Canada: Enforcing Arbitration Agreements: The Court Of Appeal For Ontario Weighs In

Last Updated: October 25 2016
Article by George Karayannides and Kyle Magee

The Haas ruling builds on a long line of Ontario cases expressing support for arbitration.

Asserting a contract is void for fraud is not always enough to escape an agreement to arbitrate. In Haas v. Gunasekaram, the Court of Appeal for Ontario recently confirmed a clear preference for upholding arbitration agreements. In its decision, the Court describes the test to be applied when deciding to stay a court action in favour of arbitration and highlights the importance of drafting an appropriate arbitration clause.1

The facts

Andreas Haas, the plaintiff, invested in a restaurant in Toronto and entered into a shareholders' agreement with business partners. When the restaurant failed, Haas started a court action against his partners to recover his investment. He alleged that they had acted oppressively and that he had been induced to sign the shareholders' agreement (the "Contract") based on fraudulent representations.

The Contract contained an agreement to arbitrate "any dispute, difference or question" arising out of the Contract (the "Arbitration Clause"). In light of the Arbitration Clause, the defendants moved to stay the action under Ontario's Arbitration Act, 1991.2 Haas opposed the motion and argued, among other things, that the scope of the Contract could not include arbitrating the issue of whether it was void for fraud.

The motion judge declined to stay the action. He held that the subject of the dispute was not the parties' contractual obligations but rather the misrepresentations that led Haas to enter into the Contract in the first place. Since the misrepresentation claims did not arise out of the Contract, they were not captured by the Arbitration Clause.

The appeal

The Court of Appeal overturned the lower court and stayed the action.

As the starting point for its analysis, the Court of Appeal noted that the law in Ontario strongly supports arbitration. For instance, the Act, unlike predecessor legislation, requires the court to stay an action if an arbitration agreement applies to the dispute. Similarly, Canadian case law generally favours enforcing arbitration agreements and, even when the scope of an arbitration agreement is unclear, the court prefers the arbitrator to determine her own jurisdiction.3

In considering whether to stay an action in favour of arbitration, a judge must answer 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?

In Haas, there was no dispute that the Contract included an arbitration agreement.

With respect to the subject matter of the dispute, the Court of Appeal concluded that the alleged misrepresentations largely related to the defendants' failures to perform their contractual obligations. For example, Haas alleged that the defendants failed to achieve a promised rate of return on his investment and operated the restaurant without the agreed upon management team. The Court of Appeal noted that to establish the misrepresentations that led him to enter the contract, Haas would be relying on the terms of the Contract and related documents.

With respect to the scope, the Court of Appeal noted that the Arbitration Clause was broad and captured not only disputes arising out of the Contract but also disputes related to it. Having addressed the first three questions, the Court then turned to whether the dispute fell within the scope of the Arbitration Clause. On this point, the Court found that the motion judge had erred in three ways:

1. Tort claims are not automatically excluded

First, the motion judge erred by assuming tort claims automatically fall outside the scope of an arbitration clause. Instead, the Court confirmed that if the clause includes disputes arising out of or in connection with the agreement, a dispute will be caught if either the claimant or defendant relies on the existence of a contractual obligation as a necessary element of a claim or defence. In the circumstances, the Court found that the bulk of the misrepresentation claims being advanced by Haas were captured.

2. Fraud does not necessarily vitiate an arbitration agreement

Second, the motion judge erred by assuming fraud would vitiate the Arbitration Clause. Simply alleging that a contract is void for fraud does not make it so and the dispute still must be determined. Further, the Court of Appeal noted that a strategy of alleging fraud as a means to avoid arbitration should not be encouraged.

The Court held that where an arbitration agreement contains broad language that would otherwise capture the dispute, claims for misrepresentation or fraud are not excluded simply because they challenge the validity of the contract.

3. The law favours the enforcement of arbitration agreements

Third, the motion judge erred by failing to acknowledge the statutory and judicial preference for enforcing arbitration agreements. Where the scope of the arbitration agreement is broad, the legislation and jurisprudence dictate that an arbitrator, and not the court, should determine whether they have jurisdiction to hear the dispute.

Addressing the final question, the Court of Appeal determined that there were no grounds to otherwise stay the action.

Take away points

The Haas ruling builds on a long line of Ontario cases expressing support for arbitration. In fact, the Court of Appeal explicitly states that, when considering a challenge to an arbitration agreement, "the court should lean against a result that undermines arbitration agreements".4 Given the clear preference of the judiciary, parties should appreciate when negotiating a contract including an arbitration agreement that it will be an uphill battle to avoid arbitration if a dispute arises.

The decision also highlights the importance of carefully drafting arbitration agreements. In Haas, the parties chose to include broad language in the arbitration agreement that covered not only disputes directly arising out of the interpretation of the contract, but also disputes related, more generally, to the performance of the agreement. While this type of broad agreement is common (and may be default or boilerplate language), it is certainly not mandatory. The scope of an arbitration agreement, like any other contractual term, is open to negotiation. If a party would prefer that only certain types of claims be arbitrated and others excluded (for instance, whether an agreement is void for fraud), the arbitration agreement should be worded accordingly.

Finally, the Court of Appeal has made it clear that once the parties have agreed on a broad arbitration agreement, attacking the validity of the underlying contract will not necessarily avoid arbitration. Even where it is alleged that the contract is void for fraud, the court will be inclined to leave it to the arbitrator to decide whether the dispute is captured by the arbitration agreement and, if so, hear the claim.

Footnotes

[1] Haas v. Gunasekaram, 2016 ONCA 744 ["Haas"].

[2] S.O. 1991, c. 17 [the "Act"].

[3] Ciano Trading & Services C.T. & S.R.L. v. Skylink Aviation Inc., 2015 ONCA 89.

[4] Haas, para. 36.

Enforcing Arbitration Agreements: The Court Of Appeal For Ontario Weighs In

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
George Karayannides
 
In association with
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
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (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 www.mondaq.com

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 Mondaq.com’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.

Disclaimer

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.

Registration

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 unsubscribe@mondaq.com 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.

Cookies

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.

Links

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.

Mail-A-Friend

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.

Security

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 webmaster@mondaq.com.

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 EditorialAdvisor@mondaq.com.

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 enquiries@mondaq.com.

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