Ontario – Stay Granted where Competing Arguable Interpretations of Scope of Arbitration Agreement – #648

In Biancucci v Buttarazzi, 2022 ONSC 4054, Justice Myers followed the analytical framework for a stay application under s. 7 of the Arbitration Act, 1991, S.O. 1991, c. 17  (the “Act”) as set out in Haas v. Gunasekaram, 2016 ONCA 744. The arbitration agreement at issue was contained in a settlement agreement, and interconnected litigation and arbitration taking place over a decade made analysis of the scope of the arbitration agreement complex. Ultimately, Justice Myers confirmed that there were competing arguable interpretations of scope and granted the stay, leaving jurisdiction to be ultimately determined by the arbitral panel.

The litigation sought to be stayed involved allegations that the defendants violated their fiduciary duties as directors and officers of a family corporation when that corporation sold two properties. The plaintiff shareholders alleged that the defendants had oppressed them by failing to disclose material facts about the value of the properties being sold.

The broader dispute was summarized succinctly by Justice Meyers as follows:

“Five warring adult siblings have been embroiled in litigation and arbitration for a decade over who gets how much of their parents’ money. The plaintiffs want to fight their next internecine battle in court. The defendants want to fight the battle as a continuation of their arbitration.”

The parties had previously participated in an arbitration that was settled on the eve of the hearing. In that settlement (the “First Settlement Agreement”), the parties agreed to liquidate certain properties, but further issues subsequently arose. Pursuant to the First Settlement Agreement, those issues were referred to the same arbitration panel that had been appointed prior to the First Settlement Agreement.

During that second arbitration, the parties entered into a second settlement agreement (the “Second Settlement Agreement”), which said that it was a full and final settlement of the arbitration. It specified that two specific pieces of litigation could proceed in court against third parties. It also specified in paragraph 10 that “[a]ny disputes arising hereof will be determined by the arbitration panel”. There was also a reservation of rights in paragraph 8 that stated: “The parties further reserve their respective rights regarding the sale of the properties at 126-146 Peelar and 63-69 Maplecrete Road and 77 Maplecrete Road.” The sale of these properties was at issue in the oppression remedy litigation sought to be stayed.

The plaintiffs argued that the arbitration agreement in the Second Settlement Agreement was only meant to refer to a tax planning issue, and that all other matters were to proceed to litigation. However, there was no basis in the language of the Second Settlement Agreement for a finding that paragraph 10 only applied to tax planning issues. Further, the reservation of rights paragraph did not say anything about whether the rights reserved were to be advanced in arbitration or litigation. The situation was further complicated by the fact that the rights reserved were connected to a dispute that arose in the context of the implementation of the First Settlement Agreement. The defendants argued that the better interpretation of the Second Settlement Agreement, on the objectively known factual matrix, was that all disputes were to be arbitrated.

Justice Myers described the considerations on a s. 7 application as set out in Haas:

  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?

There was no dispute that the Second Settlement Agreement between the parties contained an arbitration agreement. The subject matter of the lawsuit was, as set out above, whether the defendants had breached fiduciary duties and oppressed the plaintiffs.

The scope of the arbitration agreement, and whether the dispute fell within that scope, was the heart of the dispute. As indicated above, Justice Myers found that the dispute arguably fell within the scope of the arbitration agreement. He commented that in such circumstances “[n]ot only does the law favour deference to the arbitrators under the competence-competence principle, but here, the issues are infused with facts arising from various aspects of the arbitration itself…I can think of no one better situated to decide that factual issue than the arbitral panel.

As there were no grounds on which the court should refuse to stay the action, the action was stayed pending the outcome of the arbitration.

Contributor’s Notes:

There are a number of additional Arbitration Matters Case Notes that apply the test in Haas in the context of a stay application. They are listed in Ontario: Stay ordered as promissory note captured by separate arbitration agreement – #643, along with a detailed summary of the test and the relevant provisions of the Act.

As can be seen in this case and the other cases in which the Haas test is applied, the question of whether the dispute arguably falls within the scope of the arbitration agreement is not a high standard. This is out of respect for the “competence-competence principle” that recognizes the power of an arbitrator to determine their own jurisdiction under the arbitration agreement. The practical benefit to this approach is demonstrated where, as here, the arbitrators may be more intimately familiar with the facts and procedural history of the matter.