Arbitrating a Shareholder Dispute in Ontario

Most of the shareholders’ agreements we see in Toronto carry an arbitration clause. The clause was drafted when the partners were on good terms, and it is rarely read again until the relationship fails. It says, in one form or another, that any dispute relating to the agreement will be settled by arbitration under the Arbitration Act, 1991, S.O. 1991, c. 17 (the “Act”). One partner is then locked out of the business, or presented with a buy-sell notice at a price he considers absurd, and his first instinct is to commence an oppression application under s. 248 of the Business Corporations Act, R.S.O. 1990, c. B.16 (the “OBCA”). The other side’s first response is to rely on the clause.

Which of them is correct turns on a body of Ontario law that is more settled than most business owners expect, and more favourable to the clause than most applicants hope. This article breaks that law down as follows, including the mandatory stay under s. 7 of the Act, the questions the court asks on a stay motion and the competence-competence principle, the scope of the usual clause, the arbitrability of oppression claims, the position of the corporation that did not sign and of the respondent who litigated first, the effect of allegations of fraud and claims in tort, and the remedies an arbitrator can grant. It is written for the shareholder weighing the forum and for the lawyer who has to advise on it quickly, and it draws on the firm’s work in commercial arbitration in Ontario and in shareholder disputes.

The mandatory stay under section 7 of the Act

Section 7(1) of the Act provides as follows. “If a party to an arbitration agreement commences a proceeding in respect of a matter to be submitted to arbitration under the agreement, the court in which the proceeding is commenced shall, on the motion of another party to the arbitration agreement, stay the proceeding.” The operative word is “shall.” Under the former Arbitrations Act the court had a discretion to stay or not. The current Act reversed the presumption, and the Court of Appeal has described its language as “directory, not equivocal” (Haas v. Gunasekaram, 2016 ONCA 744 (“Haas”) at ¶¶ 10-12). Blair J. held the same in the Act’s first year; namely, that the court “must stay the court proceedings and allow the arbitration to go ahead unless the matter either falls within one of the limited exceptions or is not a matter which the parties have agreed to submit to arbitration” (Deluce Holdings Inc. v. Air Canada (1992), 12 O.R. (3d) 131 (Gen. Div.) (“Deluce”) at ¶ 60).

Section 7(2) of the Act sets out five (5) exceptions. The court may refuse to stay the proceeding where (i) a party entered into the arbitration agreement while under a legal incapacity; (ii) the arbitration agreement is invalid; (iii) the subject-matter of the dispute is not capable of being the subject of arbitration under Ontario law; (iv) the motion was brought with undue delay; or (v) the matter is a proper one for default or summary judgment. Two (2) further provisions are important in shareholder cases. Under s. 7(5), the court may stay the arbitrable part of a proceeding and allow the rest to continue, if the agreement covers only some of the matters in the proceeding and it is reasonable to separate them. Under s. 7(6), the court’s decision on the stay motion cannot be appealed. As such, these motions are argued as if they were final, which they are.

The Act’s other contribution is s. 17. It gives the arbitral tribunal the power to rule on its own jurisdiction, including on objections to the existence or validity of the arbitration agreement, and it treats the arbitration clause as an agreement independent of the contract that contains it, so that the clause can survive a finding that the main agreement is invalid. That provision, read with the case law, is the reason the court’s role on a stay motion is deliberately shallow.

The stay motion and the competence-competence principle

The Court of Appeal’s framework for a s. 7 motion asks five (5) questions (Haas at ¶ 17); namely, (i) whether an arbitration agreement exists; (ii) what the subject matter of the dispute is; (iii) what the scope of the arbitration agreement is; (iv) whether the dispute arguably falls within the scope of the arbitration agreement; and (v) whether grounds exist on which the court should refuse to stay the action. The fourth question decides most motions, and it does so because of the word “arguably.” The court decides only whether it is arguable that the dispute falls within the clause. If it is, the stay is granted and the arbitrator decides the rest. Ontario adopted that approach from the British Columbia Court of Appeal more than two (2) decades ago, and the Court of Appeal restated it in Haas at ¶ 15, quoting Dancap Productions Inc. v. Key Brand Entertainment, Inc., 2009 ONCA 135, for the proposition that it is not for the court on a stay application to reach any final determination as to the scope of the arbitration agreement.

