2013 ONSC 3087
COURT FILE NO.: CV-12-462637
DATE: 2013/06/10
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Alpina Holdings Inc.
Plaintiff
v.
Data & Audio-Visual Enterprises Wireless Inc., John Bitove and Stewart Lyons
Defendants
BEFORE: Moore J.
COUNSEL: Sean Dewart, for the Plaintiff/Applicant
Randy Sutton and Lauren Poloski, for the Defendants/Respondents
E N D O R S E M E N T
[1] Alpina Holdings Inc. (“Alpina”) seeks a declaration that this action was properly commenced in this court pursuant to an irrevocable attornment and exclusive jurisdiction clause contained in an agreement between it and the defendant, Data & Audio-Visual Enterprises Wireless Inc. (“DAVE”) (the “Dealer Agreement”).
[2] The defendants seek an order staying this action on the grounds that Alpina’s claim is subject to a binding arbitration clause and is therefore beyond the jurisdiction of this court.
Background
[3] In January, 2010, Alpina and DAVE entered into the Dealer Agreement by which Alpina obtained the right to operate two Mobilicity retail locations. In September, 2010, Alpina rescinded the Dealer Agreement. DAVE disputed the claimed entitlement to rescind the agreement and Alpina’s claims for damages.
[4] In August, 2012, two weeks before the expiry of the relevant limitation period, Alpina commenced this action; it served a Statement of Claim in October, 2012.
[5] DAVE maintains that the matters raised in the Statement of Claim are arbitrable and that Alpina has failed to provide notice of its claim in accordance with section 23(1) of the Arbitration Act, S.O. 1991, c 17 and has failed to have the dispute resolved under the Act by an arbitrator appointed pursuant to the agreement of the parties as required by the mandatory arbitration clause which requires that:
With the exception of claims concerning payments of invoices, Marks, or assuring out of the breach of section 8 herein, any disputed claim or other such dispute arising out of or related to this Agreement, or any previous or other agreement between the parties, or otherwise from the relationship of the parties, which cannot be resolved by section 15(1) above, will be settled under the Arbitration Act (Ontario) by one arbitrator appointed pursuant to the agreement of the parties. Should the parties fail to appoint the arbitrator, the arbitrator shall be appointed by a court of Ontario on application by the parties. The arbitration shall take place in Toronto, Ontario. For greater certainty, the parties expressly state that the arbitrator shall have the power to determine all questions of law, facts, facts and law and procedure and shall make all original determinations as to his own jurisdiction. Any challenge of a decision of the arbitrator may only be brought after the arbitrator shall have rendered his or her decision on the merits of the dispute between the parties. (Emphasis added)
[6] The parties have agreed on proposed arbitrators but not on whether any of the issues raised in this action ought properly to be removed to arbitration. The defendants rely on section 7 of the Arbitration Act which mandates that an action be stayed if the parties have agreed to arbitration. Alpina seeks shelter under section 7(2) which provides that the court has discretion to refuse a stay if the matter is a proper one for summary judgment.
[7] Alpina also responds to the defendants by raising section 6 of the Arbitration Act which provides that the court shall not intervene in matters governed by the Act except to prevent unequal or unfair treatment of parties to arbitration agreements.
Positions of the Parties
[8] Alpina insists that the Dealer Agreement is actually a franchise agreement and, as such, must be considered in light of the provisions of the Arthur Wishart Act, 2000, c. S.O., c.3 (“AWA”) which defines “franchise” to mean a right to engage in a business where the franchisee is required by contract or otherwise to make a payment or continuing payments, whether direct or indirect, to the franchisor and in which the franchisor grants rights to distribute goods that are substantially associated with the franchisor’s name or logo and the franchisor exerts significant control over the franchisee’s method of operation.
[9] The AWA also defines a franchisor’s associate to be a person who directly or indirectly controls or is controlled by the franchisor and who is directly involved in the grant of the franchise by making representations for the purpose of granting the franchise. Alpina asserts that this covers any representations at all and that they need not be representations that the franchisee actually relied on as the AWA is remedial, consumer protection legislation that is intended to address bargaining inequality between the parties and is to be construed liberally. It submits that the individual defendants must be found to be franchisor’s associates and thus jointly and severally liable for damages with Alpina.
[10] Section 5 of the AWA addresses disclosure and requires that the franchisor provide a disclosure document to the prospective franchisee not less than fourteen days before signing the franchise agreement and the payment of consideration relating to the franchise. Regulations under the AWA provide that if there is an alternate dispute provision affecting the franchise agreement, it be specifically addressed in the disclosure document.
