The Ontario Superior Court has enforced an arbitration clause in a standard form purchase order to stay claims by a Canadian distributor in favour of arbitration in New Zealand.
The decision in Husky Food Importers & Distributors Ltd. v. JH Whittaker & Sons Limited, 2022 ONSC 1679 is a reminder that business people and lawyers negotiating and writing contracts need to look carefully at all the dispute resolution clauses, including those in standard form attachments such as work orders, purchase orders and invoices.
The issue came up in a dispute between Whittaker, a New Zealand chocolate maker, and Husky, a distributor in Ontario, over the terms of their agreement to distribute Whittaker products. They couldn’t even agree on whether an agreement existed, or what it’s terms were. However, the alleged contract included a number of schedules and attachments, including one with a standard form of purchase order and Whittaker’s Standard Terms of Trade. That document had an arbitration clause which said any dispute would be referred to arbitration in Wellington, New Zealand.
After reviewing all the contract documents and the legal arguments on both sides, Justice Conway of the Ontario Superior Court decided this was a valid and enforceable arbitration agreement. And, although the very existence and terms of the distribution agreement were in dispute, it was arguable that the dispute fell within the scope of the arbitration agreement. That was enough to stay Husky’s court action for breach of contract, breach of the duty of honest performance and other claims.
There are a few interesting points in the decision.
First, the Court said that there is a low threshold for finding that there is an arbitration agreement. In many cases, if it’s “arguable” that an agreement exists, that it binds the parties and covers the matter in dispute, that’s enough to stay the court action and let an arbitrator sort it all out.
Second, the Court rejected Husky’s arguments that the arbitration clause was inoperative because it conflicted with other terms in the main distribution agreement. It accepted Whittaker’s interpretation that all the clauses should be read together and found no inconsistency.
Third, Court said this case was different from others where arbitration clauses were imposed in hidden or non-negotiable contract terms. It noted that Husky had actively engaged in negotiating the contract between 2016 and 2020, that it was aware of the terms and didn’t challenge the arbitration clause.
All of this is a reminder to pay attention to all the “standard” contract clauses – including dispute resolution – and to negotiate any unacceptable terms. When a dispute arises, it will likely be too late.