Fernandes v Jennings Capital Inc, 2016 ABQB 594

Court of Queen’s Bench of Alberta Citation: Fernandes v Jennings Capital Inc, 2016 ABQB 594 Date: 20161021 Dockets: 1401 05836, 1201 09416 Registry: Calgary And Court File No: 1401 05836 Gordon Fernandes Plaintiff (Respondent) - and - Jennings Capital Inc., JCI Acquisitions Inc., Daryl Hodges, David McGorman and Michael Cappuccitti Defendants (Applicants) Court File No: 1201 09416 Douglas Van Peteghem, Earle McMaster, Tim Fisher and Gordon Fernandes Plaintiffs (Respondents) - and – Jennings Capital Inc. Defendant (Applicant) _______________________________________________________ Reasons for Decision of the Honourable Mr. Justice P.R. Jeffrey

_______________________________________________________ I. Introduction [ 1 ] In the context of case management of these two law suits, the Defendants apply to strike both actions in their entirety, pursuant to Rule 3.68, on the grounds the parties agreed to arbitrate such claims and the Plaintiffs have failed to commence arbitration within the time required by the Limitations Act .

The Defendants say, therefore, this Court is without jurisdiction to hear the claims. [ 2 ] The Plaintiff, Mr Gordon Fernandes, says the agreement relied on by the Defendants does not mandate arbitration, that in any event the limitation periods have not expired, and that, in any event further, the Defendants by their conduct have both attorned to the jurisdiction of this Court and “laid in the weeds” purely for tactical advantage, to avoid resolution on the merits. Fernandes says that each of those reasons alone requires the Court to deny the application. II.

Background [ 3 ] This Application deals with two related actions. In 2012, Douglas Van Peteghem, Earle McMaster, Tim Fisher and Gordon Fernandes filed a Statement of Claim against Jennings Capital Inc. (the “ 2012 Action ”). They were shareholders and former employees of Jennings Capital Inc. (“ Jennings ”). They alleged that Jennings breached a unanimous shareholders’ agreement binding them all (the “ USA ”) by not buying back the Plaintiffs’ shares as it required. [ 4 ] The Plaintiffs in the 2012 Action entered into separate share purchase agreements with JCI Acquisitions Inc. (“ JCI ”).

Thereafter Fernandes ceased prosecuting his claim in the 2012 Action. [ 5 ] In 2014, the Plaintiff Gordon Fernandes (“ Fernandes ”) filed a new Statement of Claim against Jennings, this time naming different defendants along with Jennings: JCI, Daryl Hodges ( “Hodges” ), David McGorman ( “McGorman” ) and Michael Cappuccitti ( “Cappuccitti” ). In this new claim Fernandes alleges breach of the share purchase agreement he entered into with JCI (the “ SPA ”), breach of the USA, fraudulent preferences and oppression (the “ 2014 Action ”).

Parties [ 6 ] Fernandes is the sole remaining Plaintiff in both actions and Respondent in this Application. He resigned his employment with Jennings on November 28, 2011. [ 7 ] Jennings was an Alberta corporation that operated an investment dealer business. Jennings was acquired by Mackie Research Capital Corporation (“ Mackie ”) in November 2014. Mackie is Jennings’ successor. [ 8 ] JCI was an Alberta corporation created for the sole purpose of acquiring shares in Jennings pursuant to various share purchase agreements.

JCI was a shareholder in Jennings as of November 13, 2012. [ 9 ] Hodges is a former President and Chief Executive Officer of Jennings and JCI. He is also a former director and shareholder of Jennings and JCI. [ 10 ] McGorman was the former interim President and Chief Executive Officer of Jennings and JCI. He is a former director and shareholder of Jennings. [ 11 ] Cappuccitti is a former director and shareholder of Jennings. USA [ 12 ] The USA is dated March 30, 2011. Under

Article 6 of the USA, a resigning employee had to sell back to Jennings all his or her shares in the corporation. Jennings had to repurchase them.

Schedule C set the repurchase price and

Article 6.5 dictated the timing. [ 13 ]

Article 6.5 required that the resigning employee’s shares be bought back within a certain period of time, the period of time being contingent on the amount of shares held in Jennings. At his resignation Fernandes held more than 3% of issued and outstanding shares.

Article 6.5 states: The Corporation shall purchase a Shareholder’s Shares and repay a Shareholder’s Temporary Subordinated Loans in accordance with

section 6.2 as follows: … (b) … if the Shareholder’s Pro-Rata interest in all the Shares then outstanding: ... (iii) is greater than 3%, one-half within six months and the balance within nine months of the date of Resignation.

[ 14 ] Therefore, under

Article 6.5, half of Fernandes’ shares had to be re-purchased by May 28, 2012 and the balance of his shares had to be re-purchased by August 28, 2012. [ 15 ] However,

Article 6.6 of the USA imposed several restrictions on Jennings’ ability to re-purchase the shares. Essentially, these restrictions required Jennings to be fiscally viable and for the Investment Industry Regulatory Organization of Canada (“ IIROC ”) to approve the buy-back; otherwise,

Article 6.6 did not permit Jennings to re-purchase the shares. [ 16 ] The USA contained other clauses at the heart of this application: the “Enforcement” clause, at

Article 7.9, the “Breach” clause, at

Article 9.3, and the “Arbitration” clause, at

Article 10.3. They state: 7.9 Enforcement The Parties agree that damages may not be an adequate remedy for the failure of a party to perform the provisions of this Agreement, and accordingly the parties agree that the provisions of this Agreement may, at the discretion of the innocent party, be enforced by injunction, an order of specific performance or such other equitable remedy as may be awarded by a Court of competent jurisdiction. ... 9.3 Breach The Shareholders acknowledge that a breach by the Shareholder of any of the covenants in this

Article by any one of them would result in damages to the Corporation and that the Corporation cannot adequately be compensated for such damages by monetary award. Accordingly, in the event of any such breach, in addition to all the remedies available to the Corporation at law or in equity, the Corporation shall be entitled as a matter of right to apply to an Alberta Court for such relief by way of restraining order, injunction, decree, or otherwise, as may be appropriate to ensure compliance with the provisions of this Article.

