Court of Appeal Upholds Stay Based on Contractual Choice of Forum/Arbitration Clause Against Non-Contracting Parties

Andrew Ottaway, B.A. (Hons.), LL.B.Appeals, Appellate Advocacy, Arbitration, Civil Litigation, Commercial Arbitration, Commercial Litigation, Contract Disputes, Contract Termination, Cross-Border Litigation0 Comments

In Novatrax International Inc. v. Hägele Landtechnik GmbH, 2016 ONCA 771, the plaintiff and the defendant Hägele were parties to an Exclusive Sales Agreement (“ESA”).  Hägele terminated the ESA.  The plaintiff sued Hägele, its individual principals and Cleanfix, a North American company related to Hägele.

The defendants collectively moved to stay the Plaintiff’s claim, relying on a forum selection clause in the ESA which stated: “The contractual parties agree that German law is binding and to settle any disputes by a binding arbitration through the “Industrie und Handelskammer” (Chamber of Commerce) in Frankfurt.” The motion judge granted the stay, despite the fact that only Hägele, and not the other defendants, was a party to the ESA.

The plaintiff appealed on two grounds: that the motion judge erred in i) interpreting the scope of the forum selection clause and ii) staying the action against the defendants who were not party to the ESA.

The panel of three judges of the Court of Appeal agreed that, in respect of ground i), the motion judge did not err in interpreting the scope of the forum selection clause. However, ground ii) caused dissention in the panel.

Justice Brown, for the majority, held that the motion judge did not commit an error and was reasonable in staying the claims against the non-contracting defendants.  Justice Brown found that the motion judge correctly followed the Court of Appeal’s reasoning from Corporation v. Canadian American Association of Professional Baseball Ltd., 2010 ONCA 722 byfocused on the substance of the pleading.  Justice Brown stated that the claims against the non-contracting defendants were intertwined and turned on the determination of whether Hägele wrongfully terminated the ESA.  He stated that the effect of the stay was to require the issue of whether Hägele wrongfully terminated the ESA to be decided first in arbitration. Justice Brown denied that the effect of the decision was to force the plaintiff to arbitrate its claims against the non-contracting parties.

Justice Feldman, in dissent, disagreed, stating that the motion judge purported to send the plaintiff’s claims against the non-contracting defendants to arbitration in Germany.   Justice Feldman stated that, unlike in, the plaintiff did not plead that the claims against all defendants must be dealt with together.  Therefore, there was no basis to infer that the plaintiff had consented to have its claims against the non-contracting defendants arbitrated in Germany under German law.

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About the Author
Andrew Ottaway, B.A. (Hons.), LL.B.

Andrew Ottaway, B.A. (Hons.), LL.B.

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