Executive Summary: Key Legal and Evidentiary Issues

• Defendants applied to stay civil proceedings in favour of arbitration under a shareholders' agreement.
   
• Three statutory prerequisites under section 7 of the Arbitration Act governed whether a stay should be granted.
   
• Plaintiffs argued that a separate "Shareholder Offer" document, not the Shareholders' Agreement, governed their claim.
   
• Courts apply a low "arguable case" threshold when assessing whether a dispute falls within an arbitration clause.
   
• Justice Majawa found a clear nexus between the plaintiffs' breach of contract claims and the arbitration clause.
   
• The application was filed before any first response on the substance of the dispute, satisfying a key procedural requirement.
   

Facts of the case

On January 1, 2020, 1147010 B.C. Ltd. and Bayram Saracoglu (the plaintiffs) entered into a Shareholders' Agreement with 1074364 B.C. Ltd. and Halil Ibrahim Eris (the defendants) and Metrotown Flooring Centre Ltd., a company in which all parties held shares. The plaintiff 1147010 B.C. Ltd. ("114") is the holding company of Bayram Saracoglu, while the defendant 1074364 B.C. Ltd. ("107") is the holding company of Mr. Eris. The Shareholders' Agreement contained a "Compulsory Buy-Out" shotgun clause at subsection 12.1, allowing 114 (as offeror) to require 107 (as offeree) to elect within 30 days under subsection 13.1 to either sell its interest in Metrotown Flooring to 114 or purchase 114's interest. As part of exercising this clause, the plaintiffs prepared a letter to the defendants known as the Shareholder Offer. On March 18, 2026, the plaintiffs filed a notice of civil claim alleging that the defendants breached sections 12 and 13 of the Shareholders' Agreement by failing to make the required election in time, seeking specific performance of the Compulsory Buy-Out clause and damages, or alternatively damages in lieu of specific performance or for breach of contract and breach of the duty of good faith and honest performance. The defendants filed a jurisdictional response on May 8, 2026, and applied on May 14, 2026, for an order staying the proceedings in favour of arbitration. The plaintiffs filed an application response opposing the stay on May 26, 2026.

Policy terms and contractual clauses at issue

Section 16 of the Shareholders' Agreement contains the arbitration clause central to this application. Subsection 16.1 provides that, except for valuation disputes governed by subsection 14.2, "all disputes arising out of or in connection with this Agreement shall be referred to and finally resolved by a single arbitrator" under the Arbitration Act. Subsection 16.2 makes the arbitrator's decision final and binding, and subsection 16.3 provides that the arbitrator determines costs of arbitration. Subsection 17.4 of the Shareholders' Agreement states that it is governed by the laws of British Columbia and Canada. By contrast, the plaintiffs pointed to subsection 4.5 of the Shareholder Offer, which states that the Shareholder Offer "shall be governed by and construed in accordance with the law of the province of British Columbia and the parties submit and attorn to the jurisdiction of the courts of the province of British Columbia." The plaintiffs argued this clause meant their claim, framed as arising from the Shareholder Offer rather than the Shareholders' Agreement, fell within court jurisdiction rather than arbitration.

Reasoning and analysis

Justice Majawa applied the three-part test from Davidson v. Lyra Growth Partners Inc., 2024 BCCA 133, requiring the defendants to show that the plaintiffs commenced proceedings on a matter agreed to be arbitrated, that the application was brought before any first response on the substance of the dispute, and that the arbitration agreement was not void, inoperative, or incapable of being performed. On the first prerequisite, the Court applied the "arguable case" standard from Clayworth v. Octaform Systems Inc., 2020 BCCA 117, finding a clear nexus between the plaintiffs' breach of contract claims under sections 12 and 13 and the broad language of section 16, which captures "all disputes arising out of or in connection with" the Shareholders' Agreement. The Court rejected the plaintiffs' argument that the Shareholder Offer was a standalone agreement displacing the arbitration clause, finding that the Shareholder Offer derives its legal meaning from, and does not exist in isolation from, the Shareholders' Agreement. The Court also rejected the plaintiffs' argument that an exception to the "arguable case" test applied, concluding the jurisdictional question was not one capable of resolution through only superficial consideration of the record and did not involve a question of law. On the second prerequisite, the Court found no dispute that the defendants filed their jurisdictional response and stay application before submitting any first response on the substance of the dispute. On the third prerequisite, the Court found no basis to conclude the arbitration clause was void, inoperative, or incapable of being performed, rejecting the plaintiffs' argument that the Shareholder Offer constituted a waiver or subsequent agreement displacing section 16.

Ruling and outcome

Justice Majawa found that all three prerequisites for a stay had been met and granted the order sought by the defendants staying the proceedings in favour of arbitration. The Court declined to award the special costs sought by the defendants, finding nothing in the record to suggest behaviour warranting them, but held that the defendants, having been successful, are entitled to their costs under Tariff B. The decision does not specify a dollar amount for these costs.