August 15, 2024
Despite an agreement to arbitrate, the opposing party might start a court action.
What do you do then if you want the dispute to go to arbitration?
You apply for a stay of the court action. This is similar to a stay of enforcement of a court order, but because of provisions in the Arbitration Act, 1991, the requirements for a stay are somewhat different.
THE ISSUE
Today’s key point is that if you, as defendant, take any step in the court action, you may be denied your stay. It does not take filing a defence to be denied the stay.
THE CASE
This was the result in RH20 North America Inc. v. Bergmann,. The Defendants had moved to strike parts of the claim, and asked for a stay in favour of arbitration, at the same time.
The Ontario Court of Appeal considered section 15 of the Act in light of a 2022 Supreme Court of Canada decision. Under that case (“Peace River”) there are four “technical requirements” to obtain a stay in favour of arbitration:
(a) an arbitration agreement exists;
(b) court proceedings have been commenced by a “party” to the arbitration agreement;
(c) the court proceedings are in respect of a matter that the parties agreed to submit to arbitration; and
(d) the party applying for a stay in favour of arbitration does so before taking any “step” in the court proceedings.
Although the RH20 case involved an international arbitration, governed by another Act, and the Peace River case involved a domestic arbitration, the test was held to be similar.
There is a second stage to obtain the stay in which the court considers whether the arbitration agreement has become “void, inoperative or incapable of being performed”. After Peace River, taking any step in the action renders the arbitration agreement inoperative. In RH20,this was applied to an international arbitration, and in circumstances where the “step” was bringing a motion to strike .
It did not matter that the stay request was in the same motion. The stay motion needed to be first. The Court ruled against the stay. The Ontario action will proceed.
TAKEAWAYS
Prior to these cases, it was widely thought that it was only filing a defence which defeated the stay motion. Now, the test is applied differently. Though this is inconsistent with the ongoing trend of courts to defer to arbitration agreements, it is the law, and a trap for the unwary.
WHAT WEILERS LLP CAN DO FOR YOU
We maintain a watchful eye on developments in arbitration law. Whether you are drafting a contract; being asked to sign a contract; or in need of dispute resolution, we can apply our experience and skill for your benefit.
For all your dispute resolution needs, give Weilers LLP a call to see if we are the right lawyers for you.