Husky Food Importers & Distributors Ltd v JH Whittaker & Sons Limited and Star Marketing Ltd, 2023 ONCA 260 addresses the standard of proof that a party seeking a stay of proceedings under s. 9 of the International Commercial Arbitration Act, 2017, S.O. 2017, c. 2, Sch. 5 (“ICAA”) must meet in order to establish the existence of an arbitration agreement that grounds the stay of proceedings. The Court of Appeal found that Peace River Hydro Partners v Petrowest Corp, 2022 SCC 41 supersedes the stay analysis articulated in Haas v. Gunasekaram, 2016 ONCA 744.
Background – In late 2014, the parties entered into a distribution agreement pursuant to which the plaintiff, Husky Food Importers & Distributors (“Husky Food”), would import, distribute and market JH Whittaker & Sons Limited (“JHW”) chocolate products in Canada. From 2016-2020, the parties engaged in a negotiation process with a view to formalizing a long-term exclusive distribution agreement.
On April 19, 2020, JHW sent Husky Food revisions to Schedule G of the draft agreement, entitled “Standard Form Order Agreement for Purchases”, redlining the proposed changes. One such change was a new arbitration clause in s. 19, which provided:
“19.1 Where the Customer [Husky Food] is located outside of New Zealand, any dispute, controversy or claim arising out of or in connection with these Terms, or any question regarding its existence, breach, termination or invalidity, will be referred to the New Zealand International Arbitration Centre for arbitration in accordance with the New Zealand Arbitration Act 1996. Such arbitration shall also be as follows:
(a) the number of arbitrators will be: one;
(b) the place of arbitration will be: Wellington, New Zealand; and
(c) the language of the arbitration will be: English.”
On May 15, 2020, Husky Food sent an email to JHW that attached a revised version of the April 19, 2020 draft and stated: “Attached please find a ‘slightly’ revised version of the last contract you sent over. This has been signed off by JH [Whittaker].”
Husky Food’s changes to the April 19, 2020 draft included removing JHW’s red-lining of the new Schedule G terms and inserting language about the paramountcy of the distribution agreement in the event of an inconsistency between a provision in the body of the distribution agreement and an annexed schedule. Section 8.7 of both the April 19, 2020 and May 15, 2020 versions of the distribution agreement provided: “The parties submit to the non-exclusive jurisdiction of the courts of Wellington, New Zealand to hear and determine all disputes arising from or related to this Distribution Agreement or the transactions contemplated therein.”
The parties did not sign a new distribution agreement, but continued to do business. In the summer of 2020, a dispute arose regarding Husky Food’s allegation that JHW had wrongly re-routed two shipments to the co-defendant in the action.
The Ontario action – Husky Food commenced an action in Ontario against JHW on June 3, 2021. It asserted that it and JHW had “reached agreement on all the material terms as of May 15, 2020” and that JHW had breached that agreement.. JHW moved for an order staying the action pursuant to s. 9 of the ICAA, which provides:
“Where, pursuant to article II(3) of the [New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards] or article 8 of the [UNCITRAL Model Law on International Commercial Arbitration], a court refers the parties to arbitration, the proceedings of the court are stayed with respect to the matters to which the arbitration relates.”
Article II(3) of the New York Convention and article 8 of the UNCITRAL Model Law both provide that a court before which an action is brought in a matter that is the subject of an arbitration agreement shall “refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed.”
Husky Food opposed the stay motion on the basis that there was no arbitration agreement between the parties.
Justice Conway granted the stay. A summary of her decision is found in the following Arbitration Matters Case Note: Ontario – Clause specifying non-exclusive attornment to courts doesn’t override arbitration clause – #609.
Husky Food appealed.
Preliminary Issue: The Court of Appeal addressed JHW’s argument that Justice Conway’s order was interlocutory and therefore an appeal did not lie to the Court of Appeal. The Court of Appeal rejected this submission. An order granting a stay “effectively ends the action before the court” (para. 17) and is therefore final in nature.
