



COURT OF APPEAL FOR ONTARIO

CITATION: Haas v. Gunasekaram, 2016 ONCA 744

DATE: 20161013

DOCKET: C61014

MacPherson, Simmons and Lauwers JJ.A.

BETWEEN

Andreas Haas

Plaintiff

(Respondent)

and

Danushan Gunasekaram, also
    known as Dan Gunam
,

Luca

Viscardi and

Shenlu Feng, also known as Stephen Feng

Defendants

(Appellants)

Avrum D. Slodovnick and Raffaele Sparano, for the appellants

David Alderson and Andrew Ottaway, for the respondent

Heard:  June 30, 2016

On appeal from the Order of Justice Suhail A.Q. Akhtar of
    the Superior Court of Justice, dated August 14, 2015, with reasons reported at
    2015 ONSC 5083, 127 O.R. (3d) 128.

Lauwers J.A.:

[1]

Mr. Haas is an overseas resident. He entered into a shareholders
    agreement with Mr. Gunam, Mr. Feng and Mr. Viscardi respecting an Italian
    restaurant in Toronto known as Osteria Dei Ganzi and invested $200,000. The
    restaurant failed.

[2]

Mr. Haas launched this action against Mr. Gunam, Mr. Feng and Mr. Viscardi
    alleging he was induced to enter into the shareholders agreement by fraudulent
    misrepresentations about the restaurants business prospects and how it would
    be managed. He seeks to recover his investment.

[3]

Mr. Gunam, Mr. Feng and Mr. Viscardi moved to stay the action
    under s. 7 of the
Arbitration Act, 1991
, S.O. 1991, c. 17 in favour of
    the arbitration agreement contained in the shareholders agreement. Mr. Gunam
    and Mr. Feng appeal the motion judges refusal to stay the action. The
    co-defendant Mr. Viscardi did not appeal
[1]
.

[4]

For the reasons set out below, I
    would allow the appeal.

A.

The Context

[5]

Mr. Haas alleges he was induced to sign the shareholders agreement by a
    number of misrepresentations, which he groups into some general categories: the
    successful history of the restaurants location, the projected return on
    investment, the management team, the capitalization of the business and
    communications with him regarding changes in the business. Mr. Haas alleges
    these misrepresentations were made in various documents and communications
    provided to Haas
before
Haas signed the
    Shareholders Agreement (emphasis added).

[6]

An arbitration agreement is embedded in the shareholders agreement.

B.

The Issue

[7]

There is a single issue in this appeal: Did the motion judge err in
    refusing to stay the action under s. 7 of the
Arbitration Act
, thereby
    permitting Mr. Haas to avoid arbitrating the matters in dispute despite the
    arbitration agreement in the shareholders agreement?

[8]

I turn to this issue after setting out the laws approach to arbitration
    agreements.

C.

The Laws approach to arbitration agreements

[9]

Many cases have considered how the court should approach its task under
    s. 7(1) of the
Arbitration Act,
which provides:

7(1) 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
. [Emphasis
    added.]

[10]

The law favours giving effect to arbitration agreements. This is evident
    in both legislation and in jurisprudence. Section 7 of the
Arbitration Act
contains mandatory language, stating the court in which the proceeding is
    commenced
shall
, on the motion of another party to
    the arbitration agreement, stay the proceeding (emphasis added).

[11]

The mandatory wording in s. 7 of the
Arbitration Act
is a
    change from s. 7 of the old
Arbitrations Act
, R.S.O. 1990,
    c. A.24, which gave the court discretion to stay the action:

[I]f satisfied that there is no sufficient reason why the
    matter should not be referred in accordance with the submission and that the
    applicant was at the time when the proceeding was commenced and still remains
    ready and willing to do all things necessary to the proper conduct of the
    arbitration, [the court]
may
make an order staying
    the proceeding. [Emphasis added.]

[12]

As can be seen, the statutory language in s.7 of the current
Arbitration
    Act
is directory, not equivocal. It strongly favours giving effect to an
    arbitration agreement. This policy direction is reinforced by s. 17 of the
Arbitration
    Act
:

17(1)  An
    arbitral tribunal may rule on its own jurisdiction to conduct the arbitration
    and may in that connection rule on objections with respect to the existence or
    validity of the arbitration agreement.

