B.C. – arbitration agreement not inoperative simply because arbitral party’s litigation intertwines non-parties – #136

In Ts’kw’aylaxw First Nation v. Graymont Western Canada Inc. (2018) BCSC 2101, Mr. Justice Gordon C. Weatherill held that, under section 15(2) of B.C.’s Arbitration Act, RSBC 1996, c 55, an arbitration agreement is not inoperative simply because a plaintiff advances intertwining claims against multiple defendants including non-parties to the arbitration agreement. Weatherill J. also reiterated that section 15 does not give the court any residual discretion to refuse a stay against one defendant on the basis that another defendant is a non-party to the arbitration agreement.

The dispute stemmed from two (2) May 1, 2015 leases between Ts’kw’aylaxw First Nation (“TFN”) and Graymont Western Canada Inc. (“Graymont”) regarding a limestone mine and quarry (called the “Pavilion Mine” in the reasons) located on land in the province of B.C. but owned by the Federal Crown and set apart for the use and benefit of TFN and its members (collectively “Plaintiffs”). The 40 year leases concerned Graymont’s rights and obligations to operate a processing plant and the quarry (the “Leases”) in exchange for financial consideration payable to TFN.

The Leases can be characterized as impact benefit agreements (“IBA”) which provide First Nations with benefits from mining projects located on, adjacent to or affecting their traditional lands. Those benefits include employment and financial participation rights such as fixed annual payments, equity, profit sharing, and/or a percentage of a mine’s gross revenue.

IBAs are complex, written agreements negotiated and signed between non-governmental, commercial entities and First Nations designed to manage the impact of the commercial activity and allow First Nations to share in the benefits. IBAs vary in scope and scale but most address issues such as the protection of aboriginal cultural, environmental and social values, training and employment, aboriginal access to the area in which the commercial activity will take place and arbitration clauses.

For a sample snapshot of the distribution and variety of such IBA’s in Canada’s natural resources, see Natural Resources Canada’s list of Agreements between Mining Companies and Aboriginal Communities or Governments, no. 128.

Each of the Leases contains a tiered dispute resolution clause providing first for mediation and, if unsuccessful, then for arbitration under the Arbitration Act. The clause applies to a dispute which “touches upon” a list of familiar flashpoints in contracts and expressly identifies the procedure set out in the clause as a “condition precedent”. The clause reads, in part:

If a dispute arises between the Parties, whether during the Term of this Lease or any time thereafter, which touches upon the validity, construction, meaning, performance, or effect of this Lease or the rights and liabilities of the Parties or any matter arising out of this Lease… the Parties agree to use the following procedure as a condition precedent to any Party pursuing other available remedies: …

The last step of the dispute resolution process, if need be to take it, leads the parties to private commercial arbitration under B.C.’s Arbitration Act.

If the Parties are not successful in resolving the dispute through mediation within the said 30-day period or such longer period as the Parties may agree, then the Parties agree that the dispute will be settled by a single arbitrator in accordance with the Commercial Arbitration Act, R.S.B.C. 1996, c. 55, as amended. The decision of the arbitrator will be final and binding.

Indicative of the complexity of the Leases and the impact on TFN, the following disputes arose between TFN and Graymont and with the Federal government:

a) the amount of reclamation security posted by Graymont with B.C. in respect of its operation of the Pavilion Mine;
b) Graymont’s decision to indefinitely “idle” its Pavilion Mine operations;
c) Graymont’s failure to obtain an amendment to its mining permit under B.C. health and safety regulations when a mine is to be idled for more than 12 months; and,
d) B.C.’s “decision” without notification to or consultation with TFN that Graymont had sufficiently complied with the requirements B.C. health and safety regulations.

Despite detailed exchanges and participation in a working group to establish a process and a framework to address their disputes, the parties failed to agree on what to do. On June 28, 2018, Plaintiffs instituted court litigation against Graymont and the province of B.C. In their action, Plaintiffs alleged that Graymont breached the Leases and that B.C. failed to properly regulate the Pavilion Mine by: (i) failing to require Graymont to post adequate reclamation security; (ii) failing to enforce Graymont’s mining permit and application B.C. legislation; and, (iii) breach of B.C.’s fiduciary duty.

