3-Sigma Consulting Inc. v. Ostara Nutrient Recovery Technologies Inc.

2023 BCSC 100 3-Sigma Consulting Inc. v. Ostara Nutrient Recovery Technologies Inc.

IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: 3-Sigma Consulting Inc. v. Ostara Nutrient Recovery Technologies Inc., 2023 BCSC 100 Date: 20230123 Docket: S220251 Registry: Vancouver Between: 3-Sigma Consulting Inc., Charlotte Abrary, Phillip Abrary, Nojan Abrary, Kenneth Ashley, Mark Benjamin, Judith Benjamin, Amy Hui Chen Chang, Yu Cheng Chen, Barry Chilibeck, Coyne Brothers LLC, 3rd Life LLC, A Roy Decaro Jr., Christopher Decaro, Mary Decaro, Roy Decaro Sr., Susan Edmondson, Jim Ferrier, Christer Henricksson, Japar-Jo LLC, Edward (Ted) Jones, Harlan Kelly, Donald Kirkwood, Caroline Klukowski, Phil Knight, Akiko Koch, Eli Konorti, Kwang Lo, Kevin MacDonald, Shalini Maharaj, Donna Matthews, Dr. Donald Mavinic, Joseph McHugh, Arlene McHugh, Lance McHugh, Lars Dannberg, Colleen McHugh, Lynn McHugh, Jeffrey Nerenberg, Victor Nerenberg, Daniel Ng, Wing Sang Mg, Susana Ordonez, Andrew Sacks, Howard Sacks, Dr. John Stockner, Anita Tom, Bernard Tom, Sao Lin Tom, Wai Man Tom, John Whelen, Daniel Wilton, Noboru Yonemitsu, Estate of Zeindin Abrary, Law Net Law Corporation, NG Associates, Noram Engineering and Constructors Ltd., R.S. Rehab Solutions Inc., Redpeaks Management Inc., and Wutif Capital (VCC) Inc. Plaintiffs And Ostara Nutrient Recovery Technologies Inc., Wheatsheaf Group Limited, Vantagepoint Cleantech Partners II L.P., Vantagepoint Venture Partners (2006) (Q) L.P.,

Robert F. Kennedy, Thomas A. Bevilacqua, Frederic W. Corrigan, Steven L. Pinney, Graham Ramsbottom, Monty Bayer, Angus Livingstone, Dinesh Parmar, John Doe #1, John Doe #2, and Jane Doe #1 Defendants Before: The Honourable Justice Matthews Reasons for Judgment Counsel for the Plaintiffs: J. Cytrynbaum R. Mittal Counsel for the Defendants: S.K. Boyle A.C. Luchenko A. Burns Place and Date of Hearing: Vancouver, B.C. November 24, 2022 Place and Date of Judgment: Vancouver, B.C. January 23, 2023 Overview [1] The defendants, Ostara Nutrient Recovery Technologies Inc., its majority shareholders, directors, and senior management, seek an order staying the plaintiffs' claims that the defendants deprived the plaintiffs of any value in their Ostara shares. The defendants assert that the plaintiffs' claims are covered by a mandatory arbitration clause in Ostara's shareholder agreement as it was amended from time to time. The defendants' stay application is brought on the basis that the defendants and most of the plaintiffs are parties to a shareholder agreement that has an arbitration clause requiring claims that arise under or are in connection with the shareholder agreement to be submitted to arbitration. [2] The plaintiffs are shareholders of classes of Ostara shares other than Class D. The plaintiffs claim that the defendants orchestrated a sale of shares of Ostara to its largest

