Court File and Parties
COURT FILE NO.: CV-17-582327 DATE: 2018 0709
ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
Hazel Graves, Stephanie Menard, and Nathalie McGlade-Lee, Plaintiffs – and – Correactology Health Care Group Inc., Canadian Institute of Correactology, the Canadian Association of Correactology, Allan Lapointe, Angele Lapointe, Louis Lapointe, Michael Lapointe, Karen Boczek, and Julie Bedard, Defendants
COUNSEL: Michael Kleinman, for the Plaintiffs Matthew Glass, for the Defendants
HEARD: March 20, 2018
Reasons for Decision
NISHIKAWA J.
[1] The Defendants bring this motion to stay the proceeding commenced by the Plaintiffs, in favour of arbitration based on arbitration clauses in the agreements executed between the parties. The issue in this motion is whether the action should be stayed because the parties agreed to resolve their disputes through arbitration.
[2] For the reasons that follow, I dismiss the Defendants’ motion to stay the proceeding.
Factual Background
[3] The Plaintiffs, Hazel Graves, Stephanie Menard and Nathalie McGlade-Lee (together, the “Plaintiffs”) are three individuals who enrolled at the Canadian Institute of Correactology (the “Institute”).
[4] The Institute is a non-profit corporation that offers the Correactology Practitioner Program (the “Program”). The defendant, Correactology Health Care Inc. (“CHCG”), is the entity that licenses practitioners to operate correactology centres. The defendant, the Canadian Association of Correactology Practitioners, is a non-profit corporation that certifies and grants licenses to correactology practitioners.
[5] The individual defendants, Angele Lapointe, Karen Boczek and Julie Bedard are directors of the Institute. The individual defendants, Louis Lapointe, Allan Lapointe, Angele Lapointe and Michael Lapointe, are directors of CHCG. Julie Bedard, Louis Lapointe, Allan Lapointe and Michael Lapointe are also directors of the Association. The Plaintiffs allege, and the Defendants have provided no evidence to the contrary, that all of the individuals involved in CHCG and the Association are related by blood, marriage or common-law.
[6] The evidence is that correactology is a “method of treating people who are sick or in pain by changing the density of the body’s cellular network, in a specific order.” The theory behind it is that disease and pain result from a shift in the density of the body’s cellular network, and that this can be improved by applying manual stimuli to the body’s surface to change cellular density and obtain “Optimum Operating Density.”
[7] The Program takes three and a half years to complete, consisting of a total of 22 courses taken over nine semesters. Upon completing the Program, students receive a diploma, and must complete licensing examinations in order to receive their “CHCP” certification from the Association to become licensed “correactology practitioners.” The Program is not registered under the Private Career Colleges Act, 2005, S.O. 2005, c. 28, Sched. L (the “PCCA”).
[8] The Plaintiffs enrolled in the Program in September 2013. The Plaintiffs each paid a tuition fee of $25,000.00 toward a total program fee of $50,000.00. The Plaintiffs allege that the Defendants Angele and Michael Lapointe told them that the practice of correactology was very lucrative and that the Plaintiffs would be able to operate Correactology Centres as their own businesses upon graduation.
[9] By June 2017, when the dispute arose, the Plaintiffs had almost completed the in-class portion of the Program, and each had one course left to complete.
The Enrollment Agreements
[10] When the Plaintiffs enrolled in the Program, they were each required to sign an Enrollment Agreement, a Financial Handbook, and a Licence and Service Agreement.
[11] The Plaintiffs each signed an Enrollment Agreement with the Institute on September 19, 2013 (the “Enrollment Agreement”). None of the other Defendants are parties to the Enrollment Agreements. The Plaintiffs claim that the agreements were presented to them with no explanation and that they had no opportunity to negotiate the terms.
[12] The Financial Handbook sets out the financial details of the Program.
