The recent Ontario Court decision in Hargraft Schofield LP v. Fluke provides
some interesting reminders as to problems that can arise when one
attempts to enforce an arbitration clause in a contract.
In this case, the plaintiff sued its former employer for an
alleged breach of a variety of clauses in the employment agreement
that had existed between them.
The parties had entered into an employment agreement in June
2000 with a three-year fixed term. The agreement included an
arbitration clause that required that all disputes relating to the
agreement would have to be referred to arbitration.
After the first employment agreement expired, the parties
entered into a second employment agreement for another fixed term.
That document did not include an arbitration clause. It did include
a clause providing that it represented the entire agreement between
Over the ensuing years, the parties entered into further
employment agreements as the terms of each one expired. Eleven
years after the first agreement had been entered into, the
Several months after the defendant's resignation, the
plaintiff sued in Ontario Court. Over the course of the next two
years and ten months, the dispute proceeded through the litigation
process. The parties exchanged pleadings, negotiated a discovery
plan, agreed to a timetable for the balance of the steps in the
action, exchanged sworn affidavits of documents, scheduled
examinations for discovery, and conducted a mediation (which
failed). The defendant then raised the argument that the matter
should be proceeding by way of arbitration. The plaintiff refused
to change its course of action and the defendant brought a motion
for an order staying the action and referring the issues to
The first question that the court dealt with had to do with
whether or not there even existed an arbitration clause in the
agreement between the parties. The initial employment agreement had
contained such a clause but the court found that it had been
superseded by the second employment agreement which did not include
such a clause. Even though one of the subsequent employment
agreements specifically indicated that the defendant's
employment would continue on the same terms and conditions as had
been contained in all of the previous agreements, so that they were
deemed to be incorporated in the most recent agreement, the court
determined that as the first agreement had been superseded by the
second, and the second included an "entire agreement"
clause, there did not exist a valid arbitration clause upon which
the defendant could rely.
One of the interesting points in this respect had to do with
whether or not the court even had the jurisdiction to make this
decision. The Ontario Arbitration Act provides that:
"An arbitral tribunal may rule
on its own jurisdiction to conduct the arbitration and may in that
connection rule on objections with respect to the existence or
validity of the arbitration agreement."
It was suggested that based on that provision, where there is an
issue as to whether or not there even exists a valid arbitration
clause, an arbitrator would have to be appointed to make that
determination. Fortunately, in this case, the court took a more
common sense approach and considered that this provision in the Act
was not mandatory and that the court had the jurisdiction to
determine whether or not an arbitration clause was in
Secondly, the court went on to consider whether or not, if there
did exist an arbitration clause, there was a valid basis for
refusing to refer the matter to arbitration. The court pointed out
that while the Arbitration Act requires the court to stay
a proceeding that has been commenced in the face of a valid
arbitration clause, there are exceptions. One of the exceptions
arises where a motion for a stay of the proceeding is brought with
The court pointed to the fact that almost three years had
elapsed since the law suit had started. During that time, there had
been a substantial amount of progress made along the litigation
path. The court seemed to suggest that the defendant had either
forgotten about the arbitration clause, or deliberately refrained
from insisting on arbitration until after the mediation had failed.
While not stated in the court's decision, the idea that the
defendant was now raising this argument merely to delay may also
have been a concern.
In any event, the court dismissed the motion and the matter was
ordered to proceed to trial in the usual course.
Among other things, this is an important reminder to parties to
a contract with an arbitration clause that if they do not address
the arbitration clause promptly but rather proceed by way of a
legal action, they may lose the ability to insist on arbitration at
a later date.
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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