PROVINCE OF PRINCE EDWARD ISLAND IN THE SUPREME COURT - TRIAL DIVISION Citation: Agrawest & AWI v. BMA Date: 20050623 2005 PESCTD 36 Docket: S1-GS-20488 Registry: Charlottetown Between: And: Agrawest Investments Limited and AWI Acquisition Company Limited BMA Nederland B.V. Plaintiffs Defendant BEFORE: The Honourable Justice Benjamin B. Taylor Appearances: M. Lynn Murray, Q.C., solicitor for the plaintiffs Eugene P. Rossiter, Q.C., and Rosemary Scott, Q.C., solicitors for the defendant Place and Date of Hearing Place and Date of Decision Charlottetown, Prince Edward Island January 21, 2005 Charlottetown, Prince Edward Island June 23, 2005
Citation: Agrawest & AWI v. BMA Nederland 2005 PESCTD 36 S1-GS-20488 Between: And: Agrawest Investments Limited and AWI Acquisition Company Limited BMA Nederland B.V. Prince Edward Island Supreme Court - Trial Division Before: Taylor J. (In Chambers) Date of Hearing: January 21, 2005 Date of Decision: June 23, 2005 [12 Pages] Plaintiffs Defendant ARBITRATION - International Commercial Arbitration Act - deference by courts to agreement to arbitrate - exceptions - scope of arbitration clause - whether torts included - whether illegal contracts and fraud included. PRACTICE - International Commercial Arbitration Act - procedure on motion to stay proceedings - filing defence - facts to be taken as proven for the purpose of the motion - non-party to arbitration clause - derivative claim. Cases Considered: ABN Ambro Bank of Canada v. Krups Mak Maschinenbau GmbH, [1996] OJ No. 1574 (O.C.J.), [1994] OJ No. 3044 (Gen. Div.); Kaverit Steel and Crane Ltd. v. Kone Corp., [1992] A.J. No. 40 (Alta. C.A.), [1992] S.C.C.A. No. 117 (S.C.C.); Dalimpex Ltd. v. Janicki, [2000] O.J. No. 2927 (Div. Ct.); DLT Holdings Inc. v. Grow Biz International Inc., [2000] PEIJ No. 95; Boart Sweden AB v. NYA Stomnes AB (1988), 41 BLR 295; Onex Corp. v. Bell Corp., [1994] O.J. No. 98; Gulf Canada Resources Limited v. Arochem International Ltd. (1992), 66 B.C.L.R. (2d) 113, 43 C.P.R. (3d) 390 (C.A.); Thompson General Hospital General Hospital v. C.S.L. Hospital Services Ltd., [1996] M.J. No. 495; Woolcock v. Bushert, [2004] O.J. No. 4498 (C.A.); Foss v. Harbottle, (1843) 67 R.R. 189 (Eng. Ch.); Traff v. Evancic, [1995] B.C.J. No. 2296 (B.C.C.A. in Chambers); BWV Investments Ltd. v. Saskferco Products Inc., [1993] S.J. No. 170 (Sask Q.B.); Globe Union Industrial Corp. v. G.A.P. Marketing Corp., [1994] B.C.J. No. 2636 (B.C.S.C.); Huras v. Primerica Financial Services, [2001] O.J. No. 3318 (C.A.); Kastner v. Ing [2003] O.J. No. 4030 (Ont. S.C.J.). Statutes Considered: International Commercial Arbitration Act, R.S.P.E.I. 198, Cap. I-5, Article II, section 1, 2 and 3; Article 8(1); Chapters VII and VIII of Schedule B, Articles 34(2)(a)(iii) and 36 (i)(a)(iii), Article 35 and Article 36. M. Lynn Murray, Q.C., solicitor for the plaintiffs Eugene P. Rossiter, Q.C. and Rosemary Scott, Q.C. solicitors for the defendants
Taylor, J.: [1] This is a motion by the defendant BMA Nederland B.V. for an order that all further proceedings in this action be stayed. The defendant asserts that the parties are bound by an agreement to refer disputes to arbitration of the International Chamber of Commerce. The plaintiffs assert: a) one of the plaintiffs is not a party to any agreement with the defendant; b) the dispute identified in the action is not one which the defendant and one of the plaintiffs agreed to arbitrate; and c) the agreement between these two parties which contains the arbitration clause is an illegal contract. [2] This decision will determine whether there is an agreement to arbitrate the dispute described in this action, and if so, whether this court should defer to the agreement to arbitrate, stay this action, and refer the dispute to arbitration. Facts [3] Agrawest Investments Limited ( Agrawest ) is a Prince Edward Island company with head office in Souris, Prince Edward Island. It was incorporated to operate a potato dehydration plant in Souris. The plaintiffs state that the shareholders and directors of Agrawest until August 5, 1997 were Ray Keenan, Mark Ledwell and Shelly Boutilier. After August 5, 1997, Jan Hak, a former owner of H & H Industrial Systems BV ( H & H ), became a director and some amount of shares were owned by Mr. Jak s company Luthom Holdings Ltd. ( Luthom ) until January 31, 2000 when AWI Acquisition Co. ( AWI ) acquired all the shares in Agrawest. [4] H & H and BMA Nederland BV ( BMA ) are bodies based in the Nederlands which