Saskatchewan – Waiver of arbitration in joint venture agreement read strictly – #576

In Beauchamp v Beauchamp, 2021 SKCA 148, the Saskatchewan Court of Appeal dismissed an appeal from a case management judge’s decision, which provided for how farming operations would be conducted for the following year, on an interim basis, until a dispute involving a Joint Venture Agreement (“JVA”) governing those operations was finally resolved. The appellant alleged that the judge misinterpreted his waiver of the right to arbitrate contained in the JVA. This waiver was provided on three occasions, in his agreement to put matters to the case management judge for the sake of expediency and urgency and in two written briefs, each using slightly different language. In these, the appellant agreed: 1) the case management judge could “make an order providing for how this grain farm is [to be] operated for the 2021 to 2022 crop year”; 2) he “will waive his reliance on the arbitration clause if” the judge was distributing the farming equipment or dividing the farming operation on an interim basis, but would not waive these rights if the judge were to order the entirety of the farming operation be divided exclusively among the only the other parties in the dispute; and 3) he “will waive his reliance on the arbitration clause if the Court’s authority to distribute the equipment of New Age Farms on an interim basis is an issue to the extent necessary to effect the dividing of the farm operation.” The Court of Appeal found that because the case management judge did not order the farming operation be exclusively undertaken by the other parties, and directed on an interim basis only how farming operations were to proceed, the judge did not violate the terms of the waiver. Indeed the case management judge had expressly held that the jurisdiction issue raised by the appellant needed to be resolved before the underlying litigation could proceed.

This matter involved several disputes arising from the separation of spouses Julien and Norma Beauchamp and the division of their assets. They owned farmland in Saskatchewan. While the land was owned personally, their farming operation was conducted through their wholly-owned company, New Age Farms Ltd. (“NAF”). Julien and Norma had two sons, whose farming operations with their parents were run through their own wholly-controlled corporations. A few years earlier, NAF and the sons’ corporations had formed a joint venture, New Age Joint Ventures. The JVA, executed by the companies, contained terms addressing ownership of assets, payment of farming expenses and distribution of profits. The JVA also called for “overall management and control of the Business and affairs of the Joint Venture to vest in the venturers equally and collectively” and that any disputes under the JVA were to be determined by way of arbitration. The exact terms for the JVA, including the arbitration provision, are not recited in the decision.

On February 12, 2021, the sons (in their individual capacities and on behalf of their corporations) initiated an action against their parents and NAF (what the parties called the “Boys’ Action”) seeking “[m]onetary compensation for their labour and services for farming their Parents’ Farmland on a quantum meruit basis.” On March 11, 2021, Julien applied under section 8(1) of The Arbitration Act, 1992, SS 1992, c A-24.1 (the “Arbitration Act”)for an order staying the Boys’ Action on grounds that they had to submit their claim to arbitration under the JVA (the “Stay Application”). Section 8(1) of the Arbitration Act is entitled “Stay” and states: “Subject to subsection (2), if a party to an arbitration agreement commences a proceeding with respect to a matter to be submitted to arbitration under the agreement, the court in which the proceeding is commenced shall, on the motion of another party to the arbitration agreement, stay the proceeding.

By this time the extensive litigation between the parties had become complex. On March 24, 2021, counsel for all parties wrote a joint letter to the Chief Justice of the Court of Queen’s Bench requesting a judge to be appointed for a post-pleading conference to try and ensure the upcoming spring seeding and farm operations were not affected by the disputes. This letter was seeking relief in relation to all of the actions and applications between the parties to date, including the Boys’ Action and the Stay Application. On April 1, 2021, the Chief Justice appointed a case management judge, to decide on the procedures to be followed for the upcoming farming year. That case management judge held a post-pleadings conference on April 9, 2021. It was specifically agreed by the parties that notwithstanding the Stay Application, this “conference and the decision (of the judge on farming procedures, operations and profits therefrom for the upcoming year) could proceed.”

In making an interim decision on farming procedures and operations for the upcoming year, the case management judge was faced with competing proposals from Norma, Julien (who was proposing a division of the operation) and the sons. He noted that “all parties agreed that I should come to a decision regarding [the outstanding] applications (with particular reference to the issues surrounding farming for 2021) without requiring the formalities of setting a chambers date and hearing further argument.” The judge issued a decision on April 19, 2021, largely accepting the sons’ proposal for farming for the 2021 year, with some modifications. The result was that each party had a clearly defined role and the farming operation was neither divided nor given exclusively to Norma or the sons. With respect to the Stay Application, the judge directed that it be adjourned and brought back on 21 days’ notice, but that such notice was not to be given prior to October 31, 2021, unless special leave was granted. The sons were also directed to not take any further step in the Boys’ Action unless they obtained special leave to do so.

