Canada: Stay Of Arbitration: One Strike and You're Out?

Originally published in the Ontario Bar Association ADR section newsletter, Vol. 18, No. 2, March 2010.

Harlan F. Stone, the former Chief Justice of the United States Supreme Court, famously stated, "the law itself is on trial quite as much as the cause which is to be decided."

In a recent Alberta Court of Appeal decision, it can equally be said that the Alberta Arbitration Act (the "Alberta Act") itself was on trial along with questions surrounding whether to stay legal proceedings in the face of an arbitration agreement. Given the common genesis and language of both the Alberta and Ontario Arbitration Acts, the decision may have implications that extend beyond Alberta.

Lamb v. AlanRidge Homes Ltd.¹

The Lamb family and AlanRidge entered into a construction agreement wherein AlanRidge was to build a house. The parties' agreement contained a mandatory binding arbitration agreement.

As a result of alleged defects in the house, the Lambs commenced an arbitration but failed to progress the arbitration. Approximately 18 months after they commenced the arbitration, the Lambs issued a Statement of Claim, commencing an Alberta court action against AlanRidge and certain subcontractors. AlanRidge brought an application to stay the action under section 7 of the Alberta Act.

The Alberta Court of Queen's Bench Decision

Justice Macleod concluded that while all of the claims made against AlanRidge in the Lambs' action fell under the arbitration agreement, the action nonetheless included non-arbitrable claims against third party subcontractors and other defendants. The arbitration agreement did not therefore encompass all of the claims in the court action. Justice Macleod declined to grant a partial stay under section 7(5) of the Alberta Act, finding that the arbitrable and non-arbitrable claims were "inextricably linked to one another" and could not be separated.

Justice MacLeod determined that the application should be dismissed and that the arbitration, as opposed to the court action, should be stayed to avoid a multiplicity of proceedings. (however, it should be noted that the chambers judge did vary his decision, orally, and stayed the arbitration only in part).

The Outcome at the Court of Appeal

Very briefly, the appeal failed because, pursuant to the Alberta Act, Justice Macleod's decision was not appealable. Once the Court determined that Justice Macleod's decision was made under section 7 of the Alberta Act, its decision that an appeal was precluded was swift and unequivocal.

While on the one hand the Court indicated that it would not make a determination on the lower court decision's correctness, it nevertheless pointed out that in giving priority to litigation in order to avoid a multiplicity of proceedings, the decision went against the Alberta Court of Appeal's reasoning in Kaverit Steel and Crane Ltd. v. Kone Corp, 87 D.L.R. (4th) 129(which was decided under the International Commercial Arbitration Act (S.A. 1986, c.I-6.6 [now R.S.A. 2000, c. I-5] and not the Alberta Act). The Court further recognized that two recent decisions of the British Columbia Court of Appeal — Seidel v. Telus Communications Inc. and MacKinnon v. Money Mart — were seemingly at odds with the lower court's decision. The Court concluded that the appeal demonstrated a lack of clarity in the Alberta Act; more particularly, given the inability to appeal decisions under section 7, the Court found that legislative review and amendment may be appropriate.

Comment

The complicated interplay between holding parties to their arbitration agreement and avoiding multiple proceedings is not a new dilemma. The dilemma is made thornier still where the decision is exempt from appellate review and the statute is vague. The policy behind section 7(6) (no appeal) is sound. If parties are mired in appeals, expedience and efficiency, arguably the hallmarks of arbitration, will surely be lost. Still, a sound policy does not make living with an incorrect decision, perceived or otherwise, any easier.

This is not quite the end of the road for similar cases where a stay of an arbitration is sought. While an application for leave to appeal to the Supreme Court of Canada in the instant case has just been dismissed with costs, the British Columbia Court of Appeal case cited by the Alberta Court of Appeal, Seidel v. Telus, is pending before the Supreme Court of Canada. Perhaps provincial legislatures will take some direction from decisions of the Supreme Court of Canada.

In the meantime, what about Ontario? Ontario courts have previously interpreted section 7(5) of the Ontario Act in similar circumstances. Radewych v. Brookfield Homes (Ontario) Ltd., a decision of the Ontario Court of Appeal, cited with approval by the Alberta Court of Appeal in support of its interpretation of section 7(6), is an example. In Radewych, the Ontario Court of Appeal did not call for amendment to an unclear statute, but cited the lower court's decision supportively:

That subsection (section 7(5)) reposes a discretion in the court to stay a proceeding with respect to matters dealt with in an arbitration agreement where some matters arise under the agreement and some do not.. . .

It is preferable, in my view, that all of the various claims, against all of the defendants, be determined in one proceeding.

Where the Alberta Court of Appeal saw a lack of clarity in the statute, the Ontario Court of Appeal saw a judge's ability to exercise discretion. It should be noted that the two decisions are consistent in their result; however, the direction from the Alberta Court of Appeal is that clearer rules should exist for the exercise of a judge's discretion.

The decisions demonstrate somewhat divergent approaches to the same problem; perhaps neither is wrong, but only time and further appeals will tell. In the meantime, under the Ontario and Alberta Acts, drawing the line on a stay of court proceedings in favour of domestic arbitration agreements, where there are additional parties, remains uncertain and unpredictable.

Footnote

^{1 Lamb v. AlanRidge Homes Ltd.(2009) ABCA 343; application for leave to appeal to the Supreme Court of Canada, pending.}

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