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Factual background and parties
Declan Friel was employed by HUB International HKMB Limited (HUB Ontario), an Ontario insurance brokerage, starting in 2012 under a written Employment Agreement dated 21 September 2012. His employment contract set out his wages and benefits and contained an ADR clause stipulating that the agreement was governed exclusively by Ontario law and that any claim “contemplated by or arising out of or in connection with” the Employment Agreement would be resolved by mediation-arbitration under Ontario’s Arbitration Act, 1991. Schedule C to the Employment Agreement provided a separate grant of options that was not in issue in this proceeding. Mr. Friel’s equity relationship with the broader corporate group developed later through a series of Delaware-based investment arrangements. In October 2013, he entered an agreement with Hockey Parent Holdings L.P. (HPH) to purchase Class A units, which incorporated an Equityholders Agreement dated 2 October 2013. In December 2014, he was granted an option by Hockey Parent Inc. (HPI) to acquire Class B shares in HPI pursuant to an Option Agreement dated 22 December 2014, with the options vesting on 22 December 2021. That Option Agreement incorporated an Equityholders Agreement dated 1 July 2014; a similar Equityholders Agreement and forum selection clause were referenced in his 2013 investment. Mr. Friel did not physically sign the Equityholders Agreement but did not dispute that it was available to him before he executed the Option Agreement. He later acquired additional HPI options in April 2017 under a further agreement that also incorporated the Equityholders Agreement, though that later grant was not disputed in this case. HUB Ontario itself was not a party to the appeal, but its parent and related entities—HUB International Limited, Hockey Parent Inc., Hockey Parent Holdings L.P., and Hockey Investments L.P.—were the respondents. All of these respondent entities were Delaware-based, and the Equityholders Agreement provided that disputes would be resolved in the Court of Chancery of the State of Delaware.
Events leading to the dispute over options
Mr. Friel resigned from HUB Ontario on 23 December 2021—one day after his Class B options in HPI vested—and went to work for a competitor. In March 2022, he served notice to exercise his vested options and sought to purchase Class B shares in HPI under the Option Agreement. The respondents did not dispute that the options had vested and that he was entitled to exercise them. However, they took the position that by joining a competitor he had engaged in “misconduct” under the Equityholders Agreement. On that basis, they asserted that, although he could purchase the shares, they would have the right to buy them back at cost, effectively stripping any accumulated value. This framed the core substantive controversy: whether the respondents’ reliance on the misconduct provisions and their claimed right to buy back the shares at cost were legally valid. However, the Ontario courts in this proceeding did not decide that merits question. Instead, the focus was on where that dispute should be determined and under what dispute resolution mechanism.
Contractual framework and key policy terms
The case turned on three interlocking agreements and their dispute resolution and governing-law clauses. First, the Employment Agreement was explicitly governed by Ontario law and contained an ADR clause requiring that any claim “contemplated by or arising out of or in connection with” that agreement be resolved by mediation-arbitration in accordance with the Ontario Arbitration Act, 1991. This provision was Mr. Friel’s basis for arguing that the equity dispute belonged in an Ontario arbitration. Second, the Option Agreement governed the grant and exercise of options to purchase Class B shares in HPI. It was explicit that the option grant did not constitute employment compensation, was not a term or condition of employment, and did not form part of the Employment Agreement. The Option Agreement further provided that if the optionee ceased to be an employee, the agreement would not be interpreted as forming an employment contract or relationship with HPI or its affiliates. It also specified that Delaware law would govern the Option Agreement in all respects. Third, the Equityholders Agreement, incorporated by reference into the Option Agreement and earlier investment documents, contained a forum selection clause designating the Delaware Court of Chancery as the exclusive forum for resolving disputes relating to the equity interests. Although Mr. Friel never signed that Equityholders Agreement, he accepted that he had access to it before signing the Option Agreement and that his various option arrangements had incorporated its terms.
Procedural history in the Ontario courts
Mr. Friel commenced proceedings in Ontario seeking declaratory and procedural relief. He asked for a declaration that the dispute over the HPI options was governed by the Employment Agreement’s ADR clause, for the appointment of an arbitrator under that Ontario ADR regime, and for a declaration that the Delaware forum selection clause in the Equityholders Agreement was unconscionable. The motion judge rejected his position, holding that the Employment Agreement’s ADR clause did not cover the options dispute and that the Delaware forum selection clause was valid and enforceable. As a result, she concluded that the Delaware Court of Chancery had exclusive jurisdiction over the parties’ equity-related dispute. Mr. Friel appealed that decision to the Ontario Court of Appeal. The appeal did not deal with the substantive value of the options or the alleged misconduct, but with whether the Ontario ADR clause displaced the Delaware forum clause and which decision-maker—an Ontario arbitrator or the Delaware court—should hear the merits.
