International commercial arbitration in Canada is governed by a well-developed legal framework designed to promote the use of arbitration and minimise judicial intervention. Canadian courts have consistently upheld the integrity of the arbitral process and recent case law has further established Canada as a leader in the development of reliable jurisprudence relating to the UNCITRAL Model Law on International Commercial Arbitration (the Model Law) and the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention) by giving broad deference to the jurisdiction of arbitral tribunals and supporting the rights of parties seeking to enforce international arbitral awards.
UNCITRAL adopted the Model Law in 1985, and Canada and its provinces were the first jurisdictions in the world to enact legislation expressly implementing the Model Law. At the time, however, Canada's provinces were not uniform in adopting the Model Law and a number of provinces deviated from it in certain respects. The lack of complete uniformity among the provinces led to some discrepancies in how the courts addressed arbitration issues. Nevertheless, there was broad acceptance of international commercial arbitration as a valid alternative to the judicial process and a high-level of predictability for parties to international arbitrations in Canada and those seeking to enforce international awards in Canada.
In late 2011, a working group of the Uniform Law Conference of Canada (the ULCC) commenced a review of the existing model International Commercial Arbitration Act, with a view to developing reform recommendations for a new model statute. Catalysed by the 2006 Model Law amendments, the review process also sought to reflect changes to international arbitration law and practice in the past three decades and to enhance the uniformity and predictability with which international commercial arbitral awards may be enforced in Canada. In 2014 the ULCC approved the working group's final report, which included a proposed new uniform International Commercial Arbitration Act for implementation throughout Canada.
Among other things, the new model statute adopts all of the 2006 Model Law amendments (except option II for article 7), including those that broaden the jurisdiction of courts and arbitral tribunals to order interim relief. The new statute also establishes a 10-year limitation period to commence proceedings seeking recognition and enforcement in Canada of foreign international commercial arbitral awards. The new model statute will become law as it is enacted by the various Canadian federal, provincial and territorial legislatures.
An arbitration-friendly jurisdiction
The Model Law and the New York Convention provide narrow grounds for judicial intervention in international commercial disputes that are subject to arbitration agreements. Canadian courts have consistently expressed their approval of these principles and frequently defer to arbitral tribunals for determinations regarding the tribunal's own jurisdiction and complex issues of fact and law. For example, in discussing the governing principles of the Model Law, one Canadian court stated that:
[t]he purpose of the United Nations Conventions and the legislation adopting them is to ensure that the method of resolving disputes in the forum and according to the rules chosen by parties, is respected. Canadian courts have recognized that predictability in the enforcement of dispute resolution provisions is an indispensable precondition to any international business transaction and facilitates and encourages the pursuit of freer trade on an international scale.1
Courts across Canada have echoed these sentiments, consistently applying the competence-competence principle, showing broad deference to the decisions of arbitral tribunals, and narrowly interpreting the grounds for setting aside arbitral awards. In addition, some provinces have explicitly accepted that international arbitral awards are akin to foreign judgments, providing parties with jurisdictional advantages and longer limitation periods for enforcing their award.2
The integrity of the international commercial arbitration process has further been endorsed in recognition and enforcement proceedings. When faced with challenges to the recognition of foreign awards, Canadian courts have consistently emphasised the mandatory nature of enforcement provisions in the Model Law. Accordingly, article V of the New York Convention, which sets out the limited grounds on which enforcement may be refused, is narrowly interpreted, and arbitral debtors have the burden of proving any allegation of injustice or impropriety that could render an award unenforceable.
Widespread support for international commercial arbitration in Canada has also led to the establishment of a number of arbitration groups and institutions, including the Western Canada Commercial Arbitration Society, the Toronto Commercial Arbitration Society, the Vancouver Centre for Dispute Resolution and Vancouver Arbitration Chambers, Arbitration Place, ICC Canada's Arbitration Committee, the British Columbia International Commercial Arbitration Centre, the ADR Institute of Canada (ADRIC), the International Centre for Dispute Resolution Canada (ICDR Canada) and the Canadian Commercial Arbitration Centre. These organisations provide
parties with a variety of useful resources and services, including sets of procedural rules, contact information for qualified arbitrators and meeting facilities.
