B.C. – court enforces parties’ choice to apply International Commercial Arbitration Act to employment disputes – #465

In Johnston v. Octaform Inc., 2021 BCSC 536, Mr. Justice Nigel P. Kent dismissed an application to set aside an interim award which confirmed among other things that (i) disputes between the parties arising from employment agreements were subject to the International Commercial Arbitration Act, RSBC 1996, c 233 and (ii) the arbitrator had jurisdiction to grant equitable remedies.  Kent J. held that the manner in which the parties framed their pleadings (i) supported application of the ICAA as a choice expressly made and (ii) was “an explicit recognition” of the arbitrator’s equitable jurisdiction and their agreement to apply Nevada law as the substantive law under section 28 of the ICAA reinforced that jurisdiction.  Kent J. also upheld the arbitrator’s decision to dismiss Petitioners’ abuse of process claims, noting that Respondent “arguing diametrically opposed positions on the same point of law raised in two different legal proceedings … does not, however, necessarily amount to an abuse of process where it involves different contracting parties, different governing law, different lawyers/law firms representing the parties, no actual adjudication of the legal point in question, and no advantage obtained by the inconsistent submissions”.  Kent J. dismissed Respondent’s objection that Petitioners applied outside the delay set by ICAA’s section 16(6), holding that the application qualified as a “proceeding” under B.C.’s COVID-19 (Limitation Periods in Court Proceedings) Regulation which suspended the limitation period. Kent J. also declined to engage in determining the impact of Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65

Residents in Nevada, Petitioners had each signed an employment agreement with Octaform Inc. (“Octaform”) governed by Nevada law and subject to arbitration administered in B.C. by the British Columbia International Commercial Arbitration Center (“BCICAC”), now the Vancouver International Arbitration Centre.  After Petitioners’ employment ended and they set up competing businesses, Octaform initiated arbitration and alleged a variety of claims summarized at para. 5 which Petitioners contested by grounds summarized at para. 6.

In the arbitration, Petitioners filed a May 14, 2020 application which sought an order that the arbitrator had no jurisdiction for the following claims:

– to deal with any claims advanced by Octaform in equity;

– to award any equitable relief in favour of Octaform; and,

– to make any order relating to protection or enforcement of Octaform’s intellectual property, confidential property or restrictive covenants or to award relief in respect of those matters.

The arbitrator issued an August 28, 2020 interim award (“Interim Award”) in which he made certain determinations:

– Nevada law governs the determination of validity, effect and interpretation of the employment contracts as well as the causes of action and remedies available to Octaform;

– B.C. is the seat of the arbitration and its law governs matters internal to the arbitration proceeding, including any statutory limitations on the scope of the arbitral jurisdiction;

– both the terms of the employment contracts and the law of British Columbia, whether it be the International Commercial Arbitration Act, R.S.B.C 1996, c.233 (“ICAA”) or the Arbitration Act, R.S.B.C 1996, c.55, bestow jurisdiction to address equitable claims and to grant equitable relief;

– the ICAA which applies to this particular arbitration and to Petitioners’ May 14, 2020 application;

– the jurisdiction to make an order which relates to protection or enforcement of Octaform’s intellectual property, confidential property or restrictive covenants, and to award relief with respect to those matters was already determined in an earlier March 27, 2017 interim award and res judicata; and,

– the availability of aggravated damages to a corporate claimant is a matter to be determined by Nevada law and in the absence of any authority on point being tendered, the application to strike out the claim for aggravated damages must be dismissed.

Petitioners applied to set aside the Interim Award and Kent J. identified four (4) issues raised by Petitioners’ application: the ICAA does not apply to the employment-based dispute; the AA governs the arbitration; neither the ICAA nor AA give the arbitrator equitable jurisdiction or allow him to grant equitable remedies; and, the arbitrator has no jurisdiction to award aggravated damages to a corporation.

Kent J. divided his reasons into sections including the following four (4): standard of review (paras 21-50); arbitration governed by ICAA or AA (paras 51-68); does the arbitrator have equitable jurisdiction (paras 69-85); and, alleged inconsistent positions/abuse of process (paras 86-106).

Before engaging in his analysis of those issues, Kent J. paused at paras 13-15 to ((a) identify the differences in the ICAA and Arbitration Act and their different methods and standards of review and appeal and (b) excerpt the parties’ dispute resolution agreement contained in the employment agreements.

(i) standard of review (paras 21-50) – Kent J. identified specific provisions of the Arbitration Act and the ICAA regarding appeals and review and the types of decisions subject to court intervention.  He distinguished between the former Arbitration Act and the current Arbitration Act, SBC 2020, c 2, introduced with effect as of September 1, 2020.  Among other comments, Kent J. noted a concession made by Octaform regarding the timing of a decision on jurisdiction.

