B.C. – no abuse of court process by either litigant simply by seeking or resisting arbitration – #187

In Grewal v. Mann, 2019 BCSC 433, Mr. Justice Dennis Hori held that neither party was entitled to special costs following one party’s decision to file an action in court and the other party’s decision to apply for a stay of proceedings.  In a dispute familiar to courts across Canada, both parties disputed the role of arbitration but, as Hori J. held, each appeared to genuinely pursue their legal remedies and in doing so did not commit any abuse of the court’s process.

Following ten (10) years of business together, Applicants and Petitioner negotiated a May 27, 2014 agreement to terminate their relationship in an orderly fashion. The assets of the business included a certain beneficial interest in property located in Gibsons, B.C. (“Gibsons Property”) held by a holding company as trustee for Applicants, Petitioner and others under a trust agreement (“Trust Agreement”).

The May 27, 2014 agreement provided for binding arbitration of any disputes over damages arising out of the operation of the business.  The arbitrator was given extensive authority to make orders for the sale, division and transfer of assets, shares or properties and to make orders for payment.  By October 30, 2015, the parties had reached an agreement on the division of the assets and payment of those assets (“Settlement Agreement”).

The Settlement Agreement lead to some initial activity in the arbitration, including the appointment of an expert appraiser by the arbitrator who issued an April 11, 2016 report valuing the Gibsons Property at $4,040,000.00.  The parties’ efforts to complete the dissolution of the business entered a period of inactivity between April 2016 and March 2017.

In March 2017, the parties began to dispute the exact percentage of their combined interest in the Gibson property but agreed to transfer funds payable under the Settlement Agreement subject to a holdback “on account of the Gibsons issue”.  The Gibsons Property later sold in June 2017 for $7,980,000.00. 

In July 2018, Applicants initiated arbitration to have the arbitrator determine the proper value of the Gibsons property and the proportionate interests of the parties.  Petitioner applied to the court for an order to remit to him funds currently held in trust. Applicants responded to have the court stay the court litigation.

Hori J. looked to section 15 of B.C.’s Arbitration Act, RSBC 1996, c 55 and the three (3) conditions identified therein by the Court of Appeal in Prince George (City of) v. A.L. Sims & Sons Ltd., 1995 CanLII 2487 (BC CA) (also indexed as: Prince George (City) v. McElhanney Engineering Services Ltd., [1995] 9 W.W.R. 503, 9 B.C.L.R. (3d) 368 (C.A.).)

1. That a party to an arbitration agreement has commenced legal proceedings against another party to that agreement;

2. That the legal proceedings are in respect of a matter agreed to be submitted to arbitration; and

3. That the application has been brought in a timely manner before the applicant has taken a step in the proceeding.

At paras 18-25, Hori J. analysed the parties’ contractual arrangements and concluded that the arbitrator had authority to determine issues key to Petitioner’s court litigation. 

[24] Therefore, in order for the court in this action to determine whether the petitioner is entitled to the funds held by McQuarrie Hunter LLP, there must first be a determination of the proper value of the Gibsons Property and the proportionate interest to be attributed to the parties in that value. Those two questions are within the jurisdiction of the arbitrator under the agreements. Accordingly, these questions should be addressed by the arbitrator before this action proceeds.

[25] Therefore, the application for a stay of proceedings is granted. The stay will be in effect until the arbitrator has decided the appropriate value to be given to the Gibsons Property and the proportionate interest of the parties in the Gibsons Property.

Hori J. was then asked by each party to grant it special costs for what each claimed was abuse of process committed by the other.

[27] The applicants submit that the actions of the petitioner in launching this petition is an abuse of process because it seeks to have the court decide issues that are and should be before the arbitrator. It is submitted by the applicants that the petitioner’s actions bring the administration of justice into disrepute.

[28] The petitioner submits that it is an abuse of process for the applicants to bring this application because they delayed in executing settlement documents and they insisted that a portion of the sale proceeds from the Gibsons Property be held in trust pending a resolution of the Gibsons Property dispute.

Relying on the extensive guidance provided in Westsea Construction Ltd. v. 0759553 B.C. Ltd., 2013 BCSC 1352, Hori J. reproduced that decision’s list of considerations, summarized at para. 73 of that decision, for awarding special costs:

a)   the court must exercise restraint in awarding specials costs;

b)   the party seeking special costs must demonstrate exceptional circumstances to justify a special costs order;

c)   simply because the legal concept of “reprehensibility” captures different kinds of misconduct does not mean that all forms of misconduct are encompassed by this term;

d)   reprehensibility will likely be found in circumstances where there is evidence of improper motive, abuse of the court’s process, misleading the court and persistent breaches of the rules of professional conduct and the rules of court that prejudice the applicant;

e)   special costs can be ordered against parties and non-parties alike; and

f)     the successful litigant is entitled to costs in accordance with the general rule that costs follow the event. Special costs are not awarded to a successful party as a “bonus” or further compensation for that success.

Hori J. refused to grant either party special costs.

[31] In the circumstances of this case, I do not see any reprehensible conduct on the part of any of the parties that is worthy of chastisement. All of the parties appear to genuinely be pursuing their legal remedies. I see no indication that any of the parties are motivated by improper considerations. While the parties may have had a disagreement as to which forum should take jurisdiction over the dispute between them, I see no conduct on any of the parties that can be considered an abuse of the court’s process or reprehensible in nature.

Hori J. did grant Applicants their court costs on the lower scale “since the applicants have been successful in their stay of proceedings application”.