Ontario – though authorized, plaintiffs fail to justify stay of their own action after taking too many steps – #491

Despite section 7(1) of the Arbitration Act, 1991, SO 1991, c 17 requiring that a stay application be brought by the party which did not commence the court proceeding, Mr. Justice Christopher de Sa in Deluxe Windoors Manufacturing Inc. v. Bruhm, 2021 ONSC 3616, accepted that the parties’ agreement to arbitrate authorized either party to apply for stay.  Ostensibly authorized to apply to stay its own action, Plaintiffs’ own activity in the action nonetheless prompted de Sa J. to follow Lansens v. Onbelay Automotive Coatings Corp., 2006 CanLII 51177 (ON SC) which dismissed a stay application because defendant seeking the stay had taken several steps in the action before applying for a stay. Regarding Plaintiffs’ application for a stay, de Sa J. stated that “I agree with the Defendant that the Plaintiffs have acted no differently than the defendants in Lansens, in fact they did not simply respond, they initiated this claim”.

(Note: For a different result on whether a plaintiff can stay its own action, see the earlier Arbitration Matters note “Nova Scotia – court exercises discretion to grant plaintiff’s request to stay its own action – #031” regarding Lorneville Mechanical Contractors Ltd. v. Clyde Bergemann Canada Ltd., 2017 NSSC 119, appeal dismissed, Clyde Bergemann Canada Ltd. v. Lorneville Mechanical Contractors Ltd., 2018 NSCA 14. Madam Justice Ann E. Smith of the Supreme Court of Nova Scotia determined that a plaintiff could not rely on the Commercial Arbitration Act, SNS 1999, c 5 to stay its own lien action but exercised her discretion under section 41(e) of Nova Scotia’s Judicature Act, RSNS 1989, c 240 to refer the parties’ disputes to arbitration.

See the earlier Arbitration Matters note “Nova Scotia – Court of Appeal sceptical that litigants suffer irreparable harm if obliged to litigate instead of arbitrate – #089” regarding Clyde Bergemann Canada Ltd. v. Lorneville Mechanical Contractors Ltd., 2018 NSCA 14. Nova Scotia’s Court of Appeal upheld a chambers judge’s decision granting a plaintiff a stay of its own litigation.  The Court held that a stay and an interlocutory injunction are remedies of the same nature and, absent different rules set out in particular legislation, are governed by the same rules.  Though section 9(1) Nova Scotia’s Commercial Arbitration Act, SNS 1999, c 5 did not authorize a stay in the circumstances, the Court accepted the chambers judges’ use of section 9(2) as a guideline in determining whether to exercise her discretion under section 41(e) the Judicature Act, RSNS 1989, c 240.)

Plaintiffs and Defendant entered into a 2017 agreement (“Agreement”) pursuant to which Plaintiffs would supply machinery, equipment and intellectual property in exchange for Defendant providing financing, labour and arranging factory space for production.  The Agreement contained the following agreement to arbitrate:

8.9(a) If at any time during the continuance of this Agreement or after the termination thereof, any dispute, difference or question shall arise between the parties or any of their legal representatives concerning the interpretation or construction of this Agreement or anything herein contained then every such dispute, difference or disagreement shall be referred to a single arbitrator to be appointed by a Judge of the Ontario Superior Court of Justice, which arbitrator shall conduct the arbitration pursuant to the Arbitration Act, 1991 (Ontario), and amendments thereto, and every award or determination shall be final and binding on all the parties hereto, their heirs, successors and assigns and there shall be no appeal therefrom”.

Disputes arose and, despite the agreement to arbitrate, Plaintiffs instituted an action against Defendant on May 23, 2018.  In February 2021, Plaintiffs applied to appoint an arbitrator.  Defendant resisted, arguing that Plaintiffs were barred from proceeding to arbitration due to attornment, waiver and “undue” delay in bringing their application.