[33] When pressed by the Court, counsel for Octaform reluctantly agreed that if [the arbitrator] had not made a preliminary ruling on jurisdiction but rather had deferred the matter to his Final Award, then any challenge to that jurisdictional ruling (in particular the determination respecting jurisdiction to grant equitable remedies) might properly be brought pursuant to section 34(2)(a)(iv) as a “decision on [a] matter beyond the scope of submission to arbitration””.

Kent J. next undertook an overview of the leading cases on standard of review for appellate review in civil cases including Housen v. Nikolaisen, 2002 SCC 33 and H.L. v. Canada (Attorney General), 2005 SCC 25, the nature of a “palpable” error explored in Nelson (City) v. Mowatt, 2017 SCC 8 and Li v. Li, 2021 BCCA 39 and the “modern standard of review” in an administrative context as stated in Kuzmanovic v. The Superintendent of Motor Vehicles, 2021 BCCA 83

Kent J. then canvassed the state of the case law following the release of Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65, with particular emphasis on Nolin v. Ramirez, 2020 BCCA 274 and Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, 2021 SCC 7.

[45] In Nolin and Wastech, no less than nine appellate judges have declined to directly answer the question how Vavilov impacts the standard of review under section 31 of this Province’s Arbitration Act and, in particular, whether any regime of reasonableness applies to arbitration appeals. All nine judges preferred to leave the matter for determination on another day since the outcome would have been no different regardless of which standard of review applied to the decision before them.

[46] In these circumstances, one can hardly fault a lowly trial court judge for similarly sidestepping the question. However, three judges of the Supreme Court of Canada have clearly expressed the view that the standard of review applicable to arbitration appeals on questions of law is correctness and the question arises whether I am bound by that determination and, in particular, the doctrine of stare decisis so colourfully analyzed by Master Michael Funduk in paragraphs 53-56 of the now classic case of South Side Woodwork (1979) Ltd. v. R.C. Contracting Ltd., 1989 CanLII 3384 (AB QB), [1989] 95 AR 161”.

Kent J. then observed that the word “appeal” did not appear in section 16 of 34 of the ICAA or in section 30 of the Arbitration Act and that term used was “setting aside”.  Referring to the three (3) concurring judges as the “minority” Kent J. held that “I am not bound by the minority decision in Wastech when considering the standard of review applicable to sections 16 and 34 of the ICAA”.

Noting how the court “courageously entered the debate” in lululemon athletica canada inc. v Industrial Color Productions Inc., 2021 BCSC 15 and the leave to appeal granted in lululemon athletica canada inc. v. Industrial Color Productions Inc., 2021 BCCA 108, Kent observed that “our Court of Appeal may now be obliged to squarely answer the question so neatly sidestepped in the past”.

To conclude on the applicable standard, Kent J. determined that it was unnecessary to do so as the result did not change under any variation of it.

[49] Having said all of this, however, I too do not find it necessary to decide the question whether and how Vavilov applies to the arbitration in this case or to arbitration generally. This is because, like the many appellate judges referred to above, I too have no hesitation in concluding that, whether the standard of review is reasonableness, palpable and overriding error, or correctness, the result in this case would be the same and [the arbitrator’s] Interim Award should not be set aside”.

(ii) arbitration governed by ICAA or AA (paras 51-68) – Kent J. reproduced the parties’ argument on the determinations made in Uber Technologies Inc. v. Heller, 2020 SCC 16, focusing on the determinations made at paras 19-27 of the Supreme Court decision and listed in point form at para. 56 of his own.  He also focused on the distinctions made for the definition of “commercial”. Those determinations included that, in the case before the Supreme Court, the dispute was fundamentally about labour and employment and the ICAA was not meant to apply to such cases.

Having itemized the determinations, Kent J. then commented on their role for other cases.

[57] It might be noted that all of the Court’s observations respecting the legislation applicable to the dispute with Uber are likely obiter dicta. Having declared the arbitration clause in that case to be invalid and thus unenforceable, the question of which legislation governed any arbitration became moot”.

Kent J. set out the arbitrator’s reasoning and, having done so, confirmed that he agreed with it and that it was correct.  Kent J. held that the parties had agreed to be engage under the ICAA and could not now reverse that approach and, in any event, on the facts, there was little or nothing domestic about the dispute.

[61]  Arbitration is consensual. The arbitrator’s jurisdiction is fundamentally derived from the agreement of the parties. Here the parties agreed, if not expressly then certainly by their conduct, that this arbitration was international and it has been conducted in accordance with both the ICAA and ad hoc procedural rules governing international arbitrations. It is far too late in the day for [Petitioners] to change horses in the middle of the race simply because of some perceived tactical advantage”.

