Court File and Parties

COURT FILE NO.: CV-19-00620849

MOTION HEARD: 20210222

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: John Leon, Plaintiff

AND:

Dealnet Capital Corp., Defendant

BEFORE: Master B. McAfee

COUNSEL: D. Vaillancourt and A. Hall, Counsel, for the Moving Party, the Defendant

C. Colraine, Counsel, for the Responding Party, the Plaintiff

HEARD: February 22, 2021

REASONS FOR DECISION

[1] The defendant Dealnet Capital Corp. (Dealnet) moves to stay this proceeding pursuant to s. 7(1) of the Arbitration Act, 1991, S.O. 1991, c. 17 (the Arbitration Act). The plaintiff John Leon (Leon) opposes the motion.

[2] Leon is a former executive employee of Dealnet. Leon was employed by Dealnet from on or about July 1, 2014 to July 6, 2018. Prior to his departure, Leon was Dealnet’s Senior Vice President, Technology and Mobile Solutions. Leon became an employee of Dealnet upon Dealnet’s acquisition of Leon’s former employer Impact Mobile Inc. in 2014.

[3] On April 10, 2017, Leon entered into a new employment agreement with Dealnet (the Employment Agreement). The Employment Agreement contains the following arbitration clause:

8.1 Arbitration

All disputes arising out of or in connection with this contract, or in respect of any legal relationship associated therewith or derived therefrom, will be referred to mediation and, if unsuccessful, finally resolved by arbitration under the statutes of the Province of Ontario (the Arbitration Clause).

[4] The Employment Agreement provides that the waiver of any rights under the Employment Agreement would only be effective if done in writing:

8.5 Waiver

No failure or delay on the party [sic] of any party in exercising any power or right under this Agreement will operate as a waiver of such power or right, nor will any single or partial exercise of any such right or power preclude any further or other exercise of such right or power under this Agreement. No modification or waiver of any provision of this Agreement and no consent to any departure by any party from any provision of the Agreement will be effective unless it is in writing. Any such waiver of consent will be effective only in the specific instance and for the specific purpose for which it is given. No notice to or demand on any party in any circumstances will entitle such party to any other or further notice or demand in similar or other circumstances (the Waiver Clause).

[5] On April 11, 2018, Leon provided Dealnet with a resignation letter.

[6] On or about June 7, 2018, Leon and Dealnet entered into a Letter Agreement which served to extend Leon’s resignation notice period (the Letter Agreement).

[7] The Letter Agreement contains the following clause:

1.5 Other Terms of Employment Unchanged

Other than as specifically modified by this Letter Agreement, the Employee acknowledges and agrees that the Employee’s existing contractual and fiduciary obligations and other obligations in law and equity to the Company, shall continue in full force and effect and are hereby confirmed and ratified.

[8] On May 29, 2019, Leon commenced the within action against Dealnet seeking a declaration that Dealnet is in breach of the Employment Agreement and Letter Agreement and seeking damages in the amount of $52,000.00 for breach of contract, unjust enrichment, and/or breach of the good faith duty of honesty in contractual performance. Leon alleges that Dealnet failed to pay an outstanding transaction-based bonus of $52,000.00.

[9] On July 19, 2019, Dealnet served a statement of defence and counterclaim. The counterclaim seeks a declaration pursuant to s. 248 of the Ontario Business Corporations Act, R.S.O. 1990, c. B.16 (the OBCA) that the compensation provisions in the Letter Agreement are oppressive, unfairly prejudicial and unenforceable and must be set aside, damages in the amount of $485,200.00 regarding the bonus, a declaration that the Letter Agreement is null and void, damages in the amount of $750,000.00 for breach of confidence, breach of fiduciary duty, inducement of breach of contract, inducement of breach of fiduciary duty, interference with economic relations, breach of duty of honesty and good faith in performance of contractual obligations and knowing receipt of money resulting from a breach of trust or fiduciary duty, alternative relief rectifying the Letter Agreement, an accounting, and punitive damages and aggravated damages, each in the amount of $100,000.00.

[10] On August 2, 2019, Leon served a request to inspect and demand for particulars.

[11] On August 19, 2019, Dealnet served a response to request to inspect and a response to demand for particulars.

[12] On August 27, 2019, Leon served an amended statement of claim adding a claim for punitive damages in the amount of $100,000.00.

[13] On September 5, 2019, Leon served a reply and defence to counterclaim.

[14] From the close of pleadings on September 5, 2019 until February 14, 2020, there was no correspondence between counsel. It is Leon’s evidence that he was preparing an affidavit of documents during this time.

[15] On February 14, 2020, Leon served a draft affidavit of documents and Schedule “A” productions and requested availability for discoveries. At this time the parties had not discussed or proposed a discovery plan.

