COURT OF APPEAL FOR ONTARIO

DATE: 20001016

DOCKET: M26174

(C34178)

FINLAYSON and CARTHY JJ.A. and SIMMONS J. (ad hoc)

BETWEEN:

CINDY HURAS ) Charles M. Wright,

) Michael D. Wright and

Plaintiff ) Mia London, for the moving party

(Moving Party/ )

Respondent in Appeal) )

–and– )

PRIMERICA FINANCIAL ) Larry Lowenstein and

SERVICES LTD. ) Derek Bell, for the responding party

Defendant )

(Responding Party/ )

Appellant in Appeal) )

) Heard: September 14, 2000

This is a motion to quash an appeal from the decision of Justice Peter Cumming dated April 10, 2000.

FINLAYSON J.A.:

[1] The moving party, the plaintiff ("Huras"), brings this motion to quash the appeal brought by the defendant, the responding party ("Primerica"), by notice of appeal dated May 2, 2000.

FACTS

[2] Primerica manages a sales force of independent contractors that provide financial and insurance services and products to its customers. Huras became a member of this independent sales force in 1996. In order to qualify for membership she was obliged to participate in a three month training program offered by Primerica. Huras successfully completed the training program and applied to become an independent contractor. Primerica approved her application and asked Huras to sign three agreements each dated August 26, 1996. One of the agreements, the “Basic Agreement”, contained a good faith negotiation and arbitration clause that is the subject matter of this motion. The point of contention arises from the fact that Huras did not receive remuneration during her training period. Her claim covers the training period alone.

[3] On May 18, 1999, Huras commenced a class action against Primerica on behalf of all persons who enrolled in Primerica's training program. The proceeding was commenced under the Class Proceedings Act, 1992, S.O. 1992, c. 6, and involves three main claims:

(a) damages for the defendant’s failure to pay minimum wage for training undertaken by sales representatives in breach of the Employment Standards Act, R.S.O. 1990, c. E.14, as amended 1997, c. 31;

(b) in the alternative, damages as a result of the unjust enrichment of the defendant; and

(c) punitive and exemplary damages as a result of the defendant’s continuing failure to pay minimum wages despite knowledge that its failure to compensate sales representatives was in breach of the Employment Standards Act.

[4] On April 10, 2000, Primerica brought a motion before The Honourable Mr. Justice Cumming of the Superior Court of Justice for an order staying Huras' class proceeding under s.7(1) of the Arbitration Act, 1991, S.O. 1991, c. 17 ("Arbitration Act"). Primerica relied on the agreements signed by Huras after the training period was completed, specifically the term that any dispute between the parties should be negotiated in good faith and arbitrated.

[5] On April 25, 2000, the motions judge dismissed the motion made under s.7(1) of the Arbitration Act. He found that no arbitration clause applied during the sales representatives’ training period because the agreements with Huras could not apply retroactively. The motions judge, while expressly finding that it was not necessary to his decision, also found that the arbitration provision in question was invalid within the meaning of s.7(2) of the Arbitration Act because it was unconscionable. He made findings that are important to this motion to quash:

1. In my view, the documentation in evidence establishes that there were two distinct relationships between the parties. There was a training period followed by an application by the plaintiff (because the successful plaintiff trainee then chose to apply) to become a regular member of Primerica’s sales force. Primerica had the option, of course, of not accepting this application.

2. In my view, and I so find, the three contractual documents in evidence all relate only to that position (whether being in respect of employment or as an independent contractor) of a successful applicant following the completion of the training period. This documentation cannot properly be construed as then applying retrospectively to the earlier period of training.

[6] Accordingly, the motions judge disposed of the motion by finding that the claims only applied to the training period and therefore the arbitration clause was inapplicable.

[7] On May 2, 2000, Huras was served with a notice of appeal that seeks to set aside the order of the motions judge and requests that the plaintiff’s action be stayed pursuant to the Arbitration Act. The grounds for appeal listed in the notice of appeal include the following: that the motions judge erred in law and exceeded his jurisdiction by failing to order a stay under s.7 of the Arbitration Act.

Issues

1. Is the order of the motions judge subject to appeal in light of s.7(6) of the Arbitration Act (which provides that there is no appeal from a decision of the court made under s.7 of the Arbitration Act)?

2. If there is a right of appeal, is the order interlocutory ( being an order within the action commenced under the Class Proceedings Act, 1992) and accordingly appealable to the Divisional Court with leave of that court?

Legislation

Arbitration Act, 1991, S.O. 1991, c. 17

6. No court shall intervene in matters governed by this Act, except for the following purposes, in accordance with this Act:

7. To assist the conducting of arbitrations.

8. To ensure that arbitrations are conducted in accordance with arbitration agreements.

9. To prevent unequal or unfair treatment of parties to arbitration agreements.

10. To enforce awards.

7.(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.

(2) However, the court may refuse to stay the proceeding in any of the following cases:

1. A party entered into the arbitration agreement while under a legal incapacity.

2. The arbitration agreement is invalid.

3. The subject-matter of the dispute is not capable of being the subject of arbitration under Ontario law.

4. The motion was brought with undue delay.

5. The matter is a proper one for default or summary judgment.

(3) An arbitration of the dispute may be commenced and continued while the motion is before the court.

(4) If the court refuses to stay the proceeding,

(a) no arbitration of the dispute shall be commenced; and

(b) an arbitration that has been commenced shall not be continued, and anything done in connection with the arbitration before the court made its decision is without effect.

