RS Marine Ltd. v. The Ship M/V "Terre Neuvas"

RS Marine Ltd. v. M/V Terre Neuvas (Ship)
Court (s) Database
Federal Court Decisions
Date
2024-11-15
Neutral citation
2024 FC 1825
File numbers
T-1776-23, T-1778-23
Notes
A correction was made on November 19, 2024
Decision Content
Date: 20241115
Dockets: T-1778-23
T-1776-23
Citation: 2024 FC 1825
Ottawa, Ontario, November 15, 2024
PRESENT: The Honourable Mr. Justice Pamel
ADMIRALTY ACTIONS IN REM AGAINST
THE SHIP M/V “TERRE NEUVAS” (FORMERLY THE “SKORIN”)
AND IN PERSONAM AGAINST SPM OCEAN SAS
BETWEEN:
RS MARINE LTD. and MURPHY MARINE LTD., A BODY CORPORATE
Plaintiffs/ Defendants by Counterclaim
and
THE SHIP M/V “TERRE NEUVAS” (FORMERLY THE “SKORIN”), ITS OWNER, SPM OCEAN SAS, AND ALL OTHERS INTERESTED IN THE SHIP
Defendants/ Plaintiffs by Counterclaim
JUDGMENT AND REASONS
I. Overview [1] At its core, the underlying dispute involves a failed joint business venture to develop the fishery off the coast of the French territories of St. Pierre and Miquelon. As a sidebar to the underlying dispute, the in personam defendant SPM Ocean SAS [SPM] brings a motion for a stay of both underlying actions in favour of arbitration, as purportedly provided for in the dispute resolution clause which SPM claims binds the parties. For their part, the plaintiffs bring a motion for summary judgment for amounts admitted to be owing to them by SPM.
[2] For the reasons that follow, I am dismissing SPM’s motion for a stay of both underlying actions, and granting in part the plaintiffs’ motion for summary judgment.
II. Background [3] Rex Simmonds, the president and sole shareholder of the plaintiff RS Marine Ltd [RSM], a family‑run business located in Holyrood, NL, about 30 km outside of St. John’s, is a well‑seasoned fisherman and businessman and has been involved in the Atlantic halibut fishery for decades. In September 2022, Mr. Simmonds was approached by Eric Cormier, Steven Yon and Frederic Riou, the shareholders of the defendant SPM, a French company based on the island of St. Pierre, to discuss the possibility of entering into a joint venture to expand the islands’ fishery under French fishing licences.
[4] As a result of those discussions, Mr. Simmonds’ daughter Megan Murphy, who is also familiar with the fishing industry in Atlantic Canada, and her husband Myles incorporated the plaintiff Murphy Marine Ltd [MML], also located in Holyrood, NL, which eventually purchased from Messrs. Cormier, Yon and Riou [other shareholders] 49% of the shares of SPM, seemingly for €2,450.00 (the equivalent of $3,253.00). A letter of intent [LOI] dated November 1, 2023 was signed between RSM, MML, the other shareholders and SPM; in addition to providing for MML’s eventual 49% stake in SPM, amongst other things, the LOI provided for the following, which I summarize:
(a) A unanimous shareholders’ agreement was to be concluded.
(b) RSM was to lend SPM $1.1 million “at normal interest rates offered by Canadian Chartered Banks” [RSM loan] for the purchase of the in rem defendant vessel, at the time named the SKORIN and located in the Faroe Islands.
(c) As security for the RSM loan, RSM was to receive a first‑ranking marine mortgage [RSM mortgage] in its favour on the vessel. In addition, RSM was to be named as first loss payee under the vessel’s insurance policy and to receive personal and corporate guarantees from the shareholders of SPM, including MML, as well as a pledge of their shares in SPM [additional security].
(d) Certain fish quotas were to be assigned and various mechanisms were to be put in place for payments to be received by the parties following the harvesting and sale of fish under the said quotas.
(e) The funds comprising the RSM loan were to remain in trust until title to the in rem defendant was transferred to SPM; until then, it was expected that SPM would be able to charter the in rem defendant from its current owners so as to “fish the Quotas” under the fishing licences identified therein.
