Ontario – new disputes either beyond or no longer subject to abandoned submission agreement

In 1230455 Ontario Ltd. v. 150 Katimavik Inc., 2019 ONSC 2481, Madam Justice Michelle O’Bonswain declined to order the parties to arbitration due to the scope of the submission to agreement and its abandonment.  O’Bonswain J. held that (i) one part of their new dispute did not fall within their initial submission to arbitration and (ii) the other part of their dispute did fall within the agreement but the parties had abandoned arbitration.

1230455 Ontario Ltd. (“123”) and 150 Katimavik Inc. (“Katimavik”) disputed their respective rights regarding leased commercial premises.   123 had initially leased premises, identified as Suite 1000.  At the request of Katimavik and after negotiations, 123 agreed to occupy a pair of smaller suites, Suites 201 and 302 (“Suites 201/302”), subject to some fit-up work and reduced rent over a period of time.

A dispute arose between the parties regarding the date on which the lease for Suites 201/302 would commence (“Commencement Date”). Katimavik argued that it had completed the fit-up work on Suites 201/302 and that 123 must leave Suite 1000 and move into the new, smaller premises. Katimavik also argued that the new lease terminated November 16, 2018.

The dispute lead 123 to apply ex parte to the court on September 1, 2017 for an injunction allowing 123 to re-enter, possess and use Suite 1000.   123 was successful but, on October 2, 2017, 123 and Katimavik entered into a settlement agreement (“Settlement Agreement”) by which they agreed to arbitrate certain issues reproduced at para. 26 of the reasons.  The September 26, 2017 order granting 123’s injunction regarding Suite 1000 was vacated by a subsequent October 13, 2017 court order, resulting in 123 leaving Suite 1000 and moving into Suite 201/302 on October 16, 2017.  123 did occupy those suites and paid its rent.

The parties subsequently disagreed over the termination date of the lease for Suites 201/302 and the nature of 123’s rights to occupy Suites 201/302 after November 16, 2018.  123 filed an application with the court seeking various relief, listed at para. 16 of the reasons, including an order that the arbitration agreed upon by the parties proceed.

O’Bonswain J. identified three (3) issues from 123’s application, including (i) whether 123 was entitled to an order mandating the parties to attend arbitration and (ii) the rent payable.

123 argued that the parties had agreed to arbitration and that the arbitration had yet to occur.  “Arbitration must move forward.”  Katimavik disagreed, arguing that the proceedings filed in court by 123 involved the termination date of the lease and not the Commencement Date that was in dispute when the parties had agreed to submit to arbitration.

To initiate her analysis, O’Bonswain J. referred to section 7 of Ontario’s Arbitration Act, 1991, SO 1991, c 17 which limited the stay of court litigation in favour of arbitration to only those matters in respect of which the parties had agreed to submit to arbitration.

At para. 26, O’Bonswain J. reproduced the terms of the Settlement Agreement regarding submission to arbitration.  Having analysed the substance of the issues raised by 123’s application before her, she determined that part of the litigation was not within the terms of the submission to arbitrate.

[37] The wording of the settlement between the parties does not refer to the termination date as forming part of the arbitration.  In fact, the settlement relates to the matter that was before Hackland J.  Phillips J’s Order clearly stated that the issues related only to Suite 1000.  The matter before me relates to the termination date.  It is clear from the language of the settlement that the purpose of the arbitration was to determine the commencement date as per the Offer to Lease and if either party had suffered damages as a result of any related breaches.

O’Bonswain J. also rejected 123’s further argument that Katimavik was attempting to avoid its obligations by “ignoring its agreement to proceed to arbitration”.  Rather, she held that the parties had abandoned arbitration as an alternative.

This settlement involved two parties.  It is easy to blame one party after the fact.  However, it remains that 123 did not try to exercise its right to proceed to arbitration until a significant amount of time had passed since the expiration date of the timeline provision.  Instead, the evidence supports that the parties did not jointly appoint an arbitrator before 11:59pm on Monday October 16, 2017 as was contemplated by the settlement.   By their actions, the parties abandoned the possibility of arbitration.

The issue involving an abatement, return or adjustment of rent fell within the terms of the submission to arbitrate under the Settlement Agreement.  However, consistent with her finding that the parties had abandoned arbitration, O’Bonswain J. declined to order the parties to attend arbitration.