ADRIC and ICDR Canada have recently revised and updated the procedural rules available to parties, bringing them in line with international best practices and offering an improved option for parties.
ADRIC's revisions came into force on 1 January 2014, and seek to limit the tendency of parties to domestic arbitrations to adopt litigation-like procedures. Specific changes include a narrower test for document production that accords with international standards, an interim arbitrator mechanism for urgent relief, and a prohibition on examinations for discovery.
ICDR Canada's new rules came into force on 1 January 2015, and reflect the ICDR International Arbitration Rules. The new rules include expedited procedures for claims under C$250,000, an emergency arbitrator process for urgent relief, and recognition that court procedures such as oral and document discovery are generally not appropriate in arbitration.
Recent Canadian case law
The commitment of Canadian courts to the tenets of the Model Law and the New York Convention has been confirmed by recent case law. Significant recognition and enforcement decisions were rendered in the Provinces of British Columbia and Ontario in 2014 and 2015 that clearly demonstrate the Canadian judiciary's respect for the integrity of the international arbitration process and the importance of deference to international arbitral tribunals. An ongoing enforcement saga in the Province of Ontario will continue to provide Canadian courts with an opportunity to uphold the principles of the Model Law and New York Convention. These cases are summarised below.
Assam Co India Ltd v Canoro Resources Ltd
In Assam Co India Ltd v Canoro Resources Ltd3 (Assam v Canoro), the Supreme Court of British Columbia dismissed allegations of procedural unfairness and violations of public policy, holding that arbitral creditors who decide not to defend arbitral proceedings will not be permitted to re-litigate the same issues that were before the tribunal.
The parties had entered into a joint operating agreement (JOA) in respect of an oilfield in India, and a dispute arose when Canoro sought to transfer 53 per cent of their shares to Mass Financial despite a right of first refusal clause in the JOA.
Assam invoked the arbitration agreement in the parties' contract, and proceeded to appoint arbitrators according to that agreement, including exercising its right unilaterally to appoint the third arbitrator. Canoro raised an objection to the tribunal with respect to Assam's appointment of the third arbitrator and petitioned the Supreme Court of India for similar relief. However, before a determination was made in either venue, Canoro advised its counsel not to appear on its behalf, and from that point onwards, ceased participating in the proceedings.
On 21 November 2011, the arbitral tribunal issued a final award against Canoro which entitled Assam to relief including the shares wrongfully sold to Mass, Canoro's interest in the oilfield, and US$32 million. Assam sought to enforce the award in British Columbia. Canoro resisted enforcement on the basis of subsections 36(1)(a)(iii) (inability to present a party's case), (v) (improper composition of the tribunal), and 36(1)(b)(ii) (public policy) of the ICAA, arguing that that it was ‘not given an opportunity to be heard contrary to the basic principles of natural justice and procedural fairness' and was ‘forced to withdraw as, given the circumstances surrounding the arbitration, it had no or little chance to receive a fair hearing'.
In rejecting Canoro's arguments and enforcing the award, the Supreme Court of British Columbia emphasised the limited scope for judicial intervention in the Model Law, and noted that concerns of comity and respect for the capacity of foreign tribunals necessitate a high degree of deference to the decisions of arbitrators. The court also referred to CEIR v Yeap, confirming that the ‘Court is generally not empowered to scrutinise the arbitrator's findings on matters of jurisdiction but rather it should accept the arbitrator's decision on its face and ought not go behind it'.
The court soundly rejected Canoro's argument that it had not had a chance to present its case, holding that:
Canoro took a high risk strategic decision when it opted to abandon both its petition in the Supreme Court of India and its further participation in the arbitration. Having done so, it now seeks to re-litigate before this Court the same objections raised in India, labelling them as ‘triable issues'...Canoro is not entitled to re-litigate its case in British Columbia. It could have and should have pursued the procedural and legal options it had available to it in India. It did not do so and it must live with the consequences.
