[:en]Ontario – award has binding effect despite post-award issues and tribunal’s willingness to consider them – #099[:]

[:en]Ontario’s Court of Appeal in Popack v. Lipszyc, 2018 ONCA 635 explored the meaning of the term “binding” and whether parties’ post-award conduct can delay the moment by which their award becomes binding on them. Absent the parties’ agreement that they can appeal their award on grounds stated by them and available under applicable arbitration legislation, parties resisting the binding nature of the award are constrained to challenge their award within the narrow grounds for refusal of recognition and enforcement set out in the UNCITRAL Model Law on International Commercial Arbitration, adopted by the United Nations Commission on International Trade Law on June 21, 1985, as amended on July 7, 2006, (“Model Law”) and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958) (the “New York Convention”).  A party’s stated intention to return to the arbitral tribunal to have post-award issues decided and the tribunal’s willingness to consider those issues do not serve together or alone to delay the binding effect of the final award.
The case involved an investment in commercial real estate in Toronto. The main, named investors and litigants were Mr. Joseph Popack and Mr. Moshe Lipszyc. For the purpose of the arbitration and litigation, Mr. Popack, three (3) corporations controlled by him and seven (7) individuals “aligned in interest” were claimants and appellants (“Appellants”) and Mr. Lipszyc with his spouse, Ms. Sara Lipszyc, were defendants and respondents (“Respondents”).   (Though the Court in its reasons often refers to the parties by the names of the main investors, the style of cause of the various court decisions lists the others.  For ease of reference, this note uses “Appellants” and “Respondents”.)

By submission agreement dated November 10, 2010, as amended January 11, 2011, (“Arbitration Agreement”), the parties agreed to submit their various, long term disputes to arbitration before a rabbinical court, the Beth Din (Bais Din) of Mechon L’Hoyroa, located in New York (“Beth Din”).

The Court did not reproduce the text of the Arbitration Agreement but did identify some elements essential to appreciating the applications in the Superior Court. The Court noted that the Arbitration Agreement stipulated that the parties thereto agreed that the Beth Din was a tribunal subject to Ontario’s International Commercial Arbitration Act, 2017, SO 2017, c 2, Sch 5.

[13] Under the Arbitration Agreement, the arbitral panel was free to choose the appropriate procedures by which to conduct the arbitration, no record was to be kept of the evidence or the submissions, and no reasons for decision were required from the panel.

After an eight week arbitration conducted in Toronto between January 2011 and March 2013, the Beth Din issued a succinct August 13, 2013 award, identified as a Rabbinical Court Ruling (the “Award”). The Award identified Appellants as Party A and Respondents as Party B.

[T]he following Rabbinical Court Ruling was issued by us:
1) The funds escrowed with the Rabbinical Court [i.e., the sum of $440,000] shall be returned to Party A.
2) Party B shall pay Party A the sum of $400,000, whereby the parties are released from each other.

The amount awarded to Appellants was significantly lower than what Appellants had sought in the arbitration. Independent of any mention of the gap in amounts sought and awarded, Appellants applied to the Superior Court under article 34 of the Model Law to set aside the Award on the ground that the Beth Din had breached the procedure agreed upon by the parties. In particular, they alleged that holding an ex parte meeting with a rabbi, initially appointed to arbitrate the parties’ dispute, breached their agreement.

Madam Justice Wendy M. Matheson in her June 1, 2015 decision in Popack v. Lipszyc, 2015 ONSC 3460 acknowledged that the ex parte meeting breached the agreed upon procedure and provided a basis to set aside the Award. She decided though to exercise her discretion under article 34(2)(a)(iv) of the Model Law to refuse to set aside the Award and dismissed Appellants’ application. Appellants’ appeal of that 2016 decision was dismissed February 18, 2016 in Popack v. Lipszyc, 2016 ONCA 135.

In its reasons, when introducing first mention of the Model Law, the Court paused to refer to Yugraneft Corp. v. Rexx Management Corp., [2010] 1 SCR 649, 2010 SCC 19 paras 10-11  where the Supreme Court of Canada qualified the Model Law as “best practices”.

Appellants paid all the costs of the set aside application as ordered by the Superior Court and Court of Appeal. They then wrote Respondents requesting prompt payment. Respondents replied to advise that they would seek an order from the Beth Din to reduce the Award by the costs of “uncompensated” legal fees incurred and damages suffered by Respondents contesting Appellants’ application and appeal.

Faced with Respondents’ refusal to pay the amount ordered in the Award, Appellants applied June 24, 2016 under articles 35 and 36 of the Model Law to have the Award recognized and enforced and obtain payment. In response to Appellants’ application, Respondents claimed that it claims for costs and damages would exceed the amount covered by the Award and that, in their understanding, the Beth Din was agreeable to addressing the issue of costs and damages incurred post-Award if only Appellants attended before them which they refused.