[63] There is little or nothing domestic about the arbitration in the present case. It is international by definition. The parties are residents of Nevada. The impugned conduct occurred in Nevada. The law governing the parties’ relationship and the merits/remedies in the case is the law of Nevada. It is only reasonable and sensible that the ICAA govern the arbitration procedure. The parties have recognized this and agreed to do so. Indeed, the petitioners expressly invoked the ICAA as the basis for the current application before the Court”.

Kent J. concluded that Petitioners had presented their application under section 16 of the ICAA and the arbitrator had proceeded on that basis. Kent J. added that his decision would be “final and not subject to appeal” as provided for in section 16(7) of the ICAA.

Kent J. also agreed with Octaform that Petitioners’ application was filed outside the thirty (30) day delay from receipt of the Interim Award but dismissed Octaform’s corresponding objection. He noted that the limitation period in section 16(6) was suspended due to B.C.’s COVID-19 (Limitation Periods in Court Proceedings) Regulation, BC Reg 199/2020.

(iii) does the arbitrator have equitable jurisdiction (paras 69-85) – Kent J. observed that the Arbitration Act provided that an arbitrator had equitable jurisdiction. Kent J. added that the legislation provided that, absent an agreement otherwise, the applicable version of rules of the BCICAC applied.  Those rules allowed an arbitrator to decide a matter in accordance with law, including equity, and can grant specific performance, injunctions and other equitable remedies.

Kent J. noted the parties’ submissions and certain controversies raised by the caselaw and then summarized the arbitrator’s analysis of his equitable jurisdiction.  See para. 78 in particular for an inventory of the analysis’ components.  Kent J. expressly agreed with the arbitrator’s determination that he had equitable jurisdiction.  The concluding component in that list involved the arbitrator’s observation that “both parties have pleaded equitable claims and remedies and conducted applications based on fairness or equity, and ought not be able to now take a contrary position regarding equitable jurisdiction”.

[79] Again, I find the Arbitrator’s reasoning to be coherent, rational and logical. It is also reasonable in its legal and factual context. It contains no shortcomings of a sort which exhibit inadequate justification, transparency or intelligibility. By any standard of reasonableness, let alone any more deferential standard urged by Octaform to apply to arbitration generally, the reasoning is satisfactory.

[80] Furthermore and in any event, I agree with the Arbitrator’s decision and would not set it aside even if the standard of review were correctness. In particular, I agree that the reference to law in section 23 of the AA and section 28 of the ICAA must be taken as a reference to “the substantive principles of law and equity that together form the common law” and that this bestows equitable jurisdiction upon the Arbitrator”.

Kent J. added at para. 82 that the manner in which the parties framed their pleadings was “an explicit recognition” of the equitable jurisdiction and that parties’ contractual agreement to apply Nevada law as the substantive law under section 28 of the ICAA reinforced the conclusion that the resolution of the dispute involved granting equitable remedies.

(iv) alleged inconsistent positions/abuse of process (paras 86-106) – Despite allegation of numerous other legal proceedings, Kent J. recorded that he had not been provided with copies of the pleadings in all of them and did not have a “full picture” of the claims, defences, counterclaims, replies or legal issues/remedies raised.

Kent J. at para. 92 referred to Octaform Systems Inc. and Octaform Inc and described them respectively as the Canadian parent company and a Nevada subsidiary. He recorded that they had engaged in different litigation and against another individual identified in his reasons. At para. 93 he flagged other B.C. court decisions addressing procedural issues raised in certain matters.  Having outlined the existence of a variety of other dispute resolutions, Kent J. at para. 97 then focused on Petitioners’ challenge, namely that “by deliberately arguing diametrically opposed and irreconcilable positions in two different legal proceedings, the Octaform litigants are guilty of abuse of process”.

Though he expressed a different approach than that taken by the arbitrator, Kent J. did agree with the arbitrator’s determination to dismiss Petitioners’ abuse of process argument.

[103] I must confess I am more troubled than [the arbitrator] by Octaform arguing diametrically opposed positions on the same point of law raised in two different legal proceedings. Such artful advocacy does not advance counsel’s reputation in the eye of the Court. It does not, however, necessarily amount to an abuse of process where it involves different contracting parties, different governing law, different lawyers/law firms representing the parties, no actual adjudication of the legal point in question, and no advantage obtained by the inconsistent submissions”.

urbitral notes – First, regarding Kent J.’s decision to note but omit deciding the impact of Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65, see the recent Arbitration Matters notes in which each court did decide its impact and either declined or agreed to apply it.

