TheraVitae Ltd. v. Kwalata Trading Limited, 2011 ABQB 626

Court of Queen ’ s Bench of Alberta Citation: TheraVitae Ltd. v. Kwalata Trading Limited, 2011 ABQB 626 Date: 20111011 Docket: 1001 00799 Registry: Calgary Between: TheraVitae Ltd. and TheraVitae Company Limited Applicants - and - Kwalata Trading Limited Respondent Corrected judgment: A corrigendum was issued on November 9, 2011; the corrections have been made to the text and the corrigendum is appended to this judgment. _______________________________________________________ Reasons for Judgment of the Honourable Mr. Justice J.T. McCarthy _______________________________________________________ I.

Introduction [ 1 ] The Applicants, TheraVitae Ltd. and TheraVitae Company Limited (“TheraVitae(s)”), seek to appeal an arbitration decision of the Honourable R.P. Kerans, in which it was found that counsel for the Respondent, Kwalata Trading Limited (“Kwalata”), had the

authority to submit a dispute between the parties to arbitration. [ 2 ] Pursuant to the Arbitration Act , RSA 2000, c A-43, TheraVitae(

s) must demonstrate that they are entitled to leave to appeal. For the reasons that follow, I decline to grant leave to TheraVitae(s). II. The Parties [ 3 ] Both the Applicants and Respondents, are involved in the development and distribution of stem cell research and therapy.

While at one time, all of the companies were a part of the same corporate family, the parties are no longer one of the same. [ 4 ] The Applicants, TheraVitae Ltd. and TheraVitae Company Limited, are substantially owned and controlled by In Motion Investments Limited (“IMI”). [ 5 ] The Respondent, Kwalata Trading Limited, is owned by TheraVitae Inc. (“TVI”). TVI was formerly owned by IMI. Amoung the points at issue in the Arbitration is whether IMI is a majority shareholder in TVI. III.

Background of Legal Proceedings [ 6 ] The broader dispute between the parties pertains to which of the two groups owns and has the right to control intellectual property in certain stem cell technologies. More specifically, which party is entitled to use and exploit the stem cell research. [ 7 ] In December 2009 Kwalata issued a Notice of Arbitration between it and TheraVitae(s). Kwalata claimed damages of several million dollars arising from alleged breaches of stem cell therapy licencing agreements. [ 8 ] TheraVitae(

s) applied for dismissal or stay of the Arbitration on the grounds that Kwalata did not have the capacity to submit the matter to arbitration. Their application was dismissed. This is an appeal of the dismissal/ stay application. IV. Issue(s ) [ 9 ] Whether the Court should grant TheraVitae(

s) leave to appeal pursuant to

section 44 of the Arbitration Act ? [ 10 ] If not, should the Court grant a stay to these proceedings pending the outcome of related litigation in Ontario? V. Leave to Appeal:

Section 44 of the Arbitration Act [ 11 ] The relevant parts of

Section 44 of the Arbitration Act read as follows:

44(1) If the arbitration agreement so provides, a party may appeal an award to the court on a question of law, on a question of fact or on a question of mixed law and fact.

(2) If the arbitration agreement does not provide that the parties may appeal an award to the court on a question of law, a party may appeal an award to the court on a question of law with leave, which the court shall grant only if it is satisfied that (

a) the importance to the parties of the matters at stake in the arbitration justifies an appeal, and (

b) determination of the question of law at issue will significantly affect the rights of the parties.

(3) Notwithstanding subsections (1) and (2), a party may not appeal an award to the court on a question of law that the parties expressly referred to the arbitral tribunal for decision. ...

(5) The court may confirm, vary or set aside the award or may remit the award to the arbitral tribunal and give directions about the conduct of the arbitration. VI. Parties ’ Positions [ 12 ] TheraVitae(

s) argues that they should be granted leave to appeal pursuant to section 44(2) of the Act and that the Appeal is not barred by operation of section 44(3). [ 13 ] Section 44(2) allows for an appeal on a question of law where the court is satisfied as to (1) the importance of the matters at stake and (2) the significance of the question of law to the rights of the parties. TheraVitae(

s) submits that the issue on appeal is a question of law as the Arbitrator's decision (as they interpret it), turned entirely the basis that he lacked the power to make a decision which might affect the rights of a third party. They allege that this is a question of jurisdiction which, on the authority of PSAC local 303301 v. Calgary Airport Authority , 2006 ABQB 379 , is a question of law. [ 14 ] The Appellants further submit that the issue on appeal is an issue of great importance that will significantly affect the rights of the parties.

