COURT FILE NO.: CV-12-460897
DATE: 20121204
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Nadia Robert (Plaintiff/Responding Party) and Janice Markandu and J & M Markandu Professional Corporation (Defendants/Moving Parties)
BEFORE: Justice Beth Allen
COUNSEL:
Paul Koven , for the Plaintiff/Responding Party
Allan Rouben, for the Defendants/Moving Parties
HEARD: November 22, 2012
ENDORSEMENT
BACKGROUND
[ 1 ] This is a motion brought pursuant to the Courts of Justice Act , s. 106 and Rule 21.01(3)(a) of the Rules of Civil Procedure by the Defendants Janice Markandu and J&M Professional Corporation (“the Defendants”) requesting a stay of the underlying action.
[ 2 ] This is an employment matter. On May 15, 2012, the Plaintiff Nadia Robert (“Ms. Robert”) was dismissed for cause by the Defendants, her employer. Ms. Robert commenced the underlying action on August 9, 2012 alleging wrongful dismissal.
[ 3 ] Ms. Robert had been employed by a predecessor of the Defendants from 2000. The Defendants merged with another company in early 2007 and began operation as J&M Markandu Professional Corporation on February 14, 2007. There were no formal written employment contracts in place before the merger. Ms. Robert signed an employment contract on August 7, 2007 (“the Contract”).
[ 4 ] The terms of the Contract that are pertinent to this dispute are;
• paragraph 7 which states, “The Company may terminate this contract of employment at any time in accordance with the Ontario Employment Law.” ;
• paragraph 11 which states, “This Agreement supersedes any prior agreement between the Company or any predecessor of the Company and the Employee, except that this Agreement shall not affect or operate to reduce any benefit or compensation to the Employee of a kind elsewhere provided and not expressly provided in this Agreement ;
• paragraph 12 which states, “Any claim or controversy that arises out of or relates to this Agreement, or the breach of it, shall be settled by arbitration in accordance with the Rules of Province of Ontario. Judgment upon the award may be entered in any court with jurisdiction .”
ISSUE
[ 5 ] There is no dispute that Ms. Robert’s claim arises out of or relates to the Contract. The issue is whether the court should exercise its discretion to stay the action on the ground that her claim is required to be disposed of by an arbitration panel pursuant to paragraph 12 of the Contract.
ANALYSIS
[ 6 ] The Defendants take the position that in accordance with the arbitration clause in the Contract and pursuant to the Arbitration Act, 1991 Ms. Robert’s action should be stayed.
[ 7 ] The Arbitration Act, 1991 governs arbitration proceedings in Ontario. The relevant sections are s. 7(1), 7(2) and s. 17(1) and 7(2). Section 7(1) 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]
[ 8 ] Section 7(2) provides:
7(2) The court may refuse to stay the proceeding in any one 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.
[Emphasis added]
[ 9 ] Section 17(1) provides:
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.
[ 10 ] In Ms. Robert’s view, she had been employed for seven years under the terms of an unwritten agreement before she signed the Contract and relying on a basic principle of contract law, she argues there was no consideration flowing for entering under the amended terms of the Contract. The Contract is therefore void ab initio as being devoid of consideration.
[ 11 ] Ms. Robert cites a 2001 decision of the Ontario Superior Court of Justice and a much older British House of Lords authority decided in 1942. These authorities stand for the proposition that where an agreement containing the arbitration clause is void ab initio for being illegal or because no agreement was reached, the arbitration clause will not apply because it was never validly agreed to [ Heyman v. Darwins Ltd., [1942] A.C. 356, [1942] 1 All E.R. 337 (U.K.H.L.) and IMG Canada Ltd. v. Melitta Canada Inc. 2001 28385 (ON SC) , 2001 CarswellOnt 2081, 18 B.L.R. (3d) 78, 11 C.P.C. (5 th ) 391 (Ont. S.C.J.)]. These cases do not assist Ms. Robert. There is no allegation that the Contract is illegal. Nor is it a matter where no agreement was ever reached.
