Court File and Parties

COURT FILE NO.: CV-16-201-00 DATE: 2019/02/27 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

CHRISTINA EGGIMAN and CHRISTINA T.H. CORP. Plaintiffs – and – SHAWN DANIEL MARTIN, TRISHA DOLLIE MARTIN, TS MARTIN INC., and THE TDL GROUP CORP./GROUPE TDL CORPORATION Defendants

COUNSEL: Todd D. Storms/ Zach Flemming - Gionnotti, for the Plaintiffs (Responding Parties) Andy Seretis/Daniel G. Hamson, for the Defendants, Shawn Daniel Martin, Trisha Dollie Martin and TS Martin Inc. (Moving Parties)

HEARD at Belleville: January 15, 2019

Tausendfreund, J.

Reasons

Overview

[1] Three of the four Defendants in this action, namely Shawn Daniel Martin, Trisha Dollie Martin and TS Martin Inc. (the “Martin” Defendants) seek a stay of this action against them in favour of arbitration.

[2] The Martin Defendants are parties to arbitration agreements with the Plaintiffs. These moving Defendants state that the dispute between them and the Plaintiffs is clearly within the scope of the arbitration agreements. They rely on s.7(1) of the Arbitration Act, 1991, c.17 (the Arbitration Act ”). Subject to s. 7 (5) of the Arbitration Act, s.7(1) requires the court on motion to stay an action that is subject to an arbitration agreement.

[3] The remaining defendant, TDL Group Corp (“TDL”) is not a party to these arbitration agreements. The claims in the action against all defendants arise from the same constellation of closely related facts.

[4] The Plaintiffs oppose the motion. They state that the relief sought would result in only a partial stay and would unreasonably bifurcate these proceedings.

Facts

[5] At all material times, TDL was the corporation responsible for issuing licences to operate Tim Hortons locations.

[6] The Plaintiffs entered into two franchise agreements with TDL and thus became franchisee-operators of a Tim Hortons restaurant at two locations in Belleville, Ontario. The first such agreement was signed in 2004 and the second in 2009.

[7] These franchise agreements permitted the Plaintiffs to appoint an operator for these restaurants. Any perspective operator was to be vetted and approved by TDL and would be required to sign an operating agreement on terms set by TDL.

[8] In 2012, the Martin Defendants and in particular the Defendants, Shawn and Trisha Martin, were represented by TDL to the Plaintiffs as potential operators for these two Tim Hortons restaurants. The Plaintiffs in para. 12 of their Fresh as Amended Statement of Claim plead:

In or around September 2012, the Martin Defendants, and in particular Shawn Martin and Trisha Martin, were presented by TDL as potential operators for the Restaurants. In doing so, TDL:

a) represented that Shawn and Trisha Martin had previously been involved in ownership of Tim Hortons restaurants in the Oshawa and Whitby area;

b) highly recommended the Martin Defendants as potential candidates to act as operators for the Restaurants;

c) failed to disclose that Shawn Martin had been previously investigated for sexual assault allegations in connection with his involvement with Tim Hortons Restaurants in the Oshawa and Whitby area.

[9] Based on this referral by TDL, the Plaintiffs entered into an agreement for each of their two locations with the Martin Defendants to operate these two Tim Hortons restaurants. The Martin Defendants thereby became sub-franchisee operators. Each agreement contained an identical arbitration clause which provides that:

“All matters in difference between the parties in relation to this Agreement shall be referred to the arbitration of a single arbitrator appointed by TDL, which shall either be an employee of TDL or a third party arbitrator, at TDL’s discretion. The award and determination of the arbitrator shall be binding upon the parties and their respective heirs, executors, administrators and assigns.”

[10] The Plaintiffs paid TDL a “finder fee” of $10,000 per restaurant in connection with the referral of the Martin Defendants as operators of these restaurants.

[11] In their Statement of Claim, the Plaintiffs plead that they learned in 2015 that the Defendant, Shawn Martin, had been charged with sex related offences involving at least one employee at their restaurants. The Plaintiffs then launched their own investigation and satisfied themselves that this Defendant had engaged in various inappropriate and potentially unlawful activities.

[12] Based at least partly on that information, the Plaintiffs terminated their operating agreements with the Martin Defendants on April 26, 2015.

