In FNF Enterprises Inc. v. Wag and Train Inc., 2022 ONSC 2813,Justice Ramsay dismissed the Defendant’s motion for a stay of proceedings under section 7 of the Ontario Arbitration Act, 1991, S.O. 1991, c. 17. The Defendant sought a stay of proceedings based on an arbitration clause included in a lease agreement. Justice Ramsay concluded that, standing alone, the arbitration clause suggested that issues arising out of the lease agreement shall be determined by way of arbitration, but he decided that, interpreting the lease agreement as a whole, the arbitration clause did not extend to an issue concerning collection of unpaid rent, which could be sought by action. Therefore, Justice Ramsay declined to stay the proceedings.
The Plaintiff Landlords sued the Defendant Tenants for breach of contract on a non-residential lease. Specifically, the Defendants moved out of the premises before the end of the lease and stopped paying rent. The Defendants moved under Rule 21 of the Ontario Rules of Civil Procedure for a stay of proceedings under s. 7 of the Ontario Arbitration Act, 1991.
The first paragraph of section 31.9 of the lease agreement contained the following arbitration clause:
“If any issue shall arise between the Landlord and Tenant, which in accordance with the provisions of this Lease shall be determined by arbitration, in the absence of agreement between the Landlord and Tenant, such issue shall be determined by arbitration in accordance with the following:…”
The remaining paragraphs of section 31.9 determined the arbitration procedure.
Justice Ramsay acknowledged that section 31.9, standing alone and taking into account the location of the commas, suggested that every issue arising out of the lease agreement shall be determined by way of arbitration. However, he underlined the importance of interpreting a contract as a whole, instead of each clause separately. Following this approach, Justice Ramsay identified three relevant sections of the lease:
- Section 31.9 mainly provided for the procedures to follow in the event of arbitration, which suggested that its purpose was not to require arbitration, but to set out the procedure in the event of arbitration.
- Section 23.1 provided for the possibility for the Landlord to recover legal costs “if the landlord shall commence an action for collection of rent”, which clearly contemplated an action for recovery of rent
- Section 3.2 specifically provided for any dispute arising from the negotiation of market rent upon the renewal of the lease to be submitted to arbitration.
Considering the above, and more specifically the difference in language between sections 23.1 and 3.2, Justice Ramsay concluded the following:
“[11] Looking at the lease as a whole I conclude that the parties meant that rent for any extended term would be submitted to arbitration, but collection of unpaid rent could be sought by action.”
He declined the stay because the lease allowed for collection of unpaid rent to be sought by action.
Contributor’s Note:
The Ontario Court of Appeal in Haas v. Gunasekaram, 2016 ONCA 744 set out a five- part analytical framework for determining stay applications under section 7(1) of the Ontario Arbitration Act, 1991:
“(1) Is there an arbitration agreement?
(2) What is the subject matter of the dispute?
(3) What is the scope of the arbitration agreement?
(4) Does the dispute arguably fall within the scope of the arbitration agreement?
(5) Are there grounds on which the court should refuse to stay the action?”
Part (4) of the test is an expression of the competence-competence principle, whose application has been confirmed by the Supreme Court of Canada in Dell Computer Corp. v. Union des consommateurs, 2007 CSC 34.
Justice Ramsay’s decision did not cite this test, but in effect, his analysis focussed on Part (3), the scope of the arbitration agreement. This is an exercise in contract interpretation, which Justice Ramsey undertook by looking at the whole of the lease agreement, not just the arbitration clause. Generally, courts will assume, absent clear intention expressed in their contract, that the parties did not intend that some disputes are to be determined by court action and some by arbitration. Here, Justice Ramsey found that clear intention.
For other Case notes that discuss the Haas v. Gunasekaram analytical framework, see Ontario – court enforces competence-competence principle in complex employment dispute – #047, Ontario – courts must not pre-empt arbitrator decision on jurisdiction by limiting scope of issues in stay order – #086, Ontario – arbitrator appointment procedure in franchise agreement risks “absurd and likely unfair result” – #178, Ontario – agreement to arbitrate not unconscionable where governing law preserves executive’s Employment Standards Act rights – #490 and Ontario – Partial stay; oppression claim arbitration to precede related family law action – #528.