Court File and Parties

COURT FILE NO.: CV-20-00643021-00CL DATE: 2020-11-26

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

NICK BAKARIS Applicant/Responding Party

– and –

SOUTHERN SKY HOLDINGS (formerly known as Southern Sun Pharma Inc.) and WARREN SCHEWITZ Respondents/Moving Parties

Counsel: Nadia Campion and Michael A. Currie, for the Applicant/Responding Party Matthew Lerner and Sean Lewis, for the Respondents/Moving Parties

HEARD: October 11, 2020

Endorsement

Dietrich J.

[1] Nick Bakaris (the "Applicant") is an entrepreneur working and residing in Zimbabwe. Southern Sun Pharma Inc. ("Southern Sun") is a British Columbia holding company whose subsidiaries produce, market and sell cannabis in the African market. Warren Schewitz is the President and CEO of Southern Sun. He is a Canadian citizen residing in South Africa.

[2] In 2018, the Applicant entered into a Memorandum of Agreement (the "MOA") with Southern Sun. Under the terms of the MOA, the Applicant agreed to obtain a licence on behalf of a Zimbabwean corporation to cultivate and sell medical cannabis in Zimbabwe. For this effort, he would receive, among other things, a ten percent shareholding in Southern Sun.

[3] The Applicant asserts that he fulfilled the terms of the MOA. Southern Sun says that he did not, and as such has terminated the MOA. The Applicant brings the within application to enforce his rights under the MOA.

[4] The parties cannot agree on the proper construction of the mandatory arbitration provision in the MOA and a later provision that refers to the non-exclusive jurisdiction of Canadian courts. The Applicant asserts that the provisions are contradictory and he may choose between arbitration and pursuing his dispute in a Canadian court. Southern Sun and Mr. Schewitz (the "Moving Parties"), in contrast, move for a stay of these proceedings on the basis that the arbitration provision is mandatory and paramount.

[5] For the reasons that follow, I find that there is a conflict between the provisions of the MOA regarding whether the dispute should be resolved through arbitration at the London Court of International Arbitration or by a Canadian court. Both provisions contain mandatory language. Since it is arguable that the dispute falls within the mandatory arbitration provision, the application should be stayed and the matter referred to the London Court of International Arbitration, which may rule on its own jurisdiction.

Issue

[6] The issue in this matter is whether the International Commercial Arbitration Act, 2017, S.O. 2017, c-2, Sched. 5 (the "ICAA") applies such that the application should be stayed.

Position of the Parties

[7] The Moving Parties assert that the MOA mandates that this dispute, arising out of an international arbitration agreement, be arbitrated. Further, even if the dispute were not subject to mandatory arbitration, they argue that this court does not have jurisdiction simpliciter as there is no real or substantial connection to Ontario. Finally, they submit that Ontario is forum non-conveniens in any event.

[8] The Applicant asserts that the MOA gives Canadian courts non-exclusive jurisdiction to hear any dispute arising out of the MOA. Moreover, where two forum selection clauses conflict, the commercially sensible interpretation is that the aggrieved party may elect the forum in which to resolve the dispute. The Applicant contends that this court has jurisdiction simpliciter over the dispute because there is a real and substantial connection among Ontario, the parties and the dispute, and Ontario is the most convenient forum for the dispute to be resolved cost-effectively.

Background Facts

[9] The parties to the MOA are Mr. Bakaris, Mr. Schewitz and Southern Sun. They entered into the MOA on June 19, 2018 in Harare, Zimbabwe.

[10] The MOA was amended by a Deed of Variation on November 29, 2018, which extended the time for the Applicant to obtain the licence from six months to a year. This also included a statement that the Deed was governed by the laws of Canada and that the "Parties submit to the non-exclusive jurisdiction of the courts of Canada."

[11] All of the contracts governing the relationship between Southern Sun and the Applicant identify Toronto as the location of the registered office of Southern Sun. Mr. Schewitz resided in Toronto from 1997 to 2011. The Applicant has never been to the Province of Ontario.

[12] Alan Friedman, a co-founder and one of two directors of Southern Sun, lives and carries on business in Toronto. Eighty-two percent of the investors of Southern Sun are located in Toronto. Additionally, Southern Sun's lawyers and its former investment relations manager (an independent contractor) are based in Toronto. The company has also leased space in that city. Southern Sun made filings with the Ontario Securities Commission and had, until January 2020, planned to undergo an Initial Public Offering on the TSX Venture Exchange, but that plan was aborted. Southern Sun has not conducted business in Ontario.

