COURT FILE NO.: CV-17-570246
DATE: 2019-01-30
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
BELNOR ENGINEERING INC.
Plaintiff
– and –
STROBIC AIR CORPORATION, PRESTON PHIPPS INC., RICHARD CYR, RINO FORGIONE and MARK J. PAULIN
Defendants
Adam Wainstock, for the Plaintiff
John Ormston, for the Defendant Strobic Air Corporation
Mark D. Tector, for the Defendants Preston Phipps Inc., Richard Cyr, Rino Forgione and Mark J. Paulin
HEARD: January 16, 2019
REASONS FOR JUDGMENT
Sossin J.
Introduction
[1] Belnor Engineering Inc. (“Belnor”) has brought an action seeking damages and other relief in relation to a dispute over sales commissions with the defendant Strobic Air Corporation (“Strobic”). As part of this action, the plaintiff also seeks remedies against the defendant Preston Phipps Inc. (“Preston”) and other named defendants, to whom the disputed commissions were ultimately paid (collectively, the “defendants”).
[2] The defendants bring this motion under Rule 21.01(3) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, to stay the action based on an arbitration clause contained in the sales agreement between Belnor and Strobic and the arbitration clause in the sales agreement between Strobic and Preston (“the Arbitration Clauses”). The defendants assert that this claim is subject to the Arbitration Clauses, and therefore lies outside the jurisdiction of this Court. The defendants rely on section 106 of the Courts of Justice Act, R.S.O. 1990, c. C.43, sections 6 and 7 of the Arbitration Act, 1991, S.O. 1991, c. 17, and article 8 of Schedule 2 to the International Commercial Arbitration Act, 2017, S.O. 2017, c.2, Sched. 5 (the “ICAA”).
[3] For the reasons set out below, I grant the defendants’ motion to stay this proceeding in favour of arbitration.
Applicable Legislation
[4] Rule 21.01(3) of the Rules of Civil Procedure provides:
To Defendant
21.01(3) A defendant may move before a judge to have an action stayed or dismissed on the ground that,
Jurisdiction
(a) the court has no jurisdiction over the subject matter of the action; …
[5] Section 106 of the Courts of Justice Act provides:
Stay of proceedings
106 A court, on its own initiative or on motion by any person, whether or not a party, may stay any proceeding in the court on such terms as are considered just.
[6] Sections 6 and 7 of the Arbitration Act, 1991, provide:
Court intervention limited
6 No court shall intervene in matters governed by this Act, except for the following purposes, in accordance with this Act:
To assist the conducting of arbitrations.
To ensure that arbitrations are conducted in accordance with arbitration agreements.
To prevent unequal or unfair treatment of parties to arbitration agreements.
To enforce awards.
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.
Exceptions
(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. 1991, c. 17, s. 7 (2).
[7] Article 8 of Schedule 2 to the ICAA provides:
Article 8. Arbitration agreement and substantive claim before court
(1) A court before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so requests not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed.
The Arbitration Clauses
[8] At the heart of this dispute over the jurisdiction of this Court lies the Arbitration Clauses. Paragraph 14 of the Representative Sales Agreement (“the Belnor Agreement”) between Belnor and Strobic, dated January 23, 2008, provides as follows:
Controversy, disputes or claims. Any controversy dispute or claim arising out of, or relating to this Agreement, or any breach thereof, shall be settled in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award may be entered in any court having jurisdiction thereof. The prevailing party shall be entitled to its or her/her attorneys’ fees and costs.
[9] An identical clause is found within the Representative Sales Agreement between Strobic and Preston, dated April 1, 2015 (“the Preston Agreement”)
[10] Addendum “D” to the Belnor Agreement sets out a specific schedule for splitting commissions and under which Strobic would “reward the appropriate effort throughout the sales process.” Addendum “D” further provides that “Strobic Air reserves the right to arbitrate all commission rates and disputes and it’s [sic] decision shall be binding on all parties.” An identical Addendum “D” arbitration provision is contained in the Preston Agreement.
The Position of the Parties
Plaintiff’s Submissions
[11] The plaintiff’s position is that the Arbitration Clauses do not affect the jurisdiction of this Court, as nowhere do the Arbitration Clauses indicate that all matters in dispute will be resolved through arbitration. According to the plaintiff, what is vital to a binding arbitration clause but missing from this one is an express referral of disputes to “arbitration” or to an “arbitrator.”
[12] The plaintiff emphasizes that the proposed “Standard Arbitration Clause” in the introduction to the Commercial Arbitration Rules of the American Arbitration Association (AAA) contains such express language. It reads:
Any controversy or claim arising out of or relating to this contract, or the breach thereof, shall be settled by arbitration administered by the American Arbitration Association under its Commercial Arbitration Rules, and judgment on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof. [Emphasis added.]
[13] The plaintiff further relies on the doctrine of contra proferentem, which states that ambiguity in an agreement or contract should be resolved against the interest of the drafting party – in this case, the defendant Strobic.
