COURT OF APPEAL FOR ONTARIO
CITATION: Haas v. Gunasekaram, 2016 ONCA 744
DATE: 20161013
DOCKET: C61014
MacPherson, Simmons and Lauwers JJ.A.
BETWEEN
Andreas Haas
Plaintiff
(Respondent)
and
Danushan Gunasekaram, also known as Dan Gunam, Luca Viscardi and Shenlu Feng, also known as Stephen Feng
Defendants
(Appellants)
Avrum D. Slodovnick and Raffaele Sparano, for the appellants
David Alderson and Andrew Ottaway, for the respondent
Heard: June 30, 2016
On appeal from the Order of Justice Suhail A.Q. Akhtar of the Superior Court of Justice, dated August 14, 2015, with reasons reported at 2015 ONSC 5083, 127 O.R. (3d) 128.
Lauwers J.A.:
[1] Mr. Haas is an overseas resident. He entered into a shareholders’ agreement with Mr. Gunam, Mr. Feng and Mr. Viscardi respecting an Italian restaurant in Toronto known as Osteria Dei Ganzi and invested $200,000. The restaurant failed.
[2] Mr. Haas launched this action against Mr. Gunam, Mr. Feng and Mr. Viscardi alleging he was induced to enter into the shareholders’ agreement by fraudulent misrepresentations about the restaurant’s business prospects and how it would be managed. He seeks to recover his investment.
[3] Mr. Gunam, Mr. Feng and Mr. Viscardi moved to stay the action under s. 7 of the Arbitration Act, 1991, S.O. 1991, c. 17 in favour of the arbitration agreement contained in the shareholders’ agreement. Mr. Gunam and Mr. Feng appeal the motion judge’s refusal to stay the action. The co-defendant Mr. Viscardi did not appeal[^1].
[4] For the reasons set out below, I would allow the appeal.
A. The Context
[5] Mr. Haas alleges he was induced to sign the shareholders’ agreement by a number of misrepresentations, which he groups into some general categories: the successful history of the restaurant’s location, the projected return on investment, the management team, the capitalization of the business and communications with him regarding changes in the business. Mr. Haas alleges these misrepresentations were made in “various documents and communications provided to Haas before Haas signed the Shareholders Agreement” (emphasis added).
[6] An arbitration agreement is embedded in the shareholders’ agreement.
B. The Issue
[7] There is a single issue in this appeal: Did the motion judge err in refusing to stay the action under s. 7 of the Arbitration Act, thereby permitting Mr. Haas to avoid arbitrating the matters in dispute despite the arbitration agreement in the shareholders’ agreement?
[8] I turn to this issue after setting out the law’s approach to arbitration agreements.
C. The Law’s approach to arbitration agreements
[9] Many cases have considered how the court should approach its task under s. 7(1) of the Arbitration Act, which provides:
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. [Emphasis added.]
[10] The law favours giving effect to arbitration agreements. This is evident in both legislation and in jurisprudence. Section 7 of the Arbitration Act contains mandatory language, stating “the court in which the proceeding is commenced shall, on the motion of another party to the arbitration agreement, stay the proceeding” (emphasis added).
[11] The mandatory wording in s. 7 of the Arbitration Act is a change from s. 7 of the old Arbitrations Act, R.S.O. 1990, c. A.24, which gave the court discretion to stay the action:
[I]f satisfied that there is no sufficient reason why the matter should not be referred in accordance with the submission and that the applicant was at the time when the proceeding was commenced and still remains ready and willing to do all things necessary to the proper conduct of the arbitration, [the court] may make an order staying the proceeding. [Emphasis added.]
[12] As can be seen, the statutory language in s.7 of the current Arbitration Act is directory, not equivocal. It strongly favours giving effect to an arbitration agreement. This policy direction is reinforced by s. 17 of the Arbitration Act:
17(1) An arbitral tribunal may rule on its own jurisdiction to conduct the arbitration and may in that connection rule on objections with respect to the existence or validity of the arbitration agreement.
