Court of Appeal for Ontario
CITATION: Rampton v. Eyre, 2007 ONCA 331
DATE: 20070502
DOCKET: C45603
DOHERTY, LASKIN and JURIANSZ JJ.A.
BETWEEN:
VERN RAMPTON
Applicant (Appellant)
And
ADRIAN J. EYRE, BEN DHESI, SLOGOLD RESOURCES LTD., WHARF RESOURCES Plc.
Respondents (Respondents)
Paull N. Leamen for the applicant, appellant
Jennifer E. Jolly for the respondents, respondents Adrian J. Eyre and Wharf Resources Plc.
HEARD: April 5, 2007
On appeal from the judgment of Justice Paul F. Lalonde of the Superior Court of Justice dated June 12, 2006:
Reasons for Decision
JURIANSZ J.A.:
[1] The appellant appeals the dismissal of his application for the appointment of an arbitrator. While I agree that the application judge erred in his analysis I would nevertheless dismiss the appeal because the appellant was not a party to the arbitration agreement. The question of the appellant’s status was a matter raised by the court at the hearing of the appeal. I deal with the legal issues that the parties disputed as these issues may well arise on a renewed, properly constituted application.
[2] The dispute arises out of efforts to develop oil and gas concessions originally owned by SloGold Resources Ltd. (“SloGold”) in the Slovak Republic. The appellant was a major shareholder of SloGold. SloGold had not previously developed the concessions since, according to the appellant, SloGold had not been in a position to pay the Slovakian government the licence fees and permit taxes. The respondent Adrian J. Eyre (“Eyre”) entered into an agreement with SloGold whereby in return for 60% of the shares in SloGold he would raise the necessary capital (£2,400,000) within a specified period of time to develop the oil and gas concessions. SloGold issued shares to Eyre that gave him a 60% share interest in SloGold. The agreement specifically provided that it would terminate and Eyre would return the shares in SloGold if he did not raise the required capital within the specified time. There were several amendments to the agreement, which I ignore since they do not affect the legal issues on appeal.
[3] Eyre replaced the appellant as President and Director of SloGold. One of the corporate actions he took was to transfer two of SloGold’s concessions to a new corporate vehicle, Wharf Resources Plc. (“Wharf”), to avoid all of SloGold’s debts on these concessions. SloGold’s shareholders were to receive a 40% interest in Wharf as consideration for the transfer.
[4] Whether the necessary capital was not raised or, as Eyre states, the escrow agent misappropriated funds, matters not to this appeal. The material filed indicates that SloGold’s share certificate was returned, though it seems that some shares may have been sold to third parties. This too does not matter to this appeal.
[5] What does matter, and what is central to the dispute, is that shares in Wharf have not been delivered to SloGold’s original shareholders. Eyre states that he is holding them in trust. The appellant also takes the position that Eyre failed to arrange payment of numerous creditors of SloGold as the agreement required.
[6] The provisions relating to the termination of the contract and to the settlement of disputes are as follows:
- Validity of this Agreement, Termination
11.1 This Agreement shall come into effect immediately upon its execution by all Parties.
11.2 This Agreement shall terminate upon the occurrence of any of the following events:
(g) the Transaction is not completed and SLOGOLD does not receive a minimum of £2,400,000 within the requisite time period of 90 days.
- Settlement of Disputes
Any dispute arising out of or relating to this Agreement, including any question regarding its existence, validity or termination which cannot be amicably resolved by shall be settled before three arbitrators, one to be appointed by [Eyre] and one to be appointed by SLOGOLD and the two so appointed shall appoint the third arbitrator, in accordance with the rules of the Permanent Arbitration Court attached to the Chamber of Commerce in England. The language of the arbitration shall be English and the site of the arbitration shall be Ottawa or London. The award rendered by the arbitrators may be entered into any court having jurisdiction thereof. A dispute shall be deemed to have arisen when a Party notifies another Party in writing to that effect. Any dispute arising out of or relating to this Agreement not settled by Arbitration shall be settled by Canadian courts.
[7] After the appellant gave written notice of the disputes and requested arbitration and Eyre refused to proceed with arbitration, the appellant brought his application for an order appointing an arbitrator under the Arbitration Act, 1991, S.O. 1991, c. 17. The application judged dismissed the application.
[8] The primary reason the application judge dismissed the application was that the contract, and therefore the arbitration clause in it, had terminated. He said the contract was “voided by the fact that two preconditions were not met” since the necessary amount of capital had not been raised within the specified time period. Therefore, he concluded “the Agreement has termination provisions that kicked in and prevent this Court to name an arbitrator.”
[9] In my view, the application judge erred by determining whether the agreement had terminated and then by concluding the arbitration clause no longer applied.
[10] First, the position of the appellant was that the agreement remained in force. Given that the requisite capital had not been raised and the share certificate had been returned, there was considerable force to the respondents’ position the agreement had terminated according to its own terms. Nonetheless, the question of whether the contract had terminated fell within the scope of the arbitration clause. The clause stated that “any question regarding [the agreement’s] existence, validity or termination” would be arbitrated. The application judge ought not to have determined whether the agreement had terminated.