On the issue of public policy, the court emphasised that the scope of the exception only extends to situations in which enforcement of an award would offend local principles of justice and fairness in a fundamental way, and in a way which the parties could attribute to the fact that the award was made in another jurisdiction where the procedural or substantive rules diverge markedly from our own, or where there was ignorance or corruption on the party of the tribunal which could not be seen to be tolerated by our courts.4
The final issue before the court was the effect of portions of the award that entitled Assam to acquire Canoro's shares, in light of Canoro having been dissolved for failing to file annual reports. Since the corporation no longer existed, it could not be ordered to transfer the shares to Assam. After canvassing authorities on the effect of dissolution on an ongoing dispute, the court concluded that proceedings may continue against a company despite dissolution, and judgment may be obtained against a dissolved company. Recognising that there would be practical obstacles in implementing a share transfer, the court nevertheless recognised the award and granted leave to Assam to apply for approval of a mechanism by which any difficulties that may arise in enforcing the award could be overcome.
Sociedade de Fomento Industrial Private Limited v Pakistan Steel Mills Corporation (Private) Ltd
In Sociedade de Fomento Industrial Private Limited v Pakistan Steel Mills Corporation (Private) Ltd5 (SFI v PSM), the Court of Appeal for British Columbia addressed the rights of creditors to obtain interim relief in aid of arbitration, and confirmed that under the New York Convention a claimant is not obligated to seek enforcement of an award in the debtor's home country before seeking enforcement in a foreign jurisdiction.
SFI v PSM involved an application for a Mareva injunction to prevent the respondent from disposing of assets. In this case, SFI had already been granted a final arbitral award in an ICC arbitration (the Final Award), and sought a freezing order in advance of recognition and enforcement proceedings in British Columbia.
The Final Award was granted in favour of SFI in June 2010. After ten months of non-payment, SFI learned that PSM had purchased three shipments of coal from a company in British Columbia, the second of which was scheduled to depart British Columbia by sea in or around May 2011. PSM applied for, and was granted, a Mareva injunction on 21 April 2011, preventing the vessel from departing British Columbia and restraining PSM from disposing of the coal. As a condition of the injunction, PSM agreed to indemnify the third-party charter for any losses sustained as a result of the order.
After the Final Award was recognised and enforced by the Supreme Court of British Columbia, SFI petitioned for reimbursement of amounts paid to the vessel charterer under the indemnity agreement and damages arising from PSM's efforts to collect on the award. PSM counterclaimed, asserting that the Mareva injunction had been wrongly granted and had caused PSM to suffer significant losses.
The lower court granted PSM's request and set aside the Mareva injunction, noting that Mareva injunctions were extraordinary and that the balance of convenience favoured PSM. The decision was based on the court's finding that SFI had failed to make full, frank, and fair disclosure of a material fact, ie, by not informing the court that it could seek to enforce the Final Award in Pakistan (PSM's home jurisdiction). In the opinion of the trial judge, the onus was on SFI to satisfy the court that the award could not be enforced in the debtor's home country before execution remedies could be sought in a jurisdiction with no connection to the parties or the dispute.
On appeal, SFI argued that it was entitled to both recognise and enforce its award in British Columbia regardless of whether it had first attempted to enforce it in Pakistan, emphasising the principles on which the New York Convention is based. As a result, SFI argued that it was entitled to the same array of execution remedies as any other judgment creditor.
