



COURT OF APPEAL FOR ONTARIO

CITATION: Novatrax International Inc. v. Hägele Landtechnik
    GmbH, 2016 ONCA 771

DATE:
20161020

DOCKET: C58088

Doherty, Feldman and Brown JJ.A.

BETWEEN

Novatrax International Inc.

Plaintiff (Appellant)

and

Hägele Landtechnik GmbH, Karl Hägele, Benjamin Hägele
    and Cleanfix North America Ltd.

Defendants (Respondents)

Craig Bryson, for the appellant

Evan L. Tingley, for the respondents

Heard: June 24, 2016

On appeal from the order of Justice F. Ian Leach of the Superior
    Court of Justice, dated November 22, 2013.

Brown J.A.:

[1]

In July 2006, the appellant, Novatrax International Inc., renewed an
    Exclusive Sales Agreement (ESA) with the respondent, Hägele Landtechnik GmbH,
    under which it would continue to distribute industrial reversible fans in
    Canada and the United States. Either party could terminate the ESA on 12
    months notice, or without notice in specified circumstances.

[2]

On November 24, 2009, Hägele notified Novatrax that it was terminating
    the ESA immediately for cause. In January 2010, Novatrax commenced an action
    for damages alleging wrongful termination of the ESA and tortious misconduct
    against Hägele, its principals, the individual respondents Karl Hägele and
    Benjamin Hägele, and Cleanfix North America Ltd. (Cleanfix), a
related
company set up by Hägele to sell its products
    directly into the Canadian and American markets.

[3]

Section 18 of the ESA contains a forum selection clause which states:

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.

[4]

The respondents moved to stay the action relying on the forum selection clause.
    The motion judge granted a stay. Novatrax appeals.

ISSUES ON APPEAL

[5]

The parties agree that the motion judge correctly identified the
    governing principles as those set out by the Supreme Court of Canada in
Z.I.
    Pompey Industrie v. ECU-Line N.V
.
, 2003 SCC 27, [2003] 1 S.C.R.
    450, and by this court in
Expedition Helicopters Inc. v. Honeywell Inc
.
,
    2010 ONCA 351, 100 O.R. (3d) 241, leave to appeal refused, [2010] 3 S.C.R. v
    (note), and
2249659 Ontario Ltd. v. Sparkasse Siegen
, 2013 ONCA 354,
    115 O.R. (3d) 241:

(i)

The law favours the enforcement of forum
    selection clauses in commercial contracts. Where the parties have agreed to a
    forum selection clause, the starting point of the
forum non conveniens
analysis is that the parties should be held to their bargain;

(ii)

A stay of an action should be granted unless
    the plaintiff shows strong cause that the case is exceptional and the forum
    selection clause should not be enforced;

(iii)

The requirement that the plaintiff show
    strong cause presumes that there is an agreement containing a clear forum
    selection clause and that clause, by its terms, applies to the claims the
    plaintiff seeks to bring in Ontario; and

(iv)

The forum selection clause pervades the
forum non conveniens
analysis and must be given full weight in the consideration of other factors.

[6]

Novatrax submits the motion judge erred in two respects when he applied the
    strong cause test to its pleaded claims. He erred:

(i)

in finding that the language of the forum
    selection clause  to settle any disputes by a binding arbitration  was
    broad enough to capture both the contract and tort claims pleaded by Novatrax against
    Hägele; and

(ii)

in relying on the forum selection clause to
    stay the action against the respondents who were not parties to the ESA - Karl
    Hägele, Benjamin Hägele, and Cleanfix.

FIRST
    ISSUE: DID THE MOTION JUDGE ERR IN INTERPRETING THE SCOPE OF THE FORUM
    SELECTION CLAUSE?

The Contract Claims
    against
Hägele

[7]

In its Statement of Claim, Novatrax asserts several contract claims
    against Hägele: (i) wrongful termination of the ESA; (ii) breach of the duty of
    good faith by accessing confidential Novatrax information when Benjamin Hägele was
    permitted to set up an office within the appellants facility; and (iii) breach
    of the duty of good faith in communicating the termination of the ESA to
    Novatraxs employees and its financial lender.