According to the Defendant, the Plaintiffs have clearly attorned to the jurisdiction of the courts and waived their right to arbitration. A party who seeks relief through one method may not later elect to proceed in some other manner, in this instance arbitration. It avoids “forum shopping” and parallel proceedings”.

De Sa J. agreed with Defendant, determining that “to stay the matter now and submit it to arbitration would be unfair”.  In his analysis, de Sa J. referred to section 7(1) of the Arbitration Act, 1991, SO 1991, c 17 and italicized the mention of “another” for emphasis.

7 1) If a party to an arbitration agreement commences a proceeding in respect of a matter to be submitted to arbitration under the agreement, the court in which the proceeding is commenced shall, on the motion of another party to the arbitration agreement, stay the proceeding”.

To offset section 7(1)’s requirement that a stay application be brought by the party which did not commence the court proceeding, de Sa J. noted that the agreement to arbitrate at section 8.9 of the Agreement authorized either party to apply. See paras 15-19.

At para. 14, de Sa J. listed the steps taken by in the litigation leading up to Plaintiffs’ February 2021 application for a stay:

(i) May 23, 2018 – Plaintiffs serve their Statement of Claim;

(ii) November 2, 2018 – Defendant serve his Defence and Counterclaim;

(iii) April 4, 2019 – Plaintiffs serve their trial record;

(iv) December 13, 2019 – Defendant seeks further information and/or evidence from China before serving an Amended Statement of Defence;

(v) November 5, 2019 – Plaintiffs request Defendant to set the matter by way of arbitration but receive no response;

(vi) December 13, 2019 – Plaintiffs again request Defendant to put the matter before an arbitrator but receive no response;

(vii) February 11, 2020 – Plaintiffs indicate they wish to invoke clause 8.9 and if they receive no response, they will bring a motion to compel and seek costs;

(viii) February 18, 2020 – Defendant refuses to consent to arbitration, stating he had incurred costs associated with the litigation; and,

(ix) July 8, 2020 – Plaintiffs/Plaintiffs’ representatives examined for discovery, undertakings given but none answered.

The activity in the action prompted de Sa J. to refer to and rely on Lansens v. Onbelay Automotive Coatings Corp., 2006 CanLII 51177 (ON SC) paras 33-34 in which the court dismissed a stay application because the defendant seeking the stay had taken several steps in the action before applying for a stay.

In the matter before him, de Sa J. wrote that “I agree with the Defendant that the Plaintiffs have acted no differently than the defendants in Lansens, in fact they did not simply respond, they initiated this claim”.

De Sa J. also observed that “[i]f the matter were less advanced, my decision may have been different”.

urbitral notes – First, for decisions addressing attornment and waiver, see the earlier Arbitration Matters notes:

(i) “Ontario – agreement to arbitrate not unconscionable where governing law preserves executive’s Employment Standards Act rights – #490” regarding Leon v. Dealnet Capital Corp., 2021 ONSC 3636. Master Barbara McAfee declined to exercise her discretion under section 7(2) of the Arbitration Act, 1991, SO 1991, c 17 to refuse a stay.  She dismissed the senior executive’s reliance on Uber Technologies Inc. v. Heller, 2020 SCC 16 to invalidate the agreement to arbitrate contained in the employment agreement, noting that the governing law preserved the executive’s right to file an Employment Standards Act, 2000 S.O. 2000, c.41 complaint.  Master McAfee also disagreed that (i) the Business Corporations Act, RSO 1990, c B.16 oppression claim, contained in employer’s counterclaim, was not arbitrable or (ii) the employer had attorned by filing a defense and counterclaim or applied for a stay with “undue” delay. Master McAfee confirmed there was no evidence that employer or its current counsel “noticed” the agreement to arbitrate contained in the employment agreement until later in the action

