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

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.