In Paulpillai v. Yusuf, 2020 ONSC 851, Madam Justice Judy A. Fowler Byrne refused to stay litigation despite no challenge being made to the validity of the arbitration agreement. Rather, she held that the parties requesting the stay had not only omitted to bring a motion to stay but had waived the benefit of the agreement by having taken significant steps in the litigation to date.
The application stemmed from what Fowler Byrne J. described as “a lengthy and complex dispute”. Prior to passing away December 22, 2016, Richmond Gabriel Paulpillai (“Richmond”) resided in Ontario and was a director and shareholder of MEERC Inc., All Saints University Limited and All Saints University School of Medicine and a partner in Education Examination Resource Centre. His widow, Theresa Yogarine Paulpillai (“Theresa”), was named sole executor and trustee of Richmond’s estate and sole beneficiary of all his personal and corporate assets.
Joshua Akanni Yusuf (“Yusuf”) resides in Ontario and was Richmond’s business partner, holding the same director, shareholder and partner statuses as those identified for Richmond. Details of the incorporation dates and applicable jurisdictions for the corporate parties are set out at paras 7-10 of Fowler Byrne J.’s reasons.
In sketching the business structure created by Richmond and Yusuf, Fowler Byrne J. explained that corporate entities were all separate and constituted in and operating from different jurisdictions but were still managed and operated as related business units. All Saints University School of Medicine Limited carried on business as a medical school as did All Saints University Limited. During Richmond’s lifetime, the two (2) universities shared recruiting efforts and expenses and allocated students between the campuses according to capacity.
Richmond and Yusuf signed a May 25, 2004 partnership agreement “(Partnership Agreement”) which contained the following agreement to arbitrate:
“ARBITRATION OF DISPUTE – If any claim, controversy or dispute of any kind or nature whatsoever arises between the parties (“Dispute”), and the parties are unable to settle it through negotiation, then it will be resolved by arbitration, by a single arbitrator who is knowledgeable about the matter in Dispute. Any party to the dispute (a “Disputing Party”) may begin the arbitration process by providing written notice of arbitration, together with the name of a suggested arbitrator (the “first nominee”) to the other Disputing Party (the “Arbitration Notice”). The other Disputing Party will have no more than 10 business days in which to agree to said first nominee as the arbitrator or to suggest another (the “second nominee”). If said other Disputing Party does not respond to the first Party’s Arbitration Notice within 10 business days of receipt of the Arbitration Notice, said second Party will be deemed to have accepted as arbitrator the first nominee. If the Disputing Parties cannot agree on an arbitrator within 10 business days of the second Party’s receipt of the Arbitration Notice, then the first nominee alone, or if the second Party suggested a second nominee then the first nominee and the second nominee to gather will nominate a third person as arbitrator within the next 10 business days. Said nomination will be final. The arbitrator thus determined will conduct the arbitration in accordance with the Arbitration Act, Ontario for arbitrations conducted with a single arbitrator, subject to such modifications as the arbitrator may determine in compliance therewith. The arbitration will be conducted at the place set out therefore in the Arbitration Notice. Each Disputing Party will bear its own costs and legal fees, and the Disputing Parties will share equally the fees and expenses of the arbitrator. The arbitrator will not have authority to award punitive damages. The arbitrator’s decision and award will be final and binding not subject to appeal, and judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. All aspects of any arbitration, including any decision by the arbitrator, will be deemed to be Confidential Information for the purposes of this Agreement.
The following matters will be excluded from arbitration:
e) any claims involving a Third Party against one or more Parties;
f) any claim for interim or interlocutory injunctive relief;
g) claims involving injury to persons or damage to tangible property.
Notwithstanding the foregoing, the parties agree that certain matters may arise that require resolution more quickly than by negotiation or arbitration, and that injunctive relief may be the only effective relief for a breach of certain covenants in this Agreement, which breach may cause a party irreparable harm if not remedied immediately, non-compensable by damages alone. Each party agrees that the other parties will be entitled, provided they are acting in good faith, to seek equitable and injunctive relief on an interim and interlocutory basis in any court of competent jurisdiction or specific performance or other equitable remedies, in addition to any other remedies available to it, to enforce any of the party’s covenants in the event of such a breach or threatened breach thereof, without first complying with the arbitration procedures described herein.”