[8]

Novatrax submits the motion judge erred by failing to find that it had
    shown strong cause not to enforce the forum selection clause. Novatrax points to
    the decision in
Expedition Helicopters
where, at para. 24, this court
    stated one factor which may justify departure from the general principle of
    enforcing a forum selection clause in a commercial contract is where the claim
    or the circumstances that have arisen are outside of what was reasonably
    contemplated by the parties when they agreed to the clause. Novatrax contends
    the high-handed and wrongful manner in which Hägele terminated the ESA was not
    contemplated at the time it entered into the contract, so the forum selection clause
    should not be enforced in the circumstances.

[9]

I do not accept that submission for three reasons.

[10]

First, the scope of a forum selection clause is not determined by the
    professed subjective intention of one of the contracting parties at the time
    the contract was formed. Whether the nature of a claim lies outside of what was
    reasonably contemplated at the time the contract was signed turns on the interpretation
    of the forum selection clause in accordance with general contract law
    principles and the degree of connectedness between the nature of the claims
    pleaded and those covered by the clause.

[11]

Second, the forum selection clause requires the parties to settle any
    disputes by a binding arbitrationin Frankfurt. Disputes can arise in respect
    of any stage in the life of a contract: formation, performance, and termination
    or expiration. Novatraxs contractual claims against Hägele concern the
    performance and termination of the ESA. The language of s. 18 of the ESA is
    broad enough to include, within the term any disputes, claims relating to any
    stage of the ESA's life-cycle, including the wrongful termination and breach of
    duty of good faith claims pleaded by Novatrax.

[12]

Third, the motion judge correctly held that the severity of the alleged breach
    of contract does not play a role in the strong cause analysis. As the Supreme
    Court of Canada stated in
Pompey
, at para. 31:

[A] court, in the context of an application for a stay to
    uphold a forum selection clause must not delve into whether one party has
    deviated from, or fundamentally breached an otherwise validly formed contract.
    Such inquiries would render forum selection clauses illusory since most
    disputes will involve allegations which, if proved, will make the agreement
    terminable or voidable by the aggrieved party.

[13]

In the present case, Novatraxs claims of wrongful termination and
    breach of the duty of good faith all concern the performance and termination of
    the contract between the parties. They clearly fall within the scope of s. 18
    of the ESA, and the motion judge was correct in so holding.

The Tort Claims against Hägele

[14]

Novatrax also pleads claims in tort against Hägele, specifically that:
    (i) Hägele misrepresented the circumstances of the ESAs termination to Novatraxs
    employees and bank for the purpose of interfering with Novatraxs relationship
    with its employees, customers, and bank; and (ii) Hägele engaged in unfair
    competition by setting up Cleanfix, through which Hägele sold its products
    after terminating the ESA.  Novatrax submits that the motion judge erred by
    holding the forum selection clause covered not only breaches of contract
    stemming from the agreement in which such clauses are found, but also related
    tortious causes of action arising out of the same circumstances.

[15]

I see no error in the motion judges conclusion. It is well-established that
    a broad forum selection clause covering any disputes applies not only to
    contract claims, but also tort claims  such as misrepresentation, interference
    with economic relations and civil conspiracy  that arise from the contractual
    relationship:
Crown Resources Corporation S.A. v. National Iranian Oil
    Company (2006)
, 273 D.L.R. (4th) 65, [2006] O.J. No. 3345 (C.A.), at para.
    33, citing with approval
Scalas Fashions Limited v. Yorkton Securities Inc
.
,
    2003 BCCA 366, 17 B.C.L.R. (4th) 65, at para. 35.

SECOND
    ISSUE: DID THE MOTION JUDGE ERR IN STAYING THE ACTION AGAINST THE RESPONDENTS
    WHO WERE NOT PARTIES TO THE ESA?

[16]

Novatrax has sued Karl Hägele and Benjamin Hägele, whom the Statement of
    Claim describes as the principals and/or employees, officers or directors of
    Hägele, as well as Hägele
s related company,
Cleanfix.
    Both individual respondents reside in Germany. Cleanfix is a CBCA corporation
    incorporated in June 2009.

[17]

Novatrax pleads it involved the individual respondents in its future
    strategic business decisions when Hägele asked it to allow Benjamin Hägele to
    set up an office within Novatraxs facility. Novatrax alleges Benjamin Hägele thereby
    gained access to its confidential and proprietary information. Hägele, the
    individual respondents, and Cleanfix are then alleged to have utilized that
    access to Novatraxs information to terminate the ESA, notify employees and the
    bank about the termination, and enable Cleanfix to springboard into the North
    American marketplace and allow these defendants to compete directly, but
    unfairly, with Novatrax in this specialized sales market.