[5] The understanding was that SPM was to first charter the SKORIN from its then owners—in order to immediately begin fish harvesting operations so as to not lose the remainder of the 2022 season—with the closing for the sale of the vessel to SPM taking place in January 2023, at which time the vessel would be placed under French flag, the RSM mortgage duly registered and, I take it, the additional security provided. A draft charter-party and a draft vessel sale agreement were circulated for review. On November 6, 2022, the parties signed an agreement [Agreement] consistent with the LOI; the Agreement, to which the LOI was attached as a schedule, provided for, amongst other things, the crewing of the vessel and the harvesting, landing and processing of fish under the relevant quotas; the distribution of the proceeds emanating from each harvest; and the finalizing of a unanimous shareholders’ agreement.
[6] As regards the RSM loan, the Agreement provided that 20% of funds from the harvesting of fish would be remitted to RSM in payment of the RSM loan, plus other amounts due to RSM pursuant to the LOI. In addition, the Agreement stated that SPM was to use best efforts to repay the RSM loan “as soon as possible” and “to obtain financing … to assist with its fishing operations, including the refinance of the Vessel to repay the [RSM loan]” [emphasis added].
[7] Finally, the Agreement included the following provisions:
[14] In the event of a dispute, including a shareholders dispute, between any of the Parties, including between the Confirmors, concerning SPM and/or this Agreement that they cannot resolve between them after using reasonable efforts, the Parties agree to use a third party meditator for the dispute settlement process. If the Parties cannot agree on a single mediator either Party may apply to Court and have the Court name a mediator. The mediator shall be familiar with the business and operations of SPM, including the country(ies) and territory(ies) of its operations. The decision of the mediator shall be binding on the Parties.
…
[20] This Agreement shall be governed by the laws of the Province of Newfoundland and Labrador and the federal laws of Canada where applicable and may be signed in counterparts and by facsimile, email or other electronic means and each copy shall be deemed an original and together form one document.
[Emphasis added.]
Because the nature of section 14 of the Agreement is in dispute, going forward, I will refer to it simply as the dispute resolution clause.
[8] On or around November 7, 2022, through its Canadian counsel, RSM wire‑transferred the funds making up the RSM loan—the equivalent of $1,063,282.50—to the trust account of counsel for SPM in France [the French lawyers]. The email from the plaintiffs’ Canadian counsel to the French lawyers provided that the funds were to be held in trust pending receipt from the French lawyers of, amongst other things, confirmation of registration of the RSM mortgage and the additional security documents; receipt of funds was confirmed by the French lawyers on November 9, 2022. Two days later, on November 11, 2022, seemingly upon the French lawyers’ request, RSM gave its consent to release the funds from the French lawyers’ trust account, to be used in relation to the purchase by SPM of the in rem defendant, however, only on the condition, amongst others, that the RSM mortgage be duly registered. Before me, RSM’s Canadian counsel says he heard nothing but silence on that issue thereafter from the French lawyers.
[9] As for MML, in addition to having purchased a 49% stake in SPM, MML provided the early funding to get the new venture “up and running”; Megan and Myles Murphy, a young couple with three young children, saw potential in the joint venture and mortgaged their family home to come up with the funding for the project. MML claims that between October 2022 and February 2023, it advanced funds to SPM and provided or directly paid invoices for goods, supplies and materials destined for and for services rendered to the in rem defendant for the account of SPM [MML loan]. This would include such things as crew wages, fishing gear, fish tubes, fuel, the surveying of the vessel while in the Faroe Islands and the shifting of the vessel to St. Pierre. MML characterizes its funding as a loan to SPM, the unpaid balance of which is claimed to be $214,744.25.
[10] As the closing for the sale of the in rem defendant to SPM had been planned for early January, on January 10, 2023, the plaintiffs’ Canadian lawyers followed up with the French lawyers, seeking an update on the status of the matter and evidence that the conditions for the release of the trust funds were fulfilled, including the registration of the RSM mortgage against the vessel. There was more silence from the French lawyers. It seems however that the closing did in fact take place; in its statement of defence and counterclaim, SPM admits that it purchased the in rem defendant on January 10, 2023. However, the RSM mortgage was not registered against the vessel; the record includes a copy of the certificate of registration for the in rem defendant—now named TERRE NEUVAS—dated January 11, 2023, listing SPM as the 100% owner of the vessel, showing the port of registry as St. Pierre—registration of the vessel was seemingly transferred from the Faroe Islands—but surprisingly showing the vessel to be mortgage-free.
