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Arbitration Agreement?…What Arbitration Agreement?: ONCA Addresses Stays of Proceedings Where the Existence of an Arbitration Agreement Is Contested

5 minute read

When parties enter into a commercial contractual relationship, they are free to agree to resolve any disputes arising from the contract through out-of-court dispute resolution processes such as arbitration. Where parties have agreed to an arbitration process, issues relating to the arbitrator’s jurisdiction typically are to be determined by the arbitrator (known as the “competence-competence principle”), and attempts to bring such issues before the courts generally are stayed.[1] But what happens when the parties’ disagreement is not about the nature or extent of the arbitrator’s jurisdiction, but whether an agreement to arbitrate exists at all?

The Ontario Court of Appeal recently addressed this issue in Husky Food Importers & Distributors Ltd. v JH Whittaker & Sons Limited.[2] In the case, the appellant, Husky Food Importers & Distributors Ltd., had brought a claim in the Ontario courts for breach of a commercial distribution agreement by the respondent, JH Whittaker & Sons Limited, a chocolate company based in New Zealand. JH Whittaker brought a motion seeking a stay of the court proceeding under s. 9 of the International Commercial Arbitration Act (the “ICAA”),[3] on the basis that the matter in dispute was the subject of an arbitration agreement.

The parties disagreed as to whether an agreement to arbitrate existed. In late 2014, the parties had entered into an initial distribution agreement with terms that were part oral and part written. Between 2016 and 2020, the parties sought to negotiate a more formal, long-term, exclusive distribution agreement. The parties exchanged draft agreements in 2020. The parties made revisions to the drafts. Drafts of the main body of the agreement contained a section providing that the parties submitted to the non-exclusive jurisdiction of the courts of Wellington, New Zealand, to hear and determine disputes arising from the agreement. A draft delivered by JH Whittaker included a schedule of “Whittaker’s Standard Terms of Sale,” which included an arbitration clause providing for arbitration in accordance with the New Zealand Arbitration Act. Ultimately, the parties did not sign a new distribution agreement. In the summer of 2021, a dispute arose about the re-routing of two product shipments, leading to this court proceeding.

The motion judge granted the stay sought by JH Whittaker. Husky Food appealed.

The Court of Appeal found no error in the motion judge’s analysis. Ontario’s arbitration legislation gives arbitrators broad scope to rule on their own jurisdiction, including in the event of objections respecting the existence or validity of the arbitration agreement. The court found that the analytical framework to be applied where a stay is sought under s. 9 of the ICAA is that set out by the Supreme Court of Canada in 2022 in Peace River Hydro Partners v Petrowest Corp.,[4] which has two stages: first, the party seeking a stay must establish an “arguable case” that the technical prerequisites for the legislative mandatory stay provisions are met;[5] second, to avoid a stay, the party seeking to avoid arbitration must establish, on a higher “balance of probabilities” standard, that a statutory exception to a stay applies. The motion judge applied the correct legal principles in her analysis.

The motion judge further did not err in finding that, on the evidentiary record, it was arguable that an agreement to arbitrate existed. Evidence in the record went both ways, but the motion judge was alive to Husky Food’s submissions, and the record supported the motion judge’s conclusion. The case did not engage an exception to the granting of a stay, as determining the existence of an arbitration agreement would require a thorough review of the parties’ competing evidence.

Finding no error in the motion judge’s decision, the court dismissed Husky Food’s appeal and upheld the stay.

This case provides helpful clarification on the application of the principles in last year’s Peace River decision. The mandatory stay framework set out in Peace River was crafted in the context of domestic arbitration legislation. The Court of Appeal’s decision in Husky Food makes clear that this framework is equally applicable in the context of international commercial arbitrations, providing clarity to international arbitration practitioners. With Peace River’s relatively lower standard of proof applicable to parties seeking to establish, rather than challenge, an arbitration agreement, the expansion of these principles also serves to confirm the generally practical, arbitration-friendly approach taken by Ontario courts in commercial contexts.

[1] With the exception of jurisdictional challenges that involve pure questions of law or questions of mixed fact and law requiring only superficial consideration of the evidence.

[2] Husky Food Importers & Distributors Ltd. v JH Whittaker & Sons Limited, 2023 ONCA 260.

[3] International Commercial Arbitration Act, 2017, SO 2017, c 2, Sch 5, s 9: “Where, pursuant to article II(3) of the [New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards] or article 8 of the [UNCITRAL Model Law on International Commercial Arbitration], a court refers the parties to arbitration, the proceedings of the court are stayed with respect to the matters to which the arbitration relates.”

[4] Peace River Hydro Partners v Petrowest Corp., 2022 SCC 41.

[5] Provincial arbitration legislation typically contains four relevant technical prerequisites for mandatory stay provisions to be engaged: (a) an arbitration agreement exists; (b) court proceedings have been commenced by a “party” to the arbitration agreement; (c) the court proceedings are in respect of a matter that the parties agreed to submit to arbitration; and (d) the party applying for a stay in favour of arbitration does so before taking any “step” in the court proceedings. See Peace River at para 83.

Rebecca Shoom

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