2022 QCCA 758, 2022 QCCA 758

Cannatechnologie inc. c. Matica Enterprises Inc. 2022 QCCA 758 COURT OF APPEAL CANADA PROVINCE OF QUEBEC REGISTRY OF MONTREAL No.: 500-09-029676-210 (500-11-059551-214) DATE: May 30, 2022 CORAM: THE HONOURABLE DOMINIQUE BÉLANGER, J.A. JOCELYN F. RANCOURT, J.A. BENOÎT MOORE, J.A. CANNATECHNOLOGIE INC. APPELLANT – Plaintiff v. MATICA ENTERPRISES INC. BORIS ZIGER RESPONDENTS – Defendants and CHUN QIU LOU YVONNE YI HUANG IMPLEADED PARTIES – Intervenors and BIOTECHNOLOGIE ROYALMAX CANADA INC.

IMPLEADED PARTY – impleaded party JUDGMENT [ 1 ] The appellant appeals against a judgment of the Superior Court, District of Montreal (the honourable Mr. Justice David R. Collier), dated July 29, 2021, [1] which granted the respondents’ motion raising a declinatory exception to dismiss based on an arbitration clause. [ 2 ] Biotechnology Royalmax Canada Inc. (“Royalmax”) is a corporation which was incorporated in 2013 under the Business Corporations Act [2] and operates in the medical cannabis field.

Its founding shareholders are the intervenors, Chun Qiu Lou and Yvonne Yi Huang. [ 3 ] On February 27, 2017, 9076484 Canada Inc. (“9076484”), headed by Thomas Lahache, acquired 99 of the intervenors’ 100 shares. It is alleged in the pleadings, however, that 50% of these shares were in fact acquired on behalf of Cannatechnologie Inc. (“Cannatechnologie”). [ 4 ] On April 5, 2017, respondent Matica Enterprises Inc. (“Matica”), 9076484 and Royalmax signed the Investment Agreement, under which Matica agreed to inject funds into Royalmax in return for 65% of the share capital.

The Investment Agreement also provided that Matica would receive an additional 5% of the share capital after Royalmax obtained the Health Canada licence and after Matica made two payments of $400,000. The Investment Agreement contains an arbitration clause, which is at the heart of the judgment under appeal. [ 5 ] Cannatechnologie initiated oppression proceedings against the respondents. It raised four grounds of oppression:

(1) Matica allegedly defaulted on its obligation, under s. 2.2 of the Investment Agreement and/or under a verbal collateral agreement, to pay Cannatechnologie an amount of $200,000. It therefore claimed the payment of this amount plus damages of $50,000 and punitive damages of $20,000;

(2) Matica issued additional shares of Royalmax to itself. Matica argues that this right results from Royalmax’s default under the Investment Agreement;

(3) The respondents refused to allow Cannatechnologie’s shareholders to have access to Royalmax’s production areas and to its books and records;

(4) Matica opposed Cannatechnologie’s sale of its shares to a third party, asserting that Royalmax’s consent to such a sale is required.

[ 6 ] Matica and its president filed a motion to dismiss the originating application, based on a declinatory exception and the arbitration clause. The judgment under appeal granted that motion. [ 7 ] The judge noted that since the first two grounds of oppression submitted by Cannatechnologie were based on the Investment Agreement or a collateral agreement, they were governed by the arbitration clause. He added that Cannatechnologie, in its very own conclusions, had raised s. 2.2 of the Investment Agreement as the basis for its claim as well as the fact that 9076484 held part of the shares on its behalf.

As for the other two grounds of oppression, while the judge pointed out that they were not directly related to the Investment Agreement, he concluded that it would be appropriate to refer the entire matter to arbitration. [ 8 ] On appeal, Cannatechnologie raises three grounds. First, it argues that the judge committed a palpable and overriding error by applying the arbitration clause to it, notwithstanding that it was not a party to the Investment Agreement, which Investment Agreement, moreover, does not constitute a shareholders’ agreement.