[11] In any event, some time in the late spring, early summer of 2023, trust between Mr. Simmonds and Ms. Murphy on one hand and the other shareholders on the other seems to have broken down. The details of the threats, accusations, incriminations, charges and condemnations as to which party was in bad faith or failed in its commitments and responsibilities are not necessary for the purposes of the present motions—threats that at some point included the other shareholders menacing to dissolve SPM “and to permit the Ship to be sold off by a receiver to pay off SPM’s debts, leaving the Plaintiffs vulnerable as unsecured creditors, in that event” (see paragraph 17 of Justice Fuhrer’s Order of October 20, 2023). Suffice it to say that as early as April 2023, the other shareholders began raising a red flag regarding SPM’s financial situation, and by the beginning of the summer of 2023, it seems, from the exchanges and affidavits filed in the record, that the parties lost all trust in each other. SPM, controlled by the other shareholders, engaged Canadian counsel around mid-May 2023, but it does not seem that discussions between Canadian counsel were enough to restore the trust that had by then been lost. In fact, the affidavit of Mr. Simmonds dated April 16, 2024, filed in support of the plaintiffs’ motion for summary judgment, states that, notwithstanding the objections of MML as 49% shareholder of SPM, SPM proceeded to nonetheless sell the TERRE NEUVAS in December 2023 to a company controlled by Mr. Cormier.
III. Proceedings before this Court [12] On August 25, 2023, the plaintiffs filed both underlying actions and arrested the in rem defendant while it was in Canada. In action T-1776-23, MML claims, amongst other things, the amount of $214,744.25, being the unpaid balance of the MML loan, plus pre- and post-judgment interest. In action T-1778-23, RSM claims, amongst other things, the amount of $997,928.39, being the unpaid balance of the RSM loan. RSM states that the RSM loan was intended and in fact used for the purchase of the in rem defendant; that a condition of the loan was that the RSM mortgage was to be registered against the vessel, but never was; that the loan was meant to only be short-term and that repayment was to be made as soon as possible; and that repayment is long overdue. In addition, RSM claims $119,652.00, being the amount received by SPM and purportedly owing to RSM in relation to the sale of SPM’s 2023 turbot quota—the whole with pre- and post-judgment interest.
[13] On September 20, 2023, SPM filed its statement of defence and counterclaim in both actions. In short, SPM asserts the following, which I summarize:
i. As regards the MML loan, SPM admits that MML is owed $178,301.14 of an initial loan of $187,701.14, but claims that the amount of interest to be paid was never agreed upon, that it paid the partial amount that was required to be paid to MML, that it was never put in default of paying the balance and that thus no amount is due and payable;
ii. As regards the RSM loan, SPM admits that RSM is owed $941,161.76 of an initial loan that eventually rose to $1,320,222.14—of which $1,063,282.00 was used to purchase the in rem defendant. However, SPM claims that there was no specific agreement as to the interest to be paid, that it paid the partial amount that was required to be paid to RSM, that the balance of the RSM loan was to be due only once the vessel resumed fishing later in 2023 and that SPM was never put in default of payment. In any event, argues SPM, prior to June/July 2023, when the relationship between the parties began to break down, RSM had indicated that full repayment of the RSM loan would not be required on demand and that a long‑term loan was possible, subject to further negotiations;
iii. As regards the fact that the RSM mortgage was not registered against the in rem defendant, SPM claims that it was for RSM to prepare and provide the mortgage documents for SPM to register the RSM mortgage, that RSM could not reasonably have expected that a mortgage would be registered against the vessel in France as RSM never engaged anyone to do so, and that in any event the full terms of the RSM loan, essential to any mortgage, were never definitively agreed upon;
iv. As regards the claim by RSM to be owed 50% of the revenues from the sale of SPM’s 2023 turbot quota, SPM says that no such agreement existed;
v. SPM denies that either the LOI or the Agreement is binding and enforceable; according to SPM, the LOI was only an unenforceable agreement to agree—a contract to enter into a contract—and the Agreement was incomplete and lacked essential terms. SPM states that the LOI and the Agreement were only preliminary agreements that were not meant to create contractual terms binding on the parties;
vi. If, however, the LOI or the Agreement is found to be binding on the parties and enforceable, SPM claims that the Court is without jurisdiction on account of the dispute resolution clause, which binds the parties to proceed to arbitrate their disputes;
vii. SPM argues further that this Court is without subject‑matter jurisdiction regarding the MML loan, which SPM characterizes as a shareholder’s loan that does not fall within section 22 of the Federal Courts Act, RSC 1985, c F-7 [FCA]. No issue seems to be taken with this Court’s subject‑matter jurisdiction regarding the RSM loan and RSM mortgage claim; and
viii. Finally, SPM counterclaims against MML and RSM for damages arising from the wrongful arrest of the in rem defendant.