[18]

The motion judge held that the individual respondents were added as
    parties to the action because of their relationship to Hägele, and Cleanfix was
    added because it was the corporation created by the other respondents to
    further their common purpose. Citing
Momentous.ca Corporation v. Canadian
    American Association of Professional Baseball Ltd
.
, 2010 ONCA 722,
    103 O.R. (3d) 467, at para. 53, affd 2012 SCC 9, [2012] 1 S.C.R. 359, the
    motion judge concluded:

[W]here the plaintiff itself takes a position in its claim,
    (and supports the position by advancing allegations of a nature that make its
    position clear), that the allegations against the parties not privy to the
    contract are so intertwined with the claims being asserted against a party that
    is a party to the contract that they should be heard and decided together, and
    where the allegations clearly all relate to and arise out of the dealings between
    the parties to the contract, that the choice of forum clause agreed to by the
    plaintiff should govern [citation omitted].

[19]

Novatrax submits the conduct of the non-contracting respondents was not
    within the reasonable contemplation of the contracting parties when the ESA was
    made and therefore the motion judge erred in concluding the language of s. 18
    was broad enough to encompass the claims pleaded against them.

[20]

I do not accept that submission. The motion judge correctly followed and
    applied the reasoning of this court in
Momentous.ca
. In that case, a
    professional baseball team in Ottawa ceased operations, as a result of which
    the league in which the team was a member drew down a letter of credit posted
    by the team. The agreements between the team and the league contained a choice
    of forum clause requiring all disputes with the league to be resolved by
    arbitration in the state of North Carolina.

[21]

The team commenced an action in Ontario asserting contract and tort
    claims against the league, its principals, and the City of Ottawa  the owner
    of the stadium in which the team played its games. In upholding the stay of the
    action granted on the basis of the forum selection clause, this court observed
    that the plaintiffs claims for relief against the defendants who were not
    parties to the contract containing the forum selection clause all arose out of
    the same transactions and occurrences and raised common questions of fact and
    law. This court continued, at para. 53:

In the light of these allegations, the plaintiffs cannot
    maintain that they ought to be allowed to proceed separately in Ontario against
    the City of Ottawa and Wolff personally. Their claims against the City and
    Wolff personally are so intertwined with the claims against the Can-Am
    defendants that they must all be dealt with together. Moreover, the claims
    against the City and Wolff all relate to and arise out of the plaintiffs'
    dealings with the League. The choice of forum clause agreed to by the
    plaintiffs must therefore govern where their claims should be heard. Thus, even
    though neither the City nor Wolff personally is a party to an agreement
    containing a choice of forum clause, on the present state of the pleadings, the
    claims against them should be dealt with not in Ontario but in North Carolina.

[22]

The motion judge concluded that those comments by this court in
Momentus.ca
are equally applicable to this case. I agree. As this court emphasized in
Expedition
    Helicopters
, at para. 11, the forum selection clause pervades the
forum
    non conveniens

analysis and must be given full weight in the
    consideration of other factors. Even though Cleanfix and the individual
    respondents are not parties to the ESA, the claims pleaded against them all
    arise out of the same transactions and occurrences and raise common questions
    of fact and law linked to the claims pleaded against Hägele. The
    factually-intertwined nature of the claims pleaded by Novatrax against all
    respondents requires, at this stage of the litigation, that the forum selection
    clause drive the stay analysis.

[23]

In her dissent, my colleague disagrees with that result, stating that it
    would be tantamount to adopting the proposition that a party who has not agreed
    to arbitration with another can be forced to arbitrate its claims against that
    party. In my respectful view, that would not be the effect of dismissing the
    appeal.

[24]

I agree with my colleague that a court lacks the jurisdiction to compel
    those who are not parties to an arbitration agreement to submit their claims to
    arbitration. I also agree with my colleague that the factors set out by the
    Alberta Court of Appeal in
UCANU Manufacturing Corp. v. Calgary (City of)
,
    2015 ABCA 22,
[2015] A.J. No. 58,
offer useful guidance
    to a court faced with a motion to stay an action by reason of an arbitration
    clause where some of the claimants are not parties to the arbitration
    agreement.