The License Agreements
[13] The Plaintiffs allege that they were told by Louis and Angele Lapointe that once they graduated and were licensed, they would have to incorporate a company and enter into a license agreement with CHCG to operate a Correactology Centre. The Amended and Restated Correactology License & Services Agreement (the “License Agreement”) was presented to them at the beginning of the Program. The parties to each License Agreement are CHCG and “XXXXXX Canada Inc.” On September 14, 2013, each of the Plaintiffs signed a License Agreement on behalf of “XXXXXX Canada Inc.”
[14] Pursuant to the terms of the License Agreement, the licensee operates a correactology centre as an agent for CHCG. Schedule ‘A’ to the License Agreement contains the terms of the licensing fee, which is 30 percent of gross revenues earned from the operation of a correactology centre, paid on a daily basis. The rate rises to 40 or 50 percent, if CHCG exercises its right to pay rent or other sums owing by the Licensee. In their Motion Record, the Defendants included an amended Schedule “A”, which reduces the license fees to a weekly fee that depends upon the geographic location and the year of practice of the practitioner.
The Confidentiality Agreements
[15] Attached as Schedule “E” to the License Agreement is a Confidentiality and Proprietary Information Agreement (the “Confidentiality Agreement”). Each Plaintiff signed a Confidentiality Agreement in her personal capacity with CHCG at the same time as the License Agreement. The Confidentiality Agreement required that the Plaintiffs maintain the confidentiality of the proprietary information belonging to CHCG that would be shared with them during the course of the Program and to operate their businesses.
The Dispute
[16] According to the Statement of Claim, in the spring of 2017, the Plaintiffs were asked to prepare business plans as part of the Program. Upon reviewing the material, the Plaintiffs sought legal advice in respect of the Enrollment Agreement and the License Agreement. Once the Defendants found out that they had spoken to a lawyer, Allan Lapointe abruptly suspended the Program and expelled the Plaintiffs. They were told that the reason for the expulsion was their breach of the Confidentiality Agreement, as confirmed by a memorandum sent by Michael Lapointe on behalf of CHCG on June 20, 2017, seeking the return of confidential information.
[17] The Plaintiffs were required to attend a meeting with the Defendants. They were instructed not to bring legal counsel or anyone else to the meeting. Ms. Graves and Ms. Menard each attended a meeting with Michael Lapointe, Louis Lapointe, Alan Lapointe and Angele Lapointe. Ms. McGlade-Lee was unable to attend a meeting with the Defendants. Ms. Graves and Ms. Menard allege that they were subject to threats and abusive interrogative tactics. They were told that other students would receive a drastic reduction in licensing fees, but that they would not because they had breached the Confidentiality Agreement.
[18] On July 18, 2017, the Plaintiffs’ counsel wrote to the Defendants’ counsel to request, among other things, confirmation that the Program had a legal right to operate and that the Defendants were legally capable of offering the certificate and designation. The Plaintiffs advised that they would be prepared to return to the Institute if the requested confirmation was provided and if they would be treated fairly upon their return. No confirmation was provided by the Defendants.
[19] The Plaintiffs served the Statement of Claim on September 8, 2017. The Statement of Claim alleges, among other things, causes of action for fraudulent misrepresentation, conspiracy, restraint of trade and breach of contract. The Plaintiffs allege that the entire system of diplomas and certification offered by the Defendants is a sham, and a fraudulent and illegal scheme. The Plaintiffs further allege that the Defendants are operating an unregistered private career college, and that the License Agreement is in fact a franchise arrangement that does not comply with provisions of the Arthur Wishart Act, S.O. 2000, c. 3 (the “AWA”).
Issues
[20] In Nazarina Holdings Inc. v. 2049080 Ontario Inc., 2010 ONSC 1766, 69 B.L.R. (4th) 65 at para. 21, Strathy J. (as he then was) stated that where the validity of the arbitration agreement is called into question, the first step is to determine whether the dispute falls within the scope of the arbitration agreement, and the second step is to determine whether the court should exercise its discretion to stay the proceedings due to one of the exceptions under s. 7(2).
[21] The motion to stay the proceeding thus raises the following issues:
(i) Is there an arbitration agreement? (ii) Does the parties’ dispute fall within the scope of the arbitration agreement? (iii) Are there grounds on which the court should refuse to stay the action?