[14] I must say that SPM’s assertion in its statement of defence and counterclaim that it had not registered the RSM mortgage against its own vessel because it never received mortgage documents from RSM seems inconsistent with the emails in the record from the plaintiffs’ Canadian counsel to SPM’s French lawyers insisting on receiving the RSM mortgage and additional security prior to the closing on the sale of the in rem defendant to SPM—thus prior to the release of the funds from the French lawyers’ trust account. There is correspondence in the record from the French lawyers to the plaintiffs’ Canadian counsel indicating that the former were only assisting SPM with the charter and purchase of the SKORIN and not with respect to MML’s participation in SPM. That may be so, but what is not clear is why the RSM mortgage was not registered against the vessel at the time the French lawyers concluded the sale‑and‑purchase transaction and changed the registry of the in rem defendant to St. Pierre. From my experience, that is the time when the RSM mortgage would ordinarily have been registered, which was in any event a condition to the release of funds from the French lawyers’ trust account. The plaintiffs are left to surmise that the instructions provided to the French lawyers not to release the trust funds until the mortgage was duly registered were countermanded by the other shareholders.
[15] As regards the counterclaim, the defendants seek damages for the wrongful arrest of the in rem defendant, plus costs. On October 23, 2023, the plaintiffs filed a defence to the counterclaim.
[16] In any event, the motions began to fly. On September 14, 2023, the plaintiffs sought an order to have the vessel shifted while under arrest from Fortune, NL, where it was arrested, to the port of St. John’s; that motion was dismissed by Associate Judge Molgat on October 4, 2023.
[17] On September 22, 2023, the defendants filed a motion to (a) consolidate both actions, (b) strike certain portions of the statements of claim pursuant to Rule 221 of the Federal Courts Rules, SOR/98-106 [Rules], for disclosing no reasonable cause of action in rem—SPM claimed that the plaintiffs have not pleaded any facts that would bring their claims within sections 22 and 23 of the FCA—and (c) release the in rem defendant from arrest without bail; or, in the alternative, order particulars of the allegations relating to the in rem claims. Putting aside for the moment the fact that the defendants seem—in their statement of defence and counterclaim, in their arguments on the motion to strike before Justice Fuhrer and in the present motion to stay—to have conflated this Court’s subject‑matter jurisdiction under sections 22 and 23 of the FCA with the exercise of that jurisdiction in rem as provided for in section 43 of the FCA, by Order dated October 20, 2023 and Supplemental Order dated November 2, 2023 which was issued following a second day of hearings, Justice Fuhrer, inter alia, dismissed the defendants’ request to strike part of the plaintiffs’ pleadings as well as the request for further particulars, and fixed bail for the release of the in rem defendant at $1 million, being the appraised market value of the vessel.
[18] I should mention that, along the way, on October 12, 2023, the plaintiffs filed a further motion seeking to have the ship advertised for sale and sold by public auction, and to have RSM declared a first‑ranking mortgagee of the TERRE NEUVAS. Justice Fuhrer adjourned that motion sine die during the second day of hearings on SPM’s motion to strike portions of the pleadings, pending the posting of bail by SPM. In any event, the plaintiffs’ motion for sale of the vessel was eventually abandoned as SPM tendered bail in the amount of $1 million and secured the release of the in rem defendant on November 29, 2023.
[19] About four months later, on February 23, 2024, SPM served and filed its present motion in writing, pursuant to Rule 369, seeking to stay the underlying proceedings. SPM repeats the assertion made during its motion to strike, that no material facts are pleaded in the statements of claim to ground a claim under section 22 or 23 of the FCA, and argues that, notwithstanding that, the LOI and the Agreement are not binding or enforceable, the dispute resolution clause contained in the Agreement is an arbitration clause and, therefore, the underlying actions should be stayed in favour of arbitration in Newfoundland and Labrador or France.
