Commercial Arbitration

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Franchisor Affiliates and Associates Required to Submit to Arbitration

Tuesday, January 25th, 2011

The Ontario Superior Court of Justice has determined that companies and individuals associated with a franchisor must participate in arbitration under the franchise agreement.

The case involved two sets of franchisees of the respondent, Lick’s Franchising Inc. One group franchised a Lick’s restaurant in Oakville, while the other group entered into a franchise agreement with Lick’s for a restaurant in Mississauga. Both groups of franchisees gave notice of rescission in October of 2010. The franchisees and Lick’s agreed to submit the disputes to arbitration, as was required under the franchise agreement applicable to each restaurant franchise.

The franchisees also sought relief against a number of corporations, identified in the franchise agreements as affiliates of Lick’s, and the franchisees took the position that the affiliated corporations were required to submit to arbitration under the franchise agreements as well. The arbitration clause in the franchise agreements required arbitration of any dispute between the “parties” to the franchise agreements.

On motion by the franchisees, the Ontario Superior Court of Justice held that the affiliates of the franchisor are parties to the franchise agreements. The franchise agreements impose rights and obligations as between the affiliates and the franchisees. From the point of view of the franchisees, the franchisor had apparent authority to bind the affiliates as parties to the arbitration clause. Therefore, the court concluded that the affiliated corporations were called upon to participate in the arbitration proceedings.

The franchisees also alleged that two individuals, Denise Meehan and Frank Peruzzi, were principals of the corporate parties, including both Lick’s and the affiliated corporations. In addition, Meehan and Peruzzi were alleged by the franchisees to be “Franchisor Associates” under section 1(1) of the Arthur Wishart Act, the legislation that establishes franchisee rights in Ontario. Three of the affiliated corporations were also alleged to be Franchisor Associates under the legislation on the basis that they were controlled by Meehan and Peruzzi, who also controlled Lick’s. For the above reasons, Meehan, Peruzzi, and the corporations were all required by the court to submit to arbitration.

In past cases Ontario courts have held that where the franchise agreement contains an arbitration clause, disputes between franchisor and franchisee are to be determined, at first instance, by an arbitrator. It therefore makes sense that affiliates as well as Franchisor Associates should be compelled to submit to arbitration. The decision seems to serve the purposes of obtaining the most expeditious and low-cost resolution to disputes between franchisee and franchisor, while avoiding multiplicity of proceedings.

Richard Hayles, B.A., J.D.

Link: Adlakha v. Meehan, CanLII – 2011 ONSC 444 (CanLII)

Brief informational summaries about commercial litigation matters in the courts of Ontario and other developments are periodically published on this website. They are intended to be a general comment or general discussion, not legal advice and should not be relied upon as legal advice. Should you require legal advice, please contact info@heydary.com or 416 972 9001.

Posted in Civil Litigation, Commercial Arbitration, Commercial Law, Franchise Law, Litigation Law | Add Comment »

The Insurer Under an Auto Policy Issued in the U.S. Has to Arbitrate Loss Transfer Dispute in Ontario

Tuesday, November 23rd, 2010

Section 275 of the Insurance Act, R.S.O. 1990, c. I–8, provides that when an automobile insurer has paid no-fault benefits to its own insured, the company is entitled to recover those benefits from the insurer of the at-fault driver. Indemnification for the no-fault benefits is to be apportioned between the insurers based on the respective degree of fault of each insurer’s driver. Section 275(4) states that if the insurers cannot agree on indemnification, the dispute is to be resolved by means of arbitration under the Arbitrations Act, S.O. 1991, c. 17.

In a case that was recently argued before the Court of Appeal, the insurer for the at-fault driver resisted arbitration on the grounds that its policy was not issued in Ontario, arguing that the loss transfer scheme established by section 275 of the Ontario Insurance Act was therefore inapplicable.

An Ontario resident was injured in a car accident in North Carolina. Primmum Insurance Company, an Ontario insurer, paid statutory accident benefits under its standard Ontario auto policy. The at-fault driver was insured under a policy issued by Allstate Insurance in North Carolina.

When Allstate refused to participate in arbitration, Primmum brought an application to the Superior Court. The application Judge concluded that the Ontario loss transfer scheme did apply to Allstate, but on appeal, Allstate argued that section 275 of the Insurance Act cannot apply to insurance contracts between parties who are not resident in Ontario respecting losses that occur outside of Ontario.

The Court of Appeal concluded that the Ontario loss transfer scheme applies to Ontario insurers, regardless of where the policy was issued or where the loss takes place. Since Allstate is an Ontario insurer, it was required to arbitrate Primmum’s claim, and the Allstate appeal was dismissed.

Link: Primmum Insurance Company v. Allstate Insurance Company, 2010 ONCA 756

Richard Hayles

Posted in Commercial Arbitration, Insurance & Reinsurance, Litigation Law | 4 Comments »

Supreme Court of Canada: Local Limitation Period Applies when Enforcing Arbitration Awards under legislation incorporating the 1958 New York Convention and the UN Model Law on International Commercial Arbitration

Friday, October 15th, 2010

Supreme Court of Canada (“SCC”) in its judgment released on May 20, 2010, in Yugraneft Corp. v. Rexx Management Corp., 2010 SCC 19, [2010] 1 S.C.R. 649 upheld the Court of Appeal of Alberta’s decision that an arbitral award granted to a Russian company against an Alberta company was time-barred under the Alberta Limitations Act, which sets out a two-year the limitation period.

