Huras v. Primerica Financial Services Ltd. [Indexed as: Huras v. Primerica Financial Services Ltd.]

55 O.R. (3d) 449

[2001] O.J. No. 3318

Docket No. C34178

Court of Appeal for Ontario

Borins, Feldman and MacPherson JJ.A.

August 17, 2001

Arbitration -- Applicability of arbitration clause -- Plaintiff attended mandatory training program in order to become licensed sales representative for defendant -- After successfully completing program plaintiff signed standard form contract with defendant -- Contract contained provision that any dispute between plaintiff and defendant would be settled through binding arbitration -- Dispute defined as any dispute related to plaintiff's relationship with defendant -- Plaintiff brought action claiming damages for defendant's failure to pay minimum wage under Employment Standards Act during training course -- Arbitration clause did not apply to dispute raised in action as that dispute arose out of plaintiff's prior relationship with defendant and not out of relationship created by contract.

The plaintiff attended a mandatory training program in order to become a licensed sales representative for the defendant. When she successfully completed the training program, she signed a standard form contract with the defendant which contained a clause providing that any dispute between the plaintiff and the defendant would be settled solely through good faith negotiation and, if that failed, binding arbitration. "Dispute" was defined as any type of dispute in any way related to the plaintiff's relationship with the defendant that under law may be submitted by agreement to binding arbitration. The plaintiff brought an action claiming damages for the defendant's failure to pay the minimum wage under the Employment Standards Act, R.S.O. 1990, c. E.14 during the training course. The defendant moved to stay the action pursuant to s. 7(1) of the Arbitration Act, 1991, S.O. 1991, c. 17. The motion was dismissed. The defendant appealed.

Held, the appeal should be dismissed.

An arbitration clause in a contract is to be interpreted in the context of that contract and the commercial legal relationship which it creates. The motions judge properly interpreted the arbitration clause in question as applying to disputes arising out of the relationship between the parties created by the contract, and not to disputes arising out of their pre-contractual relationship. The provisions of the contract related to the plaintiff's relationship as a licensed sales representative of the defendant, and not to her relationship as a trainee.

APPEAL from a judgment dismissing a motion for a stay of proceedings.

Heyman v. Darwins Ltd., [1942] 1 All E.R. 337, [1942] A.C. 356, 111 L.J.K.B. 241, 166 L.T. 306, 58 T.L.R. 169 (H.L.), apld Other cases referred to Canadian National Railway Co. v. Lovat Tunnel Equipment Inc. (1999), 1999 CanLII 3751 (ON CA), 174 D.L.R. (4th) 385, 37 C.P.C. (4th) 13 (Ont. C.A.); T1T2 Ltd. Partnership v. Canada (1994), 1994 CanLII 7368 (ON SC), 23 O.R. (3d) 66, 19 B.L.R. (2d) 72, 35 C.P.C. (3d) 353 (Gen. Div.) Statutes referred to Arbitration Act, 1991, S.O. 1991, c. 17, s. 7(1) Courts of Justice Act, R.S.O. 1990, c. C.43, s. 106 Employment Standards Act, R.S.O. 1990, c. E.14, ss. 3(1), 23

Michael D. Wright, Charles M. Wright and Mia London, for respondent. Larry P. Lowenstein and Derek J. Bell, for appellant.

The judgment of the court was delivered by

[1] BORINS J.A.: -- The issue on this appeal is whether an action for damages under the Employment Standards Act, R.S.O. 1990, c. E.14 commenced in the Superior Court by the respondent, Cindy Huras, against the appellant, Primerica Financial Services Ltd., should be stayed pursuant to s. 7(1) of the Arbitration Act, 1991, S.O. 1991, c. 17. The parties signed an employment contract on August 26, 1996. The contract contains an arbitration clause. The appellant moved for a stay on the ground that the matter in dispute between the parties falls within the arbitration clause. The motion judge, Cumming J., in reasons reported at [2000] O.J. No. 1474, refused the stay. The respondent contends that the dispute does not fall within the arbitration clause and that the motion judge, rightly refused the stay.

[2] The answer to the question whether a dispute falls within an arbitration clause in a contract depends both on the nature of the dispute and the scope of the arbitration clause. As I will explain, there is no disagreement between the parties concerning the nature of the dispute, which is described in the respondent's statement of claim. However, there is disagreement as to whether the arbitration clause covers the dispute. To decide this question, it is necessary to interpret the arbitration clause.

[3] Regarding the nature of the dispute, it arises out of an intended, but as yet uncertified, class proceeding by Huras against Primerica. The proposed class members are all persons who attended a mandatory Primerica training program after May 18, 1993 and prior to January 1, 1998. Huras seeks damages on her own behalf and on behalf of all class members for Primerica's failure to pay a minimum wage pursuant to the Employment Standards Act to individuals who participated in a mandatory training program. Each member of the class was required by Primerica to attend the training program in order to become a licensed sales representative for the company.