Behind the arguable-case threshold sits the competence-competence principle. The Supreme Court of Canada laid down the general rule in Dell Computer Corp. v. Union des consommateurs, 2007 SCC 34 (“Dell”) at ¶ 84. In any case involving an arbitration clause, a challenge to the arbitrator’s jurisdiction must be resolved first by the arbitrator. The exception is a challenge that turns solely on a question of law, or on a question of mixed fact and law that requires only a superficial consideration of the documentary record. The Court of Appeal in Haas stated the practical consequence at ¶ 41, holding that “in the normal course, s. 17 of the Arbitration Act and the jurisprudence plainly expect that the determination of jurisdiction will be made by the arbitrator, not the court.”

The Supreme Court’s more recent decision in Peace River Hydro Partners v. Petrowest Corp., 2022 SCC 41 (“Peace River”), organized the analysis into two (2) stages, and Ontario courts now run s. 7 motions through it. At the first stage, the party seeking the stay must establish the technical prerequisites, which the Superior Court has restated as four (4); namely, (i) an arbitration agreement exists; (ii) a party to it has commenced litigation; (iii) the court proceeding is within the scope of the agreement; and (iv) the party applying for the stay has not taken a step in the proceeding (Sherif Gerges Pharmacy Professional Corp. v. Niam Pharmaceuticals Inc., 2025 ONSC 2058 (Commercial List) (“Gerges”) at ¶ 54, citing Wasylyk v. Lyft, 2024 ONSC 664 at ¶ 19). The second stage, the statutory exceptions, arises only if those prerequisites are met, and the burden on the exceptions rests on the party resisting arbitration. Peace River also confirmed, at ¶ 42, that competence-competence is not absolute. A court may resolve a jurisdictional challenge itself where the challenge involves pure questions of law, or questions of mixed fact and law requiring only superficial consideration of the record.

The scope of the arbitration clause

Shareholder cases are usually decided on the scope question, and the Court of Appeal’s decision in Woolcock v. Bushert (2004), 246 D.L.R. (4th) 139 (Ont. C.A.) (“Woolcock”), remains the reference point. Two (2) equal shareholders and directors had a memorandum of agreement, to which the corporation was also a party, submitting “any dispute or controversy … relating to the interpretation or implementation of any provision(s) of this Agreement” to arbitration. One of them was locked out, his remuneration was stopped, and the buy-sell provision was exercised against him. He sued for oppression, wrongful dismissal, inducing breach of contract, punitive damages and a winding-up. The Court of Appeal stayed the entire action. Cronk J.A. held that “relating to” is wide language, that the agreement as a whole governed the organization of the business, the parties’ employment, their remuneration and their shareholdings, and that the parties had therefore agreed that disputes among them were to be resolved by arbitration (Woolcock at ¶¶ 21-25). The wrongful dismissal claim related to the agreement because the position and the compensation flowed from it (¶ 27). The punitive damages claim went with the claims to which it attached (¶ 28). The oppression claims, which arose from the exercise of the buy-sell provision and the exclusion from the company, were arbitrable (¶ 29).

The Court of Appeal in Haas approved that reading at ¶ 29, describing clauses that call for the arbitration of disputes “relating to” an agreement as having been “generously interpreted to enjoy ‘a wide compass’,” an interpretation “consistent with the legislative policy … which favours arbitration over litigation where the parties so provide by agreement.” For the narrower “arising out of or in connection with” wording, the court applies the test adopted from the Alberta Court of Appeal in Kaverit Steel, which asks whether either party relies on the existence of a contractual obligation as a necessary element to create the claim or to defeat it (Haas at ¶ 32, quoting Matrix Integrated Solutions). In a shareholder dispute, that test is almost always met, because the rights the oppressed shareholder says were disregarded are the rights the agreement gave him vis-à-vis his partners.

