Court File and Parties

2023 ONSC 4015 COURT FILE NO.: CV-22-3513 DATE: 20230705

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

Eurofins Experchem Laboratories, Inc. Plaintiff – and – BevCanna Operating Corp., Marcello Leone, BevCanna Enterprises Inc., Howard Blank, John Campell, Martino Ciambrelli, William Macdonald, Douglas Mason and Melise Panetta Defendants

Counsel: Matthew Kersten, for the Plaintiff Sophie Teversham, for the Defendants

HEARD: April 19, 2023

Reasons for Decision

DE SA J.:

Overview

1This is a motion brought by the two Corporate Defendants (of seven (7) total Defendants), BevCanna Operating Corp. and BevCanna Enterprises Inc. (collectively, “BevCanna”), seeking a permanent stay of the action or alternatively, a permanent stay of any claims caught by the arbitration clause in the agreement between BevCanna and the Plaintiff.

2The responding party Plaintiff, Eurofins Experchem Laboratories, Inc. (“Eurofins”), submits that the agreement has an exception for this action, an action for unpaid fees.

3Eurofins also submits that it is not even clear the arbitration clause applies specifically to the moving parties given that BevCanna is not named correctly in the agreement.

4Having reviewed the materials filed, and having heard the submissions of counsel, I am satisfied that the exception referenced in the agreement applies.

5The application is dismissed.

6The reasons for my decision are outlined below.

Summary of Facts

7On or around December 2021, Eurofins executed the GMP Agreement with BevCanna for the supply, analytics and testing of products to ensure products are compliant with Health Canada Regulations, in particular, the Canadian Good Manufacturing Practices (known as “GMP”).

8Despite Eurofins providing its services in accordance with the GMP Agreement, Eurofins has not been paid at least $95,751.30 for 28 unpaid invoices.

9In or around March 2022, Eurofins reached an agreement with BevCanna that it would make weekly payments on the outstanding amount.

10The president of BevCanna, Melise Panetta, represented to Eurofins that BevCanna was “waiting for financing to clear outstanding payables including Eurofins past due invoices”.

11Despite this additional agreement and representations by Eurofins, only a single nominal payment was made and BevCanna defaulted anyway.

12Given that its fees had gone unpaid, Eurofins commenced the within action on or around November 2, 2022 as against BevCanna and seven (7) Individual Defendants for breach of contract, breach of trust, unjust enrichment and quantum meruit to collect.

13BevCanna refused to serve a Statement of Defence. Eurofins, instead of noting the Corporate Defendants in default, sought a case conference for a timetable to be imposed on or around December 5, 2022.

14BevCanna then served on or about December 19, 2022 a Notice of Motion for the present proceeding, to permanently stay the action or in the alternative, permanently stay the various claims they allege to be arbitrable. BevCanna relies on an arbitration clause of the GMP Agreement set out in Section 8 of Attachment “B” of the GMP Agreement.

15Section 8 of Attachment “B” to the GMP Agreement states the following:

Unless specifically agreed otherwise, all disputes arising out or in connection with Contractual Relationship(s) hereunder shall be governed by the substantive laws of the Province of Ontario exclusive of any rules with respect to conflicts of laws and be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with said rules, each party to bear its own costs. The arbitration shall take place in Toronto, Ontario. [Emphasis added.]

16The explicit wording “unless specifically agreed otherwise” clearly contemplates that the terms of Section 8 be subject to any agreement to the contrary.

17Sections 4(d) and (e) of Attachment “B” to the GMP Agreement states the following:

Company may elect to bring action for the collection of unpaid fees in any court having competent jurisdiction.

Client shall pay all of the Company’s collection costs, including attorney’s fees and related costs.

[Emphasis added.]

18The term “Company” is defined in the General Overview section at the beginning of the GMP Agreement as the legal entity “Eurofins Experchem Laboratories Inc.” and the term “Client” in that same paragraph is defined as “BevCanna”.

Analysis

Should the Action be Stayed under the Arbitration Act?

19Section 7(1) of the Arbitration Act, 1991 (“Arbitration Act” or the “Act”) mandates that an action shall be stayed when it is regarding matters that are the subject of an arbitration agreement:

7 (1) 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. [1]

20Section 7(1) is mandatory. Except for the specific exceptions listed in s. 7(2), there is no discretion for the court to decline to stay an action that is the subject of an arbitration agreement. [2]

21Even issues of multiplicity (and the questions of efficiency, affordability, and proportionality that underpin the goal of limiting multiple proceedings) must give way to the express provisions of the statute. [3] The law, both statutory and judicial, favours the enforcement of arbitration agreements. [4]

22The jurisprudence makes clear that arbitration clauses are to be given a large and liberal interpretation in furtherance of the policy goal of giving effect to the dispute resolution procedures agreed to by the parties. [5] In Dancap Productions Inc. v. Key Brand Entertainment, Inc., 2009 ONCA 135, at paras. 32-33, Sharpe J.A. explained (cited in Haas, at para. 15):

It is now well-established in Ontario that the court should grant a stay under art. 8(1) of the Model Law where it is “arguable” that the dispute falls within the terms of an arbitration agreement. In Dalimpex Ltd. v. Janicki (2003), 64 O.R. (3d) 737 (C.A.), at para. 21, Charron J.A. adopted the following passage by Hinkson J.A. in Gulf Canada Resources Ltd. v. Arochem International Ltd. (1992), 66 B.C.L.R. (2d) 113 (B.C.C.A.), at paras. 39-40, as “the proper approach” to art. 8(1):

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, the stay should be granted and those matters left to be determined by the arbitral tribunal. [Emphasis added.]

