In General Entertainment and Music Inc. v. Gold Line Telemanagement Inc., 2022 FC 418, Justice Fothergill of the Federal Court allowed an appeal of the prothonatory’s order and stayed an action for breach of certain provisions of the Copyright Act, the Trademarks Act and the Radiocommunication Act in favour of arbitration seated in Bermuda. In doing so, he applied Article II.3 of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention) and the Supreme Court of Canada’s jurisprudence on staying court proceedings in favour of arbitration. The prothonatory erred in applying the law relating to a forum selection clause to an arbitration clause.
General Entertainment and Music Inc. (GEM) is a Canadian company that broadcasts televisions channels in the Farsi language to customers in Canada through subscription satellite services. It brought an action against Gold Line Telemanagement Inc. and entities related to it, which provide multicultural internet protocol television programming. GEM alleged that Gold Line had engaged in widespread pirating of GEM’s satellite television signals, as well as the unauthorized reproduction and retransmission of television programs and films over which GEM asserts copyright.
GEM’s predecessor and one of the defendants were party to a Content Acquisition and Licensing Agreement (“the Agreement”) that included a basic arbitration clause, which provided: “Any disputes under this Agreement shall be settled by Arbitration in Bermuda, and each of the parties hereby irrevocably submits to the exclusive jurisdiction of Bermuda.” There was a dispute between the parties as to whether that agreement had been terminated.
GEM brought an action in Federal Court alleging various breaches of statute, to which Gold Line responded with a request for particulars and documents, and a statement of defence. Shortly afterwards, Gold Line started an arbitration seated in Bermuda, invoking the arbitration clause in the Agreement. It then brought a motion to stay GEM’s action.
The matter first came before Prothonotary Milczynski, sitting in her capacity as case manager. She dismissed the stay motion, applying the Supreme Court of Canada’s jurisprudence concerning the enforcement of forum selection clauses.
Justice Fothergill allowed Gold Line’s appeal from Prothonotary Milczynski’s decision, and stayed GEM’s action in favour of arbitration in Bermuda.
First, he found that the wrong legal test had been applied. Although the parties used the terms “choice of law clause”, “forum selection clause” and “arbitration clause” indiscriminately, the clause at issue was an arbitration clause. Therefore, the Supreme Court’s jurisprudence with respect to forum selection clauses (according to which the parties specify which court has jurisdiction over their dispute) did not apply.
Second, citing Article II.3 of the New York Convention, Justice Fothergill held that he was required to refer the parties to arbitration, unless he found that the arbitration agreement was “null and void, inoperative or incapable of being performed.” He then referred to the Supreme Court of Canada’s decisions in Dell Computer Corp. v. Union des Consommateurs, 2007 SCC 34and Uber Technologies Inc. v. Heller, 2020 SCC 16 to conclude that the action should be stayed unless very limited circumstances existed, which were not at issue in this case.
Third, invoking the separability doctrine, he rejected the argument that termination of the Agreement meant that the arbitration clause was no longer in effect. Again relying on Uber, he found that “[t]here is near uniform recognition of the separability doctrine by courts around the world, even where no legislation provides for it”, such that “[a] party cannot escape arbitration by alleging termination of the contract containing the arbitration clause.”
Fourth, Justice Fothergill dismissed as irrelevant the argument that Gold Line had voluntarily submitted (“attorned”) to the jurisdiction of the Federal Court by filing a statement of defence and a request for particulars and documents. Noting that question of attornment did not figure in Dell, Uber or the Supreme Court’s other jurisprudence on staying court proceedings in favour of arbitration, he stated that “[a]ttornment cannot be an escape hatch to avoid arbitration.”
Finally, he dismissed GEM’s arguments that the arbitration clause did not apply because its claims were statutory. He reasoned that the Copyright Act, the Trademarks Act and the Radiocommunications Act do not exclude arbitration, and therefore that the statutory nature of the claims was not a reason to deny the stay.
Arbitration-related matters do not come before the Federal Court as often as they come before the provincial courts. This decision provides some insight as to how that court views its role in connection with arbitration.
It is interesting that the context meant that Justice Fothergill had to apply Article II.3 of the New York Convention directly, rather than one of the provincial international arbitration statutes based on the UNCITRAL Model Law on International Commercial Arbitration. There is a federal equivalent (the Commercial Arbitration Act, R.S.C. 1985, s. 17 (2nd Supp.)), but it applies only to the Crown, Crown corporations and in relation to maritime or admiralty matters.
This is perhaps a lacuna regarding arbitration-related matters that come before the Federal Court but do not fall within the scope either of the New York Convention or of the federal Commercial Arbitration Act. Few such cases have come before the Federal Court, but those that have illustrate the potential for confusion.
In a copyright and trademark infringement case from 1998, the Federal Court held that granting a stay was discretionary and not mandatory where the federal Commercial Arbitration Act did not apply. The Court did not consider Article II of the New York Convention, despite the fact that the arbitration clause at issue involved a U.S. seat – and therefore referral to arbitration should have been mandatory (Simmonds Capital Limited v. Eurocom International Limited, 1998 CanLII 7229 (FC)). In other cases, the Federal Court has applied the Ontario and B.C. legislation applicable to domestic arbitrations, again without much analysis as to why the stay provisions in those statutes applied to an action brought in Federal Court (Murphy v. Compagnie Amway Canada, 2011 FC 1341; Campney & Murphy v. Bernard & Partners, 2002 FCT 1136).
Greater statutory clarity may be needed here to ensure that court proceedings brought in Federal Court despite the existence of an arbitration agreement do not fall through the proverbial cracks, whether those arbitration agreements provide for Canadian or foreign seats, or are amongst Canadian or non-Canadian parties.
It is also interesting that Justice Fothergill’s analysis of the statutory claims issue is framed as one of arbitrability rather than scope of the arbitration clause. Faced with the argument that the claims at issue were statutory and therefore fell outside the scope of the arbitration clause, he found that the action should nevertheless be stayed, since the statutes do not exclude arbitration. In other words (reading between the lines), he found that the arbitration agreement was not “null and void, inoperative or incapable of being performed” within the meaning of Article II.3 of the New York Convention as it related to the statutory claims. Or that the statutory claims were “concerning a subject matter capable of settlement by arbitration”, pursuant to Article II.1 of the New York Convention.
The logical conclusion of this is that it will fall first to the arbitral tribunal, in accordance with the competence-competence principle, to decide whether the statutory claims fall within the scope of the arbitration clause, which on its face applies only to “[a]ny disputes under this Agreement” (i.e., not to any disputes arising in the broader context of the parties’ relationship and interactions with each other).
The question of whether the claims fall within the scope of the arbitration clause could then come before Bermuda courts on an application to set aside the arbitral award or a jurisdictional decision, or before Canadian courts on an application for recognition and enforcement of the award.