ONTARIO – Dispute resolution clause in a Share Purchase Agreement was held to be an arbitration agreement not an expert determination even though it does not mention the word arbitration.

2832402 Ontario Inc. v. 2853463 Ontario Inc.
2022 ONSC 2694 April 27, 2022
Superior Court of Justice -Commercial List (Conway J.)

This is a motion to stay the application pursuant to section 7(1) of the Arbitration Act, 1991, S.O. 1991, c,17 (“Act”).

The Respondent, 2853463 acquired shares in a company from 2832402 pursuant to a share purchase agreement (“SPA”).

Section 2.5(b) of the SPA provided that all unresolved matters in respect of the final closing statement and any resulting Vendor’s objections must be referred to an  “Independent Accountant” who was required to make a binding determination. (para.5)

The Vendor requested supporting documentation after receipt of the final closing statement, but the documentation was not produced. The Vendor delivered a formal Objection pursuant to section 2.5b of the SPA.

The parties were unable to resolve their differences. The Applicant brought this application for production of documents, which resulted in a stay application by the Respondent under s. 7(1) of the Act.

The issue was whether section 2.5b of the SPA is an arbitration agreement or not. [para. 17]

Justice Conway referred to Sport Maska Inc. v. Zittrer, 1988 CanLII 68 (SCC). The case sets out a non-exhaustive list of indicia for the court to determine whether a clause requires arbitration versus an expert determination (para.21):

1. There is a dispute or difference between the parties that has been formulated in some way or another.
2. The dispute or difference has been remitted by the parties to the person to resolve in such a manner that they are required to exercise a judicial function.
3. Where appropriate, the parties must have been provided with an opportunity to present evidence or submissions in support of their respective claims in the dispute; and
4. The parties have agreed to accept the decision.

Conway J. also referred to Precision Drilling Corp. v. Matthews Equipment Ltd., 2000 ABQB 499, 267 A.R. 286, at para. 34 in which the court held that the fact that the provision does not expressly refer to arbitration does not preclude a court from holding, that the clause is in fact an arbitration agreement.(para.22)

In this case Conway J. held that the clause was an arbitration agreement and the application for productions must be stayed for the following reasons:

1. The SPA s2.5(b) sets out a formulated dispute to be resolved by the Independent Accountant whereby the Purchaser delivers the final closing statement and if the Vendor files an objection, the dispute is crystallised for determination by the Independent Accountant.
2. The parties have an opportunity to make submissions and the dispute will be decided based solely upon the written submissions.
3. The Independent Accountant is performing a judicial function as this person is required to “ make a determination on the disputed items” and “ review only those items that are in dispute as set out in the Objection.
4. The parties agreed that the decision of the Independent Accountant, absent manifest error is final and binding on the parties. and
5. The failure to reference arbitration proceedings in the clause is not necessary as section 20(1) of the Act empowers arbitrators to determine their own procedures.