Canada: Arbitration Clauses And Shareholder Disputes: Are "Fussy Distinctions" Undermining Efficient Dispute Resolution?

Last Updated: August 28 2015
Article by Robert Wisner

In 2007, the House of Lords declared that it was time to make a "fresh start" in the English approach to the scope and effect of arbitration clauses. In the Fiona Trust decision, Lord Hoffman held that "the construction of an arbitration clause should start from the assumption that the parties, as rational businessmen, are likely to have intended any dispute arising out of the relationship into which they have entered or purported to enter to be decided by the same tribunal". Lord Hope put the matter more bluntly, holding that a reader of a simple arbitration clause should not trouble himself with "fussy distinctions".1

The recent Ontario Superior Court decision in Haas v. Gunasekaram & Feng,2 refusing to enforce an arbitration clause in a shareholders' agreement, raises the issue of whether a "fresh start" is needed in Canada as well. If the decision is followed, the resulting uncertainty over the scope and enforceability of arbitration clauses in shareholders' agreements and other contracts is only likely to lead to more costly "litigation over arbitration" until either appellate courts or legislative reform resolve the problem.

The Shareholders' Dispute and the Motion to Stay

The litigants in the Haas case were all shareholders of an Italian restaurant in downtown Toronto. The plaintiff claimed that he had been induced to enter into the shareholders' agreement by fraudulent misrepresentations concerning the restaurant's business prospects and the way it would be managed. He sued the defendants for misrepresentation, breach of fiduciary duty and oppressive conduct. The defendants moved to stay the action on the basis of a broadly worded arbitration clause providing that "any dispute ... respecting this Agreement or anything herein contained ... shall be referred to a single arbitrator ...". 3

Pro-Arbitration in Principle, but Not in Practice

The Ontario Superior Court cited the leading decisions from the Supreme Court of Canada and the Ontario Court of Appeal regarding the approach on a motion to stay an action in favour of arbitration. This jurisprudence requires the validity of arbitration clause to be decided by an arbitrator in first instance unless the matter involves a pure question of law or one of mixed fact and law requiring only "superficial consideration of the documentary evidence".4 The stay should only be refused if it is "clear" that the matter falls outside of the arbitration agreement. 5

Here, the plaintiff alleged that the claims fell outside the scope of the arbitration clause because they dealt with the creation of the agreement, rather than its breach. 6 The Court only partially agreed with this characterization, but it still allowed the entire action to proceed.

"Contractual in Substance": A Fussy Distinction?

The Court began by considering whether each of the plaintiff's claims were "contractual in substance" and whether the arbitration clause was simply "factual background". It found that both the misrepresentation and the breach of fiduciary duty claims were not "contractual in substance", but acknowledged that the oppression claim relied on breaches of the shareholders' agreement. 7

On this first issue, the Court appears to have suffered from a mistaken belief that only claims containing an element of contractual breach can be arbitrated. This runs counter to repeated court decisions finding that tortious claims or those based on breaches of statutory provisions are arbitrable. 8 Here, the plaintiff himself characterized his misrepresentation claim as dealing with the "creation of the agreement". Therefore, it was at least arguable that the claim dealt with a matter "respecting the Agreement".

Similarly, as the contents of the shareholders' agreement covered the running of the business, it is difficult to see why a claim for breach of fiduciary duty is not connected to that agreement. The shareholders' agreement was not simply an extraneous part of the factual background, such as in a wrongful dismissal action by an employee who also happens to be a shareholder. It was the very result of the alleged misrepresentations and was relevant to the defendants' impugned fiduciary obligations.

Rewarding Strategic Pleading?

