DATE: 20041105

DOCKET: C41117

COURT OF APPEAL FOR ONTARIO

GOUDGE, SHARPE and CRONK JJ.A.

B E T W E E N:

PETER WOOLCOCK

Karen E. Jolley,

for the appellants

Plaintiff (Respondent)

• and -

K. CRAIG BUSHERT, COSMIC FRONTIER GROUP INC.

Donald J. Brown, Q.C.,

for the respondent

Defendants (Appellants)

Heard: June 11, 2004

On appeal from the order of Justice T.M. Dunn of the Superior Court of Justice dated November 25, 2003, reported at [2003] O.J. No. 4935.

CRONK J.A.:

[1] This appeal concerns whether an action commenced by the respondent Peter Woolcock against the appellants K. Craig Bushert and Cosmic Frontier Group Inc. should be stayed in favour of arbitration of the disputes among the parties.

I. Background

[2] On July 13, 2001, Woolcock and Bushert entered into a memorandum of agreement (the "Agreement") to provide for the organization of Cosmic, a computer software development company, and the sale of Woolcock and Bushert's shares in Cosmic under certain circumstances. Cosmic is a party to the Agreement.

[3] Under the Agreement, Woolcock and Bushert became the sole directors and equal shareholders of Cosmic. In addition, Woolcock became the chief executive officer and Bushert became the president of Cosmic.

[4] The Agreement provides for the governance of Cosmic's affairs and the distribution of profits between Woolcock and Bushert. The parties agreed that unanimity between the shareholders and directors of Cosmic would be required for any matter to be determined by vote of the shareholders or directors. The Agreement also contains share transfer, 'right of first refusal' and 'buy-sell' provisions, whereunder one Cosmic shareholder can transfer his shares in Cosmic to a third party or acquire the other shareholder's shares under certain conditions.

[5] The Agreement contains a compulsory arbitration clause. Section 9.1 of the Agreement states:

Any dispute or controversy between the parties hereto relating to the interpretation or implementation of any provision(s) of this Agreement shall be resolved by arbitration. …The arbitration shall proceed in accordance with the provisions of the Arbitration Act (Ontario). It is further agreed that such arbitration shall be a condition precedent to the commencement of any action at any court. The decision arrived at by the arbitrator shall be final and binding and no appeal shall lie therefrom. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction.

[6] By December 2002, the relationship between Bushert and Woolcock had deteriorated significantly. Bushert caused Cosmic to stop paying Woolcock his customary remuneration, locked Woolcock out of the corporate premises and denied Woolcock access to Cosmic's accounting records. In February 2003, Bushert purported to exercise his rights under the buy-sell provision of the Agreement by delivering a buy-sell notice to Woolcock. On March 21, 2003, a closing was conducted at the offices of Cosmic's solicitors, whereby Bushert purported to implement the buy-sell provision of the Agreement by purchasing Woolcock's shares in Cosmic.

[7] On April 7, 2003, Woolcock issued a notice of action against Bushert and Cosmic. In his notice of action and subsequent statement of claim, Woolcock sought various declaratory relief and damages, including:

(i) declarations that Cosmic's business and affairs had been conducted in an oppressive and unfairly prejudicial manner that disregarded his interests and that Bushert had wrongfully conducted himself in a similar fashion;

(ii) an order declaring Bushert's buy-sell notice to be null and void and setting aside Bushert's purported acquisition of Woolcock's shares in Cosmic;

(iii) orders re-appointing Woolcock as a director and the chief executive officer of Cosmic and granting him access to Cosmic's corporate and financial records;

(iv) reinstatement of Woolcock's monthly remuneration from Cosmic;

(v) damages as against Bushert in the amount of $500,000 for breach of the Agreement;

(vi) damages in the amount of $120,000 as against Cosmic for wrongful dismissal or, in the alternative, as against Bushert for inducing Cosmic's breach of its employment contract with Woolcock;

(vii) punitive damages in the amount of $100,000 as against Bushert;

(viii) damages in the amount of $50,000 as against Bushert for spoliation of documents and evidence relevant to the matters in dispute;

(ix) injunctive relief to prevent Bushert from seizing control of Cosmic while Woolcock remained a shareholder of the company; and

(x) an order winding-up Cosmic or granting other oppression remedy-related relief.