design, manufacture, supply and install vegetable processing systems. H & H is in some manner related or a predecessor to the defendant BMA. A letter dated June 15, 2004 from BMA s lawyer to International Chamber of Commerce describes BMA as the legal successor to H & H Industrial Systems B.V.. BMA s name does not appear in the contracts referred to below until December, 1998, but because the parties use the name BMA to refer to both BMA and H & H, I have done likewise in this decision, except for references to H & H in paragraphs 5, 7 and 13. [5] By contract dated July 4, 1997 (the Equipment Contract ), Agrawest agreed to purchase a potato dehydration plant from H & H. In that contract, H & H agreed to deliver and assemble the plant for the price of $19,445,000.00 Canadian. The contract states it is to be governed by the Federal laws of Canada, and provides at s. 26 that: All disputes arising at any time between the parties hereto in connection with the interpretation or execution of this contract or any part hereof, shall be referred to and settled by three arbitrators in accordance with and subject to the Rules of Conciliation and Arbitration of the International Chamber of Commerce.
Page: 2 [6] The International Chamber of Commerce ( ICC ) is a private business which offers an arbitration service. It is based in Paris, France. [7] There were three agreements subsequent to the Equipment Contract between Agrawest and H & H. The first two are between Agrawest and H & H, and are not material to this motion. The third agreement (the Final Settlement ) is entitled Final Settlement as to Take Over of the Plant Delivered as Per Contract of July 4, 1997". The parties are Agrawest and BMA. The Final Settlement was signed by Agrawest at Charlottetown on December 21, 1998. BMA signed at Woerden, December, 1998". The Final Settlement makes a number of references to the Equipment Contract. There is no arbitration clause, but there is a mediation clause in an attached loan agreement (see paragraph 7 below). The Final Settlement sets out amounts owing by Agrawest to BMA, amounts for liquidated damages of unstated cause, and deals with deficiencies, spares, additional works, plant takeover and guarantee period. It states that Agrawest owes BMA $500,000 to be secured by a loan agreement and $1,500,000 to be converted into Class C preferred shares in Agrawest. [8] There is a loan agreement relating to the $500,000 loan attached to the Final Settlement which provides that any disputes arising from or in connection with the loan agreement shall be submitted in first instance to a mediator. There is no evidence before this Court that this mediation occurred. [9] By letter from its lawyers dated June 15, 2004, (the Request for Arbitration ) BMA requested arbitration by ICC of a dispute with Agrawest. According to the Request for Arbitration, the matters in dispute are: 1) BMA wants Agrawest to pay it the value of the preferred shares ($1,500,000) plus the $500,000 covered by the loan agreement, plus interest, and 2) BMA wants Agrawest to pay the sum of $150,537.58 plus interest, due on certain invoices as set out in the Final Settlement under paragraph three Spares. There is no Spares clause in the Equipment Contract, but Section 6 does provide that the contract price may be increased if the parties agree on other or additional equipment. [10] On July 27, 2004, Agrawest and AWI commenced the present action against BMA in the Supreme Court of Prince Edward Island. An amended statement of claim was filed August 3, 2004. The relief claimed by the plaintiffs is to void, set off or otherwise eliminate the shareholding of 1,500 Class C preferred shares and the debt of $500,000 because the plaintiffs assert that BMA conspired with the then directors of Agrawest to fix a false price which benefited BMA and the then directors of Agrawest (but not Agrawest), and misled or attempted to mislead the Provincial