(2)  If
    the arbitration agreement forms part of another agreement, it shall, for the
    purposes of a ruling on jurisdiction, be treated as an independent agreement
    that may survive even if the main agreement is found to be invalid.

[13]

Subsection 17(1) did not exist in the 1980 or the 1990
Arbitrations
    Act
.  Subsection 17(2) codifies the common law, and establishes that an
    arbitration agreement can survive even where the contract in which it is found
    is determined to be invalid.
[2]

[14]

The same pro-arbitration orientation is found in the jurisprudence.  In
Dell
    Computer Corp. v. Union des consommateurs
,
2007 SCC 34, [2007] 2 S.C.R. 801, Deschamps J., speaking for the majority of the
    Supreme Court, articulated a general rule, at para. 84: I would lay down a
    general rule that in any case involving an arbitration clause, a challenge to
    the arbitrators jurisdiction must be resolved first by the arbitrator. This
    has become known as the competence-competence principle. The exception is where
    a challenge to the arbitrators jurisdiction is based solely on a question of
    law, or one of mixed fact and law that requires for its disposition only
    superficial consideration of the documentary evidence in the record (
Dell
    Computer
,
at para. 84).  See
    also
Seidel v. Telus Communications Inc
., 2011 SCC 15, [2011] 1 S.C.R.
    531, at para. 4.

[15]

This court most recently discussed the competence-competence principle
    in
Ciano Trading & Services C.T. & S.R.L. v. Skylink Aviation Inc.
,
    2015 ONCA 89, stating where it is unclear if the arbitrator has jurisdiction,
    it is preferable to leave the issue to the arbitrator pursuant to the
    competence-competence principle (at para. 7). In
Dancap Productions Inc.
    v. Key Brand Entertainment, Inc
., 2009 ONCA 135, 246 O.A.C. 226, at paras.
    32-33, Sharpe J.A. explained:

It is now well-established in Ontario that the court should
    grant a stay under art. 8(1) of the Model Law where it is arguable that the
    dispute falls within the terms of an arbitration agreement. In
Dalimpex
    Ltd. v. Janicki
(2003), 64 O.R. (3d) 737 (C.A.), at para. 21, Charron J.A.
    adopted the following passage by Hinkson J.A. in
Gulf Canada Resources Ltd.
    v. Arochem International Ltd.
(1992), 66 B.C.L.R. (2d) 113 (B.C.C.A.), at
    paras. 39-40, as the proper approach to art. 8(1):

it is not for the court on an application for a stay of
    proceedings to reach any final determination as to the scope of the arbitration
    agreement or whether a particular party to the legal proceedings is a party to
    the arbitration agreement because those are matters within the jurisdiction of
    the arbitral tribunal. Only where it is clear that the dispute is outside the
    terms of the arbitration agreement or that a party is not a party to the
    arbitration agreement or that the application is out of time should the court
    reach any final determination in respect of such matters on an application for
    a stay of proceedings.

Where it is arguable that the dispute falls within the terms
    of the arbitration agreement or where it is arguable that a party to the legal
    proceedings is a party to the arbitration agreement then, in my view, the stay
    should be granted and those matters left to be determined by the arbitral
    tribunal.

As Charron J.A. explained in
Dalimpex
, at para. 22, a
    deferential approach allowing the arbitrator to decide whether the dispute is
    arbitrable, absent a clear case to the contrary, is consistent both with the
    wording of the legislation and the intention of the parties to review their
    disputes to arbitration.

[16]

As I will explain, the motion judge did not appropriately consider the
    impact of the case law on the determinations he was required to make.

D.

The analytical framework

[17]

An analytical framework has emerged from the jurisprudence. It breaks
    the judges task of considering a stay under s. 7 down into a number of
    sub-issues:

(1)

Is there an arbitration
    agreement?

(2)

What is the subject matter
    of the dispute?

(3)

What is the scope of the
    arbitration agreement?

(4)

Does the dispute arguably
    fall within the scope of the arbitration agreement?

(5)

Are there grounds on which
    the court should refuse to stay the action?

[18]

I address each in turn.

(1)

Is there an arbitration agreement?

