Site 2020 Incorporated v. Mitchell Hollohan, 2020 NSSC 305

SUPREME COURT OF Nova Scotia Citation: Site 2020 Incorporated v. Campbell , 2020 NSSC 305 Date: 20201029 Docket: Hfx 499235 and 500275 Registry: Halifax Between: Site 2020 Incorporated and Mitchell Hollohan Applicant v. Cole Campbell Respondent DECISION Judge: The Honourable Justice Jamie Campbell Heard: October 15, 2020, in Halifax, Nova Scotia Counsel: Ian Brown, for the Applicant Victor Ryan, for the Respondent

Summary [ 1 ] The founders of Site 2020 Incorporated had a falling out. They had signed several agreements governing their business relationship and one of the terms was that disputes would be resolved by arbitration. One of the founders, Cole Campbell, filed for an arbitration seeking to declare one of the agreements void. He said that he signed it under duress. That arbitration timed out. It had to be completed within 6 months and he could not advance the arbitration, so it became a nullity, just as Mitchell Hollohan, one of the other founders, said it should. [ 2 ] Mr.

Hollohan wants to enforce the terms of the disputed agreement that Mr. Campbell says he signed under duress. He wants the court to order specific performance to require Mr. Campbell to sell his shares at the price set out in that disputed agreement. But there is that agreement saying that disputes should be resolved by arbitration. And this is a dispute. It is not a dispute that has been in any way already resolved by a court or an arbitrator. That dispute should not be before the court either. It should go to arbitration.

Site 2020 Agreements [ 3 ] Mitchell Hollohan and Cole Campbell were classmates in the Computer Engineering program at Dalhousie University in 2015. In that year they founded a company known as Site 2020 Incorporated. The company was used to further develop the Guardian SmartFlagger device that they had created as students. That’s an automated system that controls traffic at highway construction sites. Mr. Hollohan and Mr.

Campbell brought three other shareholders into the company. [ 4 ] On February 1, 2016, the five shareholders signed a Shareholders’ Agreement that governed their participation in the governance of the company. On that date Mr. Hollohan, Mr. Campbell, Site 2020, and two of the shareholders also signed a Founders’ Restricted Rights Agreement. That agreement provided an option, exercisable by either Mr. Hollohan or Mr. Campbell, to repurchase the common shares owned by each of the founders upon the happening of any one of several triggering events. One of them was the termination of the employment of that founder.

The price for the repurchase of shares was set at $0.00001 per common share. The agreement sets out a

schedule for the gradual expiry of the repurchase option. [ 5 ] On June 1, 2016, the shareholders and the company signed an Amended & Restated Shareholders Agreement. On January 17, 2017, a second Founders’ Restricted Rights Agreement was signed. It was the same as the original one signed on February 1, 2016, except that the expiry of the repurchase option was amended so that all of Cole Campbell’s shares were subject to repurchase until May 1, 2017.

[ 6 ] On April 30, 2017, another document entitled Founders’ Restricted Rights Amending Agreement was signed. That agreement said that Mr. Hollohan would exercise his repurchase option from the February 1, 2016 Founders’ Restricted Rights Agreement so that he would repurchase Mr. Campbell’s common shares leaving Mr. Campbell with a 5% interest. The agreement provided that if Mr. Campbell quit his employment at Site 2020 his shares would be purchased for nominal par value. If he was fired the company would repurchase the shares for $50,000 payable over a period of 24 months. [ 7 ] Mr.

Campbell says that the agreement signed on April 30, 2017 was signed under duress. He says that at the time he signed it, Mr. Hollohan told him that he had no other option. He was told by Mr. Hollohan and Mark Goldhar, one of the other shareholders and directors, that the other shareholders were dissatisfied with the quality of his work and that he would soon be terminated from his position. He says that Mr. Hollohan and Mr. Goldhar told him that signing the Amending Agreement was the only possible way in which he could protect his position.

He says that once the agreement was signed his professional relationship with Mitchell Hollohan soured. He began to feel that the work environment was hostile and he believed that he was being slowly pushed out of the company that he had helped to found and in which he had invested a significant amount of time, money and effort. [ 8 ] Mr. Campbell says that after he signed the Amending Agreement he tried to convince Mr. Hollohan to re-issue his shares back to him and that each time the subject was raised Mr.

Hollohan deflected the discussion and told him that the shareholders were still unhappy with the quality of his work and that this was not the time to re-issue the shares. [ 9 ] On May 14, 2018, that Amending Agreement was ratified by a resolution of the directors of Site 2020, including Cole Campbell. [ 10 ] Because he did not want to end his relationship with Site 2020, Mr. Campbell then filed the Notice of Arbitration on April 24, 2019. The notice claims that Mr.

