In this commentary, I provide key takeaways for parties that seek to bring or oppose an application to enforce an international arbitration award in Canada. I focus on three decisions issued by the Ontario Superior Court of Justice in 2023: Costco Wholesale Corporation v TicketOps Corporation, 2023 ONSC 573 (“Costco”), Prospector PTE Ltd. v CGX Energy Inc, 2023 ONSC 4207 (“Prospector”), and Xiamen International Trade Group Co Ltd. v LinkGlobal Food inc., 2023 ONSC 6491 (“Xiamen”). What is the procedural fairness exception and how does it work?
The relevant legislation – The International Commercial Arbitration Act of each of the provinces and territories of Canada, with the exception of Quebec, have adopted the UNCITRAL Model Law on International Commercial Arbitration (“Model Law”). See, for example, the Ontario International Commercial Arbitration Act, RSO 1990, c I.9, the Alberta International Commercial Arbitration Act, RSA 2000, c I-5, and the British Colombia International Commercial Arbitration Act, RSBC 1996, c 233.
For the purpose of this commentary, I will refer to the Model Law as adopted by the Ontario International Commercial Arbitration Act, RSO 1990, c I.9 (“ICAA”).
Article 35 of the Model Law provides that:
“An arbitral award, irrespective of the country in which it was made, shall be recognized as binding and, upon application in writing to the competent court, shall be enforced subject to the provisions of this article and of article 36.”
Parties that object to the enforcement of an international arbitral award will turn to Article 34 or Article 36 of the Model Law. These Articles identify an enumerated list of grounds under which a domestic court may set aside or refuse to enforce an arbitral award.
Pursuant to Article 34(2)(a)(ii) and Article 36(1)(a)(ii), a domestic court may set aside or refuse to enforce an international award on the basis that the party was “unable to present its case” in the underlying arbitration. The Ontario Court of Appeal in Consolidated Contractors Group S.A.L. (Offshore) v Ambatovy Minerals S.A., 2017 ONCA 939 (“Consolidated Contractors”) described the “unable to present its case” exception as the “procedural fairness” exception to the enforcement of international arbitral awards.
“Unable to present its case” and procedural fairness – In each of the 2023 Ontario Superior Court of Justice decisions, Costco, Prospector, and Xiamen, the Court considered an application to enforce an international arbitral award pursuant to the ICAA and Model Law. In each case, the respondent did not seek to set aside the award and disputed the application to enforce the award, at least in part, on the basis that the respondent was “unable to present its case” pursuant to Article 34(2)(a)(ii) or Article 36(1)(a)(ii) of the Model Law. In each case, the Court found that the respondent did not prove that it was “unable to present its case” and held that the international arbitral award was enforceable.
Key takeaways – Below are two key principles that parties should consider in the context of an application to enforce an international arbitration award that is contested for procedural fairness reasons.
First, the party that opposes the application to enforce an international arbitral award has the evidentiary burden to prove that it was “unable to present its case”.
In Xiamen, the respondent disputed the enforcement of an international arbitral award issued by the Xiamen Arbitration Commission (“Commission”) in part on the basis of procedural fairness. The respondent argued that it was “unable to present its case” in part because the Commission did not hear any witnesses at the arbitration hearing. The Court held that, “the fact that no witnesses [were] heard by the Commission does not mean that the respondent was unable to present its case.” In its reasons, the Court emphasized that there was no evidence on the record that: (a) the respondent objected to the procedure that the Commission adopted; or (b) the Commission did not follow its regular rules and procedures. The parties had agreed that their dispute was to be resolved by way of arbitration pursuant to the Commission’s rules. As a result, the Court did not accept the respondent’s argument that it was unable to present its case in the arbitration. The Court enforced the arbitral award.
Similarly, in Prospector, the respondent disputed the enforcement of an international arbitral award pursuant to Article 34(2)(a)(ii) of the Model Law. The respondent argued in part that it was denied the opportunity to fully present its counterclaim in the arbitration. The respondent and the applicant had a contract pursuant to which the applicant agreed to deliver seismic data to the respondent. The respondent argued in its counterclaim in the arbitration that the data was delivered late and, as a result, it lost certain investment opportunities. However, based on the arbitral award, the respondent did not adduce any evidence in the arbitration about the alleged delays or the effect of those delays on investment opportunities. This was squarely at issue in the counterclaim. The Court concluded that the respondent had been given the opportunity to fully participate in the hearing but failed to adduce sufficient evidence to prove its counterclaim. There was no procedural unfairness. The Court enforced the arbitral award.