The same reasoning reaches complaints framed around a party’s conduct as a director or officer rather than as a shareholder. In Blind Spot Holdings Ltd. v. Decast Holdings Inc., 2014 ONSC 1760, [2014] O.J. No. 1300 (S.C.J.) (“Blind Spot”), Brown J. gave no effect to the argument that an arbitration clause in a shareholders’ agreement did not apply because the complaints concerned the respondents’ conduct as officers and directors. The agreement “dealt extensively with the powers of the signatory shareholders and their principals as officers and directors of the Company, so complaints about the exercise of those powers, including ones couched in the language of the oppression remedy under OBCA s. 248,” arguably constituted disputes relating to the implementation of the agreement (Blind Spot at ¶¶ 10 and 28, as quoted in McGuinness and Coombs, Canadian Business Corporations Law, 4th ed., vol. 3 (“McGuinness”) at ¶ 23-713).

The arbitrability of oppression claims

Shareholders, and some of their counsel, often believe that an oppression claim is a creature of statute that belongs to the court and cannot be sent to a private tribunal. Ontario law rejected that belief in 2000 and has not wavered since. In Armstrong v. Northern Eyes Inc. (2000), 48 O.R. (3d) 442 (Div. Ct.), aff’d [2001] O.J. No. 1085 (C.A.) (“Armstrong”), the Divisional Court held that shareholders may by agreement choose arbitration as the sole means of resolving their disputes and, absent extraordinary circumstances, oust the court’s oppression jurisdiction in the process (Armstrong at ¶ 22). The court restated the strong public policy that parties be held to their arbitration agreements (¶ 25). It declined to import the residual discretion that governs labour arbitration under Weber, because a voluntary private arbitration regime is a different thing, and it found no deprivation of an ultimate remedy where the arbitrator could give an appropriate one (¶¶ 29-36).

Woolcock then settled the point at the Court of Appeal. The respondent relied on Deluce, where Blair J. had refused to stay an oppression application in circumstances the court treated as exceptional. Cronk J.A. held that “the fact that part of the dispute among the parties involves oppressive conduct does not preclude resort to arbitration where the dispute is captured by an arbitration agreement” (Woolcock at ¶¶ 30-33). The leading text states the rule in the same terms. The issue “is not the nature of the complaint (e.g., oppression as opposed to tort or breach of contract), but rather whether the complaint in issue is within the fair scope of the arbitration agreement” (McGuinness at ¶ 23-712).

The limit on the foregoing is narrow. An arbitration clause covering claims arising under a shareholders’ agreement does not reach oppression claims that do not depend on that agreement. Therefore, where the complaint involves expectations arising apart from the agreement, the court may refuse the stay (McGuinness at ¶ 23-713, citing Bouchan v. Slipacoff (2009), 94 O.R. (3d) 741 (S.C.J.)). It is our position that, in a closely held company whose shareholders’ agreement governs management, employment, remuneration, share transfers and exit, that category is small. The reasonable expectations an oppression claim protects are, for the most part, the expectations the agreement recorded.

The non-signatory corporation and the respondent who litigated first

The 2025 Commercial List decision in Gerges, affirmed by the Divisional Court in 2026 ONSC 1720, shows two (2) limits on the clause.

The first limit is the corporation itself. Two (2) equal shareholders of a pair of pharmacies had unanimous shareholders’ agreements with arbitration provisions requiring “any dispute or difference between the Shareholders” to be arbitrated, and “Shareholder” was defined to exclude the corporation. When one of them applied for leave under s. 246 of the OBCA to bring derivative actions in the names of the pharmacies, the other argued that the proposed actions had to be arbitrated. Dietrich J. held that claims brought on behalf of the corporations did not, on the face of the clause, fall within a provision confined to disputes between the shareholders, and that the third Peace River prerequisite was therefore not met (Gerges at ¶¶ 51-60). The Divisional Court agreed, observing that the argument “ignores that shareholders and corporations are separate entities” (2026 ONSC 1720 at ¶¶ 41-45). Moreover, a related holding company with no shareholders’ agreement at all was not bound by anything. Competence-competence did not assist the argument, because the question could be answered on the face of the agreements. Therefore, if the corporation is to be bound, it signs the agreement, and the clause says so.