Page: 3 Government or its crown corporations and Canada Customs and Revenue Agency ( CCRA ), thereby creating an illegal contract. The plaintiffs claim this has caused or contributed to damages to the plaintiffs which greatly exceed the value of the Class C shareholding and $500,000 debt. Alternatively, the plaintiffs seek general and special damages. [11] The plaintiffs position as set out in the amended statement of claim at paragraphs 11 to 22 and 29 to 38 is that Agrawest was the victim of a scam or fraud perpetrated upon the company and others by BMA and by the people who were Agrawest s directors and shareholders at the time. In round numbers, the plaintiffs assert that the price of the defendant s dehydration plant was $14 million. The shareholders of Agrawest, who are not the present shareholders, wanted and needed government to lend Agrawest most, perhaps all, of the money. The provincial Government, through one or more Crown Corporations, was willing to lend money provided the shareholders invested $5,000,000 in share capital. The shareholders would not or could not invest the money in the company. The problem was solved by the stratagem of having the defendant increase the price of the plant by $5 million to $19 million. Government then agreed to loan about $14 million, the defendant gave $5 million to the shareholders of Agrawest, which they rolled over into the company as an apparent investment, the company paid $19 million to the defendant, and the defendant treated its loan to the shareholders as repaid. At the end of that series of transactions, BMA had received its full original price of $14 million, Government had funded near 100% of the cost of the plant, but believed it had only funded 75%, the shareholders had invested nothing in Agrawest, but appeared to have invested $5 million, and Agrawest owned a $14 million asset which was valued on the books at $19 million. [12] Between November 1, 2000 and May 22, 2001, CCRA investigated the dealings between Agrawest and BMA and determined that the $5,000,000 shown on Agrawest s books as a shareholder investment was in fact a loan to be repaid by being added to the Equipment Contract price. The CCRA determination allegedly resulted in Agrawest having to pay taxes of $900,000; losing tax credits and investment tax credits of $1,826,801, reducing Agrawest assets by $5,000,000, and making balance sheet adjustments of $2,006,801 (Richard Nickel affidavit, paragraph 30). [13] BMA does not provide any affidavit or other sworn evidence about this series of events, but in the Request for Arbitration, BMA says that it did use $5,000,000 of the purchase price to facilitate an equity investment by Luthom in the capital of Agrawest, but says that this amount qualifies as a loan to Luthom and BMA has demanded repayment from Luthom. BMA does not say whether it has sued Luthom, the company which the plaintiffs assert belongs to H & H s former president. Preliminary Issues
Page: 4 a) Attornment [14] BMA has not filed a statement of defence, believing that if it did it would be attorning to the jurisdiction of the Supreme Court of Prince Edward Island. I appreciate that counsel are always leery of filing one paper too many, and thereby committing their client to a jurisdiction they believe to be the wrong one. In this case however, I think it is clear that the defendant must submit to the jurisdiction of this Court in order to obtain from the Court the order which it seeks. This is not a proceeding in which the defendant asserts that the court has no jurisdiction and brings a motion pursuant to Rule 17.06 asserting improper service on an out-ofprovince defendant, or advancing an argument that our jurisdiction is not a convenient forum for the hearing. Only the Court which has jurisdiction and is seized of the matter can surrender that jurisdiction and refer the matter to a body which has no inherent jurisdiction, and gains jurisdiction only because a) the parties desire it to be so, and b) the court which has jurisdiction gives effect to the wishes of the parties (see International Commercial Arbitration Act, R.S.P.E.I. 1988, Cap. I-5, ( the Act ) Article II, Section 2). [15] Article 8(1) of Schedule B to the Act provides that in an appropriate case a court before which an action is brought shall refer the parties to arbitration if a party so requests not later than when submitting his first statement on the substance of the dispute.... BMA should thus have filed its statement of defence and the present motion at the same time. A statement of defence filed under those circumstances could be a pro forma defence of denial together with an assertion that the Court should defer to arbitration and stay the action (see ABN Ambro Bank of Canada v. Krups Mak Maschinenbau GmbH, [1996] OJ No. 1574 (O.C.J.) at paragraphs 7 to 8, 11 to 14; reversing [1994] OJ No. 3044 (Gen. Div.). [16] Although the procedure chosen by BMA is irregular, the plaintiffs have not attempted to have the motion dismissed because of the irregularity, and because the motion is rare in this jurisdiction, I