October 7, 2021
The Summary Judgment Exception to Mandatory Arbitration
By Erin Pleet and Jessica DeFilippis
In the recent case of Jencel 407 Yonge Street Inc. v. Bright Immigration Inc. and Ramroop,1 the Ontario Superior Court considered the interaction between s. 7(2)(5) of the Arbitration Act, 1991, which allows a dispute to continue in court, despite an arbitration agreement, where the matter is a proper one for summary judgment. To date only a few cases have addressed the interaction between this provision of the Act and the 2010 changes expanding the availability of summary judgment.
In 2017, the plaintiff landlord, Jencel 407 Yonge Street Inc. (“Jencel”) and the defendant tenant, Bright Immigration Inc. (“Bright”) entered into a commercial lease for premises located in Toronto. The lease ran from November 1, 2017 to December 31, 2022. The terms of the lease required Bright to pay monthly base rent as well as monthly additional rent.
As a result of the Covid-19 pandemic, Bright experienced financial difficulty and sought to terminate of the lease. Negotiations between Jencel and Bright were unsuccessful and Bright eventually failed to pay rent beginning in January 2021.
The Arbitration Act, 1991
Jencel continued to treat the lease as ongoing and commenced proceedings seeking arrears of base rent and additional rent, among other things. Bright brought a motion seeking to stay Jencel’s action based on the arbitration provisions in the lease.
Section 7(1) of the Arbitration Act, 1991 states that “if a party to an arbitration agreement commences a proceeding in respect of a matter to be submitted to arbitration under the agreement, the court in which the proceeding is commenced shall, on the motion of another party to the arbitration agreement, stay the proceeding.”2 However, pursuant to s. 7(2)(5) of the Act, a court may refuse to stay the proceeding where “the matter is a proper one for…summary judgment.”
Jencel alleged that the case was proper for summary judgment as there were no genuine issues requiring a trial. The motion judge agreed and exercised her discretion in dismissing Bright’s motion to stay the litigation.
In coming to this determination, the motion judge first relied on Haas v. Gunasekaram,3 where the Ontario Court of Appeal set out a five-part framework for determining whether to grant a stay under s. 7(1) of the Act:
(1) Whether there is an arbitration agreement;
(2) The subject matter of the dispute;
(3) The scope of the arbitration agreement;
(4) Whether the dispute falls within the scope of the arbitration agreement; and,
(5) Whether there are grounds on which the court should refuse to stay the action.
The court also looked to MDG Kingston Inc. v. MDG Computers Canada Inc.,4 where it was held that one must consider the purpose of s. 7(2) when considering whether to allow litigation to proceed in the face of an arbitration clause. In MDG, the court provided that where there is no genuine issue requiring trial, a case will be appropriate for summary judgment and therefore, the exception in s. 7(2)(5) would be met.
Bright relied on Apotex Inc. v. Virco Pharmaceuticals (Canada) Co.,5 a 2007 case where the court held that the summary judgment exception should only be exercised “in the simplest and clearest of cases where it is readily and immediately demonstrable…that the responding party…has no basis whatsoever for disputing the claim(s) of the moving party.” However, the motion judge applied the Hryniak approach to summary judgment, the seminal Supreme Court of Canada decision which confirmed the increased availability of summary judgment in Ontario.6 In doing so, Her Honour held that “the question is not whether the responding party to the summary judgment motion has no basis to dispute the claim, but rather, whether the responding party has raised genuine issues requiring a trial.”
Holding in favour of Jencel, the motion judge found that Bright failed to address how the main issues raised in their Notice of Arbitration, specifically, the arrears of additional rent and mitigation of losses, were not proper for summary judgment. All of the issues were capable of being resolved by way of summary judgment.
Changes to the Summary Judgment Rules
As of 2010, substantial changes were made to the summary judgment motion rules in Rule 20 of the Rules of Civil Procedure. Since then, judges have been granted a broad range of powers on summary judgment motions, allowing them to weigh evidence, evaluate the credibility of deponents, and draw any reasonable inferences from the evidence.
Before Jencel, there was limited consideration of the revised summary judgment rules and s. 7(2)(5) of the Arbitration Act, 1991. One example is Arkell v. Brightpath,7 where the motion judge used his discretion to dismiss the defendant’s motion for a stay of proceedings, and instead grant partial summary judgment for two of the plaintiffs’ claims, and direct a “mini-trial” relating to an additional claim brought forth by the plaintiffs. In doing so, the motion judge noted that while his discretion under s. 7(2)(5) is narrow, the evidence before him demonstrated “one of the simplest and clearest of cases where there was no basis to dispute the claims made by the moving party.”
Section 7(2)(5) of the Arbitration Act, 1991 has not undergone any amendments since the changes to the summary judgment rules. Given that there is greater availability of summary judgment, it is important to consider how the summary judgment amendments may affect provisions such as s. 7(2)(5). For now, it appears that the changes to the summary judgment rules have had the effect of broadening an exception to the mandatory stay of proceedings in the Arbitration Act.
At the time of writing, no appeal of this decision has been filed although the time period for doing so has not yet passed.
12021 ONSC 6030.
2Arbitration Act, 1991, S.O. 1991, c .17.
32016 ONCA 744.
42008 ONCA 656.
5(2007) 45 B.L.R. (4th) 246 (Ont. S.C.J.).
6Hryniak v. Mauldin, 2014 SCC 7.
72017 ONSC 6612.