The main issues on the substance of the appeal were: (1) the standard of proof to establish an arbitration agreement exists for the purpose of obtaining a stay; and (2) whether there was “arguably” an agreement to arbitrate in this case.
Standard of Proof: The Court of Appeal started its analysis by reiterating the competence-competence principle: “absent legislated exceptions, a court normally should refer challenges to an arbitrator’s jurisdiction to the arbitrator” (para. 41).
The Court of Appeal then applied the framework set out in Peace River Hydro Partners v Petrowest Corp, 2022 SCC 41 (“Peace River”) (addressed in previous Arbitration Matters case notes here and here) to determine whether a stay should be granted in this case. While the parties had made submissions using the framework set out in Haas v. Gunasekaram, 2016 ONCA 744, the Court of Appeal held that this frame had “been superseded by the framework adopted by the Supreme Court in 2022 in Peace River” (para. 23).
The Court held further: “While the Peace River framework was crafted in the context of domestic arbitration legislation, in my view it applies equally to stays sought under s. 9 of the ICAA in respect of international commercial arbitration agreements.” (para. 26)
The Peace River framework establishes a two-stage test for determining whether a stay should be granted. At the first stage, the court must consider whether the technical prerequisites for a stay have been established. The technical prerequisites are typically as follows: (a) an arbitration agreement exists; (b) court proceedings have been commenced by a party to the arbitration agreement; (c) the court proceedings are in respect of a matter that the parties agreed to submit to arbitration; and (d) the party applying for a stay in favour of arbitration does so before taking any step in the court proceedings.
Where the technical prerequisites are met and the mandatory stay provision is engaged, the court moves on to the second stage of the analysis to determine whether any of the statutory exceptions to granting a stay are present.
In this case, only the first stage of the test was engaged – namely, whether an arbitration agreement existed. The Court of Appeal held that the appropriate standard is whether there was an “arguable case” that such an agreement existed, as set out in Peace River, and not the higher standard of a balance of probabilities as Husky Food argued.
The Court of Appeal held that the evidentiary record supported the motion judge’s conclusion that it was arguable that there was an arbitration agreement. It dismissed the appeal.
The Court of Appeal confirmed that the Peace River framework applies to stay motions brought in connection with international arbitrations, not solely in the domestic arbitration context. It is the first Ontario case to do so. The British Columbia Court of Appeal previously confirmed the application of the Peace River framework to stay motions under international commercial arbitration legislation in Isagenix International LLC v. Harris, 2023 BCCA 96 (discussed in a previous Arbitration Matter Case Note here).
This means that a party seeking a stay of proceedings must establish an “arguable case” that an arbitration agreement exists that would apply to the dispute. It need not do so on a balance of probabilities.
It should be no surprise that the Peace River framework applies to stay motions under both domestic and international arbitration legislation. This was previously the case for the framework set out in Haas v. Gunasekaram, which the Court of Appeal held in this case had been superseded by Peace River. See, for example, Ticketops Corporation v. Costco Wholesale Corporation, 2023 ONSC 1191 (para. 3) (discussed in a previous Arbitration Matters Case Note here) and Kore Meals LLC v. Freshii Development LLC, 2021 ONSC 2896 (para. 17) (discussed in a previous Arbitration Matters Case Note here).
This case demonstrates the importance of avoiding conflicting or multiple forum selection clauses in a single agreement or the schedules thereto. The result is similar to Trade Finance Solutions Inc. v. Equinox Global Limited, 2018 ONCA 12 (discussed in a previous Arbitration Matters Case Note here), in which the Court of Appeal similarly granted a stay in favour of arbitration where there were multiple forum selection clauses in one agreement.
Where a thorough review of the facts is required to determine the arbitrator’s jurisdiction because of conflicting forum selection clauses, it will be difficult to resist a motion to stay court proceedings.