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Monday, October 2, 2023

New case on arbitration clauses

arbitration clauses

In my final article for First Reference, I wrote about an Ontario Court docket of Enchantment determination through which the Court docket declined to implement an arbitration clause contained in an employment contract that was discovered to lack recent consideration.

Not too long ago, the Divisional Court docket launched its attraction determination within the case of Leon v. Dealnet Capital Company, which additionally offers with fascinating features of the regulation surrounding arbitration agreements within the employment regulation context.

Arbitration clauses typically

Arbitration has many benefits over litigation within the Courts. For instance, arbitration permits the events to decide on a choice maker that’s an skilled in the subject material, it permits extra flexibility within the course of, supplies for full confidentiality, and is usually extra environment friendly and timelier. However, arbitration may be expensive for the reason that events are required to pay the arbitrator’s charges.

The regulation on arbitration agreements is considerably complicated. My quick abstract of this space of regulation may be discovered right here.

Usually, the place the events have made an settlement to submit disputes to arbitration, the Courts will often implement that settlement and stop a celebration from as an alternative bringing the dispute by means of the Courts. In a state of affairs the place a celebration commences litigation within the Courts, and the dispute is topic to an arbitration settlement (both as its personal settlement or as a clause in one other settlement), the opposite get together might convey a movement to the Court docket to remain (i.e. droop) the lawsuit pursuant to part 7 of the Arbitration Act, 1991. Topic to sure exceptions, the Courts will implement the arbitration settlement and keep the lawsuit at any time when the authorized dispute “arguably” falls throughout the scope of the arbitration settlement.

The decrease courtroom determination

The lawsuit in query was introduced by John Leon, a former government worker of the defendant Dealnet Capital Corp. Mr. Leon sued Dealnet for breach of contract associated to an unpaid transaction-based bonus.

Dealnet introduced a movement to remain the lawsuit in favour of arbitration, primarily based on an arbitration clause contained in Mr. Leon’s employment settlement. Within the decrease Court docket determination earlier than Affiliate Justice McAfee, the Court docket granted the movement and ordered a keep, primarily based on the next findings:

  1. The arbitration clause contained within the employment settlement constituted an arbitration settlement pursuant to the Arbitration Act, 1991;
  2. The lawsuit “arguably” falls throughout the scope of the arbitration settlement;
  3. The Court docket was not happy that the arbitration settlement was invalid; and
  4. The movement was not introduced with out undue delay.

With respect to level quantity 4, the movement was not introduced in the beginning of the lawsuit, as is often the case. As an alternative, Dealnet defended the lawsuit and introduced a counterclaim, the events took additional steps till the shut of pleadings, and Mr. Leon served his affidavit of paperwork. It was solely after that point that Dealnet’s counsel suggested that it grew to become conscious of the arbitration clause within the employment settlement and introduced a movement for a keep.

In different conditions, the Courts have denied motions for a keep on the premise that both 1) there was undue delay in bringing the movement, or 2) the responding get together attorned to the jurisdiction of the Court docket by taking steps within the lawsuit. On this case nevertheless, Affiliate Justice McAfee thought of these arguments and decided that these weren’t enough causes to disclaim the keep within the circumstances of the case. In making this discovering, she accepted Dealnet’s place that its counsel was not conscious of the arbitration clause till shortly earlier than bringing its movement.

The results of the decrease Court docket determination was that the lawsuit couldn’t proceed, and the events had been required to as an alternative proceed by arbitration.

The divisional courtroom determination

Mr. Leon appealed the choice. Within the Divisional Court docket’s determination, the Court docket dismissed the attraction primarily based on a discovering that the Arbitration Act, 1991 precludes Mr. Leon’s means to attraction the decrease Court docket determination.

Part 7(6) of the Arbitration Act, 1991 states that “there isn’t any attraction from the courtroom’s determination” staying a lawsuit in favour of arbitration. Regardless of that part, we nonetheless have many attraction selections on motions to remain lawsuits. As an illustration, I beforehand wrote concerning the Court docket of Enchantment determination in Goberdhan v. Knights of Columbus, through which the Court docket upheld a choice denying the employer’s movement for a keep. Nevertheless, the Divisional Court docket distinguished the Goberdhan determination on the premise that the prohibition on appeals in part 7(6) applies solely when the Court docket grants the movement to remain, and never when the Court docket denies the movement.

Mr. Leon’s counsel tried to argue that part 7(6) didn’t apply as a result of the arbitration settlement was void and that Affiliate Justice McAfee made an error to find that it was legitimate. Based mostly on their argument, the Court docket couldn’t have made a discovering staying the lawsuit as there was no legitimate arbitration settlement, and due to this fact the prohibition on appeals in part 7(6) couldn’t apply.

Nevertheless, the Divisional Court docket rejected this argument and dismissed the attraction on the premise that there was no jurisdiction for the attraction pursuant to part 7(6).


It’s typically extra widespread for a Court docket to implement an arbitration clause than to say no to take action. Nonetheless, the Leon determination is notable in numerous methods:

  1. The Court docket stayed the lawsuit regardless of many steps being taken within the course of previous to the movement;
  2. The Court docket confirmed {that a} determination granting a keep can’t be appealed, whereas a choice denying a keep may be appealed; and
  3. The attraction determination was finally dismissed on procedural grounds, quite than a full listening to into the deserves of the worker’s arguments.

This case is a reminder that correctly drafted arbitration clauses may be efficient in employment agreements. Should you want to be sure that disputes are referred to arbitration quite than the Courts, it’s best to get authorized recommendation at an early stage.

Newest posts by Rudner Regulation, Employment / HR Regulation & Mediation (see all)

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