The Court of Appeal agreed with SFI, concluding that the judge had erred in conducting a forum conveniens analysis to determine whether ordering a Mareva injunction was appropriate. In rejecting this approach, the Court of Appeal acknowledged that the New York Convention requires domestic courts to recognise foreign awards as if they were rendered in British Columbia. According to provincial legislation, a real and substantial connection between British Columbia and the subject matter of the dispute is presumed to exist in proceedings to enforce foreign arbitral awards. The Court held that ‘it would be illogical to ignore this presumed jurisdictional connection for interlocutory purposes, but recognize it for final judgment purposes.' This removed any doubt that SFI was entitled to seek enforcement of its award in British Columbia, along with all the practical execution remedies available to domestic judgment debtors, regardless of its connection to the province or its attempts to enforce the award elsewhere.
The court went on to hold that the trial judge's conclusions on the material non-disclosure issue were coloured by her ‘erroneous conclusion that the onus was on the appellant to establish it could not enforce the award in Pakistan'. The correct approach, according to the Court of Appeal:
should have been directed more to the question of whether considering all the circumstances, it was just and convenient to grant the injunction. The judge's balance of convenience analysis ought to have taken into account the delay that would accompany enforcement proceedings in Pakistan, as well as the considerable doubt about the enforcement of that part of the award representing interest under Pakistani law.
In essence, the Court of Appeal held that the availability of enforcement proceedings elsewhere was a factor to be considered in the balance of convenience analysis for a Mareva injunction, but that under the New York Convention a party had no obligation to seek enforcement elsewhere as a precondition to seeking enforcement in British Columbia. The Court of Appeal then held that the balance of convenience weighed in favour of granting the injunction on the bases that: SFI's claim was strong, the scheduled departure of PSM's assets from the province was imminent, and PSM continued to refuse to pay SFI. Accordingly, SFI was entitled to reimbursement for any losses it suffered in attempting to execute on the Final Award.
Depo Traffic Facilities (Kunshan) Co v Vikeda International Logistics and Automotive Supply Ltd
In Depo Traffic Facilities (Kunshan) Co v Vikeda International Logistics and Automotive Supply Ltd,6 the Ontario Superior Court of Justice confirmed that a tribunal's decision will be accorded significant deference. The court also reiterated the narrow grounds for refusing enforcement of an international arbitral award, and the permissive nature of articles 35 and 36 of the Model Law.
The underlying arbitral award was rendered by the Shanghai International Arbitration Commission in favour of Depo in 2013. The award compensated Depo for various moulds constructed for and delivered to Vikeda under various agreements. Vikeda had refused to pay for the moulds, accusing Depo of unreasonable prices and underhanded dealings with Chrysler, Vikeda's ultimate customer. The commission found that Vikeda had breached its agreements with Depo by failing to make timely payments and was liable for the full amount due.
Vikeda challenged enforcement of the award on three main bases. First, it claimed that had been deprived of the opportunity to present its case, contrary to article 36(1)(a)(ii) of the Model Law, because the commission had failed to consider its submissions on a defence of double recovery in a meaningful way. Second, Vikeda argued that the commission's failure to consider its defence amounted to a denial of natural justice that was contrary to public policy. Thirdly, Vikeda asserted that some of Depo's claims were not properly submitted to arbitration.
The court affirmed that the objectives of international commercial arbitration legislation in Canada are:
• giving effect to the intentions of parties in choosing to submit to arbitration;
• facilitating predictability in the resolution of commercial disputes;
• fostering consistency between jurisdictions in the resolution of international commercial disputes; and
• encouraging the use of international commercial arbitration.
The court further recognised that the respondent bears the onus of establishing one of the grounds for refusing to enforce an arbitration award; the court then has residual discretion to enforce the award or refuse to recognise it.
On the issue of Vikeda's double recovery argument, the court held that article 36(1)(a)(ii) is only comprised of the right to notice and the ability to present one's case. It does not include a right to reasons or a right to have a defence considered in a ‘meaningful and substantive' way. Although the commission did not provide detailed reasons on Vikeda's defence, it was clear they had been alive to it and there was no question that Vikeda had made thorough submissions during the hearing. The court concluded that to accept Vikeda's interpretation of article 36(1)(a)(ii) would expand the restrictive list of reasons to refuse enforcement and that such a result would be both unwise and improper.
