Use it or lose it: Citing undue delay, Ontario Superior Court declines stay of court proceeding despite a valid arbitration clause

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Why this case matters

The recent decision in Paulpillai v Yusuf, 2020 ONSC 851 serves as a warning to parties, who have an arbitration agreement or clause, of the importance of moving quickly when seeking a stay of proceedings in favour of arbitration.

In this case, the Superior Court of Justice refused to stay the litigation because the Respondents failed to seek a stay of proceedings in favour of arbitration in a timely manner

Brief overview of the facts

Mr. Yusuf and Mr. Paulpillai were business partners. They signed a partnership agreement which contained an agreement to arbitrate if a dispute arose. Mr. Paulpillai passed away, and his widow became the executor and trustee of Mr. Paulpillai’s estate.

A dispute arose between Mr. Yusuf and several corporate entities (the “Respondents”) and Mr. Paulpillai’s estate and other family members (the “Applicants”). The parties attempted to split the partnership enterprise, but encountered numerous issues over a two-year period, leading Mr. Paulpillai’s estate to commence a court application.

Over a period of 7 months, the parties made two appearances before the court on interlocutory motions and exchanged multiple rounds of affidavit evidence. 

At the hearing of the application itself, the Respondents sought to stay the proceeding, pointing to the existence of the arbitration agreement between the parties. 

Was a stay appropriate in the circumstances?

When determining whether to grant the stay, the court found it had jurisdiction to adjudicate the application since no motion was brought to stay the proceedings and the Respondents had acquiesced to the court proceeding by taking significant steps to respond to the application.

The court grounded its analysis in relevant provisions of the Arbitration Act, 1991 including:

Stay
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.

Exceptions

(2) However, the court may refuse to stay the proceeding in any of the following cases: […]

4. The motion was brought with undue delay. […]

Though the Respondents had maintained in their affidavit evidence that the matter should have proceeded by arbitration, they never brought a motion (as required by the Arbitration Act) seeking a stay or to compel the Applicants to proceed by arbitration.

The court noted that even if the Respondents had moved to stay, the court still “has the discretion to refuse to grant the stay if the motion is not made in a timely manner”, and highlighted the Respondents’ first jurisdiction-related submission did not concern a stay, but rather the appropriateness of an Ontario court making an Order intending to bind a partnership entity in a foreign jurisdiction.

By the time application was heard, there had been one appearance and two scheduled appearances over the course of several months. Both parties had brought motions and filed extensive evidence, though neither moved to stay the proceedings in favor of arbitration.

The court also relied on the decision in Lansens v Onbelay Automotive Coatings Corp., [2006] OJ No 5470 when finding the Respondents abandoned their right to have the issues determined by an arbitrator once they took steps in the proceedings. As such, they could no longer insist the claims be arbitrated.

Ultimately, the court declined to stay the proceeding in favour of arbitration, and converted the application to an action due to credibility issues with both parties’ affidavit evidence.

The court promotes arbitration!

Despite declining the request for a stay, the court concluded by urging the parties to reconsider their decision not to opt for arbitration, stating:

“While the parties have not opted for arbitration, I urge them to reconsider that avenue so that these issues can be adjudicated in a timelier way, and on terms that will facilitate the multi-jurisdictional nature of this dispute.”

This case serves as an important reminder for parties to an arbitration who would rather proceed to arbitration than a court proceeding to commence a motion to stay the proceedings in favour of arbitration at the outset of proceedings, and before otherwise responding to the serving party’s claims.

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