[ 12 ] Further, Heyman v. Darwins , supra , clearly predates the Arbitration Act, 1991 and any ruling in that case that is contrary to Ontario statute law cannot apply in Ontario. IMG Canada, supra, recognizes that the enactment in Ontario of a statute to govern arbitrations reflects a shift in policy in favour of encouraging parties to access alternative dispute processes to resolve disputes outside the regular court processes. The court in that case acknowledges the inapplicability of Heyman v. Darwins in the following passage by Pitt, J.:
It seems to me that our Arbitration Act and cases like Canadian National Railway v. Lovat Tunnel Equipment Inc. (1999), 1999 3751 (ON CA) , 122 O.A.C. 171 (Ont. C.A.) Finlayson has reduced the need to seek guidance from old authorities like Heyman, which the House of Lords rendered in 1942.
[ 13 ] I agree with the Defendants’ position that s. 7(1) and s. 7(2) of the Arbitration Act, 1991 must be read together with s. 17(1), the provision that gives authority to an arbitration panel to determine its own jurisdiction. Those provisions must be regarded in conjunction with s. 17(2) which provides that for the purpose of determining jurisdiction the arbitration agreement must be viewed as an independent agreement.
[ 14 ] The Defendants cite a case of the Ontario Superior Court of Justice that provides a useful summary of the interplay among those provisions. Strathy, J. held:
To summarize, where an agreement contains an arbitration agreement, the court shall stay the proceedings and enforce the agreement to arbitrate, unless (a) the court finds that the dispute in question does not fall within the arbitration agreement or (b) the case falls within s. 7(2) of the Arbitration Act . In looking at the second exception in s. 7(2), it is important to note that the question is whether the arbitration agreement is invalid as s. 17(2) contemplates that the arbitration agreement is severable from the agreement in which it is contained and may survive the invalidity of the main agreement. It is also important to note that s. 17(1) gives the arbitration panel the authority to rule on its own jurisdiction, including objections to jurisdiction going to the validity of the arbitration itself. [Emphasis by author]
[ Nazarina Holdings Inc. and Reza Nazarina v. 2049080 Ontario Inc ., 2010 ONSC 1766 (Ont. S.C.J.) , para.20]
[ 15 ] Therefore, in circumstances where the validity of the main agreement or arbitration agreement is at issue, it must first be determined whether the dispute falls within the scope of the arbitration agreement. This is not in dispute in the case before me. Then a determination is required to be made as to whether the court should exercise its discretion under s. 7(2) to stay the proceedings due, in this case, to a question about the invalidity of the arbitration agreement.
[ 16 ] I adopt the practical conclusion drawn by Strathy, J in the following words:
It should be noted that s. 7(2) of the Arbitration Act provides that the court may decline to stay the action where “the arbitration agreement is invalid. ” The mandatory language of s. 7(1), coupled with the discretionary language of s. 7(2), suggests that the court is not required to stay an action simply because the validity of the agreement in which the arbitration agreement is contained, is brought into question as a result of allegations of fraud, illegality or lack of mutuality. Otherwise, a party resisting arbitration could simply plead those allegations in order to derail the arbitration. The court must have an obligation to scrutinize the pleadings, and the evidence before it, to determine whether, at minimum, there is some foundation for the allegation. Even then, the court has the discretion to grant a stay. [Emphasis by the author]
[ Nazarina Holdings Inc. v. 2049080 Ontario Inc. , supra, at para. 32]
[ 17 ] In conclusion, I find even with a failure of consideration in the main contract, the court retains the discretion to grant a stay of an action in favour of determination by an arbitration panel which has the statutory authority to determine even questions of its own jurisdiction. In so ruling the arbitration clause is treated as severable from the main agreement.
CONCLUSION
[ 18 ] For all the above reasons, I exercise my discretion to stay the action.
COSTS
[ 19 ] The parties delivered Bills of Costs. The Plaintiff’s total costs inclusive of disbursements and HST are $4,280.62. The Defendants’ total costs including disbursements and HST are $7,802.50. The Defendants were entirely successful on the motion and are entitled to costs. I find costs of $5,000 to be reasonable and are payable within 30 days of this Order,
ORDER
[ 20 ] Order accordingly.
Allen J.
Date: December 4, 2012