



COURT
OF APPEAL FOR BRITISH COLUMBIA




Citation:



Larc Developments Ltd. v. Levelton
  Engineering Ltd.,









2010 BCCA 18




Date: 20100118

Docket:
CA037113

Between:

Commonwealth Insurance Company

Plaintiff

And

Larc Developments Ltd. and Rita A.
Carle

Appellants

(
Defendants
)

And

Levelton Engineering Ltd.

Respondent
(Third Party)

Corrected Judgment: The paragraph numbering of the judgment was
corrected at paragraph 14; and, from paragraph 33 onwards on March 19, 2010.




Before:



The Honourable Madam Justice Newbury





The Honourable Mr. Justice Chiasson





The Honourable Mr. Justice Frankel




On
appeal from:  Supreme Court of British Columbia, April 29, 2009 (
Commonwealth Insurance Company v. Larc Developments Ltd.
, S076455)




Counsel for the Appellant:



S.H.
  Stephens





Counsel for the Respondent:



E.
  Flores





Place and Date of Hearing:



Vancouver
, British Columbia





December 15, 2009





Place and Date of Judgment:



Vancouver
, British Columbia





January
  18, 2010





Written Reasons by
:





The Honourable Mr. Justice Chiasson





Concurred in by:





The Honourable Madam Justice Newbury
The Honourable Mr. Justice Frankel






Reasons for
Judgment of the Honourable Mr. Justice Chiasson:

Introduction

[1]

Since 1977 the law of this Province has been that a demand for
particulars is a step in a proceeding that, under applicable legislation,
disentitles a party from obtaining a stay of the proceeding in favour of arbitration. 
In this case, the Chambers judge ordered a stay because the demand for
particulars was accompanied by an indication that the demanding party might
seek a stay in favour of arbitration.

[2]

For the reasons that follow, I would allow this appeal and set aside the
stay of proceedings.

Background

[3]

This action concerns claims arising out of the
construction of leaky condominiums.  The defendants were involved in the
development of the project.  On December 5, 2008 they initiated third party
proceedings against a number of entities including Levelton Engineering Ltd.  Levelton
filed an appearance on December 18, 2008.

[4]

The contract between the defendants and Levelton
provided that [a]t the option of [Levelton], all unresolved disputes shall be
referred to and finally resolved by arbitration.

[5]

On December 29, 2008, counsel for Levelton wrote to counsel for the
defendant stating:

Further to our letter dated December 22 , 2008, we are writing to demand further and better particulars of certain
allegations contained in the Third Party Notice.  Specifically:

1.

Paragraph 12 of the
Third Party Notice sets out alleged Defects and Deficiencies.  Such alleged
Defects and Deficiencies are then generally referred to in paragraphs 30, 31
and 33 in specific reference to Levelton Engineering Ltd.

2.

With
respect to paragraph 12:

a.

Subparagraph a, is it
alleged that the condensation problems had anything to do with the work or
services provided by Levelton Engineering Ltd.?  If it is, what was it that
Levelton Engineering Ltd. did, or failed to do in respect of that alleged defect
or deficiency?

b.

Subparagraph
b, is it alleged that the water ingress in the ceiling assemblies had anything
to do with the work or services provided by Levelton Engineering Ltd.?  If it
is, identify all units alleged to have suffered water ingress in the ceiling
assemblies and advise what it was that Levelton Engineering Ltd. did, or failed
to do in respect of that alleged defect or deficiency?

c.

Subparagraph
c, is it alleged that the installation and freezing of frost free hose bibs
had anything to do with the work or services provided by Levelton

Engineering Ltd.?  If it is, what was
it that Levelton Engineering Ltd. did, or failed to do in respect of that
alleged defect or deficiency?

d.

Subparagraph
d, is it alleged that the water ingress into units due to the inadequate or
inappropriate application of waterproof membrane had anything to do with the
work or services provided by Levelton Engineering Ltd.?  If it is, which units
were involved, when did the water ingress occur in respect of each unit and
what was it that Levelton Engineering Ltd. did, or failed to do in respect of
that alleged defect or deficiency?

e.

Subparagraph
e, is it alleged that the design, installation and/or supply of materials with
respect to the porticos over the entry doorways to the units at Boxwood Green,
and in particular defects in respect to drainage had anything to do with the
work or services provided by Levelton Engineering Ltd.?  If it is, which units
are alleged to have suffered this defect or deficiency and what was it that
Levelton Engineering Ltd. did, or failed to do in respect of that alleged
defect or deficiency?

f.

