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In CSI Toronto Car Systems Installation Ltd. v. Pittasoft Co., Ltd., 2021 ONSC 5117,[1] the defendant’s conduct was found to have estopped it from enforcing its arbitration agreement.

Background

The plaintiff brought a motion to consolidate two actions and the defendant brought a cross-motion to have the second action stayed due to an arbitration clause found within its agreement with the plaintiff.

The two actions were brought by the plaintiff in September 2019 and July 2020 respectively, and the defendant commenced an action in the Republic of Korea against the plaintiff in December 2019. The Korean action was withdrawn by the defendant in March 2021 after the present motion was commenced.

The defendant’s position was that the plaintiff had not established a “strong cause” as to why the arbitration clause should not be enforced, and that the court should order the matter to proceed to arbitration in Korea.

The court’s decision

Article 8(1) of the UNCITRAL Model Law, as adopted by section 5 of the International Commercial Arbitration Act, 2017,[2] requires the court to refer a matter that is subject to an arbitration agreement to arbitration, “unless it finds the agreement is null and void, inoperative or incapable of being performed.” In addition, a party seeking to engage the arbitration agreement must make the request “not later than when submitting [its] first statement on the substance of the dispute.”[3]

The defendant’s “first statement on the substance of the dispute” was in the Korean court proceedings. The time by which the defendant could seek enforcement of the arbitration clause had therefore passed.[4] In addition, the arbitration clause was rendered inoperative by virtue of the defendant having initiated a claim in Korea.[5] The fact that the defendant withdrew the Korean action is immaterial as during the 15 months between the commencement of the Korean action and its withdrawal, the defendant did not seek relief before an arbitrator or even raise the arbitration clause.[6]

Because the arbitration clause was no longer operative, the plaintiff had indeed established “strong cause” as to why the arbitration clause should not be enforced.

The plaintiff’s motion was allowed and the defendant’s cross-motion was dismissed.

Conclusion

CSI Toronto Car Systems Installation Ltd. v. Pittasoft Co., Ltd. serves as a reminder to counsel that commencing parallel court proceedings or responding to court proceedings without seeking relief before an arbitrator could very well preclude a party from being able to seek a stay of the proceeding in favour of arbitration at a later date.