In AtriCure, Inc. v. Meng, 2020 BCSC 341, Mr. Justice Dennis K. Hori recognized the courts’ willingness to consider whether a litigant qualifies as a non-signatory party to an agreement to arbitrate but held that the applicant seeking the stay filed no evidence justifying such a status. The case also documented a series of contracts signed between plaintiff and overseas corporations controlled by a single individual but for which plaintiff agreed to a variety of different substantive laws and dispute resolution processes.
Incorporated and having its principal place of business in the U.S., AtriCure, Inc. (“AtriCure”), Plaintiff, develops medical devices and products. In 2005, 2010 and 2016, AtriCure signed separate distribution agreements with corporations located in China:
(i) 2005 – 2009 – a distribution agreement with Beijing Since Medical Scientific Co. Ltd. (“Beijing Since Medical”) containing a choice of law clause stipulating that the agreement be governed by the laws of “United States and China” and giving AtriCure the option to submit disputes to the courts in China;
(ii) 2010 – 2015 – a distribution agreements with Uni Rainbow Ltd. (“Uni Rainbow”) and Med Investment Limited (“Med Investment”) stipulating that the agreements are governed by the laws of Ohio including Uni Rainbow’s and Med Investment’s agreement to attorn to Ohio’s jurisdiction; and,
(iii) 2016 – 2017 – a distribution agreement with Beijing ZenoMed Scientific Co., Ltd. (“ZenoMed”) stipulating that the agreement be governed by the laws of China and disputes subject to arbitration conducted in Beijing administered by the China International Economic and Trade Arbitration Commission (the “CIETAC”).
Dr. Jian Meng (“Dr. Meng”) is alleged to control and direct each of Defendant corporations. Dr. Meng’s wife, Ms. Xi Ren (“Ms. Ren”) is alleged to be ZenoMed’s sole shareholder but not a director or officer and not involved in the operations. Ms. Ren is not a director, officer or shareholder of Beijing Since Medical or Uni Rainbow but is a Med Investment director.
All four (4) corporations with which AtriCure signed the agreements were incorporated and conducted business in China. None had operations in B.C.
AtriCure alleges that, during the term of the distribution agreements, the corporations received confidential and proprietary information from AtriCure about its products. AtriCure further alleges that, under Dr. Meng’s direction, its information was shared with Beijing Medical Scientific Co. Ltd. dba Med-Zenith (“Med-Zenith”), another corporation located in China and controlled by Dr. Meng to create and sell for profit counterfeit AtriCure products. Dr. Guanglu Bai (“Dr. Bai”) is the Executive Director and General Manager of ZenoMed.
AtriCure initiated three (3) separate dispute resolution processes:
(i) litigation in Ohio court – against Dr. Meng, Dr. Bai and Med-Zenith alleging breach of Zeno-Med distribution agreement, misappropriation of trade secrets and ‘stealing’ AtriCure’s intellectual property;
(ii) arbitration administered by CIETAC – against ZenoMed claiming damages for alleged breach of distribution agreement; and,
(iii) litigation in B.C. court – against Dr. Meng, Ms. Ren alleging they conspired to assist the corporations in China to defraud AtriCure, ‘steal’ its confidential information and breach their fiduciary and confidentiality obligations owing to AtriCure.
Ms. Ren applied for (a) an order dismissing the B.C. due to lack of territorial competence or, (b) in the alternative, a stay on the basis of forum non conveniens and (c) in the further alternative, a stay pending conclusion of both the litigation in Ohio and the CIETAC arbitration.
Hori J. considered each of the orders sought.
(A) Territorial competence and forum non conveniens – Sections 3 and 10 of B.C.’s Court Jurisdiction and Proceedings Transfer Act, SBC 2003, c 28 recognize the B.C. courts’ broad territorial jurisdiction, including over persons “ordinarily resident” or where “a real and substantial connection” exists between B.C. and the facts. Despite that recognition, section 11(2) provides the court jurisdiction to decide whether a court outside of B.C. is the more appropriate forum. Rule 21-8(2) of B.C.’s Supreme Court Rules, BC Reg 221/90 sets out the mechanism by which a party can apply for such a stay. In addition, Hori J. noted that section 8(2) of B.C.’s Law and Equity Act, RSBC 1996, c 253 recognizes the B.C. Supreme Court’s inherent jurisdiction to stay a proceeding before it and can be triggered by an application under Rule 21-8(1).
