2014 NBCA 26, 2014 NBCA 26

COURT OF APPEAL OF COUR D'APPEL DU NEW BRUNSWICK NOUVEAU-BRUNSWICK 51-13-CA UBS HOLDING CANADA LTD. APPELLANT UBS HOLDING CANADA LTD.

APPELANT - and - - et - DAVID HARRISON, ALEX ARAUJO, MATTHIEU DEBOST, FADI CHAMOUN, DANN CUSHING, WILLIAM VERNER, KAMALDEEP GREWAL aka KEN GREWAL, MICHAEL OVERVELDE, RICHARD LAVOIE, SCOTT LINDOW, ROBERT JEFFERY ELLIOTT, FRANK PETERS, JONATHAN BLOCK, KEVIN KINGSLEY, CAROLYN FREEBOROUGH, JAMES ESTEY, HELEN HAYES, MARK ERNST, MEMET KONT, BRIAN HUEN and ANDREW WHIPP RESPONDENTS DAVID HARRISON, ALEX ARAUJO, MATTHIEU DEBOST, FADI CHAMOUN, DANN CUSHING, WILLIAM VERNER, KAMALDEEP GREWAL alias KEN GREWAL, MICHAEL OVERVELDE, RICHARD LAVOIE, SCOTT LINDOW, ROBERT JEFFERY ELLIOTT, FRANK PETERS, JONATHAN BLOCK, KEVIN KINGSLEY, CAROLYN FREEBOROUGH, JAMES ESTEY, HELEN HAYES, MARK ERNST, MEMET KONT, BRIAN HUEN et ANDREW WHIPP INTIMÉS UBS Holding Canada Ltd. v.

Harrison et al., 2014 NBCA 26 UBS Holding Canada Ltd. c. Harrison et autres, 2014 NBCA 26 CORAM: The Honourable Justice Robertson The Honourable Justice Bell The Honourable Justice Green CORAM : l'honorable juge Robertson l'honorable juge Bell l'honorable juge Green Appeal from a decision of the Court of Queen’s Bench: March 26, 2013 Appel d'une décision de la Cour du Banc de la Reine : le 26 mars 2013 History of Case: Historique de la cause : Decision under appeal: 2013 NBQB 125 Décision frappée d’appel : 2013 NBBR 125 Appeal heard: October 18, 2013 Appel entendu : le 18 octobre 2013

Judgment rendered: April 24, 2014 Jugement rendu : le 24 avril 2014 Reasons for judgment by: The Honourable Justice Bell Motifs de jugement : l'honorable juge Bell Concurred in by: The Honourable Justice Robertson The Honourable Justice Green Souscrivent aux motifs : l'honorable juge Robertson l’honorable juge Green Counsel at hearing: For the appellant: Kenneth B. McCullogh, Q.C. David R. Byers For the respondents: Charles D. Whelly, Q.C. Jonathan Lisus Daniel Naymark Avocats à l'audience : Pour l’appelant : Kenneth B. McCullogh, c. r. David R. Byers Pour les intimés : Charles D. Whelly, c. r.

Jonathan Lisus Daniel Naymark THE COURT The appeal is allowed with costs of $10,000. The judgment of the Court was delivered by BELL, J.A. I. Introduction and

summary of facts [ 1 ] The appellant and all respondents are sophisticated players in the investment banking business. Until 1989, the respondents were shareholders in a 100% employee-owned investment bank, UBS Bunting Limited (Bunting). In 1989, a predecessor company to the appellant acquired 50% of the shares in Bunting, which then carried on business as a joint venture. In 2006, the parties reorganized their corporate affairs in New Brunswick and entered into a series of agreements by which the appellant acquired the remaining 50% of the shares in Bunting.

In exchange for their shares, the respondents were given a combination of cash, shares in the appellant, and shares in the appellant’s parent company, UBS AG, a global financial services and investment firm organized under the

laws of Switzerland. [ 2 ] The migration of the parties’ affairs to New Brunswick involved a number of agreements and corporate instruments, including: 1. Articles of amalgamation of Bunting and the appellant under the New Brunswick Business Corporations Act, S.N.B. 1981, c. B-9.1 (“ NBBCA ”); 2. A newly enacted by-law of the appellant (the “By-law”), governed by New Brunswick law; 3. Orders approving a plan of arrangement under the Ontario Business Corporations Act , R.S.O. 1990, c. B.16; 4. The Arrangement Agreement (February 2006); 5. A Compensation and Governance Agreement (March 2006); 6.

