Waiver of the Right to Arbitrate
Many contracts include arbitration provisions and arbitration agreements, which allow the parties to the contract to agree in advance that some or all disputes that arise out of the contract will go to arbitration, rather than going to court. Arbitration can be an efficient and cost-effective way of dealing with disputes, because they allow parties to have their disputes resolved with a neutral third party (the arbitrator) and avoid spending the time and money going to court. Despite this, sometimes a party to a contract with an arbitration agreement will still bring the dispute to court. Typically, in such cases, the other party, if they want to proceed to arbitration instead of going to court, will bring a motion to ask the court to stay the proceedings in favour of arbitration, because of the arbitration agreement between the parties.
However, there are some situations in which courts will refuse to pause the court proceedings in favour of arbitration. This article details the legal test for pausing a court proceeding in favour of arbitration and provides insight into how to avoid a court rejecting a request to pause the court proceeding in favour of arbitration.
The Test for a Pause in Court Proceedings so that the Matter May be Arbitrated
In 2022, the Supreme Court of Canada released its decision in Peace River Hydro Partners v Petrowest Corp. (“Peace River”). In Peace River, the defendants requested that the court pause legal proceedings in favour of arbitration agreements entered between the parties. The lower courts ruled against the defendants, and the Supreme Court dismissed the defendants’ appeal.
There are two stages to the test for determining whether a court proceeding should be paused in favour of arbitration. At the first stage, the moving party (i.e., the party asking the court to pause the proceeding) must establish all four of the following prerequisites:
- an arbitration agreement exists;
- court proceedings have been commenced by a “party” to the arbitration agreement;
- the court proceedings are in respect of a matter that the parties agreed to submit to arbitration; and
- the party applying for a pause does so before taking any ‘step’ in the court proceedings.
If the party requesting this court order successfully establishes all four prerequisites, then the responding party has to establish that a statutory exception applies. For the purposes of this article, we will focus on the first stage of the test, and, in particular, prerequisite (4) above, which requires that, when they ask the court to pause the proceedings, the moving party has not taken any steps in the proceedings.
What is a Step?
A formal legal step is not clearly defined in Peace River, but typically a ‘step’ requires some sort of action taken in the court proceeding beyond mere conversation or procedural moves, such as asking for an extension from the court to submit materials. In Peace River, the Court said that courts should take an “objective approach” when determining whether a step has been taken. The question for the courts is whether the party, by its actions or conduct, has “impliedly … affirmed the correctness of the proceedings and its willingness to go along with a determination by a court of law instead of arbitration”.¹ For example, a party who seeks substantive relief from the court will likely have taken a step in the proceeding.
In a 2024 Ontario Court of Appeal case, a defendant sought to pause a lawsuit against it in favour of arbitration, but that defendant had also participated with its co-defendants on a motion to strike the plaintiff’s pleadings, which means to throw the lawsuit out. The lower court dismissed the request for a pause because the defendant had taken a step in the proceeding by joining its co-defendants on the motion to strike. The Court of Appeal affirmed the lower court’s decision and said that the defendant’s “participation in the motion to strike out certain claims was equivalent to waiving the agreement to arbitrate”.²
When is a Step Not a Step?
A contrary example can be found in NorthStar Earth & Space Inc. v Spire Global Subsidiary, in which the applicant, NorthStar, asked the court for injunctive relief to stop the respondent, Spire, from deorbiting or de-commissioning its satellites, and to stop Spire from terminating image downloads, before its claims against Spire could be adjudicated in arbitration. In other words, NorthStar asked the court to consider the injunction solely to “protect itself from any permanent or irreparable harm … until the [International Chamber of Commerce] Tribunal can consider the alleged breaches” of the agreement between NorthStar and Spire”. ³ Although NorthStar asked the court for substantive relief, which would typically be considered a ‘step’ in the proceeding, this request was explicitly made in the context of a planned arbitration under the Rules of the International Chamber of Commerce. Therefore, despite taking an apparent step in the proceeding, NorthStar had not “affirmed the correctness of the proceedings and its willingness to go along with a determination by a court of law instead of arbitration”; rather, NorthStar had explicitly told the Court that it was planning to go to arbitration, and that it was asking the Court to maintain the status quo until the issues can be resolved through the planned arbitration.
[1] Peace River Hydro Partners v PetroWest Corp., 2022 SCC 41 at para. 97. Emphasis added.
[2] RH20 North America Inc. v Bergmann, 2024 ONCA 445 at para. 34.
[3] NorthStar Earth & Space Inc. v Spire Global Subsidiary, 2024 ONSC 5060 at para. 63.
Takeaways
If you want to rely on an arbitration agreement or an arbitration clause, it is important to ensure that you don’t “attorn” to the court’s jurisdiction; that is, you should avoid making the court think that you agree to have the dispute litigated in court rather than in arbitration. When a party takes steps in court, such as asking for relief, delivering a defence, or take other substantive steps, before moving to have the court proceedings stayed in favour of arbitration, it is likely that the court will reject your request and continue the court proceeding.
Should you have any questions relating to arbitration or any other commercial litigation questions, please do not hesitate to reach out to one of Walker Law’s experienced litigation lawyers.
Short Description: If you want to rely on an arbitration agreement to stop court proceedings, it is important to avoid taking a “step” in the proceedings. Otherwise, the court might deny your request.
Tags: Civil Litigation Law, Commercial Litigation Law, Contract Disputes