Subparagraph
f, is it alleged that the design and construction of the roof and deck rails had
anything to do with the work or services provided by Levelton Engineering Ltd.?
 If it is, what was it that Levelton Engineering Ltd. did, or failed to do in
respect of that alleged defect or deficiency?

g.

Subparagraph
g, is it alleged that the water ingress through cracks in the parking garage
had anything to do with the work or services provided by Levelton Engineering
Ltd.?  If it is, what was it that Levelton Engineering Ltd. did, or failed to
do in respect of that alleged defect or deficiency?  Further, where and when
did the cracks first appear and was a claim made under the membrane
manufacturer's warranty?  If a warranty claim has been made please provide
details of that claim.

We would be grateful if these particulars
could be provided within two weeks of the date of this letter, as they are
required for the preparation of a Statement of Defence.

In addition, we have reviewed the contract
between our client and yours dated July 15, 2003 and note that paragraph 3.6
deals with Dispute Resolution.  It is quite clear in our view that the dispute
that is raised in the Third Party Notice is subject to this provision.  Therefore,
the litigation cannot proceed until mediation and if necessary, arbitration has
occurred between our clients.  In the circumstances we would expect your client
to discontinue the Third Party proceedings against our client in order to avoid
forcing us to apply to the Court for a stay of proceedings.  If it is
ultimately found that your client is liable to the plaintiff for any matter
that may have been within the contractual responsibility of our client then we
would be pleased to discuss mediation and arbitration in accordance with
paragraph 3.6.

We look forward
to receiving the particulars or your advice that the Third Party proceedings
will be discontinued against Levelton Engineering Ltd. at your earliest
convenience.  If you do not

receive
instructions to discontinue these proceedings then please be advised that we
will be seeking instructions to proceed with an application to the Court for an
order staying these proceedings.

[6]

No particulars were delivered and the third party proceedings were not
discontinued.

[7]

On February 10, 2009, Levelton applied for a stay of proceedings in
favour of arbitration, which was granted on April 29, 2009 pursuant to s. 15(1) of the
Commercial Arbitration Act
, R.S.B.C. 1996, c. 55:

15 (1)  If a party to an arbitration
agreement commences legal proceedings in a court against another party to the
agreement in respect of a matter agreed to be submitted to arbitration, a party
to the legal proceedings may apply, before or after entering an appearance and
before delivery of any pleadings or taking any other step in the proceedings,
to that court to stay the legal proceedings.


(2)  In an
application under subsection (1), the court must make an order staying the
legal proceedings unless it determines that the arbitration agreement is void,
inoperative or incapable of being performed.

The Chambers
judgment

[8]

The judge referred to the applicable legislation
and contract provisions and noted that the defendants opposed a stay on the
basis Levelton had taken a step in the litigation.  This was based on
Fofonoff
v. C and C Taxi Service Limited
(1977), 3 B.C.L.R. 159 (S.C.), which held
that a demand for particulars is a step in a proceeding because Rule 19(17) of
the
Rules of Court
requires a demand before an application for an order
for particulars can be made under Rule 19(16).

[9]

The judge also referred to J. Kenneth McEwan
& Ludmila B. Herbst,
Commercial Arbitration in Canada: A Guide to
Domestic and International Arbitrations,
looseleaf

(Aurora, Ont.:
Canada Law Book, 2004), at paras. 21-23:

[21]      The portions of the text said to
be relevant to the application at bar are as
follows.
 First under the heading 30.40.40, Step in a Proceeding:

Determining whether a step has been taken
requires an objective approach.
The court must ask itself whether on the facts the parties
should be held
impliedly to have affirmed
the correctness of the proceedings and his or her
willingness to go along with the determination by
the courts of law instead of
arbitration.
In this regard a step in the proceedings means something in the nature of an
application to the court and not mere talk between solicitors or solicitors
clerks nor the writing of letters but the taking of some step such as
taking out a summons or something of that kind
which is in a technical sense a step in the proceedings.

[22]      However, the writing of letters exemption
is not absolute.  For example a
letter by
counsel suggesting that the other party commence an action in which his or
her clients would file a defence and seek full
discovery of facts and documents is
held to be a waiver of any right to
arbitration that existed prior to the letter.  See also the discussion of
demands for particulars in s. 3, 40.40.80 following.

[23]      Under that heading the following
is said to be of relevance:

The exchange of letters reflecting a demand for particulars has been
held to be the taking
of a step which amounts to a step in the proceedings such that an application
for a stay is barred where the
rules of court require a demand before the motion can be
brought, as
in British
Columbia.