shareholder, Wheatsheaf Group Limited, through a plan of arrangement that restricted the benefits of the sale to Class D shareholders. The plaintiffs submit that not all of the plaintiffs and defendants signed a shareholder agreement containing an arbitration clause and that their claims sound in tort and so do not "arise under", nor are they "in connection with", such a shareholder agreement, so the arbitration clause does not apply. [3] The issues are: a) whether it is arguable, notwithstanding that all of the parties to this proceeding are not signatories to a shareholder agreement, that all shareholders are bound by the arbitration clause in the shareholder agreement and the matter of whether the arbitration clause applies be decided by the arbitrator in the first instance. b) whether it is arguable that the plaintiffs' claims fall within the scope of the arbitration clause such that the stay ought to be granted and the matter of whether the arbitration clause applies be decided by the arbitrator in the first instance. Legal Principles [4] This application is made pursuant to s. 7 of the Arbitration Act, S.B.C. 2020, c. 2, which provides for a party to an arbitration agreement to apply to the court to stay a proceeding in respect of a matter agreed to be submitted to arbitration. [5] In Peace River Hydro Partners v. Petrowest Corp., 2022 SCC 41, the Supreme Court of Canada

affirmed the "legislative and judicial preference for holding parties to arbitration agreements" (para. 10). Peace River Hydro Partners is the most recent case in a line of appellate jurisprudence that includes Uber Technologies Inc. v. Heller, 2020 SCC 16; Telus Communications Inc. v. Wellman, 2019 SCC 19, 2 S.C.R. 144; Seidel v. TELUS Communications Inc., 2011 SCC 15; Dell Computer Corp. v. Union des Consommateurs, 2007 SCC 34; and Clayworth v. Octaform Systems Inc., 2020 BCCA 117. As Mr. Justice Hunter observed in Clayworth, amendments to s. 15 of the Arbitration Act (the predecessor to s. 7 using identical language) reflect a shift in legislative intention away from judicial intervention in arbitration that began in the late 1980s. Through those amendments, the legislature replaced the court's broad jurisdiction to refuse to stay a proceeding in favour of arbitration with limited grounds upon which a court could refuse to grant such a stay. [6] Section 7 of the Arbitration Act reads as follows: Stay of proceedings 7 (1) If a party commences legal proceedings in a court in respect of a matter agreed to be submitted to arbitration, a party to the legal proceedings may, before submitting the party's first response on the substance of the dispute, apply to that court to stay the legal proceedings. (2) In an application under subsection (1), the court must make an order staying

the legal proceedings unless it determines that the arbitration agreement is void, inoperative or incapable of being performed. (3) An arbitration may be commenced or continued and an arbitral award made even if an application has been brought under subsection (1) and the issue is pending before the court. [7] The guiding principle for applications under s. 7 of the Arbitration Act is "competence-competence", whereby jurisdictional issues relating to the scope of the arbitration agreement are to be resolved in the first instance by the arbitrator: Peace River Hydro Partners at para. 39, citing Dell at para. 70; Clayworth at para.

24. Competence-competence has been enshrined in British Columbia law by the combined operation of s. 22 of the Arbitration Act and R. 20(2) of the British Columbia International Commercial Arbitration Centre Rules (now the Vancouver International Arbitration Centre): Seidel at para. 28; Peace River Hydro Partners at para. 41. [8] The general rule for stay applications under s. 7 is that if the applicant makes out an arguable case that the parties and the issues in dispute are subject to an arbitration agreement (s. 7(1)), and the party opposing the stay does not assert or establish that the arbitration agreement is void, inoperable or incapable of being performed (s. 7(2)), the court must stay the proceeding in favour of arbitration: Clayworth at para. 21; Dell at para. 84. [9] The arguable case standard provides "room for a judge to dismiss a stay application when there is no nexus between the claims and the matters reserved for arbitration, while referring to the arbitrator any legitimate question of the scope of the arbitration jurisdiction": Clayworth at para. 30. [10] The party opposing the stay application may assume the burden of establishing that the arbitration agreement is void, inoperable or incapable of being performed, thus defeating the application: Arbitration Act, s. 7(2). [11] The central issue in this application is whether there is an arguable case that would require a mandatory stay of the proceedings under s. 7(1). [12] The three-part test for the s. 7(1) determination, on which the applicant bears the burden, was set out in Prince George (City) v. A.L. Sims & Sons Ltd., and McElhanney Engineering Services Ltd. (1995), 9 B.C.L.R. (3d) 368, 1995 CanLII 2487 (C.A.) at para.