Letters of Transmittal; and 7. A shareholders’ agreement for the former Bunting shareholders. [ 3 ] The purpose of all of these documents, taken as a whole, was to create a New Brunswick corporation governed by the NBBCA and the Securities Act , S.N.B. 2004, c. S-5.5 and to export the shareholders to New Brunswick. [ 4 ] Neither the Articles of Amalgamation, nor the By-law, contains an arbitration clause or a clause directing the forum where disputes will be resolved.

The rights and expectations of the parties with respect to those instruments are, as a result, subject to the jurisdiction of the New Brunswick courts. The Compensation and Governance Agreement contains an arbitration clause designed to deal with the adjustment of the former Bunting employee shareholders’ compensation in circumstances necessitated by “extraordinary” regulatory action. The Arrangement Agreement contains an arbitration clause which is at the heart of the present dispute. The relevant part of that clause reads as follows: 11.1 Arbitration.

Where any dispute or claim arising out of or relating to this agreement or the Arrangement, including with respect to its

interpretation, performance, breach or enforcement (“Disputes”), cannot be settled by the parties, any party may submit the matter to arbitration. In that case, the Dispute will be determined by arbitration under the International Commercial Arbitration Act (Ontario) […] [ 5 ] Based upon the above observations, it is evident the parties intended that some disputes that might arise in their new relationship would be resolved by the courts and others by arbitration. [ 6 ] The Arrangement Agreement, excluding the schedules, comprises 52 pages.

Its purpose is conveniently summarized in the opening page under the title BACKGROUND: Bunting Limited proposes to reorganize its ownership through a Plan of Arrangement under which the holders of Class A Shares of Bunting Limited will exchange their shares for some combination of, or the right to receive, cash, Exchangeable Shares and UBS Shares. In order to effect this reorganization, Bunting Limited has agreed to submit the Plan of Arrangement and related transactions to the Selling Shareholders, UBS Canada, as holder of the Class B Shares, and the Superior Court of Justice (Ontario) for approval.

[ 7 ] As one might expect, the Arrangement Agreement addresses a multitude of issues. For example, there are provisions setting out the appointment of proxy holders for certain purposes, the filings that are necessary, dates by which certain steps will be taken, the procedure and dates for the transfer of shares, requirements of shareholders agreements, and repurchase rights of shares by certain dates, on the occurrence of events such as resignation, retirement or termination of employment.

Article 3 is devoted exclusively to Representations and Warranties. In that article, the appellant represents and warrants to such matters as its capacity to enter into the agreements, its corporate status, and its compliance with required regulatory approvals. Bunting’s senior management shareholders covenant in paragraph 3.4(

p) that Bunting has no outstanding material liabilities other than those disclosed or that might arise in the ordinary course of business after December 31, 2005 and that it is conducting its business in compliance with all applicable laws (para. 3.4(q)).

Article 4 sets out General Obligations imposed upon the parties. In that article, the appellant undertakes, among other things, to “preserve intact its business and material rights”, “to preserve its relationships with clients, customers and others having business dealings with it” and to report to Bunting any “Material Adverse Effect on UBS or any event, occurrence or development that would be reasonably expected to have a Material Adverse Effect on UBS”. [ 8 ] In 2012, the respondents filed an action in which they claim against the appellant and two other defendants pursuant to the oppression remedies set out in s. 166(3) of the NBBCA . Their claim requests, in part, the following relief:

a) A declaration that the Plaintiffs are “aggrieved persons” for the purposes of the NBBCA ;

b) A declaration that the Defendants’ acts and/or omissions have effected a result, and that the Defendants have conducted the business and affairs of the Defendant corporations in a manner, that is oppressive, unfairly prejudicial to, and that unfairly disregards, the interests of the Plaintiffs in their capacities as current and former shareholders and employees of the Defendant corporations;

c) An order directing the Defendants to compensate the Plaintiffs in an amount to be particularized prior to trial for the lost earnings the Plaintiffs would have received as shareholders and employees of Bunting had they not been induced by the Defendants to exchange their interests in Bunting for interests in UBS [the parent company] and Holding [the appellant]. […] [ 9 ] Although the respondents do not rely upon any cause of action other than that provided by the oppression remedies under the NBBCA , as part of the narrative in their pleadings, they rely, in part, upon misrepresentations made by the appellant leading up to and following the execution of the Arrangement Agreement.