[11] Second, even if the contract had terminated, the parties’ obligation to arbitrate continued. The reasoning of the application judge would undermine the resolution of disputes by consensual arbitration. In this case, the parties to the contract had agreed to arbitrate any dispute “arising out of” the agreement, “including any question regarding its termination”. These words indicate they contemplated that the agreement to arbitrate could be invoked after the agreement may have terminated.
[12] Even in the absence of such clear wording I would conclude the arbitration clause continued to oblige the parties to submit to arbitration after the contract’s termination in the circumstances of this case. The comments of Lord MacMillan in Heyman v. Darwins, Ltd., [1942] 1 All E.R. 337 at 347 (H.L.), are apropos:
I venture to think that not enough attention has been directed to the true nature and function of an arbitration clause in a contract. It is quite distinct from the other clauses. The other clauses set out the obligations which the parties undertake towards each other hinc inde; but the arbitration clause does not impose on one of the parties an obligation in favour of the other. It embodies the agreement of both parties that, if any dispute arises with regard to the obligations which the one party has undertaken to the other, such dispute shall be settled by a tribunal of their own constitution. Moreover, there is this very material difference that, whereas in an ordinary contract the obligations of the parties to each other cannot in general be specifically enforced and breach of them results only in damages, the arbitration clause can be specifically enforced by the machinery of the Arbitration Acts. The appropriate remedy for breach of the agreement to arbitrate is not damages but its enforcement.
[13] The distinct nature of an arbitration clause must be recognized. This case falls under the general proposition that parties who have included an arbitration clause in their contract will continue to be obliged to submit disputes “arising from,” “in respect of,” “with regard to,” or “under” the contract, to arbitration in accordance with its terms despite the contract’s expiration or termination.
[14] The application judge identified other matters he regarded as obstacles to the appointment of an arbitrator. These do not provide any basis for refusing to enforce the arbitration clause.
[15] First, there are no “rules of the Permanent Arbitration Court attached to the Chamber of Commerce in England” as contemplated by the arbitration clause. The application judge found “that the arbitration agreement does not contain the rules for an arbitrator to govern and as such the agreement is fatally flawed.” I do not agree. The procedural question of how the arbitration would proceed was not a concern of the application judge. It is a question for the arbitral tribunal. Arbitration clauses do not have to, and seldom do, stipulate procedural rules to govern the arbitration. The consequence of there being no rules of the Permanent Arbitration Court is a matter to be addressed in the arbitration.
[16] The application judge also noted the agreement provided for arbitration by three arbitrators, whereas the application requested the appointment of only one. I see this as a matter of a detail to be addressed in the relief granted by the court. The court could have appointed three arbitrators, or, since Eyre refused to implement the arbitration process, the court could have indicated it was appointing one arbitrator to stand as his selection, thus enabling the three arbitrators to be empanelled in the manner contemplated by the agreement.
[17] Before this court, the respondents advanced new arguments.
[18] First, they argued that the Settlement of Disputes clause was not an arbitration clause. The respondents relied upon the last sentence of the clause to submit that the contract contemplated the parties’ recourse to the civil courts and therefore there was no arbitration agreement. This argument has no merit. The last sentence of the clause merely indicates the agreement of the parties that, to the extent there is recourse to the courts, such recourse must be to the Canadian courts. An application such as this, for example, must be brought in Canada.
[19] Second, they submitted that the application could not be granted because it should have been brought under the International Commercial Arbitration Act, R.S.O. 1990, c. I-9, rather than the Arbitration Act. They did not identify any material procedural or substantive difference that would result. Both statutes provide for the appointment of arbitrators to implement arbitration agreements and both empower arbitrators to determine their own jurisdiction. The source of arbitrators’ jurisdiction is the arbitration agreement and not the statute under which they are appointed. An arbitrator appointed by the court pursuant to an arbitration agreement exercises the same jurisdiction as an arbitrator consensually selected by the parties. I do not regard the Act under which the arbitrator is appointed to be significant. If a dispute arises between the parties as to which statute governs the arbitration, it is a question for the arbitration tribunal to decide.
[20] Nevertheless, despite my finding that the application judge erred and my rejection of all the arguments advanced by the respondents, I would dismiss the appeal. The application judge achieved the correct result by dismissing the application brought by the appellant. The appellant was prior to the agreement the major shareholder and President of SloGold. The parties to the agreement that contained the arbitration clause were Eyre and SloGold. However, the appellant brought the application in his own name. As he is not a party to the arbitration agreement, he cannot invoke it. Other remedies may be available to him. It is not for us to decide.
[21] The appeal is dismissed.
[22] While the respondents have been successful, the disposition of costs reflects the fact that the appeal was allowed on an issue raised by the court itself and that the respondents’ arguments were wholly rejected. There will be costs in favour of the respondents in the amount of $1,000 inclusive of disbursements and GST.
“R. Juriansz J.A.”
“I agree D. Doherty J.A.”
“I agree J.I. Laskin J.A.”
RELEASED: May 2, 2007