22. Though the Court of Appeal there was referring to the previous version of the Arbitration Act, the test remains the same for the present version of the Act, save for a change to the third question: a) a party to an arbitration agreement has commenced legal proceedings against another party to the agreement; b) the legal proceedings are in respect of a matter agreed to be submitted to arbitration; and c) the application must be brought before the applicant takes a step in the proceeding. [13] On the third question, s. 7(1) of the Arbitration Act requires that a stay application be made before the party seeking the stay submits a response to the substance of the dispute. [14] Jurisdictional challenges often arise out of one or more of the following circumstances: the party seeking to avoid the stay argues that the arbitration agreement does not cover the subject matter of the legal proceeding; the party seeking to avoid arbitration establishes that the arbitration agreement is void, inoperative, or incapable of being performed (s. 7(2)); or there is no real prospect that a bona fide jurisdictional challenge will be resolved by an arbitrator. [15] If one of these circumstances arises, the court must consider whether the issue raises a pure question of fact, a pure question of law, or a question of mixed fact and law. [16] The court must normally refer a pure question of fact to an arbitrator: Uber at para. 32, citing Dell at para.

85. However, if there is an accessibility issue to arbitration such that the jurisdiction issue may never be decided, the court may consider it, even if the accessibility issue is a pure question of fact: Uber at paras. 39 and 44-46. [17] A court may resolve a pure question of law: Dell at para.

84. For example, in Seidel, the issue was whether s. 172 of the Business Practices and Consumer Protection Act, S.B.C. 2004, c. 2, rendered part of the arbitration agreement void. This was a question of law and thus properly heard by the court: Seidel at paras. 28-29. [18] Where the issue is a mixed question of fact and law, the court may decide the issue only if it can do so with a superficial regard to the record: Peace River Hydro Partners at paras. 42-43; Dell at para. 85. [19] The question of whether the dispute falls within the scope of the agreement is not often a pure question of law. It is usually a question of mixed fact and law, as "[i]t requires an analysis of the nature of the dispute and an interpretation of the arbitration clause, considered with the terms of the contract as a whole in their factual context": Clayworth at para. 44, citing St. Pierre v. Chriscan Enterprises Ltd., 2011 BCCA 97 at para. 21; Creston Moly Corp. v. Sattva Capital Corp., 2014 SCC 53. Accordingly, the court may only interpret the arbitration agreement to determine whether the dispute falls within the scope of the arbitration agreement if it can do so with only a superficial review of the record, otherwise, the court must leave the matter for the arbitrator to decide on a thorough review of the evidence: Peace River Hydro Partners at para.

42. Section 7(1) - The Requirements for a Stay of Proceedings Whether the Parties to the Claim are Parties to An Agreement to Arbitrate [20] Some jurisprudence describes this requirement as being satisfied if "a party" to the arbitration agreement seeks a stay. However, it is clear that the court must address the circumstance where non-parties to the arbitration agreement may be caught up in the stay. [21] In Telus, Justice Moldaver, writing for the majority, considered a class proceeding against Telus brought by consumer customers and business customers. Justice Moldaver concluded that Ontario's arbitration legislation required that the claims of the business customers be stayed in favour of arbitration, but found that the arbitration agreement was not enforceable against the claims of the consumer customers. Despite that the legislation required the stay of the "proceeding" without qualification as to the type of proceeding, Moldaver J. held that the stay must be restricted to the parties who were legally bound by the arbitration agreement because a purposive interpretation of the legislation precluded staying the claims of persons who had never agreed to or were not bound by an arbitration agreement: Telus at para. 102. [22] In this case, there have been four shareholder agreements over time: the first in 2008, the second in 2016, the third in 2018, and the fourth in 2019.

