Enforcing Arbitration Agreements: The Court Of Appeal For Ontario Weighs In

The Haas ruling builds on a long line of Ontario cases expressing support for arbitration.

Asserting a contract is void for fraud is not always enough to escape an agreement to arbitrate. In Haas v. Gunasekaram, the Court of Appeal for Ontario recently confirmed a clear preference for upholding arbitration agreements. In its decision, the Court describes the test to be applied when deciding to stay a court action in favour of arbitration and highlights the importance of drafting an appropriate arbitration clause.1

The facts

Andreas Haas, the plaintiff, invested in a restaurant in Toronto and entered into a shareholders' agreement with business partners. When the restaurant failed, Haas started a court action against his partners to recover his investment. He alleged that they had acted oppressively and that he had been induced to sign the shareholders' agreement (the "Contract") based on fraudulent representations.

The Contract contained an agreement to arbitrate "any dispute, difference or question" arising out of the Contract (the "Arbitration Clause"). In light of the Arbitration Clause, the defendants moved to stay the action under Ontario's Arbitration Act, 1991.2 Haas opposed the motion and argued, among other things, that the scope of the Contract could not include arbitrating the issue of whether it was void for fraud.

The motion judge declined to stay the action. He held that the subject of the dispute was not the parties' contractual obligations but rather the misrepresentations that led Haas to enter into the Contract in the first place. Since the misrepresentation claims did not arise out of the Contract, they were not captured by the Arbitration Clause.

The appeal

The Court of Appeal overturned the lower court and stayed the action.

As the starting point for its analysis, the Court of Appeal noted that the law in Ontario strongly supports arbitration. For instance, the Act, unlike predecessor legislation, requires the court to stay an action if an arbitration agreement applies to the dispute. Similarly, Canadian case law generally favours enforcing arbitration agreements and, even when the scope of an arbitration agreement is unclear, the court prefers the arbitrator to determine her own jurisdiction.3

In considering whether to stay an action in favour of arbitration, a judge must answer the following questions:

Is there an arbitration agreement? What is the subject matter of the dispute? What is the scope of the arbitration...