Ontario – summary judgment granted despite intersection with contract subject to arbitration – #286

In P and A Holdings Inc. v. Kim, 2020 ONSC 546, Mr. Justice Paul R. Sweeny dismissed Defendant’s attempt to pause the litigation pending arbitration and, instead, granted summary judgment in Plaintiff’s favour.  Sweeny J. acknowledged that the promissory note, on which the court litigation was based, had been mentioned in a unanimous shareholders agreement which was subject to arbitration.  Despite that mention, (i) failure to pay on the note was not addressed as an obligation between the shareholders and (ii) the shareholders agreement provided no mechanism for recovery on the note.

Through Cambridge Medical Imaging Inc. (“CMI”), a corporation Defendant owned with other shareholders, Defendant sought to purchase active and dormant business licenses to run a medical clinic offering diagnostics imaging.  To finance that purchase, Defendant borrowed money from Plaintiff on terms confirmed in a November 30, 2016 promissory note (“Note”).  Sweeny J. sets out the Note’s terms at para. 2.  Half the amount loaned was due and owing on November 20, 2017 and the balance, with accrued interest, was due and owing on November 30, 2018.

Defendant failed to repay the loan and Plaintiff filed an August 14, 2018 Statement of Claim.  After Defendant served his October 4, 2018 Defence, Plaintiff applied for summary judgment.   Defendant filed responding motion materials.  The parties conducted cross-examinations on affidavit and undertakings had been given and ordered.  Their materials formed part of the record before Sweeny J. for the purpose of the motion for summary judgment.

Plaintiff argued that there were no material facts in dispute and that Sweeny J. could issue judgment without the need for a trial.  As part of his grounds to resist summary judgment, Defendant argued that:

(i) the Note was executed in the context of the transaction involving a purchase of shares and the unanimous shareholders’ agreement (“USA”) made between CMI’s shareholders gives rise to rights and obligations that need to be considered in this action; and,

(ii) Plaintiff had requested arbitration and thus there was a risk of inconsistent findings.  Defendant argued therefore that the motion for summary be judgment be heard only after the arbitration.

Sweeny J. dispensed summarily with these two (2) arguments.

First, despite mention of the Note in the USA, Defendant’s obligations under the Note were not subject to conditions in the USA.  Though an overlap appeared to exist in facts recorded in the USA, including the existence of the Note, the legal situations raised by disputes under the Note and the USA appeared unrelated.

[16] The Notes are referred to in the USA. However, the Notes are referenced in the context of what would happen if the defendant failed to pay on the Notes. The defendant’s obligation to pay on the Notes is not in any way contingent on any obligation in the USA. There are no material facts in dispute on this issue.

Second, the fact that arbitration was available and initiated under the USA did not serve to entangle obligations related to payment of the Note.  The USA mentions default of the Note but no resulting process to enforce payment.  As well, Defendant had not applied to stay the proceeding.

[17] The plaintiffs in both actions have requested Arbitration arising out of the USA. As I have already observed, the obligation to pay the Notes is not addressed in the USA. The USA simply addresses default in payment. It does not provide a mechanism for collecting on the promissory Notes. There is no reason to delay this motion or this proceeding because Arbitration with respect to the USA has been requested. In any event, the defendant has not asked for a stay of this proceeding pending the arbitration. There are no material facts in dispute with respect to this issue.

urbitral note – First, the reasons illustrate that, despite the favourable support Canadian courts consistently make available to arbitration, the courts still require that the parties have a dispute which involves or overlaps with claims in court before courts consider staying their own process.  A shared set of terms and facts in different legal instruments is insufficient, in and of itself, to justify a meaningful overlap in the lis or dispute.

As well, parties must at least apply for a stay and not do so informally as merely a ground listed among others.

Second, the obligations must be similar before the court will engage in a more exacting analysis of the competing venues.  Sweeny J. readily acknowledged a mention of the Note in the USA but was equally prompt to identify the different obligational content created by those instruments and, more important, the lack of a recourse under the USA for default under the Note.

Third, Sweeny J. illustrated the courts’ own ability to move to a prompt and efficient resolution of the disputes before it.  Though arbitration may offer its own benefits, including a faster and less formal process, courts can offer similarly fast and informal resolutions and do so overtly.

[Defendant] has not paid the principal or interest due and owing for some time. There are no material facts in dispute. Summary judgment affords the best, most expeditious and least expensive determination of the issues in this case. It is in the interests of justice that summary judgment be granted.