Nizamov v, 2016 ABQB 401

Court of Queen ’ s Bench of Alberta Citation: Nizamov v 1861398 Alberta Ltd, 2016 ABQB 401 Date: 20160714 Docket: 1501 12131 Registry: Calgary Between: Maxim Nizamov and Sunvalley Kids Academy Learning Centre Ltd. Plaintiffs - and - 1861398 Alberta Ltd., Michael Lindenbach and Shaun Walker Defendants _______________________________________________________ Memorandum of Decision of A. R. Robertson , Q.C., Master in Chambers _______________________________________________________ Overview [ 1 ] The defendants apply for a stay of proceedings pursuant to

section 7 of the Arbitration Act , RSA 1980, chap. 8 – 43. They say the parties agreed to arbitrate their differences and ask that this action be stayed to allow that to occur. The plaintiffs oppose the stay on a variety of grounds. For the reasons set out below, I dismiss the application. Who Are the Contracting Parties?

[ 2 ] The first problem is figuring out who were intended to be the parties to the agreement. There were only two, or maybe three, parties to the agreement; there are five parties to this lawsuit (or may only four – there is a counterclaim that has not yet been served on the fifth one). [ 3 ] The dispute relates to a construction job. A renovation contract was signed, naming as parties “Cal Alta Project Management Ltd.” as the “Contractor” and Max Nizamov, Tatyana Zhigarina - but it did not define Mr. Nizamov or Ms. Zhigarina as anything.

I presume the intention was define them as the “Owner”, because the agreement then discussed the responsibilities of the “Contractor” and the “Owner”. [ 4 ] However, Ms. Zhigarina did not sign - only Mr. Nizamov signed the document, presumably for the customer or owner. The attachment to the agreement referenced the customer as “Mission day care Max Nizamov”. [ 5 ] However, the plaintiff Sun Valley Kids Academy Learning Centre Ltd. asserts that it was the customer, that Mr. Nizamov is a director of it, and that he entered into the agreement on its behalf. Accordingly, both were named as plaintiffs. Ms.

Zhiganrina, who was named in the agreement but had not signed anything, was not named as plaintiff. [ 6 ] And there is no “Cal Alta Project Management Ltd.” It turns out that the company is 1861398 Alberta Ltd. and that it carries on business using the “Cal Alta” name, obviously improperly by adding the “Ltd.” in violation of section 10(10) of the Business Corporations Act , RSA 2000 chap. B-9.

The Disputes [ 7 ] The second set of problems involves disputes over the work, its extent, its cost, and allegations of false documentation. [ 8 ] The plaintiffs sued for failure to provide an accounting for the work provided by the Contractor’s subtrades, based on allegations of many irregularities, including “invoices from subtrades that never completed the work” and “invoices that generally appear fabricated”. The claim also asserted that the work was not completed properly, and that the Contractor had claimed for work that was not authorized or agreed to by the plaintiffs.

Claims were also made for negligence in performing the work and for misrepresentation, for “false and untrue statements” which are alleged to have induced the plaintiffs to enter into the contract. These alleged misrepresentations are that the defendants represented that there was to be full transparency of the work and the invoices and that the invoices would accurately reflect the work to be done. [ 9 ] These allegations of misrepresentation are tort claims and the plaintiffs want the tortfeasors involved personally in the dispute. That is why Messrs.

Lindenbach and Walker are named. [ 10 ] The statement of claim was filed November 12, 2015. The statement of defence was filed November 27, 2015, and a counterclaim was filed the same day, naming both the plaintiffs and another party as defendants by counterclaim. A statement of defence to counterclaim was filed on December 18, 2015. I assume, given the relative dates, that each pleading was served reasonably promptly after being filed with the Court. [ 11 ] The counterclaim added Ms. Zhigarina as a defendant by counterclaim.

