ONTARIO – An arbitration clause did not require specific steps before arbitration could be commenced. Therefore, the limitation period began to run when one side informed the other that they would not enter into further negotiations.
Maisonneuve v. Clark
2022 ONCA 113 February 1, 2022
Ontario Court of Appeal (Huscroft, Sossin, Favreau JJ.A.)
This was an appeal from the decision of Justice Sally A. Gomery with respect to the application of a limitation period to an agreement to arbitrate. The only issue on the appeal was Gomery J.’s interpretation of the arbitration agreement to determine when the date when the limitation period commenced: para. 10
The Court of Appeal held that, as the arbitration agreement was not a standard form contract, Gomery J.’s decision was owed deference and the palpable and overriding error standard of review applies. The appeal was dismissed.
The individual parties are cousins, and they were shareholders in various companies. Their relationship deteriorated and in 2016. They reached an agreement on all issues except one in September 2016. As part of their settlement agreement ( “Agreement”) Maisonneuve was to transfer all of his shares in Eastern Ontario Real Estate Investors Inc.(“EOREI”) to Clark. The parties had a disagreement about EOREI expenses, and this issue is known as the “Excluded Issue”.
The parties signed a mutual release on September 26 and 27,2016 related to the Agreement, which included an agreement to arbitrate. The relevant part of the release said: “If the parties are unable to resolve the Excluded Issue as between them, then the Excluded Issue shall be fully and finally referred to the Arbitrator for resolution. The Arbitrator’s decision shall not be subject to any appeal, either of law, fact or mixed law and fact”:para.3.
In 2017 the parties commenced litigation regarding the validity of the Agreement. On January 31, 2018, in the context of settlement negotiations regarding litigation, the appellants’ lawyer indicated there would be no negotiation over the EOREI expenses. On June 2019, the respondent’s lawyer wrote to appellant’s lawyer to initiate arbitration to resolve the EOREI expenses. The appellants’ lawyer responded that the request to arbitrate was time-barred:para.5.The appellant’s position was that the parties agreed to arbitration within 90 days of signing the Agreement or within two years of the Agreement being signed pursuant to the Ontario Limitations Act 2001, c.24.
The respondent’s commenced an application to appoint an arbitrator. Gomery J. held that there was no agreement that the parties would conduct the arbitration within 90 days of the Agreement. Gomery J. also held that the arbitration was not barred by the two-year limitation period in the Limitations Act, 2002 (“Act”) because, based on s. 5(1)(a)(iv) of the Act, the wording of the arbitration clause and the context of negotiations leading up to the September 2016 settlement, it was not evident that the arbitration was “appropriate” until it was clear that the dispute could not be resolved through negotiations:para.7.
The application judge found that the respondents should have known by January 31, 2018, that a negotiated settlement of the EOREI expenses was not possible based on the communications between the parties’ counsel. Based on that date, the application judge found that the respondents commenced the application within the two-year limitation period.
The appellants’ argued that the application judge failed to properly apply the principles set out in Markel Insurance Company of Canada v. ING Insurance Company of Canada, 2012 ONCA 218, where the Court of Appeal held that negotiation was not a precondition to arbitration and therefore, the limitation period did NOT begin to run at the end of unsuccessful negotiations: para.34-35.
Gomery J. distinguished the Markel case on the basis that it involved statutory interpretation of an arbitration clause in the Insurance Act, whereas this case involved an arbitration clause in an agreement. The application judge also found there were significant differences in the wording of the Insurance Act mandatory arbitration clause and this arbitration clause, and that the factual matrix was a relevant consideration when interpreting an agreement and the parties’ intentions.para.12.
The application judge held that by the time the Agreement was signed in September 2016, the parties acknowledged Maisonneuve’s claim for expenses and that the parties could resolve the issue before arbitration. The application judge found an evolution in the appellant’s position in the correspondence filed: para.13.
The appellants also argued that the application judge erred in relying on the decisions
PQ Licensing S.A. v. LPQ Central Canada Inc., 2018 ONCA 331, and L-3 Communication SPAR Aerospace Limited v. CAE Inc., 2010 ONSC 7133, as authority for the proposition that the limitation period that applies to an arbitration clause may not start to run until the parties have exhausted attempts at informal resolution.
The Court of Appeal found no overriding and palpable error in the application judge’s interpretation of the arbitration clause.
The Court stated, “Parties are free to agree to arbitration clauses that make no reference to the possibility of an informal agreement or that are more specific about the steps and timing leading to arbitration.”:para.15.
In this case it was open to the appellants let the respondents know that no further negotiations would take place. The appellant did that on January 31, 2018, which triggered the start of the limitation period.