SUPERIOR COURT OF JUSTICE - ONTARIO
COURT FILE NO.: CV-13-00482329
DATE: 20140530
RE: 2156775 Ontario Inc. cob as D’Angelo Brands, Plaintiff
AND:
Just Energy Ontario LP and Glen Lancaster, Defendants
BEFORE: Justice W. Matheson
COUNSEL:
G. N. Hemsworth, for the Plaintiff
Vanessa Voakes, for the Defendants
HEARD: January 9, 2014, with written submissions received by April 21, 2014
ENDORSEMENT
[1] This is a motion by the defendant Just Energy Ontario LP for a stay of this action because of an arbitration clause, or, in the alternative, an extension of time for the defendants to deliver statements of defence.
[2] The plaintiff is a company that allegedly entered into energy contracts with Just Energy.
[3] Just Energy is a limited partnership that markets energy contracts to residential and commercial customers under which Just Energy claims to deliver desirable fixed rates for natural gas and electricity. The personal defendant, Glen Lancaster, provided marketing services to Just Energy, including in respect of dealings with the plaintiff.
Background to motion
[4] Two alleged contracts are at issue in this action:
(1) an agreement dated July 4, 2008, between the plaintiff and Ontario Energy Savings LP (the predecessor to Just Energy) with a five-year term, which does not include an arbitration clause;
(2) an agreement dated September 1, 2010, between the plaintiff and Just Energy under which the prior agreement was amended to expire within two billing cycles, and a new agreement was made for a further five-year term with terms and conditions that do contain an arbitration clause.
[5] Both agreements append standard form terms, which are barely legible. The terms appended to the 2010 agreement include an arbitration clause that provides as follows:
- Dispute Resolution, Binding Arbitration. Customer may contact Just Energy with regard to a concern or dispute under this Agreement by mail, fax or telephone using Just Energy’s contact information as set out at the top of the Customer Agreement. Both parties will, in good faith, use commercially reasonable efforts to resolve a dispute. If not resolved within 45 days, such dispute will be referred to and finally resolved by binding arbitration pursuant to Governing Law, before a single arbitrator, without the right of appeal to law and/or facts, at an arbitration services organization to be chosen exclusively by Just Energy. The arbitration costs will be shared evenly between the parties. Customer waives any right to commence or participate in any class action related to this Agreement. In addition to, but not in lieu of binding arbitration, Customer may contact the OEB’s Customer Service Centre at [phone number] for details about its dispute resolution process. Customer shall remit all undisputed amounts during the pendency of any dispute. [Emphasis added.]
[6] In the action, the plaintiff alleges that when it was approached by the defendant Mr. Lancaster in 2012, it had no record of any agreements between it and Just Energy. It requested copies of any purported agreements, and took steps in response to the documents it received in response to that request.
[7] This action was commenced in June 2013. In it, the plaintiff seeks a declaration that the above agreements are void, and seeks damages for negligent or fraudulent misrepresentation, or alternatively negligence, an accounting and punitive damages. It alleges that the original and 2010 agreements were not executed by the plaintiff, that individuals who signed had no authority, and that they were based on negligent or fraudulent misrepresentations regarding energy savings. Notably, it is not alleged that the terms of the agreements were breached. The action challenges pre-agreement conduct and the validity of the alleged agreements themselves. The plaintiff alleges that it has incurred excess energy costs of more than $1.5 million.
[8] After service of the statement of claim, counsel for the parties exchanged correspondence regarding arbitration, culminating in this motion.
[9] The personal defendant, Mr. Lancaster, is not a party to either of the above agreements. However, on its motion, Just Energy has provided an affidavit of Mr. Lancaster indicating that he consents to the action proceeding by way of arbitration.
Analysis
[10] To begin with, only part of the plaintiff’s claim is arguably subject to an arbitration agreement. There is no arbitration clause in the original agreement. Further, there is no arbitration agreement with the personal defendant.
[11] Further, the central issue regarding the agreement that does have an arbitration clause is whether that agreement is void, rather than a dispute about whether the agreement was breached in some way.
[12] There is no question that the validity of an agreement is an issue that can be referred to arbitration: see e.g. Nazarinia Holdings Inc. v. 2049080 Ontario Inc., 2010 ONSC 1766, 69 B.L.R. (4th) 65, aff’d 2010 ONCA 739, [2010] O.J. No. 4674.