(2) If the arbitration agreement forms part of another agreement, it shall, for the purposes of a ruling on jurisdiction, be treated as an independent agreement that may survive even if the main agreement is found to be invalid.
[13] Subsection 17(1) did not exist in the 1980 or the 1990 Arbitrations Act. Subsection 17(2) codifies the common law, and establishes that an arbitration agreement can survive even where the contract in which it is found is determined to be invalid.[^2]
[14] The same pro-arbitration orientation is found in the jurisprudence. In Dell Computer Corp. v. Union des consommateurs, 2007 SCC 34, [2007] 2 S.C.R. 801, Deschamps J., speaking for the majority of the Supreme Court, articulated a general rule, at para. 84: “I would lay down a general rule that in any case involving an arbitration clause, a challenge to the arbitrator’s jurisdiction must be resolved first by the arbitrator.” This has become known as the “competence-competence principle”. The exception is where a “challenge to the arbitrator’s jurisdiction is based solely on a question of law, or one of mixed fact and law that requires for its disposition ‘only superficial consideration of the documentary evidence in the record’” (Dell Computer, at para. 84). See also Seidel v. Telus Communications Inc., 2011 SCC 15, [2011] 1 S.C.R. 531, at para. 4.
[15] This court most recently discussed the “competence-competence” principle in Ciano Trading & Services C.T. & S.R.L. v. Skylink Aviation Inc., 2015 ONCA 89, stating “where it is unclear if the arbitrator has jurisdiction, it is preferable to leave the issue to the arbitrator pursuant to the competence-competence principle” (at para. 7). In Dancap Productions Inc. v. Key Brand Entertainment, Inc., 2009 ONCA 135, 246 O.A.C. 226, at paras. 32-33, Sharpe J.A. explained:
It is now well-established in Ontario that the court should grant a stay under art. 8(1) of the Model Law where it is “arguable” that the dispute falls within the terms of an arbitration agreement. In Dalimpex Ltd. v. Janicki (2003), 2003 CanLII 34234 (ON CA), 64 O.R. (3d) 737 (C.A.), at para. 21, Charron J.A. adopted the following passage by Hinkson J.A. in Gulf Canada Resources Ltd. v. Arochem International Ltd. (1992), 1992 CanLII 4033 (BC CA), 66 B.C.L.R. (2d) 113 (B.C.C.A.), at paras. 39-40, as “the proper approach” to art. 8(1):
it is not for the court on an application for a stay of proceedings to reach any final determination as to the scope of the arbitration agreement or whether a particular party to the legal proceedings is a party to the arbitration agreement because those are matters within the jurisdiction of the arbitral tribunal. Only where it is clear that the dispute is outside the terms of the arbitration agreement or that a party is not a party to the arbitration agreement or that the application is out of time should the court reach any final determination in respect of such matters on an application for a stay of proceedings.
Where it is arguable that the dispute falls within the terms of the arbitration agreement or where it is arguable that a party to the legal proceedings is a party to the arbitration agreement then, in my view, the stay should be granted and those matters left to be determined by the arbitral tribunal.
As Charron J.A. explained in Dalimpex, at para. 22, “a deferential approach” allowing the arbitrator to decide whether the dispute is arbitrable, absent a clear case to the contrary, “is consistent both with the wording of the legislation and the intention of the parties to review their disputes to arbitration.”
[16] As I will explain, the motion judge did not appropriately consider the impact of the case law on the determinations he was required to make.
D. The analytical framework
[17] An analytical framework has emerged from the jurisprudence. It breaks the judge’s task of considering a stay under s. 7 down into a number of sub-issues:
(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?
[18] I address each in turn.
(1) Is there an arbitration agreement?
[19] It is common ground that there is an arbitration agreement embedded in the language of the shareholders’ agreement.
(2) What is the subject matter of the dispute?
