of the “closed or not” question and obtained “interim interim relief” pending the full hearing of their interim relief application. The purchasers applied for a stay of the interim relief application on the basis that the matters raised, and the relief sought were covered by the arbitration provision in the share purchase agreement. At the hearing of the stay application, the purchasers sought an injunction to reinstate the corporation’s bank account and to bar the vendors from interfering with the business operations pending the outcome of the arbitration.

The Court found that at its core, the dispute between the parties and the relief sought by the vendors turned on whether the buy-sell transaction had closed, and the purchasers had acquired control of the corporation. These issues fell within the ambit of the arbitration clause in the buy-sell agreement, which provided that any “dispute, controversy, or claim arising out of, relating to, or in connection with” the buy-sell agreement “including with respect to the interpretation, breach, existence, validity or termination thereof” would be resolved in arbitration.

Relying on Medecine Shoppe Canada inc. v. Devchand, 2012 ABQB 375, the Court found that the summary judgment exception in ss. 7(2)(e) of the Arbitration Act (which provides that the Court may refuse to stay the civil litigation where “the matter in dispute is a proper one for […] summary judgment”) did not apply because the vendors had not brought an application for a summary-judgment.

The Court found that the purchasers did not waive their right to arbitration or otherwise attorn to the Court’s jurisdiction by seeking declaratory orders from the Commercial List. The Court noted that the Arbitration Act does not provide that taking steps in court proceedings is necessarily an obstacle to invoking arbitration rights. The Court noted that the mandatory language used in s. 7(1), which provides that “the court shall […] stay the proceeding”, reflects a policy in favour of holding parties to their arbitration agreement, subject to a short list of narrow exceptions in ss. 7(2). Those exceptions include bringing the application to stay the civil litigation with undue delay (ss. 7(2)(d)), but do not include waiver or attornment in the absence of an undue delay. In the present case, the application for stay had been raised in a timely fashion and the Court found that it could not be dismissed based on waiver or attornment arguments falling outside of ss. 7(2). The Court added that even if waiver or attornment could allow the dismissal of the application to stay, “the purchaser’s toe-in-the water attempt to seek civil litigation relief on the Commercial List […] would be insufficient to constitute waiver and attornment” in that case (para. 52). Likewise, the Court found that the purchasers’ application for injunctive relief at the stay application hearing “was effectively in support of their bid to move all matters to arbitration” and would not have amounted to waiver or attornment (para. 54).

The Court also dismissed the vendors’ argument that the stay should not be ordered because the purchasers sought relief against third parties that were not bound by the arbitration agreement (i.e. individuals named in the Corporate Registry, against whom the vendors sought an order for the correction of corporate records, and a director of the corporation who had allegedly diverted funds away from the corporation’s existing bank account, but who were not parties to the arbitration or the share purchase agreement). The Court found that the arbitrator had the power to direct the parties to the arbitration agreement to submit revised filings to the Registrar of the Corporate Registry and to make new banking arrangements and that the orders sought against the third parties were therefore superfluous.

Finally, the Court refused to grant interim relief pursuant to ss. 8(1) of the Arbitration Act, (which provides that the court has jurisdiction to make orders for the preservation of property and interim injunctions in an arbitration). It found that there were no compelling reasons to grant relief that could be granted by the arbitrator pursuant to the ICDR Canadian Arbitration Rules selected by the parties. The Court considered that granting the interim relief would require an assessment of the merits of each party’s position on the central dispute and that it was preferable to leave this inquiry to a single decision maker, the arbitrator.

Contributor’s Notes:

Subsection 7(1) of the Arbitration Act requires that civil litigation be stayed where the parties have agreed to submit their dispute to arbitration, unless the Court finds that the matter falls within one of the limited exceptions provided in ss. 7 (2). A restrictive interpretation of these exceptions is warranted, given the imperative language in ss. 7 (1) and the Act’s underlying policy that parties to a valid arbitration agreement should abide by their agreement. 

However, I note that there are conflicting decisions on whether waiver and attornment can apply to deny a stay motion in addition to the limited exceptions in s. 7(2) of the Arbitration Act (see for instance the Master’s decision in Agrium Inc v Colt Engineering Corporation, 2020 ABQB 53, affirmed: 2022 ABCA 266 and the Master’s decision in Fath v Quadrant Construction Ltd, 2019 ABQB 151). The law is also unsettled on whether the summary judgement exception can apply in the absence of a summary judgement application at the time of the stay motion. For instance, in Balancing Pool v. TransAlta Utilities Corporation, 2009 ABQB 631, the (then) Alberta Court of Queen’s Bench found that a summary judgment motion is not necessary in order to entertain and apply the exception, which applies if it is shown that a summary judgment motion “would be successful,if brought” (at paras. 45 and 47). More recently, in Jencel 407 Yonge Street Inc. v. Bright Immigration Inc. and Ramroop, 2021 ONSC 6030 the Ontario Superior Court of Justice applied the exception in the absence of an application for summary judgement, where it was shown that the case was a proper one for summary judgment and that arbitration would be an impractical alternative (see Case Note #538Stay motion denied: case was a proper one for summary judgment, but summary judgment not sought). See also Vistacare Communications Services of Canada Inc. v. Verge Technologies Inc., 2021 NSSC 161, in which the Supreme Court of Nova Scotia declined a stay application where the respondent had established that there was an arguable case for summary judgement, in the absence of a summary judgment motion (see Case Note #480Absent summary judgment motion, stay declined if there is arguable case for summary judgment).