In 3-Sigma Consulting Inc. v Ostara Nutrient Recovery Technologies Inc, 2023 BCSC 100. Justice Matthews granted a stay of proceedings, finding that the, “arguable case standard provides room for a judge to dismiss a stay application when there is no nexus between the claims and the matters reserved for arbitration, while referring to the arbitrator any legitimate question of the scope of the arbitration jurisdiction” relying upon Clayworth v. Octaform Systems Inc., 2020 BCCA 117 at para. 30. Here there was such a nexus, so the matter was referred to the arbitrator to decide jurisdiction.
The dispute – Defendants Ostara Nutrient Recovery Technologies Inc. (“Ostara”) and its majority shareholders, directors, and senior management sought an order staying an action in which the Plaintiff minority shareholders claimed that the Defendants had deprived them of any value of their shares in Ostara. The Defendants relied upon a mandatory arbitration clause in the Ostara shareholders agreement that required that claims “arising from or in connection with the shareholder agreement” are to be submitted to arbitration. The Plaintiffs argued that the arbitration agreement did not apply because: (1) not all of the parties to the litigation signed the shareholders agreement containing the arbitration clause; and (2) that the claims sounded in tort and therefore did not “arise under”, nor were they “in connection with” the shareholders agreement.
The analysis of the statutory stay provision – Justice Matthews noted that the Defendants’ stay application was made pursuant to s. 7 of the Arbitration Act, S.B.C. 2020, c. 2, which provides for a party to an arbitration agreement to apply to the court to stay a proceeding in respect of a matter agreed to be submitted to arbitration. She stated that there were limited grounds upon which a court could refuse to grant a stay – where the arbitration agreement is “void, inoperative, or incapable of being performed”. She found that the general rule is that if the applicant seeking a stay makes out an “arguable case” that the parties and issues in dispute are subject to an arbitration agreement, and the party opposing the stay does not assert or establish that the arbitration agreement is void, inoperable, or incapable of being performed, the court must stay the proceeding in favour of arbitration, citing Clayworth v. Octaform Systems Inc., 2020 BCCA 117 and Dell Computer Corp. v. Union des Consommateurs, 2007 SCC 34.
Justice Matthews set out the steps to be applied to determine whether a stay should be granted:
“ The central issue in this application is whether there is an arguable case that would require a mandatory stay of the proceedings under s. 7(1).
 The three-part test for the s. 7(1) determination, on which the applicant bears the burden, was set out in Prince George (City) v. A.L. Sims & Sons Ltd., and McElhanney Engineering Services Ltd. (1995), 9 B.C.L.R. (3d) 368, 1995 CanLII 2487 (C.A.) at para. 22…
 Jurisdictional challenges often arise out of one or more of the following circumstances: the party seeking to avoid the stay argues that the arbitration agreement does not cover the subject matter of the legal proceeding; the party seeking to avoid arbitration establishes that the arbitration agreement is void, inoperative, or incapable of being performed (s. 7(2)); or there is no real prospect that a bona fide jurisdictional challenge will be resolved by an arbitrator.
 If one of these circumstances arises, the court must consider whether the issue raises a pure question of fact, a pure question of law, or a question of mixed fact and law.
 The court must normally refer a pure question of fact to an arbitrator: Uber at para. 32, citing Dell at para. 85…
 A court may resolve a pure question of law: Dell at para. 84…
 Where the issue is a mixed question of fact and law, the court may decide the issue only if it can do so with a superficial regard to the record: Peace River Hydro Partners at paras. 42–43; Dell at para. 85.
 The question of whether the dispute falls within the scope of the agreement is not often a pure question of law. It is usually a question of mixed fact and law, as “[i]t requires an analysis of the nature of the dispute and an interpretation of the arbitration clause, considered with the terms of the contract as a whole in their factual context”: Clayworth at para. 44, citing St. Pierre v. Chriscan Enterprises Ltd., 2011 BCCA 97 at para. 21; Creston Moly Corp. v. Sattva Capital Corp., 2014 SCC 53. Accordingly, the court may only interpret the arbitration agreement to determine whether the dispute falls within the scope of the arbitration agreement if it can do so with only a superficial review of the record, otherwise, the court must leave the matter for the arbitrator to decide on a thorough review of the evidence: Peace River Hydro Partners at para. 42.”
Whether the parties to the claim are parties to an arbitration agreement – It was not contested that some of the Plaintiffs and some of the Defendants were not signatories to any of the shareholders agreements that were in effect over time.
