In Sociedad Concesionaria Metropolitana De Salud S.A. v Webuild S.P.A, 2024 ONSC 4491 the Court considered whether to grant an application to enforce an arbitral award against a non-party to the arbitration. The non-party had purchased assets of the unsuccessful party to the arbitration as part of a restructuring proceeding in Italy. The successful party to the arbitration and the non-party disagreed on whether the asset purchase included the transfer of the unsuccessful party’s obligations under the award to the non-party. The Court stayed the enforcement application pending a determination of that threshold issue by the Italian courts.
Background to the arbitration – Claimant Sociedad Concesionaria Metropolitana De Salud S.A. (“SCMS”) was a Chilean company engaged in the construction and administration of public work concessions. Respondent to the arbitration, Astaldi S.p.A. (“Astaldi Italy”), was an international construction group and engineering company, with its primary center in Italy. Its operations in Chile were carried out through its branch/division Astaldi Sucursal Chile (“Astaldi Chile”). Astaldi Italy (through Astaldi Chile) and SCMS entered into a construction contract in connection with a project in Chile. The construction contract was governed by the law of Chile.
The arbitration arose when SCMS alleged that Astaldi Chile had breached the construction contract. SCMS was successful in the arbitration and obtained a significant award in Chile against Astaldi Italy.
Thereafter, Astaldi Italy undertook restructuring bankruptcy proceedings in Italy and Astaldi Chile underwent reorganization under the supervision of the Chilean courts. Respondent to the enforcement application, Webuild S.P.A. (“Webuild”), purchased part of Astaldi Italty’s operating assets. Webuild was a large multi-national Italian company that specialized in construction civil engineering projects. Webuild and Aslaldi Italy were entirely separate corporate entities and competitors. Thereafter, Astaldi Italy ceased to have any operational activity other than managing certain assets. Astaldi Italy changed its name to Astaris S.p.A. (“Astaris”), which was incorporated under the laws of Italy and headquartered in Rome.
Astaldi Italy argued that its liability to SCMS under the arbitral award was transferred to Webuild. Webuild argued that it was not. Webuild had submitted this issue to the Italian courts in a proceeding to which Webuild, SCMS, and Astaris were parties. This issue had not been decided at the time of the enforcement application.
Background to the enforcement application – As the successful party to the arbitration, SCMS applied in Ontario to enforce the award as against Webuild (and did not name Astaldi Italy or Astaris as a respondent to the application). SCMS also brought simultaneous applications against Webuild in Quebec and Delaware.
Webuild applied for an order staying or dismissing the enforcement application on the basis of lack of jurisdiction or, alternatively, on the basis that Ontario was forum non conveniens. However, it raised a threshold issue first: whether Webuild had assumed the liabilities of Astaldi Italy with respect to the award. It argued that this could only be determined by an Italian court considering Italian bankruptcy law and this issue had already been raised with that court. Webuild argued that this issue had to be determined before the Ontario court could decide whether it could enforce the award as against Webuild even though it was not a party to the arbitration.
SCMS’s response was that whether Webuild had assumed the liabilities of Astaldi Italy with respect to the award should be determined on the merits by the Ontario judge hearing the enforcement application.
Ultimately, the Court did not accept SCMS’s position and stayed the enforcement application, pending determination of the threshold issue in the Italian proceedings because Ontario was forum non conveniens with respect to the threshold issue. In doing so, the Court considered the following issues:
(a) Should the Court dismiss the enforcement application on the basis that Ontario does not have jurisdiction? The Court found that it had presence-based jurisdiction over Webuild because it carried on significant business in Ontario, and because it had been properly served with the application as a corporation pursuant Rule 16.02(1)(c) of the Ontario Rules of Civil Procedure. As a result of this finding, the Court held that it did not need to consider any other route to finding jurisdiction.
(b) Can Webuild seek a stay against SCMS based on forum non convenient? The Court decided that Webuild could seek a temporary stay under the broad stay provision in s. 106 of the Ontario Courts of Justice Act, RSO 1990, c.C . 43 pending the outcome of its proceedings in Italy on the threshold issue
(c) Should the application be stayed on the basis that Ontario was not the most convenient forum? The Court granted a temporary stay. It explained why this was not a standard application for recognition and enforcement (at para. 38):
“Generally, forum non conveniens will not apply in a recognition and enforcement application because there is no other jurisdiction that can enforce against Ontario assets. However, as noted by Webuild, SCMS’s underlying application is not a standard recognition and enforcement matter. This is because SCMS seeks to enforce against a third party to the Arbitral Award (Webuild) instead of against the judgement debtor (Astaldi). Whether Webuild is liable for Astaldi’s debts under the Arbitral Award must be determined before the award can be enforced against Webuild. This is a severable issue from the issue of enforcement of the Arbitral Award in Ontario.”
