Ontario – agreement to arbitrate disputes involving “construction, meaning or effect” does not cover “enforcement” – #278

In Illumina Holdings Inc. v. Brand Alliance Inc. et al, 2020 ONSC 1053, Mr. Justice Cory A. Gilmore gave effect to an agreement to arbitrate disputes involving “construction, meaning or effect” of an agreement and refused to stay litigation based on enforcement of the agreement.  Gilmore J. held that the claims involved “a straightforward contract case” and that breach of an enforceable agreement was not the same as the meaning of that agreement.  Demonstrating the courts’ own readiness and flexibility to provide resolution of disputes, Gilmore J. then went on to determine that the disputes did not warrant a trial and issued orders on the merits of the claims made.

Integrus Brand Solutions (“Integrus”), the subsidiary of Illumina Holdings Ltd. (“Illumina”), merged with four (4) corporations to form BrandAlliance Inc. (“BrandAlliance”).  Each merged corporations became a minority shareholder in BrandAlliance and remained independently-operated pending full, eventual integration. The merged corporations first signed a May 1, 2010 unanimous shareholders agreement (“2010 USA”) and, following the merger by a sixth corporation, signed a new 2011 unanimous shareholders agreement (“2011 USA”).

Section 4.1 of the 2010 and 2011 USA required that “any dispute, difference or question arising between the parties hereto concerning the construction, meaning or effect of this Agreement or any part thereof shall be settled…[by a single arbitrator or a panel of arbitrators].

The 2010 USA provided for a right for BrandAlliance to re-purchase a shareholder’s shares if it became “inactive”, defined to mean that a shareholder’s principal resigned as an employee or from BrandAlliance’s board.  The 2011 USA added a normalized figure for management compensation to ensure shareholders received fair value upon exit.

Illumina’s principal provided notice of his resignation on January 17, 2012, effective March 31, 2012.  In doing so, that principal became “inactive” and brought the share purchase provisions into effect.  Gilmore J. at paras 8-17 set out the give and take of the share valuation assigned by each side to the share purchase transaction.

Illumina initiated litigation against BrandAlliance and its parent company, A Brand Company (“ABC”), applying to recover payment plus interest from January 10, 2015.  BrandAlliance and ABC responded by applying for (i) rectification of a letter agreement exchanged after Illumina’s principal became inactive, (ii) a declaration that Illumina’s principal had breached his fiduciary duties and, (iii) in the alternative, the parties’ applications be consolidated and proceed to trial as an action.  BrandAlliance also applied for (iv) an order staying Illumina’s application and directing that both applications be submitted to arbitration.

Gilmore J. dismissed the application for stay because the dispute fell beyond the wording of the agreement to arbitrate. 

[49] With respect to the question of whether this matter should be referred to mediation, I do not find that the questions raised in this application relate to any interpretation of either the 2010 or the 2011 USA. This case is about enforcement of an agreement and not about the meaning of either USA. As such, I find that it would not fall under the arbitration clause in the USA.

He determined that the dispute was “a straightforward contract case in which there was an offer, acceptance and partial performance”.  The issues raised in defense are “either statute barred or without merit”.

Gilmore J. further held that “this matter does not require a trial” and that “[t]here would be nothing tendered at trial that differs from the current record before the court”.  He therefore granted the relief sought by Illumina and dismissed BrandAlliance’s and ABC’s application.

urbitral note – First, the reasons illustrate that the wording of agreements to arbitrate matter.  A claim for “enforcement” of an agreement does not qualify as a dispute about the agreement’s “construction, meaning or effect” or what Gilmore J. summarized at para. 49 its “interpretation” or “meaning”.   The facts set out in the reasons do not provide enough context to determine if the wording for the agreement to arbitrate was chosen precisely to have this effect or was inadvertent.

Second, Gilmore J. demonstrated that courts too can provided direct, proportionate resolution to commercial disputes.  Gilmore J. recorded but set aside concerns over the possibility that credibility issues may arise at trial. “The fact that certain executives employed by the Respondents do not remember signing the 2011 USA is not a credibility issue. This is a straightforward contract issue which does not merit a trial, from the standpoint of either outstanding credibility issues or the amounts at stake.