The respondents contend that since there is no alleged breach of the Agreement, the arbitration clause is not engaged – its sole purpose being to provide a means of interpreting and applying the Agreement in the event of a dispute in that regard. The appellant says the current dispute must, of necessity, arise out of and in relation to, the Agreement. Simply put, without the Agreement there would be no relationship between the parties and hence, no dispute between them.

Furthermore, the appellant relies upon the language of the Arrangement Agreement and the respondent’s allegation of misrepresentation to support its contention the dispute arises out of and/or in relation to the Agreement and is therefore subject to mandatory arbitration. [ 10 ] The appellant brought a motion in the court below seeking, among other relief, a stay of proceedings and an order referring the dispute to arbitration “in accordance with the Arbitration Clause set out in the Arrangement Agreement”.

It contended the dispute set out in the Amended Statement of Claim “arose out of and/or relates” to the Arrangement Agreement. It follows, according to the appellant, that the matter must be submitted to arbitration governed by the International Commercial Arbitration Act , R.S.O. 1990, c. I.9, as required by the arbitration clause.

Sections 8(1) and 16(1) of the UNCITRAL Model Law on International Commercial Arbitration provide, in part, as follows: 8(1) A court before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so requests not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed. 16(1) The arbitral tribunal may rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement.

For that purpose, an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract. A decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause. [Emphasis added.] [ 11 ] The motion judge dismissed the request for a stay of proceedings and refused to refer the matter to arbitration. He concluded he had to decide, as a preliminary matter, “whether or not the primary issue is within the exclusive

jurisdiction of the arbitrator” (para. 22). In the course of deciding that the arbitrator did not have exclusive jurisdiction to determine the issues, the motion judge conducted a two-step analysis. First, he considered the “gist” of the claim and determined that it “goes well beyond” the transaction. In his view the relief requested under the NBBCA was foundational to the plaintiffs’ claim and was not related to the arrangement. Second, he enquired whether an arbitrator would be clothed with any “special expertise” to consider the preliminary issue of jurisdiction, beyond that possessed by a court.

The motion judge appears to have applied a balance of probabilities test to both of these questions, the nature or “gist” of the claim and the issue of whether arbitration or the courts is best suited to decide the jurisdictional issue. II. Grounds of Appeal [ 12 ] The appellant contends the motion judge erred, in part, by failing to: (

i) Apply the “well-established” test that in seeking a stay in favour of arbitration, the appellant need only establish that it is “arguable” that the dispute, or part of the dispute, falls within the arbitration clause; (ii) Conclude it was at least arguable that the respondent’s claim was effectively one for rescission of the Arrangement Agreement and/or compensation equivalent to the loss in share value arising from the appellant’s misconduct, both of which “arise out of and relate to the Arrangement Agreement”. (iii) Follow jurisprudence from this Court that matters determined to fall within the scope of the arbitration clause should be referred to arbitration.

III. Analysis A. Role of the Courts in Deciding the Jurisdictional Issue [ 13 ] The respondents contend the motion judge, faced with a motion for a stay of proceedings, was properly clothed with jurisdiction to determine whether the dispute between the parties fell within the terms of the arbitration clause. The appellant contends it was “untenable” for the motion judge to conclude the tribunal had no “special expertise” to determine the scope of its own jurisdiction.

Relying upon UNCITRAL, the appellant claims the motion judge ought to have deferred to the tribunal on the issue of jurisdiction, it being better placed to make that determination. [ 14 ] Presuming an arbitration clause exists, one must draw a distinction between determining whether an arbitrator has any jurisdiction and the scope of that jurisdiction.

A judge called upon to consider a motion for a stay in such cases must inevitably address whether the arbitrator has any jurisdiction. [ 15 ] In my view, the standard of proof applied by the courts to determine whether an arbitration clause exists and whether the subject matter of the dispute is caught by the clause differs depending upon whether or not one is applying UNCITRAL. In Finkelstein v. Bisk, [2004] O.J. No. 1176 (QL) , aff’d [2004] O.J.