It claims for the additional work that it claims was authorized by the defendants by counterclaim, on the basis that the Contractor was instructed to do $32,366.70 worth of work, it did half and was paid for half, and although it proceeded to complete the work, it was not paid for the second half of the work. [ 12 ] The counterclaim asks for an additional $21,717.00 for work it claims was authorized by the property management company that was responsible for the property, Bentall Kennedy.

The Contractor claims that there was a three-way agreement amongst the Contractor, Bentall Kennedy and the defendants by counterclaim for some work repairing deficiencies in the building. They say that Cal Alta would do the work, bill the defendants by counterclaim, and then the defendants by counterclaim would be reimbursed by Bentall Kennedy. The Arbitration Clause [ 13 ] No objection to the court proceedings was raised until three months after the filing of the defence to counterclaim, and after the plaintiffs had delivered their affidavit or affidavits of records.

The defendants asserted that they were invoking the arbitration clause by letter to plaintiff’s counsel on March 15, 2016. That was the first time the arbitration clause was raised. [ 14 ] When it was time for the defendants to deliver their affidavits of records, this application to stay was brought. It was filed May 2, 2016, over five months after the statement of defence was filed. [ 15 ] Paragraph 14 of the Renovation Contract provided for arbitration: 14. Dispute Resolution The Owner and the Contractor agree that in the event of a dispute as to the

interpretation of this Contract or the extent of the Work, the issues shall be submitted to provincial/territorial Consumer Affairs office. Failing a resolution both parties agree to submit to binding arbitration by an independent arbitrator or [sic] under the province’s arbitration statute. Submissions for the Defendants [ 16 ] The defendants argue that notwithstanding the passage of time, they are not caught by section 7(2)(

d) of the Arbitration Act, which provides that the court may refuse to stay the court proceedings if the application to stay was brought “with undue delay”. [ 17 ] Furthermore, they argue that the essential subject matter of the dispute is clearly covered by the arbitration clause. Although the defendants have brought in another party by counterclaim, that new defendant by counterclaim has not been served. Defence counsel

now “concedes” that the claim against the additional party is probably not very strong and he has instructions to abandon it if the stay is granted. I made it clear in oral argument that it would be a term of the stay, if granted, that the plaintiff by counterclaim must file an undertaking with the Court not to pursue any further proceedings against her, in order to avoid mischief. He conceded that was appropriate. Submissions for the Plaintiffs [ 18 ] The plaintiffs respond that (

a) the defendants have attorned to the court as the forum for the resolution of their dispute; (

b) recent Alberta case law supports this view; (

c) the plaintiffs were induced to deliver their affidavit of records, allowing the litigation to proceed even after the close of pleadings; (

d) there was no reference in the statement of defence to the arbitration clause; (

e) notwithstanding the defendants’ current offer to discontinue any claim as against the defendant by counterclaim the defendants did, in fact, add a new party; (

f) the counterclaim deals with matters that are not properly the subject of arbitration proceedings given the submission to arbitration in the contract (matters that are not just against the new party); and (

g) in particular the plaintiff by counterclaim claims to be paid for work that was alleged to be done outside the scope of the contract. That work, at least, is not properly part of an arbitration under the contract. [ 19 ] The plaintiffs point out that each case must be examined on its own, and the facts here are that the arbitration clause is of limited application. The original claim advanced by the plaintiff includes a claim for misrepresentation.

Their counsel points out that although the word “fraud” was not used, the claim might be in part a claim for cost plus (discussed below), and that the invoices that have been provided appear not to be genuine. She argues that this tort claim, bordering on (or perhaps actual) criminal behaviour is not properly part of a possible arbitration.

The case advanced by the plaintiffs is broader than a case that would properly be referred to arbitration. [ 20 ] In the result, the staying of these proceedings for an arbitration raises the spectre of multiple proceedings for different aspects of the same claim. [ 21 ] She also asserts that the production of records, given the concern about questionable, perhaps false, invoices, is extremely important to the plaintiffs. The Arbitration Act does not automatically include a requirement of record production.

