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Arbitration - International Commercial Arbitration Act (Ontario)
MORE CASES
Part 2
. RH20 North America Inc. v. Bergmann
In RH20 North America Inc. v. Bergmann (Ont CA, 2024) the Ontario Court of Appeal considered court stay provisions, the International Commercial Arbitration Act (Ontario) [ICAA] and the effect of attornment to the courts on the right to arbitrate:Art. 8 of the Model Law and the negative obligation of a party to an international arbitration agreement
[44] In this case, the availability of a stay of court proceedings in favour of arbitration is controlled by art. II(3) of the New York Convention, art. 8(1) of the Model Law, and s. 9 of the ICAA:. Art. II(3) of the New York Convention reads:
The court of a Contracting State, when seized of an action in a matter in respect of which the parties have made an agreement within the meaning of this article, shall, at the request of one of the parties, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed.
. Art. 8(1) of the Model Law was set out in para. 33 above of these reasons; and
. Section 9 of the ICAA states:
Where, pursuant to article II (3) of the Convention or article 8 of the Model Law, a court refers the parties to arbitration, the proceedings of the court are stayed with respect to the matters to which the arbitration relates. [45] Arbitration agreements have both positive and negative effects on parties. The positive effects include the obligation to participate and cooperate in good faith in the arbitration of disputes pursuant to the parties’ arbitration agreement; the negative effects include the obligation not to seek the resolution of such disputes in national courts: Gary B. Born, International Commercial Arbitration, 3rd ed., at p. 1349.[8] The negative obligations imposed by an agreement to arbitrate have their source in the parties’ agreement. As Born explains in his treatise, at p. 1368: “The scope of this aspect of the negative obligation not to litigate arbitrable disputes is generally the mirror image of the scope of the positive obligation to arbitration: put simply, disputes which must be arbitrated, may not be litigated.”
[46] One consequence of a party to an arbitration agreement breaching its negative obligation was described by Smutny, McDougall and Daly in A Practical Guide to International Arbitration:Most people think of the negative obligations first. In particular, parties to a valid arbitration agreement are prohibited from trying to resolve any disputes falling under the agreement in court or by any means other than arbitration. One of the cornerstones of international arbitration is exclusivity. A valid arbitration agreement designates the arbitral tribunal as the one and only forum to resolve any disputes arising out of that agreement. This means that parties bound to arbitrate also thereby agree to waive their rights to litigate disputes in a national court.
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A party can waive the right to compel arbitration. This usually happens when that party fails to invoke its rights under the arbitration agreement or acquiesces to litigation concerning matters subject to arbitration — for example, by participating in the litigation beyond raising threshold jurisdictional objections.”[9] [Emphasis in original]. [47] Where parties have agreed to submit disputes to arbitration, provisions in the New York Convention and the Model Law recognize and enforce the negative effects of an agreement by requiring either the stay of national court litigation of arbitrable disputes or the dismissal of such litigation. Art. 8(1) of the Model Law reflects such a policy. To repeat, that article states:A court before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so requests not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed. [48] As Born writes, at p. 1369:Article 8(1) of the UNCITRAL Model Law is representative of national arbitration legislation’s treatment of the negative effects of an arbitration agreement ... Article 8(1) imposes an obligation identical to that in Article II of the New York Convention, requiring that courts “refer the parties to arbitration.” This provision impliedly precludes a national court from entertaining a dispute on the merits, if the parties have agreed to arbitrate it, and instead requires that the parties be referred to arbitration. [Emphasis added.] [49] At p. 1371, Born explains the basis underlying the policy given effect by art. 8(1) of the Model Law:[T]he predicate of this approach is that parties to arbitration agreements are themselves mandatorily prohibited from litigating arbitrable disputes. Efforts to do so, by pursuing litigation of arbitrable disputes, are per se violations of a party’s negative obligation not to litigate disputes that are subject to arbitration. Just as the obligations of national courts, under the Convention and Model Law are mandatory, so the obligations of parties under their agreements to arbitrate are mandatory. [Emphasis added].[10] [50] A court considering a party’s request for a stay under art. 8 of the Model Law therefore must assess two timing-related matters: (i) whether the party has requested a court to refer the parties to arbitration “not later than when submitting his first statement on the substance of the dispute”; and (ii) whether, before making that request, the party had sought assistance from the court on the substantive claims asserted against it.
