Enforcing a Buried Arbitration Clause in a Kitchener Buyout Fight

The situation

Eun-ji and Min-ji were both sergeants with a police service in the Kitchener area, and about eight years earlier they had put savings into a small self-storage business as a side investment. A third partner, Eitan, had come in early with a smaller stake and had done most of the day-to-day management while Eun-ji and Min-ji worked their regular jobs and stayed on as majority owners, checking in on the business's numbers on evenings and days off rather than running it hands-on. The three had signed a shareholders' agreement when the corporation was set up, drafted using a template their accountant had recommended, with a clause near the back stating that any dispute between the shareholders would go to private arbitration rather than court. None of them had spent much time on that clause at the time — it was one page among many in a document mainly focused on how profits would be split and how the storage business's units would be managed.

Years later, the relationship soured over how much the business was worth and how it was being run. Eitan wanted out, believing his minority stake entitled him to a much larger payout than Eun-ji and Min-ji thought was fair, partly because the storage business had grown steadily in occupancy over the previous few years. Rather than triggering the buyout process described in the agreement, Eitan started a lawsuit in the Superior Court, alleging he had been unfairly frozen out of decisions and asking the court to order a valuation and buyout on his terms. He also asked for a broader accounting of company finances than the shareholders' agreement's own buyout mechanism provided for, which was part of what made the court route look more attractive to him than arbitration.

The problem

Eun-ji and Min-ji came to Treadstone Law after being served with the court claim, unsure whether they even had a choice about where the dispute would be heard. The shareholders' agreement was clear on paper: any dispute 'arising out of or relating to' the agreement had to go to arbitration, a private process where a neutral arbitrator decides the case instead of a judge, and the parties split the cost of that arbitrator. But Eitan's lawsuit argued the clause should not apply here — that it was buried in a generic template none of the three had really discussed, that it was one-sided in practice because Eun-ji and Min-ji controlled the board and could stack an arbitration process against him, and that his claim of unfair treatment as a shareholder was really a request for a court remedy that arbitration could not properly deliver.

This mattered because arbitration and litigation are genuinely different experiences. Arbitration is private, often faster, and the parties usually have more say in who decides the case and how much evidence gets exchanged. Court litigation is public, follows fixed procedural rules, and carries a right of appeal that arbitration mostly does not. It also opens the door to broader procedural tools, like extensive document production and cross-examinations on affidavits, that a leaner arbitration process might not include unless the parties agree to them. Eitan's team clearly believed court gave him more leverage and a broader set of remedies, and a public proceeding besides. For Eun-ji and Min-ji, defending the clause was not just about principle — a public lawsuit meant employer disclosure risk given their jobs in policing, and they had specifically bargained for a private process when they signed the agreement. There was also a practical worry: if the clause could be avoided just by pointing to its origin in a template, it would mean very little protection for anyone who had ever signed a standard-form agreement, which is most small business owners.

What we did

1. Brought a motion to stay the court action. Under Ontario's Arbitration Act, 1991, a court must generally stay a court action and send the parties to arbitration where a valid arbitration agreement covers the dispute, subject to narrow exceptions. We filed a motion asking the Superior Court to stay Eitan's claim on exactly that basis, before the litigation could gain momentum.
2. Addressed the validity argument head-on. Eitan argued the clause was buried and one-sided. We showed that all three shareholders had received the agreement in advance, had the chance to have it reviewed, and had signed it as sophisticated business owners setting up a corporation together — a template clause is still a binding clause once signed. We also pointed to language allowing either side to propose the arbitrator, which undercut the claim that the process was stacked against Eitan.
3. Argued the dispute fell squarely within the clause's scope. Eitan's claim, however it was framed, was about the value of his shares and how the business was run — exactly the kind of dispute 'arising out of or relating to' the agreement that the clause was written to cover. We drew the connection between his specific allegations and the sections of the shareholders' agreement governing management decisions and buyouts.
4. Prepared Eun-ji and Min-ji for the possibility of a partial result. We were candid from the outset that a stay of the court action would resolve where the dispute got decided, not who was right about the buyout price. That second question would still need to be fought out, just in a different forum, and arbitration is not free — the parties typically split the arbitrator's fees. Setting that expectation early meant Eun-ji and Min-ji were not caught off guard when the valuation fight turned out to be the harder part of the process.
5. Once the stay was granted, moved directly into arbitration. With the forum question settled, we retained a valuator experienced in small business disputes, exchanged financial records with Eitan's side, and began building the case for a buyout price grounded in the storage business's actual revenue and comparable sales, rather than Eitan's initial figure. We also worked with Eun-ji and Min-ji to agree an arbitrator with both sides quickly, so the momentum from winning the stay motion was not lost to weeks of procedural back-and-forth over who would hear the case.

The outcome

The court granted the stay. The judge found the arbitration clause was valid, was not unconscionable simply because it came from a template, and covered a shareholder dispute over valuation and management decisions squarely within its wording. The decision also confirmed that Eitan's request for a broader accounting of company finances did not take the dispute outside the clause, since that request still arose from the same underlying disagreement about the business's value. Eitan's lawsuit was stopped, and the parties were directed into arbitration as the agreement required.

That was a clear win on the forum question, but it did not end the underlying fight. In arbitration, the valuator retained for Eun-ji and Min-ji put the business's fair value in a range that implied a buyout figure for Eitan's stake of roughly $350,000, based largely on recent occupancy rates and comparable storage facility sales in the region. Eitan's own expert put it closer to $520,000, largely by assuming higher future growth than the business's recent numbers supported, and by discounting less heavily for Eitan's minority position than is typical in a small, closely-held company. Rather than run a full arbitration hearing, which would have meant more time and more shared arbitrator fees for everyone, both sides agreed to a settlement conference partway through the process.

The parties settled at roughly $430,000 for Eitan's shares, paid out over an agreed schedule, with each side responsible for its own legal costs and the arbitrator's fees split evenly as the agreement contemplated. It was not the number either side had opened with. Eun-ji and Min-ji paid more than their expert's initial figure, and Eitan accepted less than half of what he had first claimed in his court filing. Both sides had a clearer picture, by the time the settlement conference happened, of what a full arbitration hearing would likely cost in additional fees and delay, which made a number in the middle easier for each of them to accept than it would have been at the outset. Both sides also avoided the cost and exposure of a full arbitration hearing, which would likely have added months and a further layer of expert and arbitrator fees on top of what had already been spent, and Eun-ji and Min-ji kept the dispute out of the public court record entirely, which mattered to them given their careers. The business continued under their sole ownership once the payout schedule was underway, and Eun-ji and Min-ji used the transition to update the shareholders' agreement for the corporation going forward, this time reading every clause with the buyout dispute fresh in mind rather than relying on a template neither of them had scrutinized the first time around, and adding a defined valuation methodology so the next disagreement, if there ever is one, starts from shared ground rather than two competing expert opinions.

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