Lack of a motion, coupled with steps taken in the proceedings, waived right to arbitration: court
A party should bring a motion if it wants the Court of Appeal for Ontario to refer a proceeding to arbitration, a recent case from the top court highlights.
“The Court of Appeal further opines that even if a motion judge refuses to stay the court proceeding and refer the matter to arbitration, an appellate court would lack jurisdiction to hear the appeal because of section 7(6) of the Act,” wrote Josef Finkel of Gilbertson Davis in the blog post titled Do it, Don’t Just Say it! Court of Appeal refuses to Rule on Arbitration Clause. “Therefore, appealing such decisions is futile.”
In Paulpillai Estate v. Yusuf, 2020 ONCA 655, Richmond Paulpillai and Joshua Yusuf were business partners who owned and operated two medical schools in the Caribbean. They were also equal partners in a partnership which held the earnings from the schools and which was governed by a partnership agreement made under Ontario law. The partnership agreement contained an arbitration clause that provided that any disputes should be resolved through arbitration.
When Richmond died, Yusuf suggested to Theresa Paulpillai, Richmond’s widow and the sole executor, trustee and beneficiary of his estate, that they assume ownership and management of one school each. Theresa opted for the All Saints University Limited, based in St. Vincent and the Grenadines, while Yusuf would operate the All Saints University of Medicine Limited, based in Dominica.
Theresa later filed an application against Yusuf with the Ontario Superior Court of Justice that claimed damages for corporate oppression, damages for breach of the partnership agreement, an accounting of the funds and other injunctive relief. She alleged that Yusuf failed to provide financial information about the businesses, failed to account for the partnership funds and continued to manage both schools and their funds.
In the earlier case of Paulpillai v. Yusuf, 2020 ONSC 851, the motion judge issued an order that appointed an investigative monitor of the schools, released funds on an interim basis so that Theresa could operate her school, prohibited Yusuf on an interim basis from competing unfairly with Theresa’s school, converted the application to an action, added parties to the action and declined to seal the entire court file.
Yusuf and the other respondents filed a notice of appeal and later also filed a notice of motion for leave to appeal to the Divisional Court. On the other hand, Theresa and the other applicants filed a motion to quash the appeal, which the Court of Appeal for Ontario granted, dismissing the respondents’ motion to stay the order under appeal, without prejudice to the respondents’ right to seek leave to appeal to the Divisional Court. The appeal court ruled that it lacked jurisdiction because the order under appeal was interlocutory, which meant that the appeal should be filed before the Divisional Court with leave, pursuant to s. 19(1)(b) of the Courts of Justice Act, R.S.O. 1990, c. C.43.
The respondents contended that the motion judge’s decision to refuse to refer the dispute to arbitration was a final order, not an interlocutory one, since it finally determined the forum where the parties’ dispute would be adjudicated and denied the respondents of their substantive contractual right to arbitration.
The appeal court cited certain provisions of the Arbitration Act, 1991, S.O. 1991, c. 17, including s. 7(1), which provides that an action should be stayed by way of motion, and s. 7(2)4, which gives the court the discretion to refuse to grant the stay if the motion was filed with undue delay.
“In my view, the motion judge did not make a final determination on whether the dispute should be referred to arbitration,” wrote Justice Mahmud Jamal for the Ontario Court of Appeal. “She explained that the responding parties had failed to bring a motion as required by s. 7, and thus it was not open to her to grant a stay.”
The appeal court noted that the motion judge had observed that the respondents had never filed a motion seeking to stay the proceedings or to compel the applicants to proceed by way of arbitration. Thus, even if the respondents had a right to resort to arbitration, the lack of a motion, coupled with the significant steps the respondents had taken in relation to the court proceedings, amounted to a waiver of their right to arbitration.
The appeal court said that, even if the motion judge had exercised her discretion because of the undue delay under s. 7(2)4 to refuse to stay the court proceeding and to refer the dispute to arbitration, the appeal court would nevertheless lack appellate jurisdiction. The appeal bar under s. 7(6) of the Arbitration Act applies to any decision under s. 7, including a decision to refuse a stay under s. 7(2), stated the appeal court. Thus, the appeal court said that it lacked jurisdiction over this aspect of the order.
The appeal court went on to discuss the other aspects of the order under appeal and held that they were all interlocutory in nature.