Executive Summary: Key Legal and Evidentiary Issues

• Whether the arbitration clause in the Unanimous Shareholder Agreement (USA) applies to claims based on breach of employment and fiduciary duties.

• Interpretation of “ordinary course of business” in the context of the USA’s arbitration clause.

• Relevance of Ms. McEwan’s role as shareholder versus her role as employee and director in determining arbitrability.

• Applicability of the mandatory stay provision under section 7 of Alberta’s Arbitration Act.

• Whether alleged delay in seeking arbitration constituted “undue delay” under section 7(2)(e).

• Court’s discretion to separate arbitrable and non-arbitrable claims involving multiple defendants.

Facts and procedural history

Downright Demolition Ltd filed a civil action against its former director, shareholder, and president, Penny McEwan, alleging significant misconduct during her tenure. Ms. McEwan served as president from December 10, 2018, until she resigned and sold her 40% ownership interest in the company on September 6, 2024. The Statement of Claim accuses her of breaching her employment agreement and fiduciary duties by engaging in serious misconduct, including:

• Poor performance causing business loss

• Falsifying invoices and misrepresenting financial status

• Receiving and retaining cash payments from customers

• Misappropriating and selling scrap metal for personal gain

• Charging personal expenses to the company credit card

• Billing personal vehicle maintenance to the company

The Statement of Claim also alleges that Ms. McEwan conspired with her son, Jamie McEwan—another former employee but not a party to the USA—to embezzle from the company and divert corporate opportunities and confidential information to a competitor for whom she is now employed. It further claims she concealed her actions, delaying discovery by the company until early 2025.

In response, Ms. McEwan denied all allegations and applied to stay the court proceedings under the Arbitration Act, asserting that the Unanimous Shareholder Agreement (USA) between the parties contained an arbitration clause mandating arbitration of disputes. Specifically, section 20.2 of the USA required binding arbitration for any unresolved dispute defined in section 20.1, including those “arising out of or relating to this Agreement” or “in relation to a dispute in the ordinary course of business.”

Legal arguments and issues

Ms. McEwan argued that the claims arose either from the USA itself or concerned matters in the “ordinary course of business,” making them subject to mandatory arbitration. She relied on section 7(1) of the Arbitration Act, which obliges courts to stay proceedings in favor of arbitration unless an exception under section 7(2) applies. She contended that no such exception, including undue delay, was present and emphasized that arbitration was pleaded as part of her Statement of Defence.

Downright Demolition countered that the claims stemmed from Ms. McEwan’s role as an employee and director—not as a shareholder—and that her employment contract, unlike the USA, contained no arbitration clause. It emphasized that the Statement of Claim made no reference to the USA. Downright also raised procedural concerns, arguing that arbitration had not yet been formally invoked, and that splitting proceedings between arbitration (for Ms. McEwan) and court (for Jamie McEwan) would be inefficient and duplicative.

Court’s analysis and decision

Justice Douglas R. Mah focused on whether the subject matter of the lawsuit fell within the scope of the arbitration clause in the USA. He dismissed the procedural objection of undue delay, noting that although litigation had not advanced quickly, Ms. McEwan had promptly raised arbitration in her Statement of Defence and formally applied for a stay within a reasonable timeframe.

The court concluded that the Statement of Claim alleged wrongdoing related solely to Ms. McEwan’s role as an employee and director, not as a shareholder. The USA—which defines shareholder rights, ownership issues, and corporate governance—was not mentioned in the pleadings, and the claims did not invoke any rights or obligations under it.

Justice Mah further rejected the argument that the disputes arose in the “ordinary course of business.” He emphasized that the phrase must be interpreted in the context and purpose of the USA, and could not be stretched to encompass allegations of theft, fraud, and embezzlement. He cited multiple legal authorities explaining that “ordinary course of business” refers to routine and lawful business operations, not personal misconduct. The court noted:

“Accusing the company’s president of theft, embezzlement, fraud, falsifying financial statements, uttering forged documents, misappropriation of confidential information and conspiracy is not something that occurs in the ‘ordinary course of business’ as understood in law.”

Based on this interpretation, Justice Mah held that the claims were beyond the scope of the arbitration clause. The court found no basis to stay the action and dismissed the application. The civil proceedings against Ms. McEwan were permitted to continue in court.

No monetary award, damages, or costs were granted or ordered in this decision.