The arbitration clause relied on by the defendants is the same in each of these agreements. The terms of the 2019 shareholder agreement include that it superseded all previous agreements. [23] The plaintiffs submit, and it is not contested, that some of the plaintiffs and some of the defendants are signatories to one or more of the shareholder agreements, but not all plaintiffs and not all defendants are signatories to one or more of the shareholder agreements. The parties did not make submissions on the status of a signatory to a shareholder agreement earlier than the 2019 shareholder agreement who is not a signatory to the 2019 shareholder agreement. [24] Twenty of the 58 plaintiffs are signatories to a shareholder agreement. Six of the 12 named defendants are signatories to a shareholder agreement. [25] The plaintiffs submit that because most of the plaintiffs and half of the defendants are not parties to a shareholder agreement, the defendants have not met their burden on the first issue. The defendants assert that a "significant number" of the plaintiffs and defendants are signatories to a shareholder agreement and so the defendants have met their burden. [26] I am not persuaded that numerosity governs this branch of the test. The controlling issue under the purposive legislative interpretation is that parties who agree to arbitrate a dispute would be held to that

agreement. On the other hand, the legislature does not intend to interfere with, and has no business in interfering with, the claims of parties who are not a party to an enforceable agreement to arbitrate: Telus at para. 102. [27] The defendants rely on Kwon v. Vanwest College Ltd., 2021 BCSC 545 at paras. 39 and 50, and Ts'kw'aylaxw First Nation v. Graymont Western Canada Inc., 2018 BCSC 2101 at paras. 31-32, for the proposition that the claims of parties to litigation who are not also parties to the arbitration clause can be stayed so long as the claims of the non-arbitration agreement parties involve substantially the same issues or are otherwise intertwined with the issues raised for arbitration. [28] Kwon relied on Ts'kw'aylaxw, which was decided before Telus. In Telus, the business customer claims and the consumer customer claims all arose out of the same facts and presented the same issues to be determined in the class action. The lower courts held that the arbitration agreement was valid for the business customers and invalid for the consumer customers, but denied the stay and permitted all claims to proceed in court because they arose out of the same facts and it would not be reasonable to separate them. The Supreme Court of Canada overturned that result, staying the business customer claims even though the consumer claims were proceeding. The legislative purpose of giving effect to the contractual agreements where the contract was valid while not interfering with claims not bound by an arbitration clause was only served if the stay was restricted to those parties bound by an arbitration clause, notwithstanding the efficiency of having the claims resolved in the same proceeding: Telus para.

102. In Kwon, the court did not consider whether Telus affected the analysis in Ts'kw'aylaxw. [29] Given Telus, I consider that it must be decided whether the claims of non-signatories to the shareholder agreements, or non-signatories to the 2019 shareholder agreement, are arguably subject to the arbitration clause in the shareholder agreements. [30] This is a matter of mixed fact and law. The issue of law is whether non-signatories to the shareholders agreement are nevertheless bound by them in certain circumstances. If a non-signatory would be bound in certain circumstances, the issue of fact is whether the circumstances of a given plaintiff or defendant are such that they are bound. [31] The defendants assert that there is an arguable case that the shareholder agreements capture all shareholders. The definition of shareholders in the agreements includes shareholders who have executed the agreement and holders of securities who have agreed to become bound by the shareholder agreement. In addition, subsections 7.2(a) and (b) of the shareholder agreements provide that transfers of shares by management shareholders can only be undertaken to persons who have agreed to be bound by the shareholder agreement. Regardless of whether this argument is correct legally, the factual aspects of this submission cannot be addressed through a superficial glance at the record. The legal issues

