Canada: Pith And Substance: Determining The Scope Of Arbitration Clauses

The recent decision of the Ontario Superior Court of Justice in Haas v. Gunasekaram, 2015 ONSC 5083 reinforces the approach that Ontario Courts take to defining the boundaries of arbitration clauses.

Haas centered around three aspiring restauranteurs who had opened an Italian restaurant together.

The investors had the foresight to enter into a shareholders' agreement while the relationship was still a happy one. Contained within the shareholders' agreement was an arbitration clause that applied to any dispute between the parties "respecting this Agreement or anything herein contained."

Unfortunately, the restauranteurs did not remain on harmonious terms. One of the parties commenced an action for breach of fiduciary duty stemming from alleged involvement with competing restaurants; misrepresentations which induced the plaintiff to enter into the investment; and oppression relating to the non-issuance of shares, director registration issues, and unauthorized salary payments.

The matter before the Court was an application by the defendants to stay the action and refer it to arbitration pursuant to the arbitration clause.

The Court noted that the governing principle in defining what is arbitrable, and what is not, is that to be arbitrable, a dispute must relate to the agreement that contains the arbitration clause. The Court referred to the Ontario Court of Appeal decision in Woolcock v. Bushert (2004), 246 D.L.R. (4th) 139, wherein the Court stated at paragraph 23 that:

[the] words 'relating to' enjoy a wide compass.  So long as a matter in dispute is referable to the interpretation or implementation of some provision of the Agreement, it is arbitrable.

The Court also applied the analytical approach utilized by the Ontario Court of Appeal to interpret a forum selection clause in Matrix Integrated Solutions Ltd. v. Naccarato, 2009 ONCA 593 by examining the "pith and substance" of the plaintiff's claim.

The Court concluded that neither the misrepresentation nor the breach of fiduciary duty claim were contractual in nature and did not rely upon or refer to the shareholders' agreement:

[20]      The meat of this case is based on the allegations of representations made by the defendants with the purpose of inducing Haas into joining the business venture. The SHA is pleaded as part of the instrumentality used by the defendants as part of the inducements. The subject matter of these allegations does not, in my view, rely on contractual obligations contained in the SHA. In other words, the claim is not for breach of contract but the fraudulent misrepresentation of facts which caused Haas to enter into the business agreement. ...          

[21]      The breach of fiduciary duty allegations centre on the defendants working for rival companies at the same time that they were supposed to manage the jointly owned Osteria dei Ganzi. Haas also alleges that two of the defendants, Gunasekaram and Viscardi opened a competing Italian restaurant within one kilometer of Osteria dei Ganzi. Once again, these allegations do not rely upon or refer to the SHA as a basis for their validity and are not contractual in substance ...

The claim for oppression did concern specific contractual clauses. However, as the bulk of the claims asserted fell outside the scope of the arbitration clause, and all claims involved the same factual matrix, carving off some of the claim for arbitration was not appropriate as it would result in duplication, increased costs, and delay.

It should be noted that it is not the categorization of a claim that determines if a dispute is governed by an arbitration clause, but whether the contract in which the arbitration clause resides is engaged in asserting the claim.

The juxtaposition of the decision in Haas to the Ontario Court of Appeal decision in Greenfield Ethanol Inc. v. Suncor Energy Products Inc., 2007 ONCA 823 demonstrates this point. The arbitration clause at issue in Greenfield provided that it applied to "any dispute or disagreement between the parties hereto either with respect to the interpretation of any provision of the agreement or with respect to the performance of a party." The issue before the Court was whether a claim for breach of fiduciary duties that were allegedly created by the energy-supply contract that contained the arbitration clause were arbitrable.

The party opposing arbitration argued that because the agreement in question did not contain a specific clause creating a fiduciary relationship, the claim for breach of fiduciary duty was not arbitrable. The Court disagreed, ruling that because the agreement as a whole was being relied upon as creating a fiduciary relationship, the claim for breach of fiduciary duty was "not clearly outside" the scope of the arbitration clause.  Thus, in contrast to Haas, the claim for breach of fiduciary duty in Greenfield was tied-back to the agreement containing the arbitration clause and was thus found to be arbitrable.

The take-away point is that the Court will look to the substance of a claim and whether it engages the agreement in which the arbitration clause resides in order to determine if it is arbitrable. Moreover, the Court will rule against enforcing an arbitration clause where doing so gives rise to a multiplicity of proceedings by allowing some aspects of a claim to be dealt with in arbitration and others within the court system.


Pallett Valo LLP Commercial Litigation Practice

Our firm has the largest Commercial Litigation department in Peel Region, with the depth and expertise top provide legal advice and representation in complex litigation matters. Our clients are served with advice that is designed to minimize and avoid risks and business disruption through alternative dispute resolution mechanisms, and decisive and aggressive action in the courts when necessary.

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.

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

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

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
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
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions