CLOUT
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The defendant, Lovat Tunnel Equipment, is a corporation engaged in the design, construction and supply of tunnel equipment, with its head office in Etobicoke, Ontario. The plaintiff, CNR, is a company incorporated pursuant to the laws of Canada and carries on business in the Province of Ontario as a railway. GTW is a company incorporated pursuant to the laws of the State of Delaware. The two other plaintiffs are wholly owned subsidiaries of CNR, incorporated pursuant to the laws of the State of Michigan. By contract, CNR and GTW entered into an agreement with Lovat for the purchase of a soft ground earth pressure balance tunnel boring machine (the 'TBM'). The TBM was used in the construction of a railway tunnel under the St. Clair river in Ontario. The contract provided that "The parties may refer any dispute under this Agreement to arbitration, in accordance with Arbitration Act of Ontario [sic]".

In 1997, the plaintiffs commenced an action in Ontario seeking damages for alleged improper design, construction and manufacture of the TBM, breach of express and implied terms of the contract, and negligence in relation to the design, construction and manufacture of the TBM. Following this, Lovat requested that the dispute be referred to arbitration in accordance with the contract and asked if the plaintiffs would agree to that process or if it would be necessary to bring a motion to stay the action. The plaintiff indicated that a motion would be required as it preferred to proceed before the court.

The motion judge refused to order a stay but the Court of Appeal reversed this decision and referred the parties to arbitration. On the question of whether this was a domestic or international arbitration, the Court held that it did not matter since the applicable rule, art. 8, was the same regardless of the nature of the arbitration. On the facts, the Court held that since the plaintiffs had initiated proceedings in the courts, the defendants were presented with a choice between electing binding arbitration or acquiescing in the plaintiffs' decision to resort to the courts. The correct interpretation of the clause was that "parties" meant "either party". Thus either party could refer a dispute to binding arbitration and arbitration then became mandatory. Failing such an election by one of the parties, the matters in dispute could be resolved in the courts. A stay was ordered.

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