[19]

It is common ground that there is an arbitration agreement embedded in
    the language of the shareholders agreement.

(2)

What is the subject matter of the dispute?

[20]

Mr. Haas submits the action, as articulated in the Amended Statement of Claim,
    is focused entirely on the fraud and tort claims. He argues these claims fall
    outside the scope of the shareholders agreement, and are not captured by the
    arbitration agreement. Mr. Gunam and Mr. Feng submit, to the contrary, that the
    true subject matter of the dispute is whether they performed their obligations
    under the shareholders agreement and the other related documents.

The motion judges approach

[21]

The motion judge took what he called the pith and substance approach
    to characterizing the subject matter of the dispute. In doing so he relied
    heavily on this courts approach in
Precious Metal Capital Corp. v. Smith
,
    2008 ONCA 577, 92 O.R. (3d) 701 and in
Matrix Integrated Solutions Ltd. v.
    Naccarato
, 2009 ONCA 593, 97 O.R. (3d) 693. Although neither
Precious
    Metal
nor
Matrix
were cases involving the scope of arbitration
    agreements, the motion judge did not err in taking the pith and substance
    approach to characterize Mr. Haass claims for the purpose of determining the
    proper scope of the arbitration agreement. This is no more than an approach to
    construing the arbitration agreement, which, as noted in
Dalimpe
x, is
    the courts function.

The motion judges assessment

[22]

The motion judge considered Mr. Haass claims and found they were not in
    pith and substance contractual. The motion judges analysis is set out at
    paras. 19-21:

What then is the pith and substance of Haas claims? A review
    of his Amended Statement of Claim in this case indicates three types of
    wrongdoing alleged: misrepresentation, breach of fiduciary duty and oppressive
    behaviour.

The meat of this case is based on the allegations of representations
    made by the defendants with the purpose of inducing Haas into joining the
    business venture. The SHA [shareholders agreement] is pleaded as part of the
    instrumentality used by the defendants as part of the inducements. The subject
    matter of these allegations does not, in my view, rely on contractual
    obligations contained in the SHA. In other words, the claim is not for breach
    of contract but the fraudulent misrepresentation of facts which caused Haas to
    enter into the business agreement. Factually, this case bears a strong
    resemblance to
Leggat v. Direct Leverage Ltd.
, a decision of Spence
    J., (S.C.J.) unreported, affd 2015 ONSC 2639 (Div. Ct.) where the same
    conclusion was arrived at.

The breach of fiduciary duty allegations centre on the
    defendants working for rival companies at the same time that they were supposed
    to manage the jointly owned Osteria dei Ganzi. Haas also alleges that two of
    the defendants, Gunasekeram and Viscardi opened a competing Italian restaurant
    within one kilometre of Osteria dei Ganzi. Once again, these allegations do not
    rely upon or refer to the SHA as a basis for their validity and are not
    contractual in substance:
Precious Metals Corp. v. Smith,
2008 ONCA 577,
    92 O.R. (3d) 701.

The motion judge found, however, that Mr. Haass oppression
    claims did rely on contractual clauses in the shareholders agreement and were
    therefore within the scope of the arbitration agreement (at para. 22).

Discussion

[23]

I begin by dismissing the appellants argument that Mr. Haas should be
    bound by the original form of the Statement of Claim, even though he amended it
    so as to remove the contractual claims to minimize his reliance on the
    shareholders agreement. I agree with the motion judges reasons at
    paras. 13-16 for rejecting this argument. Mr. Haas had the right to amend
    the Statement of Claim to try to avoid the application of the arbitration
    agreement. But this does not assist Mr. Haas in resolving the substantive issue.

[24]

I now turn to the substantive issue. I accept as fair Mr. Haass summary
    of his allegations in the Amended Statement of Claim, which will help frame the
    analysis. He alleges he was induced to sign the shareholders agreement by a
    number of misrepresentations, which he groups into several categories in his
    factum, at para. 23:

(a)
History of the location
:
     e.g. that Ganzis location had a proven track record of successful restaurants
.
Haas later learned that the previous restaurants at that location had failed.

(b)
Return on investment
: 
    e.g. that Haas investment would be returned within two years, and that his
    residual rate of return thereafter would be 55%.  Haas later learned that the
    defendants shut down the restaurant in early 2015, having failed to pay back any
    of his investment.

