Court File and Parties

COURT FILE NO.: CV-21-00670636-00CL DATE: 20220329 SUPERIOR COURT OF JUSTICE – ONTARIO (COMMERCIAL LIST)

RE: HUSKY FOOD IMPORTERS & DISTRIBUTORS LTD., Plaintiff/Responding Party and JH WHITTAKER & SONS LIMITED and STAR MARKETING LTD., Defendants (JH WHITTAKER & SONS LIMITED, Responding Party)

BEFORE: Conway J.

COUNSEL: Lauren Tomasich and Stephen Armstrong, for JH Whittaker & Sons Limited Allyson Fischer and Alyssa Jagt, for Husky Food Importers & Distributors Ltd.

HEARD: March 14, 2022

Reasons for Decision

[1] JH Whittaker & Sons Limited (“Whittaker’s”) brings a motion to stay an action commenced against it by Husky Food Importers & Distributors Ltd. (“Husky”) and to refer Husky’s claims to arbitration in New Zealand.

[2] The motion is brought pursuant to s. 9 of the International Commercial Arbitration Act, 2017, S.O. 2017, c. 2, Sch. 5 (the “ICAA”), which states:

Where, pursuant to article II (3) of the Convention or article 8 of the Model Law, a court refers the parties to arbitration, the proceedings of the court are stayed with respect to the matters to which the arbitration relates.

[3] The UNCITRAL Model Law on International Commercial Arbitration (the “Model Law”) has the force of law in Ontario under s. 5(1) of the ICAA. Article 8(1) of the Model Law states:

A court before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so requests not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed.

[4] For the reasons that follow, I grant the stay of Husky’s action and refer it to arbitration.

Background

[5] Whittaker’s carries on a chocolate manufacturing business. It was incorporated in New Zealand, with its headquarters in Wellington. Husky is an importer and distributor of specialty and natural consumer packaged goods to Canada. It is incorporated pursuant to the laws of Ontario and its head office is located in Vaughan, Ontario.

[6] Between 2014 and 2020, Husky distributed Whittaker’s confectionary and chocolate products in Canada. The relationship terminated in July 2020. Husky commenced this action against Whittaker’s (and a subsequent distributor, Star Marketing Ltd.) for breach of contract, breach of the duty of honest performance, inducing breach of contract, intentional interference with economic relations, and passing off (the “Action”).

[7] Whittaker’s and Husky negotiated the terms of a formal distribution agreement between 2016 and 2020. In the Action, Husky takes the position that the parties concluded a distribution agreement (the “Alleged Distribution Agreement”) by May 15, 2020. Whittaker’s disputes that the parties ever finalized a distribution agreement. However, for purposes of this motion, Whittaker’s relies on Husky’s pleading that a contract exists. It is entitled to do so on a stay motion: Beck v. Vanbex Group Inc., 2021 BCSC 1619, at para. 22.

[8] The relevant terms of the Alleged Distribution Agreement can be summarized as follows:

• Section 6.2: Unless otherwise agreed in this Distribution Agreement …Whittaker’s will sell and deliver its products on the terms and conditions set out in its standard purchase agreement order form, a copy of which is attached in Schedule “G”.

• Section 8.4: The main body of the Alleged Distribution Agreement prevails over any schedule if there is any inconsistency between them, to the extent of such inconsistency only.

• Section 8.7: New Zealand law is the governing law and the parties attorn to the non-exclusive jurisdiction of the New Zealand courts to hear and determine all disputes arising from or related to the Alleged Distribution Agreement or transactions contemplated therein.

• Schedule “G” consists of a standard form order agreement and “Whittaker’s Standard Terms of Trade” (the “Terms”). The Terms include an arbitration clause for “Overseas Disputes” (the “Arbitration Clause”) that reads:

  19.1 Where the Customer is located outside of New Zealand, any dispute, controversy or claim arising out of or in connection with these Terms, or any question regarding its existence, breach, termination or invalidity, will be referred to the New Zealand International Arbitration Centre for arbitration in accordance with the New Zealand Arbitration Act 1996. Such arbitration shall also be as follows: (a) the number of arbitrators will be: one; (b) the place of arbitration will be: Wellington, New Zealand; and (c) the language of the arbitration will be: English.

[9] Whittaker’s submits that the Action must be stayed because of the Arbitration Clause in Schedule “G”. It submits that in accordance with established arbitration principles, the claims of Husky in the Action must be referred to arbitration and that it is the task of the arbitrator to determine all jurisdictional and other preliminary issues, as well as the substantive dispute.

[10] Husky makes two main arguments in response. First, it says that the Arbitration Clause is not an “arbitration agreement” within the definition in Article 7 of the Model Law. Article 7 defines an Arbitration Agreement as “an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.” Husky argues that the Terms (containing the Arbitration Clause) do not form part of the Alleged Distribution Agreement as they were inserted behind Schedule “G” and are therefore not incorporated by reference through s. 6.2, which only refers to the “standard purchase agreement order form”. Further, it argues that there was never a “meeting of the minds” between the parties that disputes would be arbitrated and that it was always Husky’s intention that disputes should be resolved through the court process.