[16] On or about February 18, 2020, the next business day after Leon’s service of the draft affidavit of documents and Schedule “A” productions, Dealnet’s general counsel reviewed the Employment Agreement for confidentiality and return of information provisions, due to concerns regarding the confidential nature of Leon’s productions. When reviewing the Employment Agreement, Dealnet’s general counsel discovered the arbitration clause for the first time. There is no evidence before me that Dealnet’s current in-house legal team or external counsel had noticed the Arbitration Clause before this time.

[17] That same day, Dealnet notified Leon of its intention to rely on the arbitration clause.

[18] The Arbitration Act codifies the primacy of arbitral proceedings and provides for a default mandatory stay of any civil proceeding. Section 7(1) of the Arbitration Act 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.

[19] In Haas v. Gunasekaram, 2016 ONCA 744, [2016] O.J. No. 5286 (Ont. C.A.) Justice Lauwers states at para. 12: “…the statutory language in s. 7 of the current Arbitration Act is directory, not equivocal. It strongly favours giving effect to an arbitration agreement.”

[20] In Haas at para. 17 the court references the five-part framework used to determine whether an action should be stayed on the basis of an arbitration clause under s. 7 of the Arbitration Act:

(1) Is there an arbitration agreement?

(2) What is the subject matter of the dispute?

(3) What is the scope of the arbitration agreement?

(4) Does the dispute arguably fall within the scope of the arbitration agreement?

(5) Are there grounds on which the court should refuse to stay the action?

(1) Is there an arbitration agreement?

[21] The Employment Agreement contains a broad Arbitration Clause. The Letter Agreement confirms and ratifies the provisions of the Employment Agreement other than as specifically modified by the Letter Agreement. The Letter Agreement does not modify the Arbitration Clause. There is no evidence of any written waiver.

[22] I am satisfied that the Arbitration Clause is an arbitration agreement between Dealnet and Leon.

(2) What is the subject matter of the dispute?

[23] The court can consider the “pith and substance” of a matter in order to categorize the subject-matter of a dispute (Haas at para. 21).

[24] This action is, in pith and substance, a dispute between an employer and a former employee concerning what rights either of the parties has in relation to employment contracts between them, and whether the former employee breached the duties and obligations he owed to the employer arising from the employment relationship.

(3) What is the scope of the arbitration agreement?

[25] The Arbitration Clause in this matter covers “[a]ll disputes arising out of or in connection with [the Employment Agreement], or in respect of any legal relationship associated therewith or derived therefrom.”

[26] The broad language in the Arbitration Clause is similar to the language considered by the Court of Appeal in Dancap Productions Inc. v. Key Brand Entertainment, Inc., 2009 ONCA 135 (Ont. C.A.) and Woolcock v. Bushert, 2004 O.A.C. 16 (Ont. C.A.) which covered disputes “relating to” the contract in issue. The Court of Appeal in Dancap at para. 38 referring to Woolcock at paras. 23 and 25, held that such language should be “generously interpreted to enjoy a “wide compass”, an interpretation “consistent with legislative policy … which favours arbitration over litigation where the parties so provide by agreement.”

[27] I am satisfied that the scope of the Arbitration Clause applies to any disputes arising out of Leon’s employment with Dealnet.

(4) Does the dispute arguably fall within the scope of the arbitration agreement?

[28] The court must only be satisfied that a dispute “arguably” falls within the scope of an arbitration clause in order to stay a proceeding. This is because there is an expectation that the determination of jurisdiction will be made by the arbitrator, and not the court. This “competence-competence principle” of the common law has been codified at s. 17(1) of the Arbitration Act:

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.

[29] The Court of Appeal has held that where it is unclear if the arbitrator has jurisdiction, it is preferable to leave the issue to the arbitrator. It is not for the court on an application for a stay of proceedings to reach any final determination as to the scope of an arbitration agreement (Haas at paras. 14-16, 41 and Dancap at paras. 32-33).

[30] The Arbitration Clause applies to all disputes arising from the Employment Agreement or in respect of any legal relationship associated therewith or derived therefrom. The subject matter of the action concerns what rights either Dealnet or Leon have in relation to the employment contracts between them and whether Leon breached any duties and obligations owing to Dealnet arising from the employment relationship.

[31] The Letter Agreement is both something “in connection with” the Employment Agreement and “in respect of” a “legal relationship associated therewith or derived therefrom.”

[32] The Arbitration Clause is broad and is not limited to contractual disputes. The Arbitration Clause includes “all disputes…in respect of any legal relationship associated therewith or derived therefrom.” The Arbitration Clause is sufficiently broad to encompass the matters alleged in the pleadings.

[33] I am satisfied that this proceeding meets the test of “arguably” falling under the Arbitration Clause.