The Beth Din sent two letters which led to the Court of Appeal having to determine when an international commercial arbitration award becomes binding on the parties.  First, as reproduced at para. 22, the Beth Din addressed the parties’ disagreement as to whether its Award was in Canadian or U.S. dollars. In closing its September 18, 2016 letter, it wrote the following:

Accordingly, should any of the parties have claims and/or proofs that relate to the currency issue and for that matter any other claims that the parties wish to be resolved by the Rabbinical Court, please contact the Court Clerk, to schedule a hearing before the Rabbinical Court.

Second, the Beth Din wrote the parties by June 7, 2017 letter stating:

The Bais Din has ordered that the [Award] is stayed until Popack comes back to the Bais Din for a hearing to determine Lipszyc’s claim, that Popack continuously breached the Arbitration Agreement, and what are the consequences for breaching the Arbitration Agreement.

On the application to recognize the Award, Respondents opposed the application. They claimed that the Award had not yet become binding within the meaning of article 36(1)(a)(v) of the Model Law and article V(1)(e) of the New York Convention.

The application judge in Popack v. Lipszyc, 2017 ONSC 4581 agreed with Respondents’ objections for three (3) reasons.

(i) he disagreed with Appellants that at the time of their application to enforce there was an absence of any pending proceeding to appeal the award;
(ii) he found that Respondents had expressed an intention to pursue further issues related to the subject matter arbitrated; and,
(iii) he found that the Beth Din’s two post-Award letters indicated that the arbitration process was not yet complete and the Beth Din was not functus officio.

The Court determined that, on the particular facts before it, the applicable standard was correctness.

[34] By contrast, the present case is concerned with the interpretation of the recognition and enforcement provisions of the Model Law, in conjunction with the provisions of the Model Law concerning the termination of proceedings (art. 32) and the correction of awards (art. 33). These are issues with a high degree of generality, having implications beyond the parties and their specific Arbitration Agreement. Consequently, they are questions of law and the correctness standard applies: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 (CanLII), [2014] 2 S.C.R. 633, at para. 51. As this court recently stated, the standard of review applicable to the “interpretation of the Model Law and ICAA, as an issue of law,” is correctness: Trade Finance Solutions Inc. v. Equinox Global Limited, 2018 ONCA 12 (CanLII), 420 D.L.R. (4th) 273, at para. 31.

The Court also prefaced its analysis of the parties’ competing positions with the observation that a general rule applied when interpreting the New York Convention and the Model Law.

[40] The general rule of interpreting the recognition and enforcement provisions of the Convention and Model Law is that “the grounds for refusal of enforcement are to be construed narrowly”: Corporacion Transnacional de Inversiones S.A. de C.V. v. STET International S.p.A. (1999), 1999 CanLII 14819 (ON SC), 45 O.R. (3d) 183 (S.C.), at para. 26, aff’d (2000), 2000 CanLII 16840 (ON CA), 49 O.R. (3d) 414 (C.A.), leave to appeal refused, [2001] 1 S.C.R. xi.

Appellants submitted in appeal that the applications judge committed three (3) errors;
(i) he ignored the mandatory rules in articles 32 and 33 of the Model Law concerning the termination of arbitral proceedings;
(ii) he deferred to the Beth Din’s view about the nature of the Award when, under the Model Law, it is the courts who determine whether an award is binding; and,
(iii) he failed to recognize that the matters raised by Respondents following the Court of Appeal’s 2016 order were new issues, which did not affect the binding nature of the Award.

Respondents submitted that the application judge’s conclusions were reasonable given that the parties disputed the currency of the award and both sides asked the Beth Din to decide post-Award cost issues. Respondents claimed that an award cannot be binding when it is ambiguous and when the tribunal has not yet declared that the proceedings are terminated. Respondents added the award was not yet binding because the Beth Din had not yet determined whether it had fully adjudicated all issues.

At paras 41-52, the Court surveyed key commentary in the doctrine and certain case law on the origin and possible content of the term “binding” used in the New York Convention and the Model Law. Citing from Gary B. Born’s International Commercial Arbitration, 2d ed. (The Netherlands: Kluwer Law International, 2014), vol. 3, at page 3610, the Court reproduce the author’s “possible range of meanings”:

[A]n arbitral award might be considered “binding” under the Convention when the award: (a) is made by the arbitral tribunal, without regard to possible or pending judicial, institutional, or other review under any foreign law; (b) is made by the tribunal, provided that no available internal appellate review within the relevant arbitral institution has been invoked; (c) is made by the arbitral tribunal, provided that no application for judicial review has been filed in an arbitral seat; (d) is made by the arbitral tribunal, and the time for pursuing an ordinary judicial challenge to the award in an action to annul under local law in the seat has expired, or any application for such review has been denied; (e) is made by the tribunal, and the time for seeking extraordinary judicial review under local law in the seat has expired, or any application for such review has been denied; (f) is made by the tribunal, and the award has been confirmed by a local court in the seat; or (g) is made by the tribunal, and all of the avenues of judicial review in paragraphs (a)-(f) have been exhausted, or the time for doing so has expired.