cannot be addressed without some factual context to ground the determination. [32] With regard to whether the legal aspect is arguable, the defendants rely on Beck v. Vanbex Group Inc., 2021 BCSC 1619, in which the defendants applied to stay a class action against them regarding the sale of digital tokens. The plaintiffs alleged the tokens were sold by several defendants. The defendants alleged that they were sold by one defendant only, Vanbex Labs. The only signatories to the arbitration clause were the plaintiffs and Vanbex Labs. However, Justice Fleming accepted that it was arguable at least one of the other defendants might be, at law, a party to the arbitration agreement if they were nominees of a contracting party, or if agency or a reason to pierce the corporate veil was established: Beck at paras. 12, 14 and 16. Part of Fleming J.'s reasoning was that the plaintiffs' amended notice of civil claim alleged that the business of the defendants was inextricably interwoven and each was the agent of the other. Justice Fleming held that the applicant had established that the defendants were arguably parties to the arbitration agreement and so the matter should be referred to the arbitrator through a stay, citing DNM Systems v. Lock-Block Canada, 2015 BCSC 2014 at para. 76. [33] The circumstances of this case are similar except that it is the defendants who assert that the

non-signatories to the arbitration agreement may be true parties to the agreements. The defendants are not in a position to have raised that in their pleadings because s. 7(1) of the Arbitration Act would preclude them from bringing an application for a stay if they had submitted a substantive response to the civil action. In such circumstances, the failure to raise the issue in a pleading does not mean it is not arguable for the purpose of an application to stay the proceeding under s. 7 of the Arbitration Act. [34] I conclude that there is an arguable case on this issue that ought to be addressed in the first instance by an arbitrator. Whether the Claims Fall Within the Matters Agreed to be Referred to Arbitration [35] The defendants assert that the plaintiffs' claims are substantially based on the rights and obligations of the parties in their capacities as shareholders (the plaintiffs) and directors (the defendants) of Ostara. The defendants submit that those rights and obligations are the subject of the shareholder agreements. They point out that prior to amending the notice of civil claim, the plaintiffs claimed breach of contract, the contract being the shareholder agreement. [36] The plaintiffs assert that their claims sound in tort, not contract. They assert that the claims are based on the defendants' actions in arranging a sale of the company by which the defendants

would benefit and the other shareholders, the plaintiffs, would not. They claim that this arrangement misled the plaintiffs. They point out that none of the elements of the cause of action refer to or require a breach of contract and that they do not rely on the shareholder agreement for any aspect of their claim. They say the duty of care is not informed by the existence of the contract that governs the relationship between the shareholders, the company, and its directors. They assert that the duty of care is informed by the common law. [37] Whether a particular dispute falls within an arbitration agreement is ordinarily a matter of mixed fact and law: Clayworth at para.

43. The Claims [38] The plaintiffs are minority shareholders of shares other than Class D shares. They include persons described as the founders of Ostara, as well as a person who was one of the inventors of the reactor that Ostara uses to recover nutrients in pellet form from waste water. [39] The plaintiffs allege that in August 2019, Ostara entered into a convertible note financing term sheet with its largest and majority shareholders, Wheatsheaf Group Limited and two VantagePoint entities: VantagePoint Cleantech Partners II L.P., and VantagePoint Venture Partners, collectively "VantagePoint". Pursuant to the term sheet, Wheatsheaf and VantagePoint agreed to invest up to $16.5 million in Ostara in exchange for promissory notes that would convert to Class D senior preferred shares at a conversion price of $.73 per share. The term sheet also provides that on a liquidation event, including the sale of the company, the Class D shares rank senior to and are to be paid out in priority to all other equity securities in Ostara at two times their purchase price. The term sheet provided for the investment from Wheatsheaf and VantagePoint to be made in tranches. On the call for the second tranche, a sale condition would be triggered that required Ostara to pursue a transaction to sell all of its assets or equity interests. That call took place in September 2019, at which time Ostara

