The More Things Change, The More They Stay The Same: The Court of Appeal Upholds the Huras Decision for Appeals Under s. 7 of the Arbitration Act, 1991

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In Toronto Standard Condominium Corporation No. 1628 v. Toronto Standard Condominium Corporation No. 1636, Soho Grand Condominiums Inc. and Soinco Limited, 2020 ONCA 612 (“TSCC No. 1628”), the Court of Appeal for Ontario confirmed that s. 7(6) of the Arbitration Act, 1991 does not bar an appeal where a judge refuses to grant a stay of a court proceeding under s. 7(5) where there is an arbitration agreement between the parties.

Section 7(5) permits a judge to stay matters contemplated by the arbitration agreement and allow the court proceeding to continue with respect to matters outside of that agreement.

Prior to this decision, it was unclear whether s. 7(6) would bar an appeal of a judge’s decision refusing a stay under s. 7(5) following the Supreme Court of Canada’s decision in TELUS Communications Inc. v. Wellman 2019 SCC 19 (“Wellman”). In Wellman, the Supreme Court held that courts do not have jurisdiction under s. 7(5) to permit disputes governed by an arbitration agreement to continue in court.

However, TSCC No. 1628 confirms nothing has changed in Ontario law and the cases following Huras v Primerica Financial Services Ltd. (2000), 137 O.A.C. 79 (C.A.) remain good law.

The Court of Appeal clarified that when a court proceeding is stayed under s. 7(5) because part of its subject matter is covered by a binding arbitration agreement, s. 7(6) continues to operate as a bar to any appeal of that decision. If the reverse occurs and the court proceeding is permitted to proceed despite the existence of a binding arbitration agreement between the parties, s. 7(6) does not bar an appeal.

Background to the Appeal

The main issue in this case concerned amounts owing under a cost-sharing agreement for certain common facilities in two adjoining condominium projects in Toronto. Toronto Standard Condominium Corporation No. 1628 (“Condo 1628”) and the Toronto Standard Condominium Corporation No. 1636 (“Condo 1636”) each administered one of the two adjoining condominium projects. A reciprocal agreement between Condo 1628 and Condo 1636 apportioned the costs for the common facilities. The agreement contained an arbitration clause, stipulating that any dispute arising under the agreement shall be determined by arbitration. Condo 1628 disputed the amounts it owed under the agreement for the years 2009 to 2014.

Condo 1628 and Condo 1636 first attempted to mediate the dispute. When mediation failed, Condo 1628 refused to arbitrate the dispute and instead began an application in the Ontario Superior Court of Justice. Condo 1636 responded with a motion to stay the application in favour of arbitration.

The motion judge dismissed Condo 1636’s motion and ruled that “the entire matter should proceed in the form of an application before the court.” The motion judge found that Condo 1628 sought remedies that may not be available through arbitration, such as remedies for oppression under s. 135 of Condominium Act. The motion judge ruled that it was not appropriate to bifurcate the arbitrable and non-arbitrable claims and held that all the claims could continue before the court. In arriving at this conclusion, the motion judge relied on the interpretation of s. 7(5) in Griffin v Dell Canada Inc, 2010 ONCA 29 (“Griffin”). In Griffin, the Court of Appeal held that judges had discretion to order that a dispute subject to a mandatory arbitration clause proceed via court proceeding instead.

A few weeks after the motion judge’s decision, the Supreme Court of Canada expressly overturned this interpretation of s. 7(5) in its decision in Wellman. The Supreme Court concluded that s. 7(5) did not grant a judge discretion to permit a dispute subject to an arbitration agreement to proceed in court. The judge was required to give effect to the parties’ intention to arbitrate disputes arising under a contract and order a stay where the contract contained an arbitration clause. Wellman thereby overturned a significant line of case law in Ontario concluding that judges retained discretion to permit arbitrable claims to proceed in court, despite the existence of a binding arbitration agreement, pursuant to s. 7(5) of the Arbitration Act, 1991.

Did Wellman Overturn Huras?

In order to succeed on its motion to quash the appeal, Condo 1628 had to argue that s. 7(6) of the Arbitration Act, 1991 precluded an appeal of any decision made under s. 7 of the Act, including a decision that a dispute could continue to proceed in court under s. 7(5) rather than by arbitration notwithstanding the existence of a binding arbitration agreement. This argument ran contrary to the case law originating with the Court of Appeal’s decision in Huras v Primerica Financial Services Ltd. (2000), 137 O.A.C. 79 (C.A.) (“Huras”). In Huras, the Court concluded that decisions permitting a dispute to continue in court rather than ordering a stay in favour of arbitration in the face of a binding arbitration agreement are not made under s. 7, and therefore not subject to the bar on appeals in s. 7(6).

