Arbitration Clause (Ontario)

An arbitration clause replaces the courts with a private decision-maker for disputes under a contract. The parties choose the arbitrator or a method for appointing one, and the award binds the parties and can be enforced through the court, subject to limited court review.

A complete clause answers these questions:

• Scope. Which disputes go to arbitration, for example any dispute arising out of or relating to the agreement.
• Seat. The legal home of the arbitration, which fixes the governing arbitration statute and the supervising courts.
• Tribunal. One arbitrator or three, the qualifications required, and who appoints them if the parties cannot agree.
• Rules. An institution's rules, or a procedure set out in the clause.
• Appeals. Whether any appeal is allowed, and on what questions.
• Confidentiality, language and costs. Parties that want the process kept confidential should say so expressly.

Under Ontario's Arbitration Act, 1991, an arbitration agreement can stand alone or form part of another agreement, and it need not be in writing, although an unwritten one invites a dispute about its terms. The arbitral tribunal may rule on its own jurisdiction, and the clause is treated as independent of the main contract, so it can survive even if the rest of the contract is found invalid.

The stay. Under section 7 of the Arbitration Act, 1991, if a party to an arbitration agreement sues on a matter the agreement covers, the court shall stay the lawsuit on another party's motion. The court may refuse only where:

1. a party entered the agreement while under a legal incapacity;
2. the arbitration agreement is invalid;
3. the subject matter cannot be arbitrated under Ontario law;
4. the motion was brought with undue delay; or
5. the matter is a proper one for default or summary judgment.

The court can stay part of a lawsuit and let the rest continue where it is reasonable to separate the issues. Section 7(6) says there is no appeal from the court's decision, although the Court of Appeal has held that this bar does not apply where the judge finds the dispute falls outside the arbitration agreement. Courts keep the same power to grant interim injunctions in support of an arbitration as in a lawsuit.

Appeals. Section 45 sets the default. If the agreement says nothing about appeals on questions of law, a party may appeal on a question of law only with leave, which is granted only if the matters at stake justify an appeal and the answer will significantly affect the parties' rights. The agreement can instead allow appeals on questions of law, fact, or mixed fact and law, or exclude appeals entirely. An appeal or application to set aside must generally be started within 30 days of receiving the award.

Setting aside. The parties cannot contract out of section 46, which lets a court set aside an award for reasons such as an invalid agreement, a decision outside the clause's scope, unequal or unfair treatment, a reasonable apprehension of bias, or fraud. Section 52 applies ordinary limitation periods to claims in an arbitration, so the two-year limitation period under the Limitations Act, 2002 still matters.

In Uber Technologies Inc. v. Heller, 2020 SCC 16, a Toronto food-delivery driver started a class action claiming employment standards protections. Uber's standard form agreement required mediation and arbitration in the Netherlands, with up-front fees of US$14,500, close to the driver's annual income.

The Supreme Court refused to stay the action. Three points from the majority shape Ontario practice:

• The Ontario Act applied. The agreement was international, but labour and employment disputes are not the kind the International Commercial Arbitration Act, 2017 is meant to govern, so the Arbitration Act, 1991 applied.
• Who decides validity. Courts normally refer challenges to an arbitrator's jurisdiction to the arbitrator, unless they raise pure questions of law or mixed questions needing only a superficial look at the record. A court may also decide the challenge itself where there is a real prospect that, if the stay is granted, the challenge would never be resolved, for example because the cost or location of arbitration puts it out of reach.
• Unconscionability. The clause was invalid because of inequality of bargaining power and a resulting improvident bargain. Justice Brown agreed in the result on public policy grounds; Justice Côté dissented.

Two statutes add further limits. In consumer agreements, section 7 of Ontario's Consumer Protection Act, 2002 makes an arbitration term invalid insofar as it prevents a consumer from suing under that Act, although the parties may agree to arbitrate after a dispute arises. The Consumer Protection Act, 2023, which will replace the 2002 Act, was not yet in force as of October 2026. In a franchise agreement, section 10 of the Arthur Wishart Act (Franchise Disclosure), 2000 voids any provision restricting the application of Ontario law, or restricting jurisdiction or venue to a forum outside Ontario, for claims enforceable under that Act.

Ontario's International Commercial Arbitration Act, 2017 gives the UNCITRAL Model Law and the New York Convention force of law in Ontario. An arbitration is international if, for example, the parties have their places of business in different countries. Under the Model Law, the only recourse against an award in court is an application to set it aside on narrow grounds; there is no appeal on a question of law. The New York Convention is why an award is generally easier to enforce abroad than a court judgment.

Three separate choices are often confused:

A contract can have all three. A forum clause can be exclusive, so that only the named courts may hear a dispute, or non-exclusive. Our guide to cross-border shareholder agreements explains how owners in Canada and the US choose among them.

Many clauses build in steps before arbitration: direct negotiation between senior people, then mediation, then binding arbitration if the earlier steps fail. The Act treats an agreement that requires arbitration before a matter can go to court the same as an arbitration agreement.

Tiered clauses are common in a shareholder agreement or unanimous shareholder agreement, where owners want disputes kept private and decided quickly by someone with business experience. They are often paired with deadlock and exit mechanisms; shareholder deadlock covers those, including med-arb, where one neutral mediates and then arbitrates. Lamba Law's free shareholder agreement builder includes a mediation-then-arbitration option.

Drafting points for any tiered clause:

• Fix a time limit for each step, so a reluctant party cannot stall indefinitely.
• Say what starts the clock, such as a written dispute notice.
• Allow either party to seek urgent interim relief from a court at any stage.
• Keep the arbitration seat in Ontario where the business and owners are here.

For a wider list of clauses to check before signing, see when a business contract needs a lawyer's review.

Tariq Haddad and Lena Kowalski own 60% and 40% of a Markham software company. Their shareholder agreement requires 15 days of negotiation, then 30 days of mediation, then arbitration in Toronto before a single arbitrator under the Arbitration Act, 1991, with no appeals.

When Lena leaves, they disagree on the buyout price. Tariq offers $1.2 million; Lena says her shares are worth $2.4 million. Lena skips the process and sues in the Superior Court of Justice. Tariq moves to stay the action under section 7. None of the exceptions apply, and the court stays it.

The parties mediate without success, and the arbitrator, after a four-day hearing, sets the price at $1.85 million about seven months later. Lena believes the arbitrator misapplied a valuation principle, but the agreement excludes appeals, and nothing in the process gives grounds to set the award aside under section 46. The award is enforced, and each side bears half of the $90,000 in arbitrator and hearing costs. The result was private and final, but both owners gave up any appeal when they signed.