[25]

However, whether the issues for arbitration are substantially the same
    as those in the action requires consideration of how the plaintiff has pleaded
    its claim. Here, the claims pleaded by Novatrax against all respondents are
    factually-intertwined and turn on the determination of the threshold issue of
    whether Hägele wrongfully terminated the ESA. As well, it is very doubtful that
    the claims pleaded against the two individual respondents  both officers and
    directors of Hägele  are sustainable as claims distinct from those against Hägele
    because they do not exhibit a separate identity or intent from that of the
    company so as to make the act or conduct complained of that of the individuals:
Budd v. Gentra
(1998), 111 O.A.C. 288, at para. 25;
Density Group
    Ltd. v. HK Hotels LLC
, 2014 ONCA 605,
324 O.A.C. 292,
at
    paras. 163-9.

[26]

The practical effect of the motion judges exercise of his discretion in
    the present case is to require the issue of whether Hägele wrongfully
    terminated the ESA to be decided first in an arbitration. That exercise of
    discretion is entitled to considerable deference on appeal absent an error in
    principle, misapprehension of the evidence, or unreasonable decision:
Lapointe
    Rosentein Marchand Melan
çon v. Cassels Brock
, 2016 SCC 30,
[2016] S.C.J. No. 30,
at para. 54. In my view, the motion
    judge did not commit any such error nor did he reach an unreasonable result by
    including the claims against Cleanfix and the individual respondents within the
    ambit of the stay.

DISPOSITION

[27]

For the reasons set out above, I would dismiss the appeal. Based on the
    agreement reached by counsel, I would award the successful respondents their costs
    of the appeal fixed at $7,500, inclusive of disbursements and HST.

David
    Brown J.A.

I
    agree Doherty J.A.


Feldman J.A. (dissenting in part):

[28]

There are two legal issues in this case. The first is the application of
    the choice of law, choice of forum and arbitration clause in the Exclusive
    Sales Agreement between the appellant, Novatrax International Inc., and the
    corporate respondent, Hägele Landtechnik GmbH, to the appellants claims
    against the corporate respondent, Hägele. The second is its application to the
    appellants claims against the other respondents, Karl Hägele, Benjamin Hägele
    and Cleanfix North America Ltd., with whom the appellant had no agreement.

[29]

I agree that on the first issue, the motion judge was entitled to find
    that the appellant failed to show strong cause why the choice of law, choice of
    forum and arbitration clause in the contract with the corporate respondent
    Hägele should not be enforced, and therefore to stay the appellants claims
    against Hägele in Ontario.

[30]

However, I do not agree with Brown J.A.s decision to uphold the motion
    judges order that the appellants claims against the non-contracting
    respondents should also be stayed and referred to arbitration in Germany. The
    motion judge concluded on that issue:

I think there is also little or no practical benefit of
    suggesting that the claims against one or more defendants proceed in Germany
    while other proceedings proceed on a separate course here in Ontario, (at least
    according to the state of the existing pleading), and that such multiplicity of
    such proceedings is not to be encouraged.

So  on that basis then, I think that the analysis that I set
    forth earlier in relation to enforcement of choice of forum clauses and
    enforcement of arbitration clauses applies in equal measure to the remaining
    defendants; that is, the defendants other than the German corporate defendant.

[31]

Both the motion judge and Brown J.A. rely on this courts decision in
Momentous.ca Corp. v. Canadian American
    Association of Professional Baseball Ltd.
, 2010 ONCA 722
,
103 O.R. (3d) 467,
as the basis for that decision. In my
    view,
Momentous.ca
is distinguishable, and does not stand for the
    proposition that a party, like the appellant, who has not agreed to arbitration
    with another, can be forced to arbitrate its claims against that party.

[32]

It is trite law that an arbitration agreement gives an arbitrator
    jurisdiction only over disputes between the parties to the agreement. Where it
    is clear on the face of the arbitration agreement that a party to the
    litigation is not a party to the agreement, that issue can and should be
    determined by the court on a stay application. Moreover, an arbitrator cannot
    make an arbitral award that disposes of the rights between a party and a
    non-party to the agreement. See
Gulf Canada Resources Ltd. v. Arochem
    International Ltd.
(1992), 66 B.C.L.R. (2d) 113 (C.A.), at paras. 39-40;
Ontario
    v. Imperial Tobacco Canada Ltd.
, 2011 ONCA 525, 338 D.L.R. (4th) 282, at
    paras. 119, 141-42.

