N.B. – court cannot order indefinite stay of application to refer parties to arbitration – #130

In Toronto-Dominion Bank v. Andal Holdings (Moncton) Ltd., 2018 NBCA 68, the New Brunswick Court of Appeal reversed a motions judge’s decision to order an indefinite stay of two motions, including an application to refer the parties to arbitration. Though it agreed with the judge that a key third party ought to be added to the principal court litigation before the court adjudicated motions in that litigation affecting the third party, the Court held that an indefinite stay was unwarranted. The Court also considered that the motions judge could still have proceeded with the application to refer the parties to arbitration. In effect, the court rules of procedure applicable to completing the court litigation were not allowed to delay possible recourse to arbitration.

In 1996, Andal Holdings (Moncton) Ltd. (“Andal”) acquired a commercial property in which the Toronto-Dominion Bank (“TD”) leased premises. TD’s lease was amended in 2010 to include additional space on the 8th floor of that property. In 2015, Andal leased space to Jobe Financial Management Inc. (“Jobe”). TD objected to Andal leasing space to Jobe on the grounds that Jobe was involved in a competing financial business, in breach of clause 39 of TD’s own lease with Andal.

39. The Tenant and the Landlord acknowledge that no other deposit taking or loaning institution nor any other organization including, without limitation, insurance, investment, trust companies or credit unions making loans or selling retirement savings plans or income savings plans or pursuant to the Income Tax Act will be allowed to purchase, lease or occupy space within the Building or any future expansion thereof or any adjoining lands under the term management and/or control of the landlord during the term of the Lease or any renewals thereof. This provision will also apply to Automated Banking Machines and signage.

Andal disagreed, arguing that (a) clause 39 was not a restrictive covenant and even if were, (b) TD was estopped, having waived the covenant on prior occasions regarding other lessees. Despite negotiations, the parties were unable to resolve their differences and TD filed litigation. (The exact date is not clear.)

Andal defended the court litigation. It claimed that TD’s litigation was “premature since the lease requires the parties to submit firstly to arbitration” and, in addition, that the litigation disclosed no cause of action and should be summarily dismissed. The grounds of the motion to dismiss appear to be both the estoppel argument and the fact that Jobe had not be added as a party by TD to TD’s litigation.

In July 2016, TD filed a motion for interlocutory injunction under Rule 40.10(b) and Rule 40.05 of the Rules of Court, NB Reg 82-73 and section 33 of the Judicature Act, RSNB 1973, c J-2 seeking an order that Andal comply with clause 39 and terminate the lease and occupancy rights granted to Jobe.

Jobe received service of the proceedings, under Rule 37.04(4), as a “person who might be affected by the order sought”.

Andal then served a motion under Rule 5.02 seeking dismissal of TD’s litigation and, in the alternative, that the motion for dismissal be stayed under section 7 of the Arbitration Act, RSNB 2014, c 100.

In response to TD’s motion for interlocutory injunction, Jobe filed an affidavit in which it acknowledged its risk of irreparable harm if TD’s motion was granted. Jobe did not apply to be added as a party or an intervenor.

At the April 2017 hearing, the motions judge determined that Jobe was a necessary party and declined to hear either of Andal’s two motions until Jobe was added as a defendant to the litigation and a respondent to the motion. The terms of his order read as follows:

2. No further steps are to be taken in this proceeding until Jobe Financial Management Inc. is added as a defendant to the Action and as a respondent to the Motions.

TD appealed, submitting that the motions judge committed a reversible error in, among other things listed at paragraph 10 of the reasons, when he:

– held that Jobe was a necessary party;
– placed undue emphasis on the avoidance of multiplicity of proceedings; and,
– failed to consider Jobe’s expressed intention not to participate in the proceedings.

The N.B. Court of Appeal noted that its ability as an appellate court to interfere with an exercise of discretion was limited to decisions founded upon an error of law, an error in the application of the governing principles or a palpable and overriding error in the assessment of the evidence. It referred to The Beaverbrook Canadian Foundation v. The Beaverbrook Art Gallery, 2006 NBCA 75 as its source for a reiteration of this principle.

The Court did not focus on whether the motions judge erred in determining that Jobe was a necessary party. The Court saw no error in the judge’s assessment that Jobe was a necessary party. Rather, the Court framed the issue as whether the judge had jurisdiction to stay the proceedings until Jobe was added as both a defendant and a respondent. This jurisdiction affected all the proceedings before the motions judge including Andal’s alternative motion that TD’s litigation be stayed so that the dispute could be arbitrated.

The Court endorsed the motion judge’s decision to first determine Jobe’s role in the litigation and agreed that Rule 5.02 applied. Andal’s motion for dismissal also included Rule 5.02 as part of its grounds, claiming that TD’s litigation should be dismissed because of TD’s failure to include Jobe.

The Court noted that Andal’s request to dismiss the entirety of TD’s litigation merely because Jobe was not a party was “difficult to appreciate”. Parts of TD’s litigation had no claims affecting Jobe. Aside from the merits of Andal’s claim that Jobe be included for those claims affecting it, dismissal of the entire litigation was unmerited.

Neither of the parties sought leave to add Jobe as a party under Rule 5.04(2). Andal’s motions did not request leave to add Jobe but sought only to have the litigation dismissed because Jobe had not been added. TD did not seek to add Jobe either, claiming that doing so was unnecessary.

Rule 5.04 gives no jurisdiction to the court to add Jobe as a party in the absence of an application by one of the parties to the litigation. The motions judge recognized this but opted not to continue with hearing any of the motions until Jobe was added as a party. The Court understood the judge’s motivation but agreed with TD that the judge did not have authority to indefinitely stay the proceeding. Rather, the Court determined that the judge ought to have granted the parties time to consider their positions as a result of him accepting that Andal was correct in arguing that Jobe was a necessary party.

[26] Had the judge adjourned the two motions for a period of time to allow the parties to consider their positions as a consequence of his accepting Andal’s assertion that Jobe is a necessary party to TD’s action, such case management would be beyond question on appeal. Had he done so, and if TD had subsequently sought to add Jobe as a party, the motion judge would have resumed the hearing of the motions and, presumably, he would have adjudicated, under these new circumstances, Andal’s claim that the dispute be determined by arbitration and TD’s motion for an interim injunction. Conversely, if by the time the hearing of the motions resumed the circumstances had not changed, the judge would have determined the motions on that basis.

The judge exceeded his authority be effectively ordering an indefinite stay of proceedings ‘unless and until’ Jobe was added as a party.

[28] We would briefly address Andal’s alternative request that the dispute with TD be arbitrated. Once it was determined that TD’s action, its entire claim, would not be dismissed, as Andal had requested, there does not appear from the record to be any reason why Andal’s alternative request could not have been addressed straight away.

[29] It is our view the hearing of the motions currently before the judge must be resumed and determined, along with any amendments or other motions that may be made.

The Court remitted the motions to the motion judge for adjudication.

As a result of TD’s successful appeal, Andal’s motion for a stay of TD’s litigation on the basis of an arbitration agreement would now be heard by the motions judge.