Contracting parties normally have their remedy for breaches through the court process. However, they may agree in advance to have any differences that arise resolved through mandatory and binding arbitration. Section 7(1) of the Ontario Arbitration Act (the “Act“) allows a party of such an agreement, if the other commences a lawsuit, to apply to the court to have the action stayed in favour of the arbitration process. Section 7(2) allows the court to refuse a stay in specified circumstances. Those exceptions are as follows:

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.

What happens if some of the plaintiffs are not bound by, or may ignore, the arbitration clause by reason of some other legislation?

Attempting to Stay Litigation for Part of a Class

A class proceeding was commenced against Telus alleging that they had rounded off their customers minutes leading to their not getting the full allotment of minutes they had paid for. The class consisted of both consumers and business clients of Telus. The standard client service agreement contained a clause mandating mediation, or if unsuccessful, then arbitration for all disputes except the collection of fees. This would lead one to the conclusion that the dispute was to be resolved out of court. However, the consumer clients were protected by the Consumer Protection Act (CPA) which invalidated the arbitration clause and allowed those members of the class to proceed with their court action. The business customers did not have this protection.

Telus moved for a stay of that part of the action which pertained to the claims of the business customers. The judge dismissed the motion and certified the class proceeding. Telus appealed but the Ontario Court of Appeal (ONCA) dismissed their appeal. Telus was given leave to appeal to the  Supreme Court of Canada (SCC) in Telus Communications Inc. v. Wellman.

The Dilemma

At each stage of this litigation, the courts were faced with a dilemma: should the arbitration clause be ignored with respect to the business customers for convenience sake, or should these customers, who had no protection under the CPA, be compelled to resolve their claims through ADR?

Analysis

The trial judge relied on section 7(5) of the Act, reasoning that the language in the section granted courts the discretion to refuse to stay claims which would otherwise be covered by an agreement to arbitrate. The section reads as follows:

The court may stay the proceeding with respect to the matters dealt with in the arbitration agreement and allow it to continue with respect to other matters if it finds that,

(a) the agreement deals with only some of the matters in respect of which the proceeding was commenced; and

(b) it is reasonable to separate the matters dealt with in the agreement from the other matters. 

The SCC Decision

The majority felt that for section 7(5) to apply, the proceeding must involve at least one matter that is dealt with in the arbitration agreement and at least one matter that is not dealt with in the arbitration agreement. The second precondition is met if it is reasonable to separate the matters dealt with in the agreement from the other matters. Second, if both preconditions are satisfied, then instead of ordering a full stay, the court may allow the matters that are not dealt with in the arbitration agreement to proceed in court, though it must nonetheless stay the court proceeding in respect of the matters that are dealt with in the agreement. If the preconditions are not met, then the discretionary exception under s. 7(5) is not triggered. At that point, unless one of the exceptions listed in s. 7(2) applies, the general rule under s. 7(1) would apply, meaning that the proceeding must be stayed.

The business customers were therefore compelled to proceed with arbitration and their claims in the class proceeding were stayed. This is so long as the sole matter in dispute is “overbilling”, and therefore the first precondition in section 7(5) is not applicable.

The Dissent

The minority would have dismissed the appeal by Telus. They felt that section 7(5) of the Act did give a judge the discretion to refuse to stay under these circumstances. In their words:

Section 7(5) of the Arbitration Act, 1991 reflects an explicit legislative intention to override an otherwise applicable arbitration clause. The words of the provision state that “the court may stay the proceeding with respect to the matters dealt with in the arbitration agreement and allow it to continue with respect to other matters”. This means that the court can either stay the arbitrable matters before it or allow them to proceed. Logically, a discretionary ability to grant a partial stay also includes the power to refuse a partial stay. The only interpretation that gives meaningful effect to the discretionary language of s. 7(5) is one that confers on judges the ability to allow both arbitrable and non-arbitrable disputes to proceed in court. An assertion that a court can never stay arbitrable matters under s. 7(5) renders the opening phrase — “may stay the proceeding with respect to the matters dealt with in the arbitration agreement” — superfluous. By interpreting the provision to apply only to non-arbitrable matters, s. 7(5) adds nothing to a judge’s existing discretion.

At Milosevic & Associates, our team of Toronto corporate commercial lawyers regularly represent clients in complex commercial litigation matters ranging from straightforward contract and partnership disputes to complex multi-party commercial claims including class action litigation.

Over the years, our team of exceptional litigators has seen it all and has successfully fought for our clients’ rights. Our impressive track record speaks for itself.  Call us at 416-916-1387 or contact us online for a consultation.