In NorthStar Earth & Space Inc. v. Spire Global Subsidiary, Inc., 2024 ONSC 5060, the Court granted an interim injunction before the applicant had commenced an arbitration. The Court did so even though it acknowledged that the applicant would not have met the test under Ontario law for a mandatory injunction (the strong prima facie case standard). Instead, because of the urgency, the Court applied the injunction test that would otherwise have been applied by the arbitral tribunal under Article 17 of the UNCITRAL Model Law. Article 17 requires a lower threshold of showing the claim has a “reasonable possibility” of success. The Court therefore modified the test for granting an interim injunction in the context of an international arbitration.
Background – Applicant NorthStar required images from space to sell its services to customers, for which it had patented technology. NorthStar and Respondent Spire were parties to a Constellation Services Framework Agreement (the “Agreement”), pursuant to which NorthStar would pay Spire to manufacture, launch and operate satellites with certain imagers, from which NorthStar would obtain images compatible with its patented technology. The technology is used to locate, identify and track potential threats from space.
Due to alleged performance issues with these satellites, NorthStar advised that it intended to commence an arbitration against Spire. NorthStar alleged that after paying more than USD $14 million, four of its satellites were launched into space; however, one of the satellites was subsequently lost and the other three functioned at levels that could not produce transmittable images that met the contractual service levels. Since Spire did not advise that it would replace these three satellites within the timeframe specified under the Agreement, NorthStar intended to commence an arbitration seeking remedies for the alleged breach of contract.
The arbitration had not yet been commenced when NorthStar applied to the Court for an interim measure pursuant to the International Commercial Arbitration Act, 2017, S.O. 2017, c. 2, Sched. 5 (the “ICAA”). It sought an order requiring Spire to abide by the Agreement, which NorthStar argued obligated Spire to keep the three remaining satellites in orbit and provide images, even if not to the complete contractual specifications, until replacement satellites were manufactured, launched, and are put into commercial operation, or until the arbitration was concluded.
NorthStar argued that despite the issues with the quality of the images, the data being delivered was of sufficient value to itself and to its customers that it could demonstrate to its customers that its patented technology was working. Without these images, its technology could not be tested and evaluated with actual data, undermining the credibility of its systems. This would not be possible if Spire de-commissioned the three remaining satellites.
NorthStar’s motion was heard on September 10, 2024, with reasons released two days later. The reason for the urgency of the motion, which could not wait for the arbitration to be commenced, was because of a deadline arising under a service agreement between Spire and a third-party supplier, Kepler Communications Inc, for Kepler to provide transmission services for the image data that would be captured by the satellites. Spire responded that it would face significant financial obligations under this agreement if it was required to keep the three satellites in orbit and to keep providing images to NorthStar. Under this agreement, the termination fee increases tenfold once the satellites are put into commercial operation, which is the “Service Start Date.” Spire intended to terminate the agreement on September 12, 2024, when the standby period under the agreement expired, to ensure that it was terminated before any Service Start Date is triggered. Otherwise, Spire would be liable to Kepler for the entire amount payable to Kepler over the agreement’s term, estimated to be USD $1.8 million.
This required an urgent decision on the injunction motion, ahead of that September 12, 2024 expiry date.
The Applicable Test for the Injunction – Citing RJR-MacDonald Inc. v. Canada (Attorney General), 1994 CanLII 117 (SCC), the Court laid out the well-established three-part test for obtaining an injunction. An injunction should be granted where (a) there is a serious issue to be tried, (b) the moving party would suffer irreparable harm if the injunction is not granted, and (c) the balance of convenience favours granting the injunction.
The issue between the parties was the applicable threshold for meeting part (a) of the test. Spire argued that NorthStar was seeking a mandatory order requiring it to do something – deliver data from the three satellites and keep them operating – and thus NorthStar needed to meet the higher burden of demonstrating a strong prima facie case. NorthStar argued that it was asking Spire to maintain the status quo or continue performing its contractual obligations.
NorthStar also argued that since the injunction was being sought within the context of a proposed arbitration under the ICAA, the Court should take into account the test that would be applied when granting an interim measure under Article 17 of the Model Law, pursuant to which a party seeking an interim measure need only satisfy the arbitral tribunal that there is a reasonable possibility that it will succeed on the merits of the claim. The Court found this argument to be the most compelling, as the Court was only being asked to consider the injunction because of the urgency and this request would otherwise have been determined by the arbitral tribunal. Thus, the Court found that this was the merits standard that it would apply to the injunction test.
Injunction Granted – The Court then applied the Article 17 test for an injunction and concluded that the injunction should be granted.