The action sought remedies, joint and several, against both Graymont and B.C. for:

a) an order that the Pavilion Mine be reclaimed to comply with the requirements of the Leases, the permit and B.C. legislation or, alternativel for the costs of reclamation of the Pavilion Mine;
b) damages for loss of use of the TFN’s lands during the time required for reclamation; and,
d) damages for breach of Aboriginal title and rights.

Graymont took no step in the action but, on August 16, 2018, filed a notice under each of the Leases for arbitration and applied pursuant to s. 15 of the Arbitration Act and ss. 8 and 10 of the Law and Equity Act, R.S.B.C. 1996, c. 253, for an order staying the court litigation pending arbitration of the dispute raised by Plaintiffs. B.C. took no position on the application.

Weatherill J. identified the legal framework applicable to the application, beginning with section 15 of the Arbitration Act:

15(1) If a party to an arbitration agreement commences legal proceedings in a court against another party to the agreement in respect of a matter agreed to be submitted to arbitration, a party to the legal proceedings may apply, before filing a response to civil claim or a response to family claim or taking any other step in the proceedings, to that court to stay the legal proceedings.
(2) In an application under subsection (1), the court must make an order staying the legal proceedings unless it determines that the arbitration agreement is void, inoperative or incapable of being performed.
(3) An arbitration may be commenced or continued and an arbitral award made even though an application has been brought under subsection (1) and the issue is pending before the court.
(4) It is not incompatible with an arbitration agreement for a party to request from the Supreme Court, before or during arbitral proceedings, an interim measure of protection and for the court to grant that measure.

Weatherill J. referred to Prince George (City of) v. A.L. Sims & Sons Ltd., 1995 CanLII 2487 as having distilled three (3) prerequisites to such applications:

(1) a party to an arbitration agreement has commenced litigation against another party to the agreement;
(2) the litigation is in respect of a matter agreed to be submitted to arbitration; and,
(3) the section 15(1) application is brought before Applicant takes a step in the proceeding.

Where the prerequisites are met, a stay of the litigation is mandatory Weatherill J. stated, relying on Prince George (City of) v. A.L. Sims & Sons Ltd. para. 52. He added that, only where it is clear that the dispute lies outside the scope of the agreement to arbitrate will the court not grant a stay. See St. Pierre v. Chriscan Enterprises Ltd., 2011 BCCA 97, paras 21-22, 24-30 and Gulf Canada Resources Ltd. v. Arochem International Ltd., 1992 CanLII 4033 (BC CA) paras 39-40.

Weatherill J. also reproduced, without comment, two (2) sections of the Law and Equity Act raised in Graymont’s application:

8(2) Nothing in this Act disables the court from directing a stay of proceedings in a cause or matter pending before it, if it thinks fit.”
“10. In the exercise of its jurisdiction in a cause or matter before it, the court must grant, either absolutely or on reasonable conditions that to it seem just, all remedies that any of the parties may appear to be entitled to in respect of any legal or equitable claim properly brought forward by them in the cause or matter so that, as far as passible, all matters in controversy between the parties may be completely and finally determined and all multiplicity of legal proceedings concerning any of those matters may be avoided.

Plaintiffs did not dispute that Graymont had established the first and third prerequisites for a stay under section 15(1). Plaintiffs did argue that, on the second prerequisite, the “pith and substance” of the litigation is beyond the scope of the arbitration agreements in the Leases because the litigation raises the issue of “the fundamental reclamation liability regarding the Pavilion Mine including how much should have been paid by Graymont for reclamation security”. Weatherill J. disagreed and, at paras 21-23, distinguished on their applicable facts the two lead cases offered by Plaintiffs in support of their contestation: Pacifica v. Price Waterhouse et al., 2000 BCSC 1736 and Robinson v. National Money Mart Company, 2013 BCSC 967.

Weatherill J. readily found that the Leases’ arbitration agreements were broad and captured the claims raised by Plaintiffs against Graymont in their litigation. He concluded that, because the section 15(1) prerequisites had been met, he “must” stay Plaintiffs’ litigation “unless” he determined that the arbitration agreements are “void, inoperative or incapable of being performed” under section 15(2).  In his reasons at para. 25, he underlined “must” and “unless” for emphasis.

Plaintiffs argued that, because the disputes involving Graymont and B.C. were so “interwoven”, the arbitration agreements could not resolve them independently of the litigation and therefore the agreements were “incapable of being performed”.

