[:en]Ontario – court refuses partial summary judgment for recognition and enforcement of award which overlaps alternative breach of contract claim – #111[:]

[:en]Madam Justice Andra Pollak in “Sanokr-Moskva” LLC v. Tradeoil Management Inc., 2018 ONSC 2967 decided that a plaintiff’s principal claims for recognition and enforcement of an international commercial award must be heard on the merits at the same time as plaintiff’s alternative claims for breach of contract. Agreeing that partial summary judgment should be considered a rare procedure reserved for issues that may be readily bifurcated, Pollak J. sent the parties to trial on the merits of both recognition and enforcement and breach of contract. Pollak J.’s caution is of particular relevance to arbitration counsel considering whether to combine, in one court application, claims for recognition and enforcement of arbitration awards and other claims.

Other cases between the same parties in this action, and referenced below, capture different ways which overlapping or adjacent claims can hinder, delay or complicate efforts the otherwise economical process provided by Ontario’s International Commercial Arbitration Act, 2017, SO 2017, c 2, Sch 5, in effect since March 22, 2017 (“ICCA”) or its former iteration, International Commercial Arbitration Act, RSO 1990, c I.9, repealed March 22, 2017. (“1990 ICCA”).

The case involved what most might agree to describe as a ‘longstanding’ dispute. “Sanokr-Moskva” LLC (“Sanokr-Moskva”), Plaintiff, and Tradeoil Management Inc. (“Tradeoil”), Defendant, were parties to a May 31, 1994 contract for the sale and delivery of 40,000 metric tonnes of fuel oil to Sebastopol, Ukraine. The oil was received by Tradeoil, loaded into seagoing tankers chartered by Tradeoil but never paid for by Tradeoil. Sanokr-Moskva obtained a March 7, 1997 arbitration award made by the International Commercial Arbitration Court of the Trade Industry Chamber of the Russian Federation granting remedies in favour of Sanokr-Moskva against Tradeoil (the “Award”).

The 1997 Award ordered Tradeoil to pay Sanokr-Moskva $1,062,432.38 U.S. dollars. Based on allegations contained in Sanokr-Moskva’s court litigation in Ontario, the Award appeared to grant pre-award and post-award interest on that amount. Some pre-award interest was set at the rate of five (5) % per annum calculated from November 1994 to and including December 31, 1994. Additional interest, being a composite of pre-award and post-award interest, was set at the rate of fifteen (15) % per annum calculated pre-award from January 1, 1995 up to the March 7, 1997 Award and post-award until and including the date of payment the $1,062,432.38 U.S. As of August 2018, the capital and accumulated interest combined into a substantial amount.

As of 2018, Sanokr-Moskva’s court litigation contained two (2) claims, the second framed as an alternate. The principal claim was for enforcement of a foreign document, the Award. The alternate claim was for breach of contract. As will be set out further below, the principal claim was added by amendment in 2013 while the alternate claim was already pleaded by itself in the 1997 initial action. Over time, the 2013 amendment overtook the 1997 claim in priority though both remained in the same court action.

Pollak J.’s reasons note initially that Sanokr-Moskva seeks “recognition and enforcement” but then also characterizes the claim as “enforcement of a foreign document”. Pollak J. notes that Tradeoil had a claim for set-off in its Statement of Defence which she qualified as “properly pleaded” but that Sanokr-Moskva had not yet pleaded in response to the set-off.

Invoking Rule 20.04(2)(b) of Ontario’s Rules of Civil Procedure, RRO 1990, Reg 194, Sanokr-Moskva applied for summary judgment of part of its action against Tradeoil. It sought partial summary judgment for the recognition, enforcement and payment ordered by the Award.

Pollak J. observed that the effect of Sanokr-Moskva’s option was to leave the alternate claim for adjudication at a future trial if its principal claim was not granted by summary judgment. Comparing the substance of the two claims, Pollak J. concluded that the alternate claim raised the same issues being considered by her in the summary judgment motion.

The reasons make no mention of Sanokr-Moskva’s reliance on one or any provisions of the ICCA or the 1990 ICCA.  Rather, as required by the procedural context presented to her, Pollak J. focuses on the appropriateness of a Rule 20.04 summary judgment application at this stage of the litigation framed by Sanokr-Moskva’s claims and by Tradeoil’s pending claim of offset.

The content of the litigation, and involvement of Ontario’s arbitration legislation, is best understood looking back into other, earlier decisions between the same parties in the same court litigation.  (These cases, tasked with resolving different procedural skirmishes such as security for costs, amendments and the review of Master’s decisions, provide different ways the courts can and do look at recognition and enforcement applications and how such applications are and are not similar to other claims between the same parties regarding their same contractual relationship.  The reasoning for the amendment in 2013 is particularly helpful to arbitration counsel.)