[11] Second, it submits that the Arbitration Clause has no effect because s. 6.2 says that purchase terms and conditions apply “unless otherwise agreed”. Husky argues that the parties otherwise agreed in s. 8.7 that they would attorn to the non-exclusive jurisdiction of the New Zealand courts.

Legal Principles

[12] As noted above, Article 8(1) of the Model Law says that in an action brought in a matter which is the subject of an arbitration agreement, a court shall refer the parties to arbitration, unless the court finds that the agreement is null and void, inoperative or incapable of being performed. According to Article 16(3) of the Model Law, arbitral tribunals have the competence to determine their own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement. This has been recognized and reflected in the case law as the “competence-competence” principle: Dalimpex Ltd. v. Janicki (2003), 64 O.R. (3d) 737 (C.A.), at paras. 18-22.

[13] A court should grant a stay under Article 8 of the Model Law where it is arguable that the dispute falls within the terms of an arbitration agreement or that the relevant party is party to an arbitration agreement: Dancap Productions Inc., v. Key Brand Entertainment, Inc., 2009 ONCA 135, 246 O.A.C. 226, at paras. 32-33; Dalimpex, at para. 21, citing Gulf Canada Resources Ltd. v. Arochem International Ltd. (1992), 43 C.P.R. (3d) 390 (B.C. C.A.), at p. 397. See also, Sum Trade Corp. v. Agricom International Inc., 2018 BCCA 379, at para. 35.

[14] The framework for analysis on a stay motion is set out in Haas v. Gunasekaram, 2016 ONCA 744, 62 B.L.R. (5th) 1, at para. 17, as follows:

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?

[15] 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. If the challenge requires the production and review of factual evidence, the court should normally refer the case to arbitration: Dell, at para. 85. There is a discretionary exception that arises only where a challenge to the validity or operability of an arbitration clause is based solely on a question of law, or one of mixed fact and law that requires only superficial consideration of the documentary evidence in the record for its disposition. In Ciano Trading & Services C.T. v. Skylink Aviation Inc., 2015 ONCA 89, at para. 7, the Court of Appeal for Ontario added that “where it is unclear if the arbitrator has jurisdiction, it is preferable to leave the issue to the arbitrator”.

Analysis

[16] The first question in the Haas analysis is whether there is an arbitration agreement. Husky submits that there is none.

[17] The case law establishes that whether there is an arbitration agreement is a low threshold. For example, in Sum Trade, at para. 35, the Court of Appeal for British Columbia asked whether it was “arguable” that the party was subject to an arbitration agreement. See also, Gupta v. Lindal Cedar Homes Ltd., 2020 ONSC 6333, at para. 22. The court in Sum Trade specifically rejected the submission that the party seeking the stay must prove the existence of an arbitration agreement on a balance of probabilities: at para. 25.

[18] In this case, it is arguable that there is an arbitration agreement. The Terms (containing the Arbitration Clause) are contained in Schedule “G”, just behind the standard purchase order form. Section 6.2 of the Alleged Distribution Agreement says that Whittaker’s will sell products to Husky on the terms and conditions set out in its standard purchase order form in Schedule “G”. However, the standard purchase order form itself does not contain any terms. Instead, it is the Terms that set out the terms and conditions of purchase.

[19] Moreover, there is no suggestion that Whittaker’s surreptitiously inserted the Terms. Indeed, when Whittaker’s sent Husky the draft containing the Terms, Husky engaged with the document. It selected payment terms of 60 days (as opposed to 30 days) and removed the track changes from the document. Notably, it did not make any changes to the Arbitration Clause.

[20] Husky relies on several cases to support its argument that the mere presence of an arbitration clause in a contract does not constitute an “arbitration agreement” within the meaning of the Model Law. In my view, those cases are distinguishable. For example, in H & H Marine Engine Service Ltd. v. Volvo Penta of the Americas, Inc., 2009 BCSC 1389, the court found, at para. 16, that there was no evidence that the terms and conditions containing a mediation and arbitration provision (that were printed on the reverse side of the purchase orders) were ever drawn to the other party’s attention before the dispute arose. Likewise, in Razar Contracting Services Ltd v. Evoqua Water, 2021 MBQB 69, the defendant only provided the plaintiff with an electronic link to its terms and conditions, and the link turned out to be inaccessible. Unlike those cases, there is evidence here that the Terms did come to Husky’s attention. Whittaker’s sent the Terms containing the Arbitration Clause to Husky. As noted, Husky then engaged with the Terms by selecting the days for payment and removing the track changes in the Terms. It left the Arbitration Clause in place.