[13] On April 12, 2019, the Applicant, through his company, ZimCo., acquired a Zimbabwean cannabis licence. Southern Sun conducted its own due diligence in accordance with the MOA and concluded that certain requirements were not met. Accordingly, in its view, the MOA was at an end. The Applicant disagrees that the MOA was terminated.

[14] Between July and October of 2019, through counsel, the parties discussed the termination. They continued to take opposing views on whether the MOA had, in fact, been terminated.

[15] On March 13, 2020, the Applicant served his application and the Moving Parties accepted service on the understanding that they did not consent to the jurisdiction of this court.

Relevant Provisions of the MOA

[16] The relevant provisions of the MOA are s. 24, Dispute Resolution, and s. 26, Jurisdiction:

DISPUTE RESOLUTION

24.1. Should any dispute, disagreement or claim arise between the parties (hereinafter referred to as the "Dispute") concerning this Agreement, the Parties shall try to resolve the Dispute by negotiation. This entails that the one party invites the other in writing to meet and to attempt to resolve the Dispute within 7 (seven) days from date of the written invitation.

24.2. Failing a resolution under clause 24.1 above, the Dispute shall be referred to and finally resolved by arbitration under the London Court of International Arbitration, Arbitration Rules, which Rules are deemed to be incorporated by reference into this clause. In such regard:

24.2.1. the number of arbitrators shall be one;

24.2.2. the juridical seat of arbitration shall be London; and

24.2.3. the language to be used in the arbitral proceedings shall be the English language.

24.3. Notwithstanding anything to the contrary anywhere else in this Agreement, nothing in this clause shall preclude any party to the arbitration from seeking interlocutory relief in any Court having jurisdiction pending the institution of appropriate proceedings for the enforcement of any rights under this Agreement.

24.4. The parties to the arbitration undertake to keep the arbitration, including the subject matter of the arbitration and the evidence heard during the arbitration, confidential and not to disclose it to anyone except for the purposes of an order to be made in terms of clause 24.5.

24.5. The decision of the arbitrator shall, in the absence of manifest error, be final and binding on the parties to the arbitration and may be made an order of Court at the instance of any party to the arbitration.

JURISDICTION

26. Each party irrevocably agrees that the courts of Canada shall have nonexclusive jurisdiction to settle any dispute or claim arising out of or in connection with this Agreement or its subject matter or formation (including non-contractual disputes or claims).

The ICAA and the Model Law

[17] Section 5 of the ICAA provides that, subject to the provisions of that Act, the Model Law on International Commercial Arbitration (the "Model Law"), adopted, as amended, by the United Nations Commission on International Trade Law on June 21, 1985, has the force of law in Ontario.

[18] Article 1(3) of the Model Law provides as follows:

(3) An arbitration is international if:

(a) the parties to the agreement have, at the time of the conclusion of that agreement, their places of business in different States; or

(b) one of the following places is situated outside the State in which the parties have their places of business:

(i) the place of arbitration if determined in, or pursuant to, the arbitration agreement;

(ii) any place where a substantial part of the obligations of the commercial relationship is to be performed or the place with which the subject-matter of the dispute is most closely connected, or

(c) the parties have expressly agreed that the subject-matter of the arbitration agreement relates to more than one country.

[19] Article 8 of the Model Law provides as follows:

(1) A court before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so requests not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed.

(2) Where an action referred to in paragraph (1) of this article has been brought, arbitral proceedings may nevertheless be commenced or continued, and an award may be made, while the issue is pending before the court.

[20] Article 8 of the Model Law establishes that, where court proceedings are brought with respect to a matter that is the subject of arbitration, the court shall refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed.

[21] Further, s. 9 of the ICAA states that if, pursuant to art. 8 of the Model Law, a court refers a matter to arbitration, the court proceedings are stayed with respect to the matter to which the arbitration relates.

Analysis

[22] The arbitration referred to in the MOA is an international arbitration governed by art. 3 of the Model Law. When the MOA was concluded, the Applicant's place of business was in Zimbabwe and Southern Sun's place of business was in Canada. Also, the place of arbitration as chosen by the parties is England, which is not where either of the parties had their place of business.

[23] None of the parties specifically assert that the arbitration provision in the MOA is void, inoperative or incapable of being performed; however, the Applicant argues that it competes with the jurisdiction provision and gives him the right to choose the forum for dispute resolution. He asserts that the commercially sensible result is to proceed in an Ontario court because there is a real and substantial connection among Ontario, the parties and the dispute, and Ontario is the most convenient forum.