[13] There is also no question that both the Arbitration Act, 1991, S.O. 1991, c. 17, and case authorities, reflect 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: Nazarinia, at para. 13; see also Dell Computer Corp. v. Union de Consummateurs, 2007 SCC 34, 284 D.L.R. (4th) 577; Ontario Medical Association v. Willis Canada Inc., 2013 ONCA 745, 118 O.R. (3d) 241.
[14] Specifically, sections 7 and 17 of the Arbitration Act, 1991, provide as follows:
- (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:
The arbitration agreement is invalid.
(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. [Emphasis added.]
[15] In keeping with s. 7 of the Act, the court must first determine whether the dispute falls within the scope of the arbitration agreement: Nazarinia, at para. 21; Mantini v. Smith Lyons LLP (2003), 2003 20875 (ON CA), 64 O.R. (3d) 505 (C.A.), at paras. 17, 29.
[16] In that regard, the defendant need only show that it is arguable that the dispute does fall within the scope of the arbitration agreement: Ontario Medical Association, at para. 23; 2162683 Ontario Inc. v. Flexsmart Inc., 2010 ONSC 6493, 7 C.P.C. (7th) 347, at para. 8.
[17] There is then a second step ˗ to determine whether the court should exercise its discretion under s. 7(2) of the Act to stay the proceedings due to the invalidity of the arbitration agreement (among other possible reasons): Nazarinia, at para. 21. However, if the dispute does not arguably fall within the scope of the arbitration agreement to begin with, it is unnecessary to consider this second step.
[18] It is on the first step that this motion fails. The arbitration clause in the 2010 agreement unambiguously applies only to disputes “under” the agreement. This action is a challenge to the existence of the agreement itself, not the discharge of the rights and obligations under it: Mantini, at para. 19; Legue v. Till-Fab Ltd., [2004] O.J. No. 3544 (S.C.), at para. 13; Kaverit Steel and Crane Ltd. v. Kone Corp. (1992), 1992 ABCA 7, 120 A.R. 346, at para. 29.
[19] With one exception that I address below, this arbitration clause is unlike the cases relied upon by Just Energy. Clauses in those cases use broad wording such as “in connection with” or “arising out of” or “touching or concerning”: e.g., Mantini; Ontario Medical Association; Kaverit; MDG Kingston Inc. v. MDG Computers Canada Inc., 2008 ONCA 656, 92 O.R. (3d) 4.
[20] I have been provided with cases where the issue of validity was referred to arbitration, but each has a broadly worded arbitration clause and some expressly mention validity. For example, in Nazarinia the arbitration clause provided as follows:
Any dispute, controversy or claim arising out of or in connection with this Agreement … or the breach, validity or termination thereof, shall be referred to and settled by final and binding arbitration in accordance with the Arbitrations Act… [Emphasis added by Strathy J., as he then was, in Nazarinia at para. 23.]
[21] I do not conclude that it is necessary to expressly mention validity in an arbitration clause in order to have that issue submitted to arbitration. However, the wording of the clause must be capable of encompassing the issue. Here, it is not.
[22] This is not a case where the production and review of factual evidence is required to determine whether or not the dispute arguably falls within the arbitration clause. Here, it is clear that the dispute is outside the arbitration agreement: Dell Computer, at paras. 84-86; Ontario Medical Association, at paras. 21-22.
[23] The one exception I mention above is MTCC No. 796 v. Just Energy Ontario, 2011 ONSC 7204 (Master), a decision that Just Energy submits relates to the same arbitration clause. There are some similarities between that case and this one. However, it focuses on issues relevant to the second step in the above analysis, and concludes on that basis that the litigation should be stayed in favour of arbitration. For reasons about which I could only speculate, the reasons for decision do not focus on or address the necessary first step in the analysis. They do not quote the clause itself. They do not provide any analysis of why the dispute arguably fell within the clause. Even assuming the clause was the same, I do not find this a persuasive authority on the determinative issue before me.
[24] Because invalidity is plainly not covered by the arbitration clause, I need not continue to the second step of the analysis and determine whether I am prepared to exercise my discretion to stay the arbitration on the basis that the agreement is actually invalid. Similarly, I need not address the issues that arise because the claim against the personal defendant is not the subject of an arbitration agreement in any event, nor is the claim concerning the original agreement.
Order
[25] I therefore dismiss the motion for a stay and grant the defendants an extension of time of 60 days from today to deliver their statements of defence.
[26] If the parties are unable to agree on costs, the plaintiff may provide me with brief written submissions together with a costs outline, to be delivered by June 13, 2014. Just Energy may provide a brief written response to the plaintiff’s submissions, to be delivered by June 20, 2014.
Justice W. Matheson
Date: May 30, 2014