[8] Woolcock then moved for interim orders granting him access to specific corporate records of Cosmic, requiring payment to him of certain remuneration withheld by Cosmic, reinstating his rights and privileges as an officer of Cosmic and restraining the transfer or disposition of any Cosmic shares. Woolcock was granted partial interim relief on this motion, from which Bushert and Cosmic do not appeal.

[9] As well, Bushert and Cosmic brought a cross-motion for an order staying Woolcock's action pending arbitration of the matters in dispute among the parties. By order dated November 25, 2003, Dunn J. of the Superior Court of Justice dismissed this cross-motion, holding that only some of Woolcock's claims were arbitrable under the Agreement and that a partial or full stay of Woolcock's action was inappropriate.

[10] Bushert and Cosmic appeal from the denial of their request for a stay. They do not challenge the motions judge's discretionary decision to refuse a partial stay. Instead, they argue that all of Woolcock's claims come within the scope of the arbitration clause under the Agreement and, consequently, that resort to arbitration is mandatory in this case. They also argue that, given the provisions of the Agreement, an arbitrator rather than the courts should determine the arbitrability of Woolcock's claims.

II. Issues

[11] Two issues arise on this appeal: (i) whether the motions judge had jurisdiction to determine the scope of the arbitration clause under the Agreement; and (ii) if the motions judge had such jurisdiction, whether he erred in denying a stay of Woolcock's action.

III. Analysis

(i) Jurisdiction to Determine Arbitrability

[12] Section 9.1 of the Agreement states that an arbitration thereunder shall proceed in accordance with the provisions of the Arbitration Act, 1991, S.O. 1991, c. 17 (the "Act"). Section 17(1) of the Act reads, in part: "An arbitral tribunal may rule on its own jurisdiction to conduct the arbitration… ." Thus, under s. 17(1) of the Act, an arbitrator properly appointed under s. 9.1 of the Agreement would have jurisdiction to determine whether Woolcock's claims come within the scope of the arbitration clause.

[13] However, as observed by a majority of the Supreme Court of Canada in Unifund Assurance Co. v. Insurance Corp. of British Columbia, 2003 SCC 40, [2003] 2 S.C.R. 63 at para. 38, there is nothing in the Act to suggest that the jurisdiction conferred upon arbitrators under s. 17(1) was intended in all circumstances to be exclusive. Moreover, in this case, the Agreement does not provide that an appointed arbitrator has exclusive jurisdiction to determine the reach of s. 9.1.

[14] This court has recognized that where a stay application can be brought and a dispute arises between the parties to an arbitration agreement concerning the scope of the agreement, the courts may determine the arbitrability of the disputed claims. In the recent decision of Mantini v. Smith Lyons LLP (2003), 2003 20875 (ON CA), 64 O.R. (3d) 505, the court stated (at para. 17):

In order to determine whether a claim should be stayed under s. 7(1) of the Arbitration Act, the court first interprets the arbitration provision, then analyzes the claims to determine whether they must be decided by an arbitrator under the terms of the agreement, as interpreted by the court. If so, then under s. 7(1), the court is required to stay the action and refer the claims to arbitration subject to the limited exceptions in s. 7(2) [citations omitted; emphasis added].

See also Ontario Hydro v. Denison Mines Ltd., [1992] O.J. No. 2948 (Gen. Div.), Venneri v. Bascom (1996), 1996 7972 (ON SC), 28 O.R. (3d) 281 (Gen. Div.) and Onex Corp. v. Ball Corp., 1994 7537 (ON SC), [1994] O.J. No. 98 (Gen. Div.), where the courts determined whether a stay in favour of arbitration should be granted by analyzing the nature of the claims advanced in the context of the facts relevant to the dispute and interpreting the scope of the arbitration agreement.

[15] The motions judge in this case denied a full stay of Woolcock's action on the basis that certain of Woolcock's claims against the appellants fell outside the ambit of the arbitration clause under the Agreement. In Brown v. Murphy (2002), 2002 41652 (ON CA), 59 O.R. (3d) 404, this court held that where a motions judge decides that a matter is not subject to arbitration, an appeal from that decision is not precluded by the Act.

[16] For these reasons, I am unable to accept the appellants' assertion that the motion's judge lacked jurisdiction to determine the scope of s. 9.1 of the Agreement. Accordingly, I would reject this ground of appeal.

