Date: 20021104
Docket: T-1743-02
Neutral citation: 2002 FCT 1136
BETWEEN:
CAMPNEY & MURPHY, A Partnership
Applicant
and
BERNARD & PARTNERS, A Partnership
MARK W. HILTON
Respondents
BACKGKROUND
[1] In the application, which underlies the present motion, the partners of the law firm of Campney & Murphy claim copyright in various precedent material, as against the Respondents, Bernard & Partners and against Mr Hilton, who is also a partner at Bernard & Partners. In order to delineate a proceeding one looks for the existence of facts in the Notice of Application and in the affidavit in support. The claim is against Bernard & Partners, which consists of six individuals, including Mr Hilton, each a former partner of Campney & Murphy. Five of the partners in Bernard & Partners left Campney & Murphy: rather than resign they claimed a dissolution of the partnership of Campney & Murphy and the distribution of assets. Here I would note that the dissolution is not sought lightly, but rather for reasons which, in the views of Bernard & Partners, are serious, sound and objective. The partnership of Bernard & Partners are said to have received copied precedents from Mr Hilton, who had copied them before he left Campney & Murphy.
[2] In that these proceedings are under the protection of an interim confidentiality Order, extending to the present motion, I will deal only with the facts which are necessary: here I would note that confidentiality orders do not extend to reasons which do not disclose confidential information, for such are public documents: see Sierra Club of Canada v. Canada (Minister of Finance), [2000] 2 F.C. 423 at 425.
[3] The motion of Bernard & Partners giving rising to these reasons is for a stay of this proceeding in favour of existing arbitration proceedings. Campney & Murphy commenced arbitration proceedings against the partners of Bernard & Partners, other than Mr Hilton, at an early stage and on 11 March 2002, obtained an ex parte injunction in the BC Supreme Court, modified by consent 23 May 2002, to provide that neither side would take proceedings "in respect of matters which are the subject of arbitration": here I note that in order to decide this motion I do not have to determine whether this injunction has been breached by this Federal Court proceeding. I would also observe that Mr Hilton, whom I understand was a partner at Campney & Murphy when the arbitration was commenced, has now filed a defence in that arbitration as a partner of Bernard & Partners.
ANALYSIS
Submissions of Counsel for the Respondents
Counsel for Bernard & Partners and for Mr Hilton, speaking in favour of the stay, pointed to the arbitration provision in the Campney & Murphy partnership agreement (the "Agreement"), which is in very broad terms. The arbitration clause provides for arbitration before a single arbitrator, either a lawyer or a retired judge, or a panel of three if there is no agreement as to the arbitrator and, in part, that:
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All disputes arising out of or in connection with this Agreement, or in respect of any defined legal relationship associated with this Agreement or derived from this Agreement including any disputes as to the existence, construction, validity, interpretation or meaning, performance, non-performance, enforcement, operation, breach, continuance or termination of this Agreement, shall be referred to and finally resolved by arbitration under the Commercial Arbitration Act of British Columbia by the appointment of a single arbitrator (who shall be a lawyer or retired judge) if the parties to the dispute can agree upon one, otherwise by three arbitrators one of whom shall be appointed by the partner seeking arbitration, the second by the other partners as decided by a majority of them and the third (who shall be a lawyer or retired judge) by the other two arbitrators so appointed. The decision or determination of such arbitrator or arbitrators as the case may be shall be final and binding upon the parties to the arbitration. In the case of three arbitrators, the decision or determination of a majority of them shall prevail. |
One is struck by the scope of this provision, which extends to "[all] disputes arising out of or in connection with" the Agreement.
