DATE: 20060724
DOCKET: C44895
COURT OF APPEAL FOR ONTARIO
GILLESE, ARMSTRONG and MACFARLAND JJ.A.
B E T W E E N :
DAVID STONE
Richard J. Worsfold for the respondent
Plaintiff (Respondent)
- and -
LAWRENCE POLON and DAVID M. STONE & COMPANY
Kevin R. Aalto for the appellant
Defendants (Appellant)
Heard: July 17, 2006
On appeal from the judgment of Justice William P. Somers of the Superior Court of Justice dated January 19, 2006.
GILLESE J.A.:
[1] This is an appeal from the summary judgment granted by Somers J. dated January 19, 2006. The judgment declared a Joint Submission to Arbitration dated December 6, 2002, between Messrs. Stone and Polon (the “arbitration agreement”) to be invalid “as there was no consensus between the parties as to the matter to be arbitrated”. It also dismissed Mr. Polon’s cross‑motion to permanently stay this action and direct that the arbitration proceed.
[2] Mr. Polon appeals. He seeks to have the judgment below set aside and to have his cross-motion granted.
[3] For the reasons that follow, I would allow the appeal and grant the relief sought.
FACTS
[4] Messrs. Stone and Polon are chartered accountants. Prior to February 1, 1992, they were business partners in David M. Stone & Company (“DMS”). On February 1, 1992, the partnership was wound up as part of an agreement to sell their customer list to a larger firm and become partners within the new firm.
[5] Mr. Stone left the new accounting firm in 1995. The new firm brought an action against Mr. Stone (the “first action”). So, too, did Mr. Polon who claimed an accounting under the original partnership agreement between the two of them. Mr. Stone counterclaimed in Mr. Polon’s action (the “second action”).
[6] The two actions proceeded to trial and were heard together. After a six‑day trial before Caswell J., she released a decision in which she disposed of the matters in issue in the first action. In relation to the matters in issue in the second action, Caswell J. found that Mr. Stone’s calculations in Exhibit 5 – 90 were a correct summary of the division of the liabilities, expenses and assets of the Stone/Polon partnership for the period February 1, 1992, to January 31, 1998. At para. 54 of her reasons, she directed the parties to make their respective calculations and finalize the partnership accounts of DMS using Exhibit 5 – 90 “as their guide”.
[7] Paragraph 6 of the judgment of Caswell J., dated February 22, 1999, provides:
- THIS COURT ORDERS AND ADJUDGES that the calculations of the accounts of David M. Stone and Company as set out in the Trial Exhibits 5‑90 are a correct summary of the division of liability, expenses and assets of the partnership of David M. Stone and Lawrence Polon in David M. Stone and Company and further receipts and disbursements shall be applied in the same manner.
[8] Appeals and cross-appeals were launched in respect of both actions. Although this court took issue with certain findings made in the first action, it dismissed Mr. Stone’s appeal and Mr. Polon’s cross-appeal in the second action.[^1] Consequently, para. 6 of the judgment remains operative.
[9] Following the appeal, Mr. Polon proposed arbitration as a means to finalize the partnership accounts and avoid further litigation. Mr. Stone agreed. Mr. Stone’s counsel prepared the initial draft of the arbitration agreement. As part of the negotiation process that yielded the arbitration agreement, Mr. Stone insisted that a right of appeal provision be included.[^2]
[10] The introductory paragraphs of the arbitration agreement state:
Submission to Arbitration by Gordon Atlin, QC
The parties entered into an agreement dated February 1, 1992 to dissolve and wind up their partnership, David M. Stone & Company (“DMS”).
The parties cannot agree on the final accounting for the winding‑up of their partnership and have agreed to submit their dispute to a single arbitrator for binding arbitration in accordance with this Joint Submission.