engaged a financial adviser, Rabobank, to advise on the sale condition triggered by the call for the second tranche of financing. [40] The plaintiffs allege that the term sheet was not disclosed to Ostara's shareholders. The plaintiffs allege that Ostara did not inform the shareholders other than those who were on the Board of Directors, that the term sheet would result in Wheatsheaf and VantagePoint becoming preferred shareholders with a preferential position on a sale, which sale would be triggered by the second tranche of investments. Instead, in October 2019, Ostara advised its shareholders that they would all be invited to participate in the Class D financing and that it had engaged Rabobank to advise on its business strategy. [41] The plaintiffs allege that in November 2019, Ostara issued a Notice of Annual General and Special Meeting and Management Proxy Circular for Ostara's annual and general special meeting to be held in December 2019. The plaintiffs allege that this November 2019 communication stated that all shareholders would be invited to participate in the Class D financing on the same terms as Wheatsheaf and VantagePoint, but failed to set out the other material terms of the Class D financing agreement between Ostara, Wheatsheaf and VantagePoint, particularly, the triggered sale condition. [42] The plaintiffs allege that on January 17, 2020, Ostara advised its

shareholders that they were invited to participate in Class D financing pro rata to the first and second tranche of financing provided by Wheatsheaf and VantagePoint so long as they gave notice of their intention by January 27, 2020, provided the financing by February 14, 2020, and participated in the third tranche if VantagePoint and Wheatsheaf were called upon to do so. The plaintiffs allege that these communications also made no mention of the triggered sale condition in the Class D financing agreement, or the payout of the Class D shares at two times the purchase price in the event of the sale. [43] The plaintiffs allege that the October 2019, November 2019 and January 2020 communications to the shareholders were false, misleading and amount to misrepresentations and negligent misrepresentations, as a result of which none of the plaintiffs participated in the Class D financing. The plaintiffs allege that the members of Ostara's Board, except two persons, did participate in the Class D financing because they had accurate and complete information, including that Ostara was to be sold to Wheatsheaf as a result of the second call for investment. The plaintiffs allege that only two shareholders, other than the members of the Board, participated in the Class D financing. The plaintiffs allege that one of these shareholders was advised of the material terms of the Class D

financing agreement in secret. [44] Wheatsheaf and Ostara entered into an arrangement agreement on May 14, 2020 by which Wheatsheaf purchased all of Ostara's issued and outstanding shares, and Class D shareholders received $1.41 per share. All shareholders of all other classes of shares received $.0001 per share. The plaintiffs allege that Wheatsheaf was permitted to purchase Ostara for a steeply-discounted and commercially-indefensible price for the purpose of ensuring that all Class D shareholders doubled their money and the remaining shareholders received nothing for their shares. [45] The arrangement agreement with Wheatsheaf included a plan of arrangement pursuant to the Business Corporations Act, S.B.C. 2002, c. 57 and required court approval. The interim order provided for, among other things, a special meeting of Ostara's shareholders to approve the plan of arrangement. The plaintiffs allege that the members of Ostara's Board of Directors, including Wheatsheaf and VantagePoint, which had seats on the Board, used their majority shareholdings to approve the plan of arrangement. [46] The final order was issued on July 6, 2020. The plaintiffs allege that Ostara misrepresented facts to the court on the application for a final order. [47] The plaintiffs' claim that the defendants' scheme to sell Ostara to Wheatsheaf was a conspiracy with a predominant purpose of harming the

plaintiffs by excluding them from the benefits of the sale, or an unlawful means conspiracy that breached the defendants' common law and statutory duties by engaging in self-dealing and concealing from the plaintiffs the true business plan of Ostara, which was to sell the company to Wheatsheaf. The plaintiffs also claim that the defendants made negligent misrepresentations to the plaintiffs that induced the plaintiffs to not participate in the Class D financing, and that the defendants breached a duty of care owed to the plaintiffs to provide true, accurate, and complete representations, and that the plaintiffs then relied on these representations. The Arbitration Clause [48] The arbitration clause is identical in each of the shareholder agreements. It reads as follows: Arbitration. Any dispute, claim, question, or disagreement involving the interpretation or enforcement of any provision of this Agreement or breach hereof or otherwise arising under or in connection with this Agreement shall be submitted to binding arbitration administered by the British Columbia International Commercial Arbitration Centre in Vancouver, British Columbia, in accordance with the rules provided for by the Commercial Arbitration Act (British Columbia) (expedited procedures) then in effect or such other rules as the Shareholders and the Corporation may agree. The parties shall attempt to mutually

