Canada: Ambiguity And Other "Grave" Concerns In Arbitration Agreements: The Ontario Superior Court Of Justice Examines Arbitration In The Franchise Context

Last Updated: October 15 2018
Article by Eric Mayzel

In a recent decision, Graves v. Correactology Health Care Group Inc.,1 the Ontario Superior Court of Justice dismissed a motion to stay a franchise dispute action in favour of arbitration, and provided an analysis of the required scope and ambit of arbitration provisions in Ontario franchise agreements.

Key Facts

The three plaintiffs were students in the Correactology Practitioner Program (Program) at the Canadian Institute of Correactology (the Institute).

The students were advised that upon completing the Program they would be required to complete licensing examinations to become accredited by the Canadian Association of Correactology Practitioners (the Association). They would also be required to enter into a Licence Agreement with Correactology Health Care Group Inc. (CHCG) to operate a “correactology center.” Notably, the Program was not registered under the Private Career Colleges Act, 2005 (PCCA).

Each student signed an Enrollment Agreement with the Institute, a Licence Agreement (on behalf of a company to be incorporated) with CHGC, and a Confidentiality Agreement with CHGC.

In the course of preparing a business plan for the Program, the students consulted a lawyer. Upon learning of this, the defendants abruptly suspended the Program and expelled the students on the basis that they had breached the Confidentiality Agreement.

The plaintiffs subsequently commenced the action, alleging fraudulent misrepresentation, conspiracy, restraint of trade, and breach of contract. The plaintiffs further alleged that the Program is a sham and an unregistered private career college, and that the Licence Agreement is a franchise agreement that did not comply with the requirements of the Arthur Wishart Act (Franchise Disclosure), 20003.

The defendants were the Institute, the Association, CHCG, and individual directors of CHCG and/or the Association. They brought a motion to stay the action in favour of arbitration, based on arbitration clauses in the Enrollment Agreement and Licence Agreement. The Court dismissed the motion for the reasons set out below.

No Clear Intention to Refer All Disputes to Arbitration

The Enrollment Agreement and the Licence Agreement contained broad arbitration clauses. However, they also contained contradictory jurisdiction clauses.  The Enrollment Agreement required parties to submit to the exclusive jurisdiction of the courts of Ontario, and the Licence Agreement required parties to bring any actions in the Superior Court of Justice in Sudbury.

The inconsistency between the arbitration and jurisdiction clauses rendered the agreements ambiguous. The Court resolved the ambiguity in favour of the plaintiffs based on principles of statutory interpretation. It held that the Enrollment Agreement was a contract of adhesion and applied the principle of contra proferentum to interpret the agreement in favour of the plaintiffs. With respect to the Licence Agreement, the Court observed that the enforcement of the arbitration clause would have rendered the jurisdiction clause redundant, which is to be avoided.

For those reasons, the Court held that neither the Enrollment Agreement nor the Licence Agreement reflected a clear intention to refer all disputes to arbitration.

The Dispute Exceeded the Scope of the Arbitration Clauses

The Court noted that it is preferable for an arbitrator to determine his or her jurisdiction and whether a dispute falls within the scope of an arbitration clause. However, a court may determine those issues if the challenge involves a pure question of law or a question of mixed fact and law, where only a superficial consideration of the documentary evidence is required.

The Court determined that the dispute exceeded the scope of the arbitration clauses. The plaintiffs advanced broad claims of fraud, misrepresentation, and breaches of the Wishart Act and the PCCA. Those claims were only “tangentially related to” the Enrollment Agreement and the Licence Agreement.

The Court cautioned that a party cannot simply allege fraud to avoid the application of an arbitration clause. Whether an allegation of fraud prevents the application of an arbitration clause will be a matter of interpretation in each case. In this case, the allegations were significant, bringing into question the legality of the defendants’ system as a whole.

The Court also distinguished between an agreement that may be rescinded from one that is void ab initio because it is illegal. An arbitration clause within an agreement that is void ab initio will not apply because it was never validly agreed to. If proven, the plaintiffs’ allegations of fraud and allegation would have meant that the agreements, and the arbitration clauses, were void ab initio.

The Court further noted that the dispute arose when the defendants accused the plaintiffs of breaching their Confidentiality Agreements. However, because the Confidentiality Agreements did not contain an arbitration clause, a dispute over the disclosure of confidential information would not be subject to arbitration.

The Refusal to Grant a Stay or a Partial Stay

(a) Invalidity of the Arbitration Clause is a Serious Issue

Pursuant to section 7(2) of the Arbitration Act, 1991,4 a court may refuse to stay an action in favour of arbitration where, among other things, the arbitration agreement is invalid. A court may exercise that discretion if it makes a “prima facie determination that invalidity is a serious issue.”

The invalidity of the arbitration clauses was a serious issue in this case. The plaintiffs’ evidence suggested that the Institute was effectively operating as a private career college without being registered under the PCCA. Similarly, the Association purported to certify qualifying graduates as “correactology practitioners,” which is not a regulated profession under the Regulated Health Professions Act, 1991.5 Thus, the Court noted that, even if the defendants’ business was not found to be a “sham,” there would still remain a serious concern regarding the validity of the business. As a result, the court made a prima facie determination that the invalidity of the arbitration clauses was a serious issue.

(b) Partial Stay Not Reasonable Because the Claims are Closely Intertwined and Not All Parties Are Bound by the Arbitration Clauses

Pursuant to section 7(5) of the Arbitration Act, 1991, where an action involves claims that are subject to arbitration and claims that are not, the court may grant a partial stay, but only where it is reasonable to separate the matters.

In this case, the Court determined that it was not reasonable to separate any matters that may have been subject to the arbitration clauses from those that were not, because the allegations of fraud were closely intertwined with all other issues.

In addition, the individual defendants and the Association were not parties to the Enrollment Agreement or the Licence Agreement. As a result, they were not entitled to invoke the arbitration clauses within those agreements to seek a stay of the action as against them. The Court declined to exercise its discretion to grant a partial stay of the action, so as to permit the action to continue as against only them and not the other defendants. The Court held that a partial stay would not be reasonable because the claims against all defendants involved similar facts and issues. In such circumstances, “a court should... its exercise discretion to allow the entire matter to proceed in the one forum of the court.”

Key Takeaways

The decision provides an important reminder to drafters of commercial agreements to ensure consistency amongst dispute resolution provisions, including arbitration clauses and jurisdiction clauses. Ambiguities resulting from any inconsistencies may preclude the drafter from relying on an arbitration clause.

The decision also highlights the need for parties to carefully consider the appropriate forum in which to pursue or defend claims that may be subject to an arbitration agreement. Parties ought to consider, among other things, the scope of the arbitration agreement, the parties involved in the dispute, and whether serious concerns may be raised regarding the validity of the arbitration agreement.


1 2018 ONSC 4263.

Private Career Colleges Act, 2005, SO 2005, c 28, Sch L.

3 S.O. 2000, c. 3 (the “Wishart Act”).

4 Arbitration Act, 1991, SO 1991, c 17.

5 Regulated Health Professions Act, 1991, SO 1991, c 18.

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

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

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
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
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 (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

To Use 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.


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.


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