[co-author: Alessandra Parth - Summer Student]

The recent Court of King's Bench of Alberta decision in 2329716 Alberta Ltd v. Randhawa [Randhawa] considered whether the court has jurisdiction to hear an interim injunction where the contracting parties agreed to resolve their disputes by arbitration. As explained below, the court found that the parties in that case were required to seek such relief from an arbitrator, and not the court.

Background

Section 8(1) of the Alberta Arbitration Act (the Arbitration Act) expressly provides that the court's power to issue an interim injunction (among other interim relief) is the same in arbitrations and court actions, meaning parties to an arbitration may nonetheless apply to the court for an interim injunction. That said, the Arbitration Act equally provides that an arbitral tribunal may make an order for detention, preservation or inspection of property and documents that are the subject of the arbitration (section 18(1)), and may award specific performance, injunctions and other equitable remedies (section 31), as well as interim awards (section 41).

As such, the court and the arbitration tribunal appear to have overlapping jurisdiction under the Arbitration Act to award interim relief. The question that arises is whether a mandatory arbitration clause in a contract requires a party to seek injunctive relief from an arbitrator only, or whether the party has the option to apply to the court for such relief.

The Randhawa Decision

In Randhawa, the court considered this issue and directed the party seeking injunctive relief to seek such relief in arbitration.

The Facts

In Randhawa, the parties were engaged in a dispute about the sale of shares. The purchasers of the shares were of the view that the share sale had closed. In the result, the purchasers were carrying on business as if the vendors who sold their shares no longer had any ongoing rights in connection with the business. The purchasers opened a new bank account for the business and began making new arrangements with suppliers.

The vendors, on the other hand, argued that the share sale had not closed due to alleged issues with the sale process, the timing of payment and the alleged failure of the purchasers to tender required sale documents. The vendors asserted that they remained shareholders and directors, and therefore had been improperly excluded from the business.

Pending a determination of this "closed or not" issue, the parties disagreed about how the business should be carried out. The purchasers wanted to carry on without the intervention of the vendors, while the vendors wanted to continue to participate in the business and maintain the status quo as if the share sale had not occurred. The vendors therefore applied to the court for an interim injunction restraining the purchasers from carrying on the business without the vendors.

In response, the purchasers applied for various relief, including a stay of the vendors' interim injunction application in favour of arbitration, arguing that the matters raised and the interim relief sought were the subject of an arbitration provision in the share purchase contract.
On this point, the contract included a mandatory dispute resolution clause with broad language that required the parties to arbitrate disputes:

Any dispute, controversy, or claim arising out of, relating to, or in connection with this [Share Purchase] Agreement, including with respect to the interpretation, breach, existence, validity or termination thereof ... shall be resolved in accordance with the dispute resolution procedure set for this in this Section 12 ("the Dispute Resolution Procedure").

The Decision

The court granted the stay, holding that the vendors were required to arbitrate their application for interim relief.

In reaching its decision, the court first reviewed the arbitration clause. It found that all of the issues, including whether an interim injunction was appropriate, turned on whether the purchasers properly acquired control of the business via the share purchase. Therefore, in the court's view, the injunction application was a "dispute, controversy or claim" that arose out of, related to, or was in connection with the "interpretation, breach, existence, validity or termination" of the agreement. In coming to this conclusion, the court relied on jurisprudence that broadly interpreted arbitration clauses with similar language to the clause in issue.

Having found that injunctive relief fell within the ambit of the arbitration clause in the share purchase contract, the court then addressed the question of whether the court should nonetheless exercise its jurisdiction under the Arbitration Act to hear the interim injunction application. In particular, the court considered three primary arguments of the vendors.

First, the vendors pointed to section 7(2)(e) of the Arbitration Act, which states that a court may stay an arbitration if "the matter in dispute is a proper one for default or summary judgment". The court dismissed this argument, noting that the vendors had not yet brought such an application. It held that the mere prospect of bringing an application could not be relied on to avoid arbitration.

Second, the vendors argued that a stay of their application for interim relief was not appropriate because the purchasers had waived their right to arbitration or otherwise attorned to the court's jurisdiction by taking the following steps before the courts: (1) bringing an application for a declaration that the share purchase had closed; (2) seeking terms for an adjournment of the vendors' interim-relief application; and (3) seeking their own injunction as against the vendors and third parties to make changes to filings in the corporate registry and to the banking arrangements of the company.

The court, however, rejected this argument on the basis that the Arbitration Act does not refer to taking civil-litigation steps as a potential obstacle to invoking arbitration rights. The court noted that while the British Columbia Arbitration Act bars a party from seeking a stay if that party has filed a response to a civil claim or has taken "any other step in the proceedings", no such provision exists in Alberta's Arbitration Act.

On this point, the court reviewed section 7(2) of the Arbitration Act (which gives the court the power to stay an arbitration) and held that the list of reasons in that provision were exhaustive. Since waiver or attornment do not appear in that provision, the court found that such reasons could not be relied on to stay an arbitration. The vendors' argument that the purchasers had attorned to the court's jurisdiction therefore failed.

Interestingly, the vendors attempted to distinguish their injunction application from that of the purchasers on the basis that they sought relief against third parties that could not be granted in an arbitration. As noted, the vendors sought changes to filings in the corporate registry and to the banking arrangements of the company. The court held that instead of directing the corporate registry or the bank to make the changes desired, an arbitral tribunal could simply direct the purchasers to take the steps necessary to make the changes, if such relief was appropriate. No relief against third parties was necessary. The court therefore also ultimately stayed the vendors' application for injunctive relief.

Third, the vendors argued that the court had exclusive, or at least overlapping jurisdiction with an arbitrator to grant interim relief and that it should exercise that jurisdiction here. The vendors relied on section 8(1) of the Arbitration Act, which states that "[t]he court's powers with respect to the detention, preservation and inspection of property, interim injunctions and the appointment of receivers are the same in arbitrations as in court actions".

The court disagreed with the vendors, finding that there was no compelling reason for the court to grant interim relief that an arbitrator could grant. The court noted that under the arbitration rules adopted by the parties in the share purchase contract, the interim relief sought by the vendors was available via the arbitration process. The court followed the principle that parties may craft their own dispute resolution mechanism, which courts should be hesitant to interfere with. Additionally, the court held that determining the interim relief may require an assessment of the merits of each side’s arguments on the underlying issue of whether the purchase of the shares was valid, which was an issue that was squarely the subject of arbitration.

In the result, the injunction applications were stayed in favour of arbitration.

Practical Considerations

Parties engaged in a dispute that is subject to an arbitration clause should carefully consider which forum they select when seeking interim relief. A party risks wasting time and resources in court if the application for interim relief is directed to arbitration. Should a party wish to maintain its right to obtain injunctive relief from the court, which may be faster in circumstances where no arbitrator has yet been chosen by the parties, it may consider addressing that right at the time the contract is negotiated with appropriate language.