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CASE #006E – Leon v Dealnet Capital Corp.
October 5, 2021

Ontario – Where a valid arbitration agreement existed, defendant was entitled to stay of action even after defending and serving counterclaim – A stay should not be refused on the basis that the arbitrator may have to grant a statutory remedy under OBCA, s.248.

CASE #006E
Leon v Dealnet Capital Corp.
2021 ONSC 3636 (CanLII)
Master B. McAfee, May 19, 2021

L, a former senior employee of D Corp. resigned and sued for breach of an employment agreement and damages. D Corp. counterclaimed for a declaration under s. 248 of the Ontario Business Corporations Act (“OBCA”) that the employment agreement was invalid. After the close of pleadings and delivery of affidavit of documents, about 10 months after the action was commenced, D Corp. moved to stay under s. 7 of the Arbitration Act, 1991 (“the Act”) in favour of the arbitration clause in the employment agreement. D Corp’s counsel claimed that they were not aware of the arbitration clause until they checked the employment agreement for confidentiality of some documents relied on by L.

Master McAfee granted the stay and held that the action was in its infancy and the delay was not undue or prejudicial. In reaching this conclusion, Master McAfee held that the Act codifies the primacy of arbitral proceedings and provides for a default mandatory stay of any civil proceeding and the law is clear that s. 7 of the Act is directory, not equivocal. It strongly favours giving effect to an arbitration agreement, relying on Haas v. Gunasekaram, 2016 ONCA 744, para. 12.

To grant the stay, the Court must be satisfied that: (1) There is an arbitration agreement; (2) The subject matter of the dispute falls within the scope of the arbitration agreement; and (3) There are no grounds to refuse to stay the action. The Court’s discretion to decide an issue that the parties have agreed to arbitrate is to be “exercised sparingly”: Khomovych v. Bomar 2 Inc. [2019] O.J. No. 3344 (Ont. S.C.J.) paras. 7-8.

The Respondent has the onus to prove that grounds to refuse the stay in s.7(2) of the Act exist.

In this case, while it is unclear why the corporation claimed oppression under s. 248 of the OBCA, the Court held that the OBCA does not expressly preclude the use of arbitration to resolve disputes involving oppressive conduct. Relying on Advanced Explorations Inc. v. Storm Capital Corp., 2014 ONSC 3918, at paras. 60-61, the Court held that: “If the legislature wishes to preclude an issue from being the subject of arbitration, it must expressly state this intention.”

Relying on ABN Ambro Bank Canada v. Krupp Mak Maschihnenbau GmbH, 1996 CanLII 12449 (ON SCDC), the Court held that delivery of a pleading or a counterclaim, in an action is not attornment to the jurisdiction of the Court, that prevents a party from relying on an arbitration agreement.

Editor’s Comment:

Master McAfee accepted as a fact that when D Corp. defended and counterclaimed, its counsel was unaware of the arbitration agreement. It is unclear whether the decision would have been different if D Corp. or its counsel had been aware of the arbitration agreement or if the Court held that D Corp. and its counsel should have known about the arbitration agreement.

Master McAfee also discusses the power of an arbitrator to grant a statutory remedy generally, and under s. 248 of the OBCA as that was raised as a ground to refuse the stay of the action. This issue has been the subject to judicial comment in many cases, including the frequently cited decision in Deluce Holdings Inc. v. Air Canada 1992 CanLII 7654 (ON SC), where R.A. Blair J., (as he then was) held that on the narrow wording of the arbitration agreement in that case, the plaintiff was entitled to proceed with the oppression claim in Court.

In Toronto Standard Condominium Corporation No. 1628 v. Toronto Standard Condominium Corporation No. 1636, 2021 ONCA 360 (CanLII), at para 31, the Court of Appeal allowed an appeal from a trial decision which read an arbitration clause too narrowly and stayed the action, despite an oppression claim under the Condominium Act.

In Armstrong v. Northern Eyes Inc., 2000 CanLII 29047 (ON SCDC), Justice Campbell held that it is open to the parties to craft their own narrow private remedy for the valuation and redemption of the shares of departing shareholders and to agree to resolve their differences through arbitration rather than the potentially wider machinery provided under s. 248 of the OBCA.

In Randhawa v. Randhawa, 2021 ONSC 3643 (CanLII) para. 12, Justice Koehnen held that Armstrong v. Northern Eyes  holds that where the parties had contemplated a specific remedy for a departing shareholder, the arbitration agreement did not give the arbitrator the power to go beyond the contractually agreed to remedy. The arbitrator appointed an inspector to conduct an investigation pursuant to the OBCA. The court agreed that there was nothing in the agreement to arbitrate that prohibited the granting of a statutory remedy. If the granting of the remedy affected third parties court assistance would have to be obtained, However, that does not mean than an arbitrator has no jurisdiction to grant a statutory remedy. It depends on the language of the arbitration agreement.

About Us

Arbitration & Business Cases is a blog created by Igor Ellyn and Robin Dodokin in September 2021. Our intention is to provide timely, concise summaries and commentary of Ontario and Canadian case law on arbitration and business matters.

Igor Ellyn,
QC, CS, FCIArb.

iellyn@ellynlaw.com
www.ellynadr.com
416-540-6611
416-365-3750

Robin Dodokin,
FCIArb., Q.Arb., LL.M, Q.Med.

robin@dodokinlaw.com
www.dodokinlaw.com
416-300-6515