[20] On April 17, 2024, not to be outdone, the plaintiffs served and filed their present motion in writing, pursuant to Rule 369, for summary judgment on the amounts admitted to be owing to them by SPM in the statements of defence and counterclaim. The plaintiffs argue that their claims fall within the subject‑matter jurisdiction of this Court and that all they seek by way of summary judgment at this stage is the amount of each claim that SPM admits to be owing, plus interest, and nothing more; the remainder of the claims are to continue to trial.
[21] Upon objection by SPM to the timing of the plaintiffs’ motion for summary judgment, on May 27, 2024, Associate Judge Duchesne (as he then was) ordered the plaintiffs’ motion for summary judgment to be placed in abeyance pending the outcome of SPM’s motion to stay the proceedings. The matter came before me for determination, and on July 18, 2023, I issued a direction advising the parties that I was inclined to hear both motions together and in person, as I had a number of questions for counsel on both matters. I issued a direction seeking the parties’ dates of availability for a case management conference [CMC] to discuss the issue as well as confirmation of dates for the hearing of the motions, of venue and of length of the hearing and a timeline for any necessary procedural steps leading up to the hearing.
[22] On July 23, 2024, the Court received from SPM’s Canadian counsel an email that stated that:
SPM Ocean has gone through an insolvency process in France and as a result the same persons are no longer in control of the company and our understanding is that this process has the effect of imposing a stay of all actions relating to that company, both inside and outside of France, including this matter.
The email attaches what purports to be the order of liquidation dated May 15, 2024 and sets out counsel’s availability for the CMC and for the hearing of the motions. Amongst other things, SPM’s counsel indicates that he expects “additional material may be needed to be filed in relation to the insolvency of SPM Ocean” and suggests that he “would be in a position to do so by the first week of September, assuming [counsel] is still acting for SPM.”
[23] During the CMC of August 13, 2024, SPM’s counsel again reiterated that his client is, to his understanding, under some form of liquidation or subject to insolvency proceedings in France, that he cannot obtain instructions on account of the fact that the other shareholders are no longer available, and that an agreement as to his own further involvement in this matter had not been resolved with the court liquidator. I pointed both counsel to the Supreme Court decisions in Holt Cargo Systems Inc v ABC Containerline NV (Trustees of), 2001 SCC 90 [The Brussels], as well as Antwerp Bulkcarriers, NV (Re), 2001 SCC 91. I also suggested that foreign insolvency proceedings alone do not automatically stay in rem proceedings before this Court and that, if the court‑appointed liquidator in France wished for the underlying actions to be stayed on account of the liquidation proceedings or to seek the assistance of this Court in relation to those proceedings, the liquidator would have to come before this Court and make such a request. Simply providing the Court with a copy of what seems to be an order for the judicial liquidation of SPM in France is insufficient.
[24] The plaintiffs’ counsel insisted that the matters move forward and that both motions be heard; however, he confirmed that the plaintiffs would be amenable to postponing the hearing of the motions if there were confirmed dates set for a mediation to take place. Consequently, and not to unduly delay matters, I mentioned to the parties that under the circumstances, the motions would be set down for hearing on September 12, 2024 in St. John’s, and, if in the interim SPM’s counsel received instructions to proceed to mediation, the parties should advise the Court. If the parties sought the dispute resolution services of the Court, there was also the option for my time in St. John’s being used more constructively for a mediation rather than for the hearing of the motions. The CMC was adjourned to August 22, 2024 pending SPM’s Canadian counsel receiving instructions from the court‑appointed liquidator in France.