The Shareholders further agree that the Corporation may apply for and is entitled to injunctive relief without having to prove damages, and is entitled to all costs and expenses incurred to enforce this Article, including legal costs on a solicitor/client full indemnity basis. ... 10.3 Arbitration In the event that any disagreement arises between the parties hereto with reference to this agreement or any matter arising hereunder and upon which the parties cannot agree, then any such dispute shall be referred to arbitration in accordance with the provisions of the Arbitration Act (Alberta) or other similar legislation in force in the Province of Alberta from time to time.

The 2012 Action [ 17 ] On July 25, 2012, Fernandes and others commenced the 2012 Action against Jennings. [ 18 ] In his Statement of Claim, Fernandes alleges that Jennings breached

Article 6 of the USA by not buying back his shares when required to do so. Fernandes seeks specific performance – he seeks an order requiring Jennings to repurchase his shares at the repurchase price mandated by the USA. In the alternative, Fernandes seeks damages to compensate him for Jennings’ failure to repurchase the shares. [ 19 ] Jennings filed its Statement of Defence on August 17, 2012. In it Jennings states, among other things, that all of Fernandes’ claims are subject to

Article 10.3, the arbitration clause, and he cannot proceed against it in court. SPA [ 20 ] Fernandes and JCI entered into the SPA on October 30, 2012. They are its only parties. [ 21 ] Under the SPA, JCI agreed to repurchase Fernandes’ 150,000 shares in Jennings for $3.00 per share, provided that IIROC approved.

Article 8 of the SPA stated that the parties agreed “to execute and deliver all such further documents and instruments and to do all acts and things as may be necessary or desirable to carry out the full intent and meaning of this Agreement”. [ 22 ] JCI submitted the share purchase agreement to IIROC for approval on November 5, 2012. However, on December 5, 2012, Hodges withdrew the request. IIROC’s approval was not received. On December 10, 2012, Hodges informed Fernandes by email that JCI was unable to purchase his shares.

The 2014 Action [ 23 ] On May 27, 2014, Fernandes filed the 2014 Statement of Claim against Jennings, JCI, Hodges, McGorman and Cappuccitti, serving it on the Defendants July 23 and 24, 2014. In it Fernandes claims breach of contract, fraudulent preferences and oppression. For the fraudulent preference and oppression claims, Fernandes alleges the Defendants repurchased the shares of other employees who resigned later in time than Fernandes, even though Fernandes had priority to a buyout under the USA.

Fernandes also alleges that the Defendants paid out bonuses to shareholders while at the same time not repurchasing his shares. [ 24 ] Fernandes also seeks specific performance of the SPA, damages for the breach of the SPA, damages for the fraudulent preference, damages for the oppression, and several declarations and injunctions. [ 25 ] The Defendants filed a Statement of Defence on August 15, 2014, maintaining

Article 10.3 of the USA applied and Fernandes

was required to proceed by arbitration. [ 26 ] On November 30, 2014, Mackie acquired all of the shares in Jennings by way of a merger agreement. On that date Fernandes ceased to be a shareholder in Jennings. III. Test on an Application to Strike [ 27 ] The application relies on Rule 3.68 of the Alberta Rules of Court , Alta Reg 124/2010, which states in part: 3.68(1) If the circumstances warrant and a condition under sub-rule (2) applies, the Court may order one or more of the following: (

a) that all or any part of a claim ... be struck out; ....

(2) The conditions for the order are one or more of the following: (

a) the Court has no jurisdiction; ... (

d) a commencement document or pleading constitutes an abuse of process; .... [ 28 ] The test for striking a claim under Rule 3.68(

a) in these circumstances is whether it is plain and obvious or beyond reasonable doubt that the claim cannot succeed. On this the parties agree. Also, evidence can be admitted for an application to strike under Rule 3.68 (

a) and the court will not assume that every fact pleaded is true ( Kniss v Stenberg , 2014 ABCA 73 at para 21 ). Rather, the court can make findings of fact when there is a clear basis to do so. From Kniss v Stenberg , 2014 ABCA 73 at para 21 , “where the record is sufficiently clear to fairly decide an issue, there is no need to defer the issue to trial”. [ 29 ] The Applicants also say the pleadings constitute an abuse of process. The test to strike for abuse of process is slightly different (see McMeekin v Alberta , 2012 ABQB 144 at para 29 ).

However, while mentioning abuse of process, the Applicants do not make any arguments that suggest that Fernandes meets any of those grounds, such as being vexatious or that his pleadings were unsubstantiated, futile, or duplicitous. I took the Applicants to mean by their alleging abuse of process, simply that in the face of the mandatory arbitration clause this Court has no jurisdiction to hear these claims and therefore it is an abuse of process to persist in their prosecution.

The only test I apply, therefore, is the one for whether this Court has jurisdiction to hear the claims, that is, whether it is plain and obvious or beyond reasonable doubt that the claim(

s) cannot succeed. IV.

Summary [ 30 ] For the reasons that follow, I conclude that: 1. Most of the claims brought by Fernandes must be arbitrated; they do not fall within any of the agreed upon exceptions to mandatory arbitration. 2. The exceptions are the claims that fall within

Article 7.9 of the USA and the claims for breach of the SPA; Fernandes is not contractually bound to proceed by arbitration with respect to those claims. 3. The limitation period for commencing arbitration has expired for all claims falling within the obligation to proceed by way of arbitration. 4. For the time barred arbitration claims, sub- section 7(2) of the Arbitration Act is not available to Fernandes. Once the limitation period has expired, I have no jurisdiction under that sub-section to extend the limitation period because of any undue delay or the propriety of

summary judgment. 5. In any event, the Applicants are not guilty of undue delay. 6. I find the Applicants did not attorn to court litigation or waive their contractual right to demand Fernandes proceed by arbitration. 1. Some of the claims in the 2012 Action must proceed by way of arbitration [ 31 ] This conclusion turns in large part on the correct

interpretation of, and interplay between, Articles 7.9 and 10.3. Parties’ Positions [ 32 ] Jennings says that

Article 10.3, the arbitration clause, applies to all parties involved in the 2012 Action. It contends that 10.3 obligates Fernandes to proceed by arbitration. It says that the 2012 Action is founded on the USA and relates entirely to its alleged failure to repurchase the Plaintiffs’ shares as required by

Article 6 of the USA.