[51] As to the timing of the request for a stay, in his commentary on art. 8(1) of the Model Law, Professor Gilles Cuniberti writes that “[b]eyond this time, a request for reference to arbitration would be inadmissible and the court may continue its proceedings.” [11] A late request would be inadmissible as its timing would signal that the requesting party had not adhered to its fundamental negative obligation not to litigate disputes that are subject to litigation.
[52] In the present case, Click satisfied that aspect of the timing requirement of art. 8(1) of the Model Law as it made its request for a stay before it had filed a statement or pleading in response to the statement of claim.[12]
[53] However, a court assessing a request for a stay under art. 8(1) of the Model Law must also consider whether the requesting party had sought the court’s assistance on the substantive claim before requesting a stay in favour of arbitration, thereby ignoring its fundamental obligation not to pursue in court the resolution of disputes that are subject to arbitration. As put by David St. John Sutton, Judith Gill & Matthew Gearing in Russell on Arbitration, 24th ed. (London: Thomson Reuters, 2015), at §7-028, if the requesting party accepts “the court’s jurisdiction to hear the substantive case he is treated as electing to have the matter dealt with by the court rather than insisting on his contractual right to arbitrate.”
[54] Alexander M. Gay, Associate Justice Alexandre Kaufman & James Plotkin, in their Arbitration Legislation of Ontario: A Commentary, 4th ed., (Toronto: Thomson Reuters, 2023) at pp. 974-75, identify some the principles that have emerged from the jurisprudence on this aspect of art. 8(1) of the Model Law:Failure to comply with the requirement of art. 8(1) may result in a loss of a party's right to invoke the arbitration agreement ... The request for arbitration may be made in pleadings provided these pleadings are the first statement on the substance of the dispute ... In determining whether a defendant has lost its right to have the dispute arbitrated, a court may consider whether a defendant has served pleadings which are incompatible with reliance on the arbitration process. The filing of a statement of defence and seeking the court’s intervention to dismiss a plaintiff’s claim will result in a defendant losing his right to have the dispute arbitrated. [Emphasis added]. The characterization of Click’s motion to strike out claims
[55] In the present case, Click did not bring a stand-alone motion to stay the court proceeding against it. Instead, Click joined the other Moving Defendants in bringing one motion that included a request by all Moving Defendants, including Click, to strike out certain of the plaintiffs’ claims against them.
[56] The motion judge concluded that, by joining the request to strike out parts of the statement of claim, Click did “far more than [seek] a procedural foundation for the jurisdictional challenge”. Instead, by joining the motion to strike, Click sought “substantive relief” and “should not be entitled to the benefit of the litigation process while also preserving its ability to reject that same process in favour of arbitration”.
[57] I agree with that characterization by the motion judge. In my view, the motion to strike that Click joined cannot be characterized as a procedural step taken within the confines of the “jurisdictional” motion to stay the court proceeding in favour of arbitration: Fraser v. 4358376 Canada Inc., 2014 ONCA 553, 376 D.L.R. (4th) 295, at para. 9. Instead, Click, together with other Moving Defendants, sought to reduce their exposure to liability by asking the court to dismiss part of the plaintiffs’ substantive claims as disclosing, at law, no reasonable cause of action; or, in the words of the Supreme Court in R. v. Imperial Tobacco Canada Ltd., 2011 SCC 42, [2011] 3 S.C.R. 45, at para. 19, to weed out the plaintiffs’ “hopeless claims.”[13] That was a request for the Ontario court to render a final determination on the merits of part of the proceeding in their favour.