[25] During the CMC on August 22, 2024, SPM’s counsel advised that he had spoken with the liquidator in France that morning; that he was still without instructions in this matter, but that he was expecting those instructions shortly. SPM’s counsel suggested that there may be an opportunity to resolve the matter amicably, thus mediation in September may be in the cards. I indicated to SPM’s counsel that there was nothing before me to justify postponing the hearing of the motions any further. Counsel was still solicitor of record for SPM before this Court given that no motion under Rule 125 to cease representing SPM had been filed, and thus the hearing of the motions to stay the proceedings and for summary judgment would proceed as scheduled—as insisted upon by the plaintiffs—unless SPM received clear instructions from the court‑appointed liquidator in France to proceed with mediation. I suggested that counsel consider Rule 117 and reminded both counsel that, if the parties confirmed their intention to proceed with mediation while I was in St. John’s, they should provide for the fact that I would require short mediation briefs of three to four pages to be filed in advance. The CMC was again postponed to August 29, 2024 pending instructions from the court‑appointed liquidator in France to SPM’s Canadian counsel.
[26] August 29, 2024 arrived, and SPM’s counsel was still without instructions; I indicated to both counsel that under the circumstances, I continued to see no reason to delay the hearing of the motions and that it was up to the court‑appointed liquidator to provide the necessary instructions to SPM’s Canadian counsel. I also pointed out to SPM’s counsel that, although the pleadings were complete in relation to SPM’s motion to stay the proceedings, SPM had yet to file responding material to the plaintiffs’ motion for summary judgment. Counsel for SPM requested that I allow him until September 9, 2024 to do so; I agreed and issued the necessary direction. However, prior to the hearing of the motions in this matter, SPM’s counsel confirmed that he would not be filing responding material to the plaintiffs’ motion for summary judgment.
[27] I have gone to some length to set out the details of the CMCs; the reason for that is that SPM’s counsel, during his oral arguments on his client’s motion to stay, raised the spectre of the Court somehow having barred his client from proceeding to mediation. Nothing could be further from the truth, but more on this issue below.
[28] Notwithstanding SPM’s counsel’s assertion that he would be in a position to file additional material regarding the liquidation of SPM by the first week of September, as of the morning of the hearing in this matter, there was no sign of the court‑appointed liquidator; no requests seeking the assistance of this Court in the French liquidation proceedings were made, and no affidavit evidence clarifying what has been described by SPM’s counsel as some form of insolvency or liquidation proceedings in France as regards SPM was filed. I suspect the liquidator would have had ample time since May 15, 2024 to familiarize himself or herself with these proceedings.
[29] I also understand that Affidavits of Documents have been exchanged between the parties—as confirmed by SPM in its motion to stay proceedings—but discoveries have not taken place.
IV. Enforcement of the dispute resolution clause [30] I will first deal with SPM’s motion to stay the proceedings in favour of arbitration either in Newfoundland and Labrador or in France.
[31] Counsel for SPM confirmed before me at the hearing that, although he had no instructions from the liquidator in the French insolvency proceedings of SPM to contest the plaintiffs’ motion for summary judgment, he seemingly did nonetheless have instructions to advance SPM’s motion for a stay of proceedings based upon the dispute resolution clause, which SPM considers to be an arbitration clause. SPM’s motion was heard on the strength of the affidavit of Mr. Cormier, which was executed, I take it, prior to SPM being the subject of liquidation proceedings, and with no further affidavit or any evidence whatsoever from the court‑appointed liquidator.
[32] I should also make clear that no request to stay this matter has been made on account of the purported liquidation proceedings in France, although such proceedings in and of themselves may have little impact on the in rem jurisdiction of this Court, as I stated earlier (The Brussels).
[33] Section 50 of the FCA provides:
Stay of proceedings authorized
Suspension d’instance
50 (1) The Federal Court of Appeal or the Federal Court may, in its discretion, stay proceedings in any cause or matter
50 (1) La Cour d’appel fédérale et la Cour fédérale ont le pouvoir discrétionnaire de suspendre les procédures dans toute affaire :
(a) on the ground that the claim is being proceeded with in another court or jurisdiction; or
a) au motif que la demande est en instance devant un autre tribunal;
(b) where for any other reason it is in the interest of justice that the proceedings be stayed.
b) lorsque, pour quelque autre raison, l’intérêt de la justice l’exige.
[34] Although the Agreement is governed by the laws of the province of Newfoundland and Labrador and the federal laws of Canada where applicable, neither in its written material nor before me did SPM point to the application of any particular arbitral statute, whether provincial or federal, including any arbitration statute of Newfoundland and Labrador that would apply in support of its motion to stay the present proceedings. During the hearing, I suggested to both counsel to review the Commercial Arbitration Act, RSC 1985, c 17 (2nd Supp) [Act], which provides that the Commercial Arbitration Code [Code], included as Schedule 1 to the Act, has the force of law in Canada (subsection 5(1) and is to apply in relation to maritime or admiralty matters (subsection 5(2)).
