Ontario – court accepts both parties’ waiver of arbitration but notes impact on test for injunction – #085

Both parties can waive their undertaking to arbitrate but doing so has its own knock-on effects.  In Armes and 2331513 Ontario Inc. et al v. Barlett, 2018 ONSC 1396, Mr. Justice R. John Harper accepted that neither party had or wished to undertake arbitration but did consider one party’s waiver as having a role, however slight but worthy of mention, in considering whether that party demonstrated irreparable damage.

Defendants and Plaintiffs by Counterclaim, Timothy Barlett and Super Sneaky Contract Division LLC (“Barlett”), applied for an interlocutory injunction against Plaintiffs and Defendants by Counterclaim, Robert Armes and 2331513 Ontario Inc. (“Armes”).  Barlett and Armes were bound by a February 25, 2012 Distribution Agreement (“DA”) concerning rights to distribute certain products including garage door hinges.

The DA contained no termination clause but did include an agreement to submit the parties’ dispute to binding arbitration.  The DA also included a clause which stipulated the parties’ agreement to abide by the DA during their arbitration and bound each to act in good faith towards each other.

A dispute arose.  Instead of submitting to arbitration, Barlett instituted a small claims action against Armes claiming damages totaling $17,373.07.  On the day of the small claims trial, Armes advised that Armes had instituted an action in Superior Court against Barlett.  The Deputy Justice adjourned sine die the small claims action, ordered Armes to pay costs and recorded other observations in an endorsement reproduced at para. 12.

Barlett defended the claim in Superior Court and brought a Counterclaim which alleged what appears to be either a contradiction to or critique of Barlett’s own procedural decision to go to small claims court.

Further the Plaintiffs gave no regard to the Distribution Agreement specifically calls for Arbitration of any disputes between the parties.  Essentially the Plaintiffs took the law into their own hands which continues to the present day.

Having reproduced that allegation from Barlett’s Counterclaim, Harper J. promptly paused in his reasons to comment on the existence of the undertaking to arbitration in the DA and that neither party wished to initiate arbitration.

[15] Both parties had the right and ability to take use of the Arbitration clause in the contract. They both chose not to do so. When they were asked at the outset of this motion if either party was seeking a stay of the proceedings in order to send the matter to Arbitration, as provided for in the Agreement, both indicated that they were waiving the right to the Arbitration process.

Neither party explained why the waived their right.  It is unclear if the parties interpreted the DA as preventing termination of the DA only if arbitration was initiated but not litigation.

To decide the application, Harper J. reproduced the three-part test for granting interlocutory injunctions.

[17] The test for whether an interlocutory injunction should be granted was set out in American Cyanamid Co. v. Ethicon Ltd., [1975] A.C. 396 (H.L.) and adopted by the Supreme Court in Manitoba (Attorney General) v. Metropolitan Stores Ltd., 1987 CanLII 79 (SCC), [1987] 1 S.C.R. 110, 46 Man. R. (2d) 241 ; and RJR-MacDonald Inc. v. Canada (Attorney General), 1994 CanLII 117 (SCC), [1994] 1 S.C.R. 311, 111 D.L.R. (4th) 385 where, at page 334, Sopinka and Cory JJ. summarized the test as follows:

 First, a preliminary assessment must be made of the merits of the case to ensure that there is a serious question to be tried. Secondly, it must be determined whether the applicant would suffer irreparable harm if the application were refused. Finally, an assessment must be made as to which of the parties would suffer greater harm from the granting or refusal of the remedy pending a decision on the merits.

In evaluating whether Barlett had met the second part of the test, irreparable harm, Harper J. listed a few facts which lead him to conclude that, no, Barlett had failed to do so.  Harper J. lead off his list with either a recommendation, a reproach or an observation of missed opportunity.

[31] Barlett should have placed the matter into Arbitration as per the contract. He should have, as of August 12, 2015, sought any injunctive relief at that time. He chose not to. He chose to issue a claim in Small Claims Court for minimal damages. If he felt that irreparable harm was being thrust upon him due to the improper actions of Armes by terminating a contract that he had no right to terminate, he also had the choice of bringing an action for specific performance and for an injunction in order to preserve the status quo in August of 2015. He chose not to do that.  I am of the view that in the circumstances of this case, Barlett has not demonstrated that he will suffer irreparable harm if the interlocutory injunction is not granted”.

The procedural history reveals that sometimes both parties to an arbitration agreement decide to waive its application.  The decision to waive can have other, unanticipated impacts if and as the parties advance in the court litigation.