No. 4365 (C.A.) (QL) , a case in which UNCITRAL was not engaged, Karakatsanis J. (as she then was) considered a motion for a stay of an action commenced by a Jewish plaintiff (investor) against a Jewish defendant for substantial losses of the plaintiff’s investment. The defendant claimed the plaintiff had agreed that their differences would be settled by an ecclesiastical court, known within their faith community as the Beis Din. The plaintiff denied any such agreement.

In dismissing the motion for a stay of proceedings, Justice Karakatsanis considered the facts, which included conflicting evidence, to conclude there was no intention to arbitrate. Included among the evidence before her were the following: (1) the plaintiff had settled unrelated domestic matters via the Beis Din in the past; (2) the defendants deposed that there was an oral agreement to arbitrate; (3) the plaintiff went to the Rabbi who was the secretary of the Beis Din and requested he intervene to help resolve matters; and (4) the Beis Din issued a summons to one of the defendants.

That defendant appeared but the plaintiff did not. [ 16 ] On appeal, a unanimous court concluded that the arbitrator had no special expertise or other advantage over the motion judge on the question of whether there was an intention to arbitrate. The court concluded it was open to the motion judge, even in the case of conflicting evidence, to “make the findings necessary to decide the preliminary issue brought before her on the motion” (para. 7). This approach would appear to endorse the application of a balance of probabilities standard of proof to the question of whether an arbitration clause exists.

In the present case, the motion judge, erroneously in my view, applied that standard to an UNCITRAL-related

dispute. [17] Patel v. Kanbay International Inc., 2008 ONCA 867, [2008] O.J. No. 5256 (QL), involved internationalcommercial arbitration in which article 8(1) of UNCITRAL was engaged. The plaintiff sued the defendants for wrongful dismissal andnegligent misrepresentation. The alleged misrepresentations related to an undertaking that the plaintiff would become an equity owner ofshares of significant value. The defendants contended that the shareholders’ agreement contained an arbitration clause which governedthe resolution of any disputes between the parties.

The plaintiff opposed the motion for a stay and a reference to arbitration on thegrounds that the arbitration agreement dealt with the shareholders agreement and not the employment contract. The plaintiff wassuccessful.

In confirming that the arbitration clause limited itself to issues regarding the shareholders agreement, Goudge J.A., for aunanimous court, stated: […] While the case law suggests that any final determination as to the scope of the arbitration agreement is better left to the arbitrationtribunal (since the question of jurisdiction is itself within the jurisdiction of that tribunal), where it is clear that the matter does not fallwithin the arbitration agreement, the court should make that finding and decline to make the referral to arbitration. […] [para. 18] [Emphasis added.] [18] In Dalimpex Ltd. v.

Janicki; Agros Trading Spolka Z.O.O. v. Dalimpex Ltd., (ON CA),[2003] O.J. No. 2094 (C.A.) (QL), the parties had a lengthy and sophisticated business relationship which was governed by theInternational Commercial Arbitration Act, R.S.O. 1990, c. I.9 and UNCITRAL. Dalimpex was a Canadian company that imported anddistributed goods manufactured in Poland. In 1983, the parties entered into an agency agreement, which provided that all disputes were tobe settled by the Arbitration Court at the Polish Chamber of Foreign Trade.

In the course of their business relationship, a disputeregarding a guarantee on a line of credit was prosecuted before the Arbitration Court. Contemporaneously, Dalimpex brought a courtaction against its former employee, Janicki, and Agros in which it claimed that Janicki conspired with Agros and others to injureDalimpex by appropriating for themselves Dalimpex’s customers, confidential information, and food business in Canada.

Among otherthings, Dalimpex contended the respondents made secret arrangements with each other for Agros to withdraw its commitment toguarantee Dalimpex’s indebtedness, the purpose being to cause injury to Dalimpex. Agros pled that the only competent body to hear theclaim was the Arbitration Court in Warsaw. It sought a stay of proceedings. The stay was refused at first instance and granted by theDivisional Court, whose decision was upheld on appeal.

Charron J.A. (as she then was) framed the question as follows: […] The question is whether it is the role of the court, in cases where the arbitrator or arbitral tribunal has the power to rule on its ownjurisdiction, to make a definitive pronouncement on the jurisdiction of the arbitrator, or whether the preferable approach is to leave thematter to the arbitrator as decision-maker of first instance. The answer to that question depends largely on any applicable legislativeprovisions, the wording of the arbitration agreement and the nature of the dispute. [para. 18] [Emphasis added.] [19] In referring to

article 8 of UNCITRAL, Charron J.A. observed: The wording of

article 8 is mandatory. Hence, a court that would otherwise have jurisdiction over an action that is brought before it isrequired to refer those matters which are the subject of an arbitration agreement to arbitration in accordance with the agreement of theparties. There is no doubt that the court, not the arbitral tribunal, has the competence to determine the court’s own jurisdiction in respectof the action that is brought before it.