[35] Article 8(1) of the Code states:
ARTICLE 8
ARTICLE 8
Arbitration Agreement and Substantive Claim before Court
Convention d’arbitrage et actions intentées quant au fond devant un tribunal
(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.
(1) Le tribunal saisi d’un différend sur une question faisant l’objet d’une convention d’arbitrage renverra les parties à l’arbitrage si l’une d’entre elles le demande au plus tard lorsqu’elle soumet ses premières conclusions quant au fond du différend, à moins qu’il ne constate que la convention est caduque, inopérante ou non susceptible d’être exécutée.
…
[…]
[Emphasis added.]
[Nos soulignements.]
[36] That said, and having now considered the matter, I need not address the issues that arise from the application of the Code—such as the binding nature of Article 8(1), possible attornment to the jurisdiction of this Court by SPM and any exceptions to the issuance of a stay under that article—because, as I set out below, I am not convinced that the parties have agreed to submit any dispute under the Agreement or the LOI to arbitration. The dispute resolution clause is not an arbitration agreement, and I am certainly not about to imply the existence of a willingness on the part of the parties that it be so interpreted. Thus, any further issue as to the subject matter of the dispute, the extent of the purported arbitration clause or whether the disputes fall within the scope of the arbitration agreement need not be addressed (Difederico v Amazon.Com, Inc, 2022 FC 1256 at para 68).
A. Nature of the dispute resolution clause [37] I must first come to terms with the nature of the dispute resolution clause and whether we are indeed dealing with, as claimed by SPM, an enforceable arbitration clause. The clause only speaks of the use of a mediator and not an arbitrator, and the only argument made before me by SPM was that the last sentence of the clause—binding the parties to the final decision of the mediator—makes it an arbitration clause; SPM cites no authority in support of that assertion. The plaintiffs disagree and argue before me that the clause was meant to deal only with the prospect of mediation; for example, the plaintiffs state that the clause does not reference any particular arbitration rules nor the site of the arbitration.
[38] In my view, the dispute resolution clause is not clear. I accept that it speaks only of the use of a mediator, however, mediation clauses do not normally provide for a judicial decision to be made in order to resolve a dispute, a cornerstone element of an arbitration clause (Sport Maska Inc v Zittrer, 1988 CanLII 68 (SCC), [1988] 1 SCR 564 at para 93). However, that aspect of the dispute resolution clause, in and of itself, would not, in my view, necessarily be determinative of the intention of the parties to proceed to arbitration. It seems to me that a call for judicial decision-making may equally apply to a person initially called upon to act as mediator to, at some point during the process and in the event the matter does not settle, shift to a decision-making role if the parties so request, notwithstanding that such a process may be fraught with risk where, for instance, participation in settlement discussions may prevent an individual from remaining impartial.
[39] That said, the difficulty here is that there is no evidence offered regarding the intention of the parties as to the application of the clause. In fact and quite surprisingly given it is meant to support SPM’s motion to stay, the affidavit of Mr. Cormier filed in support of that motion makes no specific mention of the dispute resolution clause. For my part, I do not take Mr. Cormier’s assertion, in paragraph 2 of his affidavit, where he states, “I can confirm that the facts outlined in the grounds for this Motion Record and in the Defence and Counterclaim filed in these matters are true and correct” as confirmation that SPM intended the dispute resolution clause to act as an arbitration clause. The only expression of the intention of SPM that I can find as to the application of the dispute resolution clause is in its statements of defence and counterclaim, where SPM tethers the application of the dispute resolution clause to a preliminary determination that the Agreement is binding and enforceable, something that SPM denies.
[40] Paragraph 22 of the statement of defence and counterclaim in the RSM action states:
[22] SPM further states that the [Agreement] outlines that in the event that there is a dispute that cannot be resolved by reasonable efforts, the parties agree to use a mediator to settle the dispute and it further states that the decision of the mediator would be binding on the parties. RSM never attempted to negotiate this dispute in good faith, it has made no effort whatsoever to have the matter mediated and no arbitration or mediation has been commenced. Therefore, if the [Agreement] is operational and enforceable, as is alleged by RSM, but denied by SPM, this honourable court has no jurisdiction to resolve the dispute as the [Agreement] asserted by RSM contains an arbitration clause.