Reply Submissions of the Defendants [ 22 ] In reply, counsel for the defendant points out that the assertions of “fraud” are new to him - although the statement of claim specifically addresses “false and untrue” misrepresentations, and the statement of defence specifically denied that there were any misrepresentations. [ 23 ] Defence counsel further argues that one individual (Michael Lindenbach) is a party to the lawsuit, but not expressly a party to the contract, however the plaintiff asserts in the claim that the contract was actually with him, so the plaintiffs cannot stand on the objection that he is a “new” party, not party to the agreement. [ 24 ] Furthermore, he points out that changes to the work were expressly contemplated by the agreement.

The additional work is therefore part of the contract notwithstanding that it was not part of the original fixed price component of the work. [ 25 ] He points out that the provisions in section 7(2) of the Arbitration Act focus on delay, not merely the fact that pleadings were filed by his clients. Analysis [ 26 ] Although the initial work described in the agreement was for a fixed price, any changes to the work were to be calculated in one of three manners, either (

a) material cost plus hourly rate of subtrades, (

b) subtrade bills plus 10% for management, or (

c) a lump sum to be agreed upon. There was supposed to be a check mark or “x” next to one of these three options. Nothing was checked off. Furthermore, the facts here indicate that there was an additional “extras” category dealing with the work said to be authorized by the property management company, Bentall Kennedy. [ 27 ] In the circumstances , it is clear that the issues relating to the subtrades’ invoices are very important. Although the word “fraud” is not used in the statement of claim, the claim speaks to what appears to be intentional misrepresentation.

Isn’t that an allegation of fraud? [ 28 ] Counsel for the plaintiffs is correct that the Arbitration Act does not expressly provide for affidavits of records and the usual disclosure process which, in the case of fraud claims, is very important.

However, a commercial arbitrator would normally provide some prehearing directions as to document production to avoid surprises, and consequential adjournments, or (worse) a miscarriage of justice at the arbitration hearing. [ 29 ] As to delay and its impact on the applicability of the arbitration clause, several cases have been cited. [ 30 ] In 2002, the Ontario Superior Court addressed allegations of “waiver” by “fresh steps” taken by the party asking for

arbitration when it had defended the claim brought in the court. It was a construction lien action that had not proceeded past thepleading stage, without production, discovery, and the matter was “far from proceeding to trial”. Accordingly, the Court found that therehad been no undue delay in invoking the arbitration clause. The defendant had done no more than protect its interest by defending:Brock University v Stucor Construction Ltd, [2002]O.J.

No 2300, 33 C.L.R. (3d) 182. [31] In 2004, the Manitoba Court of Queen’s Bench dealt with similar circumstances, although there was not merely a defence butalso a counterclaim filed before the stay application was brought. However, they were only filed after the defendant had attempted topersuade the plaintiff to go to arbitration. The matter seems to have sat from August 2002, when the defence and counterclaim werefiled (and the defence was filed under protest) until August 2003 when the plaintiff sought

summary judgment. That was when thedefendant applied for a stay pending arbitration. In addressing the defendant’s delay in making that an application, the Court took intoaccount the fact that the plaintiff did not pursue the matter with any haste. The Court concluded that the filing of the statement ofdefence and counterclaim, in and of itself, was not a bar to the stay of proceedings, “particularly so when there have been no significantconsequences in terms of expense or proceedings”: Anatex Development Inc v Palm Enterprises Ltd, 2004] M.L. No 164, 2004 MBQM83.

The Court distinguished a 2003 Saskatchewan Court of Queen’s Bench decision where the defendant did not raise the arbitrationclause in its defence, or at all, until after a motion for

summary judgment and several adjournments, including to cross-examine onaffidavits: Lashburn AG Ventures Ltd v Western Grain Cleaning & Processing Ltd, [2002] S.J. No 657 (reversed on other grounds,[2003] CarswellSask 444 (C.A.). [32] In 2005 the Alberta Court of Queen’s Bench considered “undue delay” in Lafarge Canada Inc v Edmonton (City), 2015ABQB 56 , [2015] A.J. No 69, 2015 CarswellAlta 83. The Court noted that “[t]he assessment ... is necessarily made in view ofthe particular circumstances before the court”, citing Eiffel Developments Ltd v Paskuski, 2010 ABQB 619 at para. 22 (M.C.).

