Court File and Parties

COURT FILE NO.: CV-15-529641 DATE: 20160524 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Alex Karasyov, Plaintiffs – AND – Duncan McCall, Apoor V. Gupta, Jason Field and Brainstation Education Inc., Defendants

BEFORE: Justice E.M. Morgan

COUNSEL: Dennis Ovsyannikov, for the Plaintiff Brendan van Niejenhuis and Tiffany O’Hearn-Davies, for the Defendants

HEARD: May 24, 2016

Endorsement

[1] On October 18, 2013, upon the Plaintiff acquiring shares in the business of the Defendant, Brainstation Education Inc., the parties signed what they call a Founders’ Restricted Rights Agreement (the “Founders Agreement”). Article 6.6 of the Founders Agreement expressly precludes litigation of any “dispute, controversy or claim arising out of or relating to [the] Agreement, or the breach, termination or invalidity thereof”, and requires that any such disputes be arbitrated pursuant to the Arbitration Act, 1991 (the “Act”).

[2] The Plaintiff commenced the present action in June 2015 seeking to enforce rights which he contends arise under the Founders Agreement. The Defendants contend that the Founders Agreement is poorly drafted and they dispute the Plaintiff’s claim to any rights thereunder; in fact, their defense contests the overall validity of the Founders Agreement. The Defendants do not, however, dispute that the Founders Agreement was duly signed by the Plaintiff and Defendants, and that it contains a binding and enforceable arbitration clause that requires them to proceed to arbitration as the medium for resolving the dispute.

[3] Counsel for the Plaintiff advised me at the hearing of this motion that he agrees with the Defendants that the arbitration clause is valid and enforceable. His position is that the Plaintiff wanted to proceed to arbitration all along, but that the Defendants were initially unresponsive to the Plaintiff’s demands and so the Plaintiff opted to commence an action.

[4] When I asked Plaintiff’s counsel why the Plaintiff commenced an action rather than an application to compel the required arbitration, he advised me that it was advantageous to the Plaintiff to commence an action as an action would allow for discovery of the Defendants and there was information that the Plaintiff was anxious to learn. Counsel did say, however, that once the Defendants finally responded and told him that they agreed that the matter should be submitted to arbitration, he no longer planned to move the action to the discovery stage. When I asked him why the action was not dismissed or discontinued at that point, he informed me that the Plaintiff wanted to keep the action alive until the Defendants and the Plaintiff could agree on the arbitrator and some of the other mechanics of the arbitration proceedings.

[5] The parties have been discussing how to proceed. Apparently, the Plaintiff thinks that the Defendant’s choice of arbitrator is qualified but too expensive, but has not yet come up with a counter-proposal. I assume that both parties are negotiating the arbitration procedures in good faith. If one or the other feels there has been excessive delay, their remedy is to apply to court for an order compelling arbitration on terms proposed by the moving party or on whatever terms the court deems appropriate.

[6] What is clear is that the Plaintiff has no right to litigate the dispute in the form of an action. The Founders Agreement and section 7 of the Act require that the dispute be arbitrated, not litigated. This is not optional; and indeed, both sides now agree that this is the required course. The Plaintiff did not have the right to commence an action in order to seek discoveries, and did not have the right to keep the action alive until he could get the Defendants to agree on how and before whom the arbitration would proceed. The action should never have been commenced, and once commenced should have been discontinued or dismissed by the Plaintiff without forcing the Defendants to bring the present motion for dismissal.

[7] The action is hereby dismissed.

[8] The Defendants deserve their costs of this motion. Counsel for the Defendants concedes that the entirety of the proceedings to date are not costs thrown away, as the time and effort involved in drafting a Statement of Defense will be applicable to defending the upcoming arbitration. He therefore seeks only the costs of preparing the motion materials and of appearing to argue the matter in motions court.

[9] Costs are discretionary under section 131 of the Courts of Justice Act. There are a number of factors which I am authorized to take into account in fixing costs. These include the conduct of any party that has tended to unnecessarily lengthen the proceedings (Rule 57.01(1)(e) of the Rules of Civil Procedure) and a party's denial of or refusal to admit anything that should have been admitted (Rule 57.01(1)(g) of the Rules of Civil Procedure). Under the circumstances, the Plaintiff should have acknowledged at once that the action must be dismissed, and should not have contested the motion until the morning of the hearing when he finally conceded that the dispute must proceed to arbitration and that the action should not have been commenced in the first place.

[10] Both counsel have submitted costs outlines. The Defendants seek over $12,000 while the Plaintiff seeks over $6,000. Counsel for the Defendants drafted a supporting affidavit, compiled a record of evidence, wrote a factum, and compiled a brief of authorities. I have no doubt that the hours invested were well spent, as their materials, submissions, and ultimate success in the motion demonstrate. While in many cases the amount sought by counsel for the Defendants might be considered a bit steep for a motion that did not take a great deal of court time, the Plaintiff’s refusal to do what obviously needed to be done and to withdraw the action necessitated this effort.

[11] The Plaintiff shall pay the Defendants costs in the total amount of $12,000, inclusive of fees, disbursements, and HST.

Morgan J. Date: May 24, 2016