[Emphasis added.]
[41] Paragraph 18 of the statement of defence and counterclaim in the MML action states:
[18] SPM further states that a memorandum of understanding signed by SPM and MML in November of 2022, hereinafter the [Agreement], outlines that in the event that there is a dispute that cannot be resolved by reasonable efforts, the parties agree to use a mediator to settle the dispute and it further states that the decision of the mediator would be binding on the parties. MML never attempted to negotiate this dispute in good faith, it has made no effort whatsoever to have the matter mediated and no arbitration or mediation has been commenced. Therefore, if the [Agreement] is operational and enforceable, as is alleged by MML, but denied by SPM, this honourable court has no jurisdiction to resolve the dispute as the [Agreement] asserted by MML contains an arbitration clause.
[Emphasis added.]
[42] I note as well that in its statements of defence and counterclaim, SPM makes a distinction between mediation and arbitration, terms it is now attempting to conflate. All of this of course only adds to the confusion. Ordinarily, arbitration clauses are taken to be stand-alone contracts, separate from the agreements in which they may be found; in fact, the separability doctrine holds that arbitration clauses embedded in contracts should be treated as independent agreements that are ancillary or collateral to the underlying contract (Uber Technologies Inc v Heller, 2020 SCC 16 [Uber] at para 221). However, this is not a situation where there is an allegation, say by the plaintiffs, that the Agreement is void or has been terminated because of a breach, thus rendering the arbitration clause inoperative; such a situation is precisely what the principles of separability and competence-competence (which I discuss below) are meant to address. Here, it is SPM, the party invoking the dispute resolution clause, which is suggesting that the validity of the purported arbitration clause is tied to the validity of the Agreement, and that the Agreement and the LOI attached to it were only preliminary agreements that were not meant to create contractual terms binding on the parties. In other words, the validity of the Agreement and that of the dispute resolution clause must stand together, according to SPM’s own argument.
[43] In addition, in accordance with the competence-competence principle, under normal circumstances, “arbitrators are empowered to rule on issues relating to their own jurisdiction” and any “challenge to the arbitrator’s jurisdiction must be resolved first by the arbitrator” unless the challenge involves a pure question of law or one of mixed fact and law that requires for its disposition “only superficial consideration of the documentary evidence in the record” (Dell Computer Corp v Union des consommateurs, 2007 SCC 34 at para 85; Seidel v TELUS Communications Inc, 2011 SCC 15 at para 29; Uber at para 122; General Entertainment and Music Inc v Gold Line Telemanagement Inc, 2022 FC 418 [Gold Line] at paras 5–6). However, here again, it is SPM, the party looking to invoke the dispute resolution clause as an arbitration clause, which is simultaneously suggesting that such a clause is inoperative unless the Agreement is found to be binding and enforceable—I am including the LOI because it has been attached as a schedule to the Agreement and, more importantly, it is the LOI and not the Agreement that speaks of the RSM loan and RSM mortgage. In other words, the determination of the enforceability of the Agreement is, as SPM argues its own case, the sine qua non for the validity of the dispute resolution clause. I have not been shown any case where a court has invoked the competence-competence principle to stay an action where the party seeking the stay sets up determining the enforceability of the underlying contract as a condition precedent to the validity of the purported arbitration clause found therein, as seems to be argued here by SPM.
[44] All this to say that I have not been persuaded that the parties have consented to arbitrate their disputes under the Agreement; it is the law of contracts to which we must look to determine whether or not an arbitration agreement exists, and the parties must be ad idem on a mutual covenant to submit their disputes to arbitration (J Brian Casey, Arbitration Law of Canada: Practice and Procedure, 4th ed, (Huntington: Juris Publishing, 2022) at 61). Here, I have not been convinced by SPM that it itself considers the dispute resolution clause to be binding on the parties at this stage of the litigation, let alone that the plaintiffs have agreed to it. The dispute resolution clause therefore cannot be a binding arbitration clause, which may have otherwise allowed me to stay the action so that an arbitrator can determine the validity of the Agreement.