select the arbitrator. If the parties are unable to choose an arbitrator, the arbitrator shall be selected in accordance [sic] rules provided for by the Commercial Arbitration Act (British Columbia). Each party shall bear its own attorneys' fees, expert witness fees, and cost incurred in connection with any arbitration. "Otherwise Arising Under Or In Connection With This Agreement" [49] In the arbitration clause, the word "otherwise" broadens the arbitration clause to include claims arising under or in connection with the agreement in addition to claims that are a "disagreement involving the interpretation or enforcement of any provision of this Agreement or breach hereof". [50] The defendants assert that the substantive cores of all of the plaintiffs' claims are the defendants' special knowledge that they did not share with the plaintiffs, despite a duty to do so. They say that even though the plaintiffs do not plead that this special knowledge relates to the defendants' roles as directors, the defendants had the knowledge alleged and the alleged duty to disclose because of their roles as members of the Board of Directors of Ostara. They say this provides the requisite connection to the shareholder agreements sufficient to invoke the arbitration clause. [51] The plaintiffs assert that they have not alleged breaches of the shareholder agreements (they did initially but removed

those allegations in the amended notice of civil claim) because the shareholder agreements do not contain provisions relating to the discharge of the directors' and officers' duties. They argue that those duties only arise as a matter of common law and statutory law (the Business Corporations Act and the Canada Business Corporations Act, R.S.C. 1985, c. C-44). They argue that the shareholder agreements are irrelevant to the causes of action in the amended notice of civil claim. [52] It is not arguable that any of the shareholder agreements expressly govern the claims of the plaintiffs. There are no provisions that place a duty on the directors to provide the information the plaintiffs say they ought to have been provided. [53] However, the shareholder agreements contain clauses that oblige the corporation to provide certain information to certain shareholders as a matter of course, and provide that certain shareholders may demand certain information (such as materials for Board of Directors meetings and the minutes of the meetings) and that information must be provided to those shareholders if a demand is made. [54] The shareholder agreements also provide that directors must be provided with certain information within certain timelines. The plaintiffs plead that information was withheld from a plaintiff who had an "observer" position on the Board. Before they amended the notice

of civil claim, the plaintiffs pleaded that the particular plaintiff's entitlement to an observer position on the Board arose out of the shareholder's agreement. [55] The plaintiffs rely on Kaverit Steel & Crane Ltd. v. Kone Corporation, 1992 ABCA 7, leave to appeal ref'd [1992] S.C.C.A. No. 117, in which the Alberta Court of Appeal declined to stay claims in conspiracy where the arbitration clause in a shareholder agreement used the language "arising out of or in connection with". The Alberta Court of Appeal explained that language was broader than typical language such as "under the contract". I take this to be authority for the proposition that "arising under" is not as broad as "arising out of" and therefore the words "arising under" have been historically interpreted to provide for a narrow scope of arbitral jurisdiction. [56] The defendants focused their submissions on the words "or in connection with". They assert that such words demand that the arbitration clause be interpreted very broadly, relying on Kwon at paras. 38 and 50. In Kwon, the counterclaim that was stayed alleged breach of contract (the contract being a shareholder agreement) and breach of fiduciary duty. The breach of fiduciary duty claim did not specify whether the person who was alleged to owe that duty owed it as a director of the corporation or as an employee. Justice Forth held that the fiduciary