[27] Counsel for the plaintiffs submits that, given the broad nature of the claims as set out in the notice of civil claim, the claims against the Province are “primary” and “central” and of critical importance to the pith and substance of the claim rather than “derivative” of the claims against Graymont. The plaintiffs further submit that the claims against each of the defendants are so interwoven they will be impossible to resolve independently and, hence, the Arbitration Clauses are incapable of being performed. Counsel for the plaintiffs argue that, in order for there to be a full and fair determination of the issues raised, they need to be able to fully explore, including by way of discovery, the respective roles played by each of Graymont and the Province in the process that led to what it argues was insufficient reclamation security being posted by Graymont.

Weatherill J. agreed that the claims were intertwined but disagreed on what that meant for the stay. He wrote that section 15(2) does not apply simply because a plaintiff advances claims against multiple defendants including non-parties to the arbitration agreement. Weatherill J. expressly relied on Prince George (City of) v. A.L. Sims & Sons Ltd., 1995 CanLII 2487 para. 37 and Hayes Forest Services Limited v. Teal Cedar Products Ltd., 2008 BCCA 283 paras 65-66. Weatherill J. excerpted those paragraphs from the latter 2008 decision into his own reason, including para. 66 which stated that section 15 of the Arbitration Act does not give the court any residual discretion to refuse a stay against one defendant on the basis that another defendant is a non-party to the arbitration agreement.

Though not cited for this statement, Prince George (City of) v. A.L. Sims & Sons Ltd. para. 54 anticipates the result in the present case:

In my view, nothing in the reasons of Hinkson J.A. supports the view that if any of the named litigants, on whichever side of the record they are found, are not party to the arbitration agreement, the one who is must be denied the right to invoke the arbitration clause in the agreement to which it is a party.

For earlier statements in the case law and academic works that litigating against non-parties does not render the arbitration agreement inoperative, see Prince George (City of) v. A.L. Sims & Sons Ltd. paras 31-38.

Weatherill J. therefore granted a stay of the litigation between Plaintiffs and Graymont and then turned to decide whether to grant a stay of the entire proceedings including those against B.C.

A stay of the proceedings as a whole is appropriate if the claims against multiple parties are “sufficiently intertwined” and if doing so “would be consistent with the principle of judicial economy”, referring to Mussche v. Voortman Cookies Limited, 2012 BCSC 953 (CanLII) at paras. 63-70; Boxer Capital Corporation. v. Marine Land Developments Ltd., 2012 BCSC 684 (CanLII) at paras. 25–32; and, The Owners, Strata Plan BCS 3165 v. 1100 Georgia Partnership, 2013 BCSC 1708 (CanLII) at paras. 128–130.

Weatherill J. underlined that the prompt to stay proceedings was not just a benefit exclusive to the courts. A stay would respect the parties’ agreement to arbitrate, enable the arbitrator to make the necessary findings of fact and still preserve the court’s jurisdiction to consider those issues. See ABOP LLC v. Qtrade Canada Inc., 2007 BCCA 290 (CanLII) paras 22–24; Mercer Gold Corporation (Nevada) v. Mercer Gold Corp. (B.C.), 2012 BCSC 322 (CanLII) paras 50-51; and, The Owners, Strata Plan BCS 3165 v. 1100 Georgia Partnership paras 124-130.

“[33] It is clear that the claim by the plaintiffs against the Province is inextricably related to the claim against Graymont. Indeed, counsel for the plaintiffs conceded that to be the case. To permit the action against the Province to proceed in the circumstances would be to endorse multiple proceedings and create the risk of inconsistent decisions, which ought to be avoided: Law and Equity Act, s. 10; James v. Thow et al, 2005 BCSC 809 (CanLII) at para. 105. The response filed by the Province plainly contemplates the likelihood that it may commence third party proceedings against Graymont if this action is allowed to continue in parallel with the arbitration. A stay of the action against the Province will not only give effect to the Arbitration Clauses but will also streamline the proceedings in this action going forward. If Graymont is successful in the arbitration, the claim against the Province may change or be eliminated altogether. If TFN is successful in the arbitration, the plaintiffs may well have new grounds upon which to assert claims against the Province.

He determined that risk Plaintiffs identified stemmed from a knowing choice made by Plaintiffs.

[34] The plaintiffs chose to structure their claims against the Province intertwined with those against Graymont with whom they knew TFN had an agreement to arbitrate. The fact that the plaintiffs first acted diligently in an attempt to resolve their disputes with the Province does not trump the overarching need for judicial economy and the avoidance of multiple proceedings.