[33] Jennings points to Toyota Tsusho Wheatland Inc v Encana, 2016 ABQB 209, for the manner in which an arbitration clauseand an exception clause should be interpreted. In Toyota, the Court held that the arbitration clause was mandatory and the equitableremedy clause was included simply to allow the court to provide ancillary remedial relief after a breach was determined througharbitration. [34] Fernandes says that

Article 7.9 renders arbitration permissive not mandatory for him, as the “innocent party”. Fernandespoints to Olymel SEC v Premium Brands Inc, 2005 ABQB 312, saying that the existence of other remedies beyond an arbitration clausemeans the parties intended they could choose either court or arbitration. [35] Fernandes also says “clear language is necessary in order to take away the right of a person to have recourse to the courts”,relying on Frambordeaux Developments Inc v Romandal Farms Ltd, [2007] OJ No 4917 at para 30 (ONSC).

As the contractuallanguage in this case is ambiguous, he argues, the arbitration clause cannot be mandatory. [36] Further, Fernandes argues that the arbitration clause should be interpreted narrowly; the 2012 Action does not fall within itsscope. Fernandes says

Article 7.9 allows for equitable claims arising out of the USA to be brought to court for resolution, such as hisclaim. [37] Jennings replies that

Article 7.9 is simply a codification of existing law. Injunctive relief, which is allowed under

Article 7.9,is always available even in the face of a broadly worded arbitration clause. Therefore,

Article 7.9 does not render the arbitration clauseoptional. [38] Jennings further argues that Frambordeaux and Olymel, do not stand for the propositions cited. Jennings argues that thosecases were decided based on the judicial aversion to a multiplicity of proceedings, not on the fact that both litigation and arbitration wereprovided for in the subject agreements. Jennings cites Lamb v AlanRidge Homes Ltd, 2009 ABQB 170, in which this Court alsointerpreted the two cases in that way. Contractual

Interpretation [39] In understanding the parties’ intent embodied in the USA, and in particular reconciling Articles 7.9 and 10.3 of the USA, I amguided by Sattva Capital Corp v Creston Moly Corp, 2014 SCC 53 at para 47: [...] the

interpretation of contracts has evolved towards a practical, common-sense approach not dominated by technical rules ofconstruction. The overriding concern is to determine “the intent of the parties and the scope of their understanding”.... To do so, adecision-maker must read the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with thesurrounding circumstances known to the parties at the time of formation of the contract.

Consideration of the surrounding circumstancesrecognizes that ascertaining contractual intention can be difficult when looking at words on their own, because words alone do not havean immutable or absolute meaning: No contracts are made in a vacuum: there is always a setting in which they have to be placed. ...

In a commercial contract it is certainlyright that the Court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of thetransaction, the background, the context, the market in which the parties are operating. (Reardon Smith Line, at p. 574, per Lord Wilberforce) [40] The year before that Supreme Court decision, the Alberta Court of Appeal put it this way, in AG Clark Holdings Ltd vHOOPP Realty Inc, 2013 ABCA 101 at paras 15 – 17: As this Court recently noted in Nexxtep Resources Ltd v Talisman Energy Inc, 2013 ABCA 40 at para 20, contracts should beenforced in accordance with the intention of the parties, gleaned from the words used in their agreement.

The Court went on in that caseto emphasize that the words are not to be interpreted in a vacuum. The Court must have regard to the contract as a whole, giving thewords used their natural and ordinary meaning, and also having regard to the relevant background context. The interpretive exercise was explained as follows in ATCO Electric Ltd v Alberta (Energy and Utilities Board), 2004 ABCA 215 at para 77: . . . the search for the parties’ intentions is conducted on an objective basis, meaning that the focus is on what a reasonable person wouldinfer from the words used.

This interpretive exercise must be undertaken with due regard to the entire contract. One cannot simply pickand choose clauses – or parts of clauses – without considering the contract as a whole. It also means being alive to the relevantbackground against which the contract was concluded, the purpose of the exercise being to ascribe to the written text the mostappropriate meaning which the words can properly bear. The first step in determining the parties’ intent with respect to dispute resolution is, therefore, to examine the words they have chosen touse.

Article 7.9 creates a category of exceptions to

Article 10.3 [41] The phrase in

Article 10.3: “any matter arising hereunder and upon which the parties cannot agree” is very broad. [42] By including in the USA Articles 7.9 and 9.3, however, the parties to the USA intended exceptions to 10.3.

Article 9.3 appliesonly to proceedings “the Corporation” (Jennings) might commence. By 9.3, in the limited circumstances that trigger it, Jennings couldopt to proceed by way of court without first commencing arbitration and, regardless of the choice of forum, it would not have to proveirreparable harm.

[ 43 ]

Article 7.9 may be relied on by any party to the USA, provided they are the “innocent party” to any dispute, that is, the claimant. Such a claimant may commence court litigation rather than arbitration for claims that seek any of a narrow group of forms of equitable relief, namely: “injunction, an order of specific performance or such other equitable remedy”. [ 44 ] Subject to these two limited categories of claims referred to in 7.9 and 9.3, arbitration is mandatory for all disputes. [ 45 ] I therefore disagree with Fernandes that the effect of the combination of Articles 10.3 and 7.9 is to give the claiming party the choice of process for every possible claim arising under the USA.