In
this context but not under legislation where a prior application for
particulars by letter is not mandatory, a demand
for particulars appears
to be a form of proceeding.

[10]

The judge found the defendants submission based
on the law of attornment and their assertion that at common law a party cannot
attorn conditionally unhelpful.

[11]

He distinguished
Fofonoff
stating:

[26]
It is
clear
from Ruttan J.s judgment in
Fofonoff
that what [makes] a demand
for
particulars under Rule 19(17) a
step in a proceeding, is the implicit assertion that it
will, if
necessary, be followed by a formal application under Rule 19(16).  Where, as
here, it is clear and explicit in the letter
seeking particulars that the next formal step
contemplated by the applicant was not to bring an application under Rule
19(16),
even if necessary, but rather
to seek to divert the dispute away from the court and
into arbitration.  It cannot be said objectively
that the applicant was affirming the correctness of the proceedings or demonstrating
a willingness to go along with a
determination by the courts of law.

Discussion

Step in the proceeding

[12]

Fofonoff
has been followed a number of times in the trial court
(for example:
Reuna Ventures Ltd. v. Refco Futures (Canada) Ltd.
,

[1996]
B.C.J. No. 2148 (S.C.) per Lowry J., as he then was, in Chambers, at para. 4,
A demand is a step in the proceedings. Requiring adherence to the Rules is
not.), but it does not appear to have been reviewed by this Court.

[13]

In
No. 363 Dynamic Endeavours Inc. v. 34718 B.C. Ltd
(1993), 81
B.C.L.R. (2d) 359, this Court considered whether a demand for discovery of
documents was a step in the proceedings.  In para. 5 Hollinrake J.A. referred to
the position of the appellant:

[5]
The
appellant submits that this Court should apply the principles set out by Ruttan
J. in
Fofonoff v. C and C Taxi Service Limited
(1977), 3 B.C.L.R. 159
(S.C.) and conclude that service of a demand for discovery of documents is
taking a step in the proceedings which bars a stay order under s.15(1).

[14]

In the result, the Court concluded it did not
have to decide whether the demand was a step in the proceedings as envisioned
in s. 15(1) because the demand was made in the context of s. 15(4)  interim
measures of protection.

[15]

It was not contended before us that
Fofonoff
was decided
wrongly.  In my view, the reasoning in the case is correct.
The
legislation under consideration in
Fofonoff
was substantively the same
as the present s. 15(1).  Mr. Justice Ruttan reviewed and considered
authorities in Ontario and England.  He quoted from
Ives & Barker v.
Willans,
[1894] 2 Ch. 478 at 484:

The
authorities shew that a step in the proceedings means something in the nature
of an application to the Court, and not mere talk between solicitors or
solicitors clerks, nor the writing of letters, but the taking of some step,
such as taking out a summons or something of that kind, which is, in the
technical sense, a step in the proceedings.

Ruttan J.
continued on p. 162:

But as Mr. Turnham in our present case submits, we have here not
just an exchange of letters, but a procedure which shall be followed to secure
a statement of particulars.  It is the first stage in the proceeding to be
followed by an application to Court if necessary.  Thus it is in a technical
sense at law a step in the proceedings.

[16]

I agree with that conclusion.  As the authors of
Commercial
Arbitration in Canada
note in para. 3:40.40, the
question is whether a party has affirmed a willingness to have the matter
resolved by the court or in arbitration.  A demand for particulars does so.

Effect of demand in this case

[17]

In my view, the issue in this case was not whether Levelton took a step
in the proceeding.  In this Province that question is answered by the delivery
of a demand for particulars pursuant to the
Rules of Court
.  In this
case, it was clear a demand for particulars was made.  The issue is: can the
implications of taking that step be rendered nugatory by considering whether or
not a party intended to embrace the jurisdiction of the court?  I think not.

[18]

The authors of
Commercial Arbitration in Canada
commented on s. 15(1) of the Commercial Arbitration Act as follows:

Under
s. 15(1) of British Columbias
Commercial Arbitration Act
and s. 8(1) of
its
International Commercial Arbitration Act
, the application for a stay
of proceedings may be made before or after entering an appearance and before
the delivery of any pleadings or the taking of any other step in the
proceedings.  Accordingly, where a defence has been filed and delivered, the
application for a stay of proceedings should be dismissed, even where the
filing party indicated at an early stage that it wished the matter to be
arbitratedthere is no ambiguity in the wording of the section, and, in any
event, taking a purposive approach to interpretation (the section was intended
to prevent the mischief of a party to an arbitration agreement having both the
benefit of the court process and, if that did not achieve its purpose, the
benefit of arbitration) would lead to the same result. (pp. 3-34-.1  3-35)

[19]

I agree with these observations.  A party should
not be entitled to take the benefit of the litigation process  obtaining
particulars  while preserving the ability to reject that process in favour of
arbitration.