Julien appealed this decision on several grounds, only two of which are relevant here. With respect to the Stay Application, he raised two issues before the Court of Appeal: first, whether the case management judge erred in deciding issues that were properly subject to arbitration under the JVA; and second, whether the judge erred by ordering that the Stay Application be adjourned. Julien’s argument on the first ground was that the judge misunderstood his waiver of his right to arbitration at the conference. Julien argued he had only “waived his right to rely on the arbitration clause and to raise his objection to the court’s jurisdiction to the extent necessary for a division of the farming operation.” Put another way, Julien’s waiver was effective only if the judge agreed to divide the operation of the farming assets as Julian was proposing in his written briefs. If the judge did not agree with Julien’s proposal (which he did not as he largely adopted the sons’ proposal) then Julien was not waiving his right to arbitrate. Julien’s argument on the second ground was that the judge acted on his own motion (ex mero motu), as no application was before him to adjourn the Stay Application, the parties made no submissions on the point, and that by directing an adjournment the judge effectively decided the application by dismissing it.

The Court of Appeal, in reasons written by Justice Leurer, rendered its decision based on the parties’ agreement as to the scope of issues before the case management judge and the later restatements to that judge by Julien of his waiver. The Court first examined the March 24, 2021, all-party letter to the Chief Justice to discern the terms of the parties’ agreement to appoint a case management judge. The parties were “unanimously in support of appointment of a judge for a post‑pleadings conference” that was aimed at urgently addressing (a) the distribution and use of the farmland, (b) the farming activities to be undertaken by each of the parties, and (c) the distribution of revenues from the farming activities. The Court found there was nothing in this letter to suggest that Julien agreed to enter into the case management process if his only goal was that it must result in a particular outcome. Put another way – there was nothing in Julien’s agreement to seek a case management judge to indicate he was only doing so if the judge was going to divide the farming operation as Julien was proposing.

Next, the Court examined the qualification that Julien claimed was placed on his agreement to case management. Julien argued that this qualification was found in two statements in briefs of law, one filed before and the other after the conference. These stated, respectively: “[i]f the Court’s authority to distribute the equipment of New Age Farms on an interim basis is an issue, Julien will waive his reliance on the arbitration clause or to the extent necessary to effect the dividing of the farm operation, but not for an order that Norma or the Boys have the farming operation exclusively”; and Julien “will waive his reliance on the arbitration clause if the Court’s authority to distribute the equipment of New Age Farms on an interim basis is an issue to the extent necessary to effect the dividing of the farm operation. He will not waive this right for an order that Norma or the Boys have the farming operation exclusively.

The Court of Appeal concluded from the language in the all-party letter and in both of Julien’s submissions that the only restriction Julien imposed on agreeing to the appointment of the case management judge to address upcoming farming operations was that he would not waive his right to arbitration if the result was an order that Norma and the sons would “have the farming operation exclusively” for the upcoming year. The judge had jurisdiction because of the agreement in the all-party letter. Further, the judge was not deciding issues subject to the arbitration requirement. Specifically, his order addressed only interim operations on Norma and Julien’s property and necessarily involved assets then operated through the JVA. The order issued by the case management judge also respected Julien’s waiver as the judge did not assign the farming operation exclusively to other family members. Julien’s appeal that the judge overstepped his waiver of arbitration rights failed.

With respect to whether the judge erred by adjourning the Stay Application, the Court of Appeal rejected both of Julien’s arguments. The suggestion that the absence of a formal adjournment application had any significance was rejected out of hand. No authority was tendered by Julien on this point, and the Court of Appeal found it was contrary to accepted practice in the province (where adjournments are routinely granted based on an oral request by a respondent on the return of a notice of application). There was also no basis to suggest the judge acted in breach of rights to a fair procedure in ordering the adjournment. The sons specifically requested an adjournment of the Stay Application on the ground that it would be a distraction and a drain on resources when there was a crop to put in the ground. The judge also noted that the Boys’ Action could not be advanced without first having the arbitration/jurisdiction matter adjudicated in the Stay Application, thus preserving rights to have this matter decided on its merits. Lastly, the adjournment order, as a matter of procedure, was to be afforded deference, in particular where litigation was case managed. Citing Jorgenson v ASL Paving Ltd., 2007 SCKA 143 at paras 26-27 the Court of Appeal rejected any suggestion that it should interfere with the specific terms of adjournment.

Contributor’s Notes:

While ultimately unique to the facts in this situation, the Court of Appeal’s decision demonstrates the need to carefully review the specific language of alleged waivers to arbitration and the complexities that can ensue where waivers are nuanced. There also can be legal restrictions around the permissibility of such waivers, as discussed in previous case notes: B.C. – parties cannot waive application of International Commercial Arbitration Act because its application is mandatory – #059 and Ontario – pleading to action insufficient to qualify as waiver to request stay – #209.

A further issue that was raised by the parties, and not decided by the Court of Appeal but mentioned in what is arguably obiter, is a jurisdictional matter regarding the underlying merits of the Stay Application. The Court noted that the arbitration agreement in the JVA was between the corporations – New Age and the sons’ corporations – as parties to the JVA and did not involve either Julien or Norma as individuals. The Boys’ Action, however, did involve the two parents and the sons themselves. The sons thus argued at the appeal that the arbitration agreement could not be any impediment to the court’s ability to determine issues relating to the possession and ultimate distribution of family property, because the Boys’ Action and the matters at issue involved the individual parties as well as the corporate parties to the dispute. Without discussing the matter further or potential issues of arbitral jurisdiction, the Court of Appeal found it simply did not need to decide if the arbitration agreement in the JVA applied because Julien had waived application of that arbitration agreement for the matters decided by the case management judge.