Having found that some but not all of the claims were subject to the arbitration clause, the Court exercised its discretion under the Ontario Arbitration Act, 1991 to refuse a stay. Here, the Court appeared to make two further errors. First, the Court should not have applied this statute in lieu of the Model Law contained in the International Commercial Arbitration Act. The Court applied the Arbitration Act, 1991 because the restaurant that was the "subject matter of the dispute" was situated in Ontario. However, the Model Law still applies to disputes with a subject matter situated in Ontario as long as "the parties ... have, at the time of the conclusion of that agreement, their places of business in different States". Here, the plaintiff was an overseas resident and so the Model Law applied. 9 Unlike its domestic counterpart, the Model Law on International Commercial Arbitration does not give a court discretion to refuse a stay.

Second, the refusal to stay the case appeared to reward strategic behaviour by the plaintiff. The plaintiff had initially pleaded several contractual claims, but abandoned most of them in the face of the motion to stay. Although the Court believed that refusing to stay the claims would avoid increased costs and delay of parallel arbitration and litigation, its refusal to sanction strategic behaviour creates an incentive that increases inefficiency. It encourages plaintiffs to attempt an end run around arbitration clauses through artful pleading - conduct that itself is costly and time-consuming.

Drafting Considerations for Efficient Dispute Resolution

Although the issues considered in Haas are not limited to shareholders' agreements, these types of agreements are perhaps the most vulnerable ones to strategic litigation to circumvent arbitration clauses. By their very nature, shareholders' disputes may often combine contractual claims with claims for breach of fiduciary duty or oppression. In order to minimize the scope for "litigation over arbitration", parties should consider the following issues in drafting dispute resolution clauses for these contracts:

  • Is arbitration appropriate? Many shareholder disputes can be decided by a case-managed application to the Commercial List of the Ontario Superior Court rather than an ordinary civil trial process. In such cases, concerns over the speed of the court process and the commercial expertise of the judge provide less justification for arbitration. Nonetheless, arbitration may still be warranted based on other factors such as the need for a neutral forum and for cross-border enforceability of awards where one shareholder is not resident in Canada.
  • Keep it simple. Unless there is a compelling business reason to send some disputes to arbitration and others to litigation, it is best to have "one-stop" adjudication and to have the arbitration clause clearly express this intention. In addition, the model clauses for widely used arbitration rules are a good starting point for any drafting exercise. These model clauses incorporate by reference the more detailed procedural rules that will govern the arbitration and avoid more complex wording that can create ambiguities regarding the parties' intention to arbitrate.
  • Use a broadly worded clause. Although the Haas decision involved a fairly broad arbitration clause, the result might have been avoided if the clause had clarified that it also applied to disputes about the validity of the agreement. For example, the model clause of the London Court of International Arbitration provides that "any dispute arising out of or in connection with this contract, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration ...".
  • Capture all parties. Shareholder agreements may or may not provide that the corporation is a party to the agreement. For arbitration purposes, an agreement where the corporation is a signatory, along with all shareholders, ensures that the corporation is also bound by the arbitration clause. This may be useful for discovery purposes and for the scope of available remedies.
  • International vs. domestic. Arbitrations situated in Ontario and involving Ontario businesses may be subject to different legal regimes depending on whether the parties are exclusively Canadian or whether one maintains its place of business outside of Canada. The differences between the regimes should be considered and the appropriate rules should be selected with this issue in mind.


1 Premium Nafta Products Limited v. Fiji Shipping Company Limited ("Fiona Trust"), [2007] UKHL 40, paras.13, 27.

2 2015 ONSC 5083.

Ibid. paras.2-4.

Dell Computer Corp. v. Union des consommateurs, [2007] 2 S.C.R. 801, at para. 84.

Dalimpex Ltd. v. Janicki (2003), 64 O.R. (3d) 737 at para .22.

Haas v. Gunasekaram & Feng, supra., para.12.

Ibid., paras.20-22.

Woolcock v. Bushert (2004), 246 D.L. R. (4th) 139 (Ont. C.A.).

Haas v. Gunasekaram & Feng, supra., para.3. The decision does not suggest that the plaintiff only became resident overseas after the conclusion of the agreement, so as to exclude the operation of the Model Law.

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2015

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Robert Wisner
In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.