Ontario – stay of litigation requires active arbitration and significant overlap of issues – #147

In ATS Automation Tooling Systems Inc v. Chubb Insurance Company of Canada, 2018 ONSC 6139, Master Donald E. Short refused a stay of litigation involving a non-party to overseas arbitration because that arbitration was only “invoked” but not instituted and the issues in both proceedings were not inextricably linked. In doing so, Master Short provided the non-party with its opportunity to present a summary judgment motion in the litigation rather than await the outcome of an arbitration involving other parties, covering different issues and still awaiting formal commencement.

Master Short introduced the issues raised as being a response to competing manners and remedies of dispute resolution in the “global economy”.

[1] This matter brings into contrast, the manner of addressing two separate but related pieces of international litigation relating to the shipment of medical packaging equipment from Thailand to India. The case reflects difficulties flowing from a global economy as remedies might be sought in fora more than half a world apart.

ATS Automation Tooling Systems (“ATS”) and IWK (Thailand) Ltd. (“IWK”) as Plaintiffs applied to temporarily stay the court litigation they had brought against Chubb Insurance Company of Canada (“Chubb”) pending final resolution of arbitral proceedings in India involving IWK and a third party, Dr. Reddy’s Laboratories Inc. (“DRL”).

IWK is a subsidiary of ATS located in Thailand and manufactures automation systems. In late 2013, IWK shipped custom-built tube-filling and crimping machinery to DRL located in India. The machinery was first shipped as marine cargo from Thailand to Port of Chennai, India, arriving November 1, 2014, and then trucked 2,500 km overland to DRL at Baddi, India.

Risk for the machinery passed to DRL in Thailand but IWK had undertaken to and did insure the ocean freight to the Port of Chennai by obtaining an open cargo marine insurance policy from Chubb for the ocean carriage. No insurance was sought or obtained by IWK from Chubb for the onward transportation. DRL apparently had its own insurance for the inland shipment.

When the machinery arrived at DRL’s warehouse in Baddi, it was said to be “irreparably damaged”. ATS made a claim on the policy it had with Chubb but Chubb denied the claim on the basis that the damage occurred during the inland transit portion.

Master Short’s reasons suggest that each party had grounds to argue that some damage may well have occurred in ocean transit but more emphasis appears to be given to claims and evidence made by Chubb in its written materials. Master Short though did not determine the substance of the allegations made by either party but only ‘weighed their strength‘.

Master Short noted that “I regard part of my responsibility, while not finally deciding the relevant facts, to nevertheless weigh the strength of the parties’ positions in the face of the plaintiff’s present motion seeking to freeze their own action.

DRL sent IWK a December 2015 document entitled “Notice of Invocation of Arbitration” (“Notice of Invocation”). In para 29 of their written submissions to the court, excerpted at para. 47 of Master Short’s reasons, IWK and ATS style the “Notice of Invocation of Arbitration” as an “Arbitration Notice”. However, Master Short in his own reasons commented that, under the law of India, DRL has three (3) years from thirty (30) days after the date of DRL’s Notice of Invocation to file its arbitration with the Supreme Court in India. The earliest date on which DRL would have to file would be January 23, 2019, subject to IWK and DRL agreeing to extend that date to July 2019.

In his reasons at para. 19, as an apparent citation from Chubb’s submissions referred to in the preceding para. 18 and without contradiction recorded elsewhere in his reasons, Master Short records that as of the date of the hearing before him “[n]o arbitration was commenced; and there is no indication that one ever will be commenced. No steps have been taken by the Plaintiffs’ customer in many months.” Master Short therefore characterized the competing venue in India as “there is no existing arbitration hearing scheduled in India; there is no evidence that there ever will be arbitration in India; and, even if there ever was arbitration in India, Chubb would not be a party to it.

For Chubb’s part, referring to Plaintiffs’ court litigation which Plaintiffs sought to place in a preeminent position, it argued that Plaintiffs’ “action is entirely contingent on a theoretical potential that DRL will commence a future arbitration and that IWK might become liable to it.” Chubb minimized the court litigation as “a $15,000,000.00 place-holder to preserve an indemnity claim against Chubb, in case an arbitration should ever be commenced and the Plaintiffs should lose it.

A live issue then was whether IWK was actually involved in an active arbitration commenced in India or whether there was only a declared intention from DRL that one day it might do so. DRL’s Notice of Invocation may well be only the equivalent of either a demand letter or a condition precedent to eventually and formally initiating arbitration. The Notice of Invocation might not a binding step which commits DRL to arbitration or triggers any steps in the arbitration other than a future date by which arbitration must be started.

On July 16, 2016, IWK and ATS instituted litigation in Ontario Superior Court against Chubb for its refusal to extend coverage, claiming $15,000,000.00 in damages.

[6] The plaintiff asserts that the ultimate purchaser, DRL subsequently took the necessary steps to permit the commencement of an arbitration in India against IWK (alone) for the losses associated with the damaged machines (the “Foreign Arbitration”) on the basis that there was no proof that the damage occurred during inland transit and the documentation related to the purchase and sale of the machines mandated that the vendor, IWK, was responsible for damage until the machines were received by DRL at final destination.

