of the litigants were bound by the arbitration clause and the litigation claims were so closely related to the arbitration claims that it would be unreasonable to separate them.5 Many of these cases were ordinary commercial disputes in which a plaintiff named a non-party to the arbitration agreement as a co-defendant in the litigation.6 In the class action context, plaintiffs seeking to circumvent arbitration clauses would take a different approach. They tried to piggyback on the related claims of other plaintiffs against the same defendant. Both strategies would lead to a risk of multiple proceedings and, until the Supreme Court’s Telus decision, Canadian courts tended to look for ways of consolidating the related disputes in a single action.
Discretion to Refuse a Stay Is Limited
The Arbitration Act uses the mandatory language “shall” to direct courts to stay proceedings by parties to an arbitration agreement.7 This mandatory stay is only subject to narrow exceptions such as those relating to capacity or the validity of the arbitration agreement,8 none of which applied to the businesses in the Telus case.
However, section 7(5) of the Arbitration Act includes an additional provision that is also found in the domestic arbitration legislation of other Canadian jurisdictions. It applies where:
1. the agreement deals with only some of the matters in respect of which the proceeding was commenced; and
2. it is reasonable to separate the matters dealt with in the agreement from the other matters.
If these preconditions are satisfied, the court “may stay the proceeding with respect to the matters dealt with in the arbitration agreement and allow it to continue with respect to other matters.”9
The majority of the Supreme Court recognized that section 7(5) of the Arbitration Act does not create an additional category of exceptions to the narrow grounds for refusing a stay of proceedings. Instead, it expands a court’s power to stay proceedings that are only partly covered by an arbitration clause. This power to issue a partial stay of proceedings and permit residual litigation that is beyond the scope of an arbitration clause does not allow a court to refuse to stay proceedings that do fall within the scope of the clause.
The Supreme Court’s minority decision warned that this interpretation of section 7(5) risked limiting access to justice for small claims that could only be pursued by class actions and risked multiple inefficient proceedings for larger claims. As a result, the minority preferred to interpret the statute as allowing courts to override arbitration in these circumstances. While the majority recognized these risks, it insisted that they should be addressed by the legislature rather than the courts.