TheCourt in Lafarge listed the following factors to be considered when determining whether there had been undue delay: (

a) how long the parties have been active in the litigation, (

b) the length of delay (though not determinative), (

c) whether or not the parties are applying for a stay based on a genuine desire to arbitrate, or if they are looking to avoid an adverseruling for some other nefarious purpose, (

d) how much they have spent on the litigation, (

e) the plaintiff’s reliance and assuming litigation was going forward, and (

f) notice given to the other party that arbitration was mandatory. [33] The Court noted that the list was not exhaustive. Other factors may be relevant. [34] The Court also approached the facts before her on the basis of a possible “attornment” by the mutual acceptance of the courtprocess long before the arbitration clause was raised. However, the defendant had specifically pled in its statement of defence that theparties were bound by mandatory arbitration.

Accordingly, there was no attornment by pleading to the claim. [35] In 2009, the Alberta Court of Queen’s Bench addressed the circumstances where there was an arbitration agreement amongstsome parties but a dispute that involved others as well. The Court concluded that the claims against the other parties were inextricablylinked to the claims that might be arbitrated, and could not reasonably be separated.

In order to prevent a multiplicity of actions theCourt stayed the arbitration and allowed the court proceedings to continue: Lamb v AlanRidge Homes Ltd, 2009 ABQB 170, 2009CarswellAlta 396. [36] In the circumstances here, the lawsuit has not proceeded a long ways past the pleading stage, but the arbitration clause wasnot pled in the defence, and it was not raised at all by the defendant until after the plaintiffs delivered their affidavit or affidavits ofrecords.

That is a factor that tends to militate against the stay of proceedings. [37] Although that is not determinative here, there are several other factors that direct the exercise of discretion. [38] The original agreement is not clear even as to who were the parties, either as contractor or as customer. Accordingly, it is notcompletely clear who agreed to arbitrate their disputes. Furthermore, the nature of the claims by the customer is not, at least to someextent, the typical dispute that might arise in determining “the extent of the work”.

The plaintiffs claim to have been misled into enteringthe contract in the first place, and in addition they claim to have been the victims of misrepresentation as to invoices supposedly providedby sub trades. This takes the dispute beyond the scope of the arbitration clause. [39] Furthermore, the claim was advanced not only against the contractor 1861398/Cal Alta, but also against Mr. Lindenbach andMr. Walker. Although the claim against Mr. Lindenbach is, at least to some extent, equivalent to a claim against the contractor (giventhe confusion as to parties), the claim against Mr.

Walker is not. [40] (The counterclaim against Ms. Zhigarina could be dealt with as proposed by defence counsel, discussed above. It is not afactor here.) [41] Finally, the reference to the involvement of Bentall Kennedy raises at least the possibility of another party being added atsome point.

The contractor claims that part of the work that it now sues for was done for the benefit of Bentall Kennedy, althoughpayment was to come through the plaintiffs. [42] For all these reasons - both the delay in relying on the arbitration clause, the scope of the dispute, and the parties involved -the application to stay these proceedings is dismissed.

[ 43 ] If the parties are unable to agree on costs, they may approach the Court for an order. Heard on the 27 th day of May, 2016. Dated at the City of Calgary, Alberta this 14 th day of July, 2016. A. R. Robertson, Q.C. M.C.C.Q.B.A. Appearances: Shaun Flannigan Merchant Law Group LLP for the Applicants (Defendants) Elena Semenova Peacock Linder Halt & Mack LLP for the Respondents (Plaintiffs)