[4] In the spring of 1996, Huras began her training to become a sales representative for Primerica. Although she spent approximately 30 to 40 hours attending Primerica's training sessions, she received no compensation for her attendance. She claims that under s. 23 of the Employment Standards Act, Primerica was required to pay her a minimum wage of $6.85 an hour. Based on the time she spent attending training sessions, this would amount to approximately $200 to $275.

[5] Huras successfully completed the training program and secured a licence to become an insurance agent. On August 26, 1996, she signed a standard form contract with Primerica to become a licensed sales representative of that company. The provisions of the contract that are relevant to this appeal read as follows:

As a member of the Primerica Financial Services sales force, I am an independent contractor, and not an employee of Primerica Financial Services Ltd. ("PFS") or any other PFS Company.

15. (a) Except as otherwise provided in this Agreement or another written agreement between you and a PFS Company, any dispute between you and a PFS Company, between you and a PFS Company affiliate (or any of their past or present officers, directors or employees) or between you and another PFS representative (as long as a PFS Company or a PFS Company affiliate or any of their personnel is also involved as a party to the dispute) will be settled solely through good faith negotiation (as described in the then current Operating Guideline on Good Faith Negotiation) or, if that fails, binding arbitration. "Dispute" means any type of dispute in any way related to your relationship with a PFS Company that under law may be submitted by agreement to binding arbitration, including allegations of breach of contract, personal or business injury or property damage, fraud and violation of federal, provincial or local statutes, rules or regulations. A PFS Company may exercise rights under this Agreement without first being required to enter into good faith negotiations or initiate arbitration for disputes covered by this section.

(Emphasis added)

[6] On May 18, 1999, Huras commenced this action. Subsequently, in reliance on s. 7(1) of the Arbitration Act, 1991 and s. 106 of the Courts of Justice Act, R.S.O. 1990, c. C.43, Primerica moved to stay the action. Primerica moved for a stay on the ground that Huras' claim, to use the language of s. 7(1) of the Arbitration Act, 1991, is "in respect of a matter to be submitted to arbitration" under clause 15(a) of the contract of August 26, 1996.

[7] Primerica's motion was dismissed by Cumming J. It is from this order that Primerica appeals. For the reasons that follow, I would dismiss the appeal.

[8] The subject matter of the dispute is clear. It is whether the provisions of the Employment Standards Act required Primerica to pay Huras a minimum wage to compensate her for 30 to 40 hours during which she was required to attend Primerica's training program in May 1996.

[9] The more difficult issue is whether the dispute is covered by the arbitration clause in the contract of August 26, 1996. If it is, the action must be stayed and the dispute must be submitted to arbitration under s. 7(1) of the Arbitration Act, 1991, which reads as follows:

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.

[10] Therefore, it is necessary to interpret the arbitration clause to determine whether the dispute is one which falls within its terms. In doing so, it is important to bear in mind the function of an arbitration clause in a contract, which is to embody the agreement of the contracting parties that if any dispute arises which falls within its terms, the dispute shall be settled by arbitration. See: Heyman v. Darwins Ltd., [1942] A.C. 356, [1942] 1 All E.R. 337 (H.L.) per Lord Macmillan at pp. 373-74 A.C. With respect to construing an arbitration clause, Lord Macmillan said at p. 376 A.C.:

It is clear that, as the arbitration clause is a matter of agreement, the first thing is to ascertain according to ordinary principles of construction what the parties have actually agreed . . . .

[11] Further guidance in interpreting an arbitration clause was given by Viscount Simon L.C. at p. 366 A.C.:

An arbitration clause is a written submission, agreed to by the parties to the contract, and, like other written submissions to arbitration, must be construed according to its language and in the light of the circumstances in which it is made.

At p. 368 A.C., Viscount Simon L.C. added that "the governing consideration in every case must be the precise terms of the language in which the arbitration clause is framed".

[12] Thus, because the arbitration clause is but part of the contract, it is to be interpreted in the context of that contract and the commercial legal relationship which it creates. That was the approach followed in Heyman. It is also the approach followed by the courts of this province, including the court in T1T2 Ltd. Partnership v. Canada (1994), 1994 CanLII 7368 (ON SC), 23 O.R. (3d) 66, 19 B.L.R. (2d) 72 (Gen. Div.), which considered Heyman.

[13] In interpreting the arbitration clause contained in clause 15(a) of the contract, the motions judge looked to the relationship between Huras and Primerica, the nature of their dispute and whether the dispute related to their relationship. He found that there were two distinct relationships between the parties: first, while Huras was a trainee, and second, when she became a licensed sales representative of Primerica, a relationship that was created when the parties entered into the August 26 contract. He further found that the contract "cannot properly be construed as . . . applying retrospectively to the earlier period of training", that is, to the first relationship. Thus, the motions judge concluded that the provisions of the contract related to Huras' relationship as a licensed sales representative of Primerica, and not to her relationship as a trainee. The motions judge stated:

The claim advanced relates only to the training period. For the reasons given, there is no arbitration clause applicable to this time period and the relationship between the parties over this time frame. Hence, the motion is dismissed on this basis.