The Court determined that Italy was the most appropriate forum to decide the threshold issue of whether Webuild had assumed Astaldi Italy’s labilities and obligations under the award – and whether these obligations even survived the restructuring – for several reasons: (a) the parties filed conflicting expert reports about the extent to which the Italian courts had exclusive jurisdiction to decide the threshold issue and the Court referred to the complexity of the issues under Italian law; (b) the contract pursuant to which Webuild acquired assets from Astaldi Italy was governed by Italian law; (c) the relevant documents were in Italian and not English, Astaldi Italy and Webuild were Italian companies, and the witnesses were Italian and did not speak English fluently.
The Court recognized that this stay was an extraordinary remedy that would delay SCMS’s enforcement efforts, but stated that this could be compensated for if SCMS was successful in the Italian proceedings. But there was overlap in the Italian proceedings and the issues were the same. There was also a risk that the Quebec and Delaware courts would also be making orders on the same issues. A stay would avoid unnecessary duplication of judicial and resources. The Court expressed the view that the threshold issue should be determined in a single proceeding in Italy.
Editor’s Notes:
First, this decision appears to have been released only about a week after that of the United States District Court in Delaware, which was asked to confirm the final award and enter judgment: Sociedad Concesionaria Metropolitana De Salud S.A. v Webuild S.P.A, 2024 WL 4333144. SCMS argued that Webuild was the successor in interest to Astaldi Italy. Webuild sought to dismiss the motion on the grounds that the Court lacked personal jurisdiction over Webuild and quasi in rem jurisdiction. SCMS conceded the first point but argued that the Court had quasi in rem jurisdiction over non-resident Webuild because it was the sole owner of a Delaware corporation, Webuild U.S., and its shares of this corporation were deemed to be located in Delaware and subject to attachment. The Court dismissed the motion because Webuild had no relation to the award and it had no jurisdiction over Webuild. Therefore, it appears that the Delaware court was not even apprised of the Italian proceedings or asked to consider the threshold issue. I have not been able to find a decision on the Quebec pending application.
Second, this is a novel case. The applicant sought to enforce an award against a party that had no obligations under it. (Note that Astaldi Italy was not named as a respondent to the enforcement application.) If the Italian courts were to decide that Astaldi Italy’s obligations with respect to the award were transferred to Webuild it will be interesting to see whether the award can be enforced as against Webuild as “assignee” or a party that “steps into the shoes” of Astaldi Italy, for example, for the purpose of enforcement pursuant to section 35(1) of the Ontario International Commercial Arbitration Act, 2017, S.O 2017, c. 2 Sched 5. That provision states that, “an arbitral award, irrespective of the country in which it was made, shall be recognized and binding, and upon application in writing to the competent court, shall be enforced subject to the provisions of this article and of article 36”. Article 36 states that recognition or enforcement may be refused only if: the party against whom enforcement is sought was under some incapacity; the arbitration agreement is invalid; the party had no notice of the arbitration or was otherwise unable to present their case; the award deals with a dispute not falling within the submission to arbitration or contains matters beyond it scope; the composition of the tribunal or the procedure was not in accordance with the parties’ agreement; or the award is not yet binding or has been suspended. It is clear that this provision contemplates fairness grounds that may be raised by a party to the arbitration which seeks to oppose enforcement. If the Italian court decides that Astaldi Italy’s liability under the award was transferred to Webuild, will Webuild be able to assert any of these grounds to oppose enforcement? For example, must it be clear that Webuild had a complete understanding of the liabilities it has purchased?
In any event, the argument that there is a threshold decision to be made first before the Ontario Court can hear the enforcement application must be correct.
Finally, it is clear that the stakes in this case were very high. The award obtained by SCMS against Astaldi Italy was about CDN $188,000,000. The parties to the application invested significant effort on this enforcement application and agreed that costs of $200,000 (inclusive of taxes and disbursements) should be granted to the successful party. The Court noted that SCMS had brought simultaneous motions to enforce the award as against Webuild in Quebec and Delaware. The award was issued and Astaldi Italy’s restructuring process completed in 2021. It is not clear from the decision when the transaction with Webuild occurred, but one wonders whether the timing of the enforcement application was driven by the timing of the Webuild’s Italian proceedings to determine the threshold issue, although the Court said nothing about this.