[58] The motion judge properly treated Click’s request that the court dismiss some of the plaintiffs’ substantive claims as disclosing no reasonable cause of action as, in its effect, an election by Click to have some of the substantive claims against it dealt with by the court. By making such a request for substantive judicial relief, Click breached its negative obligation under the arbitration agreement not to litigate arbitrable disputes in the courts. Click thereby waived its right to arbitrate.
[59] I would observe that it was not necessary for Click to ask for the assistance of an Ontario court to reduce the extent of the claims against it in order to seek a reference to arbitration under the Model Law. The London Court of International Arbitration Rules[14] that govern the arbitration under the Licence Contract would have provided Click with an opportunity to argue that some claims were “manifestly outside the jurisdiction of the Arbitral Tribunal” or “inadmissible or manifestly without merit”.[15]
Technical prerequisite or statutory exception?
[60] How should one categorize a finding that a party to an international arbitration agreement breached its negative obligation not to seek the resolution of disputes arising under an arbitration agreement in national courts thereby waiving its right to arbitration? Does it amount to a breach of what the Peace River decision described as the fourth “technical prerequisite” that a party applying for a stay in favour of arbitration not take any “step” in the court proceeding before requesting a stay? Or, does it fall within the statutory exceptions to a mandatory stay of courts proceedings under art. 8(1) of the Model Law because the arbitration agreement “is null and void, inoperative or incapable of being performed”?
[61] Applying the Peace River framework to international commercial arbitration agreements requires adhering to the requirements of the ICAA, New York Convention, and Model Law. Born’s commentary on art. 8(1) of the Model Law suggests that Click’s participation in the motion to strike amounted to a breach of the negative obligation not to litigate arbitrable disputes. Born writes that the “obligation not to litigate disputes that are subject to arbitration is expansive and applies to all form of litigation of the merits of the parties’ dispute.”[16] In his view, “an arbitration agreement would be ‘inoperative’ where the parties actively pursued litigation, rather than arbitration, resulting in a waiver or abandonment of the right to arbitrate under applicable law.”[17] He argues that “Article 8(1) is directed towards the waiver of the right to arbitrate a particular dispute (and not the termination or invalidity of the underlying arbitration agreement)”.[18]
[62] I am persuaded by such reasoning. By seeking the judicial determination of a substantive, non-jurisdictional aspect of its dispute with RH20, Click waived its right to arbitrate the dispute thereby rendering the arbitration agreement in the Licence Contract “inoperative” within the meaning of art. 8(1) of the Model Law.[19] Accordingly, the motion judge did not err in refusing to grant Click a stay of the court proceeding under ICAA s. 9 and art. 8(1) of the Model Law. . All Communications Network of Canada v. Planet Energy Corp.
In All Communications Network of Canada v. Planet Energy Corp. (Ont CA, 2023) the Court of Appeal considered the 'public policy' defence, a principle of international arbitration law [and of the: 'UNCITRAL Model Law on International Commercial Arbitration (“the Model Law”)'] that allows a 'public policy' challenge to an arbitrated contract:[12] Planet brought an application to the Superior Court to set aside the arbitral award on the basis that, among other things, the arbitrator deprived Planet of the opportunity to present its case, and the award to ACN was contrary to public policy because it violated the Energy Consumer Protection Act, 2010, S.O. 2010, c. 8 (“ECPA”). ACN brought a separate application for an order recognizing and enforcing the award.
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3. The Arbitrator’s Approach to the ECPA Issue
[66] Planet argued before the arbitrator that ordering it to make commission payments to ACN is illegal under the ECPA and would expose Planet to penalties.
[67] Planet claimed that the amendment to the ECPA on January 1, 2017 (at s. 9.3, along with Regulation O. Reg. 389/10) provides that the remuneration to salespersons selling electricity or gas to consumers must not include any remuneration based on a commission or the value or volume of sales. Planet also relied on a memorandum from staff of the OEB (the “OEB Memorandum”) which expressed the view that “a salesperson may not be remunerated for any new, renewed or extended contract based on a commission…including the renewal/extension of contracts entered on or before January 1, 2017.”
