Avoiding Arbitration - Is the Case a Proper One for Summary Judgment?

 Written by litigator and mediator Irvin Schein and originally published at irvinschein.com.

The Courts in Ontario have made it clear that parties to a contract containing an arbitration clause will be required to arbitrate rather than pursuing a lawsuit, unless they both agree otherwise. The Arbitration Act itself specifically provides that Courts are not to interfere in disputes covered by an arbitration agreement other than for the limited purposes of assisting in the conduct of arbitrations, ensuring that they are conducted in accordance with arbitration clauses, to prevent unequal or unfair treatment of parties to arbitration clauses, and to enforce arbitration awards.

According to the legislation, if a party to an arbitration agreement starts a lawsuit instead of proceeding with an arbitration, the Court will stay that proceeding upon motion brought by the other party to the arbitration agreement.

However, there are exceptions.

One of the exceptions specified by the Act is any case in which the matter is a proper one for default or summary judgment.

This provision was added to the Act in 1991, when summary judgments were still rare and difficult to obtain. At that time, disputes involving numerous contested facts, and particularly cases where credibility issues existed between the parties, would rarely be dealt with by means of summary judgment. As a result, there have been very few cases determining what might or might not be a “proper” case for summary judgment within the meaning of the Act.

The cases that have dealt with the issue provide that a Court would have to be satisfied that a motion for summary judgment, if brought, would appear to have a high prospect of success and was not being used as a device to avoid the arbitration agreement. It has been understood that the summary judgment exception would be exercised sparingly and only in the most simple and clear cases.

Much more recently, however, the Supreme Court of Canada decision in Hryniak v. Mauldin held that “a trial is not required if a summary judgment motion can achieve fair and just adjudication… and is a proportionate, more expeditious and less expensive means to achieve a just result than going to trial”.

It is clear from subsequent cases that this decision has dramatically lowered the threshold required for a party to obtain a summary judgment.

Accordingly, it can certainly be argued that many more cases than before may be considered to be “proper” cases for summary judgment. A party now faced with the prospect of having to arbitrate a dispute may now have a realistic opportunity to avoid that process, if so desired, if there is any reasonable prospect of persuading the Court that the case may be more efficiently resolved by means of a summary judgment motion than an arbitration.

It should be borne in mind that nowhere does the Act specify that a motion for summary judgment must actually be brought. It merely has to appear, presumably at an early stage, that the case is a proper one for summary judgment.

In other words, a party to an arbitration agreement may choose to commence a lawsuit.  The defending party, presumably, would bring a motion to stay the action given the existence of the arbitration clause. If the plaintiff can demonstrate that the case is a proper one for summary judgment, the Court may well exercise its discretion to refuse the stay and permit the lawsuit to continue. The successful plaintiff is under no obligation to actually bring a motion for summary judgment. There is no jurisprudence that suggests that the unsuccessful defendant may bring a new motion for a stay at some point down the road on the basis that the plaintiff had failed to bring its summary judgment motion.

An arbitration is often a cheaper and faster way of resolving a dispute, compared to a lawsuit. However, that is not always the case. There are many instances in which an aggrieved party would prefer a lawsuit, but cannot commence one because of an arbitration clause. In such instances, the existence of the summary judgment exception should be borne in mind and may provide an escape route.