The second limit is waiver. The respondents in Gerges never brought a s. 7 motion. They accepted service, delivered responding materials, attended a case conference, consented to an order, participated in cross-examinations and raised the clause for the first time in their factum. The court applied Azam v. Multani Custom Homes Ltd., 2022 ONSC 6536, for the proposition that a party who is aware of an arbitration provision and yet fully and actively participates in the court process has waived its right to rely on the provision and has attorned to the court’s jurisdiction (Gerges at ¶¶ 56-58; 2026 ONSC 1720 at ¶¶ 47-49). The fourth technical prerequisite (i.e., that the moving party has not taken a step in the proceeding) exists for this reason, and paragraph 4 of s. 7(2) of the Act, undue delay, is the statutory form of the same idea. In that regard, the party who wants arbitration moves for the stay before it defends on the merits, and says so in its first communication with the other side. A party cannot reliably recover the clause after six (6) months of litigating as if it did not exist.

Notably, the arbitration provisions in Gerges expressly preserved the parties’ right to go to court for the detention, preservation and inspection of property and for interim injunctions, and counsel conceded that the application for a court-appointed inspector was outside the clause (Gerges at ¶¶ 25 and 28). That tracks s. 8 of the Act, which keeps the court’s powers over interim injunctions, the preservation of property and the appointment of receivers available in aid of an arbitration. A shareholder who needs a Mareva order or an inspector on a Friday afternoon is not kept out of court by the clause, and a well-drafted clause says so.

Allegations of fraud and claims in tort

The other route around an arbitration clause is to plead that the agreement was induced by fraud, or to frame the claim in tort. Haas closed both routes. Mr. Haas said he had been induced to invest in a restaurant venture by fraudulent misrepresentations about its projected return, its management and its capitalization, and that his claims in deceit and negligent misrepresentation fell outside the shareholders’ agreement. The motion judge agreed with him. The Court of Appeal reversed and identified three (3) errors. The motion judge had assumed that tort claims fall outside an arbitration agreement, had assumed that a fraud claim vitiates the agreement, and had failed to advert to the law’s policy of enforcing arbitration agreements and letting arbitrators decide the scope of their own authority (Haas at ¶ 31). Most of the alleged misrepresentations, on examination, were complaints about the other parties’ performance of their obligations under the agreement (¶ 26). Allegations of fraud do not take the dispute away from the arbitrator; indeed, the court held that “in cases involving arbitration agreements, fraud does not necessarily vitiate everything. It is a matter of interpretation” (¶ 39), and that the court “should lean against a result that undermines arbitration agreements” (¶ 36).

Haas also answered the argument that an awkward appointment mechanism makes the clause invalid under paragraph 2 of s. 7(2) of the Act. A clause drafted for two (2) parties that had to accommodate several was not inoperable, because the fallback appointment by a Superior Court judge still worked (¶¶ 46-49). Furthermore, a motion for a partial stay under s. 7(5) is premature until the arbitrator has decided jurisdiction (¶ 44).

The arbitrator’s remedial powers

The remedial question should concern a shareholder more than any of the foregoing. Section 248(3) of the OBCA allows the court to make any order it thinks fit, and it lists more than a dozen, including orders restraining the conduct complained of, amending the articles or a unanimous shareholder agreement, directing the corporation or another person to purchase the complainant’s shares, compensating an aggrieved person, varying or setting aside a transaction, and winding the corporation up. An arbitrator is not a court. Can an arbitrator make those orders?

The Act answers part of the question. Section 31 directs the tribunal to decide the dispute “in accordance with law, including equity,” and provides that the tribunal “may order specific performance, injunctions and other equitable remedies.” Section 50(7) deals with the case where an award gives a remedy the court would not grant in similar circumstances. The court may grant a different remedy requested by the applicant, or remit the award to the tribunal for a different remedy, and enforcement is not refused on that ground. The practice answers the rest. Arbitrators in shareholder disputes do find oppression, fix the fair value of the shares and order compensation, and the courts enforce the result. In Chemical Vapour Metal Refining Inc. v. Terekhov, 2018 ONSC 7037 (Commercial List) (“Chemical Vapour”), the oppression, alter ego and fraudulent conveyance claims had been referred to an arbitrator by a consent order made when the company’s side moved to stay the shareholder’s action under the clause in the shareholders’ agreement. The arbitrator found that the principal had misrepresented the state of the company’s affairs, treated a shareholders’ resolution as a sham, found him personally liable as a director for the oppression and awarded damages equal to the fair value of the shares, roughly US$995,000. Hainey J. dismissed the application to set the award aside and enforced it. His Honour noted that by consenting to the referral the applicants had submitted to the arbitrator’s jurisdiction, and that the court will not entertain jurisdictional objections that were not raised, or not raised properly, before the arbitrator (Chemical Vapour at ¶¶ 21 and 25-30).