Master B. McAfee in the 2017 decision in Sanokr-Moskva v Tradeoil Management, 2017 ONSC 1780, para. 7 notes that the litigation is approximately twenty (20) years old.

An earlier decision of the Superior Court in CJSC “Sanokr-Moskva” v. Tradeoil Management Inc., 2014 ONSC 3851, para. 1 references the Former ICCA and that a default judgment had been obtained but set aside in 2010.

Following the set aside in 2010, Sanokr-Moskva applied to amend its claims for relief related to enforcement of the Award. Master R.A. Muir in the 2013 CJSC “Sanokr-Moskva” v. Tradeoil Management Inc., 2013 ONSC 7487 allowed amendments to the action. Master Muir summarized the debate on the amendment and identified how Sanokr-Moskva initially framed its 1997 action as a breach of contract but then applied in 2013 to amend and add claims related to recognition and enforcement of the Award.

The defendants do not oppose the relief requested in respect of the proposed breach of contract allegations in the 1997 action. They do oppose the relief related to the enforcement of the Russian arbitration award. The defendants argue that the applicable limitation period has expired with respect to any claim to enforce the arbitration award.

A subsequent challenge to Master Muir’s 2013 decision was dismissed by the 2014 decision in CJSC “Sanokr-Moskva” v. Tradeoil Management Inc., 2014 ONSC 3851.  The latter reasons offer further insights into the nature of Sanokr-Moskva’s claims.

[9] Low J noted that the claim in the notice of action was for “fuel oil sold and delivered to the defendant and for expenses owing arising from the delivery of fuel oil to the defendant, and further pursuant to an arbitration conducted by the International Commercial Arbitrary Court of the Trade and Industry Chamber of the Russian Federation, in accordance with a contract dated May 31st, 1994”. Further the prayer for relief claimed judgment in the sum of $1,062,432.38 US. She found that there was no claim in the prayer for relief for either recognition or enforcement of the foreign arbitration award and that while some generosity is given to drafters of pleadings in the context of motions to strike for failure to disclose a cause of action, such generosity should not be given where the plaintiff seeks to obtain judgment by the administrative act of the registrar’s pen, rather than following a hearing. She further found, based on the UNCITRAL Model Law on International Commercial Arbitration adapted by the United Nations Commission on International Trade Law, Articles 35 and 36, that certain procedural aspects of the Code were required for enforcement of the foreign arbitration award, including a requirement that the party relying on an award or applying for the enforcement shall supply the duly authenticated original award or a duly certified copy and the original arbitration agreement to the opposing party. She found that this had not been done. Accordingly, she found additionally that the registrar, in the circumstances, did not have jurisdiction to sign default judgment, and allowed the motion to set aside default judgment.

As a result, in 2018, Pollak J. was asked to decide whether the claim added by amendment in 2013 could now proceed alone and in advance of the initial breach of contract claim, the latter now having been demoted to an alternate claim.

Pollak J. is well-aware of and well-versed in the legislative backdrop to arbitration disputes. For example, in her recent decision in Kocur v. FirstService Corporation, 2017 ONSC 6114, Pollak J. considered how best to deal with the validity of an arbitration agreement. In that case, she opted to refer the parties’ disputes over the existence and applicability of their arbitration agreement to the arbitrator. See the ArbitrationMatters note “Ontario court enforces competence-competence principle in complex employment dispute”.

For the purpose of adjudicating Sanokr-Moskva’s application to proceed under Rule 20.04 to summary judgment on only the recognition and enforcement claim, Pollak J. began by recording Tradeoil’s argument opposing it. Tradeoil argued that summary judgment was not appropriate in the circumstances and that there were genuine issues for trial including: the validity of the submission to arbitration; the set-off issue; whether the contract dispute is within the scope of the submission to arbitration; and, who is the contracting party. In addition to those grounds, Tradeoil’s other grounds for resisting Sanokr-Moskva’s Ontario action included the following as summarized by Pollak J.

[5] Briefly, the allegations in this action are that in 1997 the Defendant found out about arbitration in Russia that was adjudicated without its knowledge. The Defendant alleges fraudulent conduct of the persons acting for “Sanokr Moskva” on its commercial dealings. The Defendant argues that the arbitration award was “procured by fraud” and/or there was no valid submission to arbitration.

