Deluxe Windoors Manufacturing Inc. v. Bruhm, 2021 ONSC 3616

COURT FILE NO.: CV-18-00135676

DATE: 20210518

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

Deluxe Windoors Manufacturing Inc., Skydome Profiles Inc., Roman Weig and Michael Shurety

Plaintiffs

– and –

Ron Bruhm

Defendant

Raymond Boggs, for the Plaintiffs

Julian L. Doyle, for the Defendant

HEARD: In-Writing

rEASONS FOR DECISION

DE SA J.:

Introduction

1In 2017 the parties to the litigation entered into a business relationship that was incorporated into a written agreement.

2Relations broke down between the parties. The Defendant took the position that the agreement was terminated.

3The Plaintiffs then commenced a claim on May 7, 2018 seeking relief as against the Defendant in excess of $4,000,000.00 for, inter alia, alleged breach of contract.

4The Defendant counterclaimed for damages for, inter alia, breach of contract, misrepresentation, negligence, breach of warranty, and breach of fiduciary duty.

5The Plaintiffs have now brought a motion for arbitration.

6The Plaintiffs take the position that the arbitration clause in the agreement between the parties makes clear that disputes must be dealt with by way of arbitration.

7The Defendant takes the position that the Plaintiffs are “forum shopping”, and that having elected to pursue their relief by claim since 2018 are estopped from relying on an arbitration clause.

8I agree with the Defendant. Ordering the matter to arbitration at this point would be unfair to the Defendant. The motion is dismissed.

9The reasons for my decision are below.

Summary of Facts

The Dispute

10The Defendant entered into an agreement with the Plaintiffs for machinery, equipment and intellectual property.

11In exchange, the Plaintiffs expected the Defendant to provide financing for inventory, labour, and arrange for a factory of appropriate size to continue production of windows, to fulfill current and future orders.

12According to the Defendant, he never agreed to arrange the financing. While he agreed to assist with transferring the equipment to a new facility, the Plaintiffs were to continue carrying on business while the transition took place.

13While negotiations were still ongoing, the Plaintiffs defaulted on their lease and were locked out of the premises. As a result, the Plaintiffs were not able to fulfill orders or maintain their business. The Defendant has been left storing the equipment.

The Litigation History

14The chronology of the litigation can be summarized as follows:

(a) The Plaintiffs served their Statement of Claim on May 23, 2018;

(b) The Defendant served its Defence and Counterclaim on November 2, 2018;

(c) In or around April 4, 2019 the Plaintiffs served their trial record;

(d) The Defendant sought further information and/or evidence from China before serving an Amended Statement of Defence on December 13, 2019;

(e) On November 5, 2019, the Plaintiffs asked the Defendant to set this matter by way of arbitration but received no response.

(f) On December 13, 2019, the Plaintiffs again asked the Defendant to put the matter before an arbitrator but received no response;

(g) On February 11, 2020, the Plaintiffs wrote to the Defendant again indicating that they wished to invoke clause 8.9 of the Asset Purchase Agreement. If the Plaintiffs did not receive a response, they indicated they would bring a motion to compel, and would seek costs;

(h) The Defendant responded back on February 18, 2020, refusing to consent to arbitration. The stated reason for this refusal was that Defendant had incurred costs associated with the litigation;

(i) On July 8, 2020, the Plaintiffs/the Plaintiffs’ representatives were examined for discovery. Undertakings have been given but none have been answered;

(j) In February 2021, the Plaintiffs brought a motion for the appointment of an arbitrator.

Analysis

15Section 7(1) of the Arbitration Act, 1991, S.O. 1991, c. 17 (the “Act”), states:

Stay

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.

16Clause 8.9 of the Asset Purchase Agreement states that either party may have the Ontario Superior Court of Justice appoint an arbitrator to determine any dispute arising from the Asset Purchase Agreement.

17Clause 8.9 specifically provides as follows;

(a) If at any time during the continuance of this Agreement or after the termination thereof, any dispute, difference or question shall arise between the parties or any of their legal representatives concerning the interpretation or construction of this Agreement or anything herein contained then every such dispute, difference or disagreement shall be referred to a single arbitrator to be appointed by a Judge of the Ontario Superior Court of Justice, which arbitrator shall conduct the arbitration pursuant to the Arbitration Act, 1991 (Ontario), and amendments thereto, and every award or determination shall be final and binding on all the parties hereto, their heirs, successors and assigns and there shall be no appeal therefrom.

18The Plaintiffs/moving parties submit that clause 8.9 of the Asset Purchase Agreement mandates that either party can require, that a dispute arising from the Asset Purchase Agreement or the subject of the Agreement, be referred to arbitration.

19The fact that the clause 8.9 of the Asset Purchase Agreement itself requires that the matter be referred to an arbitrator appointed by a Judge of the Ontario Superior Court of Justice, necessitates that the matter be initially brought to the Superior Court of Justice for that referral. The courts reserve the jurisdiction to review any decision made by an arbitrator, to ensure that fairness and equal treatment has been provided to both parties when the dispute has been decided in the forum of arbitration.

20The expense and costs of obtaining a trial date and proceeding with to trial are substantial. According to the Plaintiffs, proceeding by way of arbitration is still a savings of costs, not an expense.

21The Defendant takes the position that the Plaintiffs are barred from obtaining the relief sought without leave of the court since they have already served their trial record. The Plaintiffs have not established any reasonable basis to meet the test for leave pursuant to Section 48.04.

22According to the Defendant, the Plaintiffs have clearly attorned to the jurisdiction of the courts and waived their right to arbitration. A party who seeks relief through one method may not later elect to proceed in some other manner, in this instance arbitration. It avoids “forum shopping” and parallel proceedings.

23Regardless, this Honourable Court ought to refuse the relief sought on the basis of undue delay. According to the Defendant, the motion has been brought with undue delay.

24In Lansens v. Onbelay Automotive Coatings Corp., 2006 CanLII 51177 (ON SC), the court considered a defendant who served its defence in August 2005 but in a motion heard June 2006 sought to have the matter stayed in favour of arbitration. In the intervening period the defendant took steps in the litigation.

33Where a party takes steps in response to litigation, such as issuing a statement of defence, the party has waived its right to have the matter proceed by arbitration: see Armstrong v. Camroux, [1995] B.C.J. No. 121 (S.C.).

34In my opinion, if the defendants did have a right to have the issues in this action determined by an arbitrator, they abandoned such right when they took steps within this action. Accordingly, the defendants waived their right to insist that these claims be arbitrated.

25I agree with the Defendant that the Plaintiffs have acted no differently than the defendants in Lansens, in fact they did not simply respond, they initiated this claim.

26The Plaintiffs have provided no juristic reason for the delay in bringing this motion. The action had already been commenced by the Plaintiffs in May of 2018. It was only in November 2019 that the Plaintiffs asked the Defendant to proceed by way of arbitration. This request was after significant legal costs had been incurred.

27The parties can still work towards simplifying matters and narrowing the issues for trial. They have various avenues to minimize costs, by mediation or through other mechanisms available to them through the court process.

28But I agree with the Defendant that to stay the matter now and submit it to arbitration would be unfair. If the matter were less advanced, my decision may have been different.

29In the circumstances, the motion is dismissed.

30The Defendant is to provide costs submissions within 2 weeks of the release of this decision, and the Plaintiffs will be given one week to respond.