COURT FILE NO.: CV-21-86071
DATE: 2022/10/25
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: JUSTMARK INDUSTRIES INC. (formerly CANOMEGA INDUSTRIES INC.), Plaintiff/Responding Party
AND
INFINITUS (CHINA) LTD. and INFINITUS INNOVATIONS (CANADA) INC., Defendants/Moving Parties
BEFORE: Justice H. J. Williams
COUNSEL: Brett Hodgins, Counsel for the Plaintiff
Robert W. Staley and Ian W. Thompson, Counsel for the Defendants
HEARD: April 28, 2022
REASONS FOR DECISION
Overview
[1] The moving party, Infinitus (China) Company Ltd.[^1], is asking the court to stay this action for breach of contract because of an arbitration clause in the contract.
[2] The parties’ contract requires disputes to be arbitrated in Hong Kong, by the Arbitration Committee of the International Trade Council, and for the law of the United Kingdom to be applied.
[3] The parties agree that, under s. 5(1) of the International Commercial Arbitration Act, 2017, S.O. 2017, C. 2, Sch. 5, the Model Law on International Commercial Arbitration, adopted by the United Nations Commission on International Trade Law, has force of law in Ontario.
[4] Article 8(1) of the Model Law provides as follows:
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.
[5] Section 9 of the ICAA, 2017 provides that where, pursuant to article 8 of the Model Law, a court refers the parties to arbitration, the proceedings of the court are stayed with respect to the matters to which the arbitration relates.
The position of the respondent
[6] The respondent, Justmark Industries Inc. (formerly Canomega Industries Inc.), argues that the arbitration clause in the parties’ contract is inoperative under Article 8(1) of the Model Law because Infinitus waived arbitration through conduct that was inconsistent with the right to arbitrate.
[7] Justmark says that, in an effort to resolve the dispute, it had reached out to Infinitus on multiple occasions and had made it clear that it was open to arbitration. Justmark says Infinitus was uncooperative.
[8] Justmark says that in November 2020, it wrote to Infinitus, proposed arbitration and warned that if Infinitus did not agree to arbitrate, Justmark would start a legal action. Justmark says it did not then start the action until the following year, when it became concerned that a two-year limitation period could bar its claim.
[9] Justmark does not suggest that Infinitus’s motion to stay was not brought promptly.
Analysis
[10] The threshold to avoid arbitration is high. Where it is clear that an arbitration agreement is null and void, inoperative or incapable of being performed under Article 8(1) of the Model Law, the court will make a determinative finding to that effect and dismiss the motion for referral. However, Ontario’s Court of Appeal has held that in cases where it is not clear, it may be preferable to leave any issue related to the "existence or validity of the arbitration agreement" for the arbitral tribunal to determine in the first instance. (Dalimpex Ltd. v. Janicki, 2003 34234 (ON CA), 64 O.R. (3d) 737 (C.A.), at para. 22.)
[11] In this case, Justmark has not satisfied me that the parties’ agreement to arbitrate is inoperative on the basis that Infinitus waived its right to arbitration.
[12] A waiver involves a knowing relinquishment of rights. “Waiver will be found only where the evidence demonstrates that the party waiving had (1) a full knowledge of rights; and (2) an unequivocal and conscious intention to abandon them. (Campbell v. 1493951 Ontario Inc., 2021 ONCA 169, at para. 12, citing Saskatchewan River Bungalows Ltd. v. Maritime Life Assurance Co., 1994 100 (SCC), [1994] 2 S.C.R. 490, at para. 20.)
[13] Justmark urged me to consider law from other jurisdictions which have considered waiver in the context of the Model Law. Justmark relies heavily on two case summaries from the 2003 edition of a commercial arbitration yearbook:[^2]
The question of waiver of the agreement to arbitrate came up in a number of cases in the United States. The District Court in Washington recalled that there are three elements that support a finding of waiver of a right to arbitration: (1) a party was aware of its right to arbitration, (2) acted in a manner inconsistent with the exercise of that right, and (3) prejudiced the opposing party as a result (US no. 162 reported in Volume XX pp. 811-815). The Court found that participating in bankruptcy proceedings is not a waiver of the right to arbitrate.
The District Court in Illinois reached to the conclusion that the party invoking the arbitration clause had waived its right to arbitration by acting inconsistently with it (US no. 93 reported in Volume XV pp. 568-574). The party had resorted to arbitration for breach of contract but had submitted the same claims on the basis of tort in US court proceedings.
