December 2, 2016
Are Arbitration Clauses Enforceable? Of Course Says Court of Appeal
The Court of Appeal for Ontario recently released a decision in Haas v. Gunasekaram re-confirming the obvious: arbitration clauses are enforceable.
The case is about a simple, broad arbitration clause in a shareholders agreement for a restaurant business. One of the shareholders alleged fraud. Fraud does not oust an Arbitrator’s jurisdiction. The Supreme Court of Canada has previously ruled that an Arbitrator decides jurisdictional questions at first instance. In other words, this question should never have gone to Court.
“The law, both statutory and judicial, favours the enforcement of arbitration agreements,” says the Court of Appeal. The Court of Appeal followed section 7(1) of the Arbitration Act, 1991 and stayed the Court action. The plaintiff was hit with $14,000 in costs on the motion that was appealed plus $7,500 on appeal for a total of $25,500. The plaintiff would likely have had to pay his own legal expenses of the same amount.
The net outcome could be in the neighbourhood of a $50,000 loss for trying to go to Court when arbitration was mandatory.
The unfortunate aspect of this litigation is that the defendants had to respond to legal proceedings in Court and may have to do the same in an arbitration. As well, a dispute that probably should have been kept private is now out in public, however, it is unclear from the arbitration clause in the shareholders agreement that the arbitration was to be private. And there is no indication that the defendants sought an order sealing the Court file.
On the plus side, party autonomy is alive and well and this case is further precedent that going to Court instead of arbitration is a costly miscalculation.