In Care Tops International Limited v. PPN Limited Partnership, 2022 BCSC 2252, Master Robertson of the BC Supreme Court refused to set aside a pre-judgment garnishing order because the Plaintiff failed to draw the Court’s attention to a mandatory arbitration clause during the ex parte application granting that order. Master Robertson found that this omission was not material because it would have had no impact on the outcome; the arbitral proceedings had not yet commenced. As such, she did not have to determine if the Court, or an arbitral tribunal, was better placed to determine the interim relief.
This case concerned a distribution agreement (the “Agreement”) pursuant to which the Defendant granted the Plaintiff exclusive rights to distribute and sell pet food products in China. The Agreement contained a mandatory arbitration clause.
On February 21, 2022, the Chinese government issued a ban on all poultry products from Canada to China, which impacted the Plaintiff’s ability to distribute the Defendant’s products. The Defendant terminated the Agreement using the “frustration” clause in the Agreement. At the time of termination, the Plaintiff had prepaid approximately $5 million (the “Prepayment Funds”) for goods it sought to distribute in China.
The Plaintiff demanded a return of the Prepayment Funds. The Agreement was silent as to whether the Plaintiff was to such a return in these circumstances. When the parties could not resolve this issue between them, the Plaintiff filed, in the BC Supreme Court, a notice of civil claim, which did not mention the mandatory arbitration clause. The Plaintiff also applied for and obtained an ex parte pre-judgment garnishing order and served it on BMO, the garnishee, relying on the Court Order Enforcement Act, RSBC 1996 c 78 (“the COE Act”). It allows a plaintiff to apply to have paid into court certain funds to protect its eventual judgment (yet to be obtained) if it can strictly meet the requirements under the Act.
The Defendant applied to set aside the garnishing order. Among other things, it argued that the Plaintiff had failed to provide full and frank disclosure when it obtained the garnishing order because it failed to draw the Court’s attention to the mandatory arbitration clause in the Agreement.
Master Robertson applied the law set down in Trade Fortune Inc. v. Amalgamated Mill Supplies Ltd. (1994), 89 BCLR (2d) 132, which held that the COE Act applies equally in arbitrations to allow an “arbitrating party to obtain a garnishee order before judgement in order to secure funds for payment of the eventual arbitration award.” In that case, the Court allowed the garnishing order to stand, but stayed the action in favour of arbitration, to determine the matter on the merits.
The Defendant did not contest the Court’s jurisdiction to issue such an order, but instead focused on the Court’s discretion to refer an interim relief application to an arbitral tribunal. Section 45(2) of the Arbitration Act, SBC, 2020 c. 2, states that “[w]hen requested to grant an interim measure, a court may, if it considers it proper, refer the request to an arbitration tribunal.” The Defendant argued that Plaintiff’s failure to disclose that there was a mandatory arbitration clause was a material omission because it precluded the Court from exercising its discretion to refer the matter to the arbitral tribunal.
The Plaintiff responded that that no arbitration had yet been commenced, so there was no arbitral tribunal to which to refer the matter. Instead, the Plaintiff argued, section 45(3) of the Arbitration Act specifically allowed it to apply to the Court for interim relief prior to the tribunal being constituted (section 45(3) provides that it is not incompatible with an arbitration agreement for a party to request from a court, before or during arbitral proceedings, an interim measure of protection …).
The Court agreed with the Plaintiff, finding that a material fact is one that must affect the outcome of the application (i.e. in this case, whether the garnishing order would still have been granted had the Court known about the mandatory arbitration clause). Master Robertson found the outcome would not have changed because there was no arbitral tribunal for it to refer the matter to, so it would not have made the referral in any event. Further, she explained:
“[45] To accept the defendant’s argument that the court could have considered referring the issue to a hypothetical, or eventual, arbitral tribunal and essentially require the plaintiff to commence arbitration to obtain this relief would largely defeat the prejudgment garnishing order. Proceeding in that fashion would likely result in the defendant learning of the intended prejudgment proceedings, which would enable it to avail itself of a self help remedy to avoid them.”
Thus, Master Robertson dismissed the Defendant’s application to set aside the garnishing order. However, she specifically noted that her decision likely would have been different had the arbitration been commenced.
Contributor’s Note:
Although Canadian courts have come to respect and adopt the “hands-off” approach to arbitration advocated by the Supreme Court of Canada in TELUS Communications Inc. v. Wellman, 2019 SCC 19, this case illustrates that courts can and do still play an important role to support and facilitate the efficacy of arbitrations. In particular, this case shows that courts can be powerful allies in awarding immediate ex parte interim relief, which may be more complicated to obtain in arbitrations. It is unclear in this case whether the parties’ arbitration agreement (or any associated arbitral rules) would have allowed the Plaintiff to seek the same relief from an emergency arbitrator, but Master Robertson seemed to be concerned that there would be prejudice to the Plaintiff had she not made the order requested.