By Richard Pidgeon
In Husky Food Importers & Distributors Limited v JH Whittaker & Sons Limited, 2023 ONCA 260, the Ontario Court of Appeal has provided guidance on the test and standard of proof required to stay court proceedings in favour of an arbitration agreement.
In May 2022 we reported on a Canadian case involving Whittaker’s chocolate, in which the Ontario Superior Court granted an application to stay proceedings and refer the dispute to arbitration here at the New Zealand International Arbitration Centre.[1] That decision was appealed. The Ontario Court of Appeal has now issued its decision, which upholds the stay of proceedings and referral to arbitration at NZIAC.[2]
Background
Husky Food Importers (Husky) and JH Whittaker and Sons Ltd (Whittaker’s) were parties to a part oral and part written distribution arrangement of Whittaker’s chocolate in Canada from 2014 to 2020. In May 2020 a written agreement was agreed to but not signed. The last version (which had track changes accepted by Husky) contained the following arbitration agreement:
19 OVERSEAS DISPUTES
19.1 Where the Customer is located outside of New Zealand, any dispute, controversy or claim arising out of or in connection with these Terms, or any question regarding its existence, breach, termination or invalidity, will be referred to the New Zealand International Arbitration Centre for arbitration in accordance with the New Zealand Arbitration Act 1996. Such arbitration shall also be as follows:
(a) the number of arbitrators will be: one;
(b) the place of arbitration will be: Wellington, New Zealand; and
(c) the language of the arbitration will be: English.
The arbitration clause was located in a schedule to the agreement as part of a template Whittaker’s order form. Husky had also added a clause to the main body of the draft agreement, namely:
If there is any inconsistency between any provision or term in the main body of this Distribution Agreement and in any schedule annexed hereto, the terms in the main body of this Distribution Agreement shall have paramountcy to the extent of any inconsistency only.
A dispute arose, and on 3 June 2021 Husky issued proceedings in the Ontario Superior Court alleging that Whittaker’s had breached the distribution agreement. Whittaker’s sought an order staying the action pursuant to section 9 of Ontario’s International Commercial Arbitration Act 2017 which states:
Where, pursuant to article II (3) of the Convention or article 8 of the Model Law, a court refers the parties to arbitration, the proceedings of the court are stayed with respect to the matters to which the arbitration relates.
Art. 8(1) of the Model Law provides:
A court before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so requests not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed.
Superior Court proceedings
The key question to be determined was whether an arbitration agreement existed. The Superior Court relied on a framework for analysis set out in Haas v Gunasekaram,[3] as follows:
- Is there an arbitration agreement?
- What is the subject matter of the dispute?
- What is the scope of the arbitration agreement?
- Does the dispute arguably fall within the scope of the arbitration agreement?
- Are there grounds on which the court should refuse to stay the action?
Husky did not dispute question 1–4 of the Haas framework above, and the Superior Court found that there was an arbitration agreement.
Importantly, it found that the first criterion in Haas (that an arbitration agreement existed) had to be proved only to an “arguable” standard,[4] which is a lower threshold than the balance of probabilities.
On question 5 of the Haas framework, Husky unsuccessfully argued that the arbitration clause should not be given effect because:
- It is rendered inoperative by other provisions in the Alleged Distribution Agreement.[5]
- It would lead to a multiplicity of proceedings in different jurisdictions, because as well as the proposed arbitration in New Zealand, Husky were also suing a Canadian company in Canada (Star Marketing), which it alleged was colluding with Whittaker’s.[6]
The Superior Court rejected both of these arguments and granted Whittaker’s motion to stay the action and refer the dispute to arbitration in New Zealand.
Husky appealed the decision to the Ontario Court of Appeal.
Court of Appeal proceedings
Issue at appeal
The issue at the Court of Appeal was framed as:
Where a party seeks to stay an Ontario court proceeding under s. 9 of the International Commercial Arbitration Act, 2017, S.O. 2017, c. 2, Sch. 5, (“ICAA”) on the basis that the matter in dispute is the subject of an arbitration agreement but the responding party contends no such agreement exists, what standard of proof must the moving party meet to establish that a stay should be granted and the dispute referred to arbitration?
Husky’s arguments
Husky unsuccessfully argued two related grounds of appeal:
- The Superior Court had erred by applying the “arguable” standard in determining whether an arbitration agreement existed. Husky submitted that the correct standard to be applied was the balance of probabilities.
