ONCA to Consider Whether Non-Party to Arbitration Agreement Can Move to Stay

In Shaw Satellite G.P. (c.o.b. Shaw Direct) v. Pieckenhagen, Perell J. concluded that a defendant who denies that it is a party to an arbitration agreement has no ability to move to stay an action in favour of arbitration pursuant to s. 7 of the Arbitration Act, 1991. In other words, you cannot have your cake and eat it too. The Ontario Court of Appeal will hear the appeal from Perell J.'s decision on March 21, 2012.

Decision Below

Shaw Satellite brought an action against various defendants alleged to have been involved in satellite signal theft. The Shaw Satellite Residential Agreement contained a mandatory arbitration clause. The defendants sought to enforce the arbitration agreement, but at the same time attempted to reserve their rights to argue that they were not a party to it.

Perell J. dismissed the motion in belt and suspenders reasons.

First, for a moving party to qualify to obtain a stay under s. 7(1) of the Arbitration Act, 1991 it must be a "party to the arbitration agreement". The defendants did not meet their onus of showing that they were qualified to bring the motion. "The moving party cannot reserve the right to disprove what it must prove in order to get the stay."

Second, if that was wrong, the issue should not have been reserved to the arbitrator under the competence-competence principle. That principle would only apply "if the issue for the arbitrator was whether a party resisting arbitration was a party to the arbitration agreement" (emphasis in original).

Third, if that was wrong, the issue required only a superficial examination of the documentary evidence in the record, and it was appropriate for the court to decide the matter under the principles set out in Dell.

Fourth, if that was wrong, s. 7(5) of the Act applied. It was appropriate for the court to exercise its discretion to allow the entire matter to proceed in one forum, since there were parties to the action that were not subject to the arbitration clause. Among other things, the court was seized with a related action involving BellExpressVu which had the "same factual footprint" as the Shaw action. There was no arbitration clause in the relevant agreements between customers and BellExpressVu. Submission to arbitration would result in a multiplicity of proceedings, duplication of resources, inefficiency, increased costs, and delay.

Potential Significance

Perell J.'s first reason for dismissing the motion would appear to be sound. The statutory power to stay an action in favour of arbitration is expressly limited to parties to the arbitration. The Ontario legislation differs in this regard from the legislation in other jurisdictions, such as B.C.'s Commercial Arbitration Act. For instance, in Darby v. Lasko, the B.C. Court of Appeal held that the relevant provision in the B.C. legislation "by its express words extends the right to apply for a stay to the parties to the litigation and not only parties to the agreement." Section 7(1) of the Ontario legislation by its express words applies only to parties to the arbitration agreement.

Perell J.'s second reason for dismissing the motion is more controversial. It is unclear why an arbitrator should rule on whether a party is subject to an arbitration agreement only if that party is resisting arbitration. The competence-competence principle simply means that arbitrators should decide matters (arguably) falling within their jurisdiction at first instance. It would seem that an arbitrator could have decided whether the defendants -- who supported arbitration -- were party to the arbitration agreement rather than the court. Perhaps Perell J. simply meant that it did not lie in the mouth of the defendants to argue that the arbitrator should decide whether they were subject to the arbitration agreement since they were the ones that invoked the court process by bringing a motion for a stay.

Perell J.'s fourth reason for dismissing the motion, once again, raises the competing public policy considerations of fostering arbitration and avoiding a multiple proceedings in different fora. As Perell J.'s decision makes clear, Ontario courts have generally favoured the latter. On this point, see the excellent discussion in Ron Podolny's blog, "U.S. Supreme Court Affirms a Policy Preference for Arbitration".

Case Information

Shaw Satellite G.P. v. Pieckenhagen

Ontario Court of Appeal Court File No.: C54205

Hearing Date: March 21, 2012

arbitration Aribitration Act competence-competence principle Ontario Court of Appeal stay an action in favour of arbitration



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