Ontario Court Of Appeal Reaffirms That Agreements To Arbitrate Are Strictly Enforced

An agreement to arbitrate has long been considered one of the most powerful means for commercial entities to control their dispute resolution. The arbitration clause allows businesses to ensure that they maintain control over the process for dispute resolution and, importantly, over public access to the details of any dispute which may arise. Though the wording of a particular arbitration clause is important, as it governs the scope of disputes which may be sent to arbitration, the strength of arbitration clauses can be gauged by how they are treated in the courts and legislatures of Canada.

Courts have traditionally given great deference to contractual mandatory arbitration clauses. This deference stems from the legislative attitude to enforcement of such clauses. For example, the UNCITRAL Model Law on International Commercial Arbitration (the "Model Law") provides in Article 8 that if a court action is brought in a matter which is the subject of an arbitration agreement, the court shall refer the parties to arbitration. The Model Law is incorporated as part of the International Commercial Arbitration Act of Ontario and in similar statutes across Canada. Hence, the guiding principle (barring particular and limited grounds for refusing a stay) is that parties who agree to mandatory arbitration shall not be subject to or allowed to commence court proceedings.

Generally, the grounds for refusing to stay court proceedings in the face of an arbitration clause are rather limited. The mere fact that a party to the agreement might suffer tactical, juridical or financial disadvantage is not enough to refuse a stay. Once it is determined that the matter in issue is one which the parties have agreed to submit to arbitration, the courts have held that there is no discretion to refuse to stay court proceedings.

Further, the prevailing rule is that in any case involving an arbitration clause, a challenge to the arbitrator's jurisdiction must first be resolved by the arbitrator. This is known as the "competence-competence principle"1.

In the recent case of Haas v. Gunasekaram, the Ontario Court of Appeal has laid down an analytical framework to guide judges considering a motion to stay a court proceeding on the basis of a prevailing arbitration clause. The Court of Appeal has provided a five-part process for the consideration of such issues. The five steps for the court to follow are:

Is there an Arbitration Agreement? What is the subject matter of the...