(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.

(6) There is no appeal from the court’s decision.

Analysis

Issue (1). Section 7(6) of the Arbitration Act

[8] This issue is resolved by the findings of the motions judge that the period covered by the action was not governed by the Basic Agreement and the arbitration clause it contained. While the record is not clear as to when the training period began and when the plaintiff commenced work under the three contracts that she signed, this was a matter to be resolved by the motions judge.

[9] Section 7 governs the conduct of “a party to an arbitration agreement” (ss.1). Subsection 2 provides for rulings as to the validity of a particular arbitration clause. It is to be noted that in this case, as obiter, the motions judge found that this clause was “unconscionable”. Unless these findings are interfered with on appeal, they are binding on the parties and control the avenue of redress of the dissatisfied party: see Borins J. in T1T2 Limited Partnership v. Canada (1994), 1994 7368 (ON SC), 23 O.R. (3d) 66 (Gen. Div.) at pp. 73-74:

It follows that on a motion to stay an action on the ground that the subject matter of the action is precluded by an arbitration provision or agreement, the court of necessity must, and accordingly has the jurisdiction to, interpret the arbitration provision or agreement. … In other words, the court first must interpret the provision for the purpose of determining whether the action, to use the words of art. 8(1) “is brought in a matter which is the subject of an arbitration agreement.” … It is only after the court has interpreted the arbitration agreement and determined whether the subject matter of the action comes within the scope of the agreement that the court is able to address the issue of a stay.

[10] Other authorities at the General Division level have held to the same effect. Where there is no arbitration clause, the Arbitration Act, 1991 has no application, or putting it another way, the dispute lies beyond the scope of s.7. It follows that if the court has decided that the Act is not applicable, then the prohibition against an appeal in s.7(6) is equally not applicable: see Deluce Holdings Inc. v. Air Canada (1992), 1992 7654 (ON SC), 12 O.R. (3d) 131 (Gen. Div.) and Simmons v. London (City), [1997] O.J. No. 3073 (Gen. Div.).

[11] Accordingly the appeal is not barred by s. 7of the Arbitration Act but is permitted to this court if it is a final order of a judge of the Superior Court of Justice: see s.6(1)(b) of the Courts of Justice Act.

Issue 2: Finality of the order

[12] Huras raises an alternative argument to prevent a review of the decision of the motions judge. Huras contends that the decision is interlocutory and Primerica should seek leave to appeal to the Divisional Court. This position is not valid. It is clear that the order under appeal finally determines the forum in which the dispute between the parties is to be resolved. It terminates any possible proceedings before an arbitral body. In addition, by denying Primerica’s motion to stay the plaintiff’s class action, the motions judge has deprived Primerica of a substantive right – the right to resolve its dispute with the plaintiff by good faith negotiation and arbitration.

[13] Counsel for Primerica referred to two decisions where this court heard appeals from orders where the respective motions judges either granted a stay of proceedings pending arbitration or refused to grant a stay of proceedings pending arbitration: Canadian National Railway v. Lovat Tunnel Equipment Inc. (1999), 1999 3751 (ON CA), 174 D.L.R. (4^th) 385 (Ont. C.A.) and Bab Systems Inc. v. McLurg, [1995] O.J. No.1344 (C.A.). Although the issue of the court’s jurisdiction was not raised in either appeal, in both instances the court proceeded on the basis that the orders under appeal were final and not barred by the Arbitration Act or its equivalent. Whether the court of first instance declines to stay the main action (Lovat) or stays the main action (Bab), one of the proceedings will terminate. In the former case, the arbitration proceeding ended: in the latter, the court proceeding ended. In either case, the order was final.

[14] While it appears that there is no case in this jurisdiction that directly deals with the issue of whether an order declaring an arbitration clause invalid is final or interlocutory, there are two decisions from the United States that are of assistance. The American cases confirm that the right to submit disputes to arbitration is a substantive right. In Red Cross Line v. Atlantic Fruit Company, 264 U.S. 109 (1924), at issue was whether the Arbitration Law of New York governed agreements for arbitration arising under maritime contracts. In the course of his judgment, Brandeis J. stated at p. 123: "The substantive right created by an agreement to submit disputes to arbitration is recognized as a perfect obligation."

[15] Similarly in Bernhardt v. Polygraphic Company America, 350 U.S. 198 (1956), Douglas J. stated for the court at para. 16:

For the remedy by arbitration, whatever its merits or shortcomings, substantially affects the cause of action created by the State. The nature of the tribunal where suits are tried is an important part of the parcel of rights behind a cause of action. The change from a court of law to an arbitration panel may make a radical difference in the ultimate result.

[16] In that case, a Vermont employee disputed an arbitration clause included in a contract he signed in New York. He disputed the enforceability of the clause that required arbitration of his Vermont dismissal in New York.

[17] The common thread that binds the American decisions is the substantive right to submit a dispute for arbitration. In applying this proposition to the appeal, it becomes apparent that when the motions judge declared the arbitration clause inapplicable and invalid, he affected a substantive right of Primerica, thereby making an order that was final.

[18] For the reasons set out above, I would dismiss the motion to quash this appeal with costs.

Released: OCT 16 2000 Signed: “G.D. Finlayson J.A.”

GDF “I agree J.J. Carthy J.A.”

“I agree J. Simmons J. (ad hoc)