Strong Support For Arbitration, Even In The Face Of Allegations Of Fraudulent Misrepresentation

The importance of drafting clear arbitration clauses in an agreement was addressed in the recent Ontario Court of Appeal decision of Haas v. Gunasekaram, 2016 ONCA 744 ["Haas"]. In this case, the plaintiff brought an action alleging that he was induced to sign a shareholders' agreement respecting an Italian restaurant located in Toronto based on fraudulent misrepresentations regarding the restaurant's business prospects and management, after the restaurant failed. Haas sought to recover his investment of $200,000.

The shareholders' agreement contained an arbitration clause. As such, the defendants moved to stay the action under section 7 of the Arbitration Act, S.O. 1991, c. 17 [the "Act"], in favour of the arbitration clause. The motions judge refused to stay the action. The defendants appealed the motion judge's decision.

The Court of Appeal's Decision

The Court of Appeal decided to stay the action in favour of the arbitration clause.

In its decision, the Court considered that both legislation and case law favours giving effect to arbitration agreements. Section 7 of the Act contains mandatory language requiring a court to stay an action when there is an arbitration agreement, whereas its predecessor legislation provided a court with more discretion. Section 7 of the Act states:

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. [Emphasis added]

This requirement to give effect to an arbitration agreement is furthered by Section 17 of the Act whereby an arbitration agreement that forms part of another agreement (such as in the Haas case), shall, for the purposes...