Nova Scotia – absent summary judgment motion, stay declined if there is arguable case for summary judgment – #480

Despite the absence of a motion for summary judgment, in VistaCare Communications Services of Canada Inc. v. Verge Technologies Inc., 2021 NSSC 161, Madam Justice Mona Lynch declined a stay under section 9(2)(e) of the Commercial Arbitration Act, SNS 1999, c 5 because the party resisting the stay “has satisfied me that there is an arguable case for summary judgment”. Lynch J. determined that whether a matter is a proper one for summary judgment (i) “does not mean deciding whether summary judgment would be granted as doing so would be too high a bar to meet” or (ii) “cannot be only whether summary judgment will be sought as that bar is too lowLynch J. held that “[w]here there is no summary judgment motion with the stay motion, the proper test should be whether there is an arguable case for summary judgment”.

VistaCare Communications Services of Canada Inc. (“VistaCare”) and Verge Technologies Inc. (“Verge”) signed an August 15, 2019 asset purchase agreement (“APA”). The APA contained an agreement to arbitrate which stipulated that disputes would be determined by a single arbitrator in accordance with the Commercial Arbitration Act, SNS 1999, c 5. That agreement to arbitrate applied to “any and all disputes between the Parties which may arise out of or in connection with this Agreement, unless specifically precluded”.

On December 31, 2019, the closing date for the APA, Verge delivered a promissory note (“Promissory Note”) to VistaCare. Lynch J. observed the Verge’s delivery of the promissory note was “[a]s required by the APA”.  Later in her reasons, Lynch J. referred to section 176(1) of the Bills of Exchange Act, RSC 1985, c B-4 for the definition of a promissory note.

176 (1) A promissory note is an unconditional promise in writing made by one person to another person, signed by the maker, engaging to pay, on demand or at a fixed or determinable future time, a sum certain in money to, or to the order of, a specified person or to bearer”.

The Promissory Note provided for a principal sum of $250,000.00 payable in two (2) equal instalments: December 31, 2020 and December 31, 2021.

In addition to settling out the amounts in the Promissory Note, Lynch J. expanded on how the APA provisions impacted on the Promissory Note’s amounts.

[5] The APA also provided for a working capital adjustment of the purchase price following the preparation of closing financial statements.  The formula to calculate the working capital adjustment was provided for in the APA.  The working capital adjustment could have resulted in an increase or decrease in the purchase price.  If the adjustment resulted in an increase in the purchase price, the promissory note was to be adjusted to reflect the increase and it would be paid with interest of five percent on the first anniversary of the closing date.  The APA provided for Verge to provide an amended promissory note to VistaCare in exchange for the return of the original promissory note to Verge for cancellation.  The calculation for the working capital adjustment was done and the parties agreed in June 2020 that there would be an increase of $77,964 in the purchase price”.

The parties also entered into an Administrative Services Agreement (“ASA”) and a Secondment Agreement regarding termination by VistaCare and employment offer by Verge.

Disputes arose regarding payment of the payments set out in the Promissory Note.  Verge sent a January 29, 2021 Notice to Arbitrate. VistaCare responded with a February 4, 2021 Notice of Application in Chambers VistaCare sought payment of the first payment and another amount plus interest for a total of $202,964.00 which Lynch J. mentioned as being claimed “from the APA and the promissory note”.

Verge did not file a Notice of Contest as it did not want to attorn to the court’s jurisdiction but filed a Notice of Motion to dismiss under Rule 5.14(1) of the Nova Scotia Civil Procedure Rules due to lack of jurisdiction and that the issues should be referred to arbitration.

Each party filed two (2) affidavits for the hearing.

Verge submitted that the dispute arose out of in connection with the APA and under section 9 of the Commercial Arbitration Act, the court action should be stayed.  VistaCare countered, arguing that the Promissory Note is not subject to the APA’s agreement to arbitrate.  VistaCare submitted that the payment dispute should proceed “separate and apart” from the APA pursuant to the Bills of Exchange Act, RSC 1985, c B-4.  VistaCare also argued that the court to refuse to stay the matter, relying on section 9(2)(e) of the Commercial Arbitration Act, because the dispute is a proper one for summary judgment.