Article 7.9 of the USA enumerates a category of claims that are expressly not subject to mandatory arbitration process, for which a claimant could select either arbitration or court litigation. [ 46 ] I therefore also disagree with the Applicants’

interpretation of the USA, that arbitration is a mandatory first step even for those matters enumerated in 7.9. For the categories expressly carved out by Articles 7.9 and 9.3, arbitration is not mandatory. [ 47 ] In so finding I am aware of the conclusion of this Court in Toyota , holding that the scope of the arbitration clause required arbitration first even for specific performance, which was named in a separate clause. There the court found that the meaning and scope of the separate specific performance clause was subject to prior arbitration. But in that case, the court found that the parties “expressly agreed that ‘any...need of

interpretation arising out of this Agreement’ shall be resolved by arbitration” ( Toyota at para 60). That express agreement is not present in this USA. Further, that case was found to be “governed by the International [ Arbitration] Act , where the legislative direction for limited judicial intervention is perhaps even stronger than under the Domestic [Arbitration] Act ” ( Toyota at para 48). [ 48 ] In this case, despite its broad wording, the mandatory arbitration in 10.3 does not, like in Toyota , expressly make all disputed

interpretations of the agreement subject to arbitration. In my view, unless expressly identified in that fashion, disputes about the

interpretation of an agreement are ancillary to the primary dispute involved. Interpretive disputes are typically (unless expressly agreed otherwise) dealt with in the course of the kind of proceeding dictated by the kind of actual dispute, by whichever decision maker is hearing the primary dispute. [ 49 ] This issue of the scope of application of the mandatory arbitration clause here therefore turns on whether the claims in the 2012 Action fall within the specifically enumerated claims listed in Articles 7.9 or 9.3. If so, they are not subject to the mandatory arbitration process in 10.3. If they do not fall within one of those exceptions, they are subject to mandatory arbitration. [ 50 ]

Article 9.3 has no application here; it applies only to claims commenced by Jennings. I do note, however, the existence within 9.3 of the term “decree”, in the phrase (underlining added): [...] the Corporation shall be entitled as a matter of right to apply to an Alberta Court for such relief by way of restraining order, injunction, decree , or otherwise, as may be appropriate to ensure compliance with the provisions of this

Article ... This inclusion indicates the parties turned their minds to declaratory relief and how they wanted claims for declarations to proceed. [ 51 ]

Article 7.9 allows Fernandes to proceed to court rather than arbitration for a narrow category of claims: for an “injunction, an order of specific performance or such other equitable remedy” (emphasis added). The category of claims is limited to “injunctions”, “specific performance” and not all other equitable remedies as Fernandes argues, but just equitable remedies like injunctions and specific performance, and for which “damages” are not “an adequate remedy”, which is the earlier wording in 7.9 (the “ Arbitration Exception Category ”). This

interpretation arises from the plain and ordinary meaning of the words used. The category is limited to equitable remedies sought when damage awards are inadequate. This

interpretation is reinforced by the fact

Article 7.9 does not include “decree[s]”, whereas the parties chose to expressly include it in 9.3. [ 52 ] Part of the relief claimed in the 2012 Action falls within this Arbitration Exception Category: the claim for specific performance of the share repurchase according to

Article 6 of the USA. It also claims, in the alternative, damages. Damages are not included in the Arbitration Exception Category; they are one of the very things that define what the category does not include. The claim for damages must proceed by way of arbitration. 2. Some of the claims in the 2014 Action must also proceed by way of arbitration [ 53 ] In the 2014 Action, Fernandes seeks specific performance of the SPA, monetary judgment, damages for breach of the SPA, damages for fraudulent preferences, damages and other remedies for oppression, and several declarations, orders and injunctions.

Parties’ Positions [ 54 ] The Applicants argue that all the claims in the 2014 Action fall within the scope of the mandatory arbitration clause. They identify three types of claims in the 2014 Action: (1) claims repeated from the 2012 Action, (2) new claims based exclusively on breaches of the USA and (3) claims relating to the SPA. The Applicants argue that all three types of claims fall under the USA’s mandatory arbitration clause. The Applicants argue that the scope of the mandatory arbitration clause includes all three because it covers “any matter arising hereunder”.

Relying on Babcock and Wilcox (Canada) Ltd v Agrium Inc , 2005 ABCA 82 at para 16 [ Babcock ABCA ], the Applicants argue that the phrase should be interpreted broadly. They argue that the SPA arose under the USA and is therefore also subject to its mandatory arbitration clause. [ 55 ] Fernandes says that the 2014 Action is not subject to arbitration because, again, the arbitration clause is not mandatory. He argues that the claims based on the SPA are not subject to the USA and observes that the SPA does not incorporate the arbitration clause

found in the USA, or any of the USA.

Fernandes states that a settlement agreement that resolves a dispute arising out of the primecontract will not incorporate an arbitration clause from the primary contract, unless done so expressly, relying on: Sunny CornerEnterprises Inc v Dustex Corp, 2011 NSSC 172, 305 NSR (2d) 51; Freightliner Ltd v American Home Assurance Co, 2005 BCSC 1054,141 ACWS (3d) 167; Dynatec Mining Ltd v PCL Civil Constructors (Canada) Inc, [1996] OJ No 29 (Ont Gen Div), 25 CLR (2d) 259;QQR Mechanical Contracting Ltd v Panter Controls Ltd, 2005 ABQB 58, 375 AR 44; Online Constructors Ltd v Speers ConstructionInc, 2011 ABQB 43, 99 CLR (3d) 198; Nodricks Norsack Seeds Ltd v Dyck Forages & Grasses Ltd, 2014 MBCA 79, 310 Man R (2d)68.

Claims repeated from the 2012 Action [56] The 2012 Action was based entirely on the USA. To the extent claims in the 2014 Action are repeated from the 2012 Action,they receive the same treatment as described above as part of the 2012 Action. Claims alleging new breaches of the USA [57] Most other forms of relief claimed by Fernandes in the 2014 Action (namely, declarations, orders and damages) do not fallinto the Arbitration Exception Category. These claims, insofar as they rely on the rights and obligations of the USA, must be arbitrated.

Claims based on the SPA are not subject to arbitration [58] Both parties to the SPA (Fernandes and JCI) were shareholders in Jennings at the time they entered into the SPA andtherefore by operation of law are parties to the USA: s. 146(3), Business Corporations Act, RSA 2000 c B-9. Therefore it must bedetermined whether the claims arising from the SPA fall within the scope of

Article 10.3 of the USA.

Article 10.3 applies, again, to “anymatter arising hereunder”. [59] The Applicants argue that the SPA is derived from the USA and gives effect to it; therefore a dispute under the SPA arisesunder and with reference to the USA. Further, the Applicants argue that the 2014 Action, which is largely based on the alleged breach ofthe SPA, is simply a recasting and repetition of the 2012 Action, which is based on the alleged breach of the USA. [60] I disagree. The obligations under the SPA do not rely on the USA or arise under it. The SPA is a stand-alone contract.