[14] The plaintiff characterizes the Arbitration Clauses in the Belnor and Preston Agreements as akin to a choice of law clause. Just as those agreements contain a clause indicating that the substantive law of the Commonwealth of Pennsylvania will apply to any disputes under the agreements, the Arbitration Clauses also purport to provide that the procedures under the Commercial Arbitration Rules of the AAA will apply.
[15] The plaintiff submits that since choice of law clauses can only identify the substantive law to be applied in relation to a dispute by a court, and cannot oust the Court’s own rules and procedural law, the Arbitration Clauses are, in effect, a nullity and should be ignored.
[16] The plaintiff further relies on Addendum “D” to the Belmor and Preston Agreements, which specifically refers disputes under that schedule to the defendant Strobic to arbitrate. The plaintiff asserts that had Strobic wished to refer disputes under the main agreements to arbitration, it would do so expressly as in Addendum “D.”
[17] The plaintiff argues, in the alternative, that if the Arbitration Clauses does constitute a binding provision indicating all disputes are to proceed to arbitration under the Commercial Arbitration Rules of the AAA, then it is invalid and unenforceable, either on grounds of vagueness or unconscionability, or both.
Defendants’ Submissions
[18] The defendants assert that the Arbitration Clauses preclude the action brought by the plaintiffs before this Court. They rely on the Ontario Court of Appeal’s decision in Haas v. Gunasekarem, 2016 ONCA 744, 62 B.L.R. (5th) 1, which states, “[t]he law favours giving effect to arbitration agreements” and that the Arbitration Act is “directory, not equivocal” in setting out that Courts should stay actions under such agreements and refer disputes to arbitration (paras. 10-12). In short, the defendants submit that having the action heard by this Court would be contrary to the bargain made in the Belnor and Preston Agreements.
[19] The defendants further assert that the contra proferentem doctrine has no application in these circumstances, as there is no ambiguity in the Arbitration Clauses, and in any event, this dispute involves sophisticated commercial parties whose intent can be inferred from the Arbitration Clauses read in the context of the agreements.
[20] The defendants submit that the circumstances justifying the non-enforcement of the Arbitration Clauses under either vagueness or unconscionability are not present in this case.
ANALYSIS
[21] This case raises two key questions. First, is there a binding Arbitration clause that applies to this dispute; and second, if there is such a clause, should it be enforced by this Court?
Issue 1: Is there a binding Arbitration clause?
[22] While the Arbitration Clauses in the Belnor and Preston Agreements could have been drafted more clearly by including language that disputes will be referred to an arbitrator, I do not find any ambiguity in the meaning of these provisions. They contemplate not only the adoption of the Commercial Arbitration Rules of the AAA but also clearly indicate that these rules would be used in an arbitration.
[23] The suggestion by the plaintiff that the parties could have intended the Commercial Arbitration Rules to govern a court proceeding is not supported by the second portion of the clause itself, which sets out that a “judgment upon the award may be entered in any court having jurisdiction thereof.” Such a clause would not be necessary if the proceeding resolving the dispute under the arbitration rules were before a court itself.
[24] Under the general rules for the construction of commercial contracts, an agreement is to be interpreted as a whole, and in a manner that gives meaning to all of its terms and avoids interpretations that would render one or more of its terms ineffective (Ventas, Inc. v. Sunrise Senior Living Real Estate Investment Trust, 2007 ONCA 205, 85 O.R. (3d) 254 at para. 24). Interpreting the Arbitration Clauses in the manner suggested by the plaintiff would render the terms of the Arbitration Clauses ineffective.
[25] Contra proferentem is a rule of contractual interpretation under which ambiguous terms will be construed against the party responsible for their inclusion in the contract. This interpretation will therefore favour the party who did not draft the term, as that party is not responsible for the ambiguity and should not be made to suffer for it. The contra proferentem doctrine does not arise in this case, however, as the clause in question does not give rise to ambiguity either as to its intent or its effect.
Issue 2: If there is such a clause, should it be enforced by this Court?
[26] As is now well-settled, an otherwise enforceable arbitration clause will not be applied in certain circumstances. Section 7(2) of the Arbitration Act, 1991 provides certain exceptions to the enforceability of arbitration clauses, including where such clauses are invalid. Invalidity has been alleged in this case by the plaintiff on grounds of vagueness and unconscionability.
Vagueness
[27] The Arbitration Clauses do not set out details with respect to how an arbitrator will be chosen, the venue of the arbitration and other related timelines and procedures for an arbitration. The AAA’s Commercial Arbitration Rules, however, include detailed provisions governing each of these questions, and mechanisms for resolving differences between the parties on these questions.
