Federal – Stay test may vary – no Canadian standard arbitration stay provision – #755

In General Entertainment and Music Inc. v Gold Line Telemanagement Inc., 2023 FCA 148, a  unanimous Federal Court of Appeal (Webb, Rennie, and Locke, JJA) upheld a stay of court proceedings in a copyright and trademark infringement action.  As a result, complicated disputes about party identity will be resolved in the international arbitration, not by the court which heard the motion to stay. The decision underscores a key stay of proceedings principle: complex questions of fact or mixed fact and law relating to arbitral jurisdiction should first be referred to the arbitrator.  This is so even in the absence of a standard statutory stay of proceedings provision, as occurred in this case. Stay considerations differ by jurisdiction and context, domestic or international, and it is not an invariable technical prerequisite that a party must apply for the stay before taking any step in the court proceedings.

Background – General Entertainment and Music Inc. (“GEM”) broadcasted subscription satellite services in Canada.  Gold Line Telemanagement Inc. and related Bermuda-based entities (“Gold Line”) provided streaming services for television and video on demand.

Gold Line entered a Content Acquisition and Licensing Agreement (“Agreement”) with “General Entertainment and Media”. Under the Agreement, Gold Line acquired rights to offer content produced or licensed by “General Entertainment Media” to its customers. The Agreement included a clause stipulating that any dispute was to be settled by arbitration in Bermuda. 

GEM filed a copyright and trademark infringement claim in the Federal Court of Canada against Gold Line.   Gold Line requested GEM to stay the proceedings in favour of international arbitration.  GEM refused and Gold Line delivered its defence and counterclaim, pleading the arbitration clause.  Gold Line commenced arbitration in Bermuda and moved to stay the Federal Court proceedings. 

Case Management decision –  Prothonotary Martha Milczynski, sitting as a Case Management Judge (“CMJ”), dismissed Gold Line’s stay motion and made findings in her Order as follows:

“The relationship between the parties and the various contractual arrangements are certainly complicated. It is made more difficult to understand or unravel given the urgency with which the Karimian family [who managed the GEM group] needed to resettle (submissions were made regarding lost documents and records), the blurring of what is a family run business and separate corporate entities and the various arrangements between the Plaintiff or GEMCO and one or more of the Defendants. In any event, it has not been established that GEM Inc. is a successor in title in all respects/aspects to GEMCO or that GEM Inc. is bound by the terms of the Content Acquisition and Licensing Agreement.

[The stay application] requires a determination that GEMCO and GEM Inc. are essentially the same party for the purposes of the Agreement, which again I am satisfied that they are not, nor has it been established that GEM Inc. is otherwise bound by the Content and Acquisition and Licensing Agreement.”

Federal Court decision – Justice Fothergill allowed Gold Line’s appeal and stayed the litigation: General Entertainment and Music Inc. v Gold Line Telemanagement Inc., 2022 FC 418. He also overruled the parties’ agreement that forum selection clause decisions governed the exercise of discretion relating to the stay.  

Instead, Justice Fothergill determined the appeal on stay of court proceeding principles set out in key arbitration cases: Dell Computer Corp. v Union des Consommateurs, 2007 SCC 34 and Uber Technologies Inc. v. Heller, 2020 SCC 16

In Justice Fothergill’s view, the validity of the arbitration clause could not be determined based on a superficial review of the record. The parties had raised complex issues of mixed fact and law which had to be considered first by the arbitrator.  

Federal Court of Appeal decision – Justice Webb, writing for a unanimous Court of Appeal, dismissed GEM’s appeal and upheld the stay.  He addressed two main issues: whether the CMJ could make factual findings and whether Gold Line had taken steps in the Federal Court litigation or had waived arbitral jurisdiction:

“[24] The issue in this appeal is…whether it was appropriate for the [CMJ] to make…findings of fact or mixed fact and law [concerning party identity]. The [CMJ] did not refer to any decisions of any court in her Order, not even the decision of the Supreme Court in Pompey which the Federal Court Judge found that the parties had submitted to the [CMJ] as the relevant authority.” 

Justice Webb explained that he would rely on Supreme Court authorities relevant to stays of litigation in favour of arbitration that issue, including Uber.  He ruled as follows: 

“[26] Questions of fact or mixed fact and law related to the jurisdiction of the arbitrator to decide the relevant issues must first be referred to the arbitrator. This would include, in this matter, whether the Licencing Agreement was terminated and whether GEM is bound by this agreement. As noted by the [CMJ], ‘[t]he relationship between the parties and the various contractual arrangements are certainly complicated’.

[27] Sorting through the evidence to determine whether GEM is bound by the Licencing Agreement, and hence by the arbitration clause, is not a matter that should have been addressed by the [CMJ]. The questions of fact and mixed fact and law that must be addressed in order to determine if the Licencing Agreement was terminated and if GEM is bound by the Licencing Agreement cannot be resolved by a superficial examination of the documentary proof given the complexity of the arrangements among the various entities and the use of multiple names used by the GEM group.”

Justice Webb then considered whether Gold Line’s stay application should be denied on the basis that it had taken steps in the Federal Court litigation or had waived its rights to arbitration.  

He cited and applied a summary of technical prerequisites for a stay of proceedings from Peace River Hydro Partners v Petrowest Corp., 2022 SCC 41 :

“[83] There are typically four technical prerequisites relevant at this stage:

(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.”

