In 1171757 Ontario Limited et al. v 1171758 Ontario Limited et al., 2026 ONSC 4414, the court held that the shareholder of a corporate partner qualified as a “party” to the partnership agreement and therefore was entitled to bring claims pursuant to its arbitration clause. Applying principles of contractual interpretation, the court found that the plain wording of the partnership agreement contemplated that the term “parties”, which appeared in the agreement’s arbitration clause but was not a defined term in the agreement, included shareholders of the partners. Further, the court determined that claims brought by “parties” respecting contracts made with the corporation which legally owned the partnership’s property assets were arbitrable under the partnership agreement, despite that the corporation itself seemingly was not a party to the agreement.
Background – This decision arose from a dispute among family members connected to a partnership that beneficially owned two hotels and a fitness centre.
Parkway Hotels and Convention Centre Inc. (“Parkway”) legally owned these properties as trustee for the benefit of a partnership. Half the partnership units were owned by 1171757 Ontario Limited (“757”), which was owned by brothers Jonathan and Jason Kaptyn. Jason controlled 757 pursuant to a Power of Attorney granted by Jonathan, which gave Jason the ability to manage 757’s assets and vote its shares. The other half of the partnership units was split between companies controlled by Simon Kaptyn, who was Jonathan and Jason’s father (collectively referred to here as “758”).
The partnership agreement contained an arbitration clause applicable to disputes “between the parties hereto”.
Jason managed the Parkway properties through a corporation he owned and controlled, Kaptyn Enterprise, Inc. (“KEI”), pursuant to a management contract between Parkway and KEI. Jonathan contracted with Parkway to provide maintenance services. Disputes arose as to the compensation being paid to KEI and to Jonathan for their respective services.
The arbitration – Jason sought an increase to KEI’s annual compensation and ultimately commenced an arbitration pursuant to the partnership agreement. In response, Simon took the position that the KEI management contract should be terminated and requested that the partnership be dissolved. The decision does not indicate whether Jason advanced his claim in his personal capacity or through KEI, nor does it indicate whether Simon responded in his personal capacity or on behalf of 758.
Jonathan opposed the relief sought by Jason and asserted a right to participate in the arbitration proceeding as a party to the partnership agreement. Jonathan also made claims in the arbitration, seeking an increase to his compensation from Parkway for maintenance services. Like Simon, he sought dissolution of the partnership. Jason took the position that Jonathan had no right to participate in the arbitration proceedings.
The arbitrator found that he had jurisdiction to consider Jonathan’s claims.
The court application – James brought an application under s. 17(8) of the Arbitration Act, 1991, SO 1991, c 17, seeking a declaration that the arbitrator had no jurisdiction to consider Jonathan’s claims brought pursuant to the partnership agreement’s arbitration clause. Jonathan cross-applied, seeking confirmation that the arbitrator had jurisdiction to hear matters he initiated. Jonathan also argued that he and Jason were in the same position with respect to the compensation claims – either both had standing to make those claims, or neither did.
(i) The court’s jurisdiction under s. 17(8) – Before addressing the core issue of whether Jonathan was a proper party to the arbitration, the court considered whether the arbitration clause, in providing that “[t]he decision arrived at by the board of arbitration, however constituted, shall be final and binding and no appeal shall lie therefrom”, precluded the court from reviewing the arbitrator’s findings on Jonathan’s party status. The court confirmed that it did not, as an application to “decide the issue” of a preliminary jurisdictional question decided by an arbitrator is a hearing de novo and not an appeal.
For recent Ontario appellate guidance on this point, see Ontario – Courts must decide arbitral jurisdiction de novo – #748 – Arbitration Matters.
(ii) The arbitrator’s jurisdiction – The court held that the arbitrator had jurisdiction over the claims advanced by both Jonathan and Jason.
The court addressed the jurisdictional issues raised by interpreting the partnership agreement in accordance with the principles of contract interpretation found in the leading case of Sattva Capital Corp. v Creston Moly Corp., 2014 SCC 53, starting with the wording of the agreement.
There were three classes of actors referenced in the partnership agreement: “partners” (defined to include 757 and 758), “principals” (defined to include those who control 757 and 758, meaning Jason and Simon), and “parties” (not defined in the agreement). The arbitration agreement applied to disputes between “parties”.
In the court’s view, the plain wording of the agreement contemplated that the term “parties” was not limited to “partners” and “principals”, but rather included shareholders of partners. This interpretation was supported by a number of factors, including that:
- The original signatories to the partnership agreement (Simon, as well as John Kaptyn, who was Jonathan and Jason’s grandfather and had bequeathed his shares in 757 to them) signed it twice, once as directing minds of the partners and once in their individual capacities;
- The recitals to the agreement referred to the original signatories’ individual statuses as “beneficial and registered shareholders” of the partners, and not as principals; and
- The agreement contained an enurement clause binding heirs and conferring on them benefits from the partnership agreement.
The court found that even though some clauses of the agreement bound only partners and principals but not “parties”, such as non-competition and confidentiality obligations, this did not mean that only partners and principals could qualify as “parties”. It made commercial sense for only the corporate partners and those who control them to be bound by such covenants, given their operational impact. Likewise, it was commercially logical to allow shareholders of partners to protect their financial interests in the partnership by seeking remedies in arbitration.