[11] Alpina submits that the AWA cannot be contracted out of and that the defendants have breached their obligations mandated by the AWA. This is a question of law based on the interpretation of the Dealer Agreement and Alpina insists that this alone makes this case a proper candidate for a motion for summary judgment.
[12] Further, Alpina seeks damages that it describes as liquidated damages that are capable of quantification on a paper record of invoices it can produce. The court can, it insists, achieve a full appreciation of the evidence and issues required to make dispositive findings on a largely paper record with little or no testimonial evidence required and no credibility issues to be addressed.
[13] Alpina submits that the individual defendants are not parties to the Dealer Agreement and they therefore have no standing to apply for a stay of this action. Where an arbitration agreement applies to only some parties and matters in an action, Alpina submits that the court has discretion to stay the matters that are the subject of an arbitration agreement and allow the action to continue with respect to the other matters, if it is reasonable to separate matters. In this regard, it submits that in deciding whether to separate matters, the court must strive for efficiency and to avoid a multiplicity of proceedings.
[14] The arbitration clause in the Dealer Agreement, section 15, is framed in very broad language. Alpina submits that while it purports to devolve exclusive jurisdiction to an arbitrator to determine disputes arising out of or related to the agreement, it conflicts with the very broad language used later in the General Provisions section, 21(13). The Governing Law, Jurisdiction and Venue provisions in this latter section require Alpina and DAVE to agree to irrevocably attorn to the exclusive jurisdiction of the courts of Ontario in respect of all matters arising under and in relation to the agreement.
[15] Alpina asserts, therefore, that the arbitration clause cannot reasonably be read to clothe the arbitrator with exclusive jurisdiction and that this court cannot reconcile the two sections of the agreement relating to jurisdiction over conflicts arising from the agreement. It submits that the parties contemplated both litigation and arbitration in the agreement. As such, at a minimum, the claims made in this action against the individual defendants should not be stayed. Further, as regards the claims in litigation against DAVE, the court can intercede because it is unfair to force Alpina to attend an arbitration it is destined to lose because it will meet a defence that it took no steps within the applicable limitation period to require that matters in dispute be arbitrated
[16] The defendants insist that there is no inconsistency in the interpretation and application of the arbitration and the governing law sections in the Dealer Agreement. The arbitration clause applies to the matters in dispute in this case and this action must be stayed and referred to arbitration.
[17] The defendants say that the notion of unfairness is a two way street, if it applies at all. The defendants waited for two years for Alpina to take any action to resolve the disputes arising from the Dealer Agreement and its claims to damages, at one point said to be $4,000,000.
[18] The defendants submit that the arbitrator must determine as a question of law whether he/she has jurisdiction in this matter and, as such, this case is not one that can be amenable to disposition by summary judgment.
[19] The individual defendants are not signatories to the agreement but they are referred to by their titles or positions of association with DAVE with sufficient particularity that they are contemplated by and subject to the arbitration clause and the arbitrator should confirm that as a preliminary to all other determinations to be made.
[20] The defendants assert that the “elephant in the room” in this case is the limitation issue. They point out that, without explanation, Alpina took no steps to protect its claimed entitlement to damages for virtually two full years and then chose litigation without availing itself of its right to invoke the agreement’s arbitration clause.
Analysis
[21] The parties agree that in situations where a contract calls for dispute resolution through arbitration, there is a clear and growing tendency of the part of our courts to insist that arbitration and not litigation be pursued. As Strathy J., as he then was, put the proposition in Nazarinia Holdings,[^1]
The Arbitration Act reflects a modern philosophy in favour of alternative dispute resolution and the principle that where parties have agreed to resolve their disputes by arbitration, the court should require them to do so…
As Blair J., as he then was, noted in Onex Corp. v. Ball Corp. (1994), 1994 CanLII 7537 (ON SC), 12 B.L.R. (2d) 151, [1994] O.J. No. 98 at para. 17 (Gen. Div.), the provisions of the statute reflect a “clear shift in policy towards encouraging parties to submit their differences to consensual dispute resolution mechanisms outside the regular court stream.
[22] In its consideration of the provisions of the Arbitration Act that exempt disputes from the strict ambit of section 7(1), the Court of Appeal said this of the purpose of section 7(2):
It provides a list of five circumstances where a court is not required to stay an action in the face of an arbitration clause in an agreement. They are all cases where it would be either unfair or impractical to refer the matter to arbitration; unfair because there was no legal agreement to arbitrate or because a party effectively waived the agreement by undue delay in objecting to the court action, or impractical because the party was not disputing the claim or it was a claim that was clear and could be resolved by summary judgment without a referral to arbitration.
