SUPERIOR COURT OF JUSTICE – ONTARIO

COMMERCIAL LIST

RE: SF Partnership LLP, Applicant

AND:

Philip Spring, Respondent

BEFORE: D. M. Brown J.

COUNSEL:
D. Quayat, for the Applicant
D. Chitiz, for the Respondent

HEARD: July 3, 2014

REASONS FOR DECISION

“Where to fight the fight?” application and motions concerning the Arbitration Act, 1991

[1] Three matters were before me. First, SF Partnership LLP (the “Partnership”) applied for an order appointing an arbitrator under section 14.2 of the Partnership Agreement made as of January 1, 2003, as amended. Second, Philip Spring, who left the partnership on May 31, 2013, moved to stay that application pending the resolution or final determination of the claims advanced in Action No. CV-11-428193 between another former partner, Stanley Rapkin, and the Partnership (the “Civil Action”) which, since its inception, has mushroomed to include numerous counter-claims and cross-claims. Third, the Partnership brought a cross-motion to stay paragraphs 32(a), (b) and (c) of Spring’s counter-claim in the Civil Action.

[2] In Blind Spot Holdings Ltd. v. Decast Holdings Inc., 2014 ONSC 1760, I attempted to summarize the governing legal principles in paragraphs 18 through 22 of those Reasons.

[3] In the present case, the Partnership Agreement contains a very broad arbitration clause in section 14.1. The claims asserted by the Partnership against Spring in its Notice of Arbitration dated September 13, 2013 concerning alleged breaches by Spring of his obligations under the Partnership Agreement following his resignation clearly fall within the arbitration clause.

[4] Counsel for Spring submitted that his client should not be required to submit to two proceedings – the arbitration initiated by the Partnership and the Civil Action – because both proceedings involved the “same set of issues”.

[5] Even a cursory glance at the Notice of Arbitration and the pleadings in the Civil Action disclose that they do not involve the same set of issues. The arbitration puts in issue Spring’s conduct as a former partner following his resignation from the partnership in 2013 and whether any of that conduct breached obligations which he owed to the Partnership under the Partnership Agreement.

[6] By contrast, the Civil Action started out as a claim by a former partner, Rapkin, that the Partnership had breached agreements dealing with his entitlements upon his retirement. In defending that claim, the Partnership asserted a counter-claim against Rapkin and two other former partners, Irving Feldman and Saul Muskat, seeking damages for what the Partnership alleged was the creation by Rapkin, Feldman and Muskat of a “fiscally irresponsible, unaffordable” retirement pension plan for partners. In its counter-claim the Partnership did not seek to void or rescind the Partnership Agreement.

[7] Muskat, in his pleading, then asserted a counterclaim against a number of then current partners, including Spring, seeking $1 million in damages, as well as indemnity and contribution for any liability Muskat might suffer in the Civil Action. Muskat served that pleading in late January, 2014, some four months after the Partnership had delivered its Notice of Arbitration on Spring.

[8] Spring, in his April 30, 2014 pleading in the Civil Action, counterclaimed against everyone seeking, in part, declarations that the Partnership Agreement was void or unenforceable, as was what he styled as the “Penalty” provision in that agreement. In his pleading Spring defined the “Penalty” as “an unconscionable restraint of trade and penalty on partners who choose to withdraw from the Partnership”, and he identified section 11.5(k) of the Partnership Agreement as the Penalty provision. Spring seeks to void the Penalty or, alternatively, to set-off against the Penalty payments the amounts due to him on withdrawal as the Departure Price.

[9] No other party to the Civil Action put the validity of section 11.5(k) of the Partnership Agreement into issue. From the other pleadings it is clear that the dispute in the Civil Action centres on the adequacy of the Partnership’s retirement plan. Spring’s pleading in the Civil Action was delivered in the face of repeated efforts in prior months by the Partnership to secure Spring’s concurrence to the selection of an arbitrator. Against that background, I regard Spring’s counterclaim in the Civil Action seeking relief in respect of the Penalty simply as a colourable attempt to inject into that proceeding a new issue that no other party had raised for the primary purpose of trying to side-track the arbitration regarding the Partnership’s claims against him stemming from his withdrawal. Most of Spring’s counter-claim reads like a defence to the Notice of Arbitration and, in light of the broad arbitration clause in the Partnership Agreement, it is in the arbitration that Spring should assert those defences. The arbitrator can deal with Spring’s contention that the Partnership Agreement is invalid or that section 11.5(k) is invalid.

[10] For those reasons, I dismiss Spring’s motion to stay the arbitration initiated by the September 13, 2013 Notice of Arbitration, and I grant the Partnership’s motion to stay the counter-claim asserted by Spring in paragraphs 32(a), (b) and (c) of his April 30, 2014 Statement of Defence to the Counterclaim of Saul Muskat and Counterclaim and Cross-Claim of Philip Spring in the Civil Action. Most of the relief sought in those paragraphs is more properly asserted by way of defence in the arbitration. The relief sought in paragraph 32(b) essentially is a claim for contribution and indemnity from three former partners for any damages Spring might be found liable for to the Partnership in the arbitration. That claim can await the outcome of the arbitration.

[11] As to the Partnership’s application to appoint an arbitrator, I see no need to consider the critiques which each party made of the individuals proposed by the other side to act as arbitrator. The Court enjoys the power to appoint an arbitrator pursuant to section 10 of the Arbitration Act, 1991. At the hearing I asked the parties for their positions on the appointment of either The Honourable Colin Campbell or The Honourable Douglas Cunningham as arbitrator. Both were acceptable to the parties. I therefore appoint The Honourable Colin Campbell as arbitrator of the dispute initiated by the September 13, 2013 Notice of Arbitration. If he cannot act, then in his stead I appoint The Honourable Douglas Cunningham.

[12] The parties agreed that $10,000 would constitute a fair and reasonable cost award to the successful party. I order Spring to pay the Partnership that amount within 30 days.

D. M. Brown J.

Date: July 4, 2014