Hori J. completed the survey of his authority to confirm or decline jurisdiction by acknowledging the impact of B.C. arbitral legislation on that jurisdiction.
“ Even if the British Columbia court has territorial competence and is the court most appropriate to hear the proceeding, the court’s jurisdiction may be limited or superseded by an arbitration agreement between the parties to the proceeding. In that case, the International Commercial Arbitration Act, R.S.B.C. 1996, c. 233 and the Arbitration Act, R.S.B.C. 1996, c. 55 provide that court proceedings in respect of a matter agreed to be submitted to arbitration must be stayed unless the agreement is null and void, inoperative, or incapable of being performed.”
At paras 30-44, Hori J. considered the facts and applicable law and, in doing so, confirmed that there was a real territorial competence over Ms. Ren and declined the need to decide if there was also a real and substantial connection.
For the balance of his forum conveniens analysis, he listed the “foundation of the action” filed by AtriCure in the B.C. court and then listed the procedural variety of applicable law and venues:
“ The foundation for the action by AtriCure in British Columbia is that Dr. Meng and Dr. Bai, with the cooperation of the PRC companies, misappropriated trade secrets, stole AtriCure’s intellectual property, and used it to develop and sell counterfeit medical devices (the “Foundational Issues”). In order for AtriCure to succeed in its action in British Columbia against Ms. Ren and Dr. Meng, it must successfully establish the Foundational Issues.
 The agreement with Beijing Since Medical gives AtriCure the option to submit any dispute between the parties to the courts in the PRC. The agreements with Uni Rainbow and Med Investment provide that the laws governing the agreements are the laws of Ohio. The ZenoMed distribution agreement provides that the governing laws are to be the laws of the PRC and that any dispute is to be resolved through arbitration in Beijing.”
Given the impact of the Foundational Issues which he summarized at paras 49-51, Hori J. determined the Ohio court is the more appropriate forum to hear and decide the Foundational Issues and justified a stay of the B.C. action for the factors listed in para. 51 of his reasons.
Though he determined that the B.C. court had territorial jurisdiction over Ms. Ren, he declined jurisdiction to decide the jurisdictional issues. If the Ohio court held in favour of AtriCure on those issues, then the B.C. court would decide the balance of the issues.
At paras 53-56, Hori J. also relied on his inherent jurisdiction under B.C.’s Law and Equity Act and the guidance given in Peh v. The Owners, Strata Plan LMS 3837, 2008 BCSC 291. Hori J. held that staying the B.C. action to allow the Ohio action to advance would “substantially reduce the issues to be determined in B.C.” or would have “a material impact on the outstanding issues in the case”. He therefore stayed the B.C. action using his inherent jurisdiction.
(B) Arbitration clause – At paras 57-68, Hori J. evaluated whether the arbitration clause in the distribution agreement between AtriCure and ZenoMed had a meaningful role on his jurisdiction. Section 8(1) of the International Commercial Arbitration Act spoke to staying proceedings if the applicant seeking the stay established three (3) pre-requisites:
1) a party to an arbitration agreement has commenced legal proceedings against another party to the agreement;
2) the legal proceedings must be in respect of a matter agreed to be submitted to arbitration; and
3) the application must be brought before applicant takes a step in the proceedings.
Hori J. readily held that Ms. Ren was not a party to the distribution agreement or its arbitration clause. He did consider precedent which allowed for non-parties to be considered parties to the agreement for the purpose of section 8(1). He referred to DNM Systems Ltd. v. Lock-Block Canada Ltd., 2015 BCSC 2014.
“ In my view, it is clear on the authorities that an arbitrator has jurisdiction to determine at first instance who the proper or necessary parties are to the arbitration.