Condo 1628’s implicit argument was that Huras had been overturned following the Supreme Court’s decision in Wellman. At issue in Wellman was whether s. 7(5) of the Arbitration Act, 1991 gave a motion judge discretion to permit disputes to continue in court despite the existence of a binding arbitration agreement. Moldaver J., writing for the majority of the Supreme Court, concluded that s. 7(5) did not grant such discretion, particularly when read in light of the principles of party autonomy and limited court intervention in arbitration matters. He concluded that when arbitrable and non-arbitrable matters are combined in a single proceeding, and it is reasonable to separate the matters, s. 7(5) requires that the arbitrable matters proceed to arbitration. Moldaver J. discussed s. 7(6) only briefly, stating that the section must be taken as barring an appeal from a decision made under any subsection of s. 7. He explicitly left open the interpretation of s. 7(6) due to the lack of submissions from the parties on that topic.

Condo 1628 argued that applying Justice Moldaver’s purposive approach to interpreting s. 7(6) of the Arbitration Act must result in overturning the Huras line of cases. Condo 1628 argued that the interpretation of s. 7(6) in Huras was not consistent with the modern approach to statutory interpretation which Justice Moldaver followed in Wellman, because it failed to read the words of s. 7(6) in their entire context. According to Condo 1628, the proper interpretation of s. 7(6) would bar all appeals from motions under s. 7, whether the result was to grant or refuse a stay of court proceedings. Thus, the appeal at issue was also barred because it arose from a motion under s. 7. Finally, Condo 1628 argued that Huras and the line of cases that followed it were wrongly decided because they read words into the statute by permitting an appeal of a decision refusing a stay, while barring an appeal of a decision granting a stay.

Huras Remains Good Law

The Court of Appeal rejected all of Condo 1628’s arguments and held that not only did Wellman not overturn Huras, it also concluded that Huras should not be overruled in any event. In the result, the Court of Appeal dismissed the motion to quash the appeal, such that Condo 1636’s appeal was permitted to proceed.

The Court first reviewed Wellman and concluded that Justice Moldaver’s open-ended statement about the interpretation of s. 7(6) did not, in fact, have the effect of overturning the Huras line of case; it left the interpretation of s. 7(6) open for another court to decide. Second, the Court held that Huras was correctly decided, even when applying the modern statutory interpretation approach used in Wellman. The Court wrote that Condo 1628’s interpretation of s. 7(6), which would result in a bar to all appeals from decisions refusing a stay of proceedings in favour of arbitration (even when there was a binding arbitration agreement), was inconsistent with the principle of party autonomy underlying the Arbitration Act, 1991 as a whole. (Incidentally, this was the very subject of Condo 1636’s appeal).

An interpretation of s. 7(6) that barred appeals from any motion under s. 7 was also inconsistent with the language of that section, which referred to barring appeals of a “decision” under s. 7, not a “motion brought” under s. 7. The bar would apply when relief is granted under the section, such as refusing to grant a stay under s. 7(2) if one of the listed criteria was met, or granting a stay under s. 7(5). The Court of Appeal concluded the bar would not apply if relief was not granted under a subsection of s. 7, because that would mean the motion judge had not made a “decision under” s. 7.

Finally, the Court of Appeal held that s. 7(6) did not bar the appeal in this case because the motion judge did not make a “decision” under s. 7 of the Arbitration Act. Section 7 permits a motion judge to grant three types of relief:

(1) grant a stay of the court proceeding, either in whole or in part, due to the existence of an arbitration agreement (pursuant to s. 7(1));

(2) refuse to stay the court proceeding if the criteria under s. 7(2) were met; or

(3) grant a partial stay of claims that are arbitrable and permit severable, non-arbitrable claims to proceed in court (pursuant to s. 7(5)).

In this case, the motion judge had permitted both arbitrable and non-arbitrable claims to proceed pursuant to s. 7(5). This relief was not available to the motion judge in light of Wellman and could not be considered to be relief available under s. 7. As a result, the motion judge had not made a “decision under” s. 7 and the appeal was not barred.

Why this Case Matters

This case confirms that parties to disputes involving matters subject to an arbitration agreement can expect those arbitrable issues will not be permitted to proceed in a court proceeding even when the dispute includes issues outside of the scope of the arbitration agreement. Decisions permitting the court proceeding over arbitrable issues to proceed despite the existence of a binding arbitration agreement may be subject to appeal.

It is worth noting that the result of the motion to quash the appeal in this case essentially decided the matter on appeal. Condo 1636 brought the appeal on the basis that the motion judge incorrectly concluded he had discretion to permit all issues to proceed in court, rather than staying those that were subject to the arbitration agreement. The Court of Appeal concluded this holding was not open to the motion judge in light of Wellman and therefore there was no “decision under” s. 7, the appeal of which s. 7(6) could bar. If the holding was not open to the motion judge to make, that is essentially the same thing as saying the holding was legally incorrect.

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