(i) Ontario – non-party witnesses applying to arbitrator to quash summonses do not attorn to jurisdiction – #462

Despite extensive rights of appeal provided in BP’s and D’s agreement to arbitrate, Mr. Justice William S. Chalmers in Bergmanis v. Diamond, 2021 ONSC 2375 held that their agreement did not apply to non-party witnesses who successfully applied to the arbitrator under sections 29 and 30 of the Arbitration Act, 1991, SO 1991, c 17 to quash summonses issued by the arbitrator.  Unsatisfied with the arbitrator’s decision to quash summonses, claimant appealed but without seeking leave.  Chalmers J. held that the successful non-parties did not attorn by applying to the arbitrator to quash the summonses and therefor the general provisions for appeal under the legislation applied. Relying Ontario First Nations (2008) Limited Partnership v. Ontario Lottery And Gaming Corporation, 2020 ONSC 1516, Chalmers J. held that Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65 did not modify the standard of review remained.  Chalmers. J. further held that a legal principle as important a solicitor-client privilege is not a question of legal importance to the legal system as a whole if neither of the parties disputes the legal principle.

(ii) Alberta – “surrounding circumstances” for contract interpretation exclude subjective intentions – #460

In 719491 Alberta Inc. v. The Canada Life Assurance Company, 2021 ABQB 226, Mr. Justice W. Patrick Sullivan dismissed attempts to identify an error of law based on the arbitrator’s handling of surrounding circumstances known at the time of contract formation. Sullivan J. agreed that contract interpretation required reading the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with those surrounding circumstances but disagreed that “surrounding circumstances” included the parties’ subjective intentions. The latter cannot serve to add to, detract from, vary or otherwise overwhelm the agreement’s written words.  In obiter, Sullivan J. also endorsed the dissent’s approach in Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, 2021 SCC 7 to apply Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65 to appeals of commercial arbitration awards.

Second, Kent J. at para. 85 and following references other dispute resolution instances involving former Octaform employees.   Note that the style of cause in the matter before Kent J., defendant is “Octaform Inc.” whereas in another cited involving indicates “Octaform Systems Inc.” Subject to the caveat made about not having a “full picture”, Kent J.’s references to the other instances appear to bundle each as the same or related entities and do so for the limited purpose of his analysis. In regard to one mentioned, see the earlier Arbitration Matters notes:

(iii) “B.C. – broad interpretation of carve out in arbitration clause risks nullifying agreement to arbitrate – #237”.

In Clayworth v. Octaform Systems Inc., 2019 BCCA 354, Madam Justice Lauri Ann Fenlon granted a stay of non-injunctive proceedings in first instance, acknowledging that Appellant had met the “low threshold” of “some merit” in her appeal.  The issues on appeal concerned whether an exception in an arbitration agreement should be interpreted broadly enough to encompass claims brought in court or is the correct question is whether those court claims are clearly beyond the scope of the mandatory arbitration clause.  The appeal will also resolve when does a court risk reading an exclusion clause so broadly that it nullifies the arbitration clause.

(iv) “B.C. – a stay is not a dismissal – #315

In Clayworth v. Octaform Systems Inc., 2020 BCCA 117, B.C.’s Court of Appeal held that interpretation of the scope of an agreement to arbitrate is a question of mixed fact and law, not a question of law.  As such, the courts are to apply the “arguable case” test whereby jurisdictional issues relating to the scope of the arbitration agreement are to be resolved in first instance by the arbitrator. The Court also emphasized the distinction between a stay and a dismissal. A stay simply holds proceedings in abeyance until the arbitrator completes the work which the parties agreed should be arbitrated. If the arbitrator determines the dispute is not one referred to arbitration or there are matters which remain unresolved after arbitration, a stay could be lifted upon application.

(v) “B.C. – court adjourns its assistance to issue subpoenas approved in international commercial arbitration – #416

Despite having “no difficulty accepting” the arbitrator’s conclusion that non-party witnesses had testimony “relevant to the issues in the Arbitration and material to its outcome”, Mr. Justice Gordon C. Weatherill in Octaform Inc. v Leung, 2021 BCSC 73 opted to adjourn an arbitral party’s applications to issue subpoenas in assistance of an arbitration conducted under the International Commercial Arbitration Act, RSBC 1996, c 233.  Weatherill J. did affirm that arbitrations are “autonomous, self-contained, self-sufficient processes”, did acknowledge that “[i]t is the task of the Arbitrator to determine the truth” and did note that the arbitrator had not varied his initial approval of the subpoenas request after having participated in fourteen (14) days of hearing. Nonetheless, Weatherill J. considered the applications “premature”.  He commented on whether one witness had been duly contacted and recorded that the other witness had set conditions on potentially attending. The witnesses did have over three (3) months between service of the October 9, 2020 applications and the January 14, 2021 hearing at which the witnesses were represented and could have addressed any concerns about willingness to participate. Weatherill J. still opted to see whether either witness in the future “unreasonably refuses to provide written evidence in chief and attend the hearing of the Arbitration for viva voce examination in chief, cross-examination and re-examination”. At that future time he advised “I will consider issuing the requested subpoenas”.