(c)
Management team
: 
    e.g. that the management team, including the defendants Viscardi and Gunam,
    would be fully committed to Ganzi.  Viscardi was to be in charge of operations
    management.  Haas later learned that Viscardi refused to participate in the
    management of the restaurant as he had a non-competition clause in favour of
    another Toronto restaurant.  Haas also learned that both Viscardi and Gunam had
    been working on other, competing restaurants, and even opened a competing
    restaurant within one kilometre of Ganzi in 2015.

(d)
Capitalization
: 
    e.g. that the other investors, including the defendants, would invest
    $635,000.00 in the project.  Haas later discovered that the other investors had
    only invested $445,000.00 in Ganzi, causing a $190,000.00 shortfall in Ganzis
    capital.

(e)
Communication with Haas
:
     e.g. that no material change in the business would be made without Haas
    consent.  Haas learned that the defendants shut down the restaurant in early
    2015 without his consent.  The defendants have refused to disclose the status
    of Ganzis remaining assets, if any, or provide Haas with any of Ganzis
    records.

[25]

Other contested matters in Haass Amended Statement of Claim include,
inter
    alia
, complaints about the opening hours of the restaurant and the
    adequacy of the provision for the payment of taxes.

[26]

The listed misrepresentations largely relate to the failures of Mr. Viscardi,
    Mr. Gunam and Mr. Feng to perform their obligations under the shareholders
    agreement. Achieving the promised rate of return on investment relates to the
    actual performance of the business, as does the constitution of the management
    of the restaurant. The breach of fiduciary duty claim, based on allegations
    that Mr. Gunam and Mr. Viscardi opened a competing Italian restaurant within
    one kilometre, depends on them being employees under the shareholders
    agreement. The purported shortfall in initial capitalization and the number of
    fully paid common shares also relate to the performance of Mr Viscardi, Mr.
    Gunam and Mr. Feng.  Complaints about the opening hours of the restaurant
    relate to its actual operation, as does the decision to close the business
    down, the adequacy of the provision for the payment of taxes, and so on. The
    only clearly prior misrepresentation was that the proposed location had a
    proven track record of successful restaurants, which Mr. Haas argues turned out
    to be untrue. The other alleged misrepresentations relate to the failure of Mr
    Viscardi, Mr. Gunam and Mr. Feng to perform under the shareholders
    agreement, and its various related documents and communications, as Mr. Haas
    expected they would. I observe that to establish the misrepresentations, Mr.
    Haas will be relying on the contractual documents.

[27]

With respect, I am unable to agree with the motion judges conclusion
    that the pith and substance of Mr. Haass claims relate to the fraudulent
    misrepresentation of facts which caused Haas to enter into the business
    agreement (at para. 20). The motion judge went too far in characterizing Mr. Haass
    claims, apart from the oppression claim, as relating only to fraudulent
    misrepresentation.

(3)

What is the scope of the arbitration agreement?

[28]

The arbitration agreement in the shareholders agreement provides:

If at any time during the currency of this Agreement, or after
    the termination hereof,
any dispute, difference or
    question shall arise
, or any failure to agree as specifically
    hereinabove referred to, shall occur among the parties hereto or certain of
    them,
respecting this Agreement or anything herein
    contained then every such dispute, difference or question or failure to agree
shall be referred to a single arbitrator to be appointed by the parties to the
    dispute within ten (10) days of such referral... [Emphasis added.]

[29]

The language of the arbitration agreement is broad in scope. It fits comfortably
    with Sharpe J.A.s description in
Dancap
, at para. 38:

I turn first to the scope of the arbitration clause. Section
    15(j) of the ARA [Additional Rights Agreement] is broad in scope: it applies
    not only to disputes arising out of the ARA but also to disputes related to
    the ARA. Contractual language calling for the arbitration of disputes relating
    to an agreement have been generously interpreted to enjoy a wide compass, an
    interpretation consistent with the legislative policy...which favours
    arbitration over litigation where the parties so provide by agreement:
Woolcock
    v. Bushert
(2004), 246 D.L.R. (4th) 139 (Ont. C.A.), at paras. 23, 25.

