Brown v. Murphy [Indexed as: Brown v. Murphy]

59 O.R. (3d) 404

[2002] O.J. No. 1545

Docket No. C36445

Court of Appeal for Ontario,

Abella, Charron and Cronk JJ.A.

April 30, 2002

Arbitration -- Stay of proceedings -- Parties entering into Cost Sharing Agreement in respect of their dental practice -- Agreement providing that disputes relating to agreement or to business or affairs of practice would be settled by arbitration -- Plaintiff bringing action for damages for breach of agreement, conversion and malicious prosecution -- Motion by defendant under s. 7 of Arbitration Act for stay of action dismissed on basis that arbitration agreement applied to some but not all matters in dispute in action -- Appeal from that decision not barred by s. 7(6) of Arbitration Act -- Motions judge did not err in refusing to grant stay -- Arbitration Act, 1991, S.O. 1991, c. 17, s. 7.

The parties were dentists who practised together pursuant to a Cost Sharing Agreement. The agreement provided for the settlement of any disputes relating to the agreement or the business or affairs of the practice by non-binding mediation and then, if mediation was not successful, by arbitration. The relationship between the parties broke down and the plaintiff brought an action for damages for breach of the agreement, conversion and malicious prosecution. The latter cause of action was based on allegedly false complaints concerning the plaintiff lodged by the defendant with the Royal College of Dental Surgeons. The defendant brought a motion under s. 7 of the Arbitration Act, 1991 for a stay of the action. The motion was dismissed on the basis that the arbitration agreement extended to some but not all of the matters in dispute in the action. The motions judge refused to grant a partial stay on the basis that the matters that did not fall within the scope of the arbitration agreement could not easily be dealt with alone. The defendant appealed. The plaintiff argued that the appeal was barred by s. 7(6) of the Arbitration Act, 1991.

Held, the appeal should be dismissed.

The bar under s. 7(6) of the Arbitration Act, 1991 applies to any decision by the motions court under s. 7 to grant or refuse a stay of "a proceeding in respect of a matter to be submitted to arbitration under the agreement" within the meaning of s. 7(1). However, a decision by the motions judge that a matter was not subject to arbitration under the terms of the arbitration agreement falls outside the scope of s. 7, and a right of appeal lies from that decision.

The motions judge was correct in finding that part of the claim fell outside the scope of the arbitration agreement. In particular, the allegations related to the claim of malicious prosecution and consequent loss of reputation were not matters that related to the Cost Sharing Agreement or to the business or affairs of the practice.

The motions judge's refusal to grant a partial stay on the basis that the matters that did not fall within the scope of the parties' agreement could not easily be dealt with alone fell within the scope of his discretion under s. 7(5), and no appeal from that decision lay to the Court of Appeal.

APPEAL from an order dismissing a motion for a stay of proceedings.

Huras v. Primerica Financial Services Ltd. (2000), 2000 16892 (ON CA), 137 O.A.C. 79 (C.A.), folld Other cases referred to Deluce Holdings Inc. v. Air Canada (1992), 1992 7654 (ON SC), 12 O.R. (3d) 131, 98 D.L.R. (4th) 509, 8 B.L.R. (2d) 294, 13 C.P.C. (3d) 72 (Gen. Div.); Simmons v. London (City) (1997), 1997 12336 (ON SC), 32 C.C.E.L. (2d) 150 (Ont. Gen. Div.); T1T2 Ltd. Partnership v. Canada (1994), 1994 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 Courts of Justice Act, R.S.O. 1990, c. C.43, s. 6(1)(b)

Alan J. McMackin, for respondent. Robert L. Colson, for appellant.

The judgment of the court was delivered by

[1] CHARRON J.A.: -- The appellant brought a motion under s. 7 of the Arbitration Act, 1991, S.O. 1991, c. 17, for a stay of the respondent's action on the ground that the parties were bound, pursuant to the terms of their Cost Sharing Agreement, to settle the dispute between them by arbitration. The motions judge refused to grant a stay, thereby allowing the action to continue. The appellant appealed from the dismissal of his motion.

[2] The parties are both dentists licensed to practise in the Province of Ontario. On August 21, 1998, they entered into a Cost Sharing Agreement relating to their practice. Section 10.1 of the Cost Sharing Agreement provided for the settlement of "any disputes, deadlocks or disagreements between Brown and Murphy which relate to this Agreement or the business or affairs of their practice" by non-binding mediation and then, if mediation was not successful, by arbitration. The relationship between the parties broke down and the respondent Brown commenced this action by statement of claim issued on August 16, 2000. The claim is based on the alleged breach of the Cost Sharing Agreement, the tort of conversion, and the tort of malicious prosecution. The latter cause of action is based on allegedly false complaints concerning Brown lodged by Murphy with the Royal College of Dental Surgeons of Ontario. The action includes a claim for damages for loss of reputation, as well as punitive, exemplary and aggravated damages.

[3] A preliminary issue arose with respect to this court's jurisdiction to entertain this appeal given the statutory bar contained under s. 7(6) of the Arbitration Act. It is helpful to consider s. 7 in its entirety:

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.

[4] The appellant relied on the decision of this court in Huras v. Primerica Financial Services Ltd. (2000), 2000 16892 (ON CA), 137 O.A.C. 79 (C.A.) in support of his contention that this court has jurisdiction to hear this appeal. In that case, this court dismissed a motion to quash an appeal from a motions judge's refusal to grant a stay of the action under s. 7(1) of the Arbitration Act. The motions judge had disposed of the motion on the basis that the arbitration clause in the agreement between the parties was not applicable to the subject-matter of the claim. It was argued on the motion to quash the appeal that this court did not have jurisdiction to hear the appeal for two reasons: a) the right of appeal was barred by s. 7(6) of the Arbitration Act; and b) the order was interlocutory.

