In Fisher v Airfoam Industries Ltd. (Quad-Lock Building System), 2025 BCSC 758 (“Fisher”), the court considered an application to stay court proceedings in favour of arbitration pursuant to section 8 of the British Columbia International Commercial Arbitration Act, RSBC 1996, c 233 (“ICAA”). The court proceedings related to a dispute between a buyer and seller about the sale of goods that the buyer alleged were deficient. The applicant seller argued that the dispute was required to be submitted to arbitration pursuant to a mandatory arbitration clause that was included in the Terms and Conditions on the seller’s website. The court found that respondent buyer had signed sales orders that referred to the Terms and Conditions and that this was evidence that he agreed to them, including the arbitration clause. The respondent buyer argued that the applicant was estopped from relying on the arbitration clause because the respondent and applicant had a shared assumption that the arbitration clause would not be used and that the parties would instead litigate in court. The respondent buyer argued that, as a result, the clause was “inoperative” and unenforceable pursuant to section 8(2) of the ICAA. However, the court found that there was no evidence of any such shared assumption and therefore there was no estoppel. The court granted the stay application. This case is an important reminder that an arbitration agreement is just a contract and grounds that can render a contract unenforceable, such as estoppel, can also render an arbitration clause “inoperative” and unenforceable for the purpose of an application to stay court proceedings for arbitration.
The Terms and Conditions:
The respondent, Fisher (“Purchaser”), purchased insulated concrete foams, for residential construction projects, from the applicant, Quad-Lock Building Systems (“Seller”). Seller sent Purchaser sales orders and order forms (“Order Forms”) for the purchases, to be signed electronically. The Order Forms referred to the “Terms and Condition of Sale” and included a link to those terms on Seller’s website. The Terms and Conditions included a mandatory arbitration clause:
…The Buyer consents that all disputes arising out of or relating to this Agreement shall be settled finally by binding arbitration under the Rules of the British Columbia Commercial Arbitration Centre...
The Stay Application:
Purchaser commenced a court action against Seller alleging that the concrete foam products were faulty. Seller applied to stay the claim in favour of arbitration pursuant to section 8 of the ICAA, arguing that the parties were required to submit their dispute to arbitration pursuant to the binding arbitration clause in the Terms and Conditions on Seller’s website.
The Test:
The court cited the test from Peace River Hydro Partners v PetroWest Corp., 2002 SCC 41 (“Peace River”)for a stay of court proceedings in favour of arbitration. The court explained that the test has two components:
- The technical prerequisites for a mandatory stay of court proceedings; and
- The statutory exceptions to a mandatory stay of court proceedings.
The three technical prerequisites under section 8(1) of the ICAA are:
- A party to an arbitration agreement has commenced legal proceedings against another party to the agreement;
- The legal proceedings are in respect of a matter agreed to be submitted to arbitration; and
- The application must be brought before the applicant takes a step in the proceedings (Pixhug Media Inc v Steeves, 2017 BCSC 2171 at para 43).
The applicant must only establish an “arguable case” that the technical prerequisites have been met (Peace River at para 84). If the applicant discharges that burden, the party seeking to avoid the stay must establish that one of the statutory exceptions in section 8(2) of the ICAA applies; court should only dismiss a stay application in “clear cases” where the party seeking to avoid arbitration has established, on a balance of probabilities, that the arbitration agreement is void, inoperative, or incapable of being performed (at para 89).
Court’s Analysis:
As to the first stage of the test, the court considered whether the arbitration clause formed part of the contract between Purchaser and Seller and, if so, whether it was enforceable.
Purchaser argued that he entered into an oral agreement for the purchase of foam before he signed the Order Forms. He argued that he and a Seller representative had negotiated the price of the foam by phone. However, the court found that Purchaser could not provide any additional details about the terms that were agreed on as a result of the negotiations or precisely when the oral agreement was formed. Purchaser’s evidence lacked the precision necessary for the court to find that he had entered into a binding oral contract before he signed the Order Forms.
On the other hand, the Order Forms included a statement, immediately above Purchaser’s signature, that referred to the Terms and Conditions and this was evidence that Purchaser had agreed to the Terms and Conditions. As a result, the court concluded that Seller had established an arguable case that the Order Forms, that incorporated by reference the Terms and Conditions and Arbitration Clause, constituted a binding contract between Purchaser and Seller.
At the second stage of the test, Purchaser argued that the court should refuse to grant a stay pursuant to section 8(2) of the ICAA because the Arbitration Clause was “inoperative” for reasons of estoppel. Citing Peace River, the court described the meaning of the term “inoperative”:
“… In arbitration law… the term has been used to describe arbitration agreements which, although not void ab initio, “have ceased for some reason to have future effect” or “have become inapplicable to the parties and their dispute”… Possible reasons for finding an arbitration agreement inoperative include frustration, discharge by breach, waiver, or a subsequent agreement between the parties (at paras 138-139).”
Purchaser argued that Seller had represented that it would not rely on the arbitration clause and, as a result, was estopped from relying on it. However, the court found that there was no evidence of an express representation by Seller that it would not rely on the arbitration clause. In addition, Purchaser argued that he and Seller had a shared assumption that the arbitration clause would not be used and that the parties would litigate in court if needed. However, the court found in its review of the evidence that the Purchaser was not even aware of the arbitration clause until after he filed his court claim. As a result, the court found that there was no evidence of any “shared assumption” by Purchaser and Seller that the arbitration clause would not apply to Purchaser’s claim.
The court rejected Purchaser’s estoppel argument and ordered a stay of the court proceedings in favour of arbitration.
Contributor’s Notes:
First, this case is one of few Canadian court decisions since Peace River that considers what it means to have an “inoperative” arbitration clause in the context of an application to stay court proceedings for arbitration. The court’s analysis shows that an arbitration clause could be found to be “inoperative” and unenforceable if the respondent in a stay application can establish, on a balance of probabilities, that the applicant is estopped from relying on the arbitration clause. This could happen, for example, if there is evidence that the applicant represented to the respondent, by its words or conduct, that it would not rely on the arbitration clause. In this case, the court considered the argument, but the party opposing the arbitration had insufficient evidence to prove estoppel.
Second, the stay of proceedings provisions in ICAA include language that is unique to that act. ICAA says that “a party to the legal proceedings may, before submitting the party’s first statement on the substance of the dispute, apply to that court to stay the proceedings”. The British Columbia ICAA is the only international commercial arbitration act of the Canadian provinces that includes this language. ICAA was recently considered in Harder v InCor Holdings Limited, 2024 BCSC 1789. In that case, the court found that the applicant was disqualified from seeking a stay of proceedings pursuant to ICAA because it had filed a response to civil claim before it applied to the court to stay the proceedings for arbitration. Parties in British Columbia that intend to file an application to stay a court action for arbitration should be cautious about taking any steps to respond to the substance of the dispute prior to bringing their stay application. For further discussion about what it means for a party to take a “step” in a legal proceeding, see the Case Note: British Columbia – Stay of action fails where party first brought motion to strike – #866.
Third, this case reminds contracting parties of the importance of checking their contracts for references to terms and conditions that are not contained in the body of the contract document. Parties might agree to a mandatory arbitration clause that is incorporated into terms and conditions that are referred to, but not attached, to the contract document that they sign. Failure to identify a mandatory arbitration clause could result in a missed limitation period to commence an arbitration.