In UMS Solutions, Inc. v Cornell, 2023 BCSC 214, Justice Morellato refused to dismiss a B.C. action seeking to enforce a New York judgment, which confirmed an arbitration award, on the basis of delay. This procedurally tangled, still unfolding dispute, first saw UMS Solutions, Inc. (“UMS”) succeed in arbitration claims in New York against a B.C. resident, Brad Cornell (“Cornell”), for purported breaches of a representation agreement (“Agreement”). Cornell elected not to participate in the New York arbitration. UMS next converted the arbitral award into a New York court judgment. Cornell failed in his attempt to have the judgment set aside in New York. UMS then commenced a B.C. action on the New York judgment. Justice Morellato denied there was inordinate delay in the B.C. action and permitted UMS’s claim to continue.
The 2016/2017 arbitration – In 2014, Cornell accepted a position with New York-based UMS selling veterinary X-ray equipment. The parties’ Agreement required disputes be resolved by American Arbitration Association (“AAA”) arbitration in New York City under New York law.
In 2016, UMS initiated arbitration, claiming Cornell had breached the Agreement by working for a competitor, misappropriating business opportunities, and not returning UMS equipment.
Cornell informed the AAA that the UMS “claims are unjust and contain no credibility” and noted he had commenced an Employment Standards Act claim in B.C. for wages, commissions, and expenses. Cornell further advised he would not be able to leave Vancouver, due to family illness.
Cornell received notice of a January 2017, arbitration hearing in New York, but did not attend.
In April 2017, an arbitrator awarded UMS damages of $260,000 USD for lost profits, non-returned equipment, and unjust enrichment for Cornell’s receipt of salary and a car allowance while working for a competitor. The arbitrator also awarded interest at 15% per annum on the damages award and $46,000 USD in reasonable legal fees and costs. Cornell received notice of the arbitral award.
2017/2018/2019 New York Proceedings – UMS filed a petition in New York District Court to confirm the arbitral award. In August 2017, Cornell was served with the petition but did not respond.
In March 2018, the New York court issued procedural directions, requiring UMS’s petition to be decided by summary process. The court directions advised Cornell: “if you have proof of your defences, now is the time to submit it.” The court set an April 9, 2018, deadline to respond. For some reason, Cornell did not receive the directions or summary process filings until June 2018. He still did not respond.
In November 2018, a New York judge issued a “report” recommending the arbitral award be confirmed, while reducing the attorney fees to $10,000 USD. In April, 2019, pursuant to New York process, a different judge reviewed and accepted the report recommendations and confirmed the arbitral award (the “New York Judgment”). The deadline to appeal the New York Judgment passed in May 2019.
2019/2020/2021 motion to set aside NY judgment – In September 2019, Cornell filed a motion to set aside the New York Judgment. For the first time, Cornell submitted evidence that he had not breached the Agreement and alleged UMS had intentionally misrepresented facts to the arbitrator. He maintained that the arbitration hearing was not fair, and the arbitral award was procured by fraud and should be vacated.
In an affidavit, Cornell explained his inaction in the arbitration and the New York courts:
“[I was advised by] a well-regarded Canadian attorney…there was no reason to be concerned about the award, as my presence outside of the United States made its enforcement against me exceedingly difficult. Further I was advised that from a procedural standpoint, the proper time to challenge UMS’ allegations would arise when and if UMS attempted to enforce the award in Canada.
While I firmly disputed the frivolous allegations contained in the Demand for Arbitration (and had claims of my own against UMS), I was ultimately convinced by my legal counsel that there was nothing to be gained by challenging UMS’s Arbitration Award in the United States or by participating in subsequent American court proceedings.
Accordingly, I decided not to spend copious sums of money and upend my life to travel to New York to participate in meritless proceedings that I was advised would have not [sic] impact on me.”
Nearly two years later, the New York court denied Cornell’s set aside motion.
2019 B.C. Action – Following expiry of the appeal period in respect of the New York judgment, UMS commenced litigation in B.C. (“2019 B.C. Action”), claiming $635,000 CDN plus interest on the basis of the unpaid New York Judgment. In January 2020, UMS carried out an examination for discovery of Cornell while Cornell’s set aside motion in New York was still outstanding. UMS sought dates from Cornell for a summary trial in mid-2020. Cornell did not respond, and no trial date was set. Cornell’s counsel made a demand for the arbitration hearing transcript, which UMS refused on the basis that it was a “fishing expedition”. Cornell failed to answer several requests arising from discovery. There were no further steps in the litigation for a year and a half and, in November 2021, Cornell moved to dismiss the 2019 B.C. Action for delay.