[13] The Plaintiffs’ pleadings raise these factual and legal issues:

a) Shawn Martin’s history with Tim Hortons, including sexual misconduct allegations against him;

b) TDL’s knowledge of the above-noted allegations at the time it recommended Shawn Martin as an operator of these Tim Hortons restaurants;

c) Shawn Martin’s conduct as an operator of these restaurants, including his now proven sexual misconduct;

d) Shawn Martin’s alleged conversion of Plaintiffs’ funds;

e) Whether TDL’s conduct amounted to negligence, breach of contract and/or breach of the duty of good faith and fair dealing;

[14] Following a trial, Shawn Martin was found guilty on December 15, 2017 on the charge of a sexual offence against K.P. (“ P. ”), contrary to s. 153(1) (a) of the Criminal Code of Canada.

[15] On July 22, 2016, P. started an action against Shawn Martin, TS Martin Inc, Christina T.H. Corp. and TDL among others. In her pleadings, P. alleges that, at age 16, she was an employee of the TS Martin Defendants and under the direct management of the Defendant Shawn Martin. She further alleges that he sexually assaulted her for which she seeks damages from the Defendants. The Plaintiffs have defended the action and have cross-claimed against the Defendants in this action for contribution, indemnity and relief over.

Analysis

[16] Section 7 of the Arbitration Act provides:

(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, stay the proceeding.

(5) The court may stay the proceeding with respect to the matters dealt with in the arbitration agreement and allow it to continue with respect to other matters if it finds that,

a) the agreement deals with only some of the matters in respect of which the proceeding was commenced; and

b) it is reasonable to separate the matters dealt with in the agreement from the other matters.

[17] The Courts of Justice Act, RSO 1990, c C 43 provides in section 138:

As far as possible, multiplicity of legal proceedings shall be avoided.

[18] The Ontario Court of Appeal in Haas v. Gunasekaram, 2016 ONCA 744 (“ Haas ”) at para. 17 addressed how the court should approach its task under s.7 of the Arbitration Act. In considering a stay under s.7, the Court of Appeal broke the judge’s task down to these issues:

(1) Is there an arbitration agreement?

(2) What is the subject matter of the dispute?

(3) What is the scope of the arbitration agreement?

(4) Does the dispute arguably fall within the scope of the arbitration agreement?

(5) Are there grounds on which the court should refuse to stay the action?

[19] I now address these five issues.

1) Is there an Arbitration Agreement?

[20] It is common ground that the two Operating Agreements each contain an arbitration provision. However, contrary to Haas where all four parties in the action were signatories to the arbitration agreement, here TDL is not a party to these agreements.

2) The Subject Matter of the Dispute

[21] It is the performance by the Martin Defendants based on the Operating Agreements and the termination of those agreements.

3) The Scope of the Arbitration Agreement

[22] Each operating agreement provides at s. 20 that:

“All matters in difference between the parties in relation to this agreement shall be referred to the arbitration of a single arbitrator appointed by TDL, which shall either be an employee of TDL or a third party arbitrator, at TDL’s discretion. The award and determination of the arbitrator shall be binding upon the parties and their respective heirs, executors, administrators and assigns.”

[23] The Ontario Court of Appeal has provided guidance for interpreting the scope of arbitration agreements. In Dancap Productions Inc. v. Key Brand Entertainment, Inc., 2009 ONCA 135, [2009] O.J. No. 572 (C.A.) the court stated at para. 38:

Contractual language calling for the arbitration of disputes “relating to” an agreement has been generously interpreted to enjoy “a wide compass”, an interpretation “consistent with the legislative policy…which favours arbitration over litigation where the parties so provide by agreement: Woolcock v. Bushert (2004), 246 D.L.R. 139 (Ont. C.A.), at paras. 23 and 25.

4) Does the dispute arguably fall within the scope of Arbitration Agreement?

-and-

5) Are there grounds on which the court should refuse to stay the action?