It is in the context of determining the scope of its own jurisdiction that a court will often makedeterminative findings in respect of the scope of the arbitration agreement. […] [para. 20] While a court’s determination of its own jurisdiction may, in some cases, be determinative of the scope of the arbitration agreement, it isimportant to note that that may not always be the case. A detailed analysis and assessment of the scope of the arbitration clause must beleft to the arbitrator, unless, of course, the arbitration clause does not apply.

To this end, Charron J.A. cites with approval the approach ofHinkson J.A. in Gulf Canada Resources Ltd. v. Arochem International Ltd. (BC CA), [1992] B.C.J. No. 500 (C.A.)(QL) wherein he stated “[…] it is not for the court on an application for a stay of proceedings to reach any final determination as to thescope of the arbitration agreement […] because [that is a matter] within the jurisdiction of the arbitral tribunal”. [20] The Supreme Court addressed the jurisdictional issue in Dell Computer Corp. v.

Union des consommateurs,2007 SCC 34, [2007] 2 S.C.R. 801, a case which was not cited by either party before this Court or the motion judge. Deschamps J., for

the majority, framed the enquiry in the following manner: “The objective of this

part is to determine whether it is the arbitrator or a court that should rule first on the parties’ arguments on the validity or the applicability of the arbitration agreement” (para. 68). Justice Deschamps begins her analysis by noting there are two competing schools of thought on the issue of who decides jurisdiction: one, the interventionist approach, holds that it is better to have the courts settle any challenge to an arbitrator’s jurisdiction immediately.

The second view is that arbitrators should be allowed to first rule on their own jurisdiction and the scope of that jurisdiction, subject, of course, to challenge by judicial review. This has become known as the competence-competence principle. It has been adopted by articles 8(1) and 16(1) of the Model Law and is widely accepted in the jurisprudence ( see Dell Computer Corp . , Seidel v. Telus Communications Inc. , 2011 SCC 15 , [2011] 1 SCR 531 , and Jean Estate v. Wires Jolley LLP, 2009 ONCA 339 , [2009] O.J. No. 1734 (QL) ).

In Jean Estate , Weiler J.A. described the competence-competence principle as “one of deference to the arbitrator and means that the arbitrator is competent to determine his or her own jurisdiction and competent to rule on objections to it” (para 47). In Dell Computer Corp . , Deschamps J., in applying this principle, laid down a general rule, followed by two exceptions. The general rule is that “[…] in any case involving an arbitration clause, a challenge to the arbitrator’s jurisdiction must be resolved first by the arbitrator” (para. 84). The exceptions are: 1.

A court should only depart from the systematic referral in circumstances where the challenge is based solely on a question of law. This approach allows a court to rule once and for all on a legal argument relating to the arbitrator’s jurisdiction and avoids duplication of a strictly legal debate. 2. Where the jurisdictional challenge (the questions of law) raises questions of mixed law and fact, the court hearing the referral must refer the case to arbitration unless the questions of fact require only superficial consideration of the documentary evidence in the record. B.

Threshold test employed in applying the competence-competence principle [ 21 ] The appellant contends that if it is “arguable” the issues to be decided fall within the scope of the arbitration clause, the court must decline jurisdiction and defer to the arbitrator. The motion judge framed the question as follows: “The question now becomes whether or not the plaintiffs’ claim arises out of or in relation to the arrangement” (para. 28).

He did not ask whether it was “arguable” that the claim arose out of or in relation to the arrangement. [ 22 ] There is substantial support for the position advanced by the appellants. The threshold of arguability was first discussed in Gulf Canada Resources Ltd.

Hinkson J.A., for a unanimous court stated: Where it is arguable that the dispute falls within the terms of the arbitration agreement or where it is arguable that a party to the legal proceeding is a party to the arbitration agreement then, in my view, the stay should be granted and those matters left to be determined by the arbitral tribunal. [Emphasis added.] [ 23 ] In Dalimpex , Charron J.A. states that it “is at least arguable that the disputes […] fall within the scope of the arbitration agreement […]” (para. 3). In Secure Solutions Inc. v. Smiths Detection Toronto Ltd., 2011 ONCA 337 , [2011] O.J.