(5) Are there grounds upon which the court should refuse to stay the action?

[34] Section 7(2) of the Arbitration Act articulates five scenarios in which the court may exercise its discretion and refuse to stay a civil proceeding in favour of arbitration:

Exceptions

7(2) However, the court may refuse to stay the proceeding in any of the following cases:

1. A party entered into the arbitration agreement while under a legal incapacity.

2. The arbitration agreement is invalid.

3. The subject-matter of the dispute is not capable of being the subject of arbitration under Ontario law.

4. The motion was brought with undue delay.

5. The matter is a proper one for default or summary judgment.

[35] Section 7(2) of the Arbitration Act provides “…a limited exception to the mandatory requirement that courts enforce arbitration clauses and not take jurisdiction where the parties have legitimately agreed to arbitrate their disputes.” The discretion of the court to decide an issue that the parties have agreed to arbitrate is a discretion to be “exercised sparingly” (Khomovych v. Bomar 2 Inc. (c.o.b. Colony Park Homes), [2019] O.J. No. 3344 (Ont. S.C.J.) at paras. 7-8).

[36] Leon bears the onus of establishing that the proceeding falls within one of the potential exceptions enumerated in s. 7(2) of the Arbitration Act (Kanitz v. Rogers Cable Inc., 2002 CanLII 49415 (ON SC), [2002] O.J. No. 665 (Ont. S.C.J.) at para. 14).

[37] Leon relies on three of these exceptions: the arbitration agreement is invalid; the subject-matter of the dispute is not capable of arbitration under Ontario law; and the motion was brought with undue delay.

(a) Is the arbitration agreement invalid?

[38] Leon argues that the Arbitration Clause is invalid based on the decision of the Court of Appeal for Ontario in Heller v. Uber Technologies Inc., 2019 ONCA 1 (Ont. C.A.), aff’d 2020 SCC 16 (S.C.C.). Leon argues that the Arbitration Clause forecloses him from making complaints about perceived violations of the Employment Standards Act, 2000 S.O. 2000, c.41 (ESA) to the Ministry of Labour contrary to s. 5(1) of the ESA and is therefore invalid.

[39] In Heller, the impugned arbitration clause contained a choice of foreign law provision which purported to completely oust the operation and jurisdiction of the ESA in its entirety. In contrast to the circumstances before me, Leon’s Employment Agreement is subject to Ontario law, and it expressly recognizes the primacy of the ESA over the terms of the Employment Agreement itself. Clause 1.5 of the Employment Agreement states:

1.5 Governing Law

This Agreement will be governed by and construed in accordance with the laws of the Province of Ontario.

This Agreement shall be subject to the Employment Standards Act, 2000 (Ontario), as amended or replaced. If the Employee is entitled to any rights or payments under that legislation which are not reference [sic] in this Agreement or which exceed amounts payable under this Agreement, the provisions of that legislation shall supersede the provisions of this Agreement. The failure of any provision of this Agreement to reference or acknowledge the provisions of that legislation shall not invalidate that provision (the Governing Law Clause).

[40] The Governing Law Clause of the Employment Agreement expressly preserves Leon’s rights as provided by the ESA. The Arbitration Clause does not purport to remove Leon’s right to make a complaint to the Ministry of Labour, in light of the fact that the Employment Agreement itself grants express primacy to the ESA. Reading the Employment Agreement as a whole, the Arbitration Clause does not foreclose Leon from making complaints to the Ministry of Labour.

[41] Heller is also distinguishable because it involved an arbitration clause in a contract of adhesion found to be invalid on the basis of unconscionability. In Heller vulnerable workers were compelled to pay large up-front costs in order to resolve disputes overseas under foreign law. In contrast, the Arbitration Clause before me is a term of an employment contract with a senior executive not subject to foreign law. There is no issue of unconscionability before me.

[42] I am not satisfied that the Arbitration Clause is invalid.

(b) Is the subject matter of the dispute capable of being the subject of arbitration under Ontario law?

[43] Leon argues that the subject-matter of the dispute is not capable of being the subject of arbitration under Ontario law. Leon’s position is that the claim for oppression under s. 248 of the OBCA is not arbitrable. However, the OBCA does not expressly preclude the use of arbitration to resolve disputes involving oppressive conduct. “If the legislature wishes to preclude an issue from being the subject of arbitration, it must expressly state this intention” (Advanced Explorations Inc. v. Storm Capital Corp., 2014 ONSC 3918 (Ont. S.C.J.) at paras. 60-61).

[44] The fact that a dispute involves allegations of oppressive conduct does not render a dispute inarbitrable (Haas at para. 22, Armstrong v. Northern Eyes Inc. 2000 CanLII 29047 (ON SCDC), [2000] O.J. No. 1594 (Ont. Div.Ct.) at paras. 24-25 and Kassem v. Secure Distribution Services Inc., [2004] O.J. No. 508 (Ont. S.C.J.) at paras 31-36.)

