Montaigne Group Ltd. v St. Alcuin College for the Liberal Arts Society, 2024 BCSC 1465 concerns the issue of whether the Court should grant a stay of domestic proceedings in favour of arbitration after the defendant who sought the stay, St. Alcuin, first brought a motion before the court to strike the claims. Because this involved seeking substantive relief from the Court, it held that the defendant had attorned to the Court’s jurisdiction and waived its right to arbitration and also taken steps that rendered the arbitration clause inoperative. Therefore, the stay of proceedings was denied under section 7(2) of the Arbitration Act, S.B.C. 2020, c. 2.
Background – Plaintiff Montaigne and Defendant St. Alcuin were parties to a joint venture agreement (the “JVA”). Article 7 of the JVA provided a two-step process for dispute resolution. The parties agreed first to use best efforts to settle disputes in connection with the JVA and failing that, to go to mediation. If such attempts were not successful, then such disputes would be determined by arbitration.
After St. Alcuin purported to terminate the JVA, in April 2023, Montaigne filed a civil claim. On May 4, 2023, St. Alcuin promptly applied to stay the action in light of the arbitration clause pursuant to s. 7 of the Arbitration Act, S.B.C. 2020, c. 2.
On May 26, 2023, after Montaigne had amended its claim, St. Alcuin filed notice of motion seeking, among other things, to strike portions of Montaigne’s amended claim on the basis that it did not disclose a reasonable cause of action, that it was frivolous and vexatious, and that it was an abuse of process. St. Alcuin also asserted that there were no legal bases to support the claims, including that the language of the JVA did not support Montaigne’s allegations.
On June 12, 2023, in response to Montaigne’s counsel’s query about whether St. Alcuin still intended to proceed with the stay application, counsel for St. Alcuin advised that it intended to reschedule the stay application to take place after the hearing of its motion to strike. The motion to strike was heard on June 15, 2023, and the Court adjourned that motion and held that it should not proceed in light of St. Alcuin’s outstanding stay application that objected to the Court’s jurisdiction.
In July 2023, Montaigne sent a settlement offer to St. Alcuin and was advised that that the offer would be forwarded to St. Alcuin’s new counsel. In August, St. Alcuin’s new counsel advised Montaigne that he required more time to review the file material and deliver a response. Montaigne did not receive a response after that.
In March 2024, Montaigne advised that it would be taking steps to advance its action. The parties then had a disagreement about whether Montaigne had properly effected service of its claim. The stay application was heard after that, on July 3, 2024, more than a year after it was brought.
Stay Application – There were two issues before the Court: (1) did the motion to strike constitute a “step in the proceedings” such that St. Alcuin was precluded from bringing a stay application under s. 7 of the Arbitration Act; and (2) Did St. Alcuin waive its right to arbitration rendering the arbitration agreement inoperative?
Before turning to each of these issues, the Court asked whether, as a preliminary matter, it was proper for it to determine these issues considering the general rule of competence-competence. The Court held that it was proper to do so as Montaigne did not challenge the arbitrator’s jurisdiction generally. Competence-competence did not require a referral of this issue to an arbitrator, as the issue before the court was whether St. Alcuin had responded to the substance of a civil dispute and thereby waived the right to arbitration.
(1) Did the motion to strike constitute a “step in the proceedings”? In Peace River Hydro Partners v. Petrowest Corp., 2022 SCC 41, the Supreme Court of Canada articulated the two-step test to determine whether a proceeding should be stayed in favour of arbitration. The first component of the test requires that the Court must be satisfied that four technical prerequisites exist to invoke an arbitration clause, including that the applicant sought a stay in favour of arbitration “before taking any ‘step’ in the court proceedings.” This requires an objective approach. The Court must ask itself whether, on the facts, it could be implied that the party had affirmed the correctness of the proceedings and its willingness to go along with a determination by a court of law instead of arbitration. If the technical prerequisites are fulfilled, then the second component of the test requires that the Court address whether there is a statutory exception to a mandatory stay of the court proceeding.
The Court held that St. Alcuin’s motion to strike constituted a “step in the proceeding” and thus it was precluded from bringing a stay application under s. 7(1) of the Arbitration Act. This was more than just a purely defensive measure because it asked the Court to determine the merits of its defence to Montaigne’s claims.
Although St. Alcuin had filed its stay application before it took any other step in the proceeding, it then chose not to proceed with the stay application until July 2024, over a year later and after it had brought a motion to strike that sought substantive relief from the Court. Therefore, the Court rejected the argument that the test is limited to assessing the situation only when the stay application is brought and not what occurred afterwards.