[20] Mr. Haas submits the action, as articulated in the Amended Statement of Claim, is focused entirely on the fraud and tort claims. He argues these claims fall outside the scope of the shareholders’ agreement, and are not captured by the arbitration agreement. Mr. Gunam and Mr. Feng submit, to the contrary, that the true subject matter of the dispute is whether they performed their obligations under the shareholders’ agreement and the other related documents.
The motion judge’s approach
[21] The motion judge took what he called the “pith and substance” approach to characterizing the subject matter of the dispute. In doing so he relied heavily on this court’s approach in Precious Metal Capital Corp. v. Smith, 2008 ONCA 577, 92 O.R. (3d) 701 and in Matrix Integrated Solutions Ltd. v. Naccarato, 2009 ONCA 593, 97 O.R. (3d) 693. Although neither Precious Metal nor Matrix were cases involving the scope of arbitration agreements, the motion judge did not err in taking the “pith and substance” approach to characterize Mr. Haas’s claims for the purpose of determining the proper scope of the arbitration agreement. This is no more than an approach to construing the arbitration agreement, which, as noted in Dalimpex, is the court’s function.
The motion judge’s assessment
[22] The motion judge considered Mr. Haas’s claims and found they were not in “pith and substance” contractual. The motion judge’s analysis is set out at paras. 19-21:
What then is the pith and substance of Haas’ claims? A review of his Amended Statement of Claim in this case indicates three types of wrongdoing alleged: misrepresentation, breach of fiduciary duty and oppressive behaviour.
The meat of this case is based on the allegations of representations made by the defendants with the purpose of inducing Haas into joining the business venture. The SHA [shareholders’ agreement] is pleaded as part of the instrumentality used by the defendants as part of the inducements. The subject matter of these allegations does not, in my view, rely on contractual obligations contained in the SHA. In other words, the claim is not for breach of contract but the fraudulent misrepresentation of facts which caused Haas to enter into the business agreement. Factually, this case bears a strong resemblance to Leggat v. Direct Leverage Ltd., a decision of Spence J., (S.C.J.) unreported, aff’d 2015 ONSC 2639 (Div. Ct.) where the same conclusion was arrived at.
The breach of fiduciary duty allegations centre on the defendants working for rival companies at the same time that they were supposed to manage the jointly owned Osteria dei Ganzi. Haas also alleges that two of the defendants, Gunasekeram and Viscardi opened a competing Italian restaurant within one kilometre of Osteria dei Ganzi. Once again, these allegations do not rely upon or refer to the SHA as a basis for their validity and are not contractual in substance: Precious Metals Corp. v. Smith, 2008 ONCA 577, 92 O.R. (3d) 701.
The motion judge found, however, that Mr. Haas’s oppression claims did rely on contractual clauses in the shareholders’ agreement and were therefore within the scope of the arbitration agreement (at para. 22).
Discussion
[23] I begin by dismissing the appellants’ argument that Mr. Haas should be bound by the original form of the Statement of Claim, even though he amended it so as to remove the contractual claims to minimize his reliance on the shareholders’ agreement. I agree with the motion judge’s reasons at paras. 13-16 for rejecting this argument. Mr. Haas had the right to amend the Statement of Claim to try to avoid the application of the arbitration agreement. But this does not assist Mr. Haas in resolving the substantive issue.
[24] I now turn to the substantive issue. I accept as fair Mr. Haas’s summary of his allegations in the Amended Statement of Claim, which will help frame the analysis. He alleges he was induced to sign the shareholders’ agreement by a number of misrepresentations, which he groups into several categories in his factum, at para. 23:
(a) History of the location: e.g. that Ganzi’s location had a proven track record of successful restaurants. Haas later learned that the previous restaurants at that location had failed.
(b) Return on investment: e.g. that Haas’ investment would be returned within two years, and that his residual rate of return thereafter would be 55%. Haas later learned that the defendants shut down the restaurant in early 2015, having failed to pay back any of his investment.
