Ontario – Claims against non-party to arbitration agreement stayed with claims against parties – #581

In Goel v Dhaliwal, 2021 BCSC 2382, Justice MacDonald dismissed as premature a motion to lift a stay of court proceedings in favour of arbitration for the limited purpose of allowing the plaintiffs to file an amended Statement of Claim with respect to claims against a defendant who was not a party to the arbitration. The parties did not agree on whether these claims were new or not. The arbitration had not yet concluded and the proposed amendments appeared to raise issues that overlapped with those which were before the arbitrator. Justice MacDonald found that the extent of the overlap, if any, would be clearer after the arbitration was concluded. In addition, the plaintiffs had also brought an application for judicial review of a Partial Final Award issued by the arbitrator which had not yet been disposed of. Justice MacDonald found that it was not clear whether the plaintiffs would pursue the amendments if they were successful on the judicial review application. 

This action arose out of a joint venture between the plaintiffs (Parshotam Goel and Surjit Singh Heer), and four of the defendants (Mohan Singh Sangha, Kamal Kaur Sangha, Parmajit Kaur Dhaliwal, and Jagraj Singh Dhaliwal). Each of the four families owned a contiguous parcel of land in Surrey, which it intended to develop jointly by subdividing all parcels into residential lots to be sold. In May, 2007, the parties entered into a Joint Venture Agreement (“JVA”) and a Costs Sharing Agreement (“CSA”), both of which provided for arbitration in the event of a dispute. Clause 3.2 of the JVA provided that each joint venturer owned an undivided beneficial interest in the joint venture assets to the extent of their proportionate shares. One of those joint venture assets was a parcel of land known as Lot 39.

The fifth defendant was Jasmin Sangha, who was not a party to the JVA or CSA. At the time the agreements were entered into, title to Lot 39 was held by plaintiff Parshotam Goel, but after the JVA, was transferred to defendants Mohan Singh Sangha and Kamal Kaur Sangha. They transferred it to their daughter Jasmin for $1.00 in 2012. The defendants conceded that this was a breach of the JVA.

A number of disputes arose among the joint venturers, including with respect to the transfer of Lot 39 to Jasmin; however, the main claim was that the defendants had failed to pay their share of required capital contributions. In April 2015, the plaintiffs brought an action against all five defendants. In September 2015, defendants Mohan Singh Sangha and Kamal Kaur Sangha commenced an arbitration. All four defendants to the action sought and were granted a stay of the action in favour of arbitration pursuant to s. 15 of the (former) Arbitration Act, R.S.B.C. 1996, c. 55, on the basis of the arbitration clauses in the JVA and CSA.

By November 25, 2020, the arbitration was largely complete and the arbitrator had issued a Partial Final Award with respect to Lot 39. He held that Lot 39 was wrongfully transferred by Parshotam Goel to Jasmin. The arbitrator granted relief to the plaintiffs for breach of the JVA. Thereafter, the plaintiffs filed a petition in the Supreme Court of British Columbia seeking an order, among other things,  setting aside the award on the basis that they disputed the valuation date used by the arbitrator. At the time of the hearing of these applications before Justice MacDonald in December 2021, that petition had not yet been heard.

Justice MacDonald had before her two applications relating to the transfer of Lot 39 to Jasmin:

(1) an application by defendant Jasmin Sangha for an order striking the Statement of Claim as against her under B.C. Rule 9-5 of the Supreme Court Rules on the basis that it disclosed no reasonable claim or, in the alternative, granting summary judgment dismissing the claim under Rule 9-6; and

(2) an application by the plaintiffs for an order lifting the stay of proceedings in favour of arbitration, only to the extent of permitting them to amend their Statement of Claim to allow them to pursue claims against Jasmin for: (i) an equitable interest in Lot 39, title to which they claimed Jasmin held for the benefit of the joint venture; and (ii) a declaration that the transfer of Lot 39 to her was of no force and effect vis a vis the plaintiffs; or, in the alternative (iii) damages for unjust enrichment.

All parties agreed that the arbitrator had no jurisdiction over Jasmin, as she was not a party to the agreements and any claims against her had to be determined in the courts. However, Jasmin opposed the lifting of the stay to allow the plaintiffs to amend their Statement of Claim to plead claims against her, which she argued were being addressed at the arbitration. Further, she argued that the proposed amended claim appeared to be that the transfer was a fraudulent conveyance, which she said was inconsistent with the plaintiffs’ position at the arbitration. Finally, she argued that the claims against her were new and were limitation barred.

Justice MacDonald dismissed both applications. She found that it was premature to order a lifting of the stay of proceedings, pending completion of the arbitration and the plaintiffs’ petition to set aside the arbitrator’s Partial Final Award. She also declined to strike the pleadings or grant summary judgment dismissing the action.

Justice MacDonald noted that a stay of proceedings is not a dismissal but merely holds the court proceedings in abeyance until the arbitrator has decided the issues between the parties. Therefore, if the arbitrator finds that some matters are not arbitrable or that there are unresolved issues after the arbitration has run its course, any party may apply to a court to lift the stay. She noted that the plaintiffs knew all the facts they now rely relating to the transfer of Lot 39 at the time they started their actions in 2014 (which they later discontinued) and in 2015 and raised this issue both in the action and sought relief in respect of it from the arbitrator.

Editor’s Note:

There were multiple previous court proceedings over a period of five years arising out of this dispute and the arbitration:

1. Goel v Dhaliwal, 2015 BCSC 2305, in which Justice Maisonville granted the application of the defendants (other than Jasmin) for an order staying the action in favour of arbitration. Jasmin did not appear at the hearing of this application. The issues before Justice Maisonville were: whether the dispute was arbitrable; whether the claims could be advanced under the terms of the agreements; and whether one of the arbitration clauses was inoperable. No party appears to have raised the issue of whether the claims against Jasmin must be stayed or articulated exactly what claims have been brought in the arbitration and what claims will be advanced in the  action, if it proceeds. The applications before Justice MacDonald appear to be the first in which Jasmin participated.

2. Sangha v Goel, 2018 BCSC 2267, in which the defendants in the action/claimants in the arbitration sought an order enforcing a costs order of the arbitrator made in a Partial Final Award in relation to the first phase of the two-phase arbitration conducted under the Arbitration Act, R.S.B.C. 1996, c. 55. The plaintiffs advised that they would be appealing the costs award, but had not done so and had not paid. Justice Kinkson dismissed the plaintiffs’ motion to adjourn the application and granted an order enforcing the costs order as a judgment/order of the court. For a case note that describes this decision, see B.C. – arbitrator’s decision on costs qualifies as an award enforceable as judgment/order of the court – #150.

3. Goel v Sangha, 2019 BCSC 1916, in which the plaintiffs in the action/respondents in the arbitration sought an order granting leave to appeal and setting aside the costs order. Justice Warren dismissed the petition on the merits and because it was out of time. For a case note that describes this decision see B.C. – no need to give reasons when not departing from normal rule on costs – #287.

The application before Justice MacDonald was the fourth decision. A fifth can be expected once the plaintiffs’ November 25, 2020 application, to set aside the arbitrator’s Partial Award with respect to Lot 39 is heard.