See also: Dell Computer Corp. v. Union des consommateurs, 2007 SCC 34, [2007] 2 S.C.R. 801.

23The Court of Appeal for Ontario in Haas established a five-question analytical framework to determine when s. 7(1) of the Arbitration Act applies, and a stay of the action is required:

(1) Is there an arbitration agreement? (2) What is the subject matter of the dispute? (3) What is the scope of the arbitration agreement? (4) Does the dispute arguably fall within the scope of the arbitration agreement? (5) Are there grounds on which the court should refuse to stay the action? [6]

24In this case, there is no dispute that the GMP Agreement contains an Arbitration Clause at Schedule A, section 8. There is clearly an arbitration agreement between Eurofins and BevCanna.

25In assessing whether a claim is subject to an arbitration agreement, the court must determine the pith and substance of the claim(s) at issue. [7] The jurisprudence makes clear that a party cannot disguise a claim with a view to avoiding arbitration. As the Court of Appeal explained in Piko v. Hudson’s Bay Co. (1998), 41 O.R. (3d) 729 (C.A.):

No matter how the claim is framed, if “the dispute, in its essential character, arises from the interpretation, application, administration or violation of the [agreement requiring arbitration]” it must be arbitrated. Parties cannot avoid arbitration simply by pleading a common law tort. [8]

26In this case, the subject matters raised in the Statement of Claim relate to the following allegations:

(i) BevCanna is in breach of the Contract as it has unpaid invoices of approximately $95,000 owing to Eurofins; (ii) The amounts owing are considered “trust funds” at common law and BevCanna has transferred, converted or misappropriated such trust funds, amounting to a common law breach of trust; (iii) The Individual Defendants owe, and have breached, a fiduciary duty owed to Eurofins by breaching their common law trust duties; (iv) BevCanna has been unjustly enriched by applying the trustee property to its own use and benefit.

27The Defendants take the position that these matters are the “disputes” that are “arising out of or in connection with the Contractual Relationship”. BevCanna submits that the language “arising out or in connection to” should be generously interpreted to include the claims under the scope of the Arbitration Clause and preclude Eurofins from pursuing the payment of fees by way of action. [9]

28BevCanna maintains that it would take no issue with an action for unpaid fees that fell squarely within this exception. However, BevCanna submits that the Plaintiff’s action has gone beyond the scope of this exception and brought forth claims which squarely fall under the Arbitration Clause.

29The Defendants argue there are numerous claims subject to the Arbitration Clause including: breach of trust at paragraphs 38-44 of the Statement of Claim, unjust enrichment at paragraphs 45-50 of the Statement of Claim, and breach of fiduciary duty at paragraphs 35, 40 and 49 of the Statement of Claim.

30In addition to the claims, the Corporate Defendants will be pursuing a counterclaim for damages. Specifically, the Corporate Defendants will be seeking over $380,000 of damages in lost profits as a result of Eurofins’ errors in testing. BevCanna argues that the impending counterclaim is another reason the entire matter should be resolved through arbitration.

31While there may be a narrow carve-out for pure collection matters, in the interests of justice and for the sake of judicial economy and in the interests of avoiding unnecessary costs and delay, the Defendants submit that all claims should be stayed in favour of arbitration. There is no need for multiple proceedings, unnecessary costs, and further delay.

32While it is clear that the dispute relates to the Contractual Relationship, section 4(d) of Attachment “B” to the GMP Agreement specifically allows the Plaintiff to elect to proceed by way of action for unpaid fees.

33In my view, forcing the Plaintiff to arbitration on the issue of unpaid fees in this context would thwart the very purpose behind the provision set out in section 4(d).

34The rationale for staying actions in favor of arbitration is to give effect to the agreement between the parties to arbitrate. It is not a general preference for arbitration. Rather, it is an acknowledgment that parties should be bound by their agreements.

35The GMP Agreement was drafted specifically with a view to permitting Eurofins to elect to proceed by action with respect to the collection of unpaid fees. In negotiating the GMP Agreement, Eurofins retained the ability to pursue an action in the context of unpaid fees to avoid unnecessary legal expenses associated with Arbitration in relation to simple collection issues. The Agreement specifically contemplates that BevCanna will be responsible for legal expenses associated with an action for the collection of unpaid fees.

36BevCanna submits that even if a portion of the action is permitted to proceed, the remaining claims must be stayed in favour of arbitration. [10]

37I disagree. As noted above, in assessing whether a claim is subject to an arbitration agreement, the court must determine the pith and substance of the claim(s) at issue. [11] In my view, the substance of the claim relates in its entirety to unpaid fees. Whether framed in breach of contract or in tort, the action was commenced for the recovery of the approximately $95,000 owing to it for the services it invoiced. All of the claims are clearly directed at the collection of the $95,000 of unpaid fees. Accordingly, there is no basis to stay any portion of the claim.

38Moreover, there are seven other Defendants who are acknowledged by BevCanna to not be party to the GMP Agreement and, therefore, not subject to the arbitration clause and are not even party to this motion. They have not consented to arbitration, nor would such consent matter. There is no proper basis to stay the action as it pertains to these other Defendants.

39The motion is dismissed. I will receive costs submissions from the Plaintiff within 3 weeks of the release of this decision, and the Defendants will have 1 week thereafter to provide a response.