Arbitration can be an excellent alternative to litigation. This allows disputes to be resolved more quickly, it can be less costly, and it can help parties to a dispute keep issues and their eventual resolution confidential. Arbitration agreements provide the parties with some latitude to decide on the procedures and time frames that will govern the dispute resolution process. However, this freedom comes at a price. In these agreements, the parties should be clear about the time limits applicable to the dispute resolution process in order to avoid any uncertainty as to the application of limitation periods. Otherwise, the parties may very well end up in court, as in the case of the parties in Maisonneuve v. clark2022 ONCA 113.
This case concerned a dispute between two cousins, Jean Maisonneuve and Christopher Clark, who were in business together as shareholders of various companies. Over the years, their relationship soured, and Clark filed a series of lawsuits against Maisonneuve.
On September 26 and 27, 2016, the parties reached a settlement and signed a Minutes of Settlement and a Mutual Release, among other documents. At that time, the parties had still not resolved one issue: the payment of expenses associated with one of the companies. Accordingly, the release provided, among other things, that if the parties were unable to resolve the issue, then the issue would be fully and finally submitted to arbitration for resolution as follows:
The undersigned agree and understand that there is an issue which is not covered by the Mutual Release and is as set forth in this paragraph (the “Excluded Issue”)….If the parties fail to resolve the Excluded Matter between themselves, the Excluded Matter will be wholly and finally referred to the Arbitrator for resolution.. The decision of the Arbitrator is not subject to any appeal, either in law or in fact, or mixed law and fact. [Emphasis added.] (there “Arbitration Clause“)
In July 2017, Clark filed suit to enforce the Minutes of Settlement. In his defense, Maisonneuve claimed that the parties had contemplated that any arbitration under the arbitration clause would take place within 90 days.
In January 2018, Maisonneuve’s attorney sent Clark’s attorney a proposed settlement, including a mechanism to resolve the expense issue. Clark’s attorney has indicated he has no intention of engaging in negotiations outside of the 2017 lawsuit.
In June 2019, Maisonneuve retained new counsel and backed away from his position that the parties intended for arbitration to take place within 90 days. He then requested arbitration. Clark denied the claim on the grounds that the arbitration was statute-barred and should have been completed 90 days from the date of the settlement agreement, or alternatively, within two years of that date under the time limit for two-year prescription provided for by the Limitation Act, 2002, LO 2002, c 24, schedule B (the “Limitation Act“).
Maisonneuve then asked the Superior Court to appoint an arbitrator. He argued that the arbitration clause required the parties to attempt to resolve the expense issue before initiating arbitration. Until such an attempt is made, the two-year limitation period applicable in the Limitation Act did not start running. Maisonneuve argued that since Clark did not clearly communicate his refusal to negotiate a resolution of the matter until January 2018, at the earliest, the request for arbitration was not barred.
Superior Court Decision: 2021 ONSC 1960
The motion judge found that there was no agreement that the parties would proceed to arbitration within 90 days of the agreement. Further, the motions judge found that the arbitration was not time-barred by the two-year limitation period provided by the Limitation Act. She referred to Article 5 of the law, which provides that:
A claim is discovered on the first day that the claimant knew or reasonably ought to have known that:
- the injury, loss or damage had occurred,
- the injury, loss or damage was caused by or contributed to an act or omission,
- the act or omission was that of the person against whom the claim is made, and
- having regard to the nature of the injury, loss or damage, legal action would be an appropriate means of attempting to remedy it.
The motions judge concluded that it was not clear that arbitration was “appropriate” until it was clear that the dispute could not be resolved through negotiation. The motion judge took note of the wording of the arbitration clause and the context of the negotiations leading to the September 2016 settlement. Ultimately, she found that Maisonneuve should have known by January 31, 2018 that ‘a negotiated settlement of expenses was not possible based on communications between the parties’ attorneys. On this basis, she concluded that Maisonneuve had brought the claim within the two-year limitation period.
Court of Appeal for Ontario: 2022 ONCA 113
In the Court of Appeal, Clark argued (among other things) that the motions judge’s decision would cause uncertainty about the application of statutes of limitations to arbitration clauses because it is unclear when negotiations are complete. The Court of Appeal rejected this argument, finding that the decision was based on the precise wording of the arbitration clause and the circumstances in which it was negotiated. The Court held:
“The parties are free to agree to arbitration clauses which make no reference to the possibility of an informal agreement or which are more specific on the steps and timetable leading to arbitration. In this case, as indicated the motions judge, it was open to the appellants [Clark] let respondents
[Maisonneuve] knowing at all times that no further negotiations would take place. This is what happened in January 2018 which, according to the motions judge, triggered the start of the limitation period. »
Key points to remember
Arbitration provides the parties with some freedom to resolve a dispute on their own terms. However, arbitration agreements must be clear and establish time limits for resolving issues. When applying limitation periods to an arbitration clause, a court will likely consider not only the wording of the clause, but also the context in which it was negotiated, including any correspondence between the parties and their attorneys.
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.