The Ontario Court of Appeal recently upheld the applicability of an arbitration provision in a franchise agreement as sufficient to require the arbitration of the disputes between the franchise parties, including the issue of whether the franchise agreement itself was valid.
In Nazarinia Holdings Inc. v. 2049080 Ontario Inc., 2010 ONCA 739, a franchisee (Nazarinia) had been seeking to bring an action in the Ontario Superior Court of Justice. He sought a rescission of the franchise agreement and damages against the franchisor. The franchisor brought a motion to stay the action on the ground the dispute fell squarely within the arbitration clause in the Franchise Agreement. The franchisor was successful in its motion, and Nazarinia appealed this decision to the Court of Appeal, which unanimously rejected the franchisee’s claim that the franchise agreement was void and therefore the arbitration clause was not triggered.
The Court of Appeal’s decision was supportive of the reasoning of the motions judge, particularly his finding that “the arbitration agreement is very broad and a clear indication that the parties intended their disputes, including disputes as to the validity of the Franchise Agreement itself, should be heard by an arbitrator and not by the courts.”
This case is encouraging for franchisors who are seeking to rely on arbitration agreements for the purposes of addressing disputes and litigation with their franchisees, and comes on heels of a similarly helpful decision of the Ontario Court of Appeal in MDG Kingston Inc. v. MDG Computers Canada Inc. (2008), 92 O.R. (3d) 4 (C.A.).