Chris Baba Professional Corporation v Ronald C Witzke Professional Dental Corporation, 2017 ABQB 199

Court of Queen’s Bench of Alberta Citation: Chris Baba Professional Corporation v Ronald C Witzke Professional Dental Corporation, 2017 ABQB 199 Date: 20170324 Docket: 1508 00140 Registry: Medicine Hat Between: Chris Baba Professional Corporation Plaintiff - and - Ronald C. Witzke Professional Dental Corporation and Ronald C. Witzke Defendants _______________________________________________________ Memorandum of Decision of the Honourable Mr. Justice R.J.

Hall _______________________________________________________ [ 1 ] The Defendant seeks leave to appeal an arbitration award, or alternatively an Order setting it aside. [ 2 ] The Plaintiff (“Baba”) and the Defendant (“Witzke”) began operating a dental practice together in Medicine Hat, Alberta in 2012. The parties agreed to separate their practices in 2015, and Witzke agreed to purchase all of the jointly owned property from Baba. [ 3 ] There were disagreements with respect to the closing price.

On July 26, 2015, the parties executed a Settlement Agreement whereby Witzke would purchase all of the jointly owned property for $400,000. The Settlement Agreement set out, in paragraphs 9 and 10: 9. That Witzke remove all Baba’s and Van Dam’s patient information from Southside Dental’s Dentrix program as soon as possible, and no later than 10 days after the acceptance of this offer, and any failure to do so should not be considered a default if it is for the reason outside of Witzke’s control; and

10. That Baba has removed all of Witzke’s patient information from Baba’s Dentrix program. [ 4 ] The Settlement Agreement further set out remedies for pre-closing default as follows: 14. That any default of this Settlement Agreement by Witzke, as determined by an arbitrator, will result in forfeiting in the 50% purchase price owed to Baba, which shall be applied to Baba’s legal costs and shall not be considered as payment for purchase of the jointly owned property; 15.

That any default of this settlement agreement by Baba, as determined by an arbitrator, will result in a forfeiting of the remaining 50% purchase price owed to Baba, and that amount of $200,000 shall be paid by Witzke into trust pending the determination of a default by the arbitrator; 16. That any default of this Settlement Agreement must be determined by an application before an arbitrator, and the successful party shall receive its solicitor and client costs for that application. [ 5 ] In late 2015 each party alleged that the other party had breached the Settlement Agreement.

The dispute was referred to an Arbitrator, with the parties executing an Arbitration Agreement dated December 16, 2015. The Arbitration Agreement itself did not specify the matters being referred to arbitration. However, it attached and referenced appendix A and appendix B, which appendices set out the parties’ positions respecting the dispute. [ 6 ] The Arbitrator issued his decision on August 12, 2016, with a further clarification on August 19, 2016, and a supplemental arbitration award and reasons on October 27, 2016.

Baba succeeded in the Arbitration, with the Arbitrator awarding damages payable by Witzke to Baba in the amount of $200,000 plus solicitor/client costs in the amount of $151,673.34. [ 7 ] Witzke then commenced this application for leave to appeal.

In the application Witzke claimed that the Arbitrator made the following five errors of law: 1) In finding that Witzke had retroactive obligations to Baba prior to entering into the settlement agreement, including, but not limited to, being well versed in the Dentrix patient management software program; 2) In finding that the legal doctrine of forfeit is indistinguishable from compensatory damages; 3) In finding that the doctrine of force majeure applied to the settlement agreement or that it changed the obligation of the applicant to act with reasonable care; 4) By assessing damages when no proof of damages was led; 5) In failing to apply the proper test for liquidated damages. [ 8 ] In his brief, however, Witzke changed the issues from those set out in the application, and instead claimed the following four errors made by the Arbitrator: Error 1 - The Arbitrator erred in jurisdiction by ruling on issues relating to Witzke’s pre July 26, 2016 conduct and knowledge of the Dentrix patient management software program.

Such issues were not set out in the Arbitration agreement and were beyond the scope of the Arbitration Agreement and as such were not properly before the Arbitrator. Error 2 - The Arbitrator erred in law by imposing upon Dr. Witzke retroactive obligations or pre-contract obligations relating to his conduct prior to July 26, 2015, that do not exist in law. Error 3 - The arbitrator erred in law in finding that doctrine of force majeure applied to the Settlement Agreement.

Error 4 - The Arbitrator erred in law by refusing to allow Witzke to have the legal accounts of Baba reviewed pursuant to the Alberta Rules of Court . [ 9 ] In argument, counsel for Witzke focused on the alleged errors 1, 2 and 4, without further reference to any argument respecting the doctrine of force majeure as applied to the settlement agreement. [ 10 ] The parties provided statements of position to the arbitrator, as well as affidavit evidence and cross examination on affidavits.