The purpose of s. 7(2) of the Arbitration Act is to provide a limited exception to the mandatory requirement that the courts enforce arbitration clauses and not take jurisdiction where the parties have legitimately agreed to arbitrate their disputes. One of those exceptions arises when one party defaults and there is therefore no need to enlist an arbitrator to make any findings. Another is where the case is properly one for summary judgment, i.e., there are no genuine issues for trial, and therefore, as with a default situation, there are no issues that require the assistance of an arbitrator.[^2]
[23] In my view the parties clearly turned their minds to the arbitration option in reaching the agreement at issue in this matter. They agreed to arbitrate certain disputes and reserved others for determination through litigation. In Onex Corp.,[^3] Blair J. also held that “[a]t the very least, where the language of an arbitration clause is capable of bearing two interpretations, and one of those interpretations fairly provides for arbitration, the courts should lean towards honouring that option, given the recent developments in the law in this regard to which I have earlier referred”.
[24] Among the matters for arbitration is the question of whether the agreement is a franchise agreement at all. In addition, and without attempting to create an exhaustive listing, claims concerning payment of invoices, claims involving trademarks and other advertising marks and insignia as defined in section 8 and claims involving a breach of many other requirements listed in section 8 of the Dealer Agreement are specifically left to the court for determination. As such, there is room for peaceful co-existence between and among claims to be arbitrated and claims to be litigated.
[25] As to Alpina’s claims in the action against the individual defendants, the indemnification provisions as set out in section 13 of the agreement are key. In that section, each party agrees to indemnify and hold the other party harmless and, as well, the provision stipulates that it extends to shareholders, officers, directors, employees, affiliates, agents and other representatives. While it may be said that some of the people covered by the descriptors used in the section are not immediately identifiable, the individual defendants are. Alpina pleads that Mr. Bitove is the controlling shareholder and Executive Chairman of DAVE and Mr. Lyons is President and Chief Operating Officer of DAVE. It is by no means clear that the individual defendants will not be found by the arbitrator to be parties for purposes of the arbitration.
[26] In s. 13(5), the obligations and any liability of the individual defendants for claims based on, in respect of, or by reason of the Dealer Agreement are addressed. This provision and others[^4] bring the individual defendants directly into the dispute between the signatories to the Dealer Agreement. It is settled law that it is within the scope of the jurisdiction of the arbitrator and not the court to determine whether a particular party is a party to the arbitration agreement and it is only when it is clear that a party is not a party to the arbitration agreement that the court should make a final determination.[^5] The fact that a party is not a signatory to the arbitration is not, of itself, determinative of rights and obligations under the agreement. The matter is arbitrable.
[27] I adopt the view of the Ontario Court of Appeal in Dalimpex[^6] endorsing the approach of the British Columbia Court of Appeal as given by Hinkson J.A. that:
….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.
[28] Although I am mindful of the provision in section 6 of the Arbitration Act which allows the court to intervene in matters governed by the Act to prevent unequal or unfair treatment of parties to arbitration agreements, this section does not apply to the circumstances of this case. To begin with, the sub-sections within section 6 appear to apply to arbitration proceedings already underway; but even if section 6(3) can apply to an arbitration not yet actively in progress, there is no unequal or unfair treatment that Alpina can point the court to in order to support the exercise of judicial discretion under this section.
[29] While the arbitrator may not favour the Alpina position on a given matter, including perhaps the application of the limitation period to the outcome of the arbitration, this is not enough to constitute unfairness as contemplated by section 6. I endorse the view of Dambrot J. in this regard. He stated:
I cannot conclude that I have a general jurisdiction to select between arbitration and litigation on the basis of which of them I believe to be fairer to the parties. There may be other circumstances which would lead a court to conclude that resort to an arbitration clause is ‘wrongful’ and ‘strikes at the very underpinning of the contractual mechanism itself’; but the mere fact that the party brought to arbitration might suffer some tactical, juridical or financial disadvantage is not enough.[^7]
[30] If the limitation period applies in favour of the defendants the outcome will follow from Alpina’s unexplained delay in pursuing its claims into the arbitration setting. Limitations are designed to protect defendants against stale claims.