See also
Mantini v. Smith Lyons LLP
(2003), 64
    O.R. (3d) 505 (C.A.), at paras. 18-19.

(4)

Does the dispute arguably fall within the scope of the arbitration
    agreement?



[30]

After the motion judge determined the pith and substance of the dispute
    between the parties related only to fraudulent misrepresentation, apart from
    the oppression claim, he did not then consider whether the arbitration
    agreement applied nonetheless. The motion judge took the view that the scope of
    the arbitration agreement did not extend beyond contractual claims. He accepted
    Mr. Haass position that the scope of the arbitration agreement does not
    include arbitrating the issue of fraud in the formation of the original
    contract in which the arbitration agreement is found.

[31]

This approach was in error, for three reasons. First, the motion judge
    assumed tort claims fall outside of the scope of the arbitration agreement.
    Second, he assumed that a fraud claim vitiates an arbitration agreement. Third,
    he failed to advert to the laws policy of enforcing arbitration agreements and
    letting arbitrators decide the scope of their authority. He fell into error in
    equating forum selection clauses with arbitration agreements. These errors fall
    squarely into the list of extricable errors of law referred to in
Sattva
    Capital Corp. v. Creston Moly Corp.
, 2014 SCC 53, [2014] 2 S.C.R. 633, at
    para. 53. No deference is owed to his interpretation of the contractual documents.

Tort claims do not automatically fall outside arbitration agreements

[32]

Although
Matrix
was a case
    about a forum selection clause, not an arbitration agreement, in the course of
    his reasoning Sharpe J.A.
pointed to several cases where the courts
    have required the parties to proceed to arbitration even though tort claims
    were involved, at paras. 16-17:

In
Dalimpex Ltd. v. Janicki
,
(2003), 64 O.R.
    (3d) 737 (
Dalimpex
), at paras. 41-43, this court adopted and applied
    the test for applying a contractual provision which employs the words disputes
    arising out of or in connection with the parties contract used by the Alberta
    Court of Appeal in
Kaverit Steel and Crane Ltd. v. Kone Corp.
(1992),
    87 D.L.R. (4th) 129 (
Kaverit Steel
), at p. 135, leave to appeal to
    S.C.C. refused, [1992] S.C.C.A. No. 117, [1992] 2 S.C.R. vii. According to that
    test, a dispute is caught by the provision if either claimant or defendant
    relies on the existence of a contractual obligation as a necessary element to
    create the claim, or to defeat it. See also
Woolcock
at para. 23,
    holding that a claim is one relating to a contract [s]o long as the matter
    in dispute is referable to
the interpretation or implementation of some
    provision
of the Agreement (emphasis added by Sharpe J.A.).

In
Kaverit Steel
, the plaintiff advanced a conspiracy
    claim that relied upon a breach of the contract as the source of the
    unlawfulness to ground the conspiracy, and that was held to fall within the
    scope of the arbitration clause. Likewise, in
Dalimpex
, the claims for
    conspiracy and breach of fiduciary duty were mingled with claims for breach of
    contract and, in any event, in that case, this court declined to express any
    definitive view on the reach of the arbitration clause holding that
    determination should be left for the arbitrator.

[33]

In
Matrix
Sharpe J.A. concluded that the tort claims being advanced
    did not rely on a breach of the contract prescribing the forum, leaving the
    plaintiff free to sue in Ontario. He stated, at para. 18:

The present case is not one where either claimant or defendant
    relies on the existence of a contractual obligation as a necessary element to
    create the claim, or to defeat it or where the matter in dispute is referable
    to the interpretation or implementation of some provision in the agreement.

[34]

This case is readily distinguishable from
Matrix
, since, a
s I noted earlier, the motion judges
    statement, at para. 24, that the bulk of Haass claims fall outside the
    arbitration clause simply does not bear up under scrutiny. The bulk of the
    claims fall within the arbitration agreement and are clearly referable to the
    shareholders agreement.

[35]

Further, I would be reluctant to agree that the presence of tort claims
    nullifies an arbitration agreement. Justice Laskin cautioned the court to be
    wary of cases in which a party to an arbitration agreement seeks to avoid it by
    pleading a common law tort:
Piko v. Hudsons Bay Company
(1998), 41
    O.R. (3d) 729 (C.A.), at para. 9. Although that case involved possible
    arbitration under a collective agreement, in my view the principle holds more
    broadly.