[20]

It is instructive to place the stay provision into an
historical legal context.

[21]

In
Boutsakis v. Kakavelakis,
2008 BCCA 13
,
77 B.C.L.R.
(4th) 113, this Court affirmed the fact that, absent a stay provision, a court
cannot refuse to proceed with a case merely because the parties have agreed
contractually to arbitrate.  Madam Justice Newbury quoted from
Fletcher Moulton L.J. in
Doleman & Sons v. Ossett Corporation
,
[1912] 3 K.B. 257, a decision of the English Court of Appeal:

... the Legislature by the
Common Law
Procedure Acts
introduced the machinery which is now provided for by s. 4
of the
Arbitration Act, 1889
.  It enables the defendant to an action
brought in breach of an agreement to proceed by arbitration to apply to the
Court to stay the action, and the Court is given power so to do.  Prior to the
statutable provisions the Court could not refuse to settle any such dispute
which was brought before it, because
it not only had the jurisdiction but
also the duty to decide that dispute if called upon so to do.
It has under
these provisions power to refuse its aid to a person who appeals to it in
breach of an agreement to decide the matter by arbitration.
But the statute
very properly requires that the necessary application so to do should be made
by the defendant immediately on appearance and before taking any step in the
action.  If the defendant allows the action to proceed for a while, he cannot
subsequently withdraw it from the Courts.
If the Court thus refuses its
assistance to the plaintiff, he is driven to have recourse to arbitration as
his sole means of obtaining redress, and thus the original agreement to submit
the matter to arbitration is indirectly enforced.

The
present position, therefore, of agreements to refer to private tribunals may be
shortly expressed thus.  The law will not enforce the specific performance of
such agreements, but, if duly appealed to, it has the power in its discretion
to refuse to a party the alternative of having the dispute settled by a Court
of law, and thus to leave him in the position of having no other remedy than to
proceed by arbitration. [Emphasis added by Newbury J.A.]

[22]

The stay provision acts to limit access to the
litigation process.  The limitation began as discretionary.  It now is
mandatory.

[23]

The section under consideration in
Fofonoff
was
permissive.  It stated that the court may stay the litigation if satisfied
that there is no sufficient reason why the matter should not be referredand
that the applicant was, at the time when the proceedings were commenced, and
still remains, ready and willing to do all things necessary to the proper
conduct of the arbitration.

[24]

In its
Report on Arbitration
(Vancouver:
The Commission, 1982) at pp. 30-35, the Commission considered competing
positions favouring complete access to the court, particularly for questions of
law and the evaluation of disputed evidence and upholding a contractual
commitment to arbitrate.  It concluded, at p. 34 that the court should
continue to have the power to refuse a stay of litigationthe person commencing
litigation in breach of an arbitration agreement should continue to bear the
onus of convincing the court a stay should not be granted.

[25]

It was the Commissions view that the
conditions as to taking no steps in the litigation, and being ready and
willing to arbitrate, are too rigid, but they are relevant to the exercise of
the courts discretion.  Its recommendations were the basis for the original s.
15 in the
Commercial Arbitration Act
, S.B.C. 1986, c. 3, which is the
present legislation.

[26]

The original section provided the court shall
stay unless the party opposing the stay showed good reason why court
proceedings should continue.  In determining whether there is good reason, the
court was entitled to consider 12 factors, the last of which was any other
matter the court considers significant.  The provision incorporated the
recommendation of the Commissions report

at pp. 34-35.

[27]

In contrast, the
International Commercial
Arbitration Act
, S.B.C. 1986, c. 14, which adopted the United Nations
Model
Law on Commercial Arbitration
, provided in s. 8 for a mandatory stay.

[28]

Pursuant to the
Miscellaneous Statutes
Amendment Act (No. 2)
, S.B.C. 1988, c. 46, s. 11, the original s. 15 of the
Commercial Arbitration Act
was replaced with the provisions of the
international Act, plus s. 9 of that Act which dealt with interim measures of
protection.  That section remains today.

