ONTARIO – Arbitration – Jurisdiction. The Arbitration Act, 1991 (“Act”) has no application where the court finds that, due to a failure of consideration, there is no contract and thus, no arbitration clause. In those circumstances, s. 7(6) does not apply and does not prohibit an appeal.

ONTARIO – Arbitration – Stay of Proceedings. Where the court is able to determine on the evidence before it whether there was fresh consideration for contracts that contained arbitration clauses, a finding that there was no fresh consideration was not “merely arguable” but was clear on the evidence. A motion for a stay will be denied where the arbitration clause is invalid.

Goberdhan v. Knights of Columbus, 2023 ONCA 327 (CanLII)
2023 ONCA 327 (May 5, 2023)
Ontario Court of Appeal (van Rensburg, Paciocco and Thorburn JJ.A.)

This was an appeal from an order dismissing the appellant’s motion for a stay of proceedings in favour of arbitration based on mandatory arbitration clauses in two contracts between the parties. The motion judge had held that:1) the respondent was an employee, not an independent contractor, and 2) the contracts, including the mandatory arbitration clauses, were invalid for want of fresh consideration. (For a summary of the motion judge’s decision, see Case #050E)

The appellant argued that the motion judge erred in concluding that there was no valid arbitration clause, and by deciding on the stay motion that the respondent was an employee. The respondent raised a preliminary issue, arguing that there is no right of appeal because of s. 7(6) of the Act.

The Court dismissed the respondent’s preliminary jurisdictional challenge. The Act did not apply where the motion judge found that there was no arbitration clause because there was no consideration given for the two contracts that included the clause. (para. 10) In making this determination, the Court cited its prior decisions in Huras v. Primerica (2000), 2000 CanLII 16892 (ONCA) and Toronto Standard Condominium Corporation No. 1628 v. Toronto Standard Condominium Corporation No. 1636, 2020 ONCA 612. Where the court finds that there is no arbitration clause, the Act has no application, including the prohibition against appeal in s. 7(6). (paras. 8-9)

The appellant argued that the motion judge erred in refusing the stay because a stay was required where it was “arguable” that the dispute fell within the scope of arbitral jurisdiction, and that the question of arbitral jurisdiction is for the arbitrator unless the challenge is a question of pure law or questions of mixed fact and law requiring only a superficial consideration of the record. (para. 12) The Court rejected these arguments because this was a clear case where the motion judge was able to determine the issue of whether there was fresh consideration for the contracts that contained the arbitration clauses on the evidence before it. The motion judge’s finding that there was no fresh consideration was not “merely arguable”. (para.16)

The Court also rejected the appellant’s second argument that there was insufficient evidence to ground the motion judge’s conclusion that the contracts were void for want of fresh consideration. The respondent’s affidavit contained evidence regarding the lack of consideration. (para. 19) The Court held that those statements were not “bald or conclusory” but amounted to evidence that the new contracts were not advantageous to the respondent and that he did not receive any benefit other than continued employment. That evidence was not challenged by cross-examination, nor did the appellant file any evidence of fresh consideration for the contracts. Instead, the appellant relied on the changes between the first contract and the second  to show there was consideration. (para. 21) The Court of Appeal found no error in the motion judge’s approach to and application of the evidence when he concluded that the contracts, including the arbitration clauses, were not valid. (para. 23)

Finally, the Court held that the motion judge’s finding that the respondent was an employee in the context of the stay motion, prior to the delivery of a statement of defence, was not a final determination of that issue. It was open to the appellant to argue on the full record at trial or on a motion for summary judgment that the respondent was an independent contractor. (para. 26)