The case Hawrish v. Hawthorn, 2022 BCSC 849 concerned an application by the Defendants to stay amendments to pleadings on the basis that the parties had previously agreed to arbitrate those matters. The issue was whether the stay should be granted when the Defendants had already attorned to the Court’s jurisdiction over the original claim. The Chambers Judge, Justice Wilson, refused the stay application. He reasoned that the only issue was whether the stay application was brought in a timely manner. This, in turn, depended on whether the amendments raised new and discrete claims or whether they simply related to the original claims. Justice Wilson concluded that, even with the amendments, the dispute in “pith and substance” remained the same (para. 68). The amendments were “simply additional material facts” (para. 67). As a result, he found the Defendants had attorned to the Court’s jurisdiction regarding the matters raised in the amendments and the application for the stay was dismissed.
The facts were these. The Plaintiff and Defendants were parties to a Shareholders Agreement (or “SHAG” as it was defined by the Chambers Judge (!)) that contained an arbitration clause. Despite this, the Plaintiff brought a petition against the Defendants in the British Columbia Supreme Court claiming oppression, breach of fiduciary duty and knowing assistance. The petition was supported by a comprehensive and substantive affidavit sworn by the Plaintiff. The parties agreed that the Defendants would swear affidavits in response, following which the Plaintiff would convert the petition into an action by consent order, all of which was done. The parties then filed pleadings in the action and the corporate Defendant filed an application for summary judgment.
Approximately two weeks before the summary judgment application was to be heard, the Plaintiff amended his claim as of right. The Plaintiff argued the amendments were necessitated by recently discovered evidence. The Defendants took the position that the amendments advanced new, separate and distinct claims that fell within the arbitration clause. They brought an application pursuant to s. 7 of the Arbitration Act, S.B.C. 2020, c. 2 to stay the new claims that were the subject of the amendments. Section 7(1) requires that if a party commences legal proceedings in a court “in respect of a matter agreed to be submitted to arbitration” the application for a stay must be made by the Defendants “before submitting [their] first response[s] to the substance of the dispute”.
Justice Wilson noted that “the general rule in British Columbia is that court proceedings are stayed whenever the applicant makes out an arguable case that the dispute is one that the parties have previously agreed will be resolved by way of arbitration” (para. 21). However, in his view, the question on this application was not whether the claims fell within the arbitration clause but, rather, whether the Defendants had already attorned to the jurisdiction of the court. He found the question of attornment depended on whether the amendments raised new claims or if they were part of the same claims as those alleged in the original pleading.
Justice Wilson noted that the Plaintiff’s claims of oppression and breach of fiduciary duty, as originally pled, were based in part on the SHAG and that the Plaintiff had pleaded specifically that the Defendants had acted contrary to Schedule D to the SHAG, which provided certain minority protections. The amendments outlined the alleged conduct of the Defendants at issue including their changing and waiving of the Schedule D protections. The amendments also included a claim for a mandatory injunction to compel the Defendants to make changes to the corporate Defendant’s articles to give effect to the Schedule D protections. The Defendants argued that this constituted a new claim and one that was subject to the agreement to arbitrate. Justice Wilson disagreed. He concluded “….the pith and substance of the dispute between the parties remains whether or not the plaintiff was oppressed, whether the defendant acted in breach of his fiduciary duty and whether the Company was liable for knowingly assisting the defendant with that conduct… [the amendments] are simply additional facts to support the original causes of action, namely the plaintiff’s treatment by the defendants, and whether the plaintiff is entitled to a remedy” (paras. 58-59). This conclusion was consistent with the decision in the corporate Defendant’s summary judgment application. It was dismissed on the basis that the amendments largely added “material facts” that would be required to be weighed to determine the company’s liability for oppression – something that could not be done on a summary judgment application. See: Hawrish v Hawthorn, 2022 BCSC 651.
Further, Justice Wilson noted that the stay provisions in the Arbitration Act refer to “a matter agreed to be submitted to arbitration”. “A matter”, he found in this context, does not refer to a discrete material fact upon which the Plaintiff may rely. He noted that if the stay were granted, the Plaintiff would be pursuing the same cause of action in two forums while relying on different material facts. He observed:
“ Claims of oppression and of the existence of a fiduciary duty involve a holistic examination of all of the facts and of the relationship between the parties. It is not apparent how a bifurcated process could result in an overall evaluation of the plaintiff’s claims if different facts were proved before different presiders, nor what process would be employed to assess and determine whether the plaintiff has established an entitlement to a remedy, recognizing that relief for oppression under the Business Corporations Act involves an exercise of discretion on the part of the presider.”
Based on the above, and given the Defendants’ previous attornment, Justice Wilson concluded the application for the stay was brought by the Defendants “too late”.
For recent cases concerning stays under the British Columbia Arbitration Act, and in particular what constitutes an “arguable case” that a non-signatory is bound to an arbitration agreement, see Beck v Vanbex Group Inc., 2021 BCSC 1619 (where an arguable case was demonstrated on the basis of pleadings alone) and Wittman v Blackbaud, Inc., 2021 BCSC 2025 (where no arguable case was demonstrated where the non-signatory had no knowledge of the clause).