[68] Planet argued that according to the plain language of the Agreement, ACN was only entitled to commissions on sales to ACN’s customers with the amount of such commissions to be calculated based on these customers’ usage across all products. In short, payment of the arbitral award would put Planet in breach of the ECPA. Planet submitted that the arbitrator “rewrote” the terms by ordering Planet to pay over $19 million of commissions to ACN after improperly relying on extrinsic evidence of ACN’s witness who was involved in the negotiation of the Agreement.
[69] ACN claimed that its entitlement to commissions arose from the acquisition of the customer, not the marketing and signing of new customer contracts and that, as such, there was no breach of the ECPA.
[70] The arbitrator considered the relevant provisions of the ECPA, along with submissions of both parties and concluded that the ECPA does not preclude payment of commissions for renewals that became effective on/after January 1, 2017. She also considered that the Agreement provides that customer contact rests exclusively with Planet, and that the OEB Memorandum was written on the understanding that ACN would be doing the retail sales for Planet and did not consider that Planet could directly contact its customers.
[71] In so doing, the arbitrator addressed the language of the statute and regulation, the submissions of the parties, the OEB Memorandum, and the fact that the statute is consumer protection legislation. She disagreed with the Planet’s interpretation of the Agreement in light of her factual findings to which deference is owed. She found that the Agreement was clear and unambiguous on gross margin payments and the negotiation history of the Agreement showed “a consistent and uniform course of conduct with respect to ACN’s entitlement to commissions from renewals.” The arbitrator concluded that for any customer referred by ACN to Planet through their online portal, ACN was entitled to continue receiving commissions for as long as that customer remained with Planet, regardless of the means by which the relationship with Planet was renewed.
[72] The application judge noted that the public policy defence should be invoked “only if the judgment involves an act that is illegal in the forum or if the action involves acts repugnant to the orderly functioning of the social or commercial life of the forum”: Depo Traffic v. Vikeda International, 2015 ONSC 999, at para. 47. The public policy defence is a high standard, and the onus is on the claimant to demonstrate that such enforcement “offends our local principles of justice and fairness in a fundamental way”: Consolidated Contractors, at para. 99, citing Schreter v. Gasmac Inc. (1992), 1992 CanLII 7671 (ON SC), 7 O.R. (3d) 608 (Sup. Ct., at p. 623).
[73] The application judge correctly observed that the arbitrator addressed the issues raised by Planet in relation to the claim for unpaid commissions and directed her mind to the arguments raised by experts and the weight to be given to their evidence. He also correctly held that the arbitrator did not disregard the ECPA; rather, she considered the statutory provision and its purpose and applied it to the evidence available. He held that,The Arbitrator’s interpretation of the ECPA and the regulation in this context is a reasonable one. Planet has not shown that the Arbitrator made an error in her factual findings with respect to the basis for the views of OEB staff. Planet has not shown that as a result of the Arbitrator’s decision, the Award fundamentally offends the principles of justice and fairness in Ontario. The Arbitrator’s decision on the question of statutory interpretation is entitled to deference. . All Communications Network of Canada v. Planet Energy Corp.
In All Communications Network of Canada v. Planet Energy Corp. (Ont CA, 2023) the Court of Appeal canvasses some provisions of international arbitratione under Ontario's International Commercial Arbitration Act, 2017:THE RULES OF ARBITRATION
[16] This was an international arbitration governed by Ontario’s International Commercial Arbitration Act, 2017, S.O. 2017, c. 2, Sched. 5 (the “Act”) and administered under the rules of the International Center for Dispute Resolution (the “ICDR rules”).