duty arguably arose out of that person's role as a director and therefore was "arising out of, or in connection with" the shareholder agreement. [57] The plaintiffs urge the Court to follow the Alberta Court of Appeal's decision in Kaverit, including the proposition that "in connection with" covers disputes where either the plaintiff or the defendant relies on a contractual obligation as a necessary element to create the claim or to defeat it: at paras. 29-30. [58] Decisions, including appellate decisions, decided before the line of jurisprudence set out at the outset of these reasons must be considered carefully given the shift towards the competence-competence approach. Insofar as the Alberta Court of Appeal was describing the relative breadth of types of arbitration clause language, its conclusions remain persuasive. However, on the issue of whether the contractual right or obligation must be a necessary element to the claim or defence in order to be "in connection with" the agreement, Kaverit must be considered carefully because of when it was decided. [59] J. Kenneth McEwan and Ludmila B. Herbst, in Commercial Arbitration in Canada: A Guide to Domestic and International Arbitrations (Toronto: Thompson Reuters, 2022) (loose-leaf updated November 24, 2022), described that the phrase "in connection with" could include tortious claims that have a significant relationship to

the contract. The authors refer to the decision of Desputeaux v. Editions Chouette (1987) Inc., 2003 SCC 17 at para. 35, where the Supreme Court of Canada stressed that the scope of such matters cannot be determined restrictively by the text of the arbitration clause alone, because the arbitrator's mandate includes everything "closely connected" with an arbitration agreement, meaning those "questions that have a connection with the question to be disposed of by the arbitrators". [60] I take this passage to be a reminder that where the factual matrix of the dispute must be examined more closely than superficially to see if it engages a matter in connection with the shareholder agreement, then the appropriate disposition of an application for a stay is to grant the application so the arbitrator can undertake that analysis. [61] The shareholder agreements do not expressly impose a duty to provide the information that the plaintiffs say the defendants ought to have provided. Nevertheless, it is arguable that by addressing what information is to be provided, the shareholder agreements are relevant to the duty to provide information and may inform the scope of the duty. I cannot resolve the issue on superficial review of the record. [62] There are no post-2000 cases that have been cited to me that stand for the proposition that in order to be in connection with an agreement, a

provision of the agreement must be an element of the plaintiffs' claim or the defence, as opposed to being relevant to them. I conclude that the evolution of the law since Kaverit supports referring to arbitration those disputes where an agreement that includes an arbitration clause has a nexus to the dispute in the sense of being relevant, even if the relevance does not rise to the level of being an element of the claim or defence: Clayworth at para. 30, Kwon at paras. 38 and 50. [63] The plaintiffs also assert that the stay application is simply an attempt by the defendants to keep their misappropriation of corporate assets out of the public eye. They say this aspect of the matter informs whether the dispute is one that is covered by the arbitration agreement. [64] I observe that while courts are concerned with the open court concept in proceedings in the courts, an agreement to private dispute resolution does not offend the open court principle. Private dispute resolution is a legitimate goal of agreements to arbitrate and a reason to hold parties to their agreement, giving effect to party autonomy: Peace River Hydro Partners at para.

49. This submission does not assist with determining whether it is arguable that the plaintiffs' claims are subject to the arbitration clause in the shareholder agreements. [65] I conclude that the defendants have met the burden to establish an arguable case that there is a nexus between the shareholder agreements and the plaintiffs' claim or defences to the claim. Therefore, the proceeding should be stayed so an arbitral tribunal may address the matter of jurisdiction. Whether the Defendants Have Taken a Step in the Proceedings [66] This factor is not in dispute. I conclude the defendants have discharged their burden to show that they have applied for a stay before responding to the substance of the dispute. Section 7(2) - Whether the Arbitration Agreement is Void, Inoperative or Incapable of Being Performed [67] The plaintiffs have not raised an issue with the validity or operability of the shareholder agreements. Disposition [68] The application for a stay is allowed. "Matthews J."