The court applied a similar analysis to Vikeda's public policy defence, noting that the defence was exceptional and must be construed narrowly and in light of the overriding purpose of the New York Convention to encourage the recognition and enforcement of international commercial arbitration agreements. Citing Schreter v Gasmac,7 the court acknowledged that the public policy defence is only engaged when an award ‘offends [the Province's] local principles of justice and fairness in a fundamental way'. Further, the court accepted that ‘public policy' was not equivalent to a local political stance or international policy, but was instead comprised of fundamental notions of justice. Recognising that the commission had rejected Vikeda's arguments regarding double recovery, the court held that there was no basis on which to reopen the merits of the dispute on public policy grounds and no applicability of the public policy defence to the facts at bar.
Lastly, the court gave short shrift to Vikeda's jurisdictional argument, essentially upholding the principle of competence-competence by affirming that the commission was entitled to take jurisdiction of all aspects of the dispute based on its conclusions that the parties' agreements were valid and binding. The court also noted that Vikeda had failed to dispute the commission's jurisdiction at the hearing, and cautioned that it is impermissible for a party to split its case and raise a jurisdictional argument for the first time as a defence to enforcement. Accordingly, the court recogniaed and enforced Depo's award and granted costs against Vikeda.
Sanum Beteiligungsgesellschaft MbH v PDC Biological Health Group Corporation
In Sanum Beteiligungsgesellschaft MbH v PDC Biological Health Group Corporation,8 the Supreme Court of British Columbia confirmed that issues decided by an international arbitral tribunal are res judicata; parties will not be permitted to reopen the merits of a dispute in resisting enforcement of an arbitral award.
Sanum, a producer of homeopathic medicines, had an exclusive distribution agreement with PPS in the United States. Through a series of transactions, Sanum acquired PPS, then entered into a share purchase agreement with PDC by which PDC agreed to purchase PPS for C$4.3 million. When the parties' relationship broke down, Sanum terminated the distribution agreement and PDC refused to pay the balance of the purchase price. An arbitral tribunal in New York ruled in Sanum's favour, holding that the share purchase agreement was valid and enforceable, that PDC obtained control over PPS and had failed to pay the purchase price, and that Sanum had not breached either the distribution agreement or the share purchase agreement.
Sanum took a novel approach to recognition and enforcement proceedings, applying to strike PDC's response to its petition to enforce its award on the basis that PDC's defences constituted an abuse of process. This would permit Sanum's application to continue essentially undefended. PDC responded by arguing that it had an arguable defence to enforcement that required a trial on the merits.
PDC's primary defence was that the share purchase agreement was merely a draft and had never been a binding contract, making the arbitration clause unenforceable. PDC also argued that Sanum had breached the share purchase agreement, that the arbitrator had failed to consider its defences, and that enforcing the award would be contrary to public policy because the share purchase agreement was ‘commercially absurd' (ie, resulted in a C$3 million windfall to Sanum). Further, PDC opposed Sanum's application on the basis that it had failed to provide a certified copy of the original arbitration agreement, pursuant to article 35(2) of the Model Law.
Sanum contended that all of PDC's arguments had been rejected by the tribunal. Relying on both the Model Law and local rules of civil procedure, Sanum submitted that it would be an abuse of process to allow PDC to reargue its case during the hearing of the enforcement petition.
The court began by recognising the mandatory nature of articles 35 and 36 of the Model Law. Adopting language from Assam Company India Limited v Canoro Resources Ltd,9 the court agreed that the following principles must be considered on applications to enforce international arbitral awards:
• Broad deference and respect is to be accorded to international arbitration tribunals;
• This Court is generally not empowered to scrutinize the arbitrator's findings on matters of jurisdiction but rather it should accept the arbitrator's decision on its face and ought not go behind it;
• It is not the role of the court on this type of application to consider the merits of a substantive issue that was the arbitrators' to decide;
• Nor is it proper for the respondent to try and re-litigate these issues here; if the respondent wanted to challenge the jurisdiction or composition of the arbitral tribunal or any of its decisions on the merits, the respondent ought to have taken steps to do so in another forum;
• The fact that the respondent's initial objections to the jurisdiction, composition or procedures of the arbitral tribunal were unsuccessful does not give rise to a basis for refusing recognition or enforcement of the arbitral award in this jurisdiction;
• The ‘contrary to public policy' ground for refusing recognition or enforcement is to be narrowly construed and requires fundamental breaches of justice and fairness and conduct of a sort that could not be tolerated or condoned by our courts.
Accepting that PDC's only avenue for challenging the merits of the award were on appeal, the court concluded that for the purpose of the enforcement application, all issues considered by the tribunal were res judicata. Since the arbitrator had already ruled on the validity of the share purchase agreement, any attempt to reargue this or any ancillary point (ie, the jurisdiction of the tribunal) was an abuse of the court's process. Similarly, the court dismissed PDC's arguments regarding public policy on the basis that its argument of ‘commercial absurdity' had been rejected by the tribunal and could not be re-litigated.
Regarding the issue of Sanum's failure to file a certified copy of the original arbitration agreement, the court held that it had discretion to relieve Sanum of the requirement and would not prevent enforcement of Sanum's award on that basis alone.
In the result, the court struck PDC's pleadings, holding that:
...in light of the decisions of this court and others, about the mandatory nature of recognition and enforcement proceedings under the ICAA, it would be an abuse of the process of the court to allow PDC to reargue matters already considered and decided by the arbitrator. That is what PDC purports to do in its response and it should be struck.
Popack v Lipsyzc
In Popack v Lipsyzc,10 the Ontario Superior Court of Justice confirmed that an arbitral award may be enforced despite non-compliance with the Model Law so long as neither party is unduly prejudiced.
After the parties' business relationship broke down, their dispute was referred to arbitration in a rabbinical court, through which Rabbi Schwei ordered Lipszyc to sell his interest in the business to Popack. Popack then alleged that the share purchase agreement was based on misrepresentations by Lipsyzc, which instigated a second dispute. Rabbi Schwei was unavailable to preside over the second dispute, and the parties agreed to the jurisdiction of an alternate rabbinical court.
During the second arbitration, Lipsyzc expressed to the tribunal that he wanted it to hear from Rabbi Schwei. Popack did not object. After hearings had concluded, the tribunal met with Rabbi Schwei on its own accord and without notice to or participation by either party. A month later, the tribunal ordered Lipsyzc to pay Popack C$400,000.
Eventually, the parties discovered the meeting, and Popack's counsel suggested that if the tribunal was going to consider Rabbi Schwei's evidence, there should be a full hearing. The tribunal responded by confirming that Rabbi Schwei's evidence had not affected its decision.
In applying to set aside the award pursuant to article 34 of the Model Law, Popack argued that the secret meeting between the tribunal and Rabbi Schwei violated the applicable notice requirements under the arbitration agreement and the Model Law, prevented Popack from presenting his case, and was contrary to Ontario public policy.
On a preliminary issue, the court held that the parties had not contracted out of article 34 of the Model Law, and in any event, would be prohibited from doing so in relation to any mandatory provision of the Model Law or in conflict with public policy.
In considering the merits of the application, the court acknowledged that the tribunal's failure to give notice of the meeting with Rabbi Schwei gave rise to grounds to set the award aside pursuant to article 34(2)(a)(iv) of the Model Law; the tribunal had failed to conduct the arbitration in accordance with the notice requirements in the arbitration agreement. Without expressly considering Popack's other arguments, the court noted that all three were based on the same concerns regarding the potential unfairness of the private meeting with Rabbi Schwei.
The court noted that article 34 is discretionary. Although Popack had satisfied the prerequisites for setting aside the award, the court was not mandated to do so. The court recognised that the seriousness of the breach was a factor to consider in exercising its discretion, as was the general principle militating against private interviews with witnesses absent express or implied authority.
