Sweet Escape – Chocolate manufacturer successfully stays Ontario action and refers claims to arbitration in New Zealand
In Husky Food Importers & Distributors Ltd. v. JH Whittaker & Sons Limited, 2022 ONSC 1679 (“Husky Food Importers”), JH Whittaker & Sons Limited (“Whittaker’s), a New Zealand incorporated chocolate manufacturer, successfully brought a motion to stay an action commenced against it by an Ontario company, Husky Food Importers & Distributors Ltd (“Husky”), and refer Husky’s action to arbitration in New Zealand.
Husky was the distributor of Whittaker’s confectionary in Canada from 2014 until the relationship soured and ultimately was terminated in July 2020. An action – which was the subject of the motion to stay – was commenced by Husky for breach of contract and breach of the duty of honest performance, amongst other causes of action (the “Action”). For the purposes of the motion to stay, although a factual dispute existed as to whether a distribution agreement was concluded, the parties proceeded on the basis that a contract existed (the “Alleged Distribution Contract”).
The key question for Justice Conway to determine in the stay motion was whether an arbitration agreement existed.
Whittaker’s arguments in favour of the existence of an arbitration agreement
Whittaker’s, as Applicant in the stay motion and Defendant in the Action, argued that the Action must be stayed due to the existence of an arbitration clause in Schedule G of the Alleged Distribution Contract, which contained a standard form purchase order agreement and Whittaker’s Standard Terms of Trade (collectively, the “Terms”). The Terms included an arbitration clause for “Overseas Disputes” (the “Arbitration Clause”) which can be summarized as follows:
- Where a customer is located outside of New Zealand, any dispute, controversy, or claim arising out of or in connection with the Terms, or any question regarding its existence, breach, termination or invalidity, will be referred to the New Zealand International Arbitration Centre for arbitration; and
- There shall be one arbitrator, the place of arbitration shall be Wellington, New Zealand, and the arbitration shall be conducted in the English language.
Husky’s arguments in response
Husky’s arguments in response to Whittaker’s stay motion were twofold:
(i) the Arbitration Clause was not an arbitration agreement within Article 7 of the UNCITRAL Model Law on International Commercial Arbitration (“Model Law”);
(ii) the Arbitration Clause had no effect as the Alleged Distribution Contract specifically stated that: (a) the Terms (which included the Arbitration Clause) only applied “unless otherwise agreed”; (b) the parties had in fact otherwise agreed that they would attorn to the non-exclusive jurisdiction of the New Zealand courts; and (c) the main body of Alleged Distribution Contract prevailed over any Schedule (such as Schedule G containing the Arbitration Clause) if there was any inconsistency between them (collectively, the “Relevant Provisions of the Alleged Distribution Contract”).
Justice Conway, in a concise but comprehensive decision, ruled that an arbitration clause existed and was enforceable. Justice Conway noted that Article 8 of the Model Law states that in an action brought in a matter which is the subject of an arbitration agreement, a court shall refer the parties to arbitration, unless the court finds the agreement is null and void, inoperative or incapable of being performed. Justice Conway further noted that a stay should be granted under Article 8 where it is arguable that the dispute falls within the terms of an arbitration agreement or the relevant party is a party to an arbitration agreement.
Justice Conway affirmed Hass v. Gunasekaram (“Hass”) as setting out the correct test for the analysis of a stay motion: (1) Is there an arbitration agreement? (2) What is the subject matter of the dispute? (3) What is the scope of the arbitration agreement? (4) Does the dispute arguably fall within the scope of the arbitration agreement? and (5) Are there grounds on which the court should refuse to stay the action?
Husky did not dispute that the second to fourth elements of the test had been met, namely it was arguable that the subject matter of the Action fell within the scope of the purported Arbitration Clause.
In respect of the first element of the test in Hass, Justice Conway opined that the threshold for establishing whether or not there was an arbitration agreement was a low one and determined that it was arguable that there was an arbitration agreement in existence. Justice Conway distinguished cases in support of Husky’s argument that the mere presence of an arbitration clause in a contract does not constitute an arbitration agreement on the basis that Husky was well-aware of the existence of the Arbitration Clause and, even after reviewing and amending the Alleged Distribution Contract, left the Arbitration Clause intact before executing the agreement.
Justice Conway did not accept Husky’s secondary submission, speaking to the fifth element of the test in Hass, that the Arbitration Clause was rendered inoperative by the Relevant Provisions of the Alleged Distribution Contract and, in particular, that the non-exclusive jurisdiction clause overrode the Arbitration Clause. Instead, Justice Conway preferred Whittaker’s submissions that:
- The Relevant Provisions of the Alleged Distribution Contract worked together and complemented one another as: (i) New Zealand was the seat of the arbitration and the courts of New Zealand retained supervisory jurisdiction to aid in the arbitration process; (ii) case law has held that an arbitration clause is not necessarily in conflict with a choice of forum clause; and (iii) the Arbitration Clause in this case was more specific and detailed than the generically worded, non-exclusive jurisdiction clause.
- As a result, the “inconsistency” provision did not come into effect, as attorning to the non-exclusive jurisdiction of the New Zealand courts and the Arbitration Clause were harmonious.
Justice Conway therefore granted Whittaker’s motion, the Action was stayed, and Husky’s claims were referred to arbitration in Wellington, New Zealand.
This decision highlights the absolute necessity, in the negotiation of commercial agreements, to carefully and thoroughly review contractual terms at the earliest possible stage – particularly those that may or may not be construed to be a valid arbitration clause in the event of a dispute.
Husky Food Importers provides a cautionary tale – this was not a case in which one party failed to draw the other party’s attention to the arbitration clause or in which one party clearly communicated that they did not want disputes referred to arbitration – rather Husky, in the words of Justice Conway, “engaged with” the contractual terms, left the Arbitration clause intact, and, ultimately, ended up with a dispute resolution process that they did not desire.
Parties should focus on undertaking a systematic legal risk analysis of any arbitration and/or dispute resolution clauses at the outset of the commercial relationship to avoid unforeseen consequences if litigation arises.
Husky Food Importers is also notable as Husky sought to rely on the recent authority of Electek Power Services Inc. v. Greenfield Energy Centre Limited Partnership, 2022 ONSC 894 (“Electek”) in the context of a motion to stay. The International Arbitration Blog discussed Electekhere. Justice Conway found that Husky’s reliance on Electek was however misplaced. This was because Electek considered whether an arbitration panel was correct to hold that there was an arbitration agreement, rather than – on a stay motion – whether an arbitration agreement arguably exist between the parties.
 Article 7 of the Model Law defines an Arbitration Agreement as “an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.”
 The Model Law having the force of law in Ontario pursuant to section 5(1) of the International Commercial Arbitration Act 2017 (“ICCA”).
 The fifth element of the test being - whether there were grounds on which the court should refuse to stay the action.
 “Ontario Decision Further Clarifies the Court’s Role When Considering An Arbitral Panel’s Ruling on its Own Jurisdiction”, March 9, 2022, The International Arbitration Blog.
international arbitration arbitration dispute resolution stay of proceedings arbitration agreement