It doesnot incorporate into it, expressly or by reference, any part of the USA. The SPA is silent on the USA and any dispute arising under it. Itdoes not purport to settle any dispute that arose under the USA, including the 2012 Action, despite the parties to this Applicationacknowledging that was its genesis.[1] It does not purport to release Jennings from the 2012 Action; Jennings is not even a party to theSPA.

As a consequence, the existence of the contractual obligations in the USA are not necessary elements to create or defeat the claimsin the 2014 Action arising from the SPA: Kaverit Steel & Crane Ltd v Kone Corp (1992), 1992 ABCA 7 , 120 AR 346 (AltaCA) at paras 30, 38. [61] Both parties referred the court to Kaverit Steel. Justice Slatter applied Kaverit Steel in Autoweld Systems Ltd v CRC-EvansPipeline International Inc, 2009 ABCA 366, at paras 3-6, as follows: Whether a dispute is “in connection with” the contract, even though not strictly speaking under that contract, involves a consideration ofthe context.

Where a contractually based claim is combined with a parallel claim in tort or in equity, the claims might be said to be“connected” if they rely “on the existence of a contractual obligation as a necessary element to create the claim, or to defeat it”: KaveritSteel & Crane Ltd. v. Kone Corp. (1992), 1992 ABCA 7 , 120 A.R. 346, 87 D.L.R. (4th) 129 (Alta. C.A.) leave to appealdismissed, (S.C.C.) at paras. 30, 38.

But where the claim arises under a separate contract, made between different groups of parties,which contract does not itself have an arbitration clause, the dispute is not “connected” to the contract containing the arbitration clause. [62] In this case, the arbitration clause uses the phrase “any matter arising hereunder”, as opposed to the phrase “in connectionwith the contract” at issue in Autoweld. The former phrase in this application is narrower than the one interpreted in Autoweld (KaveritSteel at para 29; Legue v Till-Fab Ltd, [2004] OJ No 3544 at para 13).

Also, while there is overlap between the parties to the USA andthe parties to the SPA, the parties in both contracts are not the same. There are many parties to the USA who are not parties to the SPA.The ‘arising under’ phrase, I find, was intended to apply to any such agreements and actions required to give effect to the USA or toperform it over the life of its operation. That is not the case for the SPA, despite the Applicants’ urging upon me that it is. At most theSPA might be thought to have arisen as a consequence of an alleged breach of the USA.

Therefore, the SPA cannot be said to arise underthe USA. [63] Accordingly, the claims based on the SPA are not caught by

Article 10.3 of the USA; they are not subject to mandatoryarbitration. Some of the Oppression and Fraudulent Preference Claims are subject to arbitration [64] The fraudulent preference claims and the oppression claims are founded on the rights and obligations created by both the USAand the SPA.

Paragraphs 26 to 32 of the 2014 Statement of Claim explicitly refer to the rights and obligations under both agreementswhen particularizing the fraudulent preference and oppression claims. [65] Such claims sourced in the SPA are not subject to mandatory arbitration under 10.3 of the USA, for the reasons given above. [66] Such claims sourced in the USA are almost all subject to mandatory arbitration under 10.3 of the USA. For most of theseclaims damages are an adequate remedy.

At the core of Fernandes’ actions is his objective of recovering money for his shares as he saysis and continues to be his contractual right. [67] Certain of the oppression claims, however, allege oppression of Fernandes’ shareholder rights that are time sensitive and fit

within the Arbitration Exception Category. Specifically, the alleged oppression particularized at paragraph 32(

f) of the Statement of Claim regarding the withholding of Jennings’ corporate and financial information. [ 68 ] While potentially remediable in damages, this alleges an ongoing course of conduct that an immediate equitable remedy (oppression) [2] would better redress than what damages might be able to do later. In this sense these specific oppression claims are more like injunctive relief for which damages may not be adequate and, I find, fall within the Arbitration Exception Category of remedies which Fernandes may pursue in court. 3.

The limitation period to commence arbitration on all such claims has expired Parties’ Positions [ 69 ] The Applicants argue that Fernandes is now time barred from commencing arbitration. Relying on s 51 of the Arbitration Act , RSA 2000, c A-43, the Applicants argue that arbitrations are subject to the limitation periods imposed under the Limitations Act , RSA 2000, c L-12. The Applicants say that therefore Fernandes had to commence arbitration within two years from the date on which he knew, or ought to have known, the facts giving rise to the dispute.

They say that the facts giving rise to the 2012 and 2014 Actions were discoverable on June 5, 2012 and December 10, 2012, respectively. Therefore, the Applicants argue that the 2012 and 2014 Actions expired on June 5, 2014 and December 10, 2014, respectively.

Also, the Applicants point to a letter written by the counsel for Fernandes dated August 26, 2015, in which counsel for Fernandes stated that he became aware of the claims in January 2013. [ 70 ] The Applicants argue that Fernandes cannot rely on his Statement of Claim as a substitute for a notice to arbitrate, relying on Lafarge Canada Inc v Edmonton (City) , 2013 ABCA 376 [ Lafarge ABCA ]for this proposition. [ 71 ] Fernandes says that the limitation periods have not yet expired.

For the contractual claims under the SPA and USA, Fernandes argues that Jennings and JCI have an ongoing obligation to repurchase his shares for as long as he is a shareholder. The Respondent was a shareholder until November 30, 2014. Therefore, he says, the limitation period for both the 2012 and 2014 claims will expire on November 30, 2016. [ 72 ] Fernandes also argues that the oppression and unfair acts committed against him were ongoing.

The Respondents argue that the final oppressive act was on November 30, 2014, when the Defendants merged Jennings with Mackie without repurchasing Fernandes’ shares as required by agreement. Therefore, the Respondents argue that the limitation period with respect to these claims also expires on November 30, 2016. Applicable limitations [ 73 ] Sub- section 51(1) of the Arbitration Act incorporates the limitation periods in the Limitations Act : Babcock ABCA at para 16 .