[5] Counsel for Bernard & Partners and Mr Hilton make, in addition, the usual points and some points unique to this proceeding, in favour of a stay. Those points include section 15 of the Commercial Arbitration Act of British Columbia (the "Arbitration Act") which makes a stay mandatory unless a court determines the arbitration agreement to be null and void, inoperative or incapable of being performed; that it was the Applicant, Campney & Murphy, who initiated the arbitration; that Campney & Murphy brought a BC Supreme Court action in order to obtain an ex parte injunction to prevent litigation and thus any side-stepping of arbitration; that all the parties agreed to broaden the injunction; that former counsel for Campney & Murphy noted that the question of document copying and the return of those documents was an issue arising out of the departure of Bernard & Partners and that Campney & Murphy were of the view that the arbitrator had jurisdiction and indeed would be applying to the arbitrator for a determination that the consent order, forbidding court proceedings, was broadened so that it applied to all proceedings, not just BC Supreme Court proceedings; that the precedents at issue are a partnership asset, a point agreed to by Campney & Murphy, both through counsel and by letter and thus, in the view of Bernard & Partners, to be dealt with through arbitration; that in response to the view of Campney & Murphy that the copied documents should be subject to arbitration, Bernard & Partners wrote in agreement; and that a copyright claim to the documents was made by Campney & Murphy in their second arbitration notice of 3 October 2002, directed to Mr Hilton, together with the remedy of delivering up of the documents.
Some Applicable Law
[6] Counsel for Bernard & Partners and Mr Hilton relied upon the law set out in the Memorandum of Argument filed on behalf of Campney & Murphy in the BC Supreme Court application for the ex parte injunction against the initial five partners of Bernard & Partners. Counsel for Campney & Murphy does not disagree with that case law.
[7] The British Columbia Court of Appeal has set out the prerequisites for an application for a stay under section 15 of the Arbitration Act being:
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22. There are three prerequisites to the application of s.15. They are:
(a) the applicant must show that a party to an arbitration agreement has commenced legal proceedings against another party to the agreement;
the legal proceedings must be in respect of a matter agreed to be submitted to arbitration; and
the application must be brought timely, i.e. before the applicant takes a step in the proceeding.
(Prince George (City) v. McElhanney Engineering Services Ltd. (1995), 9 B.C.L.R. (3d) 368 at 375) |
I have kept in mind these three requirements. The Court of Appeal in Prince George concluded that:
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If it is arguable whether the prerequisites have been met, then the stay should be granted and the issue can be resolved in the arbitration.
(Page 86) |
This concept, that a party seeking a stay need only show an arguable case, is a reflection from a passage which the Court of Appeal in Prince George adopted from Gulf Canada Resources Ltd. v. Arochem International Ltd. (1992), 66 B.C.L.R. (2d) 113, an earlier decision of the BC Court of Appeal, at pages 120 - 121:
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Only where it is clear that the dispute is outside the terms of the arbitration agreement or that a party is not a party to the arbitration agreement or that the application is out of time should the court reach any final determination in respect of such matters on an application for a stay of proceedings. |
The Court of Appeal in Gulf Canada was there referring to a final determination as to whether or not a dispute fell within an arbitration provision.
I have been referred to Turnbridge (c.o.b. Turnbridge & Turnbridge) v. Cansel Survey Equipment (Canada) Ltd., an unreported BC Supreme Court decision of Justice Sinclair Prowse, in [2000] B.C.J. No. 333, dated 17 February 2000. There the court framed the test, as to whether or not an action should be stayed, as determined by whether "... any of the claims clearly fall outside of the arbitration agreement ...", the court there referring to Prince George (supra) and Kaverit Steel and Crane Ltd. v. Kone Corp. (1992), 87 D.L.R. (4th) 129 (Alta. C.A.).
[9] Finally, I should return to the concept that the present arbitration clause, framed in terms of "arising out of", deserves a generous interpretation. Here I would refer first to The Oceanic Mindoro (1997), 26 B.C.L.R. (3d) 143, a decision of the BC Court of Appeal, at page 150. In The Oceanic Mindoro the Court of Appeal referred to and adopted the generous approach to the phrase "arising out of" used in Ethiopian Oilseeds v. Rio del Mar Foods Inc., [1990] 1 Lloyd's Law 86 (QB). There Mr Justice Hirst relied upon Mustil and Boyd on Commercial Arbitration, 2nd Edition at page 120:
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"Arising out of" These words have been given a wide meaning. It has been said that they cover every dispute except a dispute as to whether there was ever a contract at all. If the parties to a contract make provision in it as to their rights should certain events occur in the course of the contract, and a dispute arises between them as to their rights following the occurrence of those events, then that dispute as to their rights arises out of the contract.