[11] Paragraph 4 of the arbitration agreement identifies the issues to be arbitrated. It reads as follows:
- The issues to be arbitrated between the parties in accordance with the terms of this Joint Submission are as follows:
a. how much is owing by either Polon or Stone to equalize their partners’ capital accounts;
b. upon equalization of the capital accounts of Polon and Stone, how much is owing by DMS, if anything, to each of the partners on any accounts;
c. determination of any other issues necessary to wind-up the affairs of DMS having regard to the Judgment of the Hon. Madam Justice Caswell dated February 22, 1999 as amended by the Court of Appeal by Order dated November 2, 1999;
d. from what date is pre‑judgment interest payable on any amounts due from Stone or Polon to DMS, or from DMS to Stone or Polon;
e. payment of any amounts awarded to Polon or Stone by DMS from the monies held in trust by Ellyn-Barristers to the credit of DMS pursuant to the Order of the Hon. Justice Lissaman dated December 16, 1999.
[12] The parties, through their counsel, executed the arbitration agreement and Mr. Atlin accepted the appointment as arbitrator.
[13] Steps were taken in the arbitration proceeding. Both parties were represented by counsel throughout. In January 2003, Mr. Stone asked the arbitrator to find that the scope of the arbitration was restricted to the period after February 1, 1998. He argued that the earlier trial before Caswell J., her decision and the subsequent decision of this court upholding her decision in respect of the accounts for the period February 1, 1992 to January 31, 1998, constituted an issue estoppel that prevented the arbitrator from re‑examining the accounts for that period. He maintained that he had agreed to arbitration in order to determine and settle the accounts for the period after February 1, 1998.
[14] Mr. Polon argued that the arbitration was intended to provide a final accounting between the parties and that while there was to be an examination of all of the accounts, Exhibit 5 – 90 was to be used as a guide in the preparation of the accounts.
[15] The arbitrator ruled against Mr. Stone. In a decision delivered in early February 2003, he stated:
From this, it is unequivocally clear to me that the parties have agreed to an audit of the accounting records prepared by Mr. Stone. The Joint Submission was executed on December 6, 2002, almost 3 years after the Judgments of the Court of Appeal and Madame Justice Caswell. It is my opinion that this is an agreement that stands on its own and was entered into on the advice of counsel. While a determination of issues must have regard to the judgments of Madame Justice Caswell and the Court of Appeal, the parties specifically agreed in paragraph 5 to the delivery of full particulars on all claims and disputes.
I feel I must comment on Mr. Ellyn’s able representations with respect to issue estoppel. I cannot give effect to that argument since the parties by their own volition entered into an Arbitration Agreement as a means of resolving their differences as evidenced in paragraph 2 of the Submission. Meaning must be attributed to the ‘Submission’ which includes the following words:
“Parties cannot agree on the final accounting for the winding up of their partnership and agree to submit a dispute to a single arbitrator for binding arbitration in accordance with the Joint Submission.”
The issues are set forth in the Joint Submission for Arbitration.
Parties have now agreed to a final accounting of the 1992 agreement. If estoppel had been applicable, the parties [would] have agreed otherwise. Exhibit 5-90 remains the guide for the accounting but in my view, the review and possible amendment of particular items remains open. For instance, one open question is what, in accounting terms, does a “guide” mean? Is it definitive of all matters or does it offer a generalized instruction?
[16] In an e-mail dated February 11, 2003, Mr. Stone’s counsel reserved his right to appeal the decision in accordance with the terms of the arbitration agreement. No appeal of the decision was undertaken. Mr. Stone did, however, take steps to comply with other aspects of the arbitrator’s decision that required him to produce certain documents.
[17] Mr. Stone retained new counsel in the late fall of 2003. New counsel sought to re‑argue the matter of the scope of the arbitration. In the fall of 2004, the arbitrator refused to hear argument on the issue as he had already ruled and no appeal had been taken from that ruling.
[18] Mr. Stone commenced this proceeding on December 1, 2004. His motion for summary judgment is essentially a reiteration of the position that he had argued before the arbitrator.