Analysis
[22] Section 7 of the Arbitration Act, S.O. 1991, c. 17 (the “Arbitration Act”), states:
Stay
(1) If a party to an arbitration agreement commences a proceeding in respect of a matter to be submitted to arbitration under the agreement, the court in which the proceeding is commenced shall, on the motion of another party to the arbitration agreement, stay the proceeding.
Exceptions
(2) However, the court may refuse to stay the proceeding in any of the following cases:
- A party entered into the arbitration agreement while under a legal incapacity.
- The arbitration agreement is invalid.
- The subject matter of the dispute is not capable of being the subject of arbitration under Ontario law.
- The motion was brought with undue delay.
- The matter is a proper one for default or summary judgment.
[23] The Court of Appeal has articulated a five-part framework to consider a motion to stay a court proceeding on the basis of an arbitration clause:
(i) Is there an arbitration agreement? (ii) What is the subject matter of the dispute? (iii) What is the scope of the arbitration agreement? (iv) Does the dispute arguably fall within the scope of the arbitration agreement? (v) Are there grounds on which the court should refuse to stay the action?
Haas v. Gunasekaram, 2016 ONCA 744, 62 B.L.R. (5th) 1 at para. 17.
[24] This court must also be mindful of the “competence-competence principle,” pursuant to which, in any case involving an arbitration clause, a challenge to the arbitrator’s jurisdiction must be resolved first by the arbitrator: Dell Computer Corp. v. Union des consommateurs, 2007 SCC 34, [2007] 2 S.C.R. 801 at para. 84. The Court of Appeal has similarly stated that “where it is unclear if the arbitrator has jurisdiction, it is preferable to leave the issue to the arbitrator”: Ciano Trading & Services C.T. & S.R.L. v. Skylink Aviation Inc., 2015 ONCA 89 at para. 7.
[25] The exception to the competence-competence principle is where a “challenge to the arbitrator’s jurisdiction is based solely on a question of law, or one of mixed fact and law that requires for its disposition only superficial consideration of the documentary evidence in the record”: Dell Computer, at para. 84. See also Seidel v. Telus Communications Inc., 2011 SCC 15, [2011] 1 S.C.R. 531, at para. 4.
Is there an Arbitration Agreement?
Who are the Parties?
[26] Pursuant to s. 7(1) of the Arbitration Act, a court shall stay a proceeding in respect of a matter that the parties have agreed to arbitrate on the motion of another party to the arbitration agreement. Therefore, only those who are party to the agreement containing an arbitration clause may invoke it: Rampton v. Eyre, 2007 ONCA 331 at para. 20. A third party who is not a party to an agreement cannot invoke an arbitration clause as a shield against litigation: Shaw Satellite G.P. v. Pieckenhagen, 2011 ONSC 4360, 337 D.L.R. (4th) 369 at para. 34. It is thus first necessary to consider which of the Defendants may rely upon the arbitration provisions in the relevant agreements.
[27] In this case, only the Institute can invoke the arbitration clause in the Enrollment Agreement, and only CHCG can invoke the arbitration clause in the License Agreement. None of the individual defendants are parties to any of the agreements, and therefore, cannot rely upon an arbitration clause to stay the proceeding as against them. Moreover, the fact that they may agree to attorn to the jurisdiction of an arbitrator is not determinative: Star Tropical Import & Export Ltd. v. International Project Management Consortium Ltd., 2011 ONSC 4005, 87 B.L.R. (4th) 318 at paras. 52 and 53.
[28] While the Plaintiffs cannot simply add parties in order to defeat an arbitration clause, the Plaintiffs have alleged in the Statement of Claim that the individual defendants made material misrepresentations and engaged in coercive conduct. Moreover, the Plaintiffs plead causes of action under the AWA, which provides for statutory liability of the directing minds of the franchisor: AWA, ss. 1, 7, 8. I find that the individual defendants were not named solely for the purposes of defeating the arbitration clauses.
