Nova Scotia – court refuses to appoint arbitrator because notice to arbitrate not acted upon had expired – #386

In Site 2020 Incorporated v. Campbell, 2020 NSSC 305, Mr. Justice Jamie S. Campbell declared invalid a notice of arbitration subject to strict time limits set by the parties’ own agreement to arbitrate. Because the parties had not acted upon the notice to arbitrate in the time agreed upon, he dismissed claimant’s request to appoint an arbitrator for the otherwise ongoing dispute.  Campbell J. also dismissed respondent’s request to have the court resolve the parties’ dispute, determining that the dispute was subject to the agreement to arbitrate.  The facts did not mention that any limitation period applied yet and Campbell J. urged the parties to either arbitrate or negotiate.

MH and CC, founders of Site 2020 Incorporated (“Site 2020”), signed a series of agreements and agreed that disputes would be resolved by arbitration.  MH and CC later brought three (3) other shareholders and, when doing so, gave each of the founders an option to repurchase the other founder’s shares upon the happening of certain events including the termination of employment.  A further series of agreements were signed including an April 30, 2017 Founders’ Restricted Rights Amending Agreement (“April 2017 Agreement”) which CC claimed he signed under duress.

After signature of the Agreement, CC alleged that his professional relationship with MH “soured” and that he felt that “the work environment was hostile” and believed that he was “being slowly pushed out” despite having invested a significant amount of time, money and effort.

CC filed a notice of arbitration on April 24, 2019 (“Notice”).  His employment with Site 2020 terminated on May 27, 2019.

The dispute between CC and MH involved the purchase of CC’s shares and how the April 2017 Agreement applied to calculate the price of his shares in Site 2020.  CC sought to have the dispute decided by arbitration initiated by his Notice.  MH claimed that the Notice was a nullity because it was out of time and sought a resolution by the court and an order for specific performance.

The Agreement to Arbitrate – The agreement to arbitrate appeared in the initial agreements signed between CC and MH and imposed specific deadlines on the process.

6.6 Arbitration – Any dispute, controversy, or claim arising out of or relating to this Agreement, or the breach, termination, or invalidity thereof, will be settled by arbitration pursuant to the laws of the Province of Nova Scotia in the municipality of Halifax, Province of Nova Scotia, Canada, following the arbitration and conciliation procedures set forth in the Commercial Arbitration Act (Nova Scotia) or such successor legislation in force on the date of the submission of such dispute, controversy or claim for arbitration. The parties agree that any such arbitral hearing shall close within six (6) months from the date of the commencement of such arbitral proceedings and the arbitral award will be made within thirty (30) days after the close of hearings and will be final and binding upon the parties”.

According to the agreement to arbitrate, the hearing would have to close six (6) months from the date of the Notice which commenced the arbitration and an award made within thirty (30) days after close of the hearing.  Campbell J. recorded the reasons given by CC for not meeting the deadlines.

[17] [CC] says that when his employment was terminated on May 27, 2019, he was without full-time employment. He could not pay the significant expense of retaining legal counsel to assist him in the arbitration. He was not paid various forms of compensation due to him at the time. He moved to Montreal where the job market was larger. He was diagnosed with Lyme disease. He says now that he always intended to proceed with the arbitration and at no point abandoned his rights under any agreement”.

Once CC evaluated that he was “in a financial position to advance the arbitration”, he exchanged through counsel with MH to advance with the arbitration but MH refused, indicating his intention to proceed to the court.  MH advised that he intended to have the court declare the arbitration invalid and to order CC to comply with his contractual obligations to tender his shares under the terms of the April 2017 Agreement.  CC advised that he would seek a court order appointing an arbitrator. MH filed his application July 20, 2020. CC filed his application afterwards on September 8, 2020 to have the court appoint an arbitrator.

Campbell J. therefore had two (2) applications before him and dismissed both.  First, he held that CC’s Notice was not acted upon and expired. “That arbitration is invalid”.  Second, he held that MH’s claim was “a dispute to be settled by arbitration or perhaps more expeditiously through negotiation”.

Validity of Notice – At paras 21-28, Campbell J. considered the validity of the Notice, tying his intervention to section 51 of Nova Scotia’s Commercial Arbitration Act, SNS 1999, c 5.  At any stage during or after an arbitration, section 51(1)(b) allows the court, upon application by a party who has not participated in the arbitration, to declare that an arbitration is “invalid” because the arbitration is “invalid or has ceased to exist”.   MH claimed that he and Site 2020 had not participated in CC’s arbitration and that the terms of the agreement to arbitrate had not been met because the arbitration never went ahead.  CC argued that the arbitrator should decide whether the arbitration he initiated was out of time and that the parties had the intention to arbitrate such disputes.

[24] This is a commercial contract. It must be interpreted as a whole, in a way that gives meaning to all its terms so that none is rendered ineffective. The interpretation should be in accord with sound commercial principles. The parties should be considered to have meant what they said in the written document.

[25] In this contract there is a clear intention to proceed with arbitration to settle disputes and to avoid litigation. The contract is also clear in imposing a time limit. It says that the arbitration must be completed within 6 months of its commencement. The Commercial Arbitration Act at section 21(1) makes it clear that an arbitration can be commenced by serving on the other parties a notice demanding arbitration under the arbitration agreement. That is precisely what was done on April 26, 2019. Once the arbitration was commenced Mr. Campbell took no steps to advance the proceeding until December 19, 2019, well after the 6-month time limit imposed by the Founders’ Restricted Rights Agreement”.

Campbell J. further noted that the terms of the contracts between the parties stipulated that “time shall be of the essence for every part of the agreement” and determined that their intention was to impose a strict time limit.  Appointing an arbitrator “with respect to the notice of arbitration would be contrary to the intent of the parties expressed in the agreement itself to have a strict time limit on arbitration”.

Campbell J. declined to do what the parties had agreed not to do. “[CC]’s Notice of Arbitration was out of time and the court should not now do what the parties themselves have expressly agreed not to do”.

Specific Performance – At paras 29-32, Campbell J. next considered whether MH could advance his claims in court.  Having declared the arbitration proceeding commenced by the Notice to be invalid, Campbell J. observed that his conclusion on that issue “only takes things so far”.

MH’s success on the validity of the Notice did not extend to the merits of the dispute. 

It is as if that arbitration had never been commenced. It does not resolve the issues set out in that Notice of Arbitration. The agreement says nothing that could be interpreted as meaning that any claim advanced under a Notice of Arbitration that “times out” has been determined or that the party who filed the notice is deemed to have waived the claim itself. That leaves [MH] and Site 2020 precisely where they were before”.

In order to grant the specific performance sought by MH, Campbell J. held that he would have determine disputed facts and law.  Those determinations were subject to arbitration.  The agreement to arbitrate remained valid and covered the relief sought by MH.  Campbell J. held that the contract was clear and the dispute over that relief, including CC’s defense, were subject to arbitration.

urbitral notes – First, at para. 22, Campbell J. observed that the agreement to arbitrate contained no undertaking to negotiate and no waiver of the time limits.  His solution in his concluding comments prompted both parties to consider negotiating a solution to a dispute, subject to an arbitration which was out of time, involving a claim that was otherwise still viable and not subject to any limitation issues.