[29]

Granting a stay of proceedings no longer is
discretionary if the court is satisfied the commitment to arbitrate is not void,
inoperative or incapable of being performed (
Prince George (City) v.
McElhanney Engineering Services Ltd.
(1995), 9 B.C.L.R. (3d) 368, 61
B.C.A.C. 254 leave to appeal refused [1995] S.C.C.A. No. 467;
MacKinnon v.
National Money Mart Co.
, 2004 BCCA 473, 203 B.C.A.C. 103, 50 B.L.R. (3d)
291, leave to appeal granted).  Party autonomy, the ability of parties to chose
their forum, which is a core value of the Model Law, was recognized, but
respect for that right constrains the right of unlimited access to the court.

[30]

Cast in this light, a party who seeks to deprive the
other side of its right of access to the court must not be equivocal.  As noted
by Fletcher Moulton L.J., it is appropriate that a party make clear its
intention at the outset and not allow the action to proceed with its
participation.

[31]

Levelton urges an analogy based on the law of attornment.  Although
there are significant differences in the law of attornment and the law
applicable to stays in favour of arbitration, in my view, the analogy is not
misplaced.  The law generally recognizes the right of litigants to their choice
of forum.  While usually the right of an opposing party to challenge that
choice is preserved, at common law any step taken which invokes the
jurisdiction of the court will result in attornment even if the party has
reserved or is pursuing a challenge to jurisdiction.

[32]

It is not inappropriate to apply the same strictures to a stay application
authorized by legislation that permits access to the court to seek a stay
provided a step after appearance is not taken in the proceedings.

[33]

In my view, the judge erred by being concerned with whether Levelton
objectively affirmed its willingness to participate in the litigation process. 
This led him to conclude Levelton had not taken a step in the litigation
because it appeared its next action would be to seek a stay and not to obtain
an order for particulars.  That inquiry was not relevant in the circumstances
of this case.

[34]

Once it is determined that a demand for
particulars has been made under the
Rules of Court
, a step in the
proceedings has been taken and a stay under s. 15 of the
Commercial
Arbitration Act
no longer is available.  A party cannot render the
step nugatory by suggesting it may seek to refer the matter to
arbitration.  It cannot undo what has been done.  The orderly
administration of justice requires certainty in these matters.

[35]

Whether a request for information is a demand for
particulars under the
Rules
depends on the language of the
request.  Although no specific wording is required, the demand in this
case was for information required to prepare a statement of defence.  It
clearly was a demand for particulars.

[36]

By making a demand for particulars which were required for the
preparation of a Statement of Defence, Levelton was acting pursuant to Rule
19(17).  It was relying on the authority of the
Rules of Court
.  The
demand was itself a step in the proceeding.  As counsel for the defendants
points out, a party may never seek an order for particulars for any number of
reasons.  That does not make the demand any the less a step in the
proceedings.  Ruttan J. was alive to this as is evidenced by his use of the
phrase if necessary.  Had Levelton sought an order for particulars, it could
not be contended seriously that the defendants could object on the basis no
demand had been made pursuant to Rule 19(17).

[37]

In my view, a request for information solely to
determine whether a claim is subject to arbitration

whether the arbitration agreement is void, inoperative or incapable of being
performed

would not be a bar to obtaining a stay of
proceedings in favour of arbitration.  In such a case, a party clearly
would not be relying on the authority of the
Rules of Court
to advance
its position in the litigation.  It would not be affirming its acceptance
of the litigation process.

[38]

This was the situation in
No. 363 Dynamic Endeavours Inc.
An
ex
parte
order was obtained freezing funds.  The respondent brought an
application to set aside the order and delivered a demanded for discovery of
documents.  The order was set aside, in part, based on documents obtained
through the demand.  This Court concluded the demand had been made in the
context of s. 15(4), the granting of interim measures of protection, and was
not a step in the proceedings as contemplated by s. 15(1).  This Court stated
in para. 23:

[23]       The argument, as I
see it, is that the demand for discovery of documents here was not served with
a view to pursuing the defence of the action, but rather for the purpose of
protecting the rights of the respondent in the face of the ex parte order
obtained by the appellant freezing the funds in the bank.

This led to the observation that it is the pursuit of
the defence itself that brings an activity within s. 15(1).

[39]

I do not decide whether Rule 19(16) would be available to a party to
obtain an order for particulars to determine whether a claim is subject to
arbitration or whether some other procedure would be preferable in the context
of an application for a stay.  Generally, an applicant for an order for
particulars under the
Rules of Court
must establish that the particulars
are required to plead, for discovery, or to narrow the issues to be tried.

Conclusion

[40]

I would allow this appeal and set aside the stay of proceedings.

The
Honourable Mr. Justice Chiasson

I agree:

The Honourable Madam
Justice Newbury

I agree:

The Honourable Mr. Justice Frankel