[29] As a result, the individual defendants and the Association, as non-parties to any arbitration agreement, cannot rely upon the arbitration clauses to stay of the proceeding against them.
The Enrollment Agreement
[30] Clause 5 of the Enrollment Agreement entered into by the Plaintiffs and the Institute states as follows:
- DISPUTE RESOLUTION
In the event of any dispute, claim, question or difference arising between the undersigned student and the Institute, the parties shall use their best endeavours to resolve such dispute, claim, question or difference in accordance with the Institute’s Student Handbook. If the parties are unable to reach a solution within a period of thirty (30) days, then upon written notice by any party to the other, the dispute, claim, question or difference shall be resolved by arbitration. Such arbitration shall be conducted by a single arbitrator who shall be appointed by agreement between the parties or, in default of agreement, such arbitrator shall be appointed by a judge of The Superior Court of Justice upon application of any of the said parties. A Judge of The Superior Court of Ontario shall be entitled to act as such arbitrator, if he or she so desires. The arbitration shall be held in the City of Sudbury, Ontario. The procedure to be followed shall be agreed by the parties or, in default of agreement, determined by the arbitrator. The arbitration shall proceed in accordance with the provisions of Arbitrations Act (Ontario). The arbitrator shall have the power to proceed with the arbitration and to deliver his award notwithstanding the default by any party in respect of any procedural order made by the arbitrator. The decision arrived at by the arbitrator shall be final and binding and no appeal shall lie therefrom. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction.
[31] As the Defendants note, courts strongly favour the enforcement of arbitration agreements, particularly where the scope of an arbitration clause is broad and comprehensive, as it is here: Haas, at para. 40. Where the parties have employed broad wording, arbitration clauses are interpreted generously so as to favour arbitration over litigation: Dancap Productions Inc. v. Key Brand Entertainment Inc., 2009 ONCA 135, 55 B.L.R. (4th) 1 at para. 38, Mantini v. Smith Lyons LLP, 64 O.R. (3d) 505 (C.A.).
[32] The last clause of the Enrollment Agreement, however, states:
This Agreement shall be governed by and construed in accordance with the laws of Ontario, Canada and each party hereby submits to the exclusive jurisdiction of the courts of Ontario.
[33] The Enrollment Agreement is thus ambiguous in that it has an arbitration clause, but also contains a provision that identifies the Superior Court of Ontario as having exclusive jurisdiction. While the Defendants maintain that the last clause is simply a “jurisdictional” or forum selection clause, this would require the court to disregard the portion of the clause that states that the courts of Ontario have exclusive jurisdiction. Another possible interpretation is that the courts of Ontario have exclusive jurisdiction to enforce arbitral awards obtained through the application of the dispute resolution clause. Clause 5 of the agreement states, however, that “[j]udgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction.” Because the clauses are inconsistent, it is difficult to interpret the Enrollment Agreement in a manner that gives meaning to both provisions at the same time.
[34] The Enrollment Agreement is a contract of adhesion. The Plaintiffs had no role in its drafting and were unable to negotiate its terms. As a result, the principle of contra proferentum applies: Manulife Bank v. Conlin, [1996] 3 S.C.R. 415 at para. 9. The ambiguity with respect to the arbitration clause should be interpreted in favour of the Plaintiffs: Huras v. Primerica Financial Services Ltd., [2000] O.T.C. 533 (Ont. S.C.) (aff’d by Court of Appeal (2001), 55 O.R. (3d) 449) at paras. 37-38 and 44. Because of the ambiguity, it would not be clear to prospective students of the Institute that they would not have recourse to the courts in the event of a dispute.
[35] Based on the ambiguous language of the Enrollment Agreement, I am inclined to find that there is no clear intent to refer all disputes between the Institute and the Plaintiffs to arbitration. I need not determine conclusively whether there is an arbitration agreement, however, because of my conclusions on the other issues as further detailed below.