[33]

The decision in
Momentous.ca
does not purport to contravene
    these propositions.

[34]

In that case, the plaintiffs were related companies that owned a
    baseball team. They entered into agreements with the defendant baseball league
    to facilitate the operation of the team within the league, playing in Ottawa at
    a municipally-owned stadium. They also entered into a letter agreement with Mr.
    Wolff, who was a director of the league, as well as part owner of the relevant
    league membership rights. After its first year in operation, the team was not
    financially successful, causing the league to call on a $200,000 letter of
    credit given by one of the plaintiffs.

[35]

The plaintiffs agreements with the league contained choice of forum and
    arbitration clauses, which required all disputes to be arbitrated, resolved,
    and enforced in North Carolina. Mr. Wolff and the City of Ottawa were not
    parties to the plaintiffs agreements with the league.

[36]

The plaintiffs sued the defendants in Ontario for wrongfully terminating
    their membership in the league and calling on the letter of credit. The claim
    alleged that all defendants conspired by misrepresentation and other means to
    wrongfully enforce the letter of credit, to force the plaintiffs out of the
    league and to cause them to suffer financial loss.

[37]

In their statement of claim, the plaintiffs specifically pleaded that
    the claims against all parties were properly joined on the ground that the
    claims for relief against the defendants arise out of the same transactions and
    occurrences; there are common questions of fact and law; damage and loss has
    been caused to the plaintiffs by the defendants and the joinder of all claims
    will promote the convenient administration of justice: para. 56. The
    plaintiffs further pleaded that every named defendant is a person or party
    whose presence is necessary to enable the court to adjudicate effectively and
    completely on the issues in a proceeding: para. 57.
[1]

[38]

After determining that the plaintiffs had not shown strong cause why the
    North Carolina choice of forum and arbitration clauses contained in the
    plaintiffs agreements with the league should not govern their claims against
    it, the court turned to the plaintiffs submission that Mr. Wolff and the City
    of Ottawa, who were not parties to those agreements, should submit to the
    jurisdiction of the Ontario court.

[39]

Laskin J.A. held that the plaintiffs position might have some validity
    but for the way they have pleaded their claim: para. 52. Because the
    plaintiffs specifically alleged that all the defendants were necessary parties
    to the same action, that they conspired together against the plaintiffs, that
    the claims raised common questions of fact and law, that they arose out of the
    same occurrences, and that their joinder would promote the convenient
    administration of justice, the plaintiffs could not maintain that they should
    be allowed to proceed separately with the action in Ontario against the City of
    Ottawa and Mr. Wolff personally. The court therefore concluded that despite the
    fact that those two defendants were not parties to the agreements containing
    the choice of forum and arbitration clauses, on the present state of the
    pleadings, the claims against them should be dealt with in North Carolina:
    para. 53.

[40]

However, Laskin J.A. went on to say that the severable claims against
    Mr. Wolff personally, and against the City for reneging on its long-term lease
    commitment with the plaintiffs, could be redrafted and asserted in a new action
    in Ontario. Laskin J.A.s analysis was adopted by the Supreme Court of Canada:
    see
Momentous.ca Corp. v. Canadian American Association of Professional
    Baseball Ltd.
, 2012 SCC 9, [2012] 1 S.C.R. 359, at para. 11.

[41]

This court in
Momentous.ca
did not discuss the fact that an
    arbitrator would have no jurisdiction over a dispute between the plaintiffs and
    the two non-parties to the arbitration agreement unless on consent of all of
    them. However, in my view, it is clear from the courts analysis that the court
    took from the plaintiffs pleading that they understood that jurisdiction over
    the claims as pleaded was an all or nothing proposition. Therefore, the
    plaintiffs would be expected to consent to arbitration in North Carolina
    against the two strangers to the arbitration agreement if the court in Ontario
    did not allow them to proceed in this jurisdiction on the claims as pleaded.
    Alternatively, as Laskin J.A. suggested, they could redraft their claims and
    recommence an action in Ontario only against Mr. Wolff and the City of Ottawa.

[42]

To be clear, the court in
Momentous.ca
was not suggesting that
    the plaintiffs could be forced, without their consent, to arbitrate out of the
    jurisdiction with parties with whom they had no arbitration agreement, and be
    deprived of their right to access to a court. That would be a change in the law
    of arbitration that would have required a significant jurisprudential and
    policy analysis.