It further submits that the judge committed another palpable and overriding error in concluding that the arbitration clause applied, notwithstanding that the payment owed to Cannatechnologie stemmed not from the Investment Agreement but from a verbal agreement—which the judge characterized as a collateral agreement—entered into in connection with [“ à l’occasion de ”] the Investment Agreement.

Lastly, Cannatechnologie argues as a subsidiary ground of appeal that only the first ground of oppression should have been submitted to arbitration. **** [ 9 ] In the particular circumstances of the case at bar, the judge should not have dismissed the appellant’s originating application; rather, he should have stayed it so that the arbitrator could rule on the issue of his or her own jurisdiction by applying the “competence- competence” principle developed in well-established jurisprudence. [3] The judge, however, cannot be faulted for not having done so, given that neither party raised this principle. [ 10 ] It is worth noting that, pursuant to this principle, arbitrators have the competence to rule on their own jurisdiction over a given dispute and, furthermore, courts cannot rule on the issue of jurisdiction until the arbitrator, himself or herself, has done so.

In this context, when proceedings are instituted before the Superior Court and a declinatory exception is raised seeking to have the matter referred to arbitration, the court must, pursuant to art. 622 of the Code of Civil Procedure (“ C.C.P. ”) , limit itself to a prima facie assessment of whether or not the dispute comes under the arbitration agreement. [4] If it determines that the arbitration agreement prima facie applies, it must refer the matter to arbitration so that the arbitrator can rule on the issue in accordance with the procedure he or she sees fit.

Only once the arbitrator has exercised jurisdiction can the aggrieved party challenge the decision in court pursuant to art. 632 C.C.P. [5] [ 11 ] The appellant argues that it was not appropriate to refer to the “competence-competence” principle because, in the present matter, the application of the arbitration clause gave rise to a question of law or, at best, a question of fact requiring only a superficial consideration of the documentary evidence in the record. [6] [ 12 ] We cannot accept this argument.

On the contrary, the record indicates that numerous questions of fact must be decided in order to understand the effect of the arbitration clause on the present dispute. For one thing, Cannatechnologie is not one of the signatories to the Investment Agreement, notwithstanding the allegation that, at that time, it already held shares of Royalmax through 9076484. Likewise, the respondents dispute the scope of the collateral agreement which the trial judge referred to and which pertains to the claim asserted by Cannatechnologie.

Finally, as another example, the link between Matica’s increased shareholding and the Investment Agreement is also ambiguous or uncertain. [ 13 ] These questions require more than a superficial analysis of the documentary evidence. They can only be adjudicated after sufficient evidence has been adduced so as to allow a decision-maker to determine whether or not the arbitration clause should apply. It is the arbitrator who must perform that analysis.

At this stage, it was therefore sufficient for the judge to note, as is indeed the case, that, prima facie , the record contained sufficient elements to support the application of the arbitration clause. [ 14 ] Lastly, the Court takes notice of the statements of respondents’ counsel to the effect that they will not challenge the fact that the issues related to the possible collateral agreement—be it its existence, its content or the parties bound by it—will form part of the debate before the arbitrator for purposes of determining his or her jurisdiction.

FOR THESE REASONS, THE COURT: [ 15 ] ALLOWS the appeal in part; [ 16 ] GRANTS , in part, the defendant’s motion to dismiss; [ 17 ] STAYS the proceedings in Superior Court file number 500-11-059551-214; [ 18 ] REFERS the dispute to arbitration; [ 19 ] THE WHOLE , without legal costs . DOMINIQUE BÉLANGER, J.A. JOCELYN F. RANCOURT, J.A. BENOÎT MOORE, J.A.

Mtre Michael Hollander OIKNINE & ASSOCIÉS For the appellant Mtre Martin Côté DUNTON RAINVILLE For the respondents Mtre Yuan Zhan Gao GAO AVOCAT For Chun Qiu Lou and Yvonne Yi Huang Date of hearing: May 18, 2022