would dispense with compliance on this occasion pursuant to Prince Edward Island Rules of Civil Procedure, Rule 2.03. b) Facts Accepted for the Purpose of this Motion [17] There is much disagreement between the parties over the facts. In particular, the defendant disagrees with the plaintiffs assertion that it charged $19 million for a $14 million plant, although there seems to be a semantics issue over cost versus price versus value. [18] At the hearing of this motion, I asked counsel what facts I should accept for the purpose of determining the motion. Counsel for BMA asserted I should accept the statements contained in the affidavits filed on the motion, but since the parties
Page: 5 affidavits contain contradictory statements, that is clearly not possible. [19] Short of conducting a trial, which BMA asserts should not happen, this Court cannot make findings of fact as to whose version is true. I believe that the facts set out in the statement of claim should be taken as proven for the purpose of defining the issues to be considered in resolving this motion. This is, after all, the plaintiffs action, and the fundamental question is whether the claim as framed and asserted by the plaintiffs could fall within the arbitration clause. [20] ABN Ambro Bank of Canada v. Krupp Mak Maschinenbau GmbH, supra, is a case which has some factual similarities to the assertions in the present case. In ABN, it was asserted that in order for Krupp to qualify for a loan from ABN, ACOA and others, the shareholders of Krupp were supposed to invest $5,000,000 in the company, but did not, and conspired to make it appear as if they had. As well, the plaintiffs alleged fraud, although not specifically pleading it. [21] The majority in the Divisional Court decision held that the court was not obligated to entertain ABN s claim of fraud by reason of Article 8 of the Model Law (the International Commercial Arbitration Act (para. 10). The Court further stated that A motions court, prima facie, is not a particularly appropriate forum to determine that issue [fraud] (para 10). This appears to state a) in dealing with a stay motion concerning an action based on fraud, the court must make a final determination as to whether the fraud occurred, and b) the court at its option can refer the matter to arbitration. If that is what the majority meant in ABN, I believe it was incorrect: (a), above, would necessitate holding a trial to determine if a trial should be held; (b), above, is an abdication of responsibility. It would mean that a party involved in a dispute which was utterly unrelated to the arbitration clause could be forced to the expense, time and uncertainty of an arbitration because the court opted to refuse to decide if the stay should be denied. [22] In Kaverit Steel and Crane Ltd. v. Kone Corp, [1992] A.J. No. 40 (Alta. C.A.), leave to appeal denied [1992] S.C.C.A No. 117 (S.C.C.), the Appeal Court held that the Court must decide whether or not an issue should go to arbitration: it was not possible to simply decline to decide and refer to arbitration (para 3 of Part II). [23] Further, the Court did not analyze the evidence and make determinative findings of fact. Instead, it considered the issues identified in the pleadings, and made its decision on the stay based on the assertions in the claim. [24] In Dalimpex Ltd. v. Janicki, [2000] O.J. No. 2927 (Div. Ct.), the Divisional Court relied upon Kaverit Steel, supra, and did not make any evidential findings. It considered the claims in the plaintiffs pleadings, but found that the defences raised by the defendant ought to have been considered as well. In the present case, the
Page: 6 defendant has not filed a defence, so I need not decide whether assertions in the defence must be considered. [25] I note that if it were necessary to provide proof that the claims of fraud and illegal contract were genuine issues for trial, the plaintiffs have provided this through affidavit evidence and reference to the CCRA finding. The defendants have provided no contrary evidence, and the unsworn statements in the Request for Arbitration buttress the plaintiffs assertion that the claims of fraud and illegal contract are genuine issues. LAW [26] When parties agree to settle their differences by arbitration, the courts, for public policy reasons, and to give effect to the wishes of the parties, will hold the parties to their agreement and defer to the arbitration system (see DLT Holdings Inc. v. Grow Biz International Inc., [2000] PEIJ No. 95; Boart Sweden AB v. NYA Stromnes AB (1988), 41 BLR 295). [27] If the wording of the arbitration clause is such that it is reasonably arguable that the parties agreed that a particular type of dispute would be arbitrated, or if one of the possible interpretations of the agreement is that the dispute is to be arbitrated, the courts should lean towards directing the parties to arbitration (see Onex Corp. v. Bell Corp., [1994] O.J. No. 98 at para. 24; Gulf Canada Resources Limited v. Arochem International Ltd. (1992), 66 B.C.L.R. (2d) 113, 43 C.P.R. (3d) 390 (C.A.) at pp 120-121; Thompson General Hospital v. C.S.L. Hospital Services Ltd., [1996] M.J. No. 495 at paragraph 20). [28] This deference which the courts pay to arbitral procedures is compulsory when the arbitration is conducted pursuant to the International Commercial Arbitration Act, supra. In these cases, unless it is clear that the dispute should not be referred to arbitration because a) it is outside the terms of the arbitration clause; or b) a party is not a party to the arbitration agreement, the court should stay its proceedings and leave the determination to the arbitral tribunal (see s. 10 and Schedule A, Article II, sections 1 and 2 of the Act, supra, DLT Holdings Inc. v. Grow Biz International Inc., supra; Gulf Canada Resources Ltd. v. Arochem International Ltd. (1992), 66 B.C.L.R. (2d) 113; Dalimpex Ltd. v. Janicki et al. [2003] OJ No. 2094 (C.A.), Kaverit Steel and Crane Ltd. v. Kone Corp., supra). OUTLINE OF ISSUES [29] The defendant asserts in the Request for Arbitration that Agrawest owes it money under three headings: a $500,000 loan, $1,500,000 in preferred shares, and
Page: 7 about $150,000 for spares. The amounts of the loan and the preferred shares do not appear to be at issue at all since the plaintiffs specify those amounts in the statement of claim. As to the spares, Agrawest has already agreed in the Final Settlement to pay the money due for spares. If only these three matters were to be arbitrated, I expect the arbitration would be perfunctory, and BMA would then make application to this Court pursuant to s. 3 of the International Commercial Arbitration Act, supra, to have the award recognized and enforced pursuant to Chapter VIII, Article 35 of Schedule B to the Act. But although BMA only lists these three items of relief in its Formal Request for international arbitration (at page five of the request under II. Relief and Indication of Amounts Claimed ), BMA obviously also seeks to resolve the plaintiffs claims of illegal contract and collusion by BMA with former shareholders of Agrawest to misrepresent the price, cheat the company, fraudulently enrich the shareholders, mislead the crown corporations and CCRA. BMA asserts that this is also subject to arbitration. [30] The plaintiffs assert the claims in their Statement of Claim are not subject to arbitration. More particularly: 1) the dispute which gives rise to the lawsuit relates to a claim in tort, not contract; 2) the matters in the statement of claim are outside the scope of the arbitration clause; i.e. they are not related to the interpretation or execution of the Equipment Contract; 3) the matters which BMA seeks to take to arbitration all relate to the Final Settlement, and it has no arbitration clause or does not incorporate the arbitration clause from the Equipment Contract; 4) AWI is not a party to any arbitration clause; 5) the Equipment Contract and all subsequent agreements are void at least in part, because the agreements are illegal, based upon unlawful misrepresentation, wrongful conduct and collusion by BMA and the then directors and shareholders of Agrawest acting against Agrawest s interests. Issue #1 and #2 Scope of Arbitration Clause and Arbitration of Torts [31] BMA asserts that the Equipment Contract provides the basis for, or source of, Agrawest s claims that the purchase price agreed upon was artificially inflated, and the Equipment Contract itself is the source of the unlawful conduct alleged against