The License Agreement
[36] As a preliminary matter, there is a question as to whether the License Agreement is a binding and enforceable agreement, because one of the parties is a corporation that does not yet exist. The License Agreements were signed by the Plaintiffs, not in their names, but on behalf of non-existent corporations. The language used in the License Agreement is inconsistent, because the licensee corporation is defined as “Practitioner” but in the recitals, the Practitioner is defined as “a student of the Correactology Practitioner Program…[.]”
[37] The Defendants’ position is that the License Agreement is binding. The Defendants rely upon the severability clause found in Article 1.06 of the License Agreement, as well as s. 17(2) of the Arbitration Act to argue that even if part or all the agreement is invalid, the arbitration clause remains in full force and effect.
[38] The Plaintiffs’ position is that the License Agreement is simply an agreement to agree at a future date. Many of the terms, such as the grant of the licence, are prospective and do not come into effect until the Practitioner is certified. The Plaintiffs also argue that the License Agreement cannot come into effect because the recitals refer to circumstances that no longer exist, for example, they are no longer students of the Institute and can never be licensed because they were expelled.
[39] At this preliminary stage, and based on the evidence on this motion, it would be premature to make any conclusions about whether or not the License Agreement is an enforceable contract. In any event, I need not determine this issue in order to ascertain whether there is an arbitration agreement. Assuming for the purposes of the current analysis that the License Agreement is enforceable, it too contains contradictory terms in relation to the resolution of disputes arising under it. Article 1.04 of the License Agreement contains the following provision:
This Agreement shall be governed by and construed in accordance with the laws of the Province of Ontario and the federal laws of Canada applicable therein. Any party bringing an action or proceeding against any other party arising out of or relating to this Agreement, subject to Subsection 12.13 shall bring the action or proceeding before a justice of the Ontario Superior Court of Justice sitting in Sudbury, Ontario. Each party waives, to the fullest extent permitted by law, any objection that either party may now or later have to the laying of venue of any legal action or proceeding arising out of or relating to this Agreement any claim that any action or proceeding brought in any court specified in this [Subsection] 1.04 has been brought in an inconvenient forum.
[40] Although the provision refers to Subsection 12.13, there is no such section in the agreement. Counsel for the Defendants submits that the reference to Subsection 12.13 should be read as referring to Subsection 11.12, which states:
Unless otherwise specifically provided for in this Agreement, if any dispute shall occur between the parties relating to the interpretation or implementation of any of the provisions of this Agreement or the provisions of any of the scheduled agreements, such dispute shall be resolved by arbitration….
[41] The remainder of Subsection 11.12 mirrors that of the arbitration provision of the Enrollment Agreement.
[42] Like the Enrollment Agreement, the License Agreement is contradictory in respect of the appropriate manner for resolving disputes that arise under it. It contains both an arbitration clause and a clause stating that any party bringing an action under the agreement must bring the action in the Superior Court of Justice. The License Agreement is more specific than the Enrollment Agreement, in that the jurisdictional provision refers to the Superior Court of Justice in Sudbury. If the arbitration clause were enforced, the jurisdictional provision would be superfluous. Based on the principles of contractual interpretation, such an interpretation is to be avoided. For the same considerations that applied in respect of the Enrollment Agreement, I find that the License Agreement does not reflect a clear intention to refer all disputes between CHCG and the Plaintiffs to arbitration.
The Confidentiality Agreement
[43] The Confidentiality Agreement contains no arbitration clause. Section 13 of the Confidentiality Agreement states that the parties agree to the “non-exclusive jurisdiction of the courts of the Province of Ontario in relation to this Agreement.”
Does the Dispute Fall Within the Scope of the Arbitration Clauses?
[44] Based on my finding that there is no arbitration agreement between the parties, I need not consider whether the subject matter of the dispute falls under the relevant arbitration clauses. For greater certainty and if I am mistaken in my interpretation of the clauses, the parties’ dispute would not in any event fall within the scope of the relevant arbitration clauses.
[45] As noted above, the competence-competence principle provides that, absent legislative exception, it is preferable for the arbitrator to determine his or her own jurisdiction and whether the dispute falls within the terms of the arbitration clause. The court may, however, make the determination if the challenge involves a pure question of law or a question of mixed fact and law where only superficial consideration of the documentary evidence in the record is required: Dell Computer, at para. 84. See also Shaw Satellite G.P., at para. 37.