The parties attempted to bolster their respective positions on the interpretation of the partnership agreement by relying on documents post-dating and/or extraneous to the partnership agreement, such as an agreement to amend the partnership agreement (which did not actually result in amendment), a letter of intent, and the Power of Attorney granting Jason control of 757. The court found none of these documents to be helpful guidance in interpreting the partnership agreement.
Having found that the term “parties” included shareholders of partners, it followed that Jonathan had the right to pursue arbitration under the partnership agreement. The court further held that, as a party to the partnership agreement, Jonathan had standing to seek dissolution of the partnership in the arbitration (although the arbitrator could account for his lack of control rights over a partner in determining whether dissolution was appropriate).
Finally, the court determined that the claims related to the compensation paid by Parkway to KEI and Jonathan were arbitrable. Because the partnership was authorized to direct Parkway in managing the business, and because the partnership agreement provided that the partnership’s executive committee was to manage the partnership and conduct business, including authorizing all material transactions, the implication was that Parkway’s contracts constituted matters concerning the implementation of the partnership agreement and therefore were arbitrable.
Commentary:
First, it is important to appreciate that the court in this case did not broadly determine that shareholders of partners always will be able to arbitrate disputes pursuant to an arbitration agreement in the partnership agreement. That may have been the outcome here, but that outcome was tied closely to how the specific contract at issue was worded and interpreted. The only broad principle to be drawn is that arbitration agreements, like other commercial contracts, are to be interpreted in accordance with the usual principles of contractual interpretation – a principle which has been established in numerous other cases.
In this sense, the decision is a cautionary tale for commercial contracts. Words matter when drafting and signing contracts, and where parties use a term that is not clearly or obviously defined (as occurred here), they ultimately may be stuck with an interpretation that is not what they expected should disputes arise. I frequently advise clients and corporate lawyers not to treat their contractual dispute resolution clauses as boilerplate that need not be reviewed or analyzed, and this is one of the reasons why.
It is noteworthy that the court, in interpreting the partnership agreement, appears not to have considered the different hats worn by the different individuals involved. In this case, Jonathan was a shareholder of a partner, but also a service provider to Parkway pursuant to a maintenance contract. Likewise, Jason was a principal of a partner, but also a service provider to Parkway through KEI pursuant to a management contract. It is unclear whether Jason was advancing his claims in his personal capacity or on behalf of KEI. The court held that both Jonathan and Jason’s claims regarding compensation under these service contracts were arbitrable because the claims were advanced by “parties”, despite that the claims arguably were advanced not in their capacity as “parties” to the partnership agreement but as service providers to the business. The decision contains no indication of the terms of the service contracts, including whether they may have contained their own dispute resolution provisions. This interpretation leads to the somewhat incongruous result that some Parkway service contracts may be arbitrable under the partnership agreement (regardless of their own contract terms) while others, where the counterparty is not directly linked to the partnership agreement, are not. Such a broad interpretation of the arbitration agreement reasonably might go beyond what the contract parties anticipated again driving home the importance of crafting an arbitration agreement with care.
This highlights a broader concern with the court’s analysis: a general lack of detail. For a seasoned arbitration practitioner, reading through the court’s reasons will raise numerous questions related to factual matters that seemingly could or should have been relevant to the court’s analysis. Did Jason assert his claims in arbitration personally or through KEI? Is Parkway a signatory to the partnership agreement in some capacity? What were the terms of the service contracts that were the subject of Jason and Jonathan’s claims? None of these questions are answered in the decision. In finding that Parkway’s contracts are arbitrable matters for the partnership (because the partnership had authority to tell Parkway what to do in respect of Parkway’s contracts), the court did not address whether this applies only in respect of contracts involving a “party” or to all contracts. Query the outcome if parties to the partnership agreement disagreed about whether to grant a compensation increase to a service provider entirely unrelated to the partnership – would that third party service provider be entitled to seek the requested increase through arbitration under a partnership agreement that they may have no knowledge of? If they pursued the dispute in court, could the partnership successfully seek to stay the action in reliance on the partnership agreement’s arbitration clause? The consequence of such unspecific analysis is that readers may not get a real understanding of the reasons for a particular outcome – and, in the circumstances of this case, the arbitration clause theoretically could capture parties and disputes well beyond the parties’ reasonable contemplation or prediction.
Finally, the court’s adoption of a somewhat broad interpretation of “parties” to an arbitration agreement follows a trend in recent case law. See, for example, the Supreme Court of British Columbia’s decision in 2197 Otter Point Properties Nominee Ltd. v GT Mann Contracting Ltd., 2026 BCSC 558, where the court stayed an action in favour of arbitration where it was arguable that a non-signatory to the contract could become a party to the arbitration agreement through its sole shareholder. In coming to that conclusion, the BC court relied on the Supreme Court of Canadas decision in Peace River Hydro Partners v Petrowest Corporation, 2022 SCC 41, citing it for the proposition that “an entity connected with a signatory to a contract containing an arbitration agreement may become bound as a ‘party’ by operation of law.” For further discussion on the Otter Point decision, see B.C. – Peace River broadened proper parties to arbitration – #951 – Arbitration Matters. Although the court in 1171757 Ontario Limited did not refer to Peace River, it’s possible that we will continue to see courts adopting expansive views of the “parties” to arbitration agreements in reliance on the principles or perspective drawn from Peace River.