(c) Management team: e.g. that the management team, including the defendants Viscardi and Gunam, would be fully committed to Ganzi. Viscardi was to be in charge of operations management. Haas later learned that Viscardi refused to participate in the management of the restaurant as he had a non-competition clause in favour of another Toronto restaurant. Haas also learned that both Viscardi and Gunam had been working on other, competing restaurants, and even opened a competing restaurant within one kilometre of Ganzi in 2015.
(d) Capitalization: e.g. that the other investors, including the defendants, would invest $635,000.00 in the project. Haas later discovered that the other investors had only invested $445,000.00 in Ganzi, causing a $190,000.00 shortfall in Ganzi’s capital.
(e) Communication with Haas: e.g. that no material change in the business would be made without Haas’ consent. Haas learned that the defendants shut down the restaurant in early 2015 without his consent. The defendants have refused to disclose the status of Ganzi’s remaining assets, if any, or provide Haas with any of Ganzi’s records.
[25] Other contested matters in Haas’s Amended Statement of Claim include, inter alia, complaints about the opening hours of the restaurant and the adequacy of the provision for the payment of taxes.
[26] The listed misrepresentations largely relate to the failures of Mr. Viscardi, Mr. Gunam and Mr. Feng to perform their obligations under the shareholders’ agreement. Achieving the promised rate of return on investment relates to the actual performance of the business, as does the constitution of the management of the restaurant. The breach of fiduciary duty claim, based on allegations that Mr. Gunam and Mr. Viscardi opened a competing Italian restaurant within one kilometre, depends on them being employees under the shareholders’ agreement. The purported shortfall in initial capitalization and the number of fully paid common shares also relate to the performance of Mr Viscardi, Mr. Gunam and Mr. Feng. Complaints about the opening hours of the restaurant relate to its actual operation, as does the decision to close the business down, the adequacy of the provision for the payment of taxes, and so on. The only clearly prior misrepresentation was that the proposed location had a proven track record of successful restaurants, which Mr. Haas argues turned out to be untrue. The other alleged misrepresentations relate to the failure of Mr Viscardi, Mr. Gunam and Mr. Feng to perform under the shareholders’ agreement, and its various related documents and communications, as Mr. Haas expected they would. I observe that to establish the misrepresentations, Mr. Haas will be relying on the contractual documents.
[27] With respect, I am unable to agree with the motion judge’s conclusion that the pith and substance of Mr. Haas’s claims relate to “the fraudulent misrepresentation of facts which caused Haas to enter into the business agreement” (at para. 20). The motion judge went too far in characterizing Mr. Haas’s claims, apart from the oppression claim, as relating only to fraudulent misrepresentation.
(3) What is the scope of the arbitration agreement?
[28] The arbitration agreement in the shareholders’ agreement provides:
If at any time during the currency of this Agreement, or after the termination hereof, any dispute, difference or question shall arise, or any failure to agree as specifically hereinabove referred to, shall occur among the parties hereto or certain of them, respecting this Agreement or anything herein contained then every such dispute, difference or question or failure to agree shall be referred to a single arbitrator to be appointed by the parties to the dispute within ten (10) days of such referral... [Emphasis added.]
[29] The language of the arbitration agreement is broad in scope. It fits comfortably with Sharpe J.A.’s description in Dancap, at para. 38:
I turn first to the scope of the arbitration clause. Section 15(j) of the ARA [Additional Rights Agreement] is broad in scope: it applies not only to disputes arising “out of” the ARA but also to disputes “related to” the ARA. Contractual language calling for the arbitration of disputes “relating to” an agreement have been generously interpreted to enjoy “a wide compass”, an interpretation “consistent with the legislative policy...which favours arbitration over litigation where the parties so provide by agreement”: Woolcock v. Bushert (2004), 2004 CanLII 35081 (ON CA), 246 D.L.R. (4th) 139 (Ont. C.A.), at paras. 23, 25.