 This point is made by the authors of Commercial Arbitration in Canada: A Guide to Domestic and International Arbitrations (Toronto: Thomson Reuters Canada Limited, 2013) [Commercial Arbitration in Canada] at 2-48:
It is within the scope of the jurisdiction of the arbitral tribunal to determine whether a particular person is a party to the arbitration agreement. It is only when it is clear that a person is not a party to the arbitration agreement that the court should make a final determination in this regard. Where it is not clear who is a party to an arbitration agreement it is appropriate that a stay of proceedings be granted and the matter decided by the arbitral tribunal.
 In determining who the proper parties are, the arbitrator may include non-signatories to the arbitration agreement in certain circumstances. Those circumstances are summarized in Commercial Arbitration in Canada as follows at 2-48:
(1) the contractual agreement between a party and the non-party incorporates the arbitration clause by reference;
(2) there is between a party and a non-signatory an agency relationship;
(3) the corporate relationship between a parent and its subsidiary may be sufficiently close as to justify piercing the corporate veil and holding one corporation legally accountable for the actions of the other; and
(4) a non-party is bound by an estoppel.
(see also [CE International Resources Holdings LLC v. Yeap Soon Sit, 2013 BCSC 1804] at para. 35.”
Despite the possibility recognized in the case law, including Northwestpharmacy.com Inc. v. Yates, 2017 BCSC 1572 para. 54, Ms. Ren did not meet the evidentiary threshold to support the argument that she too was arguably a non-signatory party to the agreement to arbitrate. Though she need not present evidence justifying a final determination on the question, she did have to provide some evidence. She presented no evidence.
“ There is no evidence before me on this application to establish even an arguable case that either Xi Ren or Dr. Meng are non-signatory parties to the distribution agreement between AtriCure and ZenoMed. There is no evidence that either of them had any involvement in negotiating the agreement with AtriCure on behalf of ZenoMed. There is no evidence suggesting that ZenoMed was a party to the agreement in name only and that the true agreement was between AtriCure and Xi Ren or Dr. Meng.”
In addition to finding that Ms. Ren was not a party to the arbitration clause, Hori J. further held that the B.C. action was not a proceeding brought in respect of a matter agreed to be submitted to arbitration.
urbitral note – First, the reasons illustrate the challenges met by court procedure and principles of forum non conveniens which, despite being well-known, cannot promise certainty in their application to specific facts. The result of the analysis may be different from jurisdiction to jurisdiction.
Second, the variety of choices of law and choices of dispute resolution resulted in the procedural complexity observed in the reasons. Dr. Meng, controlling the corporate parties to each of the similar-purpose distribution agreements, was involved in each of the contract negotiations with the same plaintiff as co-contracting party. The need for the resulting variety of applicable laws and jurisdictions and attornments is not transparent to the onlookers. Without knowing more about the facts, it appears that choosing a single law and process for dispute resolution would have produced a more effective result in the event of disputes. If arbitration had been chosen for all and not just some of the distribution agreements, advance agreement to consolidation could also have been considered.
Third, the referral to also closes with a reference to CE International Resources Holdings LLC v. Yeap Soon Sit, 2013 BCSC 1804 para. 35 which states the following:
“ These findings and conclusions are consistent with international arbitration law in this jurisdiction and elsewhere. The ICAA defines a party to an arbitration agreement as including “a person claiming through or under a party” and non-signatories have been held to be bound by arbitration agreements in various ways that include piercing the corporate veil (alter ego) and estoppel: see Nigel Blackaby & Constantine Partasides, Redfern and Hunter on International Arbitration (Oxford: Oxford University Press, 2009) at 2.39-2.54; Gary B. Born, International Commercial Arbitration, vol 1 (Alphen aan den Rijn, The Netherlands: Kluwer Law International, 2009) at 1137-1142; J. Kenneth McEwan and Ludmila B. Herbst, Commercial Arbitration in Canada: A Guide to Domestic and International Arbitrations (Toronto: Thomson Reuters Canada Limited, 2013) at 2:110. Moreover, these are questions that are normally determined in the arbitration under the applicable law: see for example, Pan Liberty Navigation Co v World Link (HK) Resources Ltd., 2005 BCCA 206 at para. 19.”