The Plaintiffs submitted that because most of the Plaintiffs and half of the Defendants were not parties to a shareholder agreement, the Defendants had not met their burden on the first issue under s. 7(1) – “a party to an arbitration agreement has commenced legal proceedings against another party to the agreement”. The Defendants asserted that a “significant number” of the Plaintiffs and Defendants were signatories to a shareholder agreement and so the Defendants had met their burden for a stay.
Justice Matthews commented: “I am not persuaded that numerosity governs this branch of the test.” She found that the purpose of arbitration legislation is to hold parties to their agreement to arbitrate, but also to not interfere with claims of those who are not parties to an arbitration agreement. Therefore, she did not accept the Defendants’ argument that so long as the claims of the non-arbitration parties involved substantially the same issues or were intertwined with the arbitration issues, all claims should be stayed and determined that this argument was not consistent with TELUS Communications Inc. v Wellman, 2019 SCC 19. However, she found that there was an arguable case that all shareholders were parties to the arbitration agreement because the definition of shareholders included all shareholders who executed the shareholders agreement and also those who agreed to be bound. This was an issue of fact and law and was to be addressed by the arbitrator at first instance.
Whether the claims fell within the scope of the arbitration clause – The Plaintiffs asserted that their claims sounded in tort because they were based upon the Defendants’ actions, in their capacities as directors, in arranging a sale of the company by which the Defendants and other shareholders would benefit and the Plaintiffs would not. They argued that the duty of care did not arise out of the contract, but arose because of alleged misrepresentations.
The arbitration clause was identical in each of the shareholder agreements and read as follows:
“… Any dispute, claim, question, or disagreement involving the interpretation or enforcement of any provision of this Agreement or breach hereof or otherwise arising under or in connection with this Agreement shall be submitted to binding arbitration…”
Justice Matthews found that the word “otherwise” broadened the arbitration clause to include claims arising under or in connection with the agreement in addition to claims that are a “disagreement involving the interpretation or enforcement of any provision of this Agreement or breach hereof”.
The parties disagreed upon whether the arbitration agreement was relevant to the causes of action alleged by the Plaintiffs. The Defendants argued that the words “in connection with” should interpreted broadly to go beyond contract claims. Justice Matthews found that older case law concluding that “arising under” was not as broad as “arising out of” in arbitration clause must be reconsidered in light of more recent cases that demonstrate a “shift towards the competence-competence approach.” The recent cases are: Peace River Hydro Partners v. Petrowest Corp., 2022 SCC 41; Uber Technologies Inc. v. Heller, 2020 SCC 16; Telus Communications Inc. v. Wellman, 2019 SCC 19, 2 S.C.R. 144; Seidel v. TELUS Communications Inc., 2011 SCC 15; Dell Computer Corp. v. Union des Consommateurs, 2007 SCC 34; and Clayworth v. Octaform Systems Inc., 2020 BCCA 117. She concluded that this was an issue of mixed fact and law: “where the factual matrix of the dispute must be examined more closely than superficially to see if it engages a matter in connection with the shareholder agreement, then the appropriate disposition of an application to stay is to grant the application so the arbitrator can undertake the analysis.”
Justice Matthews ordered the stay because there was a “nexus” between the shareholder agreements and the plaintiffs’ claim or defences to the claim. Therefore, the proceeding should be stayed so an arbitral tribunal may address the matter of jurisdiction.
First, quaere whether Justice Matthew’s analysis would be the same in Québec, where intertwined claims among parties who are not signatories to the arbitration agreement may be referred to arbitration. See Case Note Marie-Claude’s 2022 Hot Topic: Binding non-signatories – A new trend arising in Québec? – #697 – Arbitration Matters
Second, the Plaintiffs also argued that the motive for the Defendants’ stay application was relevant to whether the stay should be granted:
“ The plaintiffs also assert that the stay application is simply an attempt by the defendants to keep their misappropriation of corporate assets out of the public eye. They say this aspect of the matter informs whether the dispute is one that is covered by the arbitration agreement.
 I observe that while courts are concerned with the open court concept in proceedings in the courts, an agreement to private dispute resolution does not offend the open court principle. Private dispute resolution is a legitimate goal of agreements to arbitrate and a reason to hold parties to their agreement, giving effect to party autonomy: Peace River Hydro Partners at para. 49. This submission does not assist with determining whether it is arguable that the plaintiffs’ claims are subject to the arbitration clause in the shareholder agreements.“