This Claim’s on Stay-cation: Considerations in Staying Claims in Favour of Arbitration

Robert Foster and GT Mann entered a contract for GT Mann to construct a residential development on lands owned by Otter Point. Otter Point wasn’t a named party to the contract with GT Mann, though Foster was the director, officer, and sole shareholder of Otter Point. The contract between Foster and GT Mann provided for arbitration of disputes under the contract.

A dispute arose between Foster and GT Mann that was not resolved by settlement offers or mediation. Otter Point filed a lawsuit against GT Mann, claiming damages for breach of contract, negligence, and several other causes of action. Foster was not named as a plaintiff in the proceedings.

GT Mann sought to stay Otter Point’s lawsuit in favour of arbitration, relying on the contract clause permitting a dispute to be referred to arbitration. Otter Point opposed the application, arguing that:

1. Otter Point was not a party to the contract and was not bound by an arbitration agreement.
2. Prior settlement offers between the parties constituted steps in the proceeding and effectively barred GT Mann from requiring arbitration when litigation was already underway.

Applications to Stay in Favour of Arbitration

GT Mann’s application to stay was made pursuant to section 7 of British Columbia’s Arbitration Act, which requires the applying party to establish four technical prerequisites:

1. That an arbitration agreement exists.
2. That a party to the arbitration agreement has commenced court proceedings against another party to the agreement.
3. That the court proceedings are in respect of a matter agreed to be arbitrated.
4. That the application to refer to the arbitral process comes before the applicant has taken steps in the court proceeding.

GT Mann had to establish all four of the above elements in order for the Court to stay the lawsuit in favour of arbitration. Specifically, GT Mann had to establish an arguable case on these technical prerequisites, rather than establish them on the stringent “balance of probabilities” standard.

This section works alongside the common law “competence-competence” principle: where an arbitration agreement exists, courts are expected to give precedence to the arbitral process by allowing arbitrators the priority in ruling on their own jurisdiction.

Otter Point, in contrast, could rely on a few narrow exceptions that would require the Court proceeding to continue without a stay. However, the Court also noted that the exceptions available to Otter Point were absolute – they must be considered alongside an evaluation of whether the opposition to the stay, and insistence on continuing litigation, are merely tactics to delay arbitration.

What the Court Said

Parties to the Contract

Otter Point argued that the first and third prerequisites above were not satisfied.

First, Otter Point argued that the contract containing the arbitration clause only listed Foster and GT Mann as the parties – Otter Point itself was excluded, and could not be bound to the clauses of a contract it did not sign.

The Court rejected this narrow interpretation of the meaning of a “party” to an arbitration agreement. The Court stated that where entities are connected to a signatory to a contract containing an arbitration agreement, they may become bound as a “party” to that same contract despite not being signatories themselves.

In this case, Foster was a signatory to the contract and the sole operator of Otter Point. It would be inconsistent to assert that Otter Point was not a party to the contract or the arbitration clause, but could sue GT Mann on that same contract. Under the competence-competence principle, it is not a question for the Court to determine whether Otter Point was a party to the contract, but rather whether it is arguable that it is a party to the contract. The Court concluded that, given Otter Point’s own phrasing in its claim and its evidence that it was the legal owner of the lands in question, GT Mann had made out an arguable case that Otter Point was a party to the contract.

Steps in Litigation

Second, Otter Point argued that by making offers to settle prior to the filing of the civil claim, GT Mann had effectively demonstrated its own participation in the litigation – and rejected any right to demand arbitration in the future.

While parties who take steps in litigation are not permitted to later demand that the matter be referred to arbitration, the core issue became whether the settlement offers advanced by GT Mann constituted such steps. The Court noted that “steps” in the litigation would be akin to “something in the nature of an application to the Court, and not mere talk between solicitors”. In other words, the party’s steps would have to affirm a “willingness to have the matter resolved by the court instead of arbitration”.

In considering the offers exchanged between the parties, the Court characterized settlement discussions as being qualitatively different from court applications that constituted explicit steps in the litigation. Rather, an offer to settle was simply an attempt to resolve the dispute, and not a rejection of the option to arbitrate should the settlement not come to fruition.

Partial vs. Complete Stay

Otter Point also argued that its claim against Graeme Mann (“Mann”), GT Mann’s director and operator, should not be stayed – if a stay were to be granted, it should be partial and only apply to GT Mann.

The Court rejected this argument as well, holding that Otter Point’s own civil claim referred to Mann as being “directly and intimately involved in the construction of the Project as GT Mann [Contracting]’s principal, agent, and employee”. Therefore, Otter Point’s claims were “inextricably interwoven” against GT Mann and Mann himself – the stay should therefore be a complete stay, and the claims should all be referred to arbitration.

Conclusion + Takeaways

When entering a contract with an arbitration clause, parties should keep in mind:

• Entities that aren’t signatories to an arbitration agreement may still become bound by it if they bring a claim through or under a named party to that agreement.
• Parties that take steps in litigation may be deemed to have rejected a right to the arbitral process. However, settlement offers preceding the litigation are not automatically deemed to have been such “steps”, and parties may still be entitled to arbitrate despite having engaged in settlement discussions.
• Courts may see civil litigation, where an enforceable arbitration clause may exist, as an attempt to delay or avoid arbitration. Therefore, exceptions to the competence-competence principle should be used cautiously, and parties seeking to rely on these exceptions should do so strategically and with the advice of counsel.
• Where claims in a court proceeding are interwoven, complete stays referring all of the claims to arbitration are more appropriate.

Understanding your contractual rights and obligations is essential in avoiding unnecessary legal disputes. Contact Anthony Burden in Calgary, Ryan Krushelnitzky in Edmonton, or any member of Field Law’s Construction Group for advice.

Link to Decision: 2197 Otter Point Properties Nominee Ltd. v GT Mann Contracting Ltd., 2026 BCSC 558