Think Before You Strike: Motion To Strike Constitutes Waiver Of Arbitration Clause

Why this Decision Matters

In the recent decision of RH20 North American Inc. v Bergmann 2024 ONCA 445, the Court of Appeal for Ontario considered whether a motion to strike claims made in a pleading prohibited a party from also seeking a stay in favour of arbitration.¹

Overview

The decision in RH20 North American Inc. v Bergmann addressed a cross-appeal of a motion to stay court proceedings in favour of arbitration. The basis of the dispute related to a licensing agreement between RH20 North American ("RH20"), and the Defendant, Martin Bergmann ("Bergmann"), who operated via several other entities (including Click + Clean GmbH ("Click")).² RH20 had a licensing agreement with Bergmann to license and sell WSB-branded wastewater treatment models in Ontario. RH20 alleged that Bergmann wrongfully terminated the licensing agreement and set up their own North American company, which then took over RH20's business.³

RH20 further alleged that its employees resigned and joined Bergmann, and in the process, misused the company's confidential information for the benefit of Bergmann. RH20 commenced claims against Click, Bergmann, and a number of other defendants.⁴

Click, in response to the claim, sought two orders. First, an order staying the action in favour of arbitration pursuant to an arbitration clause in the contract between the parties. Second, Click joined the other defendants in a motion to strike portions of the Statement of Claim that disclosed no reasonable cause of action.⁵

The Lower Court Decision

The motion judge struck a number of RH20's claims on the basis that they did not disclose a reasonable cause of action. However, the court refused the motion to stay the action in favour of arbitration, citing three reasons:

• the arbitration agreement was incapable of being performed due to a forum selection clause;
• the conflicting dispute resolution clauses in various agreements between the parties gave "strong cause" to reject the forum selection clause; and.
• Click, by bringing an order to strike out portions of RH20s claim, took a step to invoke the jurisdiction of the court, thus waiving the agreement to arbitrate.⁶

The Court of Appeal's Decision and Analysis

In reaching its decision, the Court of Appeal for Ontario considered the Supreme Court of Canada's decision in Peace River Hydro Partners v. Petrowest Corp., 2022 SCC 41.⁷ That decision held that in order to invoke a stay, either the technical prerequisites for the mandatory stay must be met, or a statutory exception to the mandatory stay must apply.⁸ The four prerequisites for a stay are:

1. an arbitration agreement must exist;
2. court proceedings must have been commenced by a party to the arbitration agreement;
3. the court proceedings are in respect of a matter that the parties agreed to submit to arbitration; and
4. the party applying for a stay in favour of arbitration does so before taking any "step" in the court proceedings.⁹

The Court of Appeal determined that the fourth factor had not been met in this case. The prerequisite creates a negative obligation on parties that prevents them from seeking a resolution of any dispute subject to an arbitration agreement in domestic courts. This includes taking any step in the court process "other than challenging the court's jurisdiction to hear the dispute". Bringing a motion to strike portions of the claim is such a step.¹⁰

Final Thoughts

This case serves as a reminder that there is a strict negative obligation to not take any "steps" in the Court process, beyond simply seeking a stay in favour of arbitration, should a party intend to rely on an arbitration agreement. Seeking any substantive relief, even a motion to strike, means that a party may not be "entitled to the benefit of the litigation process while also preserving its ability to reject that same process in favour of arbitration".¹¹

Footnotes

1. RH20 North America Inc. v. Bergmann, 2024 ONCA 445.

2. RH20 North America Inc. v. Bergmann, 2024 ONCA 445, paras 6-9.

3. RH20 North America Inc. v. Bergmann, 2024 ONCA 445, at paras 9-10.

4. RH20 North America Inc. v. Bergmann, 2024 ONCA 445, at paras 10.

5. RH20 North America Inc. v. Bergmann, 2024 ONCA 445, at paras 1-2.

6. RH20 North America Inc. v. Bergmann, 2024 ONCA 445 at para 32.

7. Peace River Hydro Partners v. Petrowest Corp., 2022 SCC 41.

8. Peace River Hydro Partners v. Petrowest Corp., 2022 SCC 41, at para 76.

9. Peace River Hydro Partners v. Petrowest Corp., 2022 SCC 41, at para 83.

10. RH20 North America Inc. v. Bergmann, 2024 ONCA 445, at para 43.

11. RH20 North America Inc. v. Bergmann, 2024 ONCA 445, at para 56.

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