[31] The roadmap for processing claims such as this one is provided by the Court of Appeal in Mantini.[^8] Speaking for the Court, Feldman J.A. stated that in order to determine whether a claim should be stayed under s. 7(1) of the Arbitration Act, the court first interprets the arbitration provision, then analyzes the claims to determine whether they must be decided by an arbitrator under the terms of the agreement, as interpreted by the court. If so, then under s. 7(1), the court is required to stay the action and refer the claims to arbitration subject to the limited exceptions in s. 7(2).
[32] Turning now, therefore to s. 7(2), I shall consider whether this case is a proper case for summary judgment. The burden on this issue rests with Alpina and it is a significant burden to meet. In Apotex,[^9] Pattillo J. stated the law on point:
Given the policies at play in respect of this issue and having regard for Dewshaf, supra, it is my view that the discretion granted to the court to refuse to grant a stay of an action in respect of the summary judgment exception should only be exercised in simplest and clearest of cases where it is readily and immediately demonstrable on the record that the responding party to the proposed summary judgment motion has no basis whatsoever for disputing the claim or claims of the moving party. It is only in such circumstances, in my view, that a party should be deprived of it’s agreed to arbitration rights.
[33] I agree with the views expressed by Pattillo J. particularly where, as here, the moving party has not to this point marshaled and produced all information and documentation necessary to establish its claim. The responding parties to such a motion do not, at this stage, owe any obligation to put best foot forward.[^10] The defendants have not yet pleaded into the litigation and productions and discoveries have not been pursued.
[34] At this point it cannot be fairly said that this is a clear case upon which Alpina would succeed on a summary judgment motion.
[35] The defendants intend to contest positions advanced by Alpina, including the position that the Dealer Agreement is a franchise agreement, that they ever sought to avoid the operation of the AWA, whether Alpina made a payment to DAVE, as franchisor, or its franchisor’s associates, that Alpina’s evidence in support of this motion is factually inaccurate as regards the purpose of amounts of money paid directly or indirectly to the defendants and whether any defendant exerted significant control over Alpina.
[36] The defendants will, they submit, lead evidence to contest Alpina’s assertion that the individual defendants met with or made representations to Alpina representatives in the course of negotiation of the Dealer Agreement.
[37] Had the litigation continued and had Alpina brought on a summary judgment motion, the defendants would have had the opportunity to test Alpina’s evidence by cross examination and to meet it with a full defence on the merits.
[38] The evidentiary record necessary to my achieving a full appreciation of the evidence and issues required to make dispositive findings is incomplete and insufficient upon which to rely, on this motion, to conclude that Alpina has met its onus to establish that this is a clear case for summary judgment; it simply has not met that onus. It cannot be said that an arbitrator is not needed to resolve the issues in dispute between the parties.
Disposition
[39] The claims made in this action against DAVE and against the individual defendants require referral to arbitration and the action is, with respect to such claims, therefore, stayed pending a determination by the arbitrator as to whether he/she will assume jurisdiction over the parties and the matters at issue between and among them.
[40] Alpina’s motion is dismissed and the cross motion brought by the defendants is granted.
[41] The parties have agreed that the successful party on this motion shall recover costs fixed at $10,000. I am content to award that sum therefore to the defendants. So Ordered.
Moore J.
DATE: June 10, 2013
[^1]: Nazarinia Holdings Inc. v. 2049080 Ontario Inc., 2010 ONSC 1766, [2010] O.J. No. 1196 at para. 13 and 14. [^2]: MDG Kingston Inc. et. al. v. MDG Computers Canada Inc. et. al., (2008), 2008 ONCA 656, 92 O.R. (3d) 4, at paras. 36 and 37. [^3]: Supra, at para. 24. [^4]: Ss. 13(2), 10(1), 11(3), 19(1)(c) are other examples [^5]: Masterfile Corp. v. Graphic Images Ltd., [2002] O.J. No. 2590, at para. 9; and Morran v. Carbone, [2005] O.J. No. 409, at paras 9-13. [^6]: Dalimpex Ltd. v. Janicki et. al., 2003 CanLII 34234 (ON CA), [2003] O.J. No. 2094 at para. 21. [^7]: Engineered Transportation and Rigging Co. v. Babcock & Wilcox Industries Ltd., [1997] O.J. No. 2312, at para. 14 [^8]: Mantini v. Smith Lyons LLP, 2003 CanLII 20875 (ON CA), [2003] O.J. No. 1831, at para. 17 [^9]: Apotex Inc. v. Virco Pharmaceuticals (Canada) Co., [2007] O.J. No. 4817, at para. 19 [^10]: Lee Sand and Gravel, a Division of North York Sand and Gravel Ltd. v. Lee, [2007] O.J. No. 873, at paras. 25 & 26