The recent decision of the Supreme Court of British Columbia in Octaform Systems Inc v. Clayworth confirms that a court may only dismiss an application for a stay of proceedings under British Columbia's Arbitration Act if the dispute clearly falls outside of the scope of an arbitration agreement. This case concerned a dispute between the plaintiff company and a former employee, who is alleged to have stolen confidential information, and whether this dispute fell within the scope of the arbitration clause contained in the defendant's employment agreement. The plaintiff argued that the subject matter of the dispute – the misuse of confidential information – was specifically excluded. The defendant argued that disputes about confidential information were not excluded from the agreement to arbitrate, and sought a stay in favour of arbitration.
British Columbia's Arbitration Act (Act)
Section 15 of the Act provides for a stay of court proceedings in favour of arbitration, where the following three-part test is satisfied:
- The party applying for a stay of proceedings 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 before the applicant takes a step in the proceeding.
The issue in Octaform was the second prong of this test, namely whether the parties had agreed to submit a dispute to arbitration. To determine whether a dispute fell within the scope of an arbitration agreement, the court was required to analyze "the nature of the disagreement, the words of the arbitration clause and the terms of the contract as a whole in their factual context."1
Exclusion of disputes about confidential information
In this case, the plaintiff claimed that the defendant exploited confidential information and trade secrets belonging to the plaintiff, which the defendant obtained in the course of her employment.
The defendant sought to stay the action on the basis that the claims needed to be resolved through arbitration. The plaintiff argued that the claims fell under an exception contained in the employment agreement, because the arbitration clause excluded disputes that "involve the Company seeking a court injunction or other relief relating to protection or enforcement of the Company's intellectual property, confidential information or restrictive covenants as provided in the agreement."2
The court agreed with the plaintiff that the underlying claims concerning misuse of confidential information were excluded from the arbitration provisions based on the language set out above permitting the plaintiff to seek relief from the courts to protect its confidential information. By reviewing the contract as a whole, including the definition of "confidential information," the court concluded that the parties intended to exclude claims regarding "intellectual property, confidential information, or restrictive covenants" from mandatory arbitration.
Octaform is a useful reminder that courts will rely on contractual interpretation to determine the scope of an arbitration agreement, and that even where parties generally provide for arbitration, they can chose to exclude certain subject areas. In other words, the inclusion of an arbitration clause in an employment (or commercial) agreement does not mean that all disputes fall within the scope of such an agreement. Parties can chose to exclude certain types of disputes, as the plaintiff did in this case for disputes relating to intellectual property and confidential information. These exceptions should be clearly set out, as the court found was the case here.
For more information about the scope of arbitration agreements, please contact Chloe Snider of the Litigation and Dispute Resolution group.
This article was co-authored by Nour Chehab Eddine a summer student in the Toronto office.
Octaform Systems Inc v. Clayworth, 2019 BCSC 711 at para 27.↩
Ibid at para 10. ↩
Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries. www.dentons.com
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. Specific Questions relating to this article should be addressed directly to the author.