The Court also noted that St. Alcuin had strategically chosen to delay setting a date for its stay application until after the motion to strike. The Court held that this, “is precisely the mischief that s. 7 of the [Arbitration] Act was intended to prevent. A party should not be entitled to take the benefit of the litigation process while preserving the ability to reject that process in favour o[f] [sic] arbitration.”
The Court distinguished this case from the B.C. Court of Appeal decision Seidel v. TELUS Communications Inc., 2009 BCCA 104, where the Court held that TELUS’s motion to strike was not a step in the proceedings. In that case, TELUS promptly sought a stay after a change in the law with regard to the timing of such challenges and before filing a statement of defence. That Court held this was consistent with the jurisprudence that held that “purely defensive measures” are not considered steps in the proceeding.
Rather, the Court held, this case was more similar in nature to RH20 North America Inc. v. Bergmann, 2024 ONCA 445. In that case, the defendants brought motions to strike claims and to stay the action in favour of arbitration. The stay motion was dismissed in part because the motion to strike constituted a waiver of the arbitration agreement (see “Motion to strike civil claims in court waives arbitration rights” Case Note #847).
Lastly, the Court rejected St. Alcuin’s alternative argument that even if the motion to strike constituted a step in the proceedings, it was not inconsistent with the arbitration agreement pursuant to s. 45(3) of the Arbitration Act, which allows a party to seek from a court (before or during arbitral proceedings) an interim measure of protection. Here, St. Alcuin sought to oppose the interim measure of protection sought, which was Montaigne’s attempt to register a certificate of pending litigation against the property underlying the dispute. The Court held that the difficulty with St. Alcuin’s argument was that its motion to strike went beyond opposing that interim measure, but rather addressed the substance of the dispute and sought substantive relief.
(2) Did St. Alcuin waive its right to arbitration rendering the arbitration agreement inoperative? In the alternative, even if the technical prerequisites for a stay were met, the Court held that St. Alcuin had waived its right to arbitrate and breached its “negative obligation” under the arbitration agreement not to litigate arbitral disputes, as was held in RH20. This rendered the arbitration agreement inoperative pursuant to s. 7(2) of the Arbitration Act.
In reaching this conclusion, the Court considered the circumstances, including that the stay motion was not timely, that the motion to strike sought to invoke the Court’s procedures to advance St. Alcuin’s litigation position and thus attorned to the court’s jurisdiction, and St. Alcuin had not complied with the dispute resolution procedure set out in the JVA (e.g., it had not responded to Montaigne’s settlement offer nor pursued mediation). This conduct was not consistent with a desire to have the dispute resolved through arbitration.
Contributor’s Notes:
First, in substance, the result of this decision is nothing new or surprising. It has long been the case that a party will waive its right to arbitration if it attorns to the jurisdiction of the court. A party does so when it goes beyond simply challenging the court’s jurisdiction and seeks to litigate a claim on the merits (see, for example, Kunuthur v. Govindareddigari, 2018 ONCA 730, para. 18).
When a civil claim is brought in the face of an arbitration clause, the responding party is at a fork in the road. It can attorn to the court’s jurisdiction and waive its arbitration rights, thus allowing the civil claim to proceed, or it can seek to stay the court action in favour of arbitration. But it must make a choice. This case demonstrates the consequences of this stark but important choice.
Second, one remaining question is how the two-step framework set out in Peace River Hydro Partners v. Petrowest Corp., 2022 SCC 41 applies within the statutory framework set out in s. 7 of the B.C. Arbitration Act and the equivalent statutory frameworks set out in the other provinces. In RH20 North America Inc. v. Bergmann, 2024 ONCA 445, the Ontario Court of Appeal categorized the issue of seeking a motion to strike – and thus breaching the negative obligation not to seek the resolution of arbitrable disputes in national courts – as one creating a waiver of the right to arbitration and thus rendering the arbitration clause inoperative pursuant to the equivalent of s. 7(2) of the Arbitration Act. In other words, it falls within the statutory exception to the mandatory stay of court proceedings, which apply when the arbitration clause is “void, inoperative or incapable of being performed.”
In the present case, the B.C. court treated the issue as falling into both components of the Petrowest test: the breach of the negative obligation both meant that the technical prerequisites established by the Supreme Court in order to apply for a stay under s. 7(1) were not met (i.e., the moving party had taken a “step in the proceeding”) and that, in any event, the arbitration clause was inoperative and the statutory exceptions in s. 7(2) applied because the motion to strike resulted in a waiver of the right to arbitration. Perhaps this is a distinction without a difference, as either way, the result is the same.