In Prospector PTE Ltd v CGX Energy Inc, 2023 ONSC 4207, the Court considered an application by Prospector PTE Ltd. (“Prospector”) for the enforcement of an international arbitration award issued in an ICC arbitration. Prospector brought the application pursuant to the International Commercial Arbitration Act, 2017, SO 2017, c 2, Sched 5 (“ICAA”), which incorporates the UNCITRAL Model Law on International Commercial Arbitration (“Model Law”). CGX Energy Inc. (“CGX”) opposed the application based on the procedural fairness exception in Article 34(2)(ii)(a) of the Model Law. CGX argued that it was denied the opportunity to fully present its case. However, based on the arbitral award, CGX failed to adduce sufficient evidence to prove its counterclaim. The Court granted the enforcement application. Prospector, together with the Ontario Court of Appeal decision in Consolidated Contractors Group S.A.L. (Offshore) v. Ambatovy Minerals S.A., 2017 ONCA 939, leave to appeal to the SCC refused, 2018 CanLII 99661 (“Consolidated Contractors”), make clear that the procedural fairness exception in Article 34(2)(ii)(a) is very narrow. A court is not likely to intervene for process or public policy reasons unless the conduct or decision of the tribunal offends the principals of justice and fairness in a fundamental way.
The Arbitration – A dispute arose between Prospector and CGX related to a seismic acquisition agreement. Prospector referred the dispute to ICC arbitration. Prospector claimed that CGX had breached its obligation to pay for 3D seismic survey data. CGX, in a counterclaim, alleged that the data was delivered late and that, as a result, it entered into an agreement with a third party for the reprocessing of the data. CGX claimed that had the data been delivered on time, it would not have lost an opportunity with a third party investor to drill two exploratory wells. CGX claimed damages for this alleged lost opportunity.
Following the ICC arbitration in London, England, the arbitral tribunal granted Prospector’s claim and dismissed CGX’s counterclaim. It concluded that CGX had failed to adduce evidence of the lost investment opportunity and that the counterclaim was speculative. The tribunal issued a Partial Final Award on September 13, 2022, in the amount of USD $10,055,678.44. It issued a Final Award on November 30, 2022, that included interest and costs, in the amount of $14,807,372.20.
The UK High Court set aside application – CGX brought an application to the High Court of Justice, Business and Property Courts, Commercial Court (“UK High Court”) to set aside parts of the Partial Final Award, pursuant to section 68 of the UK Arbitration Act, 1996, c 23. CGX argued that the arbitral tribunal had improperly dismissed CGX’s counterclaim and that this resulted in a substantial injustice to CGX. Prospector applied to dismiss the application without a hearing. The UK High Court granted Prospector’s application to dismiss on the basis that CGX had “failed to adduce sufficient evidence to satisfy the arbitration tribunal on its counterclaim” (at para 15). The High Court held that the arbitral tribunal “was fully entitled to reach the decision that it did” (at para 15).
The Ontario recognition and enforcement application – Thereafter, Prospector bought an application to the Ontario Superior Court of Justice for recognition and enforcement of the Partial Final Award and the Final Award in Ontario, pursuant to the ICAA. CGX opposed the application. It argued that the Court should exercise its discretion to not enforce the arbitral awards, pursuant to Article 34 of the Model Law, on the basis that the arbitration was procedurally unfair.
Article 34 of the Model Law identifies the grounds under which an international commercial arbitral award may be set aside by a domestic court. The Court, citing Consolidated Contractors, emphasized that “this court has repeatedly held that reviewing courts should accord a high degree of deference to the awards of international arbitral tribunals under the Model Law”. Accordingly, the grounds to set aside an award “are to be construed narrowly” (at para 33).
CGX argued that it was not given the opportunity to fully present its counterclaim during the arbitration and therefore it was “unable to present [its] case” in accordance with Article 34(2)(a)(ii) of the Model Law.