Justice Webb noted in the subject stay application before the Federal Court of Appeal that there was no applicable arbitration statute equivalent to the Arbitration Act, RSBC 1996, c 55 as in Peace River.  He instead compared the Peace River technical prerequisites to Canada’s codification of the New York Convention, United Nations Foreign Arbitral Awards Convention Act, RSC 1985, c 16:

“[38] While the Convention generally relates to the recognition and enforcement in a particular country of arbitral awards made in another country, Article II of this Convention requires each Contracting State (which includes Canada) to respect arbitration provisions:

1. Each Contracting State shall recognize an agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not, concerning a subject matter capable of settlement by arbitration.

2. The term “agreement in writing” shall include an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams.

3. The court of a Contracting State, when seized of an action in a matter in respect of which the parties have made an agreement within the meaning of this article, shall, at the request of one of the parties, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed.  

[40] I agree with the submissions of Gold Line that the fourth technical prerequisite identified by the Supreme Court in Peace River (that the party seeking the stay not have taken any step in the court proceedings before applying for the stay) is not a technical prerequisite in the matter before us. The wording of the Convention adopted in the Convention Act does not include this particular restriction and the parties did not identify any other statute that imposes this particular restriction.”

Finally, the Federal Court dismissed GEM’s contention that Gold Line had waived its right to arbitration:

“[43] …The Federal Court Judge did not explicitly state that Gold Line had not waived its right to arbitration. However, the Federal Court Judge noted, in paragraph 24, that prior to filing a defence Gold line had sent a request to GEM to consent to a stay in favour of arbitration, and in filing its defence, Gold Line specifically pled that the Federal Court is not the proper forum and that the dispute should be resolved by arbitration. Gold line [sic] did not waive its right to arbitration.”

Contributor’s Notes: 

First, the decisions of both Justice Fothergill and the Federal Court of Appeal properly corrected confusion at the case management level between forum selection clauses and arbitration clauses.

Second, an earlier Case Note, Federal – Pirating action stayed under New York Convention – #610, observed why the court had recourse to the New York Convention in this copyright and trademark infringement dispute: 

“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.” 

J. Brian Casey explains as follows in “Arbitration Law of Canada: Practice and Procedure” (4th ed, 2022, Chapter 7.4.5): 

“Most cases in Canada ignore the fact that the first thing to consider in international arbitration is the New York Convention.  In the hierarchy of legislation, treaties come first, followed by domestic legislation.”

Third, the Court of Appeal reasons conform to a substantial degree with Justice Fothergill’s decision.  One area of difference, however, relates to the Supreme Court of Canada’s stay decision in Peace River, which had not been rendered at the time that Justice Fothergill stayed GEM’s Federal Court litigation.  

With the benefit of the guidance of Peace River, Justice Webb at the Court of Appeal considered the technical stay prerequisites that “typically” apply.  He correctly noted that the fourth prerequisite, applying for the stay “before taking any steps”, had not been imposed by any applicable statute.   This conforms with Peace River:  Justice Côté was careful to note that stay considerations differ by jurisdiction and context, domestic or international. 

A further contextual question to keep in mind when considering Canadian arbitration legislation is what form of arbitration legislation is in issue?  The fourth Peace River stay prerequisite, “apply for the stay before taking any step in the court proceedings”, provides a reminder to recall historical context.  

The “before taking any step” prerequisite was formerly found in Canada and throughout the Commonwealth: the arbitration legislation in these jurisdictions tracked a late 19th Century English imperial arbitration statue with a standardized stay of proceedings provision.  

This is no longer so.  Several Canadian jurisdictions eliminated  “before taking any step” as part of arbitration reforms at the end of last century.  There was incertitude (and therefore litigation) as to whether certain actions amounted to a step in the proceeding sufficient to deny the issuance of a stay.  The resulting case law in Canada and in England was not always easy to reconcile.   

British Columbia adopted a Model Law-based stay provision decades ago.  As is apparent from the Peace River decision however, the provision still included the “before taking any step” prerequisite.   At the same time Peace River was progressing though the courts, British Columbia modified the stay of proceedings provision in the International Commercial Arbitration Act, RSBC 1996, c 233  and the domestic Arbitration Act, SBC, 2020, c 2. The stay provisions are now harmonized in both statues and fully track the UNCITRAL Model Law: a stay of proceedings may be sought “before submitting the party’s first response on the substance of the dispute.”  This is consistent with Model Law international arbitration legislation found across the country. It also accords with British Columbia’s approach to litigation, where a defendant can file an initial jurisdictional response to avoid attorning to the jurisdiction. 

Yet some Canadian jurisdictions still have the “before taking any step” prerequisite in domestic arbitration: Nova Scotia and Newfoundland, for instance. Their domestic arbitration acts are not Model Law-based;  they continue to conform to the imperial precedent. 

Other jurisdictions, such as Ontario and Alberta, abandoned the “before taking any step” prerequisite with the adoption of Model Law-based domestic arbitration legislation.  They did so however without including the Model Law stay prerequisite, “before submitting the party’s first response on the substance of the dispute.”  

Meanwhile, the imperial precedent has been jettisoned in England and the English Arbitration Act, 1996 is Model Law-based legislation.  Yet “before taking any step” survives in the stay provision.

This decision exemplifies another fairly rare possibility: no standard arbitration legislation at all, let alone a stay of proceedings provision.  

In sum, the variability in legislative approaches to stay of court proceedings prerequisites,  underscores the importance for caution when parties seek a stay of litigation in favour of arbitration.