Mandating in favour of enforcing the award, the Court acknowledged that the tribunal had not interviewed Rabbi Schwei on its own initiative; it had done so in response to an unopposed request by one of the parties. In addition, Rabbi Schwei was a neutral witness. Since the arbitration agreement precluded any transcript or reasons for the tribunal's decision, the Court had little information on which to conclude that Rabbi Schwei's evidence might have prejudiced either side. Further, the letter sent by Popack's counsel, which made ex parte submissions to the tribunal and including only a qualified request for a hearing, reinforced a refusal to grant the application. On the other hand, the court found that the actual prejudice that would arise from setting aside the award was considerable because a material witness had died and his evidence was unrecorded.
In weighing the evidence, the court dismissed the application to set aside the award, concluding that:
The breach by the Arbitral Tribunal, although significant, must be weighed against the other relevant factors discussed above including the actual prejudice that will result if the Award is set aside. Taking everything into consideration in the exercise of my discretion, I conclude that this is not an appropriate case to set aside the Award.
This case confirms Canadian courts' commitment to upholding the underlying objectives of the Model Law and New York Convention, even in the face of procedural breaches. It is clear that simply establishing grounds to set aside an award is insufficient to prevent enforcement. A party must also show that the prejudice in having the award enforced outweighs the prejudice associated with setting the award aside.
Stans Energy Corp v Kyrgyz Republic
Stans Energy Corp v Kyrgyz Republic is ongoing, and involves a myriad of complex legal and factual issues. Stans' application to enforce its arbitral award in Ontario is currently scheduled for 21 July 2015, but its efforts to obtain interim relief in Ontario and the Republic's attempts to set aside the award bear mention.
Stans, a publicly traded Ontario company, owned a mining licence in the Republic which was cancelled in 2012. Alleging that the cancellation of its licence amounted to unlawful expropriation and violated its rights as an investor under the Moscow Convention, Stans initiated arbitration in the Arbitration Court of the Moscow Chamber of Commerce and Industry (MCCI). The Republic disputed the tribunal's jurisdiction from the beginning and refused to participate in hearings. The tribunal rejected the Republic's jurisdictional arguments and issued a C$118 million award in favour of Stans.
The Republic commenced two simultaneous jurisdictional challenges, one in the Economic Court of the Commonwealth of Independent States (CIS Court), which has sole authority under the Moscow Convention to determine jurisdictional disputes, and the other in the Moscow State Court to set the award against it aside. The Republic's application to set aside the award was dismissed and the Republic appealed. By the time the Federal Arbitration Court heard the appeal, the CIS Court's decision had been released. The decision found that MCCI was not a competent court to decide matters under the Moscow Convention. As such, the Federal Arbitration Court ordered the Moscow State Court to reconsider its decision de novo.
In the meantime, Stans had commenced enforcement proceedings in Ontario. On 10 October 2014, Penny J granted Stans a Mareva injunction, freezing shares in an Ontario company in which the Republic held an equitable interest. The Republic had publicly announced that it had no intention of satisfying Stans' award and was planning on moving the shares outside of the jurisdiction, leaving Stans with no assets to collect on. Penny J held that, based on the mandatory nature of the Model Law and New York Convention, Stans had a strong prima facie case for enforcement and was entitled to injunctive relief.
Ten days later, Stans applied to extend the Mareva injunction indefinitely. The Republic argued that Stans had failed to make full and frank disclosure on the original ex parte application by not providing Penny J with a translated copy of the CIS Court's decision and disclosing that the award might be set aside in Russia. Newbould J acknowledged the lack of translation, but held that Stans had made it sufficiently clear that the Republic disputed the tribunal's jurisdiction. As a result, the injunction was extended.11 The Republic was granted leave to appeal.12
By the time the Ontario Divisional Court heard Stans' appeal, the Moscow State Court had rendered its decision. On reconsideration, Stans' award was set aside on the basis that the MCCI did not have jurisdiction over the dispute, pursuant to the CIS Court's ruling.