Sub-section 51(1) states: 51(1) The law with respect to limitation periods applies to an arbitration as if the arbitration were an action and a matter in dispute in the arbitration were a cause of action. [ 74 ] Therefore, the limitation periods outlined in the Limitation Act apply to arbitrations under the Arbitrations Act , including arbitration required by

Article 10.3 of the USA. Sub- section 3(1) of the Limitations Act requires that a claim be brought within two years of becoming discoverable or within 10 years of the claim arising, whichever period expires first. If the claim is not brought within the appropriate time period, the claim is barred from proceeding. Fernandes has not commenced arbitration [ 75 ] Section 23(1) of the Arbitration Act describes how an arbitration may be commenced: 23(1) An arbitration may be commenced in any way recognized by law, including the following: (

a) a party to an arbitration agreement serves on the other parties notice to appoint or to participate in the appointment of an arbitrator under the agreement; (

b) if the arbitration agreement gives a person who is not a party power to appoint an arbitrator, a party serves notice to exercise that power on the person and serves a copy of the notice on the other parties; (

c) a party serves on the other parties a notice demanding arbitration under the arbitration agreement. [ 76 ] Subsection 23(1) uses non-exhaustive language with respect to commencing an arbitration, however the Alberta Court of Appeal stated that a Statement of Claim is not sufficient to commence an arbitration – an intention to arbitrate must be “clear and unequivocal” ( Lafarge ABCA at paras 28, 31-32 ). [ 77 ] By the date of hearing these applications, Fernandes had not yet given the Applicants any clear and unequivocal notice to commence arbitration. Rolling limitation periods can apply to breach of contract and oppression claims

[ 78 ] Rolling limitation periods, or continuous limitation periods, arise when claims are based on a series of acts or continuous behavior, rather than one indivisible act. As the acts or behaviour giving rise to the claim are ongoing, the cause of action is being continuously renewed – hence the ‘rolling’ limitation period. For rolling limitation periods in the contractual context, the law is summarized by the Ontario Court of Appeal in Pickering Square Inc v Trillium College Inc , 2016 ONCA 179 . For oppression claims, rolling limitation periods are discussed in Seidel v Kerr , 2003 ABCA 267 .

Rolling limitations for breach of contract [ 79 ] For breach of contract, the discovery date of the claim depends on the nature of the breach. In Pickering , the Ontario Court of Appeal discussed three different types of breach of contract: (1) a “once and for all” breach, (2) a periodic breach, and (3) a continuing breach.

While Pickering was decided under s 5(1) of Ontario’s Limitations Act , 2002, SO 2002, c 24, Sched B, that legislation is very similar to s 3(1) of Alberta’s Limitations Act . [ 80 ] The first type of contractual breach, a once and for all breach, involves a failure to perform a single obligation due at a specific time. The breach occurs once and gives rise to a claim from the date the performance of the contract was due ( Pickering at para 23). Under s 3(1)(

a) of the Limitations Act , the time limitation period would commence once the breach was discovered and would run for two years. [ 81 ] The second type of breach, the periodic breach, involves a failure to perform an obligation that must be periodically performed. A failure to perform the obligation gives rise to a new breach and claim every time the periodic obligation is not performed. A new claim arises on the date of each individual breach ( Pickering at para 24). Under s 3(1)(

a) of the Limitations Act , the time limitation recommences every time the most recent breach was discovered and entitles the plaintiff to claim damages for the period going back two year from the commencement of its action. [ 82 ] The third type of breach, a continuing breach, involves a breach of a continuing obligation under a contract. Under a continuing breach, the claim arises every successive moment the obligation is not performed ( Pickering at paras 25, 26).

The distinction between a single breach and a continuing breach was outlined by Justice Dixon of the High Court of Australia in Larking v Great Western (Nepean) Gravel Ltd , [1940] HCA 37; (1940) 64 CLR 221 at 236 : If a covenantor undertakes that he will do a definite act and omits to do it within the time allowed for the purpose, he has broken his covenant finally and his continued failure to do the act is nothing but a failure to remedy his past breach and not the commission of any further breach of his covenant.

His duty is not considered as persisting and, so to speak, being forever renewed until he actually does that which he promised.

On the other hand, if his covenant is to maintain a state or condition of affairs, as, for instance, maintaining a building in repair, keeping the insurance of a life on foot, or affording a particular kind of lateral or vertical support to a tenement, then a further breach arises in every successive moment of time during which the state or condition is not as promised, during which, to pursue the examples, the building is out of repair, the life uninsured, or the particular support unprovided.

The distinction may be difficult of application in a given case, but it must be regarded as one depending upon the meaning of the covenant. It is well illustrated by the construction given to the ordinary covenant that premises will be insured and kept insured against fire. Such a covenant is interpreted as imposing a continuing obligation to see that the premises are insured, so that the covenant cannot be broken once for all, but, on the contrary, failure to insure involves a continuing breach until the omission is made good. [ 83 ] Under s 3(1)(

a) of the Limitations Act , after discovery of the continuous breach, the two-year time limitation recommences anew every day that the breach endures. The Plaintiff is “entitled to claim damages for the breach...for the period going back two years from the commencement of its action” ( Pickering at para 38). [ 84 ] Rolling limitation periods for contracts are recognized also in Alberta: Halter v Standard Life Assurance Company of Canada , 2014 ABCA 57 , and Pedersen v Soyka , 2014 ABCA 179 . Determining whether a rolling limitation period exists is a contextual inquiry.

The type of breach, as discussed in Pickering , must be determined. The Court of Appeal in Pedersen stated that determining the existence of a rolling limitation period “is not an automatic process, as the word “rolling” might imply; it depends on facts occurring and becoming known” ( Pedersen at para 39 ).

Rolling limitations for oppression claims [ 85 ] In Seidel , the Court determined the time period begins to run for an oppression claim when the oppressive conduct terminates or the last act occurs. [ 86 ] The Court also acknowledged that “the limitation period may define the time during which a remedy will be awarded, but does not eliminate the entire claim” (Seidel at para 54 ). In other words, certain oppressive acts that occurred outside of the two year time period may be statute barred. However, any act committed within the two year period can be used to bring forward a claim.