[45] On the motion, counsel for Dealnet confirmed that if the claim for an oppression remedy is a barrier to arbitration, Dealnet will abandon its claim for an oppression remedy. For the purposes of this motion, Dealnet’s claim for an oppression remedy is not a barrier to arbitration.

[46] I am not satisfied that the subject-matter of the dispute is incapable of being the subject of arbitration under Ontario law.

(c) Was the motion brought with undue delay?

[47] In weighing whether delay in bringing the motion to stay is “undue” the court considers “the importance of the policy considerations in favour of a liberal approach to commercial arbitration and judicial deference to arbitration agreements” (Brock University v. Stucor Construction Ltd., [2002] O.J. No. 2300 (Ont. S.C.J.) at para. 29).

[48] What constitutes “undue” delay is fact specific and determined by the circumstances of the case. In considering whether a delay was “undue” the court will look to what has transpired during the period of delay to evaluate prejudice or harm that may occur if the stay is granted. There is no evidence of prejudice or harm before me.

[49] Courts have considered a party’s and counsel’s lack of knowledge of the existence of an arbitration clause in determining whether to stay an action for arbitration. In both McLaughlin v. Healthcare Employees’ Pension Plan, 2010 MBQB 98, [2010] M.J. No. 146 (Man. Q.B.) at paras. 4, 33, 37 and Obcorp Holdings Inc. v. Mammoet Canada Western Ltd., [2019] A.J. No. 1721 (Alta. Q.B.) at paras. 5, 7, 8, 22 arbitration clauses were located after documentary production and before examinations for discovery. The arbitration clauses were raised immediately after they were located, which is the case before me, and stays were granted in both cases.

[50] Courts have stayed proceedings in favour of arbitration in cases where: a defendant has filed a statement of defence; a defendant has filed a counterclaim; a plaintiff has filed a defence to counterclaim; the parties have made documentary production; and the parties have scheduled examinations for discovery (Elgin Mills Homes Ltd. v. Farhanian, [2020] O.J. No. 4534 (Ont. S.C.J.), McLaughlin, Obcorp, Brock, Khomovych).

[51] This proceeding is in its infancy. Pleadings have closed. Leon has produced documents. These steps would have been required in an arbitration. There would be nothing lost if the matter is re-directed to an arbitration (Obcorp at para. 21).

[52] I am not satisfied that Dealnet acted with undue delay in bringing this motion. It raised the Arbitration Clause immediately upon discovering same and this motion was commenced with reasonable speed in light of the current circumstances.

[53] I am also not satisfied that Dealnet’s failure to rely on the Arbitration Clause at the outset was for tactical purposes. The evidence before me satisfies me that Dealnet’s counsel were not aware of the Arbitration Clause until February 18, 2020.

[54] Leon also argues that having delivered a statement of defence and counterclaim, Dealnet has attorned to the jurisdiction and has waived its right to rely on the Arbitration Clause. Leon relies on ABN Amro Bank Canada v. Krupp MaK Maschinenbau GmbH, 1994 CanLII 7355 (ON SC), [1994] O.J. No. 3044 (Ont. Gen.Div.) as followed in Bouchan v. Slipacoff, [2009] O.J. No. 156 (Ont. S.C.J.). ABN was reversed on appeal to the Divisional Court at 1996 CanLII 12449 (ON SCDC), [1996] O.J. No. 1574 (Ont. Div.Ct.). It does not appear that the decision of the Divisional Court was before the court in Bouchan.

[55] As noted above, at the time the statement of defence and counterclaim was delivered, Dealnet’s counsel were unaware of the Arbitration Clause. This action is at an early stage and I am not satisfied of undue delay. In these circumstances, I am not satisfied that Dealnet’s delivery of a statement of defence and counterclaim is fatal to its reliance on the Arbitration Clause.

[56] I am not satisfied of any basis to exercise my discretion under s. 7(2) of the Arbitration Act.

[57] For these reasons, the motion is granted.

[58] If successful on the motion, Dealnet sought costs on a partial indemnity basis in the all-inclusive amount of $25,006.99. If successful on the motion, Leon sought costs on a partial indemnity basis in the all-inclusive amount of $36,000.00.

[59] Dealnet was successful on the motion and is entitled to costs. A fair and reasonable amount that Leon could expect to pay for costs is the all-inclusive amount of $25,006.99, payable to Dealnet within 30 days.

[60] Order to go as follows:

1. This action is stayed.

2. Costs of the motion are fixed in the all-inclusive amount of $25,006.99, payable by Leon to Dealnet within 30 days.

Master B. McAfee

Date: May 19, 2021