In its reasons, the SCC relied on Article III of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958) (“New York Convention”), which provides that recognition and enforcement shall be “in accordance with the rules of procedure of the territory where the award is relied upon”. In addition, SCC interpreted “the rules of procedure” under the Article III of the New York Convention as meaning “any limitation period that, under domestic law, is applicable to the recognition and enforcement of a foreign arbitral award”.

The Ontario International Commercial Arbitration Act R.S.O. 1990, Ch. I .9 incorporates some, but not all, of the New York Convention and the entirety of UNCITRAL Model Law on International Commercial Arbitration (“Model Law”). The basic limitation period in Ontario is two years pursuant to the Ontario Limitations Act, 2002, S.O. 2002, Ch. 24, Sched. B.

Other Citation: Alberta Limitations Act, R.S.A. 2000, c. L-12

David Alderson, LL.B, LL.M (Lond.)

Masha Loftus, M.A., J.D

Posted in Commercial Arbitration, Enforcement of Foreign Arbitral Awards, Enforcement of Judgments & Awards, International & Cross-Border, International Trade, Litigation Law | 1 Comment »

Arbitration Award Stayed Pending Application to Set it Aside

Friday, October 15th, 2010

Ontario Superior Court of Justice in reasons released on October 1, 2010, in Universal Settlements International Inc., v. Duscio, 2010 ONSC 5438 (CanLII) granted the moving party’s application to stay the enforcement of an arbitration award, pending the disposition of an application to set aside the arbitration award.

The parties agreed that the test on a motion to stay an award by a private arbitrator pending disposition of an application to set it aside should be the strong prima facie test.

The Court found that:

(a) the moving party satisfied the test and “there is good reason to doubt the correctness of the arbitrator’s actions”; and

(b) the funds were in jeopardy of being disbursed and, therefore, the moving party “would be prejudiced were the funds to be disbursed as contemplated prior to the determination” of the moving party’s application to set aside the arbitrator’s decisions.

Citation: Universal Settlements International Inc., v. Duscio, 2010 ONSC 5438 (CanLII)

David Alderson, LL.B, LL.M (Lond.)

Masha Loftus, M.A., J.D

Posted in Commercial Arbitration, Enforcement of Judgments & Awards | Add Comment »

UNCITRAL Model Law on International Commercial Arbitration – New Legislation

Thursday, October 14th, 2010

Legislation based on the UNCITRAL Model Law on International Commercial Arbitration, as adopted in 1985 has been effected in a number of jurisdictions, including, in part, in Ontario (see International Commercial Arbitration Act R.S.O. 1990, Ch. I.9).

The UNCITRAL Secretariat has recently released a Status of Conventions and Enactments of UNCITRAL update indicating that the UNCITRAL Model Law on International Commercial Arbitration with amendments as adopted in 2006 has been enacted (at least in part) in 2010 legislation in the jurisdictions of Australia, Ireland and the State of Florida, in the United States of America.

http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration/1985Model_arbitration_status.html

David Alderson, LL.B, LL.M (Lond.)

Olanyi Parsons, LL.B.

Posted in Commercial Arbitration, Enforcement of Foreign Arbitral Awards, International & Cross-Border | 1 Comment »

Ontario Court Can Replace Arbitrator Named in Arbitration Agreement

Thursday, September 30th, 2010

Ontario Superior Court of Justice-Commercial List in reasons released on September 22, 2010, in Murphy v. Wise, et al., 2010 ONSC 5185 ruled that the Court could appoint a new arbitrator to deal with the issues regarding the sale of the franchises but it was preferable that the issues to be left to the Court.

The parties, shareholders of the franchises, entered into a settlement agreement and named an arbitrator to do a number of things, including the sale of the franchises. The named arbitrator, however, resigned before the issues were resolved.

The respondents first contended that the resignation of the named arbitrator had aborted the agreement on the sale of the franchises. The respondents were concerned that the sale could not be done without the approval of the franchisor. However, the Court found that the agreement remains valid because “the parties knew at the time of the agreement” that the franchisor had certain rights under the franchise agreement regarding the need for their approval to any transfer of the franchises, but they still agreed to sell the franchises.

The respondents then contended that the Court could not appoint a new arbitrator. In doing so, the respondents relied on s. 16(3) and (5) of the Arbitration Act, 1991, which provide that a substitute arbitrator can be appointed unless “the arbitration agreement provides that the arbitration is to be concluded only by a named arbitrator”.

However, the Court found that the agreement at issue did not provide that the named arbitrator should be the only arbitrator. In fact, the Court found it evident that the respondents’ position is driven not by their desire to have the named arbitrator as the only arbitrator, whom they moved to have removed for an apprehension of bias, but “as part of their desire to rid themselves of their agreement to sell the Corporations in the market by making the argument that the entire settlement involving the sale of the Corporations has fallen through as a result of the resignation” of the named arbitrator.

Finally, the Court decided that the matter was better to be left in its hands rather than appointing a new arbitrator because (1) “[t]hat will avoid any need to apply to the Court to enforce an order or direction of an arbitrator, which in the circumstances of this case cannot be said will not arise”; and (2) if it is necessary to deal with the franchisor, whose rights are “quite likely” to arise, “a Court is better equipped to deal with that than an arbitrator who would have no jurisdiction” to deal with the franchisor.

Citation:
Murphy v. Wise, et al., 2010 ONSC 5185

Arbitration Act, 1991, S.O. 1991, c. 17

David Alderson, LL.B, LL.M

Masha Loftus, M.A., J.D

Posted in Commercial Arbitration, Franchise Law, Litigation Law | Add Comment »