[21] The Court of Appeal for Ontario’s decision in Secure Solutions Inc. v. Smiths Detection Toronto Ltd., 2011 ONCA 337 is also distinguishable. In that case, the court held that the parties’ relationship was governed by an oral contract and that, importantly, there was evidence indicating that the appellants had “clearly communicated to the respondent” that they did not want their disputes arbitrated: at para. 4. Here, the evidence is not so clear. Rather, as noted above, the Alleged Distribution Agreement is in writing and does have the Terms included in Schedule “G”. Again, the evidence reveals that Husky engaged with the Terms and, while doing so, declined to make any changes to the Arbitration Clause. [1]

[22] In short, I am satisfied that it is arguable that there is an arbitration agreement between the parties. The first element of the Haas test is therefore met.

[23] Husky has not disputed that the second to fourth elements of the test are met, namely that it is arguable that the subject matter of the Action falls within the scope of the Arbitration Clause.

[24] Turning to the fifth element of the Haas test, I agree with Whittaker’s that Husky’s remaining arguments are better addressed at this stage. Essentially, Husky argues that the Arbitration Clause should not be given effect because it is rendered inoperative by other provisions contained in the Alleged Distribution Agreement. I do not accept this submission.

[25] It is not apparent from the language of the contract that there is any inconsistency in the Alleged Distribution Agreement that renders the Arbitration Clause inoperative. Husky says that the jurisdiction clause in s. 8.7 necessarily overrides the Arbitration Clause. Whittaker’s submits, on the other hand, that those sections work together and complement one another as (i) New Zealand is the seat of the arbitration and the courts of New Zealand retain supervisory jurisdiction to aid in the arbitration process; (ii) case law has held that an arbitration clause is not necessarily in conflict with a choice of forum clause; and (iii) the Arbitration Clause is more specific and detailed than the generically worded, non-exclusive jurisdiction clause. As a result, Whittaker’s argues that the “inconsistency” language in s. 8.4 does not come into effect as s. 8.7 and the Arbitration Clause are harmonious.

[26] Whittaker’s submissions are sufficient, in my view, to establish that it is arguable that looking at the language of the Alleged Distribution Agreement alone, the Arbitration Clause is not rendered inoperative by the other sections contained in it.

[27] Further, the interpretation of a contract is generally a question of mixed fact and law: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at para. 50. A contract must be interpreted in light of the surrounding factual matrix: Sattva, at para. 50. I do not accept Husky’s submission that the parties’ intention can be determined from a superficial review of the record. Like Dancap, this is a case where the validity or operability of the Arbitration Clause will require a “thorough review of the parties’ complex contractual discussions, understandings, expectations and arrangements”: at para. 40. [2] The evidence to be reviewed (as put forth on this motion) will include facts with respect to their distribution relationship and history in concluding a formal distribution agreement. That goes beyond the exception in Dell, which provides that “the court must not … consider the facts leading to the application of the arbitration clause”: at para. 84.

[28] There is therefore no reason to refuse the stay under the fifth part of the Haas test. [3]

[29] Finally, Husky argues that the court should not stay the Action because it would lead to a multiplicity of proceedings – the claim against Whittaker’s would be arbitrated in New Zealand while the claim against Star Marketing would be litigated in the Ontario courts. I reject this submission. As noted above, the language of Article 8(1) of the Model Law is mandatory: a court shall refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed. A multiplicity of proceedings does not fit within any of those exceptions. Further, according to the Supreme Court of Canada, a multiplicity of proceedings is not a reason to override a mandatory statutory requirement to stay an action in favour of arbitration: see TELUS Communications Inc. v. Wellman, 2019 SCC 18, [2019] 2 S.C.R. 144, at para. 90; Seidel v. TELUS Communications Inc., 2011 SCC 15, [2011] 1 S.C.R. 531, at para. 50.

Decision and Costs

[30] Whittaker’s motion is granted and the Action is stayed.

[31] If the parties are unable to come to an agreement on costs, they shall schedule a half hour case conference before me (through the Commercial List office) to discuss the process for determining them.

Conway J. Date: March 29, 2022

[1] Husky’s reliance on Electek Power Services Inc. v. Greenfield Energy Centre Limited Partnership, 2022 ONSC 894 is also misplaced. In that de novo hearing, Perell J. was tasked with resolving whether, among other things, an arbitration panel was correct to hold that there was an arbitration agreement. On a stay motion, by contrast, the question is whether an arbitration agreement arguably exists between the parties.

[2] See also 743584 Ontario Inc. v. LAC Otelnuk Mining Ltd., 2021 ONSC 5255, at paras. 34-36.

[3] Husky argues that if Whittaker’s stay motion is denied, any further challenges to the jurisdiction of the Ontario courts ought to have been raised on this motion. Husky makes submissions on jurisdiction simpliciter and forum non conveniens. Since I have granted Whittaker’s stay motion, there is no need to consider any issues relating to the jurisdiction of the Ontario courts. In any event, the sole issue on the motion before this court was whether a stay should be granted. The issues of jurisdiction simpliciter and forum non conveniens were irrelevant to that issue.