[43]

The facts and findings in
Momentous.ca
make it wholly
    distinguishable from this case. The statement of claim in this case deals
    separately with the claims against the corporate respondent Hägele for breach
    of contract and wrongful termination of the Exclusive Sales Agreement. It then
    makes claims against all of the respondents for other conduct.

[44]

The claims against the two principals of Hägele, Karl Hägele and
    Benjamin Hägele, are for negligence, unfair competition, misrepresentation, bad
    faith and interference with economic relations. The appellant pleads that the
    two principals requested that the appellant involve them in its future
    strategic business decisions, and also that Benjamin Hägele be given an office
    at the appellants facility and access to its information. The appellant
    further pleads that the two principals then misused and diverted that
    information in order to transfer the fan distribution business to their new
    corporation, Cleanfix, contacting the appellants customers, financial lender
    and employees.

[45]

Cleanfix is a Canadian corporation that was incorporated by the
    principals of Hägele in 2009, three years after the Exclusive Sales Agreement
    was entered into. It is not a subsidiary of the corporate respondent. The
    appellant claims that Cleanfix engaged in unfair competition, and requests an
    accounting of profits as well as a prohibition order, among other forms of
    relief.

[46]

The conduct of the other respondents is relied on by the appellant to
    substantiate its claim that Hägeles wrongful termination of the agreement was
    part of a planned strategy to obtain control of the business market in North
    America.

[47]

However, there is no specific claim by the appellant that its claims
    must all be dealt with together. Certainly, it would be convenient to have all
    matters arising out of the breakdown of the business relationship among these
    parties dealt with in one proceeding. But unlike in
Momentous.ca
, there
    is no plea by the appellant that they must be. Nor are the claims necessarily
    so intertwined that the claims against the individual respondents for their
    deliberate conduct and the new Canadian corporation for wrongfully
    appropriating the appellants business could not be heard separately from the
    claims against Hägele. There is no basis to infer consent by the appellant to
    arbitrate its claims against the non-contracting parties in Germany or to apply
    German law.

[48]

As there is no basis to infer consent to arbitrate by the appellant, in
    my view, it is an error of law to purport to send the claims against the
    respondents who were not parties to the choice of law, choice of forum and
    arbitration clause contained in the Exclusive Sales Agreement to arbitration,
    as was done in
Momentous.ca
.

[49]

The next issue is whether the court should have ordered a stay of the
    non-arbitrable claims against those respondents, pending the outcome of the
    arbitration with Hägele, and what test should have been applied.

[50]

The issue of how to fairly address the question of jurisdiction where
    some parties are subject to an arbitration agreement and some clearly are not
    has been considered more frequently in the Alberta courts. Those courts have
    consistently recognized that where parties are not subject to an arbitration
    agreement, claims arising under their contracts cannot be referred to
    arbitration. It is in that context that the Court of Appeal of Alberta has
    developed a principled approach to determine when a stay of the non-arbitrable
    claims should be ordered. Importantly, the purpose of the stay is not to refer
    the non-arbitrable claims to arbitration together with the arbitrable claims,
    but to await the result of the arbitration of the claims between the agreeing
    parties.

[51]

In
Kaverit Steel and Crane Ltd. v. Kone Corp.

(1992),
    120 A.R. 346, at paras. 13-15 and 19-21, leave to appeal to S.C.C. refused,
    [1992] S.C.C.A. No. 117, the Court of Appeal of Alberta explained the governing
    principles where a court is asked to stay an action that involves claims
    against non-parties to an arbitration agreement pending arbitration:

I agree with the learned chambers judge that he has no
    authority to order these other plaintiffs to submit their claims to
    arbitration. (I do observe that he can stay claims pending arbitration if
    indeed they are derivative and must await the arbitration decision.)

Similarly, I agree with the learned Queen's Bench judge that he
    cannot send the distributor's claims against the licensor's subsidiaries to
    arbitration in the absence of consent by
all
the
    parties. Again, counsel for the licensor accepted this point during argument.
    (Again I note that a judge might stay a suit against them if the arbitration
    will effectively resolve the claim against them.)

Associated and connected parties like subsidiaries,
    shareholders, directors, employees, agents and the like might be required to
    join an arbitration in one of three ways: by the governing law, by the
    submission itself, to the extent the parties to the contract can bind other
    parties, or by the later agreement of the other parties. None of these three
    yet applies here.