[14] I see no reason to interfere with the motions judge's interpretation of the arbitration clause. In my view, interpreted in the context of the contract in which it is contained and the commercial relationship it created between the parties, Cumming J. reached the correct result. The dispute raised in Huras' claim does not arise from her relationship with Primerica as a licensed sales representative. Using the language of clause 15(a) of the contract, in order to be resolved by arbitration the dispute must be "in any way related to [Huras'] relationship with a PFS Company". Interpreting this language in the context of the contract in which it is contained, it is clearly a reference to the commercial relationship established by that contract.

[15] The appellant contends that the phrase "any dispute between you and a PFS Company" found in the first sentence of the arbitration clause is broad enough to encompass virtually any dispute between the parties, regardless of when it arose or its subject matter. The appellant contends that because the phrase captures the dispute that was put in issue by the respondent's claim, even though it arose before the date of the contract between the parties, it must be arbitrated.

[16] However, in my view, the appellant's contention ignores the fact that the second sentence of the arbitration clause contains its own definition of "dispute". The clause provides that a dispute is limited to one "related to your relationship with a PFS Company". The "relationship" in reference is not any relationship that may arise between Huras and a PFS Company, but the relationship created by the contract -- that of Huras becoming a licensed sales representative of Primerica. This is made clear by the first sentence of clause 1 of the contract which states: "This Basic Agreement covers important matters about your relationship with PFS and other PFS companies" (emphasis added). The balance of the contract deals with other matters that govern Huras' relationship as an independent contractor of Primerica that is created by the contract. As the motion judge found, there was a prior relationship between Huras and Primerica when she was a trainee of the company. However, the dispute between the parties arises from that relationship, not from the relationship created by the contract. Thus, the dispute does not fall within the arbitration clause.

[17] As Viscount Simon L.C. said, at p. 366 A.C. in Heyman, an arbitration clause is to be construed "in the light of the circumstances in which it is made". In this case, on August 26, 1996, after the training program required by Primerica ended, Huras and Primerica entered into a contract which established a new commercial relationship: Huras became Primerica's licensed sales representative. In my view, the arbitration clause, properly construed, clearly contemplates a resolution by arbitration only if the dispute between the parties arose from the relationship created by the contract.

[18] I recognize that it is established policy that courts should encourage the resolution of disputes through arbitration. As this court recently reiterated, where the language of an arbitration clause is capable of bearing more than one interpretation, one of which provides for arbitral resolution, a court should favour that interpretation. See: Canadian National Railway Co. v. Lovat Tunnel Equipment Inc. (1999), 1999 CanLII 3751 (ON CA), 174 D.L.R. (4th) 385, 37 C.P.C. (4th) 13 (Ont. C.A.). In this case, were there any doubt whether the arbitration clause reasonably contemplated the dispute in question, I would agree with the appellant that the arbitration clause should be construed in favour of arbitration. However, for the above reasons, I am left in no doubt as to the plain meaning of the arbitration clause which the parties included in their contract. The dispute does not fall within that clause.

[19] In criticizing the motions judge's finding that the arbitration clause "cannot be construed as applying retrospectively" to a dispute relating to events that occurred prior to the date of the contract, counsel for Primerica relied on American authorities. He submits that these authorities illustrate that District Courts and Circuit Courts in the United States have overwhelmingly held that arbitration clauses may apply to disputes arising prior to the signing of a contract containing an arbitration clause. In my view, these cases are distinguishable on their facts. The focus of each case was the interpretation of an arbitration clause that was said to require the arbitration of all disputes between the parties. I do not read these cases as establishing any general legal principle that arbitration clauses must always be construed as applying to disputes between the parties arising prior to the contract in which they are found. Like the American cases, this case involves the construction of an arbitration clause in a contract and the determination of whether the dispute between the parties falls within its terms. Like the American cases, this case depends upon its own facts.

[20] In addition to finding that the dispute between the parties did not fall within the arbitration clause, the motions judge also found that the arbitration clause was unconscionable, and that it was unenforceable under s. 3(1) of the Employment Standards Act. That section precludes any agreement from contracting out of or waiving any employment standard mandated by the Act. In doing so, the motions judge appreciated that his findings regarding unconscionability and the violation of s. 3(1) were unnecessary to the result. There is no doubt that it was unnecessary for the motion judge to decide these issues in order to determine whether to stay the respondent's action under s. 7(1) of the Arbitration Act, 1991. These findings are clearly obiter dicta and, therefore, not binding as a precedent. Because these findings are obiter dicta, it is not necessary to review their correctness, as requested by counsel for Primerica.

[21] For the reasons above, I would dismiss the appeal with costs.

Appeal dismissed.