The affidavit evidence and cross examinations thereon dealt not only with matters subsequent to the execution of the Settlement Agreement, but also dealt with matters leading up to execution of the Settlement Agreement. [ 11 ] The evidence was clear that Witzke had not removed Baba’s and Van Dam’s patient information from Southside Dental’s Dentrix program within 10 days after the acceptance of the offer. In fact that did not occur until September 25, 2015, 59 days after the conclusion of the Settlement Agreement.

The parties filed an agreed statement of facts following the hearing before the Arbitrator which provided details concerning what steps were taken and what transpired in the 59 days it took for Witzke to fulfill his obligations concerning the Dentrix program pursuant to paragraph 9 of the Settlement Agreement. [ 12 ] Witzke submitted that Baba had not met his obligations under paragraph 10 of the Settlement Agreement. The Arbitrator dismissed that allegation.

No appeal is sought from that decision. [ 13 ] The Arbitrator looked at clauses judicially defined, such as “as soon as possible” and “outside of one’s control” as well as force majeure types of clauses, all of which indicated to the Arbitrator that a measure of diligence is required of the party who claims reliance on the “beyond control” clause. The Arbitrator stated: 25. In the end, phrases such as these in contracts of various sorts appear to be typically interpreted to require that the party relying on

them has exercised reasonable diligence and will normally only apply in circumstances where the party could not have avoided delay or breach even with the exercise of reasonable care. [ 14 ] The essence of the Arbitrator’s decision is contained at paragraphs 29 and 30, which I set out below: 29. With regard to relevant principles and case law referred to herein, Witzke’s actions, as mandated by paragraph 9 of the Settlement Agreement where the database split is concerned, are to be judged by a general test of reasonableness – did he exercise reasonable diligence? Did he exercise reasonable care?

Was the delay self-induced, at least to some degree? The database split is largely a technical exercise performed by Henry Schein. But it requires multiple steps and extensive interaction with the client (Witzke) involved. Based on the evidence, it is also clear that the 10 day timeframe contemplated by paragraph 9, from start to finish for this database split, was exceedingly ambitious.

Thus, if the database split had, hypothetically, extended to as much as approximately 20 days, I would have likely been persuaded that it still reflected requisite due diligence and reasonable care and attention on the part of Witzke. But the 59 or so days that this exercise took in total, on balance, strikes me as excessive and most of that 49 or so day (seven weeks) delay cannot reasonably be attributed to “reasons outside of Witzke’s control”. 30.

This conclusion is only bolstered by my further conclusion that we must, in fairness, review Witzke’s actions not just in the 59 day time period but in a six month period commencing in March, 2015. It was at that point in time that the imminent split within the Southside Dental clinic was confirmed and initiated through the “shotgun” process commenced by Baba. In the weeks that followed, I would have expected that both Baba and Witzke, individually and collectively, would have addressed their minds and attention to all considerations triggered by the looming split between them, including the database split.

Baba appears to have done just that; less so where Witzke is concerned. Evidence was presented concerning a structured and detailed meeting involving Baba and Witzke in mid- April, 2015 at which a broad based discussion took place aimed at reviewing and implementing all necessary steps associated with the imminent split in the business and practices of Baba and Witzke at Southside Dental. While the parties can and do disagree on the focus and details of that meeting, it is clear that the database split was raised, and to some degree, discussed at the meeting. 31.

In June, 2015, Baba accelerated his communications with Schein and more specifically with Mr. Chris Stelmack concerning the necessary database split and made efforts at that time to engage Witzke in effecting that split jointly if not necessarily collaboratively. Witzke was unwilling to do so, citing distrust and discord between himself and Baba. Obviously, in the six month period I cite herein, the deterioration and negative state of the relationship between the parties was both unfortunate and serious.

To a degree it is understandable that in such circumstances collaboration in all necessary steps to effect a clean and orderly split between their practices could be difficult. However, both Witzke and Baba are professionals and Witzke, in particular, I find should have tried harder and been more engaged to ensure that the serious and important business of completing this split, with a minimum of disruption to the parties involved, was achieved.

Even more importantly, the split of practices had to ensure no violation of rules and regulations governing the practice of dentistry and patients’ rights and privacy. [ 15 ] The main thrust of Witzke’s application seeking leave to appeal, or seeking to have the decision quashed, arises from paras 30 and 31 quoted above. Witzke argues that it is an error in law to impose retroactive or pre-contract obligations upon Dr. Witzke, saying that no such obligations exist in law. Alternatively, he says the arbitrator erred in jurisdiction by ruling on issues relating to Dr.

Witzke’s pre-July 26, 2016 conduct and his knowledge of the patient management software program, when such issues were not set out in the Arbitration Agreement, were beyond the scope of the Arbitration Agreement and were not properly before him. [ 16 ] As noted above, the Arbitration Agreement did not specify the issues to be determined by the Arbitrator.