[24] The issue in Haas was whether the motion judge was correct in ordering a partial stay under s. 7(5) of the Arbitration Act on the basis that “the bulk of the Haas claims fell outside the arbitration clause” and also on the basis of the conclusion the motion judge reached that separating out the matters would be unreasonable”. The Court of Appeal in Haas found that the motion judge’s reliance on s. 7(5) of the Arbitration Act was based on a faulty premise, as the determination of jurisdiction was to be made by the arbitrator, not the court. As such, until the arbitrator decided his or her jurisdiction, a motion under s. 7(5) was premature: see paras. 41, 43 and 44 in Haas.

[25] To the extent that the Martin Defendants, as the moving parties in this motion, rely on Haas, I note again that all four parties in Haas were signatories to the agreement containing the arbitration clause. That is to be distinguished from the matter before me which does not include TDL as a party to the arbitration clause in the Operating Agreements.

[26] As TDL is not a party to the arbitration clause, a stay as sought by the Martin Defendants would not include the Plaintiffs’ claim against TDL and the counterclaim of TDL against the Plaintiffs. That leads me to consider s. 138 of the Courts of Justice Act and that a stay would probably result in a multiplicity of legal proceedings.

[27] The Court of Appeal in Radewych v. Brookfield Homes (Ontario) Ltd., 2007 ONCA 721 considered the homeowners claim against the contractor, the architect, a sub-contractor and Tarion Warranty Corporation. Some, but not all of the defendant parties were signatories to an arbitration agreement. The Court held that the question of whether to grant a stay in view of the arbitration agreement was governed by subsection 7(5) of the Arbitration Act. The Court of Appeal at para. 3 referred with approval to these comments of the motion judge:

[S.7(5) of the Arbitration Act] reposes a discretion in the Court to stay a proceeding with respect to matters dealt with in an arbitration agreement where some matters arise under the agreement and some do not. In my view, it would not be appropriate to grant a partial stay. To do so would potentially delay the resolution of the entire matter and could produce a significant duplication of resources and potentially inconsistent findings. Such a course would be contrary to the policy reflected in s. 138 of the Courts of Justice Act which, simply stated, provides that “ as far as possible, multiplicity of legal proceedings shall be avoided”. It is preferable, in my view, that all of the various claims, against all of the Defendants, be determined in one proceeding.

[28] The issue was again considered by the Court of Appeal in Wellman v. Telus Communications Inc., 2017 ONCA 433. The Court stated at para. 72:

S. 7(5) of the Arbitration Act is an extension of the Court’s discretion and operates where an action has been commenced and the arbitration agreement covers some, but not all, claims. In such a case, the court may grant a partial stay, but only where it is “reasonable to separate the matters dealt with in an agreement from the other matters.” S. 7(5) anticipates that when an action contains claims that are subject to an arbitration agreement and claims that are not, bifurcated proceedings will result when it is reasonable to impose a partial stay. When a partial stay is not reasonable, the proceedings will not be bifurcated.

[29] I also note these comments in Graves v. Correactology Health Care Group Inc., 2018 ONSC 4263 at para. 63:

… 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.

[30] As noted above, the pleadings in the Plaintiffs’ action advance claims against the Martin Defendants and TDL based on closely related facts and issues in dispute. As a partial stay sought by the Martin Defendants would, for that reason, likely bifurcate the Plaintiffs’ claims and give rise to a “multiplicity of legal proceedings” focused on those same factual and legal issues, I find that to order a partial stay of these proceedings is not reasonable.

[31] Additionally, I am concerned that if a stay were granted, s. 20 of the Operating Agreement would likely lead to the absurd and likely unfair result of allowing TDL to either appoint the arbitrator or effect control and/or direct the arbitration of this dispute.

[32] A further concern of a partial stay of the Plaintiffs’ action would also impact the P. action. It will likely include similar, if not identical facts and issues as raised in the Plaintiffs’ claim. The parties in the P. action have issued cross and counter claims. Orders for a consolidation of these actions or that one action be tried immediately following the other are possible vehicles to streamline the trials of these actions. A present order to stay the Plaintiffs’ action as sought by the Martin Defendants would be counterproductive to such efforts.

[33] I find that it is not reasonable to bifurcate the Plaintiffs’ action, as sought by the Martin Defendants whose motion for a partial stay is accordingly dismissed.

[34] Costs would follow the event in the normal course. If the parties cannot agree on the matter of costs, they may provide short written submissions within 30 days of the release of these Reasons.

Tausendfreund, J. Released: February 27, 2019