Issues before the Court of Appeal
On appeal, Mr. Friel advanced three main arguments. First, he invoked the competence-competence principle, arguing that questions about an arbitrator’s jurisdiction should presumptively be left to the arbitrator and that the motion judge had gone too far in determining jurisdiction herself instead of referring it to arbitration. Second, he maintained that the Option Agreement was “obviously” and “inextricably linked” to his employment, such that the dispute over the exercise and value of the options was “in connection with” his Employment Agreement and therefore captured by the Ontario ADR clause. Third, he challenged the Delaware forum selection clause as unconscionable, pointing to the inequality of bargaining power between himself and the Delaware-based corporate respondents, and arguing that enforcing the clause would be unfair or would undermine his access to a remedy.
Court of Appeal’s analysis on competence-competence
The Court of Appeal rejected Mr. Friel’s reliance on the competence-competence principle. It acknowledged that, as a general rule, courts defer to arbitrators on questions of jurisdiction. However, the court held that there are recognized exceptions where the jurisdiction issue can be resolved on a superficial examination of the record without the need for detailed evidence. Relying on Supreme Court of Canada authorities such as Peace River Hydro Partners v. Petrowest Corp., Seidel v. TELUS Communications Inc., Uber Technologies Inc. v. Heller, and Dell Computer Corp. v. Union des consommateurs, the court concluded that this was such a case. Here, the jurisdictional question turned on the interpretation of three documents—the Employment Agreement, the Option Agreement, and the Equityholders Agreement. Given that the required conclusions flowed directly from the wording of those contracts, there was no need for an extensive evidentiary inquiry. The motion judge, therefore, was entitled to decide the jurisdictional issue rather than refer it to an arbitrator, and the Court of Appeal found no error of law or palpable and overriding error of fact in that approach.
Interpretation of the employment and equity agreements
The Court of Appeal upheld the motion judge’s contractual interpretation and found that the Employment Agreement’s ADR clause did not extend to the HPI options dispute. The key was the clear language of the Option Agreement, which stipulated that the grant of options did not constitute employment compensation, was not a term or condition of Mr. Friel’s employment, and did not form part of his Employment Agreement with HUB Ontario. The Option Agreement also expressly provided that, upon cessation of employment, it was not to be read as creating or continuing any employment relationship with HPI or its affiliates and that Delaware law governed the contract. The court noted that the Employment Agreement itself did not mention an entitlement to equity in HPI or HPH, other than the distinct Schedule C grant of options relating to a different entity, which was not in dispute. Reading the three agreements as a whole and giving effect to their plain and unambiguous language, the court agreed that the options arose from a separate investment and equity arrangement, not from Mr. Friel’s employment contract with HUB Ontario. Accordingly, the dispute was not “contemplated by” or “in connection with” the Employment Agreement and fell outside the scope of the Ontario ADR clause. In line with Sattva Capital and Fuller v. Aphria Inc., the court treated this interpretation as a question of mixed fact and law entitled to deference, and it saw no basis to interfere with the motion judge’s conclusions.
Unconscionability and enforcement of the Delaware forum clause
The Court of Appeal also agreed that the Delaware forum selection clause was not unconscionable. While the respondents accepted that there was some inequality of bargaining power between an individual employee-investor and large Delaware corporate entities, the court emphasized that inequality alone is not sufficient to establish unconscionability. It distinguished the case from authorities heavily relied on by Mr. Friel, particularly Uber Technologies Inc. v. Heller and Rose v. Carnival Corporation, where clauses were found to be improvident and effectively to deny meaningful access to justice. In Mr. Friel’s case, the motion judge had found that the bargain was not improvident and that there was no evidence the Delaware forum selection clause would put a remedy beyond his reach. The appellate court considered those findings to be supported by the evidentiary record and therefore declined to interfere. As a result, the forum selection clause remained valid and enforceable, confirming that the Delaware Court of Chancery had exclusive jurisdiction over the equity dispute.
Outcome, successful party, and monetary award
The Ontario Court of Appeal dismissed Mr. Friel’s appeal and affirmed the motion judge’s decision that the Ontario Employment Agreement’s ADR clause does not govern the share options dispute and that the Delaware forum selection clause in the Equityholders Agreement is valid. The practical consequence is that any substantive fight over the valuation of the options, the alleged misconduct, and the buyback-at-cost mechanism must proceed before the Delaware Court of Chancery, not through Ontario mediation-arbitration. The successful parties in this appeal were the corporate respondents—HUB International Limited, Hockey Parent Holdings L.P., Hockey Parent Inc., and Hockey Investments L.P. The court ordered Mr. Friel to pay the respondents’ costs of the appeal fixed at a total of $15,000, inclusive of H.S.T. and disbursements, and no damages or other monetary relief on the underlying options claim were determined in this decision.
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Appellant
Respondent
Court
Court of Appeal for OntarioCase Number
COA-25-CV-0685Practice Area
Labour & Employment LawAmount
$ 15,000Winner
RespondentTrial Start Date