[17] The United Nations Commission on International Trade Law (“UNCITRAL“) Model Law on International Commercial Arbitration (1985) (the “Model Law”) is a multilateral instrument designed to provide consistent, stable, and predictable rules respecting the conduct of international commercial arbitrations and how they are dealt with by domestic courts.
[18] The Model Law is incorporated into Ontario law as Schedule 2 to the Act.
[19] Article 5 of the Model Law provides that, “no court shall intervene except where so provided in this Law.” This is consistent with the trend in favour of limiting court involvement in international commercial arbitration as the parties made a conscious decision to exclude court jurisdiction in favour of international arbitration. The Model Law provides for court involvement only where a party challenges and seeks the termination of the mandate of an arbitrator (articles 11, 13 and 14), challenges the jurisdiction of the arbitral tribunal (article 16), or seeks to set aside the arbitral award (article 34).
[20] Article 18 provides that each party be given a full opportunity to present its case and article 19 lays out the rights and powers of the parties to determine the rules of procedure and guarantees the parties' freedom to agree on the procedure to be followed in conducting the arbitration, subject to a few mandatory provisions. This includes the power to determine the admissibility, relevance and weight of the evidence.
[21] Article 34(1) of the Model Law provides that “[r]ecourse to a court against an arbitral award may be made only by an application for setting aside in accordance with paragraphs (2) and (3) of this article” (emphasis added). Article 34(2) of the Model Law provides that:An arbitral award may be set aside by the court specified in article 6 only if:(a) the party making the application furnishes proof that:
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(ii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
(iii) the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration… or
(b) the court finds that:
(i) the award is in conflict with the public policy of this State. [Emphasis added.] . Husky Food Importers & Distributors Ltd. v. JH Whittaker & Sons Limited
In Husky Food Importers & Distributors Ltd. v. JH Whittaker & Sons Limited (Ont CA, 2023) the Court of Appeal considered an International Commercial Arbitration Act, 2017 case, specifically what standard of proof (test) applies to the stay of a court-order Ontario court application [ICAA s.9] in favour of arbitration:V. FIRST ISSUE: WHAT STANDARD APPLIES TO THE QUESTION OF WHETHER AN ARBITRATION AGREEMENT EXISTS?
[19] As re-affirmed by the Supreme Court of Canada most recently in Peace River Hydro Partners v. Petrowest Corp., 2022 SCC 41, it is well established in Canadian law that, absent legislated exceptions, a court normally should refer challenges to an arbitrator’s jurisdiction to the arbitrator: at para. 41; Seidel v. TELUS Communications Inc., 2011 SCC 15, at para. 29. This follows from the adoption and application of the competence-competence principle that gives precedence to the arbitration process: Peace River, para. 39. The competence-competence principle, however, is not absolute: a court may resolve a challenge to an arbitrator’s jurisdiction if the challenge involves pure questions of law or questions of mixed fact and law that require only superficial consideration[2] of the evidentiary record: Peace River, at para. 42; Uber, at paras. 31-36; Seidel, at para. 29; Rogers, at para. 11; Dell, at paras. 84-85. Where questions of fact alone are in dispute, a court should normally refer the case to arbitration: Uber, at para. 32.
[20] Ontario legislation gives arbitrators broad scope to determine issues of their jurisdiction. Both art. 16(1) of the Model Law and s. 17(1) of the Arbitration Act, 1991 provide that an arbitral tribunal may rule on its own jurisdiction, including any objections with respect to the “existence or validity” of the arbitration agreement.
[21] Section 9 of the ICAA and art. 8 of the Model Law provide the mechanism by which a party can seek to stay a court proceeding in favour of referring the dispute to arbitration. Section 9 of the ICAA states:Where, pursuant to article II (3) of the Convention or article 8 of the Model Law, a court refers the parties to arbitration, the proceedings of the court are stayed with respect to the matters to which the arbitration relates. Art. 8(1) of the Model Law provides:A court before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so requests not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed. [22] Husky Food submits that when considering a request to stay an action under either s. 7 of the Arbitration Act, 1991 or s. 9 of the ICAA, a motion judge must apply the analytical framework set out by this court in Haas v. Gunasekaram, 2016 ONCA 744 and ask the following questions: (1) Is there an arbitration agreement? (2) What is the subject matter of the dispute? (3) What is the scope of the arbitration agreement? (4) Does the dispute arguably fall within the scope of the arbitration agreement? (5) Are there grounds on which the court should refuse to stay the action?
