MANITOBA – A statement in a purchase order referring to an arbitration clause on a party’s website is not enough to create a valid and enforceable arbitration agreement. Court holds that parties did not mutually consent to arbitration as there was no signed agreement to arbitrate.

CASE #0014D
Razar Contracting Services Ltd. v Evoqua Water Technologies Canada Ltd. and Intact Insurance Company
2021 MBQB 69 (CanLII) https://canlii.ca/t/jfstm
Kroft, J., March 30, 2021

In this case, Justice Kroft of the Manitoba Queen’s Bench held that an “arbitration agreement” incorporated by reference to general terms and conditions on a website was invalid, on the basis that the agreement was not brought to the applicant’s attention and there was no meeting of the minds.

Razar and Evoqua entered into an agreement for Razar to provide mechanical engineering services to Evoqua’s construction project.

Evoqua issued purchase orders that incorporated by reference general terms and conditions on Evoqua’s website. Embedded in the website terms was an arbitration clause referring unresolved disputes to a three-arbitrator panel in Pittsburgh pursuant to the JAMS Arbitration Rules.

Evoqua served a demand for arbitration, claiming breach of contract and seeking costs and expenses. Subsequently, Razar commenced an action in the Manitoba Court of Queen’s Bench seeking payment for its services. Evoqua brought a motion to stay the proceeding in favour of arbitration. The issues before the Court were.

• The applicable law of arbitration;
• Jurisdiction of the Court to hear the stay motion; and
• Was there a valid and enforceable agreement to arbitrate?

The Law of Arbitration

As the arbitration clause referred to arbitration in Pittsburgh, the parties agreed that the International Commercial Arbitration Act C.C.S.M c,C151 (“ICAA”) would apply if there was a valid agreement to arbitrate. The ICAA included the UNICITRAL Model Law on International Commercial Arbitration (1985) ( “Model Law”) as Sch. B.

Jurisdiction

On the issue of jurisdiction, the court referred to H & H Marine Engine Service Ltd v Volvo Penta of the Americas, Inc. 2009 BCSC 1389 in which the agreement to arbitrate was on the back page of a purchase order. The H & H case referred to law on the competence of arbitrators to rule on their own jurisdiction and the framework for when the challenge to the arbitrator’s jurisdiction should be determined by the arbitrator or by the court as set out in Dell Computer Corp v. Union des Consommatuers, 2007 SCC 34 at paras 84-86.

Kroft J. noted that the JAMS Rules were not brought into evidence and there was no evidentiary basis for the application of the “competence-competence” principle. The Court assumed jurisdiction to decide the question of whether a valid arbitration agreement exists. para. 33

Validity of the arbitration agreement

The Court referred to the requirements of Art. 7(2) of the Model Law, which provides:

“2) The arbitration agreement shall be in writing. An agreement is in writing if it is contained in a document signed by the parties or in an exchange of letters, telex, telegrams, or other means of telecommunication which provide a record of the agreement, or in an exchange of statements of claim and defence in which the existence of an agreement is alleged by one party and not denied by another. The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement provided that the contract is in writing and the reference is such as to make that clause part of the contract.”

Justice Kroft accepted Razar’s evidence that they could not find the contractual terms on the Evoqua website. He held that the terms on Evoqua’s website that purported to include an arbitration agreement were insufficiently clear to meet the Model Law’s requirements. There was no meeting of the minds on the arbitration agreement. [para. 33]. Article 8 of the Model Law provides that upon a party’s request, a court may stay a proceeding and refer the party to arbitration, “unless it finds that the agreement is null and void, inoperative or incapable of being performed.” Kroft J. held that the exception in Art. 8 applied.

No valid agreement to arbitrate existed and the stay application was dismissed.

Editor’s notes      

Rule 11 (b) of the JAMS Arbitration Rules mandate that “jurisdictional and arbitrability disputes, including disputes over the formation, existence, validity, interpretation or scope of the agreement under which Arbitration is sought, and who are proper Parties to the Arbitration, shall be submitted to and ruled on by the Arbitrator. The Arbitrator has the authority to determine jurisdiction and arbitrability issues as a preliminary matter”.

The main issue in the Razar case was whether or not a valid and enforceable agreement to arbitrate existed. In the Dell Computers case, 2007 SCC 34 , the SCC set out the governing framework to for the analysis of jurisdictional issues and the general rule that in a case involving an arbitration clause the jurisdiction of the arbitrator must first be resolved by the arbitrator. at paras 84-86.

There are two exceptions to the general rule of deferring to the arbitrator on jurisdictional issues, where the court has jurisdiction. The exceptions arise if the assessment involves solely a question of law or if the question is mixed question of law and fact only requiring a superficial review of the documentary record, in both cases it is appropriate for the court to resolve the questions. See CASE #007D, 743584 Ontario Linc. LAC Otelnuk Mining Ltd. 2021 ONSC 5255 (CanLII)

In the present case, Justice Kroft held that there was no valid arbitration agreement on which the arbitrator could determine the scope of the tribunal’s jurisdiction. This conclusion was understandable in light of Kroft J.’s observation that “the defendants have tendered no evidence pertaining to JAMS’ rules”.para. 29 While Art. 11(b) of the JAMS Arbitration Rules authorize the arbitrator to rule on jurisdiction and arbitrability, even if those rules were brought to the court’s attention, it would be far more efficient to resolve these issues in court rather than referring them to three arbitrators in Pittsburgh.

The case is important for lawyers who draft arbitration agreements. Whether the ICAA or a domestic arbitration statute apply, the validity of the agreement will depend on whether the parties were expressly in agreement on its terms. An arbitration clause incorporated by reference from another source is unlikely to be binding.