In Fowlie et al v Wrestling Canada Lutte et al, 2024 ONSC 7196 (“Fowlie”), the Court considered the appeal of a motion judge’s order declining to strike a breach of contract claim made by a sports dispute resolution expert (“Expert”) against Wresting Canada Lutte (“WCL”). The Expert claimed that WCL had breached their contract by failing to engage in a contractual dispute resolution process before WCL terminated the contract without cause. The dispute resolution clause in the parties’ contract included the option to refer disputes to arbitration. The Court granted the appeal and struck the Expert’s claim. The Court held that the dispute resolution clause only applies when a “dispute” arises. Because there was no dispute as between the Expert and WCL about the validly of the without-cause termination while the contract was in force, there was no “dispute” to which to apply the dispute resolution clause. This decision is surprising in view of the separability principle that arbitration agreements survive contract termination. Arbitration jurisprudence suggests that the arbitration agreement in the contract between WCL and the Expert should have been treated as an independent agreement that survived termination of the main contact.
The Contract:
WCL contracted with the Expert to screen complaints made against WCL, by wrestlers, about alleged breaches of WCL rules (“Contract”).
The Contract contained a termination clause that allowed WCL or the Expert to terminate the Contract with 30 days’ notice without cause (“Termination Clause”).
The Contract also contained a dispute resolution clause that said that:
“9.8 DISPUTE RESOLUTION: If a dispute arises, WCL and Contractor shall meet on a without prejudice basis (as quickly as reasonably practical having regard to the nature, complexity and impact of the dispute) to attempt to resolve the dispute or to negotiate for an adjustment to any provision of this agreement. … If WCL and the Contractor are not able to resolve any dispute referred to them within five (5) business days after the dispute was referred to them, then the dispute may be resolved under the Arbitration Act.“
On September 16, 2021, WCL gave the Expert 30 days’ written notice and terminated the Contract without cause.
The Claim:
On April 8, 2022, the Expert brought a claim against WCL, asserting that WCL’s failure to engage in dispute resolution before termination was a breach of the Contract.
The Motions Decision:
WCL brought a motion to strike the claim on the ground that it could not succeed because WCL had properly terminated the contract and did not have an obligation to participate in a without-prejudice meeting before the termination.
The Motions Judge found that WCL’s without-cause termination of the Expert was valid but allowed the Expert’s claim for breach of contract for failure to engage in dispute resolution to proceed. The Motions Judge said that the Expert had alleged sufficient facts to make out this claim. Additional reasons were not provided.
The Appeal:
WCL appealed the Motion Judge’s decision. WCL argued that the Motion Judge erred in law by elevating the Dispute Resolution Clause to a form of stand-alone agreement.
The Expert argued that he wanted to “put his case to an arbitrator”. It appears that this substance of his case related to certain harassment issues that he alleged against WCL but this is not clear in the decision.
Citing the principles of contract interpretation set out in Sattva Capital Corp. v Crestor Moly Corp., 2014 SCC 53, the Appeal Court held that the Motion Judge’s interpretation of the Dispute Resolution Clause was inconsistent with her finding that the Contract was validly terminated. The Court held that “[t]he Dispute Resolution Clause, by its clear language, applies only when there is a ‘dispute’ that ‘arises’ and that has been ‘referred’ by the parties” (para 30). Since the Expert had not referred any matter to dispute resolution prior to the termination of the Contract, the Expert did not trigger his rights to use the Dispute Resolution Clause.
In addition, the Court held that there is nothing in Termination Clause that suggests that providing 30 days’ notice to end the Contract, without cause, is a “dispute” under the Dispute Resolution Clause. Once the Contract was validly terminated, there was no “dispute” that the Dispute Resolution Clause could apply to.
The Court distinguished cases that the Expert cited in support of his argument that the Dispute Resolution Clause survived termination of the Contract, including Electek Power Services Inc. v Greenfield Energy Centre Limited Partnership, 2022 ONSC 894 (“Electek”) and Ismail v First York Holdings Inc., 2023 ONCA 332 (“Ismail”). The Court held that although “there is no doubt that these cases confirm the general principle of law that an arbitration clause is not brought to an end by the termination of the contract…absent specific wording to do so”, these cases are distinguishable because they both involve arbitration clauses (para 34). Since the Expert commenced his breach of contract claim in court instead of arbitration, those cases did not assist the Expert’s argument.
The Court found that the Motion Judge made a palpable and overriding error in finding that the Dispute Resolution Clause survived termination. The Court granted the appeal.
Contributor’s Notes:
In view of the separability principle in arbitration jurisprudence, it is somewhat peculiar that the court found that the Resolution Clause, which included an arbitration agreement, did not survive termination of the Contract. This is the principle that an arbitration agreement survives, as an independent agreement, even if the contract that contains the arbitration agreement is terminated, breached, repudiated, or becomes invalid. This principle “safeguards” arbitration agreements (Peace River Hydro Partners v Petrowest Corp., 2022 SCC 41 (“Peace River”) at para 168; also see Ismail at para 45; Heyman v. Darwins, Ld., [1942] AC 356).
The separability principle is reflected in section 17(2) of the Ontario Arbitration Act, 1991, SO 1991, c 17, and other similar domestic arbitration legislation in Canada. It provides that:
“If the arbitration agreement forms part of another agreement, it shall, for the purposes of a ruling on jurisdiction, be treated as an independent agreement that may survive even if the main agreement is found to be invalid.”
In Fowlie, the Dispute Resolution Clause was a stepped clause. As a matter of interpretation, it required negotiation but made arbitration an option. It was not required. However, that is not the basis upon which the Court made its finding. It found that the Expert lost his right under the Dispute Resolution Clause because the contract that contained it had been terminated. If courts were to treat all dispute resolution clauses in this way, no party that claimed wrongful termination of a contract would have a right to arbitrate. This is what the separability principle is intended to prevent.
In any event, if the Court had found that the Expert had the right to arbitrate, he likely would have been limitation barred from commencing an arbitration. The Expert initially filed his claim against WCL in April 2022, and the Court released its decision in December 2024. The Expert was likely well-past the Ontario two-year limitation period to commence an arbitration against WCL. The law of limitation periods applies to an arbitration as if the arbitration were an action (Arbitration Act, s 52). The Canadian court decisions are clear that if an arbitration is not commenced within the applicable statutory limitation period, a party will lose its right to arbitrate (HOOPP Realty Inc. v The Guarantee Company of North America, 2015 ABCA 336). If the Expert wanted to arbitrate, he likely should have delivered a notice to arbitrate, in 2022, along with the court claim to protect his interests.