[14] Justmark did not file copies of the complete opinions in either of the American District Court cases summarized in the commercial arbitration yearbook. I also note that the paragraph in the yearbook that followed the two I have reproduced in para. 13, above, said that the District Court of Illinois had reached a different conclusion in a later case. According to the yearbook, in the later case, the District Court of Illinois found that by proceeding with pre-trial discovery before demanding arbitration, the defendants had not waived their right to arbitrate and concluded that “[t]o waive arbitration a party must knowingly take some judicial action inconsistent with a right to arbitrate, and the party opposing arbitration must suffer some substantial prejudice.”
[15] Justmark has not persuaded me that a waiver of the right to arbitrate does not require the two elements required for a “knowing relinquishment of rights”, set out by the Supreme Court of Canada in Saskatchewan River Bungalows Ltd and relied upon by the Court of Appeal for Ontario in Campbell: A party must have both a full knowledge of it rights and an unequivocal and conscious intention to abandon them.
[16] While Justmark drew the attention of Infinitus to the arbitration clause in their contract and informed Infinitus of Justmark’s willingness to rely on the clause, and while Infinitus failed to respond, there is no evidence before me that Infinitus had the requisite “unequivocal and conscious intention,” or any intention, to abandon its right to arbitrate.
[17] Even if I had accepted Justmark’s argument that waiver of the right to arbitrate requires only knowledge of the right, acting inconsistently with the right and prejudicing the opposite party, I would have found no prejudice in this case. Justmark argues that it has been prejudiced by delay and by the cost of the litigation, but these are issues that may be addressed by the arbitrator. Justmark also argues that if Infinitus continues to refuse to arbitrate, Justmark could lose its right to litigate, because of the expiry of a limitation period. However, if Infinitus refuses to arbitrate, this court may appoint an arbitrator under Article 11 of the Model Law. Further, the parties’ contract provides that disputes would be governed by the law of the United Kingdom. Infinitus argues that the applicable limitation period is six years and will not expire for some time. Justmark filed no evidence in respect of the applicable limitation period.
[18] Finally, the parties’ contract requires disputes to be arbitrated in Hong Kong, by the Arbitration Committee of the International Trade Council and Justmark argues that it is not a member of the ITC. There was evidence that ITC memberships can be purchased easily and inexpensively on-line and no support for the argument that not having an ITC membership would render the arbitration clause inoperative.
[19] For these reasons, Justmark has not persuaded me that the parties’ agreement to arbitrate is inoperative on the basis that Infinitus waived its right to arbitration or because the agreement to arbitrate is null and void, inoperative or incapable of being performed for any other reason.
[20] In accordance with Article 8(1) of the Model Law, the parties are referred to arbitration. In accordance with s. 9 of the ICAA, 2017, Justmark’s action is stayed.
Costs of the previous motions and this one
[21] In an order on consent dated January 25, 2022, Maranger J. dismissed Justmark’s action against Infinitus Innovations (Canada) Inc. and dismissed a motion by Justmark to examine a non-party witness.
[22] Justice Maranger ordered that the costs of the consent motions and the costs of the action against Infinitus Innovations (Canada) Inc. would be decided by the judge hearing the stay motion that was before me.
[23] The parties have filed costs submissions in respect of the issues that were resolved on consent. They have also filed costs outlines in respect of the motion before me.
[24] The costs of the consent motions that are the subject of Maranger J.’s order and the costs of the stay motion before me appear to be related. I will defer any decision on costs until the parties have had an opportunity to deliver any further costs submissions in relation to the stay motion. Infinitus shall have 10 days to deliver a brief written submission to supplement its costs outline. Justmark shall then have 10 days to deliver the same. If, in respect of the stay motion, either party wishes to rely on its costs outline only, the party should inform the opposite party and the court accordingly. Submissions may be filed to my attention by sending them by email to scj.assistants@ontario.ca . If either party believes that further oral submissions are required in respect of the costs issue, it may request a one-hour appointment with me through the trial coordinator.
Justice H.J. Williams
Date: October 25, 2022
COURT FILE NO.: CV-21-86071
DATE: 2022/10/25
ONTARIO
SUPERIOR COURT OF JUSTICE
RE: JUSTMARK INDUSTRIES INC. (formerly CANOMEGA INDUSTRIES INC.), Plaintiff/Responding Party
AND
INFINITUS (CHINA) LTD. and INFINITUS INNOVATIONS (CANADA) INC., Defendants/Moving Parties
reasons for decision
Williams J.
Released: October 25, 2022
[^1]: The action against Infinitus Innovation (Canada) Inc. was dismissed in January 2022.
[^2]: Albert Jan Van den Berg, “Consolidated Commentary Cases Reported in Volumes XXII (1997) - XXVII (2002),” in Albert Jan Van den Berg (ed), Yearbook Commercial Arbitration 2003 – Volume XXVIII, (Kluwer Law International; ICCA & Kluwer Law International 2003) pp.562 – 700, at p. 612.