In Rubner v. Rubner, 2019 ONSC 4110, Mr. Justice Laurence A. Pattillo dismissed party M’s application to appoint an arbitrator, determining that the evidence failed to demonstrate that party M and party J had entered into a binding settlement agreement. Consistent with that determination, he also granted party J’s application to set aside party M’s notice to arbitrate because, in the absence of a settlement, there was no agreement to arbitrate. The case is a less common instance of a court determining on “a superficial examination of the evidence” that the principal contract was non-existent and, with it, the agreement to arbitrate.
In 2013, Mr. Joseph Rubner (“Joseph”) and another instituted litigation against Mr. Marvin Rubner (“Marvin”), in the latter’s personal capacity as well as trustee, as well as Kabler Developments Limited (“Kabler”) and Y.A.D. Investments Limited (“Y.A.D.”). Joseph sought a declaration that he owned a percentage of the issued and outstanding shares of Kabler plus damages for alleged oppression and breach of certain duties. Marvin and Y.A.D. counterclaimed and against Joseph and others for a declaration that he was the beneficial owner of Kabler’s common and preferred shares.
The litigation had not progressed much further than the exchange of pleadings when the parties attempted mediation in July 2016. Though no agreement had been reached while the mediator had been present, the mediation did provide the parties and their counsel the opportunity to continue to meet and talk.
At paras 7-16, Pattillo J. summed up a series of exchanges, both verbal and written, by which the parties discussed settlement terms. The various versions of the terms are referred to as “Deal Points” coupled with the date on which the particular version issued. One of the terms in the Deal Points included an undertaking to refer to arbitration any disputes involving written agreements.
Marvin argued that the exchanges had lead to an enforceable agreement. Joseph disagreed, saying that the exchanges did not demonstrate his personal agreement to the terms alleged by Marvin.
Marvin served a Notice to Arbitrate on October 4, 2018, arguing that the parties’ counsel, through the exchange of e-mails, had reached a binding agreement on the essential elements of the litigation and that it included an arbitration clause.
Joseph countered by an application pursuant to section 48(1)(b) of Ontario’s Arbitration Act, 1991, SO 1991, c 17 because no settlement had been reached. Section 48(1)(b) stipulates that, at any stage during or after an arbitration, on the application of a party who has not participated in the arbitration, the court may grant a declaration that the arbitration is invalid because the arbitration agreement is invalid or has ceased to exist.
Joseph submitted that, while he had been agreeable to settling the litigation on earlier iterations of the Deal Points, he did not agree to the version relied on by Marvin and that he would have evidenced his agreement by his signature. He also submitted that his counsel was not authorized to agree to that version of the Deal Points, being authorized only to negotiate comprehensive minutes of settlement.
Pattillo J. relied on Olivieri v. Sherman, 2007 ONCA 491, para. 41 which set out the necessary elements to a binding agreement.
“[41] A settlement agreement is a contract. Thus, it is subject to the general law of contract regarding offer and acceptance. For a concluded contract to exist, the court must find that the parties: (1) had a mutual intention to create a legally binding contract; and (2) reached agreement on all of the essential terms of the settlement: Bawitko Investments Ltd. v. Kernels Popcorn Ltd., 1991 CanLII 2734 (ON CA), [1991] O.J. No. 495, 79 D.L.R. (4th) 97 (C.A.), at pp. 103-04 D.L.R.”
The 1991 decision cited by the Court of Appeal in 2007 contained the following statements on the formation of a binding contract.
“As a matter of normal business practice, parties planning to make a formal written document the expression of their agreement, necessarily discuss and negotiate the proposed terms of the agreement before they enter into it. They frequently agree upon all of the terms to be incorporated into the intended written document before it is prepared. Their agreement may be expressed orally or by way of memorandum, by exchange of correspondence, or other informal writings. The parties may “contract to make a contract”, that is to say, they may bind themselves to execute at a future date a formal written agreement containing specific terms and conditions. When they agree on all of the essential provisions to be incorporated in a formal document with the intention that their agreement shall thereupon become binding, they will have fulfilled all the requisites for the formation of a contract. The fact that a formal written document to the same effect is to be thereafter prepared and signed does not alter the binding validity of the original contract.