Referring to section 176(1) of the Bills of Exchange Act, Lynch J. held that the Promissory Note is separate contract.

There is a promissory note in relation to the $250,000 plus five percent interest.  That is a separate contract signed by Verge offering to pay VistaCare with installments to be paid on December 31, 2020 and the remainder on December 31, 2021.  The reason that promissory notes are signed when there is an agreement such as an APA is to have a separate contract to proceed on”.

Lynch J. held that VistaCare was not bound to engage in arbitration as the Promissory Note was a separate contract and it contained no agreement to arbitrate.

[20] There is no agreement to arbitrate in the promissory note.  The promissory note is separate from the APA and VistaCare is not bound to go to arbitration in relation to the amount owed in the promissory note”.

Lynch J. continued to consider whether, under section 9(2)(e) she could refuse to stay the proceeding because the matter is a proper one for summary judgment.

Procedurally, Lynch J. resisted engaging in the analysis because VistaCare had begun an application and not an action.  Despite VistaCare’s offer to convert the procedure, Lynch J. observed further that Verge had filed no responding pleading.  See paras 25-27.

Lynch J. then addressed the role summary judgment would have in her determination to invoke section 9(2)(e).

[28] To determine under s. 9(2)(e) whether the matter is a proper one for summary judgment does not mean that I must decide whether summary judgment would be granted.  That would be too high a bar to meet.  It cannot be only whether summary judgment will be sought as that bar is too low.  Where there is no summary judgment motion with the stay motion, the proper test should be whether there is an arguable case for summary judgment”.

Having recognized that Verge had not yet filed a response to VistaCare’s Notice of Application, Lynch J. did observe that “Verge has provided very little to show the basis of their contest”.  Lynch J. noted “vague references” in Verge’s materials and that “unilateral behaviours alleged are not specified and the assertions in the affidavit are in the nature of submissions not statements of fact”, Lynch J. looked to the Notice to Arbitrate for more insights.

There is nothing in the Notice to Arbitrate that denies the amounts claimed in VistaCare’s application.  The only relief sought is declarations that the employees are Verge’s employees.  There is no monetary amount sought.  Verge had the option of outlining the basis of their contest in the affidavits filed, they chose not to do that”.

While alert to the questions which a court ought to ask in a summary judgment proceeding, with reference to Shannex Inc. v. Dora Construction Ltd., 2016 NSCA 89, Lynch J. stated that she had no pleading from Verge with which she could answer those questions.  She recognized that Verge’s assertions were “important” and that Verge “will mount a vigorous contest” but concluded that assertions “cannot be enough to thwart the summary judgment exception under s. 9(2)(e)”.

Lynch J. elected to follow Dewshaf Investments Inc. v. Buckingham Hospitality, 2005 CanLII 63770 (ON SC) dealt with a similar situation involving arbitration and a promissory note.  In that case, the court granted summary judgment.  On appeal, the Court of Appeal in Dewshaf Investments Inc. v. Siljub Hospitality Inc., 2006 CanLII 13948 (ON CA) determined the motion judge committed no error in concluding that summary judgment should issue but stayed the decision due to new evidence related to compliance.

Lynch J. determined that she would follow the reasoning in Dewshaf Investments Inc. v. Buckingham Hospitality but did not have a motion for summary judgment before her.  She declined to stay the action based on “the fact that a promissory note can be determined by way of summary judgment”.

Without a motion for summary judgment, Lynch J. concluded that “based on what I have before me”, she declined a stay because VistaCare “has satisfied me that there is an arguable case for summary judgment”.

In her directions, Lynch J. did note that “[i]f VistaCare is not successful in obtaining summary judgment, the parties have agreed that the matter will proceed to arbitration”.

urbitral notes – First, for decisions involving summary judgment and stays, see the earlier Arbitration Matters notes:

(i) “Alberta – court exercises contractual grant of discretion to refuse stay because proper for summary judgment – #201” regarding Obsidian Energy Partnership v. Grizzly Resources Ltd, 2019 ABQB 406. Master J.T. Prowse, Q.C. referred exclusively to the parties’ arbitration agreement to exercise discretion and refuse a stay because the dispute was a proper one for summary judgment.  The contractual terms mirrored section 7 of Alberta’s Arbitration Act, RSA 2000, c A-43 but Master Prowse made no reference to the legislation in refusing to stay the litigation.