Justice Morellato heard Cornell’s want of prosecution motion in three days over several months in 2022 and rendered judgment on February 13, 2023. She ruled that the draconian order of dismissal of an action should only be granted in the clearest of cases, and this was not such a case.
Before dismissing Cornell’s motion, Justice Morellato considered Cornell’s allegations of delay, including as follows:
“[82] Mr. Cornell submits UMS Solutions took a circuitous procedural route to enforce the Arbitration Award in an attempt to, first, conceal that the Arbitration Award was obtained on evidence it knew was false; and, second, to cause delay so that interest continued to accrue at a rate well in excess of the prime rate. He notes that the interest rate claimed by UMS Solutions totalled over $100,000 as early as May 31, 2019, before this Action was even commenced.
[83] Mr. Cornell submits that when the Arbitration Award was issued by Arbitrator Bianchi on May 19, 2017, UMS Solutions could have simply proceeded to having their Arbitration Award recognized and enforced in British Columbia at that time, through s. 35 (1) of the International Commercial Arbitration [sic], R.S.B.C. 1996, c. 233. Counsel notes that UMS Solutions was at all times aware that Mr. Cornell resided in British Columbia such that the logical choice would have been to apply to have the Arbitration Award recognized and enforced in British Columbia. Instead, it chose to commence proceedings in New York state, ‘where it knew Mr. Cornell had no presence.’ ”
Justice Morellato ruled:
“[92] There clearly has been delay in this case, but I am unable to conclude, as Mr. Cornell submits, that UMS Solutions tactically engineered the delay, or that the delay was inordinate, or that the delay was caused or controlled by UMS Solutions. UMS Solutions advanced its case through the arbitration process, as expressly set out in the Agreement itself. Moreover, even if Mr. Cornell’s decision to not participate in the proceedings in New York leading to the Arbitration Award and the New York Judgment was due to the negligent legal advice he says he received, his decision to not participate in the New York proceedings, until after this Action was commence [sic] in British Columbia in 2019, was clearly beyond the control of UMS Solutions….”
Cornell also alleged prejudice as a result of the death of UMS’s main arbitration witness. Justice Morellato rejected this submission:
“[104]… Mr. Cornell reasons that, ‘because UMS has never produced a copy of the transcript put before the arbitrator, he will never have an opportunity to establish Mr. Brunelli’s knowledge that the evidence led in the Arbitration was false.’
[105] The difficulty with this argument is that Mr. Cornell had the opportunity to challenge Ms. Brunelli’s evidence at the Arbitration through cross-examination and by providing his own evidence and version of events. The prejudice suffered in this respect arises from Mr. Cornell’s decision not to appear at the Arbitration.”
Contributor’s Note:
The audience of this Case Note will be interested in the arbitration issues in this case, including decisions made with respect to (non)participation in the arbitration and the procedural steps taken selected to try to enforce the arbitral award. It should be noted that the arbitration issues were tangential to what Justice Morellato was required to determine: whether the 2019 B.C. Action should be dismissed for delay. That said, a few points can be made.
First, an obvious arbitration takeaway is that extreme caution should be exercised in deciding not to participate in arbitration proceedings. The outcome may well be an unfavourable arbitral award, which the successful party will seek to enforce.
Second, a further point concerns the “circuitous procedural route to enforce the Arbitration Award”. As set out above, Cornell alleged that fraud and misconduct motivated UMS’s procedural tactics in the New York courts. Justice Morellato ruled in the motion to dismiss that she was unable to conclude that UMS tactically engineered the delay.The following should be clear. The arbitration was international: New York entity vs. B.C. resident. The resulting international arbitration award is therefore enforceable in B.C. as a foreign arbitral award pursuant to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”). B.C. long ago codified the New York Convention in its Foreign Arbitral Awards Act, [RSBC 1996] c. 154. Similarly, B.C.’s International Commercial Arbitration Act, [RSBC 1996] c. 233 tracks the UNCITRAL Model Law. These complementary B.C. statutes allow for a straight-forward and efficient application process to recognize and enforce foreign arbitral awards. Jurisdictions around the world have similarly codified New York Convention principles. There is nothing novel here: it is not necessary to convert a foreign arbitral award into a domestic court judgment and then commence an action to enforce that judgment in British Columbia.