See also Mantini v. Smith Lyons LLP (2003), 2003 CanLII 20875 (ON CA), 64 O.R. (3d) 505 (C.A.), at paras. 18-19.
(4) Does the dispute arguably fall within the scope of the arbitration agreement?
[30] After the motion judge determined the pith and substance of the dispute between the parties related only to fraudulent misrepresentation, apart from the oppression claim, he did not then consider whether the arbitration agreement applied nonetheless. The motion judge took the view that the scope of the arbitration agreement did not extend beyond contractual claims. He accepted Mr. Haas’s position that the scope of the arbitration agreement does not include arbitrating the issue of fraud in the formation of the original contract in which the arbitration agreement is found.
[31] This approach was in error, for three reasons. First, the motion judge assumed tort claims fall outside of the scope of the arbitration agreement. Second, he assumed that a fraud claim vitiates an arbitration agreement. Third, he failed to advert to the law’s policy of enforcing arbitration agreements and letting arbitrators decide the scope of their authority. He fell into error in equating forum selection clauses with arbitration agreements. These errors fall squarely into the list of extricable errors of law referred to in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at para. 53. No deference is owed to his interpretation of the contractual documents.
Tort claims do not automatically fall outside arbitration agreements
[32] Although Matrix was a case about a forum selection clause, not an arbitration agreement, in the course of his reasoning Sharpe J.A. pointed to several cases where the courts have required the parties to proceed to arbitration even though tort claims were involved, at paras. 16-17:
In Dalimpex Ltd. v. Janicki, (2003), 2003 CanLII 34234 (ON CA), 64 O.R. (3d) 737 (“Dalimpex”), at paras. 41-43, this court adopted and applied the test for applying a contractual provision which employs the words “disputes arising out of or in connection with” the parties’ contract used by the Alberta Court of Appeal in Kaverit Steel and Crane Ltd. v. Kone Corp. (1992), 1992 ABCA 7, 87 D.L.R. (4th) 129 (“Kaverit Steel”), at p. 135, leave to appeal to S.C.C. refused, [1992] S.C.C.A. No. 117, [1992] 2 S.C.R. vii. According to that test, a dispute is caught by the provision “if either claimant or defendant relies on the existence of a contractual obligation as a necessary element to create the claim, or to defeat it.” See also Woolcock at para. 23, holding that a claim is one “relating to” a contract “[s]o long as the matter in dispute is referable to the interpretation or implementation of some provision of the Agreement” (emphasis added by Sharpe J.A.).
In Kaverit Steel, the plaintiff advanced a conspiracy claim that relied upon a breach of the contract as the source of the unlawfulness to ground the conspiracy, and that was held to fall within the scope of the arbitration clause. Likewise, in Dalimpex, the claims for conspiracy and breach of fiduciary duty were mingled with claims for breach of contract and, in any event, in that case, this court declined to express any definitive view on the reach of the arbitration clause holding that determination should be left for the arbitrator.
[33] In Matrix Sharpe J.A. concluded that the tort claims being advanced did not rely on a breach of the contract prescribing the forum, leaving the plaintiff free to sue in Ontario. He stated, at para. 18:
The present case is not one where “either claimant or defendant relies on the existence of a contractual obligation as a necessary element to create the claim, or to defeat it” or where the “matter in dispute is referable to the interpretation or implementation of some provision in the agreement.”
[34] This case is readily distinguishable from Matrix, since, as I noted earlier, the motion judge’s statement, at para. 24, that “the bulk of Haas’s claims fall outside the arbitration clause” simply does not bear up under scrutiny. The bulk of the claims fall within the arbitration agreement and are clearly referable to the shareholders’ agreement.