No. 2040 (QL) , the parties could not agree upon whether there was a valid and binding arbitration clause between them. The Court, in applying the “arguable” threshold for stay motions said: “The first issue is whether there is arguably an arbitration clause in whatever contract continues to exist between the parties” (para. 3) (Emphasis added.). [ 24 ] In Dell , Deschamps J. does not use the word “arguable” to define the threshold. Rather, on several occasions she refers to the application of a “ prima facie ” test to determine whether the matter of jurisdiction falls to be decided by an arbitrator.

The prima facie approach was ultimately adopted, consistent with the approach advocated by Frédéric Bachand in the

article “Does

Article 8 of the Model Law Call for Full or Prima Facie Review of the Arbitral Tribunal’s Jurisdiction?” (2006) 22:3 Arb Int’l 463. [ 25 ] The prima facie approach entails a deferential perspective to arbitration. The court is to refer a matter to arbitration under

Article 8 “upon finding there is a reasonable likelihood that the claimant acted in breach of a duty to arbitrate” (Bachand, p. 463). By contrast, the alternative comprehensive approach mandates a full review of the validity and applicability of the arbitration agreement, requiring the court to apply a much higher standard to find that “the claimant actually acted in breach of an undertaking to arbitrate” before submitting the dispute to arbitration (Bachand, at p. 463). In my view this latter approach is consistent with the test employed by the motion judge.

[ 26 ] The majority decision of Deschamps J. in Dell cites Gulf Canada Resources Ltd. and Dalimpex (at para. 82 ) as examples of the prima facie approach, although both refer to the threshold of arguability. Dell therefore confirms that “ prima facie ” and “arguable” in this area of the law are synonymous.

Applying Dell , I would hold that the current state of the law requires that a court must make a referral to arbitration and issue a stay of proceedings if the defendant (applicant on a stay motion) in an UNCITRAL-related dispute establishes a prima facie case that an arbitration clause exists and that it applies in the circumstances. I therefore conclude the trial judge erred when he applied a balance of probabilities test to the jurisdictional issue. [ 27 ] While I have opined that in the jurisprudence the terms “ prima facie ” and “arguable” are synonymous, I prefer the use of the term “ prima facie ”.

Those words connote the minimal standard of “reasonable likelihood” in a manner that is, in my view, not met by the word “arguable”. C. Consequences of the motion judge’s failure to apply a prima facie standard. [ 28 ] The question confronting this Court is, given the application of the incorrect standard by the trial judge, should the appeal be allowed and the matter referred to the motion judge for decision based upon the prima facie threshold? I think not. The case was argued in the court below on the basis of affidavit and documentary evidence. The trial judge heard no oral testimony.

He was not called upon to make any credibility findings. As a result, this Court is equally capable of reviewing the evidence and applying the correct standard. Authority for this proposition can be found in Rule 62.21(1) of the Rules of Court , which provides that the “Court of Appeal may draw inferences of fact, render any decision and make any order which ought to have been made, and may make such further or other order as the case may require (see Gay et al. v. Regional Health Authority 7 and Dr. Menon , 2013 NBCA 10 , [2013] N.B.J. No. 33 (QL) ; New Brunswick (Minister of Social Development) v.

G.B. , 2012 NBCA 62 , 392 N.B.R. (2d) 209 ; AMEC Americas Limited v. MacWilliams , 2012 NBCA 46 , 388 N.B.R. (2d) 254 ; Wallace v. Thibodeau , 2008 NBCA 78 , 337 N.B.R. (2d) 342 . Should we not take this approach, the parties would incur additional costs and experience further delays in having this matter resolved. [ 29 ] The facts are straightforward. The respondents and the appellant invested heavily in one another. One of the instruments which defined their new relationship is the Arrangement Agreement. The parties made extensive undertakings one toward the other.

The respondents contend its claim in oppression is founded upon four largely uncontested facts: 1. The appellant’s involvement, unbeknownst to the respondents, in a U.S. tax evasion scheme. This misconduct was admitted in February 2009 in a Deferred Prosecution Agreement with the U.S. Department of Justice and the U.S. Securities and Exchange Commission, by which the appellant was required to pay $780,000,000 USD (approximately $1 billion CDN at the time); 2. The appellant’s apparent over-investment in the United States’ subprime mortgage business.

