In Otter Point Properties Nominee Ltd. v GT Mann Contracting Ltd., 2026 BCSC 558, the Court ordered a stay of an action in favour of arbitration where some of the parties were signatories to the arbitration agreement and it was “arguable” that others were also parties. The Court found that Peace River Hydro Partners v. Petrowest Corporation, 2022 SCC 41 broadened the definition of party. Here, it was arguable that a non-signatory could become a party to the arbitration agreement “through its sole shareholder” who was a signatory and so could a non-signatory nominee of a contracting party if agency or a reason to pierce the corporate veil was established. The stay was granted based on the pleadings and the determination of the proper parties referred to the arbitrator under the principle of competence-competence.
Background facts – Robert G. Foster (“Foster”) and Defendant GT Mann Contracting Ltd. (“Mann Contracting”) contracted to construct a rental housing development. The contract contained an arbitration clause. The Plaintiff, 2197 Otter Point Properties Nominee Ltd (“Otter Point”), held title to the land but was not a named party to the construction contract. A dispute over payment arose.
The parties attended a mediation at which Mann Contracting was represented by its principal Graeme Mann (“Mann”). Foster attended as a representative of Otter Point and in his personal capacity. After the mediation adjourned without a settlement, Otter Point started an action in which it sought damages for breach of contract, fraud, breach of fiduciary duty, negligence, and negligent misrepresentation against both Mann Contracting and Mann. Foster was not a party to the action.
In its notice of civil claim, Otter Point described itself as the “Owner” but did not plead what it “owns”. It pleaded that the “Owner” entered into the contract with Mann Contracting. It did not address the fact that it was not named as a party to the contract, while Foster was a named party even though he did not own the lands.
The stay application – Mann Contacting and Mann made a jurisdiction objection in their response to the notice of civil claim. Mann Contracting (but not Mann) also terminated the mediation and commenced arbitration. It then brought an application to stay the action in favour of arbitration pursuant to s. 7 of the B.C. Arbitration Act, SBC 2020, c. 2.
Otter Point opposed the stay application on several grounds, including that s. 7 could not be met because the parties to the action were not the same as the parties to the arbitration clause in the contract – specifically, it was not a party to the construction contract containing an arbitration clause.
Section 7(1) and (2) of the Arbitration Act reads as follows:
“Stay of proceedings
7 (1) If a party to an arbitration agreement commences legal proceedings in a court against another party to the agreement in respect of a matter agreed to be submitted to arbitration, a party to the legal proceedings may apply, before filing a response to civil claim… or taking any other step in the proceedings, to that court to stay the legal proceedings.
(2) In an application under subsection (1), the court must make an order staying the legal proceedings unless it determines that the arbitration agreement is void, inoperative or incapable of being performed…”
(i) Was Otter Point a proper party to the arbitration agreement? Otter Point was the Plaintiff in the action but not named as a party to the construction contract. It argued that there could be no stay of the action because it was not a party to the arbitration agreement.
However, Otter Point pleaded that as owner of the lands, it was a party to the construction contract. Foster did not hold title to the lands that were developed pursuant to the construction contract, but he was the director and officer of the legal owner of the lands, Otter Point, and it was the “Owner” that entered into the contract with Mann Contracting. There was no explanation for why Foster entered into the contract for the development of lands he did not own.
The Court commented on the inconsistencies in the parties’ positions on whether Otter Point was a party:
“[55] There is a distracting question of how it is that 2197 Otter Point Properties can sue on a contract that it asserts it is not a party to. 2197 Otter Point Properties argues that question looks at the problem the wrong way. It argues that the problem is that GT Mann Contracting makes internally inconsistent arguments because it asserts that 2197 Otter Point Properties is not a party to the contract, while arguing that the contract requires them to mediate the dispute.
[56] In my view, given the contract, GT Mann Contracting’s position makes sense and 2197 Otter Point Properties’ position does not. GT Mann Contracting could pursue its position that the wrong plaintiff has commenced the claim by applying for dismissal of the claim on the basis that 2197 Otter Point Properties cannot sue on a contract to which it is not a party. However, if GT Mann Contracting were to do so, 2197 Otter Point Properties would likely respond by applying to add Mr. Foster as a plaintiff, an application it said it is contemplating making. At the same time, 2197 Otter Point Properties would argue that GT Mann Contracting’s application to strike is a step in the proceeding precluding seeking a stay.”
The Court found support for a broad meaning of the word “party”:
“[54] In Peace River Hydro Partners, the Court rejected a narrow interpretation to the meaning of “party” in the British Columbia Arbitration Act then in place, which was not materially different from the version applicable to this application on this issue. The Court held that “an entity connected with a signatory to a contract containing an arbitration agreement may become bound as a ‘party’ by operation of law. Such associated entities may include ‘subsidiaries, assignees, trustees and others claiming through or under the named party to the arbitration agreement” (McEwan and Herbst, at § 2:37; emphasis added in Peace River Hydro Partners).”
The Court stated that the general rule for s. 7 stay applications is that if the applicant makes out an arguable case on the technical prerequisites, the Court must stay the proceeding in favour of arbitration, citing Clayworth v. Octaform Systems Inc., 2020 BCCA 117 at para. 21; Dell Computer Corp. v. Union des Consommateurs, 2007 SCC 34 at para. 84; Peace River Hydro Partners v. Petrowest Corporation, 2022 SCC 41 at para. 84.