Page: 8 BMA (BMA s factum, paras. 62-63). [32] The plaintiffs assert that the claim contained in the plaintiffs action does not fall within the arbitration clause because the action relates to a claim in tort, and not to the interpretation or execution of the Equipment Contract, and thus falls outside the scope of the arbitration clause. [33] The arbitration clause in this case All disputes arising at any time between the parties hereto in connection with the interpretation or execution of this contract... is near identical to the clause in Dalimpex Ltd. v. Janicki, [1999] OJ No. 1737 (S.C.J.); [2000] OJ No. 2927 (Div. Ct.); [2003] OJ 2094 (C.A.): Any disputes which may arise in connection with interpretation or execution of this agreement.... [34] In Dalimpex, supra, the Divisional Court at paragraph 28 upheld the motion judge s finding that execution means the performance and carrying out the contract and not merely the making of the contract. Thus, the clause is broad in scope. In that case, in addition to bringing an action for breach of contract, breach of trust and breach of fiduciary duty, Dalimpex also sued for the torts of conspiracy, interference of economic relations and inducing breach of contract. [35] In Kaverit, supra, the Court found that a commercial arbitration clause could apply to a claim in tort so long as the relationship that creates liability is one that can fairly be described as commercial (para 5 of Part II). The Court allowed conspiracy to harm by unlawful acts to go to arbitration, because the unlawful acts were unlawful breaches of contract (para 23, Part II). See also Woolcock v. Bushert, [2004] OJ No. 4498 (C.A.). [36] It is plain that some torts may be arbitrable under a commercial arbitration clause, perhaps subject to the caveat that the alleged tort is also a breach of the contract containing the arbitration clause, and per Kaverit, supra, and Dalimpex, supra, courts should defer to the arbitration if it is arguable that the claim falls within the scope of the arbitration clause. Issue #3 The Final Settlement Agreement [37] The plaintiffs assert the Final Settlement does not incorporate the arbitration clause from the Equipment Contract, and hence a dispute over the matters in the Final Settlement is not subject to arbitration. The defendant disagrees. It might be argued that the matters dealt with in the Final Settlement arise in connection with the interpretation or execution of the Equipment Contract. On the other hand, the
Page: 9 mediation clause in the loan agreement attached to the Settlement Agreement indicates that the $500,000 debt is not subject to the Equipment Contract arbitration clause. [38] If it were necessary to decide this, the case law indicates that I should leave it to arbitration to decide, but whether the Settlement Contract is subject to arbitration is not relevant to the dispute in the plaintiffs action, and makes no difference to this motion. [39] The claim in the plaintiffs action is that an illegal agreement between BMA and Agrawest s directors was reached before or as the Equipment Contract was signed, and introduced a false price into the Equipment Contract to cheat government, improperly benefit Agrawest s shareholders and make possible a big sale for BMA. After that, BMA did install a plant, and in the course of that installation, there were changes, mistakes and disagreements. All of these were dealt with in the Final Settlement, but none are before this Court. [40] The plaintiffs are not suing BMA because of a dispute over matters contained in the Final Settlement. The only connection with that document is that in the statement of claim, the plaintiffs seek, as their remedy, that the Court cancel the debts (preferred shares and a loan) referred to in the Final Settlement, not because Agrawest does not owe the money per the equipment contract, but because the price was wrong from the very start because of an intentional misrepresentation by BMA and Agrawest s directors, and Agrawest suffered damages thereby. Getting back the shares and the IOU is presumably an effective way of recovering damages from an out-of-country defendant. [41] The alleged 5 million dollar fraud is certainly not part of the Settlement Contract it was established either before the Equipment Contract or by the Equipment Contract. Although the effects of the alleged illegal agreement may continue into the Settlement Contract, they were not created by it. Issue #4 AWI Not a Party to Arbitration Agreement [42] The plaintiffs assert the stay should not be granted because AWI, the present shareholder of Agrawest, is not a party to the arbitration clause. BMA submits that AWI s claim is purely a derivative claim as originally defined in Foss v. Harbottle, (1843) 67 E.R. 189 (Eng. Ch.; only the company can sue for the wrong allegedly done to it; and the new shareholders position cannot be any better than the position of Agrawest. BMA has not made any motion to strike AWI s claim.