On appealing Newbould J's decision to extend the Mareva injunction against it, the Republic again argued that Stans had failed to make full and frank disclosure to the court by failing to provide an accurate depiction of the CIS Court's decision and its effect on the Russian proceedings. Further, after having the Moscow State Court's decision to set the award aside admitted as fresh evidence, the Republic submitted that the injunction had to be set aside since the foundation for the relief was now absent.
The Court agreed that the Moscow State Court's ruling made it necessary to set aside Stans' injunction. Relying on article 36(1)(v) of the Model Law, the Court implied that since the award had been set aside, there could be no strong prima facie case for enforcement on which to grant the injunction.
On the issue of full and frank disclosure, the Divisional Court held that Stans had not met its duty. In addition to failing to provide a translation of the CIS Court decision, Stans had failed to disclose that the CIS Court had decided that MCCI did not have jurisdiction and that the Federal Arbitration Court had remitted the case to the Moscow State Court for reconsideration on the basis of the CIS Court decision. In setting the injunction aside, the Divisional Court held that these issues were clearly relevant to whether Stans had a strong prima facie case for enforcing its award.13
As mentioned, Stans' application to enforce its award is scheduled for July 2015; however, given the Divisional Court's holding on whether Stans had a strong prima facie case for enforcement, it appears that its success may be in doubt. Further, the Republic is now at liberty to move its only asset in Ontario (the shares) out of the jurisdiction, removing any impetus for Stans to have the award enforced in Canada. Nevertheless, as is clear in the preceding cases, Ontario courts retain discretion to enforce Stan's award notwithstanding the Moscow State Court's decision to set it aside. The upcoming decision is likely to be a landmark decision in Canadian arbitration law.
Collectively, these cases demonstrate the proclivity of Canadian courts to respect the conclusions of arbitral tribunals and refuse to allow arbitral debtors to reargue the merits of their case in enforcement proceedings.
Canada is consistently recognised as an arbitration-friendly jurisdiction, and for good reason. First, the legislative framework governing international commercial arbitration and the enforcement of foreign arbitral awards closely mirrors the Model Law and New York Convention, and severely limits the ability of courts to intervene with decisions made by arbitrators. Secondly, Canadian courts are supportive of arbitration, and continue to uphold the integrity of the arbitral process by affording broad deference to tribunals on issues of jurisdiction, findings of fact and law, and with respect to relief granted. The approach of the Canadian judiciary to complex issues in international commercial arbitration should instil confidence in practitioners that Canada will remain a leader in the field of international commercial arbitration policy and jurisprudence.
The authors are grateful for the valuable assistance of Kalie N McCrystal (an associate with Borden Ladner Gervais LLP).
- Automatic Systems Inc v Bracknell Corp (1994) 18 OR (3d) 257 at p 264, cited with approval in Seidel v TELUS Communications Inc, 2011 SCC 15 and Desputeaux v Editions Chouette (1987) Inc, 2003 SCC 17.
- The definition of ‘local judgment' in British Columbia's Limitations Act specifically includes arbitral awards to which the Foreign Arbitral Awards Act or the International Commercial Arbitration Act apply, providing arbitral creditors with a 10-year limitation period for enforcement proceedings. Similarly, the British Columbian Court Jurisdiction and Proceedings Transfer Act presumes a ‘real and substantial connection' (the standard for Canadian courts to assume jurisdiction over a dispute) in any proceeding to enforce a foreign arbitral award.
- 2014 BCSC 370.
- Citing Schreter v Gasmac Inc  OJ No 257 at 623.
- 2014 BCCA 205.
- 2015 ONSC 999.
-  OJ No. 257.
- 2015 BCSC 570.
- 2014 BCSC 370.
- 2015 ONSC 3460.
- 2014 ONSC 6195.
- 2015 ONSC 42.
- 2015 ONSC 3236.