[24] The standard for demonstrating that a dispute is subject to arbitration under art. 8 of the Model Law is not onerous. In Dalimpex Ltd. v. Janicki (2003), 64 O.R. (3d) 73 (C.A.) at para. 21, Charron, J.A. quoted Gulf Resources Ltd. v. Arochem International Ltd., 1992 CanLII 4033 (BC CA), 66 B.C.L.R. (2d) 113 (C.A.), where Hinkson J.A. of the British Columbia Court of Appeal wrote:

Considering s. 8(1) in relation to the provisions of s. 16 and the jurisdiction conferred on the arbitral tribunal, in my opinion, it is not for the court on an application for a stay of proceedings to reach any final determination as to the scope of the arbitration agreement or whether a particular party to the legal proceedings is a party to the arbitration agreement, because those are matters within the jurisdiction of the arbitral tribunal. Only where it is clear that the dispute is outside the terms of the arbitration agreement, or that a party is not a party to the arbitration agreement, or that the application is out of time should the court reach any final determination in respect of such matters on an application for a stay of proceedings.

Where it is arguable that the dispute falls within the terms of the arbitration agreement or where it is arguable that a party to the legal proceedings is a party to the arbitration agreement then, in my view, the stay should be granted and those matters left to be determined by the arbitral tribunal.

[25] In my view, it is not clear that the dispute in this case falls outside the terms of the arbitration agreement, and it is arguable that s. 24 of the MOA applies.

[26] Both the Dispute Resolution clause at s. 24.2 of the MOA and the Jurisdiction clause at s. 26 of the MOA contain mandatory language. In s. 24.2, it states that, should the parties be unsuccessful in resolving their dispute through negotiation, the "Dispute shall be referred to and finally resolved by arbitration under the London Court of International Arbitration" (emphasis added). Similarly, s. 26 directs that "Each party irrevocably agrees that the courts of Canada shall have nonexclusive jurisdiction to settle any dispute or claim arising out of or in connection with this Agreement" (emphasis added).

[27] The parties do not disagree that both provisions contain a mandatory direction regarding dispute resolution. The provisions, on their face, conflict with one another and a determination of which applies to the dispute regarding the alleged termination of the MOA needs to be made.

[28] The general principles of contractual interpretation require a decisionmaker to interpret the written words of the contract in light of the surrounding circumstances. Courts must take a practical and common-sense approach to determining the intent of the contract at the time it was made, giving words their ordinary meanings consistent with the surrounding circumstances known to the parties at the time of formation of the contract: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2013] 2 S.C.R. 633, at paras. 47-48.

[29] At the time the MOA was entered into, the parties had turned their minds to the possibility of a dispute, with arbitration as the forum for a resolution process. They agreed to a framework, including the number of arbitrators (one), the arbitral seat (England) and the language of the arbitration (English), and specifically chose the London Court of International Arbitration for this purpose. They also addressed issues of confidentiality, interlocutory court orders and finality. I find that it is certainly arguable that the parties intended the Dispute Resolution provisions to apply in the event of a dispute, as opposed to the more general Jurisdiction provision dealing with the non-exclusive jurisdiction of Canadian courts to settle any dispute or claim arising out of or in connection with the MOA.

[30] Applying the principles confirmed in Dalimpex to these circumstances, I am compelled to decline to reach any final determination as to the scope of the arbitration agreement on this motion for a stay of proceedings.

[31] Article 16(1) of the Model Law specifically authorizes an arbitral tribunal to rule on its own jurisdiction. This matter must be determined by the arbitral tribunal selected by the parties.

[32] This deferential approach was endorsed by the Supreme Court of Canada, with reference to Dalimpex, in its affirmation that jurisdictional challenges regarding the scope of an arbitration provision are to be brought before an arbitrator, as opposed to the court: Dell Computer Corp. v. Union des consommateurs, 2007 SCC 34, [2007] 2 S.C.R. 801.

Disposition

[33] The Moving Parties are successful on their motion and the Applicant's application is stayed pending the determination of the London Court of International Arbitration on its jurisdiction to conduct the arbitration.

Costs

[34] The parties have agreed that the successful party shall be entitled to costs of $20,000, inclusive of disbursements and HST. Accordingly, I fix the costs at $20,000 payable by the Applicant to the Moving Parties.

Dietrich J.

Date: November 26, 2020