Limitation period for commencing arbitration for the 2012 Action has expired [ 87 ] The 2012 Statement of Claim only alleges of breaches of the USA. In paragraph 13 of the Statement of Claim, four breaches of USA by Jennings are alleged: (1) failure to provide written notice of the closing date on which Jennings would repurchase the Respondents shares in accordance with

Article 6.3 of the USA; (2) failure to repurchase the Respondents’ shares in accordance with

Article 6.5 of the USA; (3) failure to provide the Respondents with an official Book Value per Share as of November 30, 2011 and (4) failure to provide official notification as to why it could not meet the repurchase conditions in

Article 6.6 of the USA. [ 88 ] All four of these failures constitute “once and for all breaches” of the USA. Based on

Article 6.5 of the USA, Jennings was required to repurchase one half of the Respondents’ shares within six months of November 28, 2011 and the balance of the shares within 9 months of that date. Therefore, Jennings’ failure to repurchase half of the Respondents’ shares by those dates constituted a breach of the USA. Mr. Fernandes’ claim flows from the failure to repurchase the shares.

[ 89 ] Based on the allegations in the 2012 Statement of Claim, a once and for all breach allegedly occurred when Jennings failed to repurchase his shares. Fernandes was clearly aware that his shares had not been repurchased by the time he filed his Statement of Claim on July 25, 2012. In his Statement of Claim, Fernandes stated that Jennings must repurchase the balance of his shares by September 4, 2012. This statement shows that Fernandes was aware that Jennings had to repurchase his shares by September 4, 2012. Jennings did not repurchase Fernandes’ shares by that time.

Further, the 2012 Action does not point to any actual or potential breaches of the USA beyond September 4, 2012. Therefore, at the very latest, the limitation period for the 2012 Action began to run on September 4, 2012 and expired on September 4, 2014. Limitation period for commencing arbitration for the 2014 Action has expired [ 90 ] Fernandes argued that the Applicants owed him various duties until November 30, 2014, when he ceased to be a shareholder in Jennings. This is true only of the oppression alleged in paragraph 32(

f) of his Statement of Claim in the 2014 Action (failure to supply financial and other corporate information he was entitled to as a shareholder of Jennings). That alleged a continuous course of conduct, for which the limitation period did not commence running until November 30, 2014, the date of the last such omission. [ 91 ] Nothing else in Fernandes’ 2014 Statement of Claim mentions any duties going beyond May 27, 2014, the date of its filing. The Applicants pointed to an email, dated December 10, 2012, written by Hodges to Fernandes.

In the email, Hodges informs Fernandes that his shares will not be repurchased under the SPA. Also, the Applicants point to a letter written by Fernandes’ counsel to the Chief Justice of this Court, in the context of the request for case management of these actions. In that letter, dated August 26, 2015, counsel for Fernandes states that by January 2013 Fernandes knew the Applicants had refused to repurchase his shares under the USA or the SPA. [ 92 ] Apart from the single ongoing duty owed towards Fernandes (outlined in paragraph 90 above), I find that Fernandes discovered the claims by January, 2013.

Therefore, the limitation period within which to pursue any arbitration of the claims expired January 2015. [ 93 ] Further, it is not possible to lack the requisite awareness after one has brought an action ( B(KL) v British Columbia , 2003 SCC 51 at para 55 ). Therefore, at the very latest the causes of action in the 2014 Action were discovered on May 27, 2014, the date Fernandes filed the 2014 Statement of Claim. The very latest the claims subject to mandatory arbitration expired was May 27, 2016. 4.

Sub-section 7(2) of the Arbitration Act does not apply to claims for which arbitration is mandatory and the limitation period has expired Parties’ Positions [ 94 ] Fernandes says sub- section 7(2) of the Arbitration Act allows me to refuse to stay an action and that in this case I should refuse the application to strike on those grounds. He says sub-sections (

d) and (

e) apply here: 7(2) The court may refuse to stay the proceeding in only the following cases: ... (

d) the application to stay the proceeding was brought with undue delay; (

e) the matter in dispute is a proper one for default or

summary judgment. [ 95 ] Relying on Lafarge Canada Inc v Edmonton (City) , 2015 ABQB 56 [ Lafarge ABQB ], Babcock and AG Clark Holdings Ltd v HOOPP Realty Inc , 2014 ABCA 20 [ HOOPP ABCA ], the Applicants say that after a limitation period expires, the Court no longer has any discretion under s 7(2) of the Arbitration Act to extend a limitation period. [ 96 ] Fernandes states that Babcock and HOOPP do not stand for the proposition cited. He further states that Lafarge erred in its

interpretation of HOOPP . In support of its position, Fernandes points to 681210 Alberta Ltd v 1335422 Alberta Ltd , 2015 ABQB 489 , a case decided after Lafarge . In 681210 Alberta Ltd , the Court explicitly stated that s 7(2) exceptions should be considered, despite the limitation period having expired. The exceptions listed in s 7(2) of the Arbitration Act cannot be considered [ 97 ] Section 7(2) has been judicially considered, in particular on whether the listed exceptions to a stay are available after expiry of the limitation period to commence arbitration.

In Babcock the Court of Appeal stated, at paragraph 11: In the instant case a stay is not appropriate because the right to arbitrate is extinguished through the expiration of the limitations period and, accordingly, there is no further supervisory or enforcement jurisdiction for the court to exercise. [ 98 ] Strictly speaking, that observation by the Court of Appeal is obiter dicta .

Nevertheless it was followed by this Court in AG Clark Holdings Ltd v HOOPP Realty Inc , 2013 ABQB 402 [ HOOPP ABQB ], at paragraph 39 : Once it has been determined that there is a mandatory arbitration clause and that the applicable party failed to commence an arbitration within the limitation period, the Arbitration Act ceases to have any further application and the Court's role comes to an end.

[99] HOOPP ABQB was upheld on appeal: HOOPP ABCA, supra. In so doing the Court of Appeal at paragraph 8 confirmed thecourt has no jurisdiction to consider the exceptions to a stay in s 7(2) after expiry of an applicable limitation period, for the followingreason: HOOPP’s proposed

interpretation would render s 51(1) of the Arbitration Act and s 3(1) of the Limitations Act meaningless in thecircumstances. It would have the effect of allowing a court to indefinitely extend a limitation period expressly set forth in the LimitationsAct. In our view, that was not the intention of the legislature. [100] This approach was followed also in Lafarge ABQB.