However, Appendix A and B to the Arbitration Agreement make it clear that the main issue for determination by the Arbitrator was whether the delay, which exceeded 10 days was a delay occurring “for reasons arising outside of Witzke’s control”. [ 17 ] The essence of the Arbitrator’s decision was that the 59 days that it took Witzke to meet the obligation to remove Baba’s patient information from the Dentrix program was so much in excess of the 10 days allowed under clause 9 of the Agreement as to be excessive delay that could not reasonably be attributed to reasons outside of Witzke’s control. [ 18 ] The Arbitrator then went on to find that Witzke signed an Agreement, wherein he agreed to take steps in such a short period of time – 10 days – that he was doomed to failure.

He should not have taken on such a contractual obligation without first determining that he could meet the obligation. The Arbitrator looked back in time in an effort to understand whether Witzke had prepared himself to meet his obligations and found that he did not; that explained the “why” as to Witzke’s failure to perform.

It showed that Witzke’s failure to perform was not due to “reasons outside of Witzke’s control,” but rather it was contributed to because of Witzke’s lack of preparedness. [ 19 ] This was a factual issue referred to the Arbitrator for determination: was Witzke’s failure to remove Baba’s patient information from the dental practice software within 10 days, caused by reasons outside of Witzke’s control? The Arbitrator found as a fact that the failure was not due to reasons outside of Witzke’s control. He looked back in time to determine what steps Witzke’s had taken and found that they were inadequate.

The failure to remove Baba’s patient information until 59 days had elapsed was within Witzke’s control; therefore Witzke was in breach of the contract. [ 20 ] I find that the Arbitrator’s finding was within the jurisdiction bestowed upon him by the parties.

Secondly, I find that the determination by the Arbitrator that the failure to carry out contractual obligations was not caused by matters outside of Witzke’s control is a finding of fact, not a finding of law. [ 21 ] There is no appeal allowed from a finding of fact on a matter which is within the jurisdiction of the Arbitrator. [ 22 ] As stated above, Witzke argues that the Arbitrator has determined that Witzke had pre-contractual obligations where that matter was not within the Arbitrator’s jurisdiction; and Witzke argues that such a finding is an error of law correctable on appeal. [ 23 ] I disagree.

Evidence was placed before the Arbitrator as to what had occurred, leading up to execution of the Settlement Agreement, and as to the failure to remove Baba’s patient information within 10 days of signing the Settlement Agreement. The Arbitrator took the evidence into consideration to determine whether the failure to remove Baba’s patient information was caused by

reasons outside of Witzke’s control. It was within the Arbitrator’s jurisdiction to do so; and it was a finding of fact, not law, that the reasons for failure were not outside of Witzke’s control. [ 24 ] In argument, I posed to Witzke’s counsel the proposition that if one were to sign an agreement to provide purchase monies to purchase a house within 10 days, except for reasons beyond the purchaser’s control, and if the purchaser had not yet ascertained that he was approved for mortgage financing; then his failure to close would not be considered to be a matter beyond his control.

The purchaser should not have signed the agreement if the purchaser did not know that he could pay the purchase price. [ 25 ] Here, the Arbitrator has found that Witzke has failed to determine that he could meet his commitment. It was a matter within his control if he had prepared for it. It was not caused by a reason outside of his control. [ 26 ] The appeal cannot proceed. There has been no error of jurisdiction. There has been no error of law.

The Arbitrator made the determination that was referred to him. [ 27 ] Witzke also argues against the Arbitrator’s finding whereby the Arbitrator awarded solicitor/client costs to Baba. He argues the account should be taxed by a Taxing Officer of this Court. This appeal also fails:

a) It was brought out of time.

b) The Settlement Agreement, paragraph 16, required that any default of the Agreement be determined by Arbitration, and that the successful party shall receive its solicitor/client costs for the Arbitration.

c) The fact that Witzke owed money to the Arbitrator for his services did not place the Arbitrator into a conflict of interest, nor create a bias to be remedied. Costs issues were referred to the Arbitrator, and he has decided them.

d) The matter is an Arbitration, not litigation that is subject to the Rules of Court . [ 28 ] In a cross-application, Baba seeks to have the Arbitrator’s decision reduced to a judgment of this court for damages of $200,000 plus the solicitor and client costs awarded of $151,673.34. [ 29 ] Baba is entitled to have the Arbitration decision enforced pursuant to s 49 of the Arbitration Act , and I so order. Costs [ 30 ] Finally, Baba argues that he should be awarded costs of this application on a solicitor and client basis, on the basis of the provision contained at paragraph16 of the Settlement Agreement.

However, paragraph 16 of the Settlement Agreement only deals with costs of the Arbitration. It does not address costs incurred in an application before the court. [ 31 ] Accordingly, I decline to award solicitor/client costs to Baba for this application. However, I do award

Schedule C costs for two applications each requiring written briefs, in Column 3 of

Schedule C, plus all reasonable disbursements incurred in relation to these applications. Heard on the 2 nd day of February, 2017. Dated at the City of Calgary, Alberta this 24 th day of March, 2017. R.J. Hall J.C.Q.B.A. Appearances: Geoffrey Boddy for the Plaintiff Luke M. Day for the Defendants