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[10] The Court of Appeal in The Oceanic Mindoro (supra) adopted a passage which appears in S.A. Mineracao da Trindade-Samitri v. Utah International Inc. (1984), 745 F. 2d 190 at 194:
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[D]oubts as to arbitrability should be "resolved in favor of coverage," . . . language excluding certain disputes from arbitration must be "clear and unambiguous" or "unmistakably clear" and . . . arbitration should be ordered "unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute."
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Consideration
[11] The facts set out by Bernard & Partners and by Mr Hilton, favouring arbitration, together with a very broad scope of the word "arising out of" present a formidable barrier to the continuation by Campney & Murphy of this proceeding. However, there is an arguable case against a stay.
[12] In Prince George (supra) the Court of Appeal said that only where it was clear that a party was not a party to an arbitration agreement should a court reach any final determination in respect of an application for a stay of proceedings. The concept, that the partners of Bernard & Partners are not parties to the arbitration agreement, is not picked up in the present Notice of Application, or the affidavit in support, however counsel for Campney & Murphy, relying on material produced, for the purpose of this motion, by Bernard & Partners, takes the position that the copyright infringement is not by the individual partner, but rather by each partner's incorporated law practice. Indeed, each of the partners of Bernard & Partners is a partner in that firm through a law corporation.
[13] The argument of Campney & Murphy, based on the partners of Bernard & Partners being merely corporate entities, entities beyond the reach of the arbitrator, is a last-minute tack. Indeed, the basis and idea of Bernard & Partners' corporate entity being a veil, was an argument which did not present itself until some three weeks after this proceeding had been commenced. Until then the action was probably an abuse of process and remains such for the pleading and affidavit in support looks only to the individuals forming Bernard & Partners, not to their corporate persona.
[14] Counsel for Campney & Murphy submits that the wrong has been done not by the individual partners of Bernard & Partners themselves, as partners and in one case as a former partner of Campney & Murphy, but by their law corporations. This is a last minute point taken by counsel for Campney & Murphy in re-drafted written argument dated 28 October 2002, the day that this adjourned motion for a stay came on for hearing. Be that as it may it is an arguable point and indeed the only arguable point which the partners of Campney & Murphy have.
[15] The incorporation submission is to the effect that the arbitrator has no jurisdiction over Bernard & Partners and Mr Hilton who would be able to hide behind their individual law corporations. This perhaps overlooks the practical aspect, that it would take very brave lawyers indeed to say, to an arbitrator of the stature of former Chief Justice McEachern, that they could ignore an arbitration agreement entirely, or the finding of an arbitrator, merely because they had incorporated for tax purposes. Be that as it may, the issue becomes how a partnership of law corporations ought to be treated.
[16] It is unfortunate that this corporate approach came at such a late date, for apparently counsel for Campney & Murphy did not have the opportunity to research the law. Obviously, counsel for Bernard & Partners and Mr Hilton, receiving this argument at the last minute, did not have the opportunity to deal with it in anything more than general terms. Counsel for Mr Hilton made a point, adopted by counsel for Bernard & Partners, that based on the pleadings and on the affidavit material in support it would be individual lawyers, not the companies, who would be bound by any decision of the Federal Court, for this whole proceeding is aimed at only the individuals. He went on to point out that there was nothing to indicate that either the partners of Bernard & Partners or Mr Hilton would hide behind their incorporation and that the whole concept of incorporation, as a factor in these proceedings, was a red herring, particularly given that the partners who left Campney & Murphy and called for dissolution of the firm, were probably still, technically, partners of Campney & Murphy and it was Campney & Murphy who owned the documents in question.
[17] Counsel for Mr Hilton also touched upon the concept of a partnership, being the relationship subsisting between persons carrying on business in common with a view for profit. This leads to a line of thought which I believe resolves the incorporation issue. Welling on Corporate Law in Canada, Butterworths, 1991, at pages 127 and following, points out that while corporations may be viewed as principals who employ human agents, corporations may also be agents, there being no barrier precluding a corporation from operating as an agent for an individual in order to perform services.