I do not regard the decision in 681210 Alberta Ltd as coming to a contraryconclusion, as Fernandes argued and, even if it did, I consider the HOOPP line of cases to correctly state the law and, in any event, to bebinding on me. [101] Therefore, I have no jurisdiction to consider the exceptions listed in s 7(2) as grounds to not strike claims that are out of timeand for which arbitration was mandated. 5.

In any event, there was no undue delay by the Applicants [102] Since the parties argued the point at some length, and despite it being unnecessary to address given my last conclusion, I findon this record that the Applicants did not unduly delay bringing this application or “lay in the weeds” about their insistence onarbitration, for strategic reasons or at all. 6.

Nothing about the Applicants’ conduct operates to denythem the protection they bargained for Parties’ Positions [103] Fernandes argues that the Applicants, by their conduct, have attorned to the Court’s jurisdiction and therefore he should beallowed to continue with his litigation. Relying on Hnatiuk v Assured Development Ltd, 2012 ABCA 97 and Babcock & Wilcox CanadaLtd v Agrium Inc, 2003 ABQB 1004, Fernandes argues that a party can give up its right to demand arbitration by participating in a courtaction on its merits.

Further, Fernandes argues that where a party invokes the court for its own benefit, such as bringing an application onthe merits of the claim, that party has attorned to the jurisdiction of the court: Bansal v Ferrara Pan Candy Co Inc, 2014 ABQB 384. [104] Fernandes says that the Applicants have “invoked the Court” for their own benefit, by bringing an application for security forcosts and an application for adjournment of

summary judgment. Fernandes also says that the Applicants have only raised the issue ofarbitration in their statements of defence and in an email dated February 6, 2015. [105] The Applicants maintain that they have not attorned to the jurisdiction of the Court by their conduct. The Applicants argue thatfrom the very outset, they stated that these Actions should be arbitrated and not litigated. The Applicants argue that they expressly statedin their Statement of Defence that they were not waiving their right to arbitration.

Further, they argue that in several communicationswith Fernandes’ counsel, they repeated their position. The Applicants point to Lafarge ABQB for the proposition that such conduct doesnot amount to attornment. [106] The Applicants argue that Fernandes’ reliance on Hnatiuk to prove attornment is misplaced. They say Hnatiuk is factuallydistinguishable and this case more closely resembles Lafarge ABQB. Also, the Applicants point to the fact that Fernandes chose toproceed with litigation, despite the Applicants stating in their Statements of Defence that arbitration was required.

The Applicants have not attorned to the jurisdiction of this Court [107] Attornment was discussed in Hnatiuk. At paragraphs 41 and 42 the Alberta Court of Appeal described how the defendant in thatcase attorned to the jurisdiction of the court: In any event, for years the plaintiffs pressed on actively with their lawsuit. The defendant fully participated, and defended the suit on themerits in many different ways. It even moved for

summary judgment (dismissal). And it counterclaimed. There also were examinationsfor discovery, examinations on affidavit, and a certificate of readiness. Then the case was set down for trial, apparently by consent. A party can waive its right to arbitration, and can attorn to the jurisdiction of the court by participating in the suit on the merits. SeeBabcock & Wilson Can v Agrium, 2003 ABQB 1004 , 347 AR 107. This defendant plainly did both.

It never raised the questionof the arbitration clause after the Statement of Defence; the trial judge did that only at the beginning of the trial. [108] In this case, I find the Applicants did not attorn to the jurisdiction of this court in any way that waived their contractual rights torequire Fernandes to proceed by arbitration. From the very outset the Applicants stated in both of their Statements of Defence that theclaims had to be arbitrated.

Further, the Applicants reasserted that they were not giving up their right to arbitrate in an email datedFebruary 6, 2015. [109] Fernandes points also to a certain phone conversation on February 3, 2015, between his counsel and the counsel for theApplicants. He says his lawyer advises that the Applicants’ lawyer said the Applicants would not be pursuing arbitration. In supportwere filed copies of the notes associated with that phone call recorded by Fernandes’ counsel. The Applicants’ lawyer denies having saidany such thing.

[ 110 ] The notes are not sufficiently clear on the point to constitute a waiver. Further, three days later, on February 6, 2015, the Applicants’ counsel sent an email stating the exact opposite. I therefore consider Fernandes’

interpretation of the phone call notes implausible, that is, that counsel for the Applicants waived arbitration on behalf of his clients in the phone conversation a few days earlier. In any event, the fact that the counsel for the Applicants clearly stated their position three days later shows that Fernandes would not have been misled into believing that the Applicants were submitting to the jurisdiction of the Court. [ 111 ] Fernandes also points to the fact that the Applicants applied for security for costs and applied to adjourn the

summary judgment. Fernandes states that in bringing these applications, the Applicants engaged the case on its merits and thereby attorned to the Court’s jurisdiction. I disagree. These steps did not imply the Applicants had in any way resiled from their insistence on arbitration; neither step leads to any disposition on the merits. Arguably it would have been imprudent on behalf of the Applicants’ counsel to do nothing in the court litigation until this Application was heard, in case it did not succeed.

I find that at no time did the Applicants submit to or attorn to the jurisdiction of the Court. [ 112 ] I note that in HOOPP ABCA , 7 years and multiple steps occurred before the application to strike was brought. Nonetheless, the Court of Appeal struck the action. In this case, only a little over two years passed, a good portion of which delay is attributable to the backlog of cases in this Court and an adjournment by one of the counsel to address an emergent medical condition. V.

Conclusion [ 113 ] Therefore the application is granted in part; the portions of the 2012 and 2014 Actions which are subject to mandatory arbitration, as identified herein, must be struck. If the parties require the Court’s further assistance in applying this ruling to the specific claims pleaded in these actions, or otherwise in preparing the terms of the order resulting from this decision, they may arrange a time for a further case management meeting in the usual course. Heard on the 22 nd day of June, 2016. Dated at the City of Calgary, Alberta this 21 st day of October, 2016. P.R. Jeffrey J.C.Q.B.A.

Appearances: Michael O’Brien and Bruce Graham, Blake, Cassels & Graydon LLP the Applicants Aleksandra (Ola) Tundak, Stikeman Elliott LLP for the Respondents