The older cases carry a caution, and it is the reason we draft the clause the way we do. In Armstrong, the arbitrator had ruled that the oppression remedy is a statutory rather than an equitable remedy, and that without words in the shareholders’ agreement conferring the power, he could not grant s. 248 relief (Armstrong at ¶ 11). The Divisional Court held the shareholder to the arbitration agreement in the circumstances, on the basis that the arbitrator could give an appropriate remedy within his mandate. McGuinness contemplates the same gap, noting that oppression relief may still be sought from the court once the arbitrator has made the necessary findings of fact, “where intervention by a court is necessary to obtain a remedy that an arbitrator cannot award” (McGuinness at ¶ 23-712). A two-stage proceeding of that kind doubles the cost and the delay. The way to avoid it is to state in the clause that the tribunal may grant any relief the Superior Court could grant under s. 248 of the OBCA, including a buy-out at fair value, compensation and rectification of the corporate records, and, if the clause is silent, to agree the point on the record at the first procedural conference. An objection to the tribunal’s jurisdiction must be made no later than the beginning of the hearing, and an objection that the tribunal is exceeding its authority must be made as soon as the matter is raised (s. 17(3) and (5) of the Act). As such, a party that sits silent through the hearing and complains about the remedy afterwards will get nowhere.

Practical considerations

For the shareholder who has been locked out, the clause is a choice of forum that was made for him when the business was formed, and in our experience it is often the better forum for the dispute he now has. A commercial arbitrator with corporate experience can be appointed within weeks. The hearing can be scheduled within months rather than years. The proceeding is private, which is important when the business has customers and lenders watching. The tribunal can order the same buy-out the court would order, provided the point is settled early. Interim relief from the court remains available. What the clause takes away is the ability to run the dispute in the Superior Court as an application with a public record and a right of appeal, and a shareholder who wants those things should negotiate them out of the agreement before signing it. Ultimately, litigating around the clause afterwards rarely works.

For the shareholder on the receiving end of an application, the advice concerns timing. The stay motion is brought first, before any step on the merits, and the letter that accompanies it says that the respondent is proceeding under the arbitration agreement and will treat the court proceeding as stayed. The motion should also deal with the parts of the claim that are outside the clause, if any, by asking for a partial stay under s. 7(5) or by inviting the applicant to agree that everything go to the arbitrator. A respondent who delivers a statement of defence, attends a cross-examination and then discovers the clause has, in all likelihood, lost it.

For both sides, the agreement itself deserves a careful reading before anyone sues. The questions are (i) who the parties are, and whether the corporation is one of them; (ii) what words define the scope, and whether they reach claims against the other side as directors and officers; (iii) whether the clause carves out injunctions, receivers and inspectors; (iv) whether the clause confers the s. 248 powers on the tribunal; and (v) whether it excludes or widens appeals under s. 45 of the Act. Each of those answers changes the strategy, and the time to learn them is before the application is issued.

How we can help

Grigoras Law acts for shareholders, directors and corporations in oppression and shareholder disputes, in the Superior Court and before arbitral tribunals seated in Toronto. We bring and resist stay motions under s. 7 of the Act, act as counsel through the arbitration itself, and apply to enforce or set aside the award at the end. If your shareholders’ agreement has an arbitration clause and the relationship has reached the point where someone is going to sue, the forum question should be answered at that juncture, before the first document is filed. Our arbitration practice and our shareholder disputes practice are described on the pages linked here, and the guide to what happens when a commercial dispute starts covers the first weeks. For the clause itself, our page on shareholder agreements covers the arbitration provision alongside the other terms.

This article is general information about the law of Ontario as of October 2026 and is not legal advice. Every dispute turns on the words of the particular agreement and on the facts, and the stay decision under s. 7(6) of the Act cannot be appealed, so the forum question deserves advice before any proceeding is commenced.