The Court, in its reasons, again citing Consolidated Contractors, noted at paras 34-35:
- A challenge to the enforcement of an arbitral award, based on procedural fairness, is very narrow; and
- While there are few Canadian cases that address the standard of review under Article 34(2)(a)(ii), the Ontario Superior Court in Corporacion Transnational de Inversiones, S.A. de C.V. v STET International S.p.A., 1999 CanLII 14819 (ONSC) concluded that “judicial intervention for alleged violations of the due process requirements of the Model Law will be warranted only when the Tribunal’s conduct is so serious that it cannot be condoned under the law of the enforcing state.”
The Court held that CGX did not meet the test for the procedural fairness exception. It emphasized that CGX is a sophisticated commercial party and that it agreed to enter into an arbitration agreement with Prospector. The arbitration agreement was valid under English law. Proper notice of the proceedings was given. CGX fully participated in the arbitration and was represented by counsel.
In addition, the Court accepted Prospector’s submission that, to succeed on the counterclaim, CGX would have needed to adduce some evidence to prove that the seismic data, if delivered on time, would have attracted investors. That was squarely the issue in the counterclaim. However, CGX did not adduce that evidence. Accordingly, the tribunal dismissed the counterclaim on the basis that it was speculative.
In addition, the Court did not accept CGX’s argument that the enforcement of the arbitral award would offend public policy. Citing Schreter v Gasmac Inc, 1992 CanLII 7671 (ON SC), the Court emphasized that the purpose of the public policy exception to enforcement is to:
“guard against enforcement of an award which offends our local principles of justice and fairness in a fundamental way, and in a way which the parties could attribute to the fact that the award was made in another jurisdiction where the procedural or substantive rules diverge markedly from our own, or where there was ignorance or corruption on the part of the tribunal which could not be seen to be tolerated or condoned by our courts” (at para 40).
The Court held that “I cannot conclude that the counterclaim of CGX was dismissed without CGX having had an opportunity to address it. On the contrary, the arbitrational tribunal found that it simply failed to succeed in meeting its evidentiary burden to prove its counterclaim. […] It follows that there is nothing in that conclusion of the arbitration tribunal that offends our principles of justice and fairness at all, let alone in a fundamental way” (at paras 46-47).
The Court granted Prospector’s application to recognize and enforce the Partial Final Award in Ontario.
Pursuant to the ICAA, which incorporates the Convention on the Recognition and Enforcement of Foreign Arbitral Awards and the Model Law, and as recognized by the Supreme Court of Canada in Yugraneft Corp v Rexx Management Corp, 2010 SCC 19, a court must recognize and enforce eligible international arbitral awards unless the respondent proves that one of the exceptions to enforcement applies. Even then, the court has discretion whether to recognize and enforce the award. The decisions of the courts are clear that a high degree of deference is to be given to arbitral awards issued pursuant to the Model Law. (See Prospector; Consolidated Contractors; United Mexican States v Cargill Inc, 2011 ONCA 622.) Given this high level of deference, counsel who are considering opposing an application to enforce an international arbitral award should be aware that the Article 34 exceptions are to be construed narrowly and that it is a high bar to prove these exceptions.
Based on the decisions in Prospector and Consolidated Contractors, the Article 34(2)(ii)(a) exception that a party “was unable to present [its] case”, also referred to as the procedural fairness exception, is very narrow. Prospector makes clear that it will be difficult for a party to prove that it “was unable to present [its] case” if the tribunal makes a finding in its award that the party had an opportunity to fully participate in the arbitration proceeding but failed to adduce sufficient evidence to prove its case. Unless the court finds that the conduct of the tribunal cannot be condoned by the enforcing state, or the decision of the tribunal offends the principles of justice and fairness in a fundamental way, the court is very likely to give deference to the tribunal’s award.
Thank you to Danielle Landry, Student-at-Law, for her assistance with this case note.