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The Queen’s Bench of Saskatchewan refused to renew an ex parte order for detention and preservation of property in Farrell Holdings Inc. v. Nussbaumer Holdings Ltd., 2017 SKQB 125 because it could identify no dispute between the party. Whether the parties went to arbitration or the court, any exercise of the court’s authority to issue interim measures had to be in aid of a larger, actual dispute between the parties. The decision alerts arbitration parties that their involvement of the courts must serve in support of arbitration and not in a vacuum.
The court litigation stemmed from an October 28, 2015 Share Purchase Agreement (“SPA”) in which Nussbaumer Holdings Ltd. (“NHL”) sold its shares in Farrell Agencies Ltd. (“Farrell Agencies”), a successful insurance agency, to Farrell Holdings Inc. (“FHI”). NHL was the holding company of one of the principals, David Nussbaumer (“DN”). FHI was the holding company of another principal, Jason Farrell (“JF”).
DN also signed a non-compete, non-solicitation and non-disclosure agreement (“NCA”) in favour of FHI in exchange for a payment by FHI.
Farrell Agencies relied on certain facts about DN’s post-SPA activities which it claimed allowed it to believe DN, NHL and Shelley Nussbaumer (“SN”) were using Farrell Agencies’ confidential information to its commercial detriment, in breach of the NCA.
Based on information it considered sufficient, Farrell Agencies and two relate corporations (“Applicants”) applied to the Saskatchewan Queen’s Bench for an ex parte order, including an Anton Piller order, against NHL, DN and SN (“Respondents”), allowing third parties, either a Sheriff or bailiff, to take possession of all computers, tablets and cell phones, either in the possession of Respondents or at their residences. The order was granted January 20, 2017 and came up for renewal in May 2017 along with an application for preservation and detention or an Anton Piller.
Mr. Justice M.T. Megaw had to decide the following four (4) issues: did Applicants fail to complete the ex parte application in an appropriate manner; if so, what is the effect of such failure; do Applicants’ pleadings support an application for interim relief; and, should interim relief be granted on the evidence in this matter?
On the matter of Anton Piller orders, Megaw J. referred to the most recent statement of the applicable principles provided in Bank of Nova Scotia v Herman, 2016 SKQB 351.
He followed with an extensive citation of the Supreme Court of Canada’s analysis of an Anton Piller execution in Celanese Canada Inc. v. Murray Demolition Corp., [2006] 2 SCR 189, 2006 SCC 36 which Megaw J. described as “a complete roadmap for the obtaining and carrying out of such an intrusive procedure.”
These authorities set out the applicable principles and procedural safeguards against which Megaw J. evaluated Applicants’ initial application and its renewal. He devoted most of his reasons to these key issues. Suffice to say that Applicants’ approach to the initial ex parte application fell short on most of the principles and safeguards but Megaw J. spared Applicants from an order for solicitor-client costs.
The decision is worth noting for commercial arbitration practitioners because is speaks to whether a court has jurisdiction or the interest to issue interim relief in the absence of a genuine dispute between the parties.
The facts disclose a controversy – perceived or real – over how and when Respondents would provide Applicants with the former’s electronic data. That said, Megaw J. was at a loss to find what would be the underlying dispute on which either a court litigation or an arbitration would be based. The SPA contained an arbitration clause and Applicants asserted an intention to pursue arbitration. Megaw J. determined that there was a possibility of arbitration but no actual arbitration. At best, a draft Notice of Arbitration had been prepared but left unsigned. This half-step was insufficient for the court to consider that its authority to issue interim orders was in support of any real dispute or lis.
“[17] As a result of their perception of breaches of the NCA, the applicants may have invoked the arbitration provisions of the SPA. I say “may have” because while the affidavit of Jason Farrell refers to a Notice of Arbitration at Exhibit “C”, the Brief of Law filed by the applicants refers to this as a “draft Notice of Arbitration.” The Notice of Arbitration is not signed. There is nothing to indicate the arbitration procedure has, in fact, been commenced. There is nothing to suggest any steps have been taken to move any arbitration forward.
[18] Pursuant to the SPA, the accountant for all of the parties was to be appointed arbitrator in the event the arbitration provisions were invoked. However, there is now a suggestion, by the applicants, the accountant may be in a conflict of interest position. It does not appear from the evidence there has been any discussion regarding the appointment of the accountant, to any ultimate arbitration hearing. Instead, the applicants, apparently, seek to have a different arbitrator appointed. While the Originating Application seeks the appointment of an arbitrator (presumably the one set forth in Exhibit “C” to the affidavit of Jason Farrell), there were no submissions advanced in this regard. There is nothing before the court to suggest the replacement arbitrator either is appropriate or not acceptable. There is nothing to indicate the respondents accept the accountant cannot be the arbitrator. It appears, from the available information, there has simply been no discussion had in this regard. Again, there was no suggestion the arbitration is proceeding or that any steps have been taken in this regard.“
Applicants claimed that they were pursuing DN in arbitration. Megaw J. concluded that the arbitration had not been invoked.
“[64] The applicants have filed an Originating Application in support of their request for both a detention and preservation order and the Anton Piller order. They seek only orders allowing them to seize the materials. There is no Statement of Claim and there is no claim in the application for any final relief. There is no claim for damages. There is no indication what is to be done with these items following seizure to either gain access or ensure their safety. There is no indication upon what basis access could be granted by the court, if, in fact, that is what is being sought. Despite these obvious shortcomings, the applicants submit this is an appropriate procedure to adopt.“
Megaw J. observed that he did not have to decide if arbitration was the appropriate dispute resolution path in the circumstances. He did caution that, if arbitration did proceed, the arbitrator had the authority to issue detention, preservation of property and documents under section 19 of Saskatchewan’s The Arbitration Act, 1992, SS 1992, c A-24.1.
In addition, Megaw J. expressly noted that the court’s jurisdiction “to interfere or direct how an arbitration should be proceeded with is limited” by The Arbitration Act, referring to sections 7, 8 and 9 and the guidance provided in Pratt v First Nations University of Canada, 2011 SKQB 280.
Megaw J. held that if arbitration was initiated, the court’s authority was limited and the relief sought by Applicants could and should be sought before the arbitration tribunal. If Applicants did not pursue arbitration, then they must commence an action before the court. In the case, Applicants had filed no Statement of Claim and initiated no arbitration. Other than the relief sought in obtaining possession of the computers, tablets and cell phones, there was no explanation available to the court or to an arbitration tribunal as to what end possession should be granted.
“[73] In the end, there is no lis between the parties. There is no arbitration launched. There is no Statement of Claim. There is nothing in the Originating Application indicating any ongoing issues between the parties. The absence of a lis, in whatever form, prevents this Court from exercising its jurisdiction to provide interlocutory relief. Such is, by definition, provisional relief given during the course of an action. Without an action, there is no basis for providing provisional directions.
[74] The request to utilize Rule 1-6 is not available here. What has occurred here is not an irregularity, it is a complete absence. It was not explained what the applicants’ “end game” is here: what is to happen at any ultimate trial of the action. If an arbitration is to be pursued, what, exactly, is being arbitrated? It is not explained what ultimately is to transpire beyond this interlocutory phase.“
Based on the absence of a dispute in support of which interim measures could be considered, Megaw J. refused to issue any interim measures or renew the initial ex parte order.[:]