This overexposure resulted in losses between 2007 and 2009 of approximately $57,000,000,000 CDN. 3. The appellant’s admission in 2011 that a breakdown in its risk control system and the incompetence of its most senior executives had contributed to the loss of approximately $2,300,000,000 USD. [This varies from a low of $2,242,960,000 CDN on September 1, 2011, to a high of $2,389,470,000 CDN on the 30 th .] 4. The appellant’s involvement, disclosed in February 2012, in an international scandal over the manipulation of lending rates, in particular the London Interbank Offered Rate (LIBOR).

As a result of the LIBOR scandal, the appellant was fined approximately $1,500,000,000 by American, British and Swiss authorities. [ 30 ] The respondents say the Arrangement Agreement is silent with respect to those issues, and furthermore, some involve fraud and tax evasion which could not have been contemplated by the parties at the time of signing. It follows, according to them, that the Arrangement Agreement and, hence the arbitration agreement, do not apply to the present dispute. That approach is, in my view, overly simplistic.

The language set out in Articles 3 and 4 dealing with Representations and Obligations prima facie contemplate some sort of recourse for the very conduct about which the respondents complain. In addition, I would note that the statement of claim makes numerous references to misrepresentation on the part of the appellant. I am of the view that allegations of fraud and misrepresentation are prima facie contemplated by the language of the Arrangement Agreement and, hence, the arbitration clause (see Strata Plan BCS 3165 v. 1100 Georgia Partnership, 2013 BCSC 1708 , [2013] B.C.J.

No. 2043 (QL) , for an exhaustive review of jurisprudence in which courts have concluded that allegations of fraud and misrepresentation may be determined by arbitration). [ 31 ] In view of all of the above, I am satisfied the appellant has made out a prima facie case that the current dispute

arises, at least in part, out of or in relation to the Arrangement Agreement. D. Motion judge’s failure to follow jurisprudence which permits a multiplicity of proceedings [ 32 ] The motion judge concluded some issues in dispute fall within the terms of the arbitration clause and some do not. He also concluded that those issues which are to be decided by arbitration also fall within the jurisdiction of the court. To “avoid a multiplicity of proceedings” the Court chose to deal with all issues (para. 32).

The appellant contends the motion judge, in his effort to avoid a multiplicity of proceedings, failed to follow the jurisprudence set out in Opron Inc. v. Canaport Ltd ., 2008 NBQB 202 , [2008] N.B.J. No. 225 (QL) , and SNC-SNAM, G.P., a partnership between SNC-Lavalin Inc. and Snamprogetti Canada Inc. v. Opron Maritimes Construction Ltd. et al., 2011 NBCA 60 , 386 N.B.R. (2d) 1 , which hold that matters to be arbitrated must be arbitrated and other issues between the parties may proceed to court.

Subject to the observation set out immediately below, I agree. [ 33 ] Furthermore, consistent with the Model Law and the competence-competence principle, once the motion judge decided some of the issues were appropriate for arbitration, he was required to impose a stay of proceedings on all matters. An arbitrator would then determine the extent or scope of his or her jurisdiction. The arbitrator would be entitled to claim jurisdiction over some or all of the matters in dispute.

Depending upon the arbitrator’s decision, the plaintiff might return to the courts for one of two purposes: (1) to seek judicial review of the arbitrator’s decision on jurisdiction; or (2) to proceed before the courts on those matters over which the arbitrator declines jurisdiction. IV. Conclusion [ 34 ] Based upon all of the above, I conclude the motion judge had the authority to make the inquiries he did. I am of the view, however, that he applied the wrong test to determine whether the dispute falls within the scope of the arbitration clause.

After considering the text of the Arrangement Agreement, the facts as pled and the text of the arbitration clause, I am satisfied the prima facie threshold which is to be applied in matters where the Model Law is engaged, was met. The motion judge erred when he refused to order a stay of proceedings and refer the matter to arbitration. For these reasons, I would allow the appeal with costs of $10,000, order a stay of proceedings in the court below and refer the matter to an arbitrator. _________________________________ B. RICHARD BELL, J.A. WE CONCUR: __________________________________ J.T.

ROBERTSON, J.A. __________________________________ BRADLEY V. GREEN, J.A.