Hollohan breached the February 1, 2016 Founders’ Restricted Rights Agreement and that the April 30, 2017 Founders’ Restricted Rights Amending Agreement was signed by him under duress and upon reliance of fraudulent misrepresentation by Mr. Hollohan. [ 11 ] Cole Campbell’s employment with Site 2020 was terminated on May 27, 2019. Issues [ 12 ] The dispute now is about the purchase of Cole Campbell’s shares and the application of the April 30, 2017 Founders’ Restricted Rights Amending Agreement in the calculation of the price.

The issue is about how that dispute should be resolved. [ 13 ] Cole Campbell wants it to be resolved by arbitration based on his Notice of Arbitration signed on April 24, 2019. The first issue is whether that arbitration is a nullity because it is out of time. [ 14 ] If it is a nullity, Mitchell Hollohan wants the court to order Cole Campbell to sell his shares according to the April 30, 2017 Founders’ Restricted Rights Amending Agreement. The second issue is whether the court should become involved and make an order for specific performance.

Arbitration [ 15 ] The February 1, 2016 Founders’ Restricted Rights Agreement and the January 17, 2017 Founders’ Restricted Rights Agreement each contain a provision at paragraph 6.6 that says that disputes will be subject to arbitration under the Commercial Arbitration Act . That paragraph states that the parties agree that “any such arbitral hearing shall close within six (6) months from the date of the commencement of such arbitral proceedings and the arbitral award shall be made within thirty (30) days after the close of hearings and will be final and binding upon the parties”.

The Founders’ Restricted Rights Agreement from February 1, 2016 and January 17, 2017 contain a single paragraph about arbitration. It says nothing about when a claim or dispute must be brought to arbitration.

It only says that the arbitral hearing shall close within 6 months from the date on which it was commenced. 6.6 Arbitration Any dispute, controversy, or claim arising out of or relating to this Agreement, or the breach, termination, or invalidity thereof, will be settled by arbitration pursuant to the laws of the Province of Nova Scotia in the municipality of Halifax, Province of Nova Scotia, Canada, following the arbitration and conciliation procedures set forth in the Commercial Arbitration Act (Nova Scotia) or such successor legislation in force on the date of the submission of such dispute, controversy or claim for arbitration.

The parties agree that any such arbitral hearing shall close within six (6) months from the date of the commencement of such arbitral proceedings and the arbitral award will be made within thirty (30) days after the close of hearings and will be final and binding upon the parties. [ 16 ] Mr. Campbell signed a formal Notice of Arbitration on April 24, 2019. That notice was sent to Mr. Hollohan on April 26, 2019. That meant that according to the Founders’ Restricted Rights Agreement the arbitral hearing would have to close by October 26, 2019. [ 17 ] Mr.

Campbell says that when his employment was terminated on May 27, 2019, he was without full-time employment. He could not pay the significant expense of retaining legal counsel to assist him in the arbitration. He was not paid various forms of compensation due to him at the time. He moved to Montreal where the job market was larger. He was diagnosed with Lyme disease. He says now that he always intended to proceed with the arbitration and at no point abandoned his rights under any agreement. [ 18 ] After about 6 months he felt that he was in a financial position to advance the arbitration.

In December 2019 he asked his counsel to contact Mr. Hollohan’ s counsel to move forward with the arbitration. His counsel wrote to Mr. Hollohan’s counsel to get the arbitration started. He did so again in January 2020. In March 2020 he was told that Mr. Hollohan would be proceeding with a court action. Mr. Hollohan’s counsel told Mr. Campbell’s counsel that Mr. Hollohan intended to bring an Application in Chambers to have the arbitration declared invalid and for an order that Mr. Campbell comply with his contractual obligations. The Application in Chambers was filed on July 20, 2020. [ 19 ] In August 2020 Mr.

Campbell’s counsel wrote to Mr. Hollohan’s counsel proposing arbitrators to hear the matter. Mr.

Hollohan’s counsel responded indicting that no agreement could be reached because the arbitration was out of time. Mr. Campbell filed a motion seeking to have the court appoint an arbitrator. [ 20 ] There are two applications. They were heard together. Mitchell Hollohan and Site 2020 filed an application on July 20, 2020 seeking an order declaring the arbitration invalid, in the case set out in the Notice of Arbitration filed by Cole Campbell and seeking an order requiring him to tender his shares according to the terms of the April 30, 2017 Founders’ Restrictive Rights Amending Agreement.

Cole Campbell made an application filed on September 8, 2020, seeking to have the court appoint an arbitrator to hear the case set out in his Notice of Arbitration. Timing [ 21 ] Mitchell Hollohan says that the arbitration is out of time. More than 6 months passed from the date of the service on him of the Notice of Arbitration on April 26, 2019. The court’s authority to intervene is found in

section 51 of the Commercial Arbitration Act . That

section says that at any stage during or after an arbitration, “on application of a party of who has not participated in the arbitration” a court may grant a declaration that the arbitration is invalid because, among other reasons, it is “invalid or has ceased to exist”. [ 22 ] Mr. Hollohan and Site 2020 have not participated in the arbitration. When the notice was filed, they engaged in discussions with a view to settling the dispute with Mr. Campbell, but no arbitrator was appointed, and no evidence was heard. There was no agreement to extend the 6-month time for completion of arbitration.