Following Richmond’s passing, the parties tried to dissolve the business created by Richmond and Yusuf but with no luck. At paras 18-27 Fowler Bryne J. outlines the extent of the parties’ respective efforts and nature of the disagreements leading to the application filed in the Superior Court by Theresa in her capacity as Estate Trustee.
Fowler Bryne J. sets out the appearances of the parties in court on February 1 (paras 28-30), April 4 (paras 36-38) and August 7, 2019 (paras 39-46) as well as the result of each attendance, including an application by Yusuf for specific relief.
In all, four (4) motions were before Fowler Bryne J.: the original application by Teresa, two (2) additional motions brought by Teresa and others (“Applicants”) and one (1) additional motion brought by Yusuf and the corporate entities (“Respondents”). Of the seven (7) issues identified by Fowler Byrne J. arising from those applications, the very first was the following: “Does this court have jurisdiction to adjudicate this matter given the foreign domicile of ASU Dominica and ASU SVG and the Arbitration of Dispute Clause in the Partnership Agreement?”
Fowler Bryne J. readily confirmed that the Partnership Agreement “clearly states that any disputes should be resolved through an arbitration” while also noting that applications for injunctive relief could be sought “outside of the arbitration process”. She concluded that nothing prohibited Applicants from applying for injunctive relief and the issue was whether Applicants “were entitled to bring an application for the other relief claimed such as the allegations of oppressive conduct and the claim for damage”.
She cited sections 6 and 7 of Ontario’s Arbitration Act, 1991, SO 1991, c 17 as well as section 106 of its Courts of Justice Act, RSO 1990, c C.43 which authorizes a court to stay a proceeding on such terms it considers just.
Rather than address whether Applicants were entitled to bring their application, Fowler Bryne J. examined whether Respondents were allowed to seek a stay at this stage in the court proceedings. Fowler Bryne J. simplified the analysis by eliminating consideration of whether all the relief sought by Applicants fell within the terms of the agreement to arbitrate or which parties were subject to those terms. Instead, she focused on the viability of the resisting parties’ request for a stay.
She held that Respondents failed to qualify for two (2) reasons.
First, Respondents had brought no motion for a stay.
“ In the case before me, the Respondents have maintained in their affidavit evidence that the matter should have proceeded by way of arbitration, but at no time did they bring a motion seeking to stay these proceedings or to compel the Applicants to proceed by way of arbitration. Section 7(1) of the Arbitration Act, 1991 makes it clear that the action can only be stayed by way of motion, and even then, the court has the discretion to refuse to grant the stay if the motion is not made in a timely manner.”
Second, Respondents’ involvement in the litigation amounted to waiver of the agreement to arbitrate. That involvement included “filing numerous affidavits, producing viva voce evidence in the application, conducting cross-examinations and even bringing an oral motion without formal notice seeking to remove the Applicants’ counsel as solicitors of records for the Applicants”.
“ In addition, Granger J. in Lansens v. Onbelay Automotive Coatings Corp., 2006 CanLII 51177, at para. 34, stated that even if the defendants to an action had a right to have the issues determined by an arbitrator, they abandoned such right when they took steps within the action. By doing so, they waived their right to insist that these claims be arbitrated.”
Absent a motion to stay and following the “significant steps” taken by Respondents to respond to the application, Fowler Bryne J. in obiter held that Respondents had waived their right to have the issues determined by arbitration. As a result, she refused to stay the action and proceeded to address the remaining issues before her raised by the applications.
urbitral note – The approach favoured by Fowler Byrne J. eliminated the need to characterize the nature of the claims to determine if they fell within the scope of the arbitration agreement or whether/how the other non-parties to the arbitration agreement would be impacted by the stay. Instead of parsing the claims, she took a more direct approach to Respondents’ challenge.
She sought first to determine if Respondents were entitled to plead a motion they had not brought and, even if entitled, had they waived the benefit of the arbitration agreement. She held that Respondents were not entitled. If that answer had been insufficient or satisfactory, the second enquiry, applying Lansens v. Obnelay Automotive Coatings Corp., provided a second, independent ground to dismiss the application for a stay. The latter takes for granted that the agreement covers the issues but determines on the facts before the court that the agreement has been waived.