ONTARIO – Arbitration – Where there was no consideration for a contract containing a mandatory arbitration clause, the Court exercised its discretion to refuse to stay the action under s. 7(2) the Arbitration Act, 1991, S.O. 1991, c.17 on the basis that the arbitration clause was invalid. Section 7(1) of the Act applies to cases where the interpretation of the arbitration clause is at issue, not where the clause’s very existence is questioned. 

Goberdhan v. Knights of Columbus
2022 ONSC 3788 June 27, 2022
Superior Court of Justice (D.E. Harris J.)

The Plaintiff was a field agent of the Defendant, who sold insurance to Defendants’ members since April 2001. Relying on 671122 Ontario Ltd. v. Sagaz Industries Canada Inc., 2001 SCC 59 (CanLII), the Court held that the Plaintiff was an employee of the Defendant, not an independent contractor. [para. 11]

The Plaintiff commenced an action for wrongful dismissal following his termination. The Defendant moved to stay the action under s. 7(1) of the Act due to an arbitration clause in two of the agreements between the parties. [para. 4]

There were three contracts between the parties. There was no arbitration clause in the April 2001 employment agreement. Two further contracts were made in 2018 and 2019 for the purpose of adjusting the Plaintiff’s sales territory. Each of these contracts contained a mandatory arbitration clause. [para. 5.]

The Plaintiff argued that there was no consideration for the second and third contracts and that these contracts were null and void and the arbitration provision was therefore ineffective. [para.6]

The Court rejected the Defendant’s arguments that there was consideration for the second and third agreements. Specifically, the offer of mediation was not consideration nor was the change of the governing law of the contract from Connecticut to Ontario. These factors were overshadowed by the removal of the Plaintiff’s right to sue and the right to a jury trial. [paras. 17-22]

The Court rejected the Defendant’s argument that the action should be stayed on the basis that it was arguable that the arbitration agreement was applicable on the basis of s. 7(1) of the Act.  Section 7(1) addresses cases of interpretation of the arbitration clause, not the very existence thereof. Section 7(2) of the Act authorizes the Court to refuse the stay when the arbitration agreement is invalid. [paras. 23-24]

In addressing this issue, the Court referred to Haas v. Gunasekaram, 2016 ONCA 744 (Ont. C.A.) at para. 15-16.

The Court concluded that as the contract failed for lack of consideration, so too did the arbitration clause in the contacts. The agreements containing the arbitration clause were held to be invalid under Section 7(2) of the Act and the court dismissed the Defendant’s motion to stay the action.