(ii) Denial of a Stay

[17] In denying the appellants' request for a stay of Woolcock's action, the motions judge stated (at paras. 11-13):

The claims of Woolcock are not solely limited to matters within the purview contemplated by the shareholder's agreement. The exclusion of Woolcock points to a situation where oppression exists. He is barred from the premises and access to the records of the day-to-day operations and the development of the software that Woolcock was working on. This underlines the plaintiff's dilemma.

The plaintiff has now issued and served a statement of claim reflective of an oppression action. That action also seeks a declaration or order setting aside the buy/sell procedure initiated by the defendant and the subsequent purchase by the defendant of the plaintiff's interest in the company. Certainly these latter matters might very well fall into the purview of arbitration matters contemplated by the shareholder's agreement.

The plaintiff also, however, claims wrongful dismissal or damages for inducing breach of contract. These and other matters referred to in the statement of claim would not fall within the ambit of the shareholder's agreement requirement for arbitration. I would conclude that there are some matters to which the arbitration requirement applies but some others, of course, to which it does not [emphasis added].

[18] Thus, in the motions judge's view, Woolcock's claims for damages for wrongful dismissal and for the inducement of Cosmic's breach of its employment contract with Woolcock fall outside the scope of s. 9.1 of the Agreement. In addition, as I read the motions judge's reasons, he also concluded that Woolcock's oppression remedy-related claims are not arbitrable under the Agreement.

[19] Woolcock defends these holdings. He argues that his oppression remedy-related claims, his claim for punitive damages and his claims concerning wrongful dismissal and induced breach of contract are not subject to mandatory arbitration under s. 9.1 of the Agreement.

[20] I do not agree. In my view, for several reasons, all of Woolcock's pleaded claims come within the reach of the arbitration clause contained in the Agreement.

[21] First, the language utilized by the parties in s. 9.1 suggests that the scope of the clause is to be widely construed. Under s. 9.1, the parties agreed that "any dispute or controversy between the parties…relating to the interpretation or implementation of any provision(s) of this Agreement shall be resolved by arbitration [emphasis added]".

[22] In Mantini, supra, at para. 19 this court held that the phrase "any dispute in connection with this agreement [emphasis added]", as it appeared in an arbitration clause, should receive a broad interpretation. The court concluded that this phrase had a wider scope than the words 'arising out of', as the disputes subject to arbitration need only be connected to the agreement between the parties and need not 'arise from' or 'arise out of' a specific provision of the agreement.

[23] In this case, although the language of s. 9.1 is tied to the provisions of the Agreement, it nevertheless encompasses any and all manner of disputes "relating to" either the interpretation or implementation of any provision of the Agreement. The words "relating to" enjoy a wide compass. So long as the matter in dispute is referable to the interpretation or implementation of some provision of the Agreement, it is arbitrable under s. 9.1.

[24] Second, s. 9.1 must be interpreted in the context of the Agreement as a whole. The Agreement is concerned with the organization of Cosmic and Woolcock and Bushert's roles in Cosmic, as well as their dealings and interests in connection with Cosmic. The provisions of the Agreement address the corporate governance of Cosmic and the respective employment positions, profits entitlements and shareholdings of Woolcock and Bushert in Cosmic. In that context, the parties agreed that disputes among them were to be resolved by arbitration. No disputes concerning the interpretation or implementation of the Agreement are exempted from this dispute-resolution model.

[25] Accordingly, as in Mantini, the thrust of the parties' consensual bargain under s. 9.1 was to agree to a general or universal resort to arbitration in matters concerning the interpretation or implementation of the Agreement. This is confirmed by the introductory language of s. 9.1, to which I have referred, and by the parties' express agreement under s. 9.1 that "[A]rbitration shall be a condition precedent to the commencement of any action at any court." This direction is consistent with the legislative policy enunciated in the Act, which favours arbitration over litigation where the parties so provide by agreement: see Denison Mines, supra.

[26] Third, in my opinion, and contrary to the findings of the motions judge, all of Woolcock's pleaded claims relate generally to the interpretation or implementation of one or more provisions of the Agreement. Woolcock argues that his claims for punitive damages, wrongful dismissal and the induced breach of his employment contract by Cosmic are not encompassed by the arbitration clause in the Agreement. I disagree.

