Parties to an arbitration agreement may not always agree whether
a dispute is subject to arbitration. However, it is crucial that
the parties identify the applicable limitation period for
arbitration if there is even a possibility that a case is subject
to arbitration. Doing so will allow the claimant to preserve its
right to arbitrate and prepare the respondent to defend against a
potentially stale claim – regardless of their respective
positions regarding the applicability of the arbitration clause.
Recent case law indicates that a party's claims may be
statute-barred under limitation period legislation if that party
fails to commence an arbitration in time while disputing the
arbitrability of the dispute.
In Ontario, pursuant to section 52(1) of the Arbitration
Act, the standard two-year limitation period under the
Limitations Act, 2002, SO 2002, c 24, Sch B
("Limitations Act") applies in respect of
arbitration proceedings. In other words, the law with respect to
limitation periods applies to an arbitration as if the arbitration
was an action and a claim made in the arbitration was a cause of
In Suncor Energy Products Inc. v. Howe-Baker
Engineers, Ltd., the Alberta Court of Queen's Bench
concluded that the defendant had two years from the date when its
claim arose or from the date when a reasonable person would have
known that a claim had arisen, to pursue its claim by arbitration
or litigation. In that case, since the contracts provided for an
arbitration process to be used, that would mean it would have two
years from the date the claim arose to commence arbitration
A franchisee's limitation period for pursuing a rescission
claim begins to run on the earlier of the expiry of the 60 day
window in which the franchisor may respond to the franchisee's
notice of rescission under section 6(6) of the Arthur Wishart
Act, or the date on which the franchisor rejects the notice of
rescission. As stated by the Ontario Court of Appeal in 2130489 Ontario Inc. v. Philthy McNasty's
(Enterprises) Inc., it is at that time, when the
franchisee knows for certain that the franchisor will not comply
with any obligations under section 6(6), effectively giving rise to
a potential claim for damages. In these cases where the franchisee
purports to rescind the franchise agreement, and the franchisor
subsequently rejects the rescission, the limitation period begins
In Alpina Holdings Inc. v. Data & Audio-Visual
Enterprises Wireless Inc., the defendants moved to stay
the action pending arbitration pursuant to an arbitration
agreement, also noting that the limitation period had
expired. The plaintiff's position that the combination of
the stay and the expired limitation period would result in
unfairness was ultimately rejected by the court, highlighting the
strict application of limitation periods and that they are designed
to protect defendants against stale claims.
An arbitration may be commenced "in any way recognized by
law" pursuant to section 23 of the Arbitration Act.
However, in Lafarge Canada Inc. v. Edmonton, the
Alberta Court of Appeal held that the plaintiff's statement of
claim did not commence arbitration under the equivalent provision
of Alberta's Arbitration Act. Accordingly,
parties should not rely on their pleadings in an action as having
also commenced arbitration proceedings. Rather, a party seeking to
commence arbitration should consult the terms of the arbitration
clause for any required provisions and, in any event, communicate a
clear and unequivocal intention to arbitrate to the opposing
Parties to franchise agreements and their counsel ought to be
mindful of the fact that, if the limitation period expires after
the commencement of the action (which is subsequently stayed) but
before the commencement of arbitration proceedings, the plaintiff
may be without a remedy as it will be too late to arbitrate. The
bottom line is that the limitation period is not stayed while the
court determines whether the action should be resolved by way of
court litigation or arbitration and for this reason, parties need
to be cognizant of when the clock starts ticking.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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