Page: 10 [43] The proper course to follow in dealing with this issue is set out in Kaverit Steel and Crane Ltd. v. Kone Corp., supra, at paragraphs 11 and 12: a) Since AWI is not a party to any arbitration clause, I cannot order it to submit its claim to arbitration; b) I will not decide whether the AWI claim is derivative: that is a matter for a separate motion or a trial; and c) if I stay Agrawest s claim and refer it to arbitration, I will stay the AWI claim pending arbitration with the derivative issue to be determined, if necessary, by this Court following the arbitration. See also Dalimpex, supra, at paragraph 33. Issue #5 Illegal Contracts [44] Claims of fraud and certain other illegal acts cannot be the subject of an agreement to arbitrate pursuant to the Act,(see Traff v. Evancic, [1995] B.C.J. No. 2296 (B.C.C.A. in Chambers), BWV Investments Ltd. v. Saskferco Products Inc., [1993] S.J. No. 170 (Sask Q.B.), Globe Union Industrial Corp. v. G.A.P. Marketing Corp., [1994] B.C.J. No. 2636 (B.C.S.C.) at para. 23). [45] Both parties make reference to the allegations of unlawful and illegal conduct or agreement between BMA and Agrawest s shareholders. The two words are often used synonymously and are capable of a broad range of meanings. In the context of what is alleged in the statement of claim, the illegal or unlawful conduct or agreement clearly amounts to fraud misleading government into loaning money by avoiding the rules or guidelines of certain crown corporations; the creation of a balance sheet for Agrawest that was misstated by millions of dollars, thus attempting to evade taxes payable to CCRA; and artificially inflating the company s worth to the detriment of subsequent shareholders. BMA and the directors of Agrawest, acting contrary to the interests of Agrawest, allegedly perpetrated this fraud by wrongly misrepresenting the 5 million dollar loan as an equity investment in order to mislead government and obtain financing and in so doing, hurt Agrawest. [46] The facts asserted raise several issues under this heading: a) was the alleged fraudulent agreement reached before BMA and Agrawest agreed on the arbitration clause and is it therefore outside the scope of the clause (see Huras v. Primerica Financial Services, [2001] O.J. No. 3318 (C.A.), at paragraph 16; Kastner v. Ing [2003] O.J. No. 4030 (Ont. S.C.J.); b) was the alleged fraudulent agreement an agreement between BMA and Agrawest s directors, acting for themselves, and is it therefore not subject to arbitration because BMA and the directors have no
Page: 11 agreement to arbitrate differences between them; c) is the alleged fraudulent agreement on price severable from the rest of the equipment contract? [47] I have determined that it will not be necessary to determine these issues because the alleged illegal fraudulent agreement cannot be subject to arbitration no matter what. To hold otherwise would amount to saying that BMA and the Agrawest directors could enter into an agreement which defrauded Agrawest and others, and further agreed upon an arbitration clause which would force Agrawest to arbitrate the fraud, and gave the arbitration board power to uphold or overturn the fraud, a power binding on Agrawest, one of the victims of the fraud. That would be illogical and unfair. [48] This is not even a case where two parties conspire for the benefit of both to harm a third and agree to arbitrate differences between conspirators. This is a case where two parties conspired together and now one asserts they agreed to arbitrate differences between one of them and the victim. [49] I stress that these are all mere allegations, which may or may not have any basis in fact. My ruling only concludes that the plaintiffs are entitled to have these allegations tried in this Court. As to the ICC arbitration, I see no reason why it cannot continue to resolve the matters initially referred to it by BMA, although, as stated in paragraph 29, I would expect such an arbitration to be perfunctory. CONCLUSION [50] The defendant s motion is therefore dismissed with costs to the plaintiffs on a
Page: 12 partial indemnity basis. The plaintiffs shall file their proposed bill of costs within one week of the date of this decision, and the defendant shall have one week to respond. June 23, 2005 J.