A recent decision of the Ontario Superior Court of Justice highlights the importance of drafting arbitration clauses with care. In 2156775 Ontario Inc. v. Just Energy, the court dismissed a motion to stay an action in favour of arbitration, finding that the dispute was not captured by the arbitration clause.
The plaintiff customer allegedly entered into contracts with the defendant Just Energy in 2008 and 2010. The 2008 contract did not include an arbitration clause, but “standard form” terms appended to the 2010 contract did include an arbitration clause that provided, in part:
“Dispute Resolution, Binding Arbitration. Customer may contact Just Energy with regard to a concern or dispute under this Agreement. . . . Both parties will, in good faith, use commercially reasonable efforts to resolve a dispute. If not resolved within 45 days, such dispute will be referred to and finally resolved by binding arbitration pursuant to Governing Law, before a single arbitrator, without the right of appeal to law and/or facts, at an arbitration services organization to be chosen exclusively by Just Energy. . . .” (emphasis added by authors)
The plaintiff commenced a court action in 2013, seeking a declaration that the 2008 and 2010 contracts were void, as well as damages for misrepresentation and negligence, among other things. It also named as a personal defendant an individual who provided marketing services to Just Energy. Relying on the arbitration clause in the 2010 agreement, Just Energy moved to stay the action in favour of arbitration. The personal defendant, who was not a party to either contract, consented to the dispute proceeding by way of arbitration.
Although Superior Court Justice Wendy Matheson endorsed the principle that parties should be required to resolve their disputes by arbitration where they have agreed to do so, the case was allowed to proceed in the courts. The court set out a two-step framework for analyzing whether a case should proceed by way of arbitration in accordance with an arbitration clause:
- Does the dispute fall within the scope of the arbitration agreement?
- If yes, should the court exercise its discretion to stay the proceeding (for example, because of the invalidity of the arbitration agreement or other possible reasons set out in section 7(2) of the OntarioArbitration Act, 1991)?
In the Just Energy case, the parties moving to stay the case in favour of arbitration failed on the first question. The court reasoned that the arbitration clause in the alleged 2010 agreement applied only to disputes “under” the agreement (i.e. the discharge of rights and obligations under the agreement), and not to a challenge to the existence of the agreement itself. The court contrasted the arbitration clause at issue with clauses in other cases that used broader wording such as “in connection with” or “arising out of” or “touching or concerning.” The court also noted that certain arbitration clauses expressly cover disputes relating to the validity of an agreement, and that the clause at hand made no mention of validity. As such, the court concluded that the dispute between the parties – which challenged the validity of the alleged agreements – fell outside the scope of the arbitration agreement.
On its face, the decision is a curious one. The court thoroughly canvassed the authorities in Ontario that are increasingly sending disputes to arbitration, including two recent decisions of the Ontario Court of Appeal;Nazarinia Holdings Inc. v. 2049080 Ontario Inc. in 2010 and Ontario Medical Association v. Willis Canada Inc. in 2013. Among other things, the court in Ontario Medical Association held that courts should stay an action in favour of arbitration where it is (merely) “arguable” that the dispute falls within the arbitration clause. Notably, this is also consistent with English law. For example, in Premium Nafta Products Ltd. v. Fili Shipping Company Ltd., a leading 2007 decision from the U.K. House of Lords, Lord Hoffmann stated that arbitration clauses should be interpreted from the baseline presumption that parties are likely to have intended any dispute arising out of their relationship to be decided by arbitration, unless language in the arbitration clause makes clear that certain questions were intended to be excluded from the arbitrator’s jurisdiction. Yet, the court in Just Energycame to the opposite result.
The Just Energy decision signals that if a party relies on an arbitration clause in an attempt to compel arbitration, courts will closely scrutinize the wording of the clause. “Boilerplate” or “standard terms” clauses can be expected to be viewed with heightened scrutiny. Parties who wish to take advantage of the benefits of arbitration should incorporate clauses that clearly set out the types of disputes that are subject to arbitration and those that are not. Failure to do so might result in being required to resolve a future dispute in court, despite an intention to the contrary and despite a growing body of law in Ontario that is otherwise very favourable to arbitration.