[23] The 2016 Haas framework has been superseded by the framework adopted by the Supreme Court in 2022 in Peace River, a decision on which neither party made submissions to us. In that case,[3] the Supreme Court identified two general components common to stay provisions in provincial arbitration legislation: (i) the technical prerequisites for a mandatory stay of court proceedings; and (ii) the statutory exceptions to a mandatory stay of court proceedings. The applicant for a stay must establish the technical prerequisites “on the applicable standard of proof”; if the applicant does so, the party seeking to avoid arbitration then must show that one of the statutory exceptions applies, such that a stay should be refused: at paras. 76-79.
[24] The technical prerequisites concern whether the stay applicant has established the arbitration agreement engages the mandatory stay provisions. As the Supreme Court observed in Peace River, at para. 83, provincial arbitration legislation typically contains four relevant technical prerequisites:(a) an arbitration agreement exists;
(b) court proceedings have been commenced by a “party” to the arbitration agreement;
(c) the court proceedings are in respect of a matter that the parties agreed to submit to arbitration; and
(d) the party applying for a stay in favour of arbitration does so before taking any “step” in the court proceedings. [25] If all the technical prerequisites are met, the mandatory stay provision is engaged. The court should then move on to the second component of the analysis, which concerns the statutory exceptions to granting a stay, such as whether an arbitration agreement is “void, inoperative or incapable of being performed”: see Peace River, at paras. 88-89 and 172. Issues under the second component do not arise in the present case.
[26] While the Peace River framework was crafted in the context of domestic arbitration legislation, in my view it applies equally to stays sought under s. 9 of the ICAA in respect of international commercial arbitration agreements.
[27] Common to both the old Haas framework and the governing Peace River framework is the prerequisite that an arbitration agreement exists. Husky Food contends a party moving for a stay must demonstrate, on a balance of probabilities, that an arbitration agreement exists. As a result, the motion judge erred by applying a lower standard of whether it was “arguable” that an arbitration agreement exists.
[28] Husky Food’s submission ignores how the Supreme Court in Peace River decided the issue of the standard of proof applicable to establishing the technical prerequisites to a mandatory stay. Peace River states, at para. 84:It is important to note that the standard of proof applicable at the first stage is lower than the usual civil standard. To satisfy the first component, the applicant must only establish an “arguable case” that the technical prerequisites are met (McEwan and Herbst, at § 3:47; Sum Trade Corp. v. Agricom International Inc., 2018 BCCA 379, 18 B.C.L.R. (6th) 322, at paras. 26 and 32, citing Gulf Canada Resources Ltd. v. Arochem International Ltd. (1992), 1992 CanLII 4033 (BC CA), 66 B.C.L.R. (2d) 113 (C.A.), at paras. 39-40).[4] [Emphasis added.] [29] The Supreme Court adopted a different standard of proof for the second component of the analysis. At that stage, the party seeking to avoid arbitration must show, on a balance of probabilities, that a statutory exception applies: Peace River, at para. 88.
[30] In Peace River, the Supreme Court approved the “arguable case” standard to establish the technical prerequisites for a mandatory stay previously articulated by the British Columbia Court of Appeal in Sum Trade.[5] In the present case, the motion judge adopted and applied Sum Trade’s arguable case standard. In so doing, she obviously applied the correct legal principle as the Supreme Court subsequently approved Sum Trade’s arguable case standard in Peace River.
[31] Accordingly, the motion judge did not apply the wrong legal test when considering whether to grant a stay under s. 9 of the ICAA.
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