In Costco, the respondent disputed the enforcement of an international arbitration award on the basis that it was unable to present its case pursuant to Article 36(1)(a)(ii) of the Model Law. The respondent argued that it was “unable to present its case” in part because the arbitration clause in the parties’ agreement only permitted two hearing days. The Court concluded that the respondent was not denied the opportunity to present its case. The respondent had agreed to the arbitration clause that limited the hearing to two days. In addition, there was no evidence that the respondent had been prevented from having the opportunity to present evidence and argument in the hearing. It was given the same opportunity as the opposing party. The Court enforced the arbitral award.
Based on Court’s discussion in Xiamen, Prospector, and Costco, counsel should be aware that if a party intends to oppose an application to enforce an arbitral award, it is unlikely that it will be successful in proving that it was “unable to present [its] case” if:
(a) the party complains that a procedure was unfair in the arbitration but did not object to that procedure during the arbitration;
(b) the party complains about a process in the arbitration that it agreed to in its arbitration agreement with the opposing party; or
(c) the party was given the opportunity to fully participate in the hearing but failed to adduce evidence about matters that were squarely at issue in their claim or defence.
Second, courts are unlikely to find that a party has been “unable to present its case” absent conduct by the arbitral tribunal that offends our basic notions of morality and justice in Canadian law. Canadian courts are clear that there is a high bar for a party to successfully resist an application to enforce an arbitral award on this ground. As stated by the Court in Costco:
“Courts have held that to justify setting aside an arbitral award under the Model Law for reasons of fairness or natural justice, the conduct of the arbitral tribunal must be sufficiently serious to offend our most basic notions of morality and justice. Judicial intervention for alleged violations of the due process requirements of the Model Law will be warranted only when the tribunal’s conduct is so serious that it cannot be condoned under Ontario law ” (at para 46, citing Consolidated Contractors).
These same principles were cited by the Court in Prospector (paras 40-42) and Xiamen (para 28).
In each of Xiamen, Prospector, and Costco, the Court held that there was nothing in the conduct of the arbitrator/tribunal that offended the principles of morality and justice. For example:
(a) In Prospector, as mentioned, the respondent argued that it had not been given the opportunity to fully present its counterclaim in the arbitration. However, for the reasons discussed, the respondent failed to meet its evidentiary burden to prove its counterclaim. The Court held that “[i]t follows that there is nothing in that conclusion of the arbitration tribunal that offends our principles of justice and fairness at all, let alone in a fundamental way” (at paras 46-47).
(b) In Xiamen, the respondent argued in part that its representative was denied access to at least part of the arbitration hearing and that this was a “denial of justice”. The Court did not accept this argument. There was no evidence that the respondent had made a request to the tribunal for its representative to attend the hearing or that such request was denied. In addition, there was no evidence that the tribunal had not treated the parties in the same manner in respect of providing access to the hearing. There was no procedural unfairness; and
(c) In Costco, the respondent argued that the arbitration clause, which limited the hearing to two days, “offends our most basic notions of morality and justice” (at para 81). However, the arbitral award made clear that both parties were given the opportunity to present evidence, examine witnesses under oath, object, and make arguments before the arbitrator. The Court held that “[t]his satisfied the Canadian notions of fundamental justice” (at para 81).
Based on these decisions, parties that intend to dispute the enforcement of an international arbitral award before the Canadian courts should be aware that the procedural fairness exception to enforcement is narrow and difficult to prove. The party that disputes the enforcement of an award has the evidentiary burden to prove that it was not given the opportunity to present its case in the arbitration. If, for example, a party agreed to a process before the arbitration and later disputes that process, or failed to raise a procedural issue during the arbitration, these factors are will weigh against that party’s argument that an award should not be enforced for procedural fairness reasons.
As a practical matter, these recent Canadian court decisions are likely to assist commercial parties to successfully obtain orders to enforce international arbitral awards in Canada.
For a summary of the facts and further discussion about the Costco and Prospector decisions see previous case notes for Arbitration Matters: Ontario – What does “unable to present his case” mean? #721 and Ontario – High bar to oppose enforcement of international arbitral award #777.
Thank you to Emilio Filomeno, Student-at-Law, for his assistance with this case note.