Fraud does not necessarily vitiate an arbitration agreement

[36]

In
Ash v. Corp. of Lloyds
(1992), 9 O.R. (3d) 755 (C.A.), at para.
    9, Carthy J.A. observed that an allegation that a contract is void
ab initio
does not make it so until a
    final judgment of the court. The court upheld the motion judges stay of an
    action against Lloyds alleging Lloyds fraud. Justice Carthy agreed that the
    strategy of alleging fraud, while depriving the defendant of the contracted
    choice in respect of arbitration, would impair such arbitration clauses, which
    he considered to be too important in international commerce to permit that
    anomalous result to flow (at para. 9). The court should lean against a result
    that undermines arbitration agreements.

[37]

This is not a new proposition. Lord Wright said in the seminal case of
Heyman
    v. Darwins, Ltd.
, [1942] A.C. 356 (H.L. (Eng.)), at p. 384:

Hence, if the question of whether the alleged contract was void
    for illegality, or, being voidable, was avoided because induced by fraud or
    misrepresentation, or on the ground of mistake, it depends on the terms of the
    submission whether the dispute falls within the arbitrators jurisdiction.

[38]

In
James v. Thow
,
2005 BCSC 809, 5 B.L.R. (4th) 315, the application judge considered whether an
    action fell within the scope of an arbitration clause in an agreement between
    the plaintiff and the defendant. The plaintiff alleged fraudulent
    misrepresentation, breach of trust, breach of fiduciary duty and fraud. The application
    judge stayed the action and counterclaim, concluding, at para. 76: I am
    satisfied that the issues raised by the pleadings concern disputes that
    arguably fall within the scope of the arbitration agreement.

[39]

Put simply, in cases involving arbitration agreements, fraud does not
    necessarily vitiate everything. It is a matter of interpretation. The
    arbitration agreement in this case contains broad language, referring to 
any dispute, difference or question
or
any failure to agree
respecting this Agreement or
anything
herein contained then
every
    such dispute, difference or question or failure to agree
shall be
    referred to a single arbitrator (emphasis added). There is no exclusion for
    tort claims, misrepresentation or fraud.

The law favours the enforcement of arbitration agreements

[40]

As noted above, the law, both statutory and judicial, favours the
    enforcement of arbitration agreements. This is not true for forum selection
    clauses. The motion judge cited
Matrix
and
Precious Metal
, but
    these are cases about forum selection clauses, not arbitration agreements, and
    do not support the motion judges decision to refuse to stay the action under
    s. 7 of the
Arbitration Act.

[41]

I reject the motion judges finding that the scope of the arbitration
    agreement is limited to contractual issues. To the contrary, the scope is broad
    and, in the normal course, s. 17 of the
Arbitration Act
and the
    jurisprudence plainly expect that the determination of jurisdiction will be
    made by the arbitrator, not the court. The motion judge erred in failing to
    take the relevant principles into account.

(5)

Are there grounds on which the court should refuse to stay the action?

[42]

Section 7(5) of the
Arbitration Act
provides:

(5) The court may stay the proceeding with respect to the
    matters dealt with in the arbitration agreement and allow it to continue with
    respect to other matters if it finds that,

(a) the agreement deals with only some
    of the matters in respect of which the proceeding was commenced; and

(b) it is reasonable to separate the
    matters dealt with in the agreement from the other matters.

[43]

The motion judge considered whether a partial stay should be ordered
    under s. 7(5) of the
Arbitration Act
. On the basis that the bulk of
    Haass claims fall outside the arbitration clause, he concluded that
    separating out the matters would be unreasonable: It makes little sense to
    order a partial stay referring the minority of the allegations to arbitration but
    permitting the rest to continue as an action particularly when each case would
    be founded on the same factual matrix (at para. 24).

[44]

The motion judges reliance on s. 7(5) of the
Arbitration Act
was based on a faulty premise, as noted above. Until the arbitrator decides his
    or her jurisdiction, a motion under s. 7(5) is premature.