The monetary amounts involved in the dispute are in the millions of dollars and the outcome of the Arbitration will impact parties in Alberta, Ontario, Israel, and Thailand. [ 15 ] TheraVitae(

s) claims that the appeal is not barred by section 44(3) of the Act. Section 44(3) prevents a party from pursuing an appeal on a question of law that the parties expressly referred to the arbitral tribunal for decision. They submit that section 44(3) provides a very limited exception to the Court’s power to grant leave and that it is only engaged with respect to a very specific question put to an arbitrator in an arbitration agreement. [ 16 ] Kwalata submits that the Appeal should be barred by operation of section 44(3).

They argue that the issue before the Arbitrator was whether or not the Respondent had the authority to bring the Arbitration proceedings. This issue was expressly referred to in the Arbitration Agreement and the Arbitrator found that Kwalata's Board had properly authorized the proceedings. As section 44(3) bars appeals on questions of law that were expressly referred to the arbitral tribunal for decision, the Applicants ’ claim should be barred.

[17] In the alternative, Kwalata submits that the Applicants’ claim should be barred as they have not met the threshold required forleave pursuant to section 44(2). In support of their position, they claim that this appeal does not concern a question of law (as requiredunder section 44(2)) but rather a question of mixed law and fact. VII.

Analysis [18] While section 44(2) allows for appeals on questions of law where certain criteria have been met, section 44(3) prohibits acourt from granting leave where the question being appealed was expressly referred to the arbitral tribunal for decision. [19] I accept Kwalata’s position that this Appeal pertains to a question of law that was specifically referred to the arbitral tribunalfor decision and is barred by section 44(3). [20] Paragraph 10(

a) of the Arbitration Agreement reads: 10. The parties agree that the questions for the Arbitrator are: (

a) Whether the Claimant has status or capacity to bring commence and continue this Arbitration; [21] The Arbitrator made a clear and unequivocal finding that the Respondent had the capacity to submit the matter to arbitration.Paragraph 1 of the Decision reads: This is an application by the Respondents in the arbitration to strike the Notice of Arbitration filed by the Claimant Kwalata on the basisthat counsel had no authority to act. In response, counsel for Kwalata, Mr. Kenneth P. Reh, produced evidence that the Directors ofKwalata Trading Limited had in fact by resolution authorized these proceedings, and I am satisfied this is true. [22] The Arbitrator’s decision was based on an

interpretation of leading business law principles. Paragraphs 6 and 7 of the decisionstate: 6. ...the law at present in Canada as stated in Teck Corp v. Millar (BC SC), [1972] BCJ No. 566 (BCSC) at 83: “The directors’ power to manage the affairs of the company is complete. That is, a majority of shareholders, even if they pass aresolution at a general meeting, cannot dictate to the directors...The directors are not the agents of the shareholders. Once given power tomanage the company they can exercise that power according to their best judgment, until removed from office...” 7.

In my view, those old rules remain in force today, and that should be an end to this matter. I therefore dismiss the application. [23] I reject TheraVitae’s submission that the Arbitrator’s decision turned entirely on the basis that he lacked the authority to makea decision which might affect the rights of a third party. While the Honourable R.P Kerans considered the role of TVI in relation to theproceedings, this was not the basis of his decision. Paragraph 1 of the Decision clearly states that the crux of the decision is whetherKwalata had authority to initiate these proceedings.

The Arbitrator dealt with this issue and the parties must accept his finding. [24] As I have found that Applicants’ application for leave to appeal is barred by section 44(3), I decline to consider the merits ofleave to appeal pursuant to section 44(2).

VIII. Stay of Proceedings [ 25 ] If leave to appeal is not granted, which it is not, TheraVitae asks this Court to grant a stay of these proceedings pending the determination of related litigation in Ontario. [ 26 ] In response, Kwalata argues that the issue of a stay has yet to be considered by the Arbitrator and it would be inappropriate for this Court to usurp the role of the arbitrator in doing so. Kwalata asks that the matter be remitted to the Arbitrator for his consideration. [ 27 ] I agree with Kwalata and decline to grant a stay in these matters.

The Applicants are free to apply to the Arbitrator for consideration of this issue. IX. Conclusion [ 28 ] TheraVitae’s application for leave to appeal is dismissed. [ 29 ] The parties may make an appointment to speak to costs if necessary. Heard on the 13 th day of September, 2011. Dated at the City of Calgary, Alberta this 11 th day of October, 2011. J.T. McCarthy J.C.Q.B.A. Appearances: Kenneth P. Reh for the Applicant/Respondent Peter R.S. Leveque for the Respondents/Applicants

_______________________________________________________ Corrigendum of the Reasons for Judgment of The Honourable Mr. Justice J.T. McCarthy _______________________________________________________ Page 1 Citation line Delete: TheraVitae Ltd and TheraVitae Company Limited v. Kwalata Trading Limited, 2011 ABQB 626 Replace: TheraVitae Ltd. v. Kwalata Trading Limited, 2011 ABQB 626