(ii) “Ontario – summary judgment motion opportunity for arbitrator to determine issues in favour of respondent – #227” regarding Canada Bread v. Mallot Creek, 2019 ONSC 2578. Madam Justice Bernadette Dietrich upheld an arbitrator’s decision to dismiss one party’s motion for summary judgment but then also make a final determination of a key issue in favour of the other party.  Dietrich J. determined that, if the sufficiency of the record permits the arbitrator to decide the motion, it is “axiomatic” that the arbitrator resolve the issue raised by the motion in favour of either party.  The parties selected the mediator to serve as arbitrator for their settlement agreement should a dispute arise in the interpretation of the settlement.

(iii) “Ontario – court refuses partial summary judgment for recognition and enforcement of award which overlaps alternative breach of contract claim – #111” regarding “Sanokr-Moskva” LLC v. Tradeoil Management Inc., 2018 ONSC 2967. Madam Justice Andra Pollak decided that a plaintiff’s principal claims for recognition and enforcement of an international commercial award must be heard on the merits at the same time as plaintiff’s alternative claims for breach of contract. Agreeing that partial summary judgment should be considered a rare procedure reserved for issues that may be readily bifurcated, Pollak J. sent the parties to trial on the merits of both recognition and enforcement and breach of contract. Pollak J.’s caution is of particular relevance to arbitration counsel considering whether to combine, in one court application, claims for recognition and enforcement of arbitration awards and other claims.

(iv) “Ontario – court grants partial summary judgment instead of stay and conducts mini-trial for balance of claim – #020” regarding Arkell v. Brightpath, 2017 ONSC 6612.  Mr. Justice Michael J. Emery combined two of Ontario’s procedural tools – section 7(2)(5) of the Arbitration Act, 1991, SO 1991, c 17  and Rule 20.01 summary judgment of Rules of Civil Procedure, RRO 1990, Reg 194 – to craft solutions to the parties’ disputes. Wielding both, he refused Defendant’s application to stay, agreed with Plaintiffs that both their claims were suitable for summary judgment consideration in preference to arbitration, granted one of Plaintiffs’ claims and kept jurisdiction over Plaintiffs’ other claim for the purpose of a mini-trial on the merits.

Second, for summary judgment in arbitration, see the recent Arbitration Matters note “Ontario – arbitrator has jurisdiction to hear summary judgment despite party’s objection provided process complies with Hryniak – #474” regarding Optiva Inc. v, Tbaytel, 2021 ONSC 2929. Mr. Justice W. Daniel Newton dismissed a post-award challenge to an arbitrator’s initial decision to proceed by way of summary judgment absent defendant’s consent.  Newton J. determined that section 26 of Ontario’s Arbitration Act, 1991, SO 1991, c 17 describes hearings for “presentation of evidence” and “oral argument” but expresses no requirement for oral evidence.  As the parties proceeded by affidavit, after cross-examination, and with oral argument, Newton J. held that arbitrator’s process had met requirement to “hold a hearing” as requested by defendant.  Newton J also held that summary judgment should be available in arbitration for the same reasons as those given in Hryniak v. Mauldin, 2014 SCC 7 (CanLII), [2014] 1 SCR 87 provided the process “(1) allows the arbitrator to make the necessary findings of fact; (2) allows the arbitrator to apply the law to the facts; and (3) is a proportionate, more expeditious and less expensive means to achieve a just result”.

Third, for summary judgment enforcing the results of arbitration, see the earlier Arbitration Matters note “Ontario – summary judgment enforces settlement issuing from arbitration – #299” regarding Inc. v. Leon’s Furniture Ltd., 2019 ONSC 7451.  Madam Justice Sandra Nishikawa granted summary judgment for breach of a settlement entered into after arbitration began.  Nishikawa J.’s decision was the latest in a sequence of different dispute resolution options undertaken by the parties – arbitration, court application for leave to appeal an award, private settlement and summary judgment to enforce settlement.  Nishikawa’s reasons also demonstrate that resolution went ahead despite defendant’s evidentiary objections and other ongoing dispute resolution in the U.S.