A fan-favourite, Whittaker’s chocolate is the choice of many. But Whittaker’s could have missed out on its choice of dispute resolution process and jurisdiction when its former distribution agent in Canada sought to resolve a dispute in the Ontario courts rather than applying the arbitration agreement that Whittaker’s thought it had incorporated in its standard terms of trade. Read on to learn more about Husky Food Importers & Distributors Limited v JH Whittaker & Sons Limited [2022] ONSC 1697 and why a good model clause is essential for commercial contracts.
Challenge in the Canadian courts
Whittaker’s was negotiating a distribution agreement with Canadian distributor Husky.[1] Wanting to have disputes submitted to arbitration through the New Zealand International Arbitration Centre (NZIAC) under the New Zealand Arbitration Act 1996, Whittaker’s incorporated an arbitration clause into a schedule of the distribution agreement referring disputes to NZIAC for arbitration.
When a dispute arose, Husky commenced proceedings in the Ontario courts for breach of contract and other causes of action. Whittaker’s sought to stay the action commenced by Husky, arguing that the dispute had to be referred to arbitration in New Zealand.
The Canadian Court upheld Whittaker’s application for a stay, holding that there was a valid and enforceable arbitration agreement. It would therefore be for the arbitral tribunal, and not the courts, to determine the arbitrator’s jurisdiction.
Use of model clauses
The default for contractual dispute resolution is the court system. But there are many advantages to choosing so-called “alternative” dispute resolution methods, such as arbitration, particularly in the international context.
Parties use model clauses in their contracts to record their agreement about which private dispute resolution method will be used, the rules that will govern that process, the appointment mechanism, and the governing law. This prior agreement is critical: once a dispute arises the parties are highly unlikely to agree on anything, let alone to refer their dispute to a particular dispute resolution process/service provider. Good model clauses can ensure the prompt, proportionate and cost-effective resolution of disputes. You can read more about the use of effective model clauses here.
Whittaker’s choice
The main purpose of a model clause is to provide certainty as to how parties will resolve any disputes that arise out of, under or in connection with their relationship. Husky argued that their choice was not arbitration and that it was always their intention that disputes should be resolved through the court process. They said this meant there was no “meeting of minds” between the parties, and therefore no arbitration agreement.
The Court was not persuaded by Husky’s argument. Whittaker’s had incorporated their specific and detailed choice of forum into the terms of the agreement. Husky had “engaged with” the agreement terms by selecting the days for payment and removing tracked changes. It had left the arbitration clause in place, and there was no other evidence presented that indicated that its choice of forum was communicated to Whittaker’s.
It is important to note that there is a low threshold for finding an arbitration agreement in a stay motion: the Ontario Court only had to find that it was arguable that there was an arbitration agreement to grant the stay. The issue of jurisdiction and the existence of an arbitration agreement will ultimately have to be determined by the arbitral tribunal. But despite this, this case is a good example of how important it is to turn your mind to which dispute resolution forum will apply and how any appointment will be made, and incorporate that choice into your agreement.
[1] Whittaker’s disputed that the agreement was finalised, but for the purposes of the Court proceedings they agreed to proceed on the assumption it was a binding agreement – we will do the same.