[19] At para. 15 of his reasons, the motion judge explained why he found the arbitration agreement to be invalid, saying:
I am satisfied that there was no consensus ad idem between the parties in the creation of the arbitration agreement. The very subject matter of the arbitration is, to my mind, sufficiently central to the purpose of the arbitration that what I view as totally different opinions as to what the actual subject was to be about amounts to there being no contract at all. If one party to a contract makes it on one set of terms and the other intends to make it on another set of terms, there is no contact, unless the circumstances are such as to preclude one of the parties from denying that he or she has agreed to terms of the offer. See Tilden Rent‑A‑Car Co. v. Clendenning (1978), 18 O.R. (2d) 601 (C.A.) at 605. To my mind, it does not seem reasonable to suppose that Stone was giving his real consent to re‑examining the accounts in the earlier period when in fact they had been reviewed over a six‑day period at trial in court had been found consistent with his point of view and had been confirmed by the Court of Appeal.
THE ISSUE
[20] The central issue in this appeal is whether the motion judge erred in failing to dismiss or permanently stay this action in accordance with s. 7 of the Arbitration Act, S.O. 1991, c. 17.
ANALYSIS
[21] Sections 7(1) and (2) of the Arbitration Act read 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.
7.(2) However, the court may refuse to stay the proceeding in any of the following cases:
A party entered into the arbitration agreement while under a legal incapacity.
The arbitration agreement is invalid.
The subject-matter of the dispute is not capable of being the subject of arbitration under Ontario law.
The motion was brought with undue delay.
The matter is a proper one for default or summary judgment.
[22] Section 7(1) requires a court to stay a proceeding brought by a party to an arbitration agreement in respect of a matter submitted to arbitration. However, s. 7(2) gives the court the discretion to refuse to stay the proceeding for one or more of five reasons.
[23] As this court recently reiterated in Woolcock v. Bushert, [2004] O.J. No. 4498 at para. 14, to determine whether to stay a proceeding pursuant to s. 7(1), the court must begin by interpreting the arbitration provision. It must then analyze the claims in the action to determine whether those claims are to be decided by the arbitrator under the terms of the arbitration agreement, as interpreted by the court. If so, subject to the exercise of discretion based on the limited exceptions in s. 7(2), the court is required to stay the proceeding.
[24] In this case, there can be no doubt but that the matters in issue in this proceeding are the same as those to be decided by the arbitration. For example, in paragraphs 1(a) through (d) of the Statement of Claim, Mr. Stone (as plaintiff) claims money from Mr. Polon in respect of the partnership accounts of DMS. And, in paras. 1(e) and (g), he asks for orders implementing the judgment of Caswell J. and declaring that the accounts for the period February 1, 1992, and January 31, 1998, are not capable of being the subject of arbitration under Ontario law as they have been determined by the Judgment of the Honourable Madam Justice Caswell dated February 22, 1999.
[25] Paragraphs 1, 2 and 4 of the arbitration agreement, set out previously, establish that the scope of the arbitration is to settle the partnership accounts as between Mr. Stone and Mr. Polon. The role that is to be played by the judgment of Caswell J., including her determination that Exhibit 5 – 90 is to be used as a guide for the accounts, clearly falls within the scope of the arbitration. Indeed, para. 4(c) of the arbitration agreement says just that.
[26] The claims as pleaded in this action are those to be decided by the arbitration. Thus, in accordance with s. 7(1) of the Arbitration Act, the action should be stayed unless an exception in s. 7(2) is found to exist and the court chooses to exercise its discretion and refuse the stay.
[27] The motion judge refused to stay the proceedings on the basis of invalidity, the second exception in s. 7(2) of the Arbitration Act. In my view, he erred in law in concluding that the arbitration agreement was invalid. On a plain reading of the arbitration agreement, the arbitration was to settle the partnership accounts of Messrs. Stone and Polon using Exhibit 5 – 90 as a guide. There was no need to go behind the arbitration agreement to examine the intentions of the parties in entering into the agreement. Indeed, to do so was an error. As stated by Archibald J. at para. 21 in Magnotta Winery Corp. v. Ziraldo, [1999] O.J. No. 3968 (Sup. Ct.), arbitration agreements are contracts and governed by contract law, where the law is not in conflict with the Arbitration Act. On basic contract principles, as there was no ambiguity in the arbitration agreement, the scope of the arbitration is determined by its terms.
