COURT FILE NO.: CV-19-627161 and CV-20-644447

DATE: 20210721

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: CSI Toronto Car Systems Installation Ltd.

AND:

Pittasoft Co., Ltd.

AND RE: CSI Toronto Car Systems Installation Ltd.

AND:

Pittasoft Co., Ltd. and Automobility Distribution Inc.

BEFORE: Justice Mohan D. Sharma

COUNSEL: Howard Wolch, for the Plaintiff

Peter A. Downard, for the Defendant Pittasoft Co., Ltd.

Kate Findlay, for the Defendant Automobility Distribution Inc.

HEARD: July 19, 2021

ENDORSEMENT

[1] This is a motion by the plaintiff to consolidate two actions, to amend its Statement of Claim in its first action, or to have the first and second actions tried together.

[2] The defendant, Pittasoft Co., Ltd. (“Pittasoft”), brings a cross-motion to have the second action stayed due to an arbitration clause found within its agreement with the plaintiff.

I. Summary of Facts

[3] The plaintiff, CSI Toronto Car Systems Installation Ltd. (“CSI”), is an auto electronic installation company.

[4] Pittasoft is a Korean company that manufactures various vehicle video recorders, known as dashboard cameras.

[5] Automobility Distribution Inc. (“Automobility”) is in the business of wholesale distribution of motor vehicle supplies throughout Canada, including Ontario.

[6] In March of 2018, CSI entered into a Sales Agreement with Pittasoft in March of 2018. Under the Sales Agreement, CSI agreed to sell “BlackVue” dashboard camera products manufactured by Pittasoft.

Ontario Actions

[7] CSI alleges that in late 2018 or early 2019, Pittasoft published a libelous statement on its website about CSI. As a result, CSI filed a defamation action against Pittasoft on September 11, 2019 bearing court file CV-19-627161 (“First Action”).

[8] Pittasoft defended the First Action in December of 2019, and CSI delivered its Reply in May of 2020.

[9] In July of 2020, CSI sought to amend its claim in the First Action to include a breach of contract claim against Pittasoft, as well as tort claims against Automobility. It provided a draft Amended Statement of Claim to Pittasoft and Automobility. CSI’s theory is that Automobility, who also distributes Pittasoft products and is a larger customer of Pittasoft, coerced Pittasoft to stop supplying products to CSI in breach of its Sales Agreement with CSI.

[10] Concerned about a potential limitation period, in July of 2020, CSI filed the amended Statement of Claim as a new action, bearing court file CV-20-644447 (“Second Action”). The Second Action pleads the same defamation allegations as in the First Action against Pittasoft, adds a breach of contract claim against Pittasoft, and tort claims of inducing breach of contract and intentional interference with economic relations against Automobility.

[11] There is no dispute that there is repetition as between CSI’s pleadings in the First Action and the Second Action. It was CSI’s intention to regularize the pleadings after the Second Action was issued, which was issued solely to protect against the expiration of a limitation period.

[12] Pittasoft argues that the breach of contract claim in the Second Action ought to be stayed because the Sales Agreement requires that disputes around the interpretation and performance of the agreement are to be settled by arbitration in Korea. The relevant sections read:

9.1 This Agreement shall be construed in accordance with and governed by the laws of the Republic of Korea.

9.2 In case of a dispute between the parties as to the interpretation or performance of this Agreement, or any provision hereof, such dispute shall be finally settled by an arbitration held in Seoul, Korea under the Commercial Arbitration Rules of Korean Commercial Arbitration Board by one arbitrator appointed in accordance with such Rules.

Korean Action

[13] On November 14, 2019, a representative from Pittasoft, Jake, emailed the principal of CSI demanding CSI withdraw the First Action in Ontario. The email asserted claims Pittasoft had against CSI. He indicated this would be the basis of an action in a Korean court and that CSI would “spend lots of money” to defend it. The email concluded by demanding CSI “drop” the lawsuit in Canada, which the representative from Pittasoft said would be mutually beneficial.

[14] In December of 2019, Pittasoft commenced an action in the Republic of Korea against CSI. It alleged that CSI sold products below the Minimum Advertised Price as agreed upon in the agreement between the parties, and that CSI was in breach of that agreement. It also made tort allegations.

[15] Service of the Korean complaint pursuant to the Hague Convention appears to have been initiated in March of 2020, but service on CSI was not achieved until October of 2020. That was the first time CSI came to learn of the Korean action.

[16] CSI expended resources and engaged lawyers in Korea to respond to the Korean action. However, Pittasoft withdrew the Korean action in March of 2021, after this motion had been commenced.

II. Position of the Parties

[17] CSI’s position is that the Second Action should not be stayed in favour of arbitration in Korea because:

a. Pittasoft, by its own conduct, is estopped from relying on the arbitration clause. CSI relies heavily upon the fact that Pittasoft commenced its own action in Korea, in addition to other conduct.

b. Automobility is not a party to the contract with CSI and Pittasoft, and therefore, is not a party to any arbitration that would be held in Korea.

c. Arbitration would lead to a multiplicity of proceedings and potentially inconsistent results, both with respect to the claim against Automobility and with respect to the defamation claim. It would be more expeditious and less costly to avoid a multiplicity of proceedings.