This is not to say that merely because each partner of Bernard & Partners holds control of his corporate persona the structure is some form of a front. Rather there is material to demonstrate that the relationship of partners and their control of the firm is consistent with the corporate persona as agent, acting "for and on behalf of those by whom it has been called into existence": see Patton v. Yukon Consolidated Gold Corp. Ltd. (1934), 3 D.L.R. 400 at 403 (Ont. C.A.), referring to the speech of Lord Buckmaster in Rainham Chemical Works Ltd. v. Belvedere Fish Guano Co. Ltd., [1921] 2 A.C. 465 at 475 (H.L.):
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A company, therefore, which is duly incorporated, cannot be disregarded on the ground that it is a sham, although it may be established by evidence that in its operations it does not act on its own behalf as an independent trading unit, but simply for and on behalf of the people by whom it has been called into existence. |
This concept, of a company acting for and on behalf of those who called it into existence, is patently the situation here, for law firms cannot function as effective partnerships if the corporate persona, as opposed to the individual themselves, were in control. There is thus nothing in the argument that the arbitrator would have no jurisdiction over the alleged perpetrators of the copyright infringement.
CONCLUSION
[18] The arbitration clause in the Campney & Murphy Partnership Agreement, in using the term "arising out of", is very broad in scope. I need not decide, as an absolute, whether or not the present dispute as to copying of precedents falls within the arbitration clause. Rather, I need only decide if it is arguable that the dispute falls within the arbitration provision. Here I must resolve any doubt as to arbitrability in favour of coverage under the arbitration provision. Only if I can conclude, with positive assurance, that the arbitration clause does not extend to the dispute, and here I include a consideration of whether the entities actually involved in the wrongdoing are subject to the arbitration process, ought I to deny a stay in favour of arbitration.
[19] There are two reasons, each at least arguable, by which to demonstrate that the individuals alleged to have transgressed are subject to the arbitration process. First, this Federal Court proceeding, as it stands, is against a partnership of individual lawyers who are said to have taken and used copyright material belonging to Campney & Murphy. That, as the parties initially agreed, is clearly arbitrable. The partnership of individual lawyers, indeed those individuals themselves, are subject to the arbitration process.
[20] Second, if I am incorrect in the first conclusion and the wrongdoers are a number of entities which were incorporated for tax planning purposes, those corporate personas of each lawyer with Bernard & Partners, including Mr Hilton were, at least arguably and indeed in all likelihood, act as agents for the individual lawyers. This being the case there is no issue as to Bernard & Partners and Mr Hilton being the proper parties to the arbitration agreement, so that the issue of the obtaining and use of precedent material, which originated from Campney & Murphy's records, may be arbitrated.
[21] This proceeding is stayed, except as to speaking to costs and any taxation, on the basis that it is a matter which must, by agreement and because of the existence of arbitration proceedings, be arbitrated. In addition, and this is a separate approach, it is in the interest of justice that this proceeding be stayed so that effect may be given to the arbitration provision agreed to by all concerned.
(Sgd.) "John A. Hargrave"
Prothonotary
Vancouver, British Columbia
4 November 2002
FEDERAL COURT OF CANADA
TRIAL DIVISION
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: T-1743-02
STYLE OF CAUSE: Campney & Murphy, A Partnership v. Bernard & Partners, A Partnership and Mark W. Hilton
PLACE OF HEARING: Vancouver, British Columbia
DATE OF HEARING: 28 October 2002
REASONS FOR AMENDED ORDER OF THE COURT BY: Hargrave P.
DATED: 4 November 2002
APPEARANCES:
Bruce Green FOR APPLICANT
Craig Ash
Peter Bernard FOR RESPONDENT Bernard & Partners
Murray Tevlin FOR RESPONDENT Mark W. Hilton
SOLICITORS OF RECORD:
Oyen Wiggs Green & Mutala FOR APPLICANT
Barristers & Solicitors
Vancouver, British Columbia
Bernard & Partners FOR RESPONDENT Bernard & Partners
Barristers & Solicitors
Vancouver, British Columbia
Tevlin Gleadle FOR RESPONDENT Mark W. Hilton
Barristers & Solicitors
Vancouver, British Columbia