[46] As a starting point, the dispute between the parties arose when the Defendants accused the Plaintiffs of disclosing confidential proprietary information in breach of the Confidentiality Agreement. Since the Confidentiality Agreement does not have an arbitration clause, a dispute over the disclosure of confidential information would not be subject to arbitration.
[47] The issues raised in the Statement of Claim are considerably broader. The Plaintiffs allege fraud, conspiracy, breach of contract and breach of the AWA. The Plaintiffs allege that the Defendants “conspired together to create a fraudulent scheme that purported to be an educational institution licensed to issue certificates” and that “the entire system including the method of operation of the Program and the Institute is a fraudulent and illegal scheme.”
[48] I find that it is possible to determine, on a superficial consideration of the documentary evidence on the record only and as a question of mixed law and fact, that the dispute falls outside the scope of the arbitration clauses. The issues raised by the Plaintiffs do not fit within either the Enrollment Agreement or the License Agreement. The essence of the dispute between the parties is the alleged fraud, misrepresentation, and breaches of the AWA and the PCCA. The dispute is only tangentially related to the agreements, which the Plaintiffs allege form part of the Defendants’ fraudulent scheme.
[49] As a result, I am able to determine that the arbitrator does not have jurisdiction to decide the genuine subject matter of the dispute between the parties, which dispute only incidentally concerns the agreements: See Shaw Satellite at para. 38.
[50] The Defendants rely upon the decisions in MDG Kingston Inc. v. MDG Computers Canada (2008), 2008 ONCA 656, 92 O.R. (3d) 4 and Nazarinia Holdings to argue that the courts have granted a stay even where one of the parties alleges misrepresentation or breach of the AWA. In MDG Kingston Inc. v. MDG Computers Canada, the Court of Appeal held that the motion judge erred in failing to grant a stay of the proceeding in favour of arbitration. In that case, the plaintiff alleged a failure to provide a disclosure document under the AWA, but did not allege fraud or illegality. The failure to provide disclosure simply meant that the agreement was subject to rescission, and the arbitration clause was enforced by the Court. In doing so, the Court of Appeal drew a distinction between an agreement which may be rescinded and an agreement that is void ab initio because it is illegal: “in cases where the agreement was void ab initio, because it was illegal, or where no agreement was ever reached, the arbitration clause will not apply because it was never validly agreed to.” MDG Kingston at para. 24.
[51] Similarly, in Nazarinia, the plaintiffs alleged negligent and reckless misrepresentations in the statement of claim but did not specifically allege fraud. Strathy J. held that while the plaintiffs argued that the agreement was void ab initio, neither the allegations nor the evidence supported the existence of any fraud, and the proceeding was stayed: Nazarinia, at paras. 42-46.
[52] Even where fraud is alleged, the Court of Appeal has made clear that this does not necessarily vitiate an arbitration clause. Moreover, a party cannot allege fraud or other torts simply to take the subject matter of the dispute outside the scope of an arbitration clause: Haas, at paras. 35-39. Determining whether a dispute falls within an arbitration clause “is a matter of interpretation”: Haas, at para. 39.
[53] The fraud alleged in this case goes beyond a non-disclosure or misrepresentation in contractual relations. The Statement of Claim alleges a fraudulent scheme that brings into question the legality of the system operated by the Defendants. The fraud and illegality alleged, if proven, would mean that the agreements are void ab initio.
[54] Based on the foregoing, I find that this dispute does not fall within the scope of the arbitration clauses in the Enrollment Agreement or the License Agreement.
Are there Grounds on which the Court Should Refuse to Stay the Action?
[55] Even if the arbitration clauses applied to the parties’ dispute, I would nonetheless exercise my discretion under s. 7(2) of the Arbitration Act to refuse a stay for invalidity of the arbitration agreements.
