Ontario – court exercises discretion to refuse a stay not sought by defendants – #100

Enabling Plaintiff to access the court’s own procedural rules to strike pleadings and grant summary judgment, Madam Justice Michelle O’Bonsawin in Hoya Lens Canada Inc. v. 2364141 Ontario Inc., 2018 ONSC 4338 dismissed a motion, not made by Defendants, to stay the litigation in favour of arbitration.  Doing so allowed her to confirm her jurisdiction over the parties and proceed to summarily resolve their dispute despite Defendants’ failure or refusal to participate. Her approach sets out a three-step path for other plaintiffs struggling to advance resolution of their dispute despite having earlier agreed to arbitrate.
Hoya Lens Canada Inc. (“Hoya”) and 2364141 Ontario Inc., o/a Vision Tech Labs Ottawa and Carl Gauthier (“Vision Tech”) entered into a March 26, 2013 Franchise Agreement (“Agreement”). Mr. Gauthier signed in his personal capacity as guarantor. Their Agreement at section 14.16 stipulated that issues related to the Agreement shall be determined by arbitration upon the application of any of the parties in dispute.

The parties experienced several disputes prompting Hoya to serve a June 2, 2015 Notice of Action to Vision Tech and another defendant, 3531244 Canada Inc. (“353”) (“Defendants”) followed by a July 2, 2015 Statement of Claim. Defendants served a Statement of Defence May 25, 2016. Each of those documents was later amended and a Counterclaim added.

Paras 11-19 of the reasons set out various conflicts over compliance with the Rules of Civil Procedure, RRO 1990, Reg 194. Those conflicts included Defendants’ failure or refusal to fully engage with or comply with procedural obligations, culminating in Defendants being unrepresented and threatening bankruptcy in lieu of compliance and engagement. The conduct of the litigation lead to the hearing before O’Bonsawin J. at which Defendants were unrepresented.

At the hearing, Hoya sought an order (a) striking Defendants Defence and Counterclaim without leave to amend and (b) granting judgment in the amount of $235,402.63 plus interest in accordance with the Agreement.

Despite a Notice of Intention to Act in Person sent on behalf of Mr. Gauthier and the obligation under Rule 15.01(2) for the corporations to be represented by a lawyer, except with leave of the court, no one attended on Defendants’ behalf. O’Bonsawin J. was provided only submissions from Hoya due to Defendants’ absence.

O’Bonsawin J. observed that Momentous.ca Corp. v. Canadian American Association of Professional Baseball Ltd., [2012] 1 SCR 359, 2012 SCC 9 para. 9 confirmed that, “in the absence of specific legislation”, the proper test to determine whether to enforce a forum selection clause is discretionary in nature. That test “provides that unless there is a “strong cause” as to why a domestic court should exercise jurisdiction, order and fairness are better achieved when parties are held to their bargains.

Due to the section 14.16 of the Agreement, the parties had bargained for arbitration and O’Bonsawin J. determined that Ontario’s Arbitration Act, 1991, SO 1991, c 17 served as the “specific legislation” anticipated by Momentous.ca Corp. v. Canadian American Association of Professional Baseball Ltd. In particular, sections 7(1) and 7(2) set out, respectively, the court’s obligation to stay a proceeding or exercise its discretion not to.

Her excerpt from 1047358 Ontario Inc. v. Haliburton Broadcasting Group Inc. et al, 2012 ONSC 3115 illustrated when and why a court would refuse a stay. That excerpt noted substantial evidence that the parties had attorned to the court’s jurisdiction which, coupled with undue delay, estopped defendants in that case from seeking a stay.

O’Bonsawin J. then proceeded to take three (3) firm steps.

First, O’Bonsawin J. pre-empted any possible or future application for a stay application by raising the issue herself and then used her discretion to dismiss a stay on the basis of section 7(2).

Under section 7(1), the court’s jurisdiction to consider a stay is triggered by “the motion of another party to the arbitration agreement”. The court’s discretion to refuse a stay, as set out immediately after in section 7(2), is implicitly limited to responding to such “motion of another party”. Section 7(2) does not expressly mention or prohibit the court exercising jurisdiction proprio motu to refuse a stay not sought.

O’Bonsawin J. clearly spotted the gap between Defendants not applying for a stay and her exercising her discretion to refuse a stay.

[24] Even though Vision Tech has not brought forward an application for stay, I will state that it has not filed any documents nor has it attended today. The only evidence that I have before me is that of Hoya. In its evidence, there is substantial evidence that Vision Tech voluntarily attorned to this Court’s jurisdiction. Consequently, I conclude that Hoya has met its onus of establishing that ss. 7(2) of the Arbitration Act, 1991 applies in this case.

Based on Defendants’ conduct prior to the litigation set out in paras 6-9, and in response to the litigation, as set out in paras 11-20, O’Bonsawin J. exercised her discretion and issued an order effectively pre-empting any possible or future application by Defendants for a stay under section 7(1).

Second, having now determined that the litigation was properly before the court, O’Bonsawin J. then determined she had jurisdiction to consider Hoya’s motion to strike Defendants’ pleadings, including the Statement of Defence and Counterclaim.

Applying the sanctions set out in Rule 34.15(1) for “default or misconduct”, O’Bonsawin J. struck the pleadings. She acknowledged that doing so was “a harsh action” but was “required”.

In this case, it is clear that ordering the re-attendance of Vision Tech to attend Examination for Discovery is fruitless. It has demonstrated a complete disregard for this judicial system.

There is no prospect that Hoya’s rights will be respected. It is more than likely that Vision Tech will continue to disregard the judicial system. Consequently, I grant the order requested by Hoya and strike Vision Tech’s Defence and Counterclaim.

Third, O’Bonsawin J. then considered Hoya’s application for summary judgment under Rule 20.01(1). She turned to the framework stated by the Supreme Court of Canada in Hryniak v. Mauldin, [2014] 1 SCR 87, 2014 SCC 7.

Summary judgment motions must be granted whenever there is no genuine issue requiring a trial. …There will be no genuine issue requiring a trial when the judge is able to reach a fair and just determination on the merits on a motion for summary judgment. This will be the case when the process: (1) allows the judge to make the necessary findings of fact; (2) allows the judge to apply the law to the facts; and (3) is a proportionate, more expeditious and less expensive means to achieve a just result.

Ontario’s Rule 20.01(1) authorizes the application judge to weigh the evidence and evaluate credibility and draw inferences. In the case before her, only Hoya had provided evidence.

[33] In this matter, Vision Tech has not put its best foot forward. It has provided nothing to this Court. Based on the fact that I have struck Vision Tech’s Defence and Counterclaim, it is clear that there is no longer a genuine issue requiring a trial. I have only been provided with Hoya’s evidence which fully supports its claim. Consequently, I grant the Summary Judgment against Vision Tech.

The three-step approach and result demonstrates the court’s resolve in providing a boost to litigants mired between their earlier choice of an alternate forum and their current stall in the courts. O’Bonsawin J. did not allow the unexercised agreement to arbitrate to jam Plaintiff’s attempts to obtain a resolution when Defendants did not engage in either dispute resolution format. In dismissing a motion not made by Defendants, O’Bonsawin J. enabled Hoya to advance with its case and take advantage of key procedural measures available in court such as striking pleadings and summary judgment.