Born opined at page 3617 of his text that “binding” occurs when the parties’ arbitration agreement provides that the award is either final or binding regardless of the possibility of subsequent judicial challenges of any sort. The Court was quick to note that some courts disagree with Born and hold that “binding” occurs when an award is no longer open to recourse on its merits, pointing to the Belgian Cour de Cassation decision in Inter-Arab Investment Guarantee Corporation v. Banque Arabe et Internationale d’Investissements, (1999) XXIV Y.B. Comm. Arb. 603 (Belgian Cour de Cassation).

The Court then set out a further distinction made by some courts between “ordinary” and “extraordinary” recourses on the merits. It referred the reader to two overseas (2) cases as well as J. Brian Casey’s Arbitration Law of Canada: Practice and Procedure, 3d ed. (Huntington, NY: JurisNet, 2017), at pp. 550-51, interspersing those references with its own summary:

In broad terms, “ordinary” recourse denotes a genuine appeal on the merits of an award to a second, review arbitral tribunal or a court; “extraordinary” recourse encompasses what the Convention and Model Law describe as set aside proceedings.

The Court noted that Canada’s own Supreme Court did not apply that distinction when it held in Yugraneft that an award is not binding “if it is open to being set aside under art. 34 of the Model Law, either because the three-month period in which to bring a motion to set aside has not expired or the set aside proceedings have not yet come to an end.

The Court concluded that, on the facts, it was not necessary to delve into whether the availability of an “ordinary” recourse prevented an award from being binding because the Arbitration Agreement provided for no appeal before any religious or secular court.

The Court then applied the general principles to the facts in the particular case before it. Applying the three-month period from receipt of the Award set out in the Model Law, the Court’s reading of Yugraneft lead it to determine that the Award became binding on the parties on February 18, 2016 when the Court earlier dismissed Appellants’ set aside application.

Framed by that conclusion, the Court then examined the application judge’s three (3) reasons to hold otherwise.

1. was there a pending proceeding to appeal the Award – paras 55-58

The Court held that the applications judge made a palpable and over-riding error in finding either that Respondents had any appeal rights or intended to set aside the Award. For the former, Respondent had no such rights. For the latter, they never announced an intention to do so.

2. the correction or interpretation of the Award – paras 62-70

The Court disagreed with Respondents that their stated intention to seek post-Award costs and damages fell within article 33(1)(a) (“correct in the award any errors in computation, any clerical or typographical errors or any errors of similar nature”), article 33(1)(b) (“give an interpretation of a specific point or part of the award”) or article 33(3) (“make an additional award as to claims presented in the arbitral proceedings but omitted from the award”).

[68] The respondents’ stated intention to seek costs relating to the set aside and enforcement proceedings Mr. Popack took in the Ontario courts certainly does not constitute a computational, clerical or typographical error in the Award, nor a request to make an “additional award” as to “claims presented in the arbitral proceedings but omitted from the award.”
[69] The respondents’ stated intention is based on events that took place after the Award was made; it raises a “new issue.” I note that respondents’ counsel, in cross-examination of Mr. Popack on his affidavit, accepted that Mr. Lipszyc’s claim for costs incurred after the issuance of the Award in the Ontario court proceedings was a “new issue”. Article 33 does not apply in those circumstances.

3. the continuing jurisdiction of the Beth Din – paras 71-87

The Court held that the application judge erred by ignoring the operation of article 32 of the Model Law which stipulates that arbitral proceedings are terminated by the final award and that article 32(2), subject to articles 33 and 34(4), announces the termination of the arbitral tribunal’s mandate once the proceeding terminates.

The Court held that the Award was final and the Beth Din did not identify any further matter which required determination in the arbitration when it “released the parties from each other”. Respondents’ claim for costs and damages was a new claim.

“[74] The application judge did not explain which provisions of the Model Law or Arbitration Agreement led him to regard the tribunal’s statements as supporting his conclusion that the Award was not “binding.” Nevertheless, in my respectful view, the application judge erred in law by conflating two distinct issues: first, whether the Award was “binding” for purposes of recognition or enforcement pursuant to the Model Law; and, second, whether the Beth Din had jurisdiction under the Arbitration Agreement to accept new claims from a party following the issuance of the Award. The application judge seemed to reason that if a party approached the arbitral tribunal with a request to consider a new issue some three years after the Award had issued, the Award was not binding for purposes of the Model Law.

The Beth Din’s willingness to consider new issues did not affect the binding nature of the Award, Appellants’ set aside proceedings had terminated and Respondents’ claim for post-Award costs and damages did not qualify as matters covered by article 33 of the Model Law.

The Court also observed the distinction between the Beth Din staying its own Award for the purposes of Torah law.

[87] Moreover, as the respondents conceded in their factum, “[t]he Beth Din’s stay order does not tell the courts how to behave – the Beth Din has its own religious enforcement procedures, e.g., a contempt order called a ‘sirov’. The award got stayed for purposes of Torah law.”

The Court allowed the appeal, set aside the order of the application judge, and substituted an order recognizing and enforcing the Award.[:]