[35] Further, I would be reluctant to agree that the presence of tort claims nullifies an arbitration agreement. Justice Laskin cautioned the court to be wary of cases in which a party to an arbitration agreement seeks to avoid it by pleading a common law tort: Piko v. Hudson’s Bay Company (1998), 1998 CanLII 6874 (ON CA), 41 O.R. (3d) 729 (C.A.), at para. 9. Although that case involved possible arbitration under a collective agreement, in my view the principle holds more broadly.
Fraud does not necessarily vitiate an arbitration agreement
[36] In Ash v. Corp. of Lloyd’s (1992), 1992 CanLII 7659 (ON CA), 9 O.R. (3d) 755 (C.A.), at para. 9, Carthy J.A. observed that “an allegation that a contract is void ab initio does not make it so until a final judgment of the court”. The court upheld the motion judge’s stay of an action against Lloyds alleging Lloyds’ fraud. Justice Carthy agreed that the strategy of alleging fraud, while depriving the defendant of the contracted choice in respect of arbitration, would impair such arbitration clauses, which he considered to be “too important in international commerce to permit that anomalous result to flow” (at para. 9). The court should lean against a result that undermines arbitration agreements.
[37] This is not a new proposition. Lord Wright said in the seminal case of Heyman v. Darwins, Ltd., [1942] A.C. 356 (H.L. (Eng.)), at p. 384:
Hence, if the question of whether the alleged contract was void for illegality, or, being voidable, was avoided because induced by fraud or misrepresentation, or on the ground of mistake, it depends on the terms of the submission whether the dispute falls within the arbitrator’s jurisdiction.
[38] In James v. Thow, 2005 BCSC 809, 5 B.L.R. (4th) 315, the application judge considered whether an action fell within the scope of an arbitration clause in an agreement between the plaintiff and the defendant. The plaintiff alleged fraudulent misrepresentation, breach of trust, breach of fiduciary duty and fraud. The application judge stayed the action and counterclaim, concluding, at para. 76: “I am satisfied that the issues raised by the pleadings concern disputes that arguably fall within the scope of the arbitration agreement.”
[39] Put simply, in cases involving arbitration agreements, fraud does not necessarily vitiate everything. It is a matter of interpretation. The arbitration agreement in this case contains broad language, referring to “any dispute, difference or question…or any failure to agree…respecting this Agreement or anything herein contained then every such dispute, difference or question or failure to agree shall be referred to a single arbitrator” (emphasis added). There is no exclusion for tort claims, misrepresentation or fraud.
The law favours the enforcement of arbitration agreements
[40] As noted above, the law, both statutory and judicial, favours the enforcement of arbitration agreements. This is not true for forum selection clauses. The motion judge cited Matrix and Precious Metal, but these are cases about forum selection clauses, not arbitration agreements, and do not support the motion judge’s decision to refuse to stay the action under s. 7 of the Arbitration Act.
[41] I reject the motion judge’s finding that the scope of the arbitration agreement is limited to contractual issues. To the contrary, the scope is broad and, in the normal course, s. 17 of the Arbitration Act and the jurisprudence plainly expect that the determination of jurisdiction will be made by the arbitrator, not the court. The motion judge erred in failing to take the relevant principles into account.
(5) Are there grounds on which the court should refuse to stay the action?
[42] Section 7(5) of the Arbitration Act provides:
(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.
[43] The motion judge considered whether a partial stay should be ordered under s. 7(5) of the Arbitration Act. On the basis that “the bulk of Haas’s claims fall outside the arbitration clause”, he concluded that separating out the matters would be unreasonable: “It makes little sense to order a partial stay referring the minority of the allegations to arbitration but permitting the rest to continue as an action particularly when each case would be founded on the same factual matrix” (at para. 24).
[44] The motion judge’s reliance on s. 7(5) of the Arbitration Act was based on a faulty premise, as noted above. Until the arbitrator decides his or her jurisdiction, a motion under s. 7(5) is premature.