Both parties filed extensive material before Pollak J., including argument on the merits of the claims in the arbitration leading to the Award. Objections included those made by Sanokr-Moskva to Tradeoil’s expert and much of the extensive affidavit material was written in or referenced exhibits containing Russian translated without certified translators. In an earlier, second application for security for costs, the Master made a similar list of complexities, including the extent of the materials and issues with translation of documents. See Sanokr-Moskva v Tradeoil Management, 2017 ONSC 1780 para. 15.

Dealing with whether to hear Sanokr-Moskva’s motion for partial summary judgment, Pollak J. introduced her analysis by excerpting the leading case, Hryniak v. Mauldin, [2014] 1 SCR 87, 2014 SCC 7, para. 66 for its approach to Ontario’s Rule 20.04 summary judgment applications. She then drilled further into to the narrower issue of if and when to consider a staged or partial summary judgment approach, relying on Baywood Homes Partnership v. Haditaghi, 2014 ONCA 450, paras 44-45 and Butera v. Chown, Cairns LLP, 2017 ONCA 783.  Combined, the latter two decisions caution against allowing staged or partial summary judgments to create inconsistent findings with subsequent trial decisions. Pollak J. observed that the Court of Appeal anticipated genuine risks in doing so.

The Court noted that in a staged summary judgment process there was a risk that a trial judge would develop a fuller appreciation of the relationships and the transactional context than the motion judge, which can force a trial decision that would be implicitly inconsistent with the motion judge’s finding, even though the parties would be bound by that finding. This process, in such context, would risk inconsistent findings and substantive injustice.

Those risks not only undercut “the intended benefits of proportionality, timeliness and affordability” but could lead to “delay, greater expense, and wasted judicial resources”.

[14] It was held [in Butera v. Chown, Cairns LLP, 2017 ONCA 783] that a partial summary judgment motion should be considered a “rare procedure” that is reserved for issues that can be easily bifurcated from the main action and that can be dealt with expeditiously and in a cost-effective manner.

Pollak J. endorsed the Ontario Court of Appeal’s list of shortcomings generated by partial summary judgment motions. The motions can delay the resolution of the main action, are expensive, oblige judges to spend time hearing them and write comprehensive reasons which do not resolve the action and rely on records which are less expansive than a trial record and increase the danger of inconsistent findings.

Pollak J.’s caution, and those of the Court of Appeal, are of particular relevance to arbitration counsel considering whether to opt to include or combine claims with court applications for recognition and enforcement of arbitration awards. The cases identified in this note capture different ways that overlapping or adjacent claims can hinder, delay or complicate efforts to take advantage of what Ontario’s 1990 ICCA and the ICCA permit to proceed as an economical process.

Applying Rule 20.04 and the approach framed by the Supreme Court and the Ontario Court of Appeal to staged summary judgment motions, Pollak J. declined to proceed with a partial summary judgment requested by Sanokr-Moskva. She agreed with the Court of Appeal’s cautions against hearing “inappropriate” motions, finding those cautions “applicable in this case” and that “all of the cautions set out by our Court of Appeal are applicable”.

Pollak J. held that, in the circumstances, in the litigation as framed by Sanokr-Moskva, the issues raised in the partial summary judgment motion could not be bifurcated from the other issues. An unsuccessful summary judgment motion on Sanokr-Moskva’s claims for enforcement and recognition of the Award would still leave its breach of contract claim to proceed to trial. The breach of contract claim “raises almost all of the issues raised in this motion.”

She did agree to follow the Supreme Court of Canada’s direction in Hryniak, para. 78, and remain seized of the matter once she dismissed the motion for summary judgment. Her own reserves voiced when remaining seized did underline some of the delays inherent in the civil court process but, anticipating them, flagged her flexibility in dealing with those delays if need be.

In my view, this is an appropriate case for me to follow the Supreme Court’s direction. I must, however, qualify this to recognize the practical reality of our court’s ability to schedule trials in a timely and expeditious manner. I will not be seized of this trial if the effect of my unavailability would be to delay the hearing of the trial between the parties. If it is possible to do so without adverse delay or consequences to the parties, I seize myself of the trial of this matter as directed by the Supreme Court of Canada.

The overlap between Sanokr-Moskva’s principal claim for recognition and enforcement of the Award and its alternative breach of contract claim persuaded Pollak J. to follow the Court of Appeal’s cautions and opt for a full hearing on the merits of both claims. In doing so, Pollak J. ensured that the eventual decision on the merits will yield a more robust consideration and resolution of the legal arguments and particular facts justifying Sanokr-Moskva’s decision to pursue two claims and will test the validity and role of Tradeoil’s offset.[:]