However, when the original contract is incomplete because essential provisions intended to govern the contractual relationship have not been settled or agreed upon; or the contract is too general or uncertain to be valid in itself and is dependent on the making of a formal contract; or the understanding or intention of the parties, even if there is no uncertainty as to the terms of their agreement, is that their legal obligations are to be deferred until a formal contract has been approved and executed, the original or preliminary agreement cannot constitute an enforceable contract. In other words, in such circumstances the “contract to make a contract” is not a contract at all. The execution of the contemplated formal document is not intended only as a solemn record or memorial of an already complete and binding contract but is essential to the formation of the contract itself. See, generally, Von Hatzfeld Wildenburq v. Alexander, [1912] 1 Ch. 284; Canada Square Corp. Ltd. et al. v. Versafood Services Ltd. et al. (1980), 1979 CanLII 2042 (ON SC), 25 O.R. (2d) 591 (H.Ct.), aff’d., (1981), 1981 CanLII 1893 (ON CA), 34 O.R. (2d) 250 (C.A.); Bahamaconsult Ltd. v. Kellogg Salad Canada Ltd. (1976), 1975 CanLII 379 (ON SC), 9 O.R. (2d) 630 (H.Ct.), rev’d, (1977), 1976 CanLII 554 (ON CA), 15 O.R. (2d) 276 (C.A.); Chitty on Contracts, 26th ed. (1990), at pp.79-91; Corbin on Contracts, (1963), Vol. 1, § 29-30; and Treitel, Law of Contract, 7th ed. (1987), at pp.42-47.”
Pattillo J. accepted that a version of the Deal Points comprised the essential terms of a settlement of the parties’ litigation but disagreed that Marvin’s counsel had the authority to bind the client.
Pattillo J. cited Dick v. McKinnon, 2014 ONCA 784 para. 4 which addressed the binding effect of a lawyer’s ostensible authority.
“[4] This court has observed that it is well-established law that “a solicitor of record has the ostensible authority to bind his or her clients and that opposing counsel are entitled to rely upon that authority in the absence of some indication to the contrary”: Oliveira v. Tarjay Investments Inc., 2006 CanLII 8870 (ON CA), [2006] O.J. No. 1109, at para. 2 (C.A.), referring to Scherer v. Paletta, 1966 CanLII 286 (ON CA), [1966] 2 O.R. 524 (C.A.) and Mohammed v. York Fire and Casualty Insurance Co., 2006 CanLII 3954 (ON CA), [2006] O.J. No. 547, at para. 20 (C.A.).”
Pattillo J. determined that Marvin’s counsel was aware of Joseph’s counsel’s limited authority and the requirement that Joseph ‘sign back’ any changes to an earlier version of the Deal Points.
“[31] In my view, it is clear from the communications that took place between the parties’ counsel respecting settlement that what the parties were seeking to do was agree on the deal points (or material terms) of a settlement following which, comprehensive minutes of settlement would be entered into. Given that context, I conclude that the above wording limits Joseph’s counsel’s authority to negotiating the minutes of settlement after the deal points have been agreed to by both Joseph and Marvin. It does not extend to Joseph’s counsel having the authority to agree to the deal points. It was only Joseph who could agree to the deal points.”
Based on his review of the record, Pattillo J. then:
(i) dismissed Marvin’s application for a stay of the litigation or appoint an arbitrator
(ii) granted Joseph’s application to set aside Marvin’s Notice to Arbitrate
“The Notice to Arbitrate was served by Marvin based on his position that there was a settlement which provided, in part, for arbitration. As noted, in the absence of settlement, there is no agreement to arbitrate.”
urbitral note – The reasons contain no mention of either Dell Computer Corp. v. Union des consommateurs, [2007] 2 SCR 801, 2007 SCC 34 or Seidel v. TELUS Communications Inc., [2011] 1 SCR 531, 2011 SCC 15 which emphasized that courts must refer parties to arbitration unless the challenge involves a pure question of law or questions of mixed fact and law or fact requiring only superficial consideration of the documentary evidence in the record. Despite the omission, implicit in the reasons is either the parties’ consensus or Pattillo J.’s own appreciation that the challenge could be determined on the record submitted by the competing applications.
Of interest also is that the discussion focused on formation of the principal contract and not the arbitration agreement which was only a brief line item in the Deal Points. The decision on the enforceability of the arbitration agreement flowed directly from the result on the principal contract.
In the case before Pattillo J., the party resisting arbitration disputed the existence of the main contract and, with it, the undertaking to arbitrate. Compare that approach with that in Paul Sun v. Duc-Tho Ma, 2019 ONSC 4586, a recent decision of Master Kaufman. In that case, the party did not argue that the shareholders agreement containing the arbitration agreement was null and void. Rather, the party, as a defendant shareholder to a litigation, applied for leave to amend his counterclaim but was denied leave as his proposed amendments would be caught by the arbitration agreement contained in the otherwise-valid shareholders agreement.