[45]

I have concluded that the motion judge erred in refusing to stay Mr. Haass
    action on the ground that the subject matter is beyond the scope of the
    shareholders agreement. However, Mr. Haas submits that, even if the motion
    judge erred on this point, the action should be allowed to proceed for two
    other reasons: the arbitration agreement is invalid, and, alternatively, allowing
    the action to continue will prevent a multiplicity of proceedings. I address
    each in turn.

The arbitration agreement is not invalid

[46]

Mr. Haas invokes s. 7(2)2 of the
Arbitration Act
, which gives
    the court discretion to refuse a stay on the basis that the arbitration
    agreement is invalid. Mr. Haas argues that the arbitration agreement in this
    case is inoperable, hence invalid.

[47]

I would not give effect to this argument.

[48]

In the arbitration agreement set out below, in full, the appointment
    process is highlighted:

16.     Arbitration

If at any  time  during the currency of  this Agreement,  or after
    the termination hereof,  any dispute, difference  or question  shall arise,  or
    any  failure to agree as specifically hereinabove referred  to, shall occur among
    the parties hereto or certain of them,  respecting  this Agreement or anything
    herein contained
then every such dispute, difference or
    question or failure to agree shall be referred to a single arbitrator to be
    appointed by the parties to the dispute within ten (10) days of such referral
    or, if the parties to the dispute neglect or refuse or are unable to agree upon
    a single  arbitrator, then, each party shall appoint an arbitrator and the
    representatives so appointed shall jointly select a third arbitrator  or, if
    such representatives  neglect, refuse or are unable to agree upon such a third
    arbitrator within a further ten (10)days from the expiration of such first
    mentioned ten (10) day period, then either party to the dispute may apply to a
    Senior Judge of the Ontario Superior Court of Justice at Toronto, as a persona
    designata to appoint such single arbitrator.
The parties hereto acknowledge
    that any such arbitrator shall have some appropriate knowledge or expertise (as
    investor, executive, advisor or otherwise) in the industry. The award or determination
    (including the disposition of costs of the arbitration) shall be final and binding
    upon the parties hereto. Subject as aforesaid,  the arbitration shall be regarded
    as a reference  under,  and  shall  be  proceeded  with  pursuant  to  the
Arbitration 
    Act,  1991
,  S.O.  1991,  C.17.

[49]

I agree with Mr. Haas that the arbitration agreement was designed for a
    bilateral agreement, not for an agreement with multiple partners, as this case
    presents, but that is not fatal. Mr. Haas argues: 
If the clause is effective, Haas would immediately be outnumbered by
    arbitrators appointed by Gunam and Feng, stacking the arbitral panel against
    him. There is a simple answer: if the parties cannot agree on a single
    arbitrator, then each side to the dispute will appoint an arbitrator to select
    a third arbitrator. If these arbitrators do not appoint a third arbitrator, then
    under the agreement a Superior Court judge will appoint one. There is nothing
    inoperable about the arbitration agreement.

A multiplicity of proceedings is not dispositive

[50]

Mr. Haas argues that Mr. Viscardis ambivalent position in this case
    must lead inevitably to a stay. Mr. Viscardi joined with Mr. Gunam and Mr. Feng
    in bringing the motion for a stay although he was represented by other counsel.
    He did not appeal the motion judges refusal of a stay, so the action would
    remain alive against him whatever the outcome of this appeal. Therefore, Mr.
    Haas argues the referral of the dispute with Mr. Gunam and Mr. Feng to
    arbitration would cause multiple proceedings, contrary to s. 138 of the
Courts
    of Justice Act
, R.S.O. 1990, c. C.43
.
    Mr. Haas submits the motion judge erred in not ruling on this basis given Mr.
    Viscardis status.

[51]

I would not give effect to this argument.

[52]

Some context is necessary. In the order signed by the motion judge the
    following emphasized text was struck out of the preamble:

[O]n hearing the submissions of the lawyer(s) for the parties,
and the admission by counsel for the Defendant, Luca Viscardi,
    that Luca Viscardi did not sign the Shareholders Agreement dated August 16,
    2013, but takes the position that despite the absence of his signature, the Defendant,
    Luca Viscardi, became a party to the Shareholders Agreement
[Emphasis
    added.]