[28] With respect, I do not read Tilden Rent-a-Car Co. v. Clendenning (1978), 18 O.R. (2d) 601 (C.A.) to the contrary. In that case, this court affirms that a party’s signature to a contract is one way of manifesting assent to its terms. However, the signature can be relied on as manifesting assent only where it is reasonable for the party relying on the signed document to believe that the signer really did assent. In Tilden, the car rental company emphasized speed and ease of transactions. The court found that the company could be held to know that its customers did not really assent to all of the unusual and onerous printed terms in the documents that they signed, which terms were not drawn to their attention.
[29] That is not this case. Mr. Stone was represented by counsel throughout. He prepared the initial draft of the arbitration agreement. Its terms were negotiated. There is nothing unusual or onerous in its terms. He agreed to the terms of the arbitration agreement. His counsel executed the agreement on his behalf. There is nothing to suggest he did not assent to its terms. On the contrary, it is clear that he did.
[30] The respondent seeks to rely also on the third exception in s. 7(2), namely, that the “subject-matter of the dispute is not capable of being the subject of arbitration under Ontario law”. This argument rests on the notion that issue estoppel operates to preclude the arbitrator from reconsidering the accounts for the period from February 1, 1992, to January 31, 1998. While issue estoppel might apply if the matter were before the courts, I do not accept that it applies to the arbitration. The parties to the arbitration agreement freely agreed to have a final accounting of the wind-up of their partnership decided by arbitration. By the express terms of the arbitration agreement, they agreed that such a determination was to be made “having regard to the judgment of Caswell J.” Had they wished to limit the scope of the arbitration based on that judgment, they were free to so stipulate. They did not. Thus, the arbitrator is to decide the dispute in accordance with the terms of the arbitration agreement.
[31] As none of the exceptions in s. 7(2) have been found to exist, s. 7(1) operates and the court must stay the proceeding.
[32] In 2006, it is trite law that when persons choose to resolve their differences by arbitration, the courts will ordinarily hold them to their agreement. In the circumstances of this case, there is every reason to adhere to that principle. Messrs. Stone and Polon consensually entered into arbitration after negotiating the terms of an arbitration agreement through their respective counsel. The parties commenced the arbitration and were represented by counsel throughout. After full argument on the issue of the scope of the arbitrator’s jurisdiction, a carefully reasoned decision on that matter was handed down by the arbitrator. Mr. Stone did not appeal that decision despite the fact that the appeal provision in the arbitration agreement appears to give him that right. Thereafter, Mr. Stone took a fresh step in the arbitration. In my view, not only does s. 7 require that a stay be ordered, it would be an abuse of process to allow this proceeding to continue.
DISPOSITION
[33] Accordingly, I would allow the appeal and set aside the judgment below. I would grant the cross-motion below and order that this proceeding be stayed and the arbitration proceed. I would order costs of the motions below and of the appeal to the appellant. If the parties are unable to agree on costs of the motion, they may have such costs determined by the motion judge or assessed. I would fix costs of the appeal at $12,000, inclusive of disbursements and GST.
RELEASED: July 24, 2006 (“EEG”)
“E. E. Gillese J.A.”
“Robert P. Armstrong J.A.”
“J. MacFarland J.A.”
[^1]: See Schwartz Levitsky Feldman v. Stone, [1999] O.J. No. 4070 (C.A.).
[^2]: The appeal provision reads as follows:
s. 13. An appeal lies on a question of law or on a mixed question of fact and law only to the Divisional Court of the Superior Court of Justice of Ontario from the award decision of the arbitrator. The time and procedure of such appeal shall be in accordance with the Rules of Civil Procedure of the Superior Court under the Courts of Justice Act.