Monthly Archives: December 2015

Arbitration Clauses in Shareholder Agreements


‎We are frequently forced to consider the application of Arbitration clauses on Shareholder and other contractual agreements. Very often these clauses have been inserted into agreements without a great deal of thought as to their intended scope and the consequences. For example, parties have sometimes not given much thought to whether they really want to have a dispute arbitrated. Parties to a dispute are of course free at any time, in the absence of any arbitration clause, to seek arbitration on mutual consent. However, where the contract in question contains a mandatory arbitration clause, once a particular dispute arises‎, one party may for tactical reasons seek to have a dispute tried in the courts.


The general rule is that where a party opposes the arbitrator’s jurisdiction, that party must at the first instance have that matter resolved by the arbitrator. However, that rule assumes that the party has not already commenced a lawsuit in the courts.


Once the action has been commenced, the party seeking to rely on the arbitration clause must bring a court motion seeking to stay the action. The court may refuse to stay the action if, assuming the arbitration agreement is valid, the pith and substance of the claim falls outside the arbitration agreement. An example is where a shareholder makes claims of misrepresentation or breach of fiduciary duty that are not considered to “relate to or arise out of the interpretation of the agreement”; such claims may be considered to be beyond the scope of the arbitration clause, in which event the court would normally allow the action to proceed.


If a claim contains some elements that fall within arbitration and some that don’t, then the court will consider whether to impose a partial stay, taking into account factors such as costs and duplication and delay.


In deciding whether to pursue a claim‎ in the courts, a party may seek to obtain leverage by the prospect of delay or publicity or may for other reasons seek a court determination. Faced with an unwelcome arbitration clause, the party must seek to draft its claims in a manner that falls outside the scope of the clause if the facts of the case permit.


See for example, Haas v Gunasekaram, 123 O.R. (3d) 128‎.