[56] In IMG Canada Ltd. v. Melitta Canada Inc. (2001), 18 B.L.R. (3d) 78 (Ont. S.C.) Pitt J. held that a mere allegation of invalidity would not be sufficient to resist a stay, and that the court must make “a prima facie determination that invalidity is a serious issue”: IMG Canada, at para. 18. In this case, the Plaintiffs question the legality of the Program offered by the Defendants, and allege that the entire scheme is a sham run by closely related parties. The agreements between the parties are an element of the alleged fraudulent scheme. Because the validity and legality of the agreements are a central issue to the litigation, I find that the invalidity of the arbitration clauses is a serious issue.
[57] The Plaintiffs’ allegations raise a serious public policy concern about whether the Institute should be registered under the PCCA. The PCCA defines as a private career college “an educational institution or other institution, agency or entity that provides one or more vocational programs to students for a fee and pursuant to individual contracts with the students.” PCCA, s. 1(1). A “vocational program” means “instruction in the skills and knowledge required in order to obtain employment in a prescribed vocation”: PCCA, s. 1(1). Section 7 of the PCCA prohibits any person from conducting or operating a private career college unless the person is registered by the Superintendent under the Act and prohibits anyone who is not registered from holding themselves out as the operator of a private career college. The PCCA further prohibits a person from offering or providing a vocational program for a fee unless the person is registered and the provision of the vocational program has been approved by the Superintendent: PCCA, s. 8. Contravention of the PCCA is an offence: PCCA, s. 48. The Plaintiffs’ evidence suggests that the Institute is an institution providing a vocational program to students, but that it is not registered under the PCCA.
[58] The Defendants have provided no evidence to challenge the Plaintiffs’ evidence. They argue that under the PCCA regulations, certain occupations are excluded from the definition of “vocational programs” for the purposes of s. 1(1) of the PCCA. These include “other professional occupations in health diagnosing and treating” (O. Reg. 415/06, s. 7) and previously included midwives and practitioners of natural healing. A list of examples of exempted professions is provided and includes: chiropodist, foot specialist, naturopathic doctor, podiatrist, acupuncturist, aromatherapist, and herbalist. The exempted professions, however, are generally self-governing health professions under the Regulated Health Professions Act, 1991, S.O. 1991, c. 18 (“RHPA”).
[59] The Plaintiffs also raise the issue of whether the Association is entitled to grant certificates to graduates of the Program which, based on the claims made by the Association, appear to enable licensees to provide health care related services. The Association’s Code of Ethics, for example, states that “Certified Correactology Health Care Licensed Practitioners must fulfill their duties to their patients, to the public and to the profession.” (Emphasis added). This raises questions as to whether correactology practitioners should fall within the scope of the RHPA.
[60] The evidence submitted on this motion is limited, but indicates that the Defendants run a Program, for which students pay a significant tuition to the Institute, and for which graduates eventually obtain a licence of certification from the Association. This enables them to become licensed “correactology health care practitioners” to practice correactology, which the Defendants describe as “a method of treating people who are sick or in pain.” The Program has all the trappings of a vocational program and the licensing process resembles that of a regulated health profession. Yet, the Program is not registered under the PCCA and correactology practitioners are not regulated under the RHPA. In addition, under the original License Agreement, licensees must enter into an agreement with CHCG to provide a minimum of 30 percent of gross revenues. This is the only way in which a licensee can practice. The non-profit Association and the for-profit licensor are run by the same or closely-related individuals. Louis, Allan and Michael Lapointe are directors of both the Association and CHCG, raising questions about a potential conflict of interest.
[61] If, as the Plaintiffs allege, the Defendants are engaged in a fraudulent scheme to deceive unsuspecting students who believe they are obtaining credentials to provide a health care-related service, this would go beyond the scope of the relevant arbitration clauses. In the event that the Defendants’ business is not a sham, the nature of both the Program and the services for which students are trained and licensed raise questions as to whether they are operating outside of the relevant regulatory schemes. Either way, the matters in dispute raise significant concerns about the legality of the Defendants’ business. The invalidity of the arbitration clauses is not a mere allegation, but a serious issue, since the entire arrangement may be illegal or invalid.