The Court held that there was a “reasonable possibility” that NorthStar would succeed in the arbitration on its claim that Spire breached the Agreement as the replacement satellites would not be put into commercial operation by the contractually required date. The Court also held that there was a “reasonable possibility” that NorthStar would succeed in its claim that Spire would be in breach of the Agreement if it did not deliver data from the three satellites and keep them operating, although noted that this was a “closer call.” According to the Court, Spire raised a contractual interpretation argument (about the meaning of the word “or” in the contractual provision in issue) that “knocks what might otherwise have been a strong prima facie case for NorthStar […] down to a case that may only have a reasonable possibility of success when it is eventually considered by the [arbitral] Tribunal…” However, that was enough for NorthStar to meet the merits standard for the injunction sought.
NorthStar also met the other elements of the test: irreparable harm (because of the limitation of liability clause in the agreement, NorthStar may be restricted as to the quantum and type of damages it could claim) and balance of convenience.
Contributor’s Notes:
In an international arbitration, Article 17 of the Model Law imposes a standard of satisfying the arbitral tribunal that there is a “reasonable possibility” that the moving party will succeed on the merits of the claim. In the context of motions for mandatory injunctions (i.e., requiring the defendant to do something), the test for obtaining an interim measure in an international arbitration is thus different than the prima facie case standard applicable in a Canadian civil proceeding. Thus, a Canadian court hearing a motion for a mandatory injunction will necessarily grapple with the merits of the underlying claim. If that test is applied in the context of an arbitral claim, the Court will essentially determine the merits of the arbitration and could be seen to be prejudging the case and usurping the role of the arbitrator.
The Model Law provides for the concurrent jurisdiction of national courts and arbitral tribunals to issue interim measures. Article 17 of the Model Law provides tribunals with the power to order such relief, and the standards to be met for doing so. Article 9 of the Model Law states that it is not incompatible with an arbitration agreement for parties to seek such relief from a court. Article 17J, added in 2006, goes further and addresses the powers the court has on such an application: the court has “the same power” to issue interim measures in relation to an arbitral proceeding as it does in relation to a civil proceeding, but this power should be exercised “in consideration of the specific features of international arbitration.” Thus, the concurrent jurisdiction of the court to grant interim measures is an exception to the otherwise exclusive jurisdiction of the arbitrator over the dispute.
This case is the first time a Canadian court has addressed the meaning of Article 17J. In finding that the Court should apply the legal standard that would be applied by the arbitral tribunal under Article 17 of the Model Law, the Court held that this was because it “is only being asked to consider the interim measures (the injunction) because of the urgency of the situation and the September 12, 2024 deadline. This would/should have otherwise been determined by the ICC Tribunal.” In other words, the Court felt that it was being asked to step into the shoes of the arbitral tribunal and exercise jurisdiction it otherwise would not have had if the tribunal was constituted.
The problem with that logic is that it ignores the concurrent jurisdiction granted to the Courts to decide interim measures during an arbitration, using its own standards. Other jurisdictions limit the court’s role in granting interim measures to situations where the arbitral tribunal does not have the power to issue the interim measure or is unable to act in time (e.g., Section 44 of the UK Arbitration Act 1996). But the Model Law has not done the same thing. Furthermore, in the context of jurisdictional challenges, Article 16 of the Model Law sets out the principle of competence-competence and requires a party to first raise the issue before the arbitral tribunal before going to the court. No similar requirement was put in place with respect to interim measures after the arbitral tribunal is constituted. Therefore, contrary to the Court’s logic in this case, there was no requirement for NorthStar to go to the tribunal first, even if it was constituted.
It therefore does not necessarily follow under the Model Law that this is a matter that would have “otherwise been determined by the ICC Tribunal.” In other words, the Model Law gave the Court jurisdiction to make an order as to interim measures, with the “same power” as it does in a civil proceeding. Perhaps Canadian courts will interpret their jurisdiction under Article 17J to be limited only once the arbitral tribunal is constituted as other jurisdictions have done (see, for example, Cape Lambert Resources Ltd v MCC Australia Sanjin Mining Pty Ltd, [2013] WASCA 66, paras. 96-97). But that is not an issue that has yet been analyzed and determined in Canada.
All of which is to say, determinations of the role of the Court under Article 17J should not be lightly made. The travaux prépatoires of Article 17J of the Model Law should be examined, as should the jurisprudence from other jurisdictions interpreting this provision and the scope of a national court’s powers to grant interim measures. This more detailed exercise is important to ensure that our Canadian jurisprudence properly interprets the Model Law and ensures “uniformity in its application,” as required by Article 2A of the Model Law. This analytical exercise is missing from this case.