- The Superior Court made a palpable and overriding error in holding that arguably there was an agreement to arbitrate between Husky and Whittaker’s.[7]
The Peace River test and the “arguable” standard of proof
In November 2022, the Canadian Supreme Court issued a decision in Peace River Hydro Partners v. Petrowest Corp., 2022 SCC 41. Rather than the 5-part Haas test above, in Peace River a 2-part test was used to determine whether a stay of action should be granted.
The Court of Appeal took the opportunity to clarify that the Haas test for staying proceedings in favour of arbitrations as applied by the Superior Court in Husky v Whittaker’s had since been superseded by the Supreme Court’s Peace River test.
The first part of the Peace River test contains “technical prerequisites” for a mandatory stay of proceedings and has four criteria:[8]
- whether an arbitration agreement exists;
- whether court proceedings have been commenced by a party;
- whether the court proceedings are in respect of a matter that the parties agree to submit to arbitration; and
- whether the party seeking the stay does so before taking any steps in the court proceedings.
The Court of Appeal confirmed (from Peace River) that the party seeking the stay has to prove the technical prerequisites only to the lower “arguable case” standard, not the civil standard of balance of probabilities.
The second part of the Peace River test is whether any statutory exceptions to granting the stay exist, and the standard for this is the higher balance of probabilities. However, only the first part of the test was relevant in Husky v Whittaker’s.
The Court of Appeal noted that while the lower court had applied the Haas test, it noted both the Haas and Peace River tests are predicated on the existence of an arbitration agreement as the foremost, paramount point.[9] In reaching its decision on the “arguable standard” the lower court had applied a case which was common to both the Haas and Peace River tests: [10]
In Peace River, the Supreme Court approved the “arguable case” standard to establish the technical prerequisites for a mandatory stay previously articulated by the British Columbia Court of Appeal in Sum Trade.[5] In the present case, the motion judge adopted and applied Sum Trade’s arguable case standard. In so doing, she obviously applied the correct legal principle as the Supreme Court subsequently approved Sum Trade’s arguable case standard in Peace River.
Did an arbitration agreement arguably exist?
Having clarified the test now to be applied, and that the standard of proof was “arguable case” the Court of Appeal went on to determine whether an arbitration agreement between Husky and Whittaker’s “arguably” existed.
The Court of Appeal found the evidence supported the fact that an arbitration agreement arguably existed and based its finding on three main points:
- Husky predicated its 2021 Ontario Superior Court action on the existence of the May 2020 distribution agreement between the parties.
- The key emails of April then May 2020 which annexed the arbitration agreement were accepted by Husky as its affidavit deponents outlined.
- The evidence fully supported the Superior Court’s findings:[11]
[T]here is evidence here that the Terms did come to Husky’s attention. Whittaker’s sent the Terms containing the Arbitration Clause to Husky. As noted, Husky then engaged with the Terms by selecting the days for payment and removing the track changes in the Terms. It left the Arbitration Clause in place.
The Court of Appeal rejected Husky’s opposition to the stay of action and referral to NZIAC for arbitration, and awarded Whittaker’s CAN $30,000 in court costs.
Conclusion
One of the salutary lessons arising from the earlier Superior Court decision (as reported in our May 2022 article) was to ensure the arbitration clause is in the main body of the agreement and there are no inconsistent terms.
Now, the Court of Appeal decision has provided clarity on the standard of proof in stay applications. The two part test with its subparts show that if all technical prerequisites are arguably met, the mandatory stay provision is engaged and the party opposing the stay must prove to the civil standard that a statutory exception is applicable.
Inferentially both decisions in Husky v Whittakers recognise the standing of the New Zealand International Arbitration Centre, its rules and the status of New Zealand as an arbitration-friendly jurisdiction.
[1] Husky Food Importers & Distributors Ltd v JH Whittaker & Sons Ltd, 2022 ONSC 1679.
[2] Husky Food Importers & Distributors Limited v JH Whittaker & Sons Limited, 2023 ONCA 260.
[3] Haas v Gunasekaram 2016 ONCA 744, 62 B.L.R. (5th) 1, at para. 17.
[4] Husky v Whittaker, ONSC, above n 2, at [17].
[5] Husky v Whittaker, ONSC, above n 1, at [25].
[6] Husky v Whittaker, ONSC, above n 1, at [29].
[7] Husky v Whittaker, ONSC, above n 2, at [18].
[8] Husky v Whittaker, above n 2, at [24].
[9] Husky v Whittaker, ONCA, above n 2 at [27].
[10] Husky v Whittaker, ONCA, above n 2 at [30], footnote omitted but citing Sum Trade Corp. v. Agricom International Inc., 2018 BCCA 379, 18 B.C.L.R. (6th) 322.
[11] Husky v Whittaker, ONCA, above n 2, at [33].