Therefore, the Court’s role was to determine only whether it was arguable that Otter Point was a party to the construction contract containing the arbitration clause. It found that because Otter Point’s pleading and its evidence was that it was the owner of the lands and the contract was said to be with the owner of the lands, it was arguable that Otter Point was a party to the construction contract. Pursuant to the competence-competence principle, this issue would be decided by the arbitrator because it did not raise a pure question of law. The Court stated that:
“The only conclusion that can be reached given that [Otter Point] pleads that it is a party to the contract is that it is claiming through its sole shareholder who is a party to the contract and because of its status as the title holder to the lands that were the subject of the contract.”
Therefore, the first requisite under s. 7(1) of the Act was satisfied – it was arguable that Otter Point was a party to the contract based on its pleading and the wide meaning of “party”.
Ultimately, the Court found that the other requisites of s. 7 were met and that the arbitration agreement was not void, inoperable, or incapable of being performed. It granted Mann Contracting’s application for a stay of the action.
(ii) Should the stay apply to Mann? Mann, a Defendant in the action, was not a named party to the construction contract. Otter Point argued that because he was not a party to the contract and the claims against him were independent of those made against Mann Contracting any stay should not apply to claims against him.
On the issue of whether a complete or partial stay should be granted, the Court stated:
“[81] Whether a partial or complete stay of proceedings is ordered is for the court to decide, not for the arbitrator: Davidson v. Lyra Growth Partners Inc., 2024 BCCA 133 at para. 108.
[82] The factors to be considered include whether the arbitrable and non-arbitrable issues are so intertwined that they must be heard together. If they are, a complete stay of the action will be appropriate: Davidson at para. 108, citing the examples of James v. Thow, 2005 BCSC 809 at para. 105; and The Owners, Strata Plan BCS 3165 v. 1100 Georgia Partnership, 2013 BCSC 1708 at para. 29. If the core of the claim concerns non-arbitrable matters, a partial stay may be more appropriate.”
Although Otter Point’s position was that the claims against Mann were independent of those against Mann Contracting, it sought damages against both Defendants on a joint and several basis on all claims. The Court found that this meant that the claims against both Defendants were inextricably interwoven:
“…[A]s long as it is arguable that the personal defendant might be, at law, a party to the arbitration agreement if they were nominees of a contracting party, or if agency or a reason to pierce the corporate veil was established, the matter should be referred to arbitration for the arbitrator to determine whether the claims against that defendant were the subject of the arbitration agreement: Beck v. Vanbex Group Inc., 2021 BCSC 1619 at paras. 12, 14, and 16. A factor in the reasoning in Beck was that the plaintiffs alleged that the business of the defendants was inextricably interwoven and each was the agent of the other. That factor is applicable in this case”
The Court concluded that the claims against Mann were inextricably interwoven with those against Mann Contracting and that the “core” of the claim fell within the arbitration agreement.
Otter Point pleaded that Mann was the “directing mind” of Mann Contracting, acting within the scope of his employment and that he was “directly involved in the construction of the project as [Manning Construction’s] principal, agent, and employee”. The Court stated that as long as it was arguable that Mann was, at law, a party to the arbitration agreement as a nominee of a contracting party, or if agency or a reason to pierce the corporate veil was established, the matter should be referred to arbitration because it was arguable that it covered claims against Mann.
Therefore, a complete stay was appropriate.
Commentary:
First, the Court focused on the contract claims and did not specifically address the various issues relating to the tort claims advanced: Was Otter Point a proper party make those claims? What effect should those claims have on the decision to grant the stay?
Second, it is important to separate the question of who are the proper parties from whether arbitrable and non-arbitral claims should be sent to arbitration because they are “inextricably interwoven”.
It must be remembered that an arbitration agreement is a contract, which means that contract principles will determine whether, for example, a non-signatory to a contract containing an arbitration clause will be bound to arbitrate. Here the Court suggested that, because of Peace River, “others claiming through or under the named party to the arbitration” could be bound as parties to the arbitration agreement. In Peace River, the Court found that when a trustee in bankruptcy adopts a contract containing an arbitration clause and a dispute later arises, the arbitration agreement is enforceable by or against the trustee (see paras. 100 to 110). It would have been helpful if the Court in this case had set out its analysis that led it to apply a case in an entirely different context with unique policy objectives – bankruptcy proceedings. For example, the Court did not make clear what contract principle would apply to allow Otter Point to become a party to the arbitration agreement “through its sole shareholder” Foster.
In my view the best analysis of when a non-signatory may be bound by an arbitration agreement is in an article written by Gerry Ghikas: Box 3 – CJCA Volume 1 Issue 2 – GHIKAS.pdf. The paper reviews the case law (as of 2021) and lists the legal theories upon which non-signatories to a contract may be bound to arbitrate. It also notes the differences in approaches in B.C. and Québec as compared to other provinces.
Third, the quote earlier in this blog shows that the Court noted the inconsistency of Otter Point’s position that Mann Contracting could not require it to arbitrate because it was not a party to the contract, while suing on the contract to which it stated it was not a party, and referred to the practical problems that created. Those problems were procedural hurdles that would have to be overcome if the action was not stayed in favour of arbitration. This suggests that these procedural hurdles or efficiency concerns played a part in the decision to order a stay, event though that is not part of the section 7 test.