[18] CSI further states that if the Second Action is not stayed, leave should be granted to amend the pleadings in the two Ontario actions so that it proceeds as a single action.

[19] Pittasoft’s position is that CSI has not established a “strong cause” as to why the arbitration clause should not be enforced, as required under case law. It says it is not estopped by its conduct from enforcing the arbitration clause. It argues the Second Action should be stayed in its entirety, and this Court should order the matter proceed to arbitration in Korea.

[20] Automobility did not file any material on this motion. Its counsel did make brief oral arguments. She argued that the Second Action should be stayed in its entirety, or at least stayed against Automobility until the arbitration in Korea is complete. If the arbitration concludes Pittasoft has not breached the contract, then Automobility cannot be found to have induced the breach. Moreover, it argues that the facts underpinning a breach of contract are the same as the tort of intentional interference with economic relations. As such, it makes sense to stay the Second Action against Automobility until the arbitration is complete.

III. Analysis

[21] The legal principles applicable when a litigant seeks to displace a forum selection clause agreed upon in a commercial contract are set out in Novatrax International Inc. v. Hägele Landtechnik GmbH, 2016 ONCA 771 (“Novatrax”) at para 5:

[5] The parties agree that the motion judge correctly identified the governing principles as those set out by the Supreme Court of Canada in Z.I. Pompey Industrie v. ECU-Line N.V., 2003 SCC 27, [2003] 1 S.C.R. 450, and by this court in Expedition Helicopters Inc. v. Honeywell Inc., 2010 ONCA 351, 100 O.R. (3d) 241, leave to appeal refused, [2010] 3 S.C.R. v (note), and 2249659 Ontario Ltd. v. Sparkasse Siegen, 2013 ONCA 354, 115 O.R. (3d) 241:

(i) The law favours the enforcement of forum selection clauses in commercial contracts. Where the parties have agreed to a forum selection clause, the starting point of the forum non conveniens analysis is that the parties should be held to their bargain;

(ii) A stay of an action should be granted unless the plaintiff shows “strong cause” that the case is exceptional and the forum selection clause should not be enforced;

(iii) The requirement that the plaintiff show “strong cause” presumes that there is an agreement containing a clear forum selection clause and that clause, by its terms, applies to the claims the plaintiff seeks to bring in Ontario; and

(iv) The forum selection clause pervades the forum non conveniens analysis and must be given full weight in the consideration of other factors.

[22] The “strong cause” threshold is high. The Supreme Court of Canada in Z.I. Pompey Industrie v. ECU-Line N.V., 2003 SCC 27 at para 20 described the test as follows:

In the context of international commerce, order and fairness have been achieved at least in part by application of the “strong cause” test. This test rightly imposes the burden on the plaintiff to satisfy the court that there is good reason it should not be bound by the forum selection clause. It is essential that courts give full weight to the desirability of holding contracting parties to their agreements. There is no reason to consider forum selection clauses to be non-responsibility clauses in disguise. In any event, the “strong cause” test provides sufficient leeway for judges to take improper motives into consideration in relevant cases and prevent defendants from relying on forum selection clauses to gain an unfair procedural advantage.

[23] As this is an international arbitration agreement, the International Commercial Arbitration Act, S.O. 2017, c. 2 (“ICAA”) applies. Like the caselaw referenced above, it requires a court to respect arbitration agreements in certain circumstances. Section 5 of the ICAA adopts the UNCITRAL Model Law on International Commercial Arbitration, which forms Schedule II to the ICAA, and gives it force of law. Article 8(1) of Section II reads:

(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.

Should the Second Action be Stayed?

[24] Article 8(1) of the UNCITRAL Model Law requires the court to refer a matter that is subject to an arbitration agreement to arbitration, “unless it finds the agreement is null and void, inoperative or incapable of being performed”. In addition, a party seeking to engage the arbitration agreement must make the request “not later than when submitting [its] first statement on the substance of the dispute.”

[25] I find that Pittasoft’s “first statement on the substance of the dispute” was in the Korean court proceedings in which it alleged breach of contract. Therefore, under the ICAA and article 8(1) of UNCITRAL model law, the time has passed by which Pittasoft can seek enforcement of the arbitration clause in the Sales Agreement.

[26] I also find that the arbitration clause in the Sales Agreement has been rendered inoperative by virtue of Pittasoft initiating a claim in Korea.

[27] CSI referred to two international authorities for when arbitration agreements become inoperative. In Dyna-Jet Pte Ltd v Wilson Taylor Pte Ltd [2016] SGHC 238, the Singapore High Court said at 162 (cited subsequently in Heartronics Corp. v. EPI Life Pte Ltd., [2017] SGHCR 17 at para 65):

An arbitration agreement is inoperative, at the very least, when it ceases to have contractual effect under the general law of contract. That can occur as a result of a number of doctrines of the law of contract such as discharge by breach, by agreement or by reason of waiver, estoppel, election or abandonment.