[28] The plaintiff relies on Benner & Associates Ltd. v. Northern Lights Distributing Inc. (1995), 22 B.L.R. (2d) 79 (Ont. Gen. Div.). In that case, Hoilett J. held an arbitration clause relating to a dealership agreement could not be enforced by reason of uncertainty. That clause referred to no set of agreed upon rules or procedures beyond referencing a single arbitrator being “jointly appointed” and setting out the timing for the arbitration and award. It appeared to apply only to one party’s breach and provided no process at all where the other party was in breach of the agreement. Similarly, in Coldmatic Refrigeration of Canada Ltd. v. PU.M.A. s.r.1 (1998), 64 O.T.C. 157, (Ont. Gen. Div.), Sharpe J. (as he then was) found an arbitration clause invalid for vagueness where it did not provide for an arbitration process, or for the selection of an arbitrator, but simply indicated the venue for any arbitration. These issues of uncertainty and insufficiency, however, do not arise in the Arbitration Clauses at issue in this case. The incorporation of the detailed Commercial Arbitration Rules distinguish the case at bar from other settings in which arbitration clauses have been held to be unenforceable due to vagueness. These rules include specific mechanisms for selecting an arbitrator, venue of arbitration and the procedural steps involved in an arbitration.
[29] Finally, the existence of a different dispute resolution mechanism in Addendum “D” to the Belnor and Preston Agreements does not assist the plaintiff in establishing vagueness or uncertainty, as that provision governs only issues in dispute under that Addendum, and has little bearing on the interpretation of the Arbitration Clauses generally.
[30] The plaintiff has not demonstrated that the Arbitration Clauses are vague, uncertain or give rise to a basis not to enforce the intent of the parties to refer disputes to arbitration.
Unconscionability
[31] In order to establish unconscionability, a plaintiff must show a pronounced inequality of bargaining power, an absence of independent legal advice to a vulnerable plaintiff, a substantially improvident or unfair bargain and a defendant knowingly taking advantage of a vulnerable plaintiff (Titus v. William F. Cooke Enterprises Inc., 2007 ONCA 573, 284 D.L.R. (4th) 734 at para. 38).
[32] In Heller v. Uber Technologies Inc., 2019 ONCA 1, the Ontario Court of Appeal found an arbitration clause invalid for unconscionability. That clause required Uber drivers earning $400-600 weekly to arbitrate disputes in the Netherlands at a cost of US$14,500 exclusive of related expenses. Writing for the Court, Nordheimer J.A. concluded that the clause represented a “substantially improvident or unfair bargain,” with the presence of a “significant inequality of bargaining power” (para. 68). The Court found that the clause, in the context of the agreement and its circumstances, was unconscionable and therefore invalid.
[33] In the case at bar, the plaintiff alleges that the Arbitration Clause is unconscionable because it could result in Strobic arbitrating the dispute between itself and Belnor. This view arises under the language of the Addendum “D” referred to earlier. That aspect of the Belnor Agreement relates only to the potential for apportioning sales commissions to reward additional effort or skill on the part of the sales representative. The dispute resolution clause in Addendum “D” does not govern the dispute before this Court, which relates to whether Belnor is entitled to the sales commissions at issue generally.
[34] The plaintiff has not alleged any unconscionability flowing specifically from the application of the Commercial Arbitration Rules of the AAA, nor is this a situation analogous to the Heller case where inequality of bargaining power or practical inaccessibility of arbitration would create an unfairness if this action is stayed in favour of arbitration.
[35] The plaintiff has not demonstrated that the Arbitration Clauses are invalid on the basis of unconscionability.
CONCLUSION
[36] For the reasons above, I find that the Arbitration Clauses in the Belnor and Preston Agreements do cover the disputes at issue in this litigation, and have binding effect under the Arbitration Act, 1991, and the ICAA. I further find that the exceptions to the enforcement of a binding arbitration clause under s.7(2) of the Arbitration Act, 1991, where the clause is vague or on grounds of unconscionability, do not apply to the circumstances of this case.
[37] Consequently, I stay Belnor’s action in favour of arbitration.
COSTS
[38] Counsel for the parties submitted costs outlines at the hearing.
[39] Pursuant to the Courts of Justice Act, s. 131(1) and Rule 57.01(1) of the Rules of Civil Procedure, this Court has broad discretion when determining costs, bearing in mind that the overall goal of fixing costs is to ensure a result that is fair and reasonable in the context of the case.
[40] I have considered these factors, as well as the goal of proportionality set out in Rule 1.04(1.1) of the Rules of Civil Procedure.
[41] The question of how to interpret the Arbitration Clauses at issue in this case raises somewhat novel issues and the amount of time spent on this motion by all counsel was reasonable, though the issues raised by the two defendants’ counsel were quite similar, each making the point that the Arbitration Clauses should be given effect.
[42] For these reasons, I fix total costs at $8,500.00, inclusive of disbursements and HST, and order the plaintiff to pay $4,250.00 to each of the defendants, payable by the plaintiff within 30 days of the date of this order.
Sossin J.
Released: January 30, 2019
COURT FILE NO.: CV-17-570246
DATE: 2019-01-30
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
BELNOR ENGINEERING INC.
Plaintiff
– and –
STROBIC AIR CORPORATION, PRESTON PHIPPS INC., RICHARD CYR, RINO FORGIONE and MARK J. PAULIN
Defendants
REASONS FOR JUDGMENT
Sossin J.
Released: January 30, 2019