I accept that forcing the subsidiaries to partake in the
    arbitration may well be sensible and practical. I insist only that it is for
    the parties or the Legislature, not me, to decide what procedure is right for
    these cases.

I think it prudent to emphasize the limited nature of this
    ruling. One must distinguish between jurisdiction to grant relief and jurisdiction
    to consider actions. The subsidiaries are not parties to the arbitration in the
    sense that the claimant might get relief against them directly. But arbitrators
    might nevertheless decide that, for the purpose of relief against the
    principal, they can rely upon what the subsidiaries did. Moreover, the
    arbitrators might decide that the actions of the subsidiaries make the
    principal liable, and might offer relief against the principal for what they
    did.

I agree with the learned Queen's Bench judge that he cannot
    refer any of the claims of any of the "extra" parties to arbitration.
    I add only that he might nevertheless stay claims pending arbitration when it
    would appear just and equitable to do so. He might also strike a claim for
    failure to disclose a cause of action. Both opportunities await another day in
    Queen's Bench. Subject to the right to apply in Queen's Bench for another kind
    of stay, I would reject these grounds of appeal. [Emphasis in original.]

[52]

In
UCANU Manufacturing Corp. v. Calgary (City of)
, 2015 ABCA
    22, [2015] A.J. No. 58, the Court of Appeal of Alberta endorsed three factors
    to be considered when determining whether to stay an action that is not subject
    to arbitration pending the outcome of arbitration. Those factors are: 1)
    whether the issues in the arbitration are substantially the same as the issues
    in the action; 2) whether the defendant has satisfied the court that continuing
    the action would work an injustice on him or her; and 3) whether the defendant
    has satisfied the court that staying the action would not cause an injustice to
    the plaintiff.

[53]

Those factors were applied recently in Alberta in
Toyota Tsusho
    Wheatland Inc. v. Encana Corp.
, 2016 ABQB 209, 84 C.P.C. (7th) 360. Toyota
    Tsusho Wheatland Inc. (Toyota) and Encana had entered into a number of
    agreements for oil and gas development, two of which contained agreements for
    international arbitration of disputes. PrairieSky Royalty Ltd., a former
    subsidiary of Encana, was not a party to the agreements. When Toyota sued
    Encana and PrairieSky in Alberta, Encana moved for a stay of the entire action
    so that all issues could be referred to arbitration. Toyota and PrairieSky both
    opposed the stay.

[54]

The court stayed the action against Encana, but allowed the action
    against PrairieSky to proceed based on the following considerations, at paras.
    74-75:

I have considered the three factors identified in
UCANU
:

1. The issues in the Arbitration and in the Action are
    substantially similar as the key issue in both proceedings is whether the
    PrairieSky Transactions constituted a breach of the Royalty Agreement.

2. Encana may be inconvenienced if it is required to produce
    witnesses or documents in the Action or if it is third partied by PrairieSky as
    it could be subjected to duplicative processes and be required to participate
    simultaneously in both proceedings. It might also face the prospect of
    inconsistent decisions in the Action and in the Arbitration, although as other
    courts have noted, this is unlikely:
Kaverit
at para 47. While Encana
    may suffer some inconvenience, it has not demonstrated that continuance of the
    Action would cause it to suffer significant substantive injustice. When parties
    elect to enter into broadly drafted arbitration agreements, they are presumably
    aware that those agreements will not bind third parties who may be involved in
    disputes that may arise and that litigation proceeding at the same time as the
    arbitration may be required to resolve those disputes.

3. Both [Toyota] and PrairieSky will be delayed in having the
    serious issues between them that are raised in the Action determined if the
    Action is stayed. Moreover, if the Arbitration is decided, it will not
    determine the rights and obligations as between [Toyota] and PrairieSky or any
    third party claims between PrairieSky and Encana, so there is little reason in
    the circumstances for postponing the Action as between them pending the
    Arbitration.

[Toyota] and PrairieSky would suffer significantly greater
    prejudice if the Action were stayed between them, than would Encana if the
    Action against PrairieSky is permitted to proceed. As a result, the Action will
    be stayed only against Encana pending the determination of the Arbitration. The
    Action against PrairieSky may proceed, including any third party proceedings
    that may be commenced by PrairieSky against Encana.