Chubb did not file a defence but advised that it would seek summary judgment dismissing the action. Chubb asserted that:

(i) IWK did not assert that the cargo was delivered damaged to the Port of Chennai, only that “such a finding may be made in a theoretical arbitration in India with DRL”;
(ii) preponderance of evidence confirmed that the cargo arrived undamaged at the Port of Chennai; and,
(iii) the “action is entirely contingent on a theoretical potential that DRL will commence a future arbitration and that IWK might become liable to it”; and,
(iv) Chubb did not cover IWK’s liability to DRL. Such which would be a liability claim arising form the parties’ contractual dispute, a loss not insured by Chubb whose policy covered only the value of the goods.

IWK and ATS applied for a stay of the their own court litigation but Chubb sought to have its motion for summary judgment heard too. At an earlier scheduling conference, Madam Justice Jasmine T. Akbarali ordered that Plaintiffs’ stay motion be heard first and scheduled it for hearing by Master Short. She also directed that, if Master Short refused the stay, Chubb may bring its motion for summary judgment on the grounds that Plaintiffs have no insurable loss.

Chubb argued that Ontario’s International Commercial Arbitration Act, 2017; S.O. 2017, c. 2, in Sched. 5, section 9 provides for stays of actions pending an arbitration but has no application to actions against non-parties. Chubb stated that it was unaware of any case law where an arbitrating plaintiff had successfully moved to stay its own action against a non-arbitrating defendant.

Master Short stated that, despite Chubb not being a party to the (invoked) arbitration in India between IWK and DRL and that he could not refer the claims advanced in the Ontario litigation to that arbitration, it remained open to him to exercise his discretion and grant the stay.

Plaintiffs articulated convenience and efficiency as grounds to support their stay which Master Short summarized and addressed at paras 55-71 of his reasons.

[56] The moving parties submit that the resolution of the above-outlined issues in the Foreign Arbitration could render this action against Chubb entirely unnecessary, thereby eliminating the need for court and party resources to be expended: if the foreign arbitral tribunal concludes that (i) the damage to the Machines took place during inland transit; and (ii) the governing terms of the contracts are CIF Chennai Seaport; it would ultimately be in agreement with Chubb’s position that the Policy and Certificate should not respond to the loss, and this action would not need to proceed.

Plaintiffs argued that IWK would be prejudiced by having to participate in an arbitration in India and court litigation in Ontario, likening the confusion and inconvenience for witnesses compelled to participate in both proceedings to being “ground between the millstones” of both proceedings in different countries. Plaintiffs submitted Nanisivik Mines Ltd. v. F.C.R.S. Shipping Ltd., [1994] 2 CF 662, 1994 CanLII 3466 paras 22-24, which itself cited Kaverit Steel and Crane Ltd. v. Kone Corporation, 1992 ABCA 7 para. 21, as authority for a court exercising its discretion to stay a proceeding even though one of the litigants is not a party to the arbitration.

Master Short distinguished those cases, preferring the more open-ended guidance in Hryniak v. Mauldin, [2014] 1 SCR 87, 2014 SCC 7 para. 59 that “[w]hat is fair and just turns on the nature of the issues, the nature and strength of the evidence and what is the proportional procedure.” Master Short held that the interpretation of the extent of Chubb’s coverage will be irrelevant to the outcome in the arbitration in India and, in doing so, addressed Plaintiffs’ concern of inconsistent findings. He considered that many of the steps mentioned by Plaintiffs would only occur if the arbitration in India proceeded and Chubb’s motion for summary judgment failed.

Regarding who would suffer inconvenience, he asked “why should Chubb be denied or delayed its day in court at this point?” Determinative for Master Short was the tenuous status of the arbitration in India.

[69] It is my understanding that there is no existing arbitration hearing scheduled in India; there is no evidence that there ever will be arbitration in India; and, even if there ever was arbitration in India, Chubb would not be a party to it.

[70] The prejudice in delaying this action is all to Chubb, which currently must maintain a significant reserve against this claim on its books.

Following an extensive excerpt from Hryniak v. Mauldin on the appropriate use of summary judgment hearings, Master Short concluded that, on the balance, allowing Chubb to reach a summary judgment hearing was the better of the two (2) options before him.

[76] I am satisfied that justice delayed is justice denied. As well if the motion results in a decision in Chubb’s favour both sides will avoid the costs of keeping this action going.

[77] Conversely, having to wait an indefinite period of time with respect to the outcome of the dispute in which the insurer has no right of participation with ambiguous timelines at best, does not convince me that a waiting game is appropriate in this case.

The incomplete steps taken by DRL in India to fully activate its arbitration hobbled Plaintiffs’ arguments, seating them procedurally between two chairs. Their arguments may well have been strengthened had DRL filed its arbitration in the Supreme Court of India and, by doings so, provided IWK and ATS with a more compelling concern stemming from procedural activity in another venue. The limited overlap in the substance of the claims raised in the arbitration and the litigation also tipped the balance in favour of allowing Chubb to proceed earlier than later to test its arguments albeit on a more robust record for summary judgment.