[62] Even if there were some basis on which to find that the dispute is subject to arbitration, s. 7(5) of the Arbitration Act anticipates that when an action contains claims that are subject to an arbitration claim and claims that are not, the court may grant a partial stay, but only where it is reasonable to separate the matters dealt with in the agreement from other matters. When a partial stay is not reasonable, the proceedings will not be bifurcated: Wellman v. Telus Communications Co., 2017 ONCA 433, 138 O.R. (3d) 109. In this case, the fraudulent scheme alleged by the Plaintiffs is so intertwined with the other issues that it would not be reasonable to separate the matters dealt with in the agreement from the other matters.
[63] Moreover, the alleged scheme involves the Association and the individual defendants, who are not parties to the arbitration agreements. Where one of the parties to an action is not subject to an arbitration clause, and the claim involving the non-party to the arbitration clause and the claim sought to be submitted to arbitration both contain closely related facts and issues in dispute, a partial stay may not be reasonable, and the court should instead exercise its discretion to allow the entire matter to proceed in the one forum of the court: Shaw Satellite, at para. 44.
[64] As a result, if the dispute falls under the relevant arbitration clauses, I would exercise my discretion to refuse to stay the proceedings due to the invalidity of the arbitration clauses or, alternatively, on the basis that it is not reasonable to separate the matters dealt with in the agreement from the other matters in dispute.
Conclusion
[65] In summary, the arbitration clauses in the Enrollment Agreement and the License Agreement are ambiguous and do not indicate a clear intent to refer all disputes arising under those agreements to arbitration. In addition, the individual defendants and the Association are not parties to those agreements and cannot rely upon the arbitration clauses to seek a stay. Even if the arbitration clauses were binding, the Plaintiffs raise serious allegations of a fraudulent scheme that would fall outside their scope. Moreover, because the allegations bring into question the Defendants’ business and the agreements themselves, there is a serious issue as to the validity of the arbitration clauses. A partial stay would not be reasonable in the circumstances.
[66] Based on the totality of the circumstances of this case, the motion to stay the proceeding is dismissed with costs to the Plaintiffs.
Costs
[67] Counsel for the parties submitted their costs outlines at the hearing. While the Plaintiffs seek substantial indemnity costs, I do not think this is an appropriate case for substantial indemnity costs. Plaintiffs’ counsel’s total costs were $6,587.00 on a partial indemnity basis, including disbursements.
[68] Pursuant to the Courts of Justice Act, R.S.O. 1990, c. C.43, s. 131(1), the Court has broad discretion when determining the issue of costs. The overall objective of fixing costs is to fix an amount that is fair and reasonable for the unsuccessful party to pay in the circumstances, rather than an amount fixed by actual costs incurred by the successful litigant: Boucher v. Public Accountants Council for the Province of Ontario (2004), 71 O.R. (3d) 291 (C.A.). Rule 57.01(1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 sets out the factors to be considered by the court when determining the issue of costs.
[69] I have considered these factors, as well as the principle of proportionality in R. 1.04(1.1) of the Rules of Civil Procedure, while keeping in mind that the court should seek to balance the indemnity principle with the fundamental objective of access to justice. The issues are somewhat novel but not particularly complex. The amount of time spent by Plaintiffs’ counsel was reasonable and similar to that spent by Defendants’ counsel.
[70] Given the foregoing, I fix costs at $6,587.00, inclusive of disbursements and HST, payable by the Defendants to the Plaintiffs within 30 days of the date of this order.
NISHIKAWA J.
Date: July 9, 2018
COURT FILE NO.: CV-17-582327 DATE: 20180709
ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN: Hazel Graves, Stephanie Menard, and Nathalie McGlade-Lee, Plaintiffs – and – Correactology Health Care Group Inc., Canadian Institute of Correactology, the Canadian Association of Correactology, Allan Lapointe, Angele Lapointe, Louis Lapointe, Michael Lapointe, Karen Boczek, and Julie Bedard, Defendants
REASONS FOR DECISION Nishikawa J.