It appears that the absence of Mr. Viscardis signature
    on the shareholders agreement only came to light in the course of these
    proceedings.

[53]

Mr. Haas points out Mr. Viscardi denied being bound by the shareholders
    agreement because he did not sign it. On this basis Mr. Haas says the
    arbitrator would not have jurisdiction over Mr. Viscardi. Mr. Haas adds Mr. Viscardi
    attorned to the jurisdiction of the court after the motion by serving notice
    of a demand for particulars and has therefore waived the arbitration clause.

[54]

Mr. Gunam and Mr. Feng submit this is not a real issue. The motion judge
    accepted, at para. 2, Mr. Viscardi was a party to the arbitration agreement:
    His position on this motion is that despite the absence of his signature, he
    became a party through oral discussions with the others. Mr. Haas concedes
    the accuracy of this observation in his factum.

[55]

In support of their submission that Mr. Viscardi is bound by the
    arbitration agreement, Mr. Gunam and Mr. Feng also point to Mr. Viscardis
    cross-examination:

183    Q: Mr. Viscardi, when you consider the arbitration
    agreement, which is contained in the Shareholders Agreement, and then the
    documents that Mr. Ottaway took you to, the Shareholder Loan Agreement and the Subscription
    Agreement, how are those documents supposed to work together the way you
    understand it?

A: I understand that the Shareholders Agreement is,
    we say, give the rules to the other documents because this is why the
    shareholders agree that there is an arbitration and the arbitration is going to
    be used  is going to reflect all the documents. This is what I think.

184    Q: In your understanding, how did you think that disputes
    between Mr. Haas, Mr. Gunam, Mr. Feng, yourself, and the other shareholders
    would get determined?

A: In arbitration. Because, if not, we never even
    enter in this business. This is the only way.

[56]

Mr. Viscardi had earlier testified that he likes to have arbitration
    clauses in shareholder agreements but could not specifically recall instructing
    counsel to ensure that there was one in the shareholders agreement in this
    case.

[57]

I note that, had the motion been correctly decided, the stay would have
    been refused and the arbitration would have been under way. Does the fact that Mr.
    Viscardi did not appeal force this court to dismiss the appeal to avoid a
    multiplicity of proceedings? In my view it does not, for several reasons.

[58]

First, the court should not lightly depart from the strong policy
    support for enforcing arbitration agreements. Second, it is not clear that
    there will be a multiplicity of proceedings. Mr. Viscardi will have some
    difficulty if he takes the position that he is not bound by the arbitration
    agreement in light of his conduct at the motion. Third, Mr. Haas controls the
    litigation process in the action against Mr. Viscardi. If Mr. Viscardi now
    agrees to participate in the arbitration, then perhaps a stay of the action
    against him might be the subject of a consent order.

E.

Disposition

[59]

For the reasons set out above, I would allow the appeal, set aside the
    motion judges order and issue a stay of the action against the defendants Mr. Gunam
    and Mr. Feng.

F.

Costs

[60]

Mr. Gunam and Mr. Feng have been successful and are entitled to the
    costs of the appeal, which I would fix at $7,500 inclusive of disbursements and
    taxes. They also seek $14,000 in costs, inclusive of disbursements and taxes in
    respect of the proceedings before the motion judge.  I would award costs in
    that amount; this is a reasonable request well within Mr. Haass expectations, since
    the motion judge had awarded costs in the amount of $25,500 inclusive of
    interests and costs to him.

Released: J.C.M. October 13, 2016

P. Lauwers J.A.

I agree J.C.
    MacPherson J.A.

I agree Janet Simmons
    J.A.





[1]
Section 7(6) of the
Arbitration Act
provides that there is no appeal from a courts decision whether to stay an
    action in favour of arbitration. However, this subsection does not preclude an
    appeal from an order refusing to grant a stay on the ground that the matter is
    not a proper subject for arbitration:
Griffin
    v. Dell
, 2010 ONCA 29, 98 O.R. (3d) 481 at para. 25.



[2]
Similar provisions are found in the UNCITRAL Model Law on International
    Commercial Arbitration, adopted in Ontario by the
International Commercial Arbitration Act
,
    R.S.O. 1990, c. I.9, referred to in some of the cases.