The agreement itself contains no provision that imposes upon the parties the obligation to make reasonable efforts to resolve their disputes through negotiations. There was no explicit or implicit waiver of the time limit set out in the arbitration provision of the agreement. [ 23 ] Mr. Campbell says that the intention of the parties was always to have such disputes arbitrated and the test for whether the court should appoint an arbitrator is whether the claim was one that was intended under the Founders’ Restricted Rights Agreement to have been subject to arbitration.

An arbitrator should decide whether the arbitration is out of time. [ 24 ] This is a commercial contract. It must be interpreted as a whole, in a way that gives meaning to all its terms so that none is rendered ineffective. The

interpretation should be in accord with sound commercial principles. The parties should be considered to have meant what they said in the written document. [ 25 ] In this contract there is a clear intention to proceed with arbitration to settle disputes and to avoid litigation. The contract is also clear in imposing a time limit. It says that the arbitration must be completed within 6 months of its commencement. The Commercial Arbitration Act at section 21(1) makes it clear that an arbitration can be commenced by serving on the other parties a notice demanding arbitration under the arbitration agreement.

That is precisely what was done on April 26, 2019. Once the arbitration was commenced Mr. Campbell took no steps to advance the proceeding until December 19, 2019, well after the 6-month time limit imposed by the Founders’ Restricted Rights Agreement. [ 26 ] Paragraph 6.5 of the Founders’ Restricted Rights Agreement says that time shall be of the essence for every part of the agreement.

The intent, as clearly expressed in the agreement was to impose a strict 6-month time limit to have disputes resolved quickly and without resort to litigation. [ 27 ] The court appointment of an arbitrator with respect to the notice of arbitration would be contrary to the intent of the parties expressed in the agreement itself to have a strict time limit on arbitration. Mr.

Campbell’s Notice of Arbitration was out of time and the court should not now do what the parties themselves have expressly agreed not to do. [ 28 ] Any arbitral proceeding commenced under the April 24, 2019 Notice of Arbitration is invalid because the arbitration commenced by Mr. Campbell has ceased to exist under the terms of the agreement. Specific Performance [ 29 ] That only takes things so far. Cole Campbell’s Notice of Arbitration is out of time and that arbitration is invalid. It is as if that arbitration had never been commenced. It does not resolve the issues set out in that Notice of Arbitration.

The agreement says nothing that could be interpreted as meaning that any claim advanced under a Notice of Arbitration that “times out” has been determined or that the party who filed the notice is deemed to have waived the claim itself. That leaves Mr. Hollohan and Site 2020 precisely where they were before. They want to force Mr. Campbell to sell his shares for the price set out in the Founders’ Restrictive Rights Amending Agreement signed on April 30, 2017. They need to get the details of the shareholding of the company clarified in order to be able to attract other investors.

So they want an order for specific performance. But Mr. Campbell says that the agreement that would justify such a remedy was signed under duress. There is a real factual and legal dispute about that. [ 30 ] To make an order for specific performance and require that Cole Campbell sell his shares, the court would have to determine that his contention that the agreement establishing the price for those shares was invalid, would be an argument without merit. There would be two ways in which that could be done.

The first would involve the consideration of the circumstances at the time of the signing of the Amending Agreement and the application of the law of duress. The second would be to hold that the issue has already been addressed in the arbitration that has been ruled invalid because it was out of time. Both of those issues are contentious.

There is an issue, a “dispute” as to whether Cole Campbell has a defence to the claim advanced by Mitchell Hollohan and Site 2020. [ 31 ] The terms of the Founders’ Restricted Rights Agreement dated February 1, 2016 were amended by the Founders’ Restricted Rights Agreement dated January 17, 2017. There is no dispute about whether those agreements remain in force. Both contain the same paragraph 6.6. That paragraph requires that any dispute, controversy or claim arising out of or relating to the agreement, or the breach, termination or invalidity of the agreement will be settled by arbitration.

Cole Campbell sought arbitration and that is now out of time. But to get the remedy against him that the company and Mitchell Hollohan seek they are required under the terms of the agreement to settle that dispute through arbitration. [ 32 ] Mr. Hollohan says that Mr. Campbell has not put forward any reasonable case to support his claim for duress and has not given any other reason why he should not be required to sell his shares according to the agreement. The contract is clear in saying that “any

dispute” must be resolved by arbitration. It does not require that the dispute reach any threshold test for potential success. [ 33 ] Cole Campbell’s Notice of Arbitration was not acted upon and expired. That arbitration is invalid. Mitchell Hollohan is advancing a claim against him to have shares sold according to the terms of the April 30, 2017 Founders’ Restricted Rights Amending Agreement. Whether Cole Campbell has a defence to that claim is again, a dispute to be settled by arbitration or perhaps, more expeditiously through negotiation. [ 34 ] Both motions are dismissed without costs. Campbell, J.