[45] I have concluded that the motion judge erred in refusing to stay Mr. Haas’s action on the ground that the subject matter is beyond the scope of the shareholders’ agreement. However, Mr. Haas submits that, even if the motion judge erred on this point, the action should be allowed to proceed for two other reasons: the arbitration agreement is invalid, and, alternatively, allowing the action to continue will prevent a multiplicity of proceedings. I address each in turn.
The arbitration agreement is not invalid
[46] Mr. Haas invokes s. 7(2)2 of the Arbitration Act, which gives the court discretion to refuse a stay on the basis that “the arbitration agreement is invalid.” Mr. Haas argues that the arbitration agreement in this case is inoperable, hence invalid.
[47] I would not give effect to this argument.
[48] In the arbitration agreement set out below, in full, the appointment process is highlighted:
- Arbitration
If at any time during the currency of this Agreement, or after the termination hereof, any dispute, difference or question shall arise, or any failure to agree as specifically hereinabove referred to, shall occur among the parties hereto or certain of them, respecting this Agreement or anything herein contained then every such dispute, difference or question or failure to agree shall be referred to a single arbitrator to be appointed by the parties to the dispute within ten (10) days of such referral or, if the parties to the dispute neglect or refuse or are unable to agree upon a single arbitrator, then, each party shall appoint an arbitrator and the representatives so appointed shall jointly select a third arbitrator or, if such representatives neglect, refuse or are unable to agree upon such a third arbitrator within a further ten (10)days from the expiration of such first mentioned ten (10) day period, then either party to the dispute may apply to a Senior Judge of the Ontario Superior Court of Justice at Toronto, as a persona designata to appoint such single arbitrator. The parties hereto acknowledge that any such arbitrator shall have some appropriate knowledge or expertise (as investor, executive, advisor or otherwise) in the industry. The award or determination (including the disposition of costs of the arbitration) shall be final and binding upon the parties hereto. Subject as aforesaid, the arbitration shall be regarded as a reference under, and shall be proceeded with pursuant to the Arbitration Act, 1991, S.O. 1991, C.17.
[49] I agree with Mr. Haas that the arbitration agreement was designed for a bilateral agreement, not for an agreement with multiple partners, as this case presents, but that is not fatal. Mr. Haas argues: “If the clause is effective, Haas would immediately be outnumbered by arbitrators appointed by Gunam and Feng, stacking the arbitral panel against him.” There is a simple answer: if the parties cannot agree on a single arbitrator, then each side to the dispute will appoint an arbitrator to select a third arbitrator. If these arbitrators do not appoint a third arbitrator, then under the agreement a Superior Court judge will appoint one. There is nothing inoperable about the arbitration agreement.
A multiplicity of proceedings is not dispositive
[50] Mr. Haas argues that Mr. Viscardi’s ambivalent position in this case must lead inevitably to a stay. Mr. Viscardi joined with Mr. Gunam and Mr. Feng in bringing the motion for a stay although he was represented by other counsel. He did not appeal the motion judge’s refusal of a stay, so the action would remain alive against him whatever the outcome of this appeal. Therefore, Mr. Haas argues the referral of the dispute with Mr. Gunam and Mr. Feng to arbitration would cause multiple proceedings, contrary to s. 138 of the Courts of Justice Act, R.S.O. 1990, c. C.43. Mr. Haas submits the motion judge erred in not ruling on this basis given Mr. Viscardi’s status.
[51] I would not give effect to this argument.
[52] Some context is necessary. In the order signed by the motion judge the following emphasized text was struck out of the preamble:
[O]n hearing the submissions of the lawyer(s) for the parties, and the admission by counsel for the Defendant, Luca Viscardi, that Luca Viscardi did not sign the Shareholders Agreement dated August 16, 2013, but takes the position that despite the absence of his signature, the Defendant, Luca Viscardi, became a party to the Shareholders Agreement… [Emphasis added.]
It appears that the absence of Mr. Viscardi’s signature on the shareholders’ agreement only came to light in the course of these proceedings.
