In Pioneer Cannabis Corp. v. 2715615 Ontario Inc., 2022 ONSC 3998, the Plaintiff’s action was stayed pursuant to s. 7(1) of Ontario’s Arbitration Act, 1991 (the “Act “) and the parties’ arbitration agreement found in their “Master Cannabis Agreement” (the “MCA”). The Plaintiff Pioneer Cannabis Corp (“Pioneer”) commenced an action alleging that the Defendants 2715615 Ontario Inc and Mr. Sangha owed money pursuant to a promissory note. The parties had entered into a number of agreements relating to cannabis retail consulting and brand licensing services including the MCA, a Retail Services Authorization Agreement (the “RSAA”), and a promissory note. On its motion to stay, the Defendants argued that the Plaintiff’s claim fell within the arbitration clause in the MCA. The Plaintiff, however, argued since its claim wass based solely on the promissory note, which should be viewed as a standalone instrument, it fell outside the scope of the arbitration clause. Associate Justice Robinson disagreed with Pioneer, found the arbitration agreement covered the promissory note, and granted the stay. As outlined below, in reaching his conclusion, Associate Justice Robinson applied the five-part test established by the Court of Appeal for Ontario in Haas v Gunasekaram, 2016 ONCA 744 (“Haas”)at paragraph 17 to determine whether an action should be stayed in favour of arbitration (the “Haas Test”).
The Haas Test involves the following five questions: (a) is there an arbitration agreement? (b) what is the subject matter of the dispute? (c) what is the scope of the arbitration agreement? (d) does the dispute arguably fall within the scope of the arbitration agreement? and (e) are there grounds upon which the court should refuse to stay the action?
Following is Associate Justice Robinson’s application of the Haas Test:
(a) Is there an arbitration agreement? The parties agreed that, of their agreements, only the MCA contained an arbitration agreement; the promissory note did not. However, they disagreed whether the arbitration agreement applied in the circumstances.
(b) What is the subject matter of the dispute? Associate Justice Robison found that the pleaded subject matter of the dispute wass the corporate Defendant’s liability under the promissory note and, to the extent of any such liability, whether Defendant Mr. Sangha was liable under certain personal guarantees.
(c) What is the scope of the arbitration agreement? The arbitration agreement in the MCA was broadly drafted and included reference to “[15] … all disputes, claims and controversies between the parties arising under or in connection with this Agreement or any [RSAA]…”
(d) Does the dispute arguably fall within the scope of the arbitration agreement? Associate Justice Robinson agreed with the Defendants that the dispute between the parties is one, “[17]… arising under or in connection with the MCA and the RSAA” and thus captured under the MCA’s arbitration agreement. Although Pioneer argued that the promissory note should be treated as a standalone agreement with its own governing terms, Associate Justice Robinson found that the promissory note, “[20] … flows from the RSAA, which is itself an agreement expressly contemplated in the MCA.” The promissory note wass identified in, and its quantum dictated by, the RSAA. As such, Associated Justice Robinson found that the promissory note was “[18] … inextricably intertwined with both the RSAA and the MCA.”
(e) Are there grounds upon which the court should refuse to stay the action? In considering the last part of the Haas Test, the action will be stayed unless one of the five exceptions under s. 7(2) of the Act applies (exceptions outlined below). Pioneer argued that the exception that summary judgment is appropriate applied, as the dispute was a “simple debt collection action.” While none of the parties led evidence whether the matter ws appropriate for summary judgment, Associate Justice Robinson found that the Defendants would be pursuing a number of defences, including that Pioneer delayed in locating premises for the Defendants as it was required to do, failed to provide consulting services, improperly terminated the RSAA, and made misrepresentations. Accordingly, Associate Justice Robinson found, “[35] … that the positions of the parties are not conducive to resolution by summary judgment.”
Lastly, Associate Justice Robinson noted that the decision to refuse a stay based upon the enumerate grounds under s. 7(2) is discretionary, and that, citing paragraph 10 of Haas, the law favours giving effect to arbitration agreements. He found that there are a number of disputes between the parties, “[36] … not yet joined in this action that the defendants are entitled to address by arbitration [and] I see no reason why this action should be addressed separately from the parties’ other disputes.” Associate Justice Robinson thus concluded that it would be inappropriate for him to exercise his discretion to refuse the stay.
As a result, Pioneer’s action was stayed, and the Defendants were awarded their costs on a partial indemnity basis.
Contributor’s Notes
Sections 7(1) and 7(2) of the Act provide:
Stay
7 (1) If a party to an arbitration agreement commences a proceeding in respect of a matter to be submitted to arbitration under the agreement, the court in which the proceeding is commenced shall, on the motion of another party to the arbitration agreement, stay the proceeding. 1991, c. 17, s. 7 (1).
Exceptions
(2) However, the court may refuse to stay the proceeding in any of the following cases:
1. A party entered into the arbitration agreement while under a legal incapacity.
2. The arbitration agreement is invalid.
3. The subject-matter of the dispute is not capable of being the subject of arbitration under Ontario law.
4. The motion was brought with undue delay.
5. The matter is a proper one for default or summary judgment. 1991, c. 17, s. 7 (2).
While this case is a fairly straight forward application of the “Haas Test”, it should be noted that in awarding costs on a partial indemnity scale, Associate Justice Robinson remarked that “[38] … [a]lthough not an overly complex motion, the stay issue was important to the defendants given broader disputes under the parties’ agreements.”
Following is a list of previous Case Notes where the Haas Test has also been considered: Ontario – court enforces competence-competence principle in complex employment dispute – #047; Ontario – arbitrator appointment procedure in franchise agreement risks “absurd and likely unfair result” – #178; Ontario – raising arbitration in defence helps demonstrate defendant did not waive arbitration – #414; Ontario – court all but drafts pandemic obituary for forum non conveniens as factor in fairness of arbitration venue – #469; Ontario – agreement to arbitrate not unconscionable where governing law preserves executive’s Employment Standards Act rights – #490; Ontario – Partial stay; oppression claim arbitration to precede related family law action – #528; Ontario – Stay motion denied: case was a proper one for summary judgment, but summary judgment not sought – #538; Ontario – No stay despite broad arbitration clause – #629; Ontario – Arbitration clause not consideration; provides only detriment to contracting party – #641