[5] Finlayson J.A., in writing for the court, held that the first issue was resolved by the finding of the motions judge that the period covered in the action was not governed by the agreement between the parties and the arbitration clause that it contained. He reasoned as follows. Since s. 7 governs the conduct of "a party to an arbitration agreement", the motions judge, on a motion for a stay, must first interpret the arbitration provision or 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 can address the issue of a stay. Where the motions court determines that the arbitration clause has no application, as it did in Huras, the dispute lies beyond the scope of s. 7 and the Arbitration Act is not applicable. Finlayson J.A. therefore concluded that the prohibition against an appeal in s. 7(6) was equally not applicable. In adopting this approach, Finlayson J.A. relied on the reasoning of Borins J. (as he then was) in T1T2 Ltd. Partnership v. Canada (1994), 1994 7368 (ON SC), 23 O.R. (3d) 66, 35 C.P.C. (3d) 353 (Gen. Div.) at pp. 73-74 O.R., and similar reasoning in Deluce Holdings Inc. v. Air Canada (1992), 1992 7654 (ON SC), 12 O.R. (3d) 131, 98 D.L.R. (4th) 509 (Gen. Div.) and Simmons v. London (City) (1997), 1997 12336 (ON SC), 32 C.C.E.L. (2d) 150 (Ont. Gen. Div.).

[6] It was further argued in Huras that no appeal lay to this court because the refusal to grant a stay was not a final order within the meaning of s. 6(1)(b) of the Courts of Justice Act, R.S.O. 1990, c. C.43. On this issue, Finlayson J.A. held that the motions judge's finding that the arbitration clause was inapplicable and invalid affected the substantive right to submit a dispute for arbitration and was a final order.

[7] The respondent argued that this case should be distinguished because the motions judge, unlike the court in Huras, found that the arbitration clause in the agreement between the parties was valid and that part of the subject- matter of the action "could very well be dealt with by way of the mediation/arbitration agreement". The motions judge nonetheless refused to grant a stay because he was of the view that those matters in the claim that were not envisaged by the clause could not easily be proceeded with on their own. He therefore dismissed the appellant's motion for a stay. The respondent argued that the motions judge's decision was effectively made under s. 7 of the Arbitration Act and that the appeal was barred under s. 7(6).

[8] At the conclusion of the argument on the jurisdictional issue, we concluded, on the authority of Huras, that the bar under s. 7(6) applied to any decision by the motions court under s. 7 to grant or refuse a stay of "a proceeding in respect of a matter to be submitted to arbitration under the agreement" within the meaning of s. 7(1). However, a decision by the motions court that a matter was not subject to arbitration under the terms of the arbitration agreement fell outside the scope of s. 7 and a right of appeal lay to this court from that decision.

[9] Although the motions judge's reasons are somewhat unclear, we interpreted them to mean that the arbitration agreement, although extending to some of the matters in dispute in the action, did not extend to all matters. Hence, consonant with the principle in Huras, we held that the motions judge's decision that the agreement did not extend to part of the dispute between the parties was the proper subject-matter of an appeal to this court. We therefore heard counsels' argument on the merits on this narrow issue and reserved our decision.

[10] The respondent submits that the real subject-matter of the dispute is the appellant's wrongful destruction of the Cost Sharing Agreement, the conversion of assets and the attack on Brown's reputation and livelihood. He submits that those matters were not reasonably expected by the parties to be the subject of arbitration. The appellant disagrees and argues that arbitration clauses should be given a broad interpretation.

[11] While I do not agree totally with the respondent's argument, I am of the view that the motions judge was correct in finding that part of the claim fell outside the scope of the arbitration agreement. In particular, I am persuaded that the allegations related to the claim of malicious prosecution and consequent loss of reputation were not matters that related to the parties' Cost Sharing Agreement or to the business or affairs of their practice. Hence, the motions judge's refusal to grant a stay, in so far as those matters are concerned, should not be interfered with.

[12] Once the motions judge decided that the arbitration clause was not applicable to part of the subject-matter of the action, it became incumbent upon him to decide, in relation to those matters that did properly fall within the scope of the agreement, whether a partial stay of the action should be granted under s. 7(5) of the Arbitration Act. The statute provides for the granting of a partial stay whenever it is reasonable to separate the matters that fall within the scope of the parties' agreement. In all such cases, a partial stay will be the appropriate remedy so as to give effect to the parties' intention to arbitrate their disputes. Otherwise, one party could unilaterally frustrate that intention by simply adding to the claim a matter that falls outside the scope of the arbitration agreement. In this case, the motions judge refused to grant such a partial stay, on the basis that the matters that did not fall within the scope of the parties' agreement could not easily be dealt with alone. This decision falls within the scope of his discretion under s. 7(5), and no appeal lies to this court.

[13] Consequently, I would dismiss the appeal. As the action will now be allowed to proceed in its entirety, I do not find it necessary to determine with more precision which matters properly fall within the scope of the arbitration agreement, and which matters do not. However, the extent to which, if any, the dispute could have been resolved more expeditiously by arbitration may well be relevant to the trial judge's determination of appropriate costs at the conclusion of the judicial proceeding. I would award the respondent his costs of the appeal, fixed in the amount of $2,000.

Appeal dismissed.