[53] Mr. Haas points out Mr. Viscardi denied being bound by the shareholders’ agreement because he did not sign it. On this basis Mr. Haas says the arbitrator would not have jurisdiction over Mr. Viscardi. Mr. Haas adds Mr. Viscardi “attorned” to the jurisdiction of the court after the motion by serving notice of a demand for particulars and has therefore “waived” the arbitration clause.
[54] Mr. Gunam and Mr. Feng submit this is not a real issue. The motion judge accepted, at para. 2, Mr. Viscardi was a party to the arbitration agreement: “His position on this motion is that despite the absence of his signature, he became a party through oral discussions with the others.” Mr. Haas concedes the accuracy of this observation in his factum.
[55] In support of their submission that Mr. Viscardi is bound by the arbitration agreement, Mr. Gunam and Mr. Feng also point to Mr. Viscardi’s cross-examination:
183 Q: Mr. Viscardi, when you consider the arbitration agreement, which is contained in the Shareholders Agreement, and then the documents that Mr. Ottaway took you to, the Shareholder Loan Agreement and the Subscription Agreement, how are those documents supposed to work together the way you understand it?
A: I understand that the Shareholders Agreement is, we say, give the rules to the other documents because this is why the shareholders agree that there is an arbitration and the arbitration is going to be used – is going to reflect all the documents. This is what I think.
184 Q: In your understanding, how did you think that disputes between Mr. Haas, Mr. Gunam, Mr. Feng, yourself, and the other shareholders would get determined?
A: In arbitration. Because, if not, we never even enter in this business. This is the only way.
[56] Mr. Viscardi had earlier testified that he likes to have arbitration clauses in shareholder agreements but could not specifically recall instructing counsel to ensure that there was one in the shareholders’ agreement in this case.
[57] I note that, had the motion been correctly decided, the stay would have been refused and the arbitration would have been under way. Does the fact that Mr. Viscardi did not appeal force this court to dismiss the appeal to avoid a multiplicity of proceedings? In my view it does not, for several reasons.
[58] First, the court should not lightly depart from the strong policy support for enforcing arbitration agreements. Second, it is not clear that there will be a multiplicity of proceedings. Mr. Viscardi will have some difficulty if he takes the position that he is not bound by the arbitration agreement in light of his conduct at the motion. Third, Mr. Haas controls the litigation process in the action against Mr. Viscardi. If Mr. Viscardi now agrees to participate in the arbitration, then perhaps a stay of the action against him might be the subject of a consent order.
E. Disposition
[59] For the reasons set out above, I would allow the appeal, set aside the motion judge’s order and issue a stay of the action against the defendants Mr. Gunam and Mr. Feng.
F. Costs
[60] Mr. Gunam and Mr. Feng have been successful and are entitled to the costs of the appeal, which I would fix at $7,500 inclusive of disbursements and taxes. They also seek $14,000 in costs, inclusive of disbursements and taxes in respect of the proceedings before the motion judge. I would award costs in that amount; this is a reasonable request well within Mr. Haas’s expectations, since the motion judge had awarded costs in the amount of $25,500 inclusive of interests and costs to him.
Released: “J.C.M.” October 13, 2016
“P. Lauwers J.A.”
“I agree J.C. MacPherson J.A.”
“I agree Janet Simmons J.A.”
[^1]: Section 7(6) of the Arbitration Act provides that there is no appeal from a court’s decision whether to stay an action in favour of arbitration. However, this subsection does not preclude an appeal from an order refusing to grant a stay on the ground that the matter is not a proper subject for arbitration: Griffin v. Dell, 2010 ONCA 29, 98 O.R. (3d) 481 at para. 25.
[^2]: Similar provisions are found in the UNCITRAL Model Law on International Commercial Arbitration, adopted in Ontario by the International Commercial Arbitration Act, R.S.O. 1990, c. I.9, referred to in some of the cases.