CLOUT
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The defendant (appellant), Sims, entered into a construction contract containing an arbitration clause with the plaintiff (respondent), the City of Prince George. Plaintiff (respondent) nominated McElhanney Engineering Services Ltd. (McElhanney) as a consultant under the contract. However, there was no arbitration clause in the contract between them. Plaintiff (respondent) commenced an action against defendant (appellant) and McElhanney. Defendant (appellant) applied for an order under Section 15 of the Commercial Arbitration Act, Revised Statutes of British Columbia, 1985 (2nd Supplement), Chapter 17, which enacts Article 8 MAL, for a stay of the action.

The first instance court found that the arbitration clause was inoperative or incapable of being performed because the action raised broader issues against the co-defendant, McElhanney, which were interrelated with the arbitrable issues between the plaintiff and the defendant. The first instance court also said that it would exercise a residual discretion to refuse the stay where there was a risk of multiple proceedings and inconsistent results.

On appeal, the Court of Appeal found that there was a dispute between the parties that involved matters which had been agreed to be submitted to arbitration. The Court of Appeal found that Canadian and English case law was clear that, as a general principle, whenever there are multiple parties and multiple issues, of which some are interrelated and similar, defendants are not barred from invoking an arbitration clause binding them. Amongst the cases referred to by the Court of Appeal was BMW Investments Ltd. v. Saskferco Products Inc. (CLOUT case no. 116 [...] ).

The Court of Appeal then considered the question of residual discretion to refuse a stay of proceedings in the light of the earlier British Columbia Court of Appeal decision in Gulf Canada Resources Ltd. v. Arochem International Ltd. (CLOUT case no. 31 [...] ). The Court of Appeal considered that there was, on this issue, no difference in substance between the British Columbia Commercial Arbitration Act and the British Columbia International Commercial Arbitration Act, Statutes of British Columbia, 1986, Chapter 14. The Court of Appeal found that the first instance court had misinterpreted the language of the Court of Appeal in the Gulf Canada decision. The Court of Appeal held that a court had a residual discretion to refuse a stay of proceedings only when a party clearly established that it was not privy to an arbitration agreement. If it is arguable that a party is indeed a party to such an agreement, a stay should be granted and the issue can be resolved in the arbitration.

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