[27] Section 2.5 of the Agreement provides for the employment by Cosmic of Woolcock and Bushert. Section 4.1 concerns, in part, the salaried remuneration and profits entitlements of Woolcock and Bushert. The Agreement is a triparte agreement to which Cosmic, Woolcock's employer, is a party. Woolcock's position and compensation as chief executive officer of Cosmic flow from the Agreement. In these circumstances, his wrongful dismissal and breach of employment contract claims 'relate to' the interpretation and implementation of these provisions of the Agreement.

[28] Woolcock's claim for punitive damages is also related to the implementation of the terms of the Agreement. This claim rests on Woolcock's challenge of Bushert's actions concerning Woolcock's employment with and equity position in Cosmic and his participation in the affairs of Cosmic. These are matters specifically dealt with under the Agreement.

[29] As well, Woolcock's oppression remedy-related claims flow from his assertions that Bushert improperly exercised his rights under the buy-sell provision of the Agreement and excluded Woolcock from access to and participation in Cosmic. His complaint, essentially, concerns the events leading up to and the consequences of Bushert's purported acquisition of Woolcock's shares in Cosmic. These relate to one of the foundational matters addressed in the Agreement: the involuntary disposition by one Cosmic shareholder of his shares in Cosmic to the other shareholder.

[30] Woolcock relies on Deluce Holdings Inc. v. Air Canada (1992), 1992 7654 (ON SC), 12 O.R. (3d) 131 (Gen. Div.) to argue that oppressive conduct triggers an overriding discretion in the court to stay arbitration proceedings where such a stay will not cause prejudice to the majority or other shareholders. In my view, Deluce does not assist Woolcock.

[31] In Deluce, a stay of arbitration in favour of court proceedings was ordered as a consequence of demonstrated oppression by a majority shareholder that struck at the heart of the arbitration agreement itself. That is not this case. Here, a stay of court proceedings is sought, in accordance with the legislative preference for the arbitration of disputes expressed in the Act. The stay is opposed, not by a majority shareholder who is alleged to have visited oppression upon a minority shareholder, but by an equal shareholder who claims to have been injured by oppression. The evidence in Deluce was held to "strongly support" the conclusion that the impugned conduct by the majority shareholder could be found to be unfairly prejudicial to and to have unfairly disregarded the interests of the minority shareholder. In contrast, the evidentiary record before this court is insufficient to compel such a conclusion. Although the motions judge held that the exclusion of Woolcock from Cosmic's business "points to a situation where oppression exists" (at para. 11), he also stated (at para. 10): "It may very well be that Bushert acted in his role with Cosmic…in the best interest of the corporation. This, however, remains to be seen."

[32] In addition, in Deluce, the invocation of the arbitration agreement was itself viewed as oppressive conduct. No such assertion is made in this case. Instead, the suggested oppressive conduct by the appellants occurred, not through resort to the Agreement, but through conduct said to be in breach of the Agreement.

[33] Accordingly, the type of circumstances that justified the denial of arbitration in Deluce do not apply in this case. Absent the type of circumstances applicable in Deluce, the fact that part of the dispute among the parties involves oppressive conduct does not preclude resort to arbitration where the dispute is captured by an arbitration agreement made by the parties: see Kassem v. Secure Distribution Services Inc., [2004] O.J. No. 508 (Ont. S.C.) and Armstrong v. Northern Eyes Inc. (2000), 2000 29047 (ON SCDC), 48 O.R. (3d) 442 (Div. Ct.), affirmed [2001] O.J. No. 1085 (C.A.).

[34] The appellants argue that resort to arbitration is mandatory in the circumstances of this case and that Woolcock's action should be stayed in its entirety pending arbitration. I agree. Section 7(1) of the Act states:

If a party to an arbitration agreement commences a proceeding in respect of 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.

[35] The court is entitled to refuse the stay mandated by s. 7(1) of the Act only in limited circumstances as enumerated in s. 7(2) of the Act. These are not engaged here.

IV. Disposition

[36] Accordingly, for the reasons given, I would allow the appeal, direct a stay of Woolcock's action and refer the matters in dispute among the parties to arbitration under s. 9.1 of the Agreement. The appellants are entitled to their costs of the appeal on a partial indemnity basis fixed in the amount of $8,000, inclusive of disbursements and Goods and Services Tax. The costs of the appellants' stay motion before the motions judge are referred to the arbitrator for determination.

RELEASED:

"NOV –5 2004" "E.A. Cronk J.A."

"I agree S.T. Goudge J.A."

"I agree Robert J. Sharpe J.A."