[55]

I would adopt the principled approach that has been developed and
    applied by the Court of Appeal of Alberta in the cases referred to above,
    according to which the court must consider the following three factors: 1) whether
    the issues in the arbitration are substantially the same as the issues in the
    action; 2) whether the defendant has satisfied the court that continuing the
    action would work an injustice; and 3) whether the defendant has satisfied the
    court that the stay will not cause an injustice to the plaintiff.

[56]

Turning to the first factor, the issue to be determined in the
    arbitration is whether the corporate respondent Hägele wrongfully terminated
    the Exclusive Sales Agreement with Novatrax. According to the statement of
    claim, the agreement provides for ordinary termination if either party gives 12
    months written notice, as well as for extraordinary termination without notice
    in particular circumstances. It is alleged that Hägeles termination was not in
    accordance with the contract. It is also alleged that the termination was part
    of a deliberate strategy to obtain control of sales in the North American
    market.

[57]

It is only this latter claim, if pursued, that could involve some or all
    of the same issues as are pleaded against the other respondents. There may
    therefore be some risk of inconsistent verdicts if that claim is pursued in the
    arbitration, as well as in the Ontario action. That risk will depend on how the
    appellant chooses to proceed with the arbitration in Germany. The appellant may
    well decide to limit its claims in the arbitration to breach of contract and
    wrongful termination, and to pursue the issues arising out of the conduct of
    the principals of the company and Cleanfix only in the Ontario action.

[58]

That
    being said, the result of the arbitration in Germany will not dictate the
    result against the individual respondents and Cleanfix in the Ontario action. That
    is, even if the arbitrator determines that Hägele rightfully terminated the
    agreement without notice, it is possible that a court here could find that the
    actions of the individual respondents and Cleanfix were wrongful under Ontario
    law.

[59]

The second factor is whether there would be an injustice to the
    individual respondents and Cleanfix if the Ontario action were continued. There
    could be some duplication of witnesses, depending on how the appellant
    proceeded in the arbitration, as well as the timing of the arbitration and the
    action. However, as the Alberta court in
Encana
pointed out, that is
    one possible consequence of including a wide-ranging arbitration clause in a
    contract between two parties where disputes may arise that also involve others.

[60]

Moreover, in my view, the respondents have not demonstrated that they
    would suffer an injustice if the Ontario action were to continue. Everything
    that occurred, as well as Cleanfixs ongoing business, is in Ontario. Many
    likely witnesses are in Ontario, and therefore will not be inconvenienced in
    terms of travelling. In fact, the respondents conceded before the motion judge
    that, if a traditional
forum non conveniens

analysis were
    applied, Ontario would be the more convenient and appropriate forum to litigate
    this dispute.

[61]

The third factor is whether the respondents have demonstrated that a
    stay will not cause the appellant an injustice. The appellant alleges that its
    business has been ruined. The respondents are now proceeding to carry on that
    business in Canada to the exclusion of the appellant. There will already be
    significant expense for the appellant to proceed with arbitration with Hägele
    in Germany. The appellants claims against the other respondents are made in
    accordance with the law of Ontario. Whether such claims also exist under the
    law of Germany is not known. The fact that another law will apply to these
    claims if they are arbitrated in Germany is
prima facie
prejudicial to
    the appellant, which did not agree with those respondents to that choice of
    law, and is therefore entitled to sue in Ontario. In my view, there will be
    prejudice to the appellant if a stay is ordered of its claims against the
    individual respondents and the Canadian corporation, Cleanfix.

Conclusion

[62]

The motion judge erred in law by referring claims to arbitration in
    Germany against respondents with whom the appellant made no agreement at all
    and no agreement to arbitrate, depriving the appellant of its right to litigate
    those claims in Ontario under Ontario law. As he erred in law, no deference is
    owed to his decision.

[63]

I would allow the appeal in part, and set aside the stay of the claims
    in the Ontario action against the non-parties to the Exclusive Sales Agreement
    


namely, Karl Hägele, Benjamin Hägele, and Cleanfix. I
    would grant partial indemnity costs to the appellant in an amount to be
    determined.

Released: October 20, 2016 (DD)

K. Feldman J.A.





[1]

The next paragraphs in the statement of claim refer to the
    fact that the letter agreement with Mr. Wolff contained a choice of law and
    choice of forum clause in favour of Ontario. It appears therefore that the
    intent of the joinder plea was to persuade the Ontario court to take
    jurisdiction over the entire proceeding and not to give effect to the North
    Carolina choice of forum clause contained in the other documents.