(ii) “Québec – precedents on attornment re-read in light of newer rules requiring compliance to judicial contract – #434” regarding Bergeron v. 2528-1023 Québec inc., 2021 QCCS 539. Mr. Justice Babak Barin underlined (i) the importance of alternative dispute resolution and (ii) the principles applicable to submission/attornment to the court’s jurisdiction.  Barin J. first drew attention to the primacy given by Code of Civil Procedure, CQLR c C-25.01 to alternative dispute resolution and then commented on the general principles and particular factual elements related to parties attorning to a court’s jurisdiction. Barin J. reconsidered earlier case law which issued before recent court rules updates which now oblige litigants, at the onset of the litigation, to identify their intention to raise declinatory exceptions. His comments suggest that earlier case law must be re-read in light of newer rules requiring parties to commit earlier and clearly to their procedural decisions and to abide by their “judicial contract”. Barin J.’s comments on attornment may assist litigants to determine whether a party has or has not waived the benefit of their agreement to arbitrate. 

(iii) “Ontario – raising arbitration in defence helps demonstrate defendant did not waive arbitration – #414” regarding Elgin Mills v. Farhanian, 2020 ONSC 6435. Master Karen E. Jolley granted an application for a stay, holding that a defendant does not attorn to the court process by filing a defence wherein it specifically raises the arbitration provision.  Master Jolley followed the precedent set by ABN Ambro Bank Canada v. Krupp Mak Maschihnenbau GmbH, 1996 CanLII 12449 (ON SCDC) which held that reference to arbitration in a defence may be treated as a request to arbitrate, « were one needed« .  She further held that defendant’s delayed application for a stay, coupled with light activity in the litigation, did not justify refusing stay and that the work in the litigation could be repurposed for an arbitration.

(iv) “Québec – attorney’s lack of knowledge of arbitration clause justifies late request for referral to arbitration – #319” regarding 9107-7719 Québec Inc. v. Constructions Hub Inc., 2020 QCCQ 1706. Madam Justice Johanne Gagnon readily extended defendant’s delay to apply for referral to arbitration.  The forty-five (45) day delay was not a strict one and extending it was justified by explanations given by defendant’s attorney, including attempts to settle, an intervening holiday break and being unaware that the contract contained an agreement to arbitrate.  Gagnon J. accepted defendant’s application filed 77 days after service of the action and, having considered it, granted it but declined to declare plaintiff’s action abusive.

(v) “Alberta – participation in court proceedings prior to stay application waives mandatory arbitration – #273” regarding Agrium, Inc. v. Colt Engineering Corporation, 2020 ABQB 53. Master J.T. Prowse held that he had discretion to refuse a stay in favour of mandatory arbitration and could do so on the basis of unfairness to plaintiff stemming from the applicants’ participation in court proceedings.  That participation, though minimum, coupled with two (2) years of delay, lead Master Prowse to conclude that it would be unfair to plaintiff to allow defendants to “go back on their choice to participate in this litigation”.

(vi) “Ontario – pleading to action insufficient to qualify as waiver to request stay – #209” regarding Khomovych v. Bomar 2 Inc. o/a Colony Park Homes, 2019 ONSC 3982. Madam Justice Mary E. Vallee stayed the action despite Defendant having pleaded to it and Plaintiff’s request for an adjournment so that it could present its motion for summary judgment under section 7(2)5 of Ontario’s Arbitration Act, 1991, SO 1991, c 17.  Vallee J. determined that the parties were bound to undertake arbitration imposed by legislation applicable to new home warranties.

(vii) “Ontario – court accepts both parties’ waiver of arbitration but notes impact on test for injunction – #085” regarding Armes and 2331513 Ontario Inc. et al v. Barlett, 2018 ONSC 1396. Mr. Justice R. John Harper accepted that neither party had or wished to undertake arbitration but did consider one party’s waiver as having a role, however slight but worthy of mention, in considering whether that party demonstrated irreparable damage. Both parties can waive their undertaking to arbitrate but doing so has its own knock-on effects. 

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