When Does A Party's Conduct Impact Its Ability To Enforce An Arbitration Agreement And Stay A Court Proceeding?

• Published date: 04 August 2021
• Subject Matter: Litigation, Mediation & Arbitration, Arbitration & Dispute Resolution, Court Procedure
• Law Firm: McCarthy Tétrault LLP
• Author: The International Arbitration Blog, Andrew Kalamut and Olivia Trojko

In CSI Toronto Car Systems Installation Ltd. v. Pittasoft Co., Ltd., 2021 ONSC 5117 ("Pittasoft"), Justice Sharma of the Ontario Superior Court of Justice refused to grant a stay of proceedings in favour of arbitration due to the conduct of the defendant, which estopped them from enforcing their arbitration agreement.

Why This Decision Matters

A party cannot rely on an arbitration clause "as if its prior conduct had not occurred."¹ Here, Pittasoft, the defendants in this action, began a claim in Korea against the plaintiff, CSI Toronto Car Systems Installation Ltd ("CSI"). The court invoked estoppel by conduct principles from both local and foreign jurisprudence to support its finding that a party's conduct may preclude its ability to enforce an arbitration clause to its benefit later.

While the court may forgive accidental slips that are quickly corrected, parties should keep in mind that even though there is a high threshold to render an arbitration clause unenforceable, commencing litigation in a court may foreclose a party's ability to enforce an arbitration clause and stay a court proceeding.²

Underlying Facts

In March 2018, the plaintiff CSI, an auto electronic installation company, entered into a Sales Agreement with Pittasoft, a Korean company that manufactures dashboard cameras. The Sales Agreement included an arbitration clause, referring a dispute to arbitration.

A dispute arose between the parties. CSI brought two actions in Ontario against Pittasoft. The first action concerned allegations of libellous statements about CSI on Pittasoft's website. Pittasoft defended that action.

A second action was commenced by CSI, which repeated the same allegations in the first action, but also included breach of contract and torts claims. The second action also named another defendant, Automobility, claiming that it interfered in CSI's economic relations.

Rather than commencing arbitration proceedings, Pittasoft brought its own court against CSI in Korea. Pittasoft seemingly brought the action as a means of obtaining leverage to negotiate the dismissal of the Ontario actions brought against it in Ontario. Pittasoft ultimately abandoned its action in Korea when it brought its motion seeking to stay the second Ontario action in favour of arbitration.³

The Parties' Positions

One of the main issues before the Court was whether the second Ontario court action should be stayed in favour of arbitration in Korea. CSI argued that the arbitration clause could not...