[28] In Mitchell v Anor v. Mulvey Developments Ltd., [2012] IEHC 561, a decision of the Irish High Court, the Court held a party’s own conduct can result in an estoppel and prevent that party from relying on an arbitration clause, particularly where it has chosen to litigate in the courts. In that case, a party became engaged in a court proceeding and defended it on the merits. On this basis, the Court held it forfeited its right to invoke the arbitration clause.

[29] CSI also referred to an Ontario decision in which a judge of this Court dismissed a motion to stay a proceeding because the defendant, rather than first relying on the arbitration clause and a motion to stay, asserted a counterclaim. The court held this represented estoppel by conduct: Sala v Jack Aaron & Company Ltd., 2009 CanLII 32263 (ON SC) at para 13.

[30] The law on estoppel is relevant to assess whether Pittasoft, by its conduct and CSI’s response to that conduct, is estopped from relying upon the arbitration clause. The law as restated by the Ontario Court of Appeal in Tiny (Township) v. Battaglia, 2013 ONCA 274 at para 155 is as follows:

“The respondents also submit that the Township’s conduct gives rise to a more general type of estoppel as described by Ritchie J. in John Burrows Ltd. v. Subsurface Surveys Ltd., 1968 CanLII 81 (SCC), [1968] S.C.R. 607, at p. 615:

The principle, as I understand it, is that where one party has, by his words or conduct, made to the other a promise or assurance which was intended to affect the legal relations between them and to be acted on accordingly, then, once the other party has taken him at his word and acted on it, the one who gave the promise or assurance cannot afterwards be allowed to revert to the previous legal relations as if no such promise or assurance had been made by him, but he must accept their legal relations subject to the qualification which he himself has so introduced, even though it is not supported in point of law by any consideration, but only by his word.”

[31] In my view, Pittasoft’s conduct of threatening to commence a proceeding in a Korean Court, acting on that threat and commencing proceedings in Korea, and CSI engaging a lawyer in Korea to respond to that proceeding constitutes estoppel by conduct. Since that proceeding alleged breach of contract, which would otherwise have been subject to arbitration under the Sales Agreement, Pittasoft cannot now revert back to the arbitration clause as if its prior conduct had not occurred.

[32] The fact that Pittasoft withdrew the Korean action does not change my view. The Korean action was commenced in December of 2019 but was withdrawn fifteen months later in March of 2021, after CSI brought this motion. During this period, Pittasoft did not seek relief before an arbitrator. There was no evidence Pittasoft even raised the arbitration clause with CSI until after this motion was filed. While this Court may forgive accidental slips by unrepresented parties or ones that are quickly corrected, these were not the facts before me.

[33] Because the arbitration clause in the Sales Agreement is no longer operative, the plaintiff has established “strong cause” as to why the arbitration clause should not be enforced.

[34] For these reasons, I dismiss Pittasoft’s cross-motion to have the Second Action stayed.

Should Leave be Granted to amend pleadings in the First Action?

[35] I must now determine what to do with the fact that there is the Second Action involving the same parties with the same factual matrix.

[36] Section 138 of the Courts of Justice Act states that as far as possible, a multiplicity of legal proceedings shall be avoided. Rule 1.04 of the Rules of Civil Procedure sets out the objective of securing the just, most expeditious and least expensive determination of the matter on its merits.

[37] Rule 26.01 of the Rules of Civil Procedure states that, on motion at any stage of an action, the court shall grant leave to amend a pleading on such terms as are just, unless prejudice would result. There is also authority for the proposition that where a litigant commences a second action to protect against the expiry of a limitation period rather than bring a motion to amend pleadings, it is not an abuse of process. In such a situation, the appropriate remedy is consolidation: Loy English v. Fournier, 2018 ONSC 6212 (SCJ) at paras 29 and 30.

[38] In my view, there was nothing improper with CSI commencing the Second Action. I am satisfied that it did so to protect against the expiration of a limitation period.

[39] There is duplication between the First Action and the Second Action. But since the Second Action merely repeats the defamation claim in the First Action, and adds the breach of contract and tort claims, it would make sense to replace the Statement of Claim in the First Action with the Statement of Claim in the Second Action, and then dismiss the Second Action.

[40] If there is prejudice to Pittasoft, it will be minimal. It will have to amend its original Statement of Defence in the First Action to now defend against the new breach of contract claim. There is no prejudice to Automobility, since it has only filed a Notice of Intent to Defend to the Second Action. If Pittasoft or Automobility wish to assert limitation period defences or other defences, they may do so.

[41] Accordingly, I order that the Statement of Claim in the Second Action shall constitute the Statement of Claim in the First Action, and that the Second Action be dismissed. Pittasoft and Automobility shall have 60 days from the date of this decision to file a Statement of Defence, or in the case of Pittasoft, an Amended Statement of Defence, unless a further extension is agreed to by the parties.

IV. Costs

[42] Parties may submit a maximum of 3 pages of cost submissions, with an attached Bill of Costs, to my assistant. The plaintiff shall have 14 days to deliver its submissions. The defendants shall have 14 days thereafter to deliver its submissions. The plaintiff shall have 7 days thereafter for any reply submissions.

Justice Mohan Sharma

Date: July 21, 2021