In All Communications Networks of Canada v. Planet Energy Corp., 2023 ONCA 319, the Court dismissed the appeal of a judgment upholding an arbitral award in favour of Respondent All Communications Networks of Canada (“ACN”) in the amount of $29,259,787 and made an order enforcing the award. In first instance, Planet Energy Corp. (“Planet”) sought to set aside the arbitral award based on the failure of due process, arguing: (1) that it was not given the opportunity to present its case; and (2) that the Arbitrator’s ruling violated public policy. Before the Court of Appeal, Appellant Planet raised the additional argument that the first instance judge failed to apply the right standard of review. Planet argued that a de novo hearing was required to examine properly the arguments raised against the arbitral award. The Court of Appeal dismissed Planet’s arguments and confirmed that a party seeking to set aside an arbitral award based on a failure of due process must prove that the Arbitrator’s conduct is serious enough to dismiss the application to enforce the award under the law of the enforcing State (here, Ontario). The Court of Appeal also confirmed that a party seeking to set aside an award based on a violation of public policy shall demonstrate that the award offends Ontario’s principles of justice and fairness in a fundamental way.
The Agreement – On November 9, 2012, Planet, a gas and electricity provider, and ACN, a marketing company, entered into a contract (the “Agreement”) in which Planet agreed to pay gross margin commissions to ACN for customers it referred, and who registered for Planet’s products and services in a defined territory. The Agreement expired in November 2016. However, Planet’s obligation to pay commissions to ACN survived the termination of the Agreement.
The Arbitration – Following the termination of the Agreement, ACN began working with a U.S. Planet competitor. Because of an ongoing investigation from the Ontario Energy Board (“OEB”) concerning independent business owners who sold Planet’s products, Planet notified ACN that it would stop paying commissions and set-off any penalty amount against commissions payable to ACN. Therefore, ACN triggered the arbitration clause and sought payment of its commissions against Planet.
The arbitration was an international arbitration governed by Ontario’s International Commercial Arbitration Act, which incorporated the Model Law at its Schedule 2.
During the arbitration, Planet attempted to join the U.S. competitor as a party. The Arbitrator denied Planet’s application. Planet also attempted to obtain documents from the competitor through ACN. Being dissatisfied with the Arbitrator’s orders concerning the competitor’s documents and, without seeking permission from the Arbitrator, Planet referred its demand for such documents to the United States District Court of North Carolina. ACN contested Planet’s right to do so. The Arbitrator ordered that any delay resulting from the U.S. Application would not allow Planet to seek a delay of the arbitration.
As a result of the U.S. Application, Planet received over 400 documents from the competitor only 4 days before closing arguments. The Arbitrator held that only 8 were relevant and 3 were highly relevant, but they did not put any different light on the evidence that was presented at the hearing.
About six months later, the Arbitrator issued her Award granting ACN’s claim.
The Superior Court’s decision – Planet moved before the Ontario Superior Court to set-aside the award based on two arguments:
- It was unable to present its case in accordance with article 34(2)(a)(ii) of the Model Law, because it was deprived of an opportunity to respond to the evidence and arguments advanced by ACN and denied the right to discovery and cross-examination on a complete evidentiary record; and
- The award was contrary to public policy because Planet could not comply with the award without violating the Energy Consumer Protection Act (“ECPA”), contrary to article 34(2)(b)(ii) of the Model Law.
ACN brought a cross-motion to enforce the award.
Justice Cavanagh dismissed both arguments, deferring to the Arbitrator who had the benefit of the complete hearing and evidence. He held that Planet had not proven that it was unable to present its case. He also rejected Planet’s argument that the ECPA precluded payment of commissions and that the Arbitrator’s decision was therefore contrary to public policy. He considered both the terms of the ECPA and a memorandum made out to Planet by the OEB, as well as the principles of contract interpretation. He upheld the Arbitrator’s assessment that the Agreement was clear and unambiguous on gross margin payments as negotiations revealed “a consistent and uniform course of conduct with respect to ACN’s entitlement to commissions from renewals”.
The Appeal – Planet’s appeal was based on three arguments.
First, Planet challenged the standard of review. It argued that Justice Cavanagh should have conducted a de novo hearing to determine whether Planet was given the opportunity to present its case. Failing to do so did not allow him, “to independently assess the importance of document discovery and the prejudicial effect of ACN’s failure to comply with its obligation to Planet”.
Planet relied on lululemon athletica inc. v. Industrial Color Productions inc., 2021 BCCA 228 to seek a de novo hearing to determine whether it was able to present its case. In lululemon, the British Columbia Court of Appeal found that on an application to set aside an international arbitral award pursuant to Article 34(2) of the Model Law, the applicable standard of review is correctness and the Court hears the matter “de novo”.
The Ontario Court of Appeal distinguished lululemon on the basis that it involved a challenge to jurisdiction, not procedural fairness. Only a jurisdictional challenge requires a de novo hearing.
The Court of Appeal stated that it was Planet’s burden to demonstrate that it was unable to present its case. The Court also stated that:
“[42] The onus on a party seeking to set aside an arbitral award on the basis of a failure of due process, is high. ‘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 of Appeal confirmed Justice Cavanagh’s ruling that Planet had failed to demonstrate that the Arbitrator’s findings concerning the documents were erroneous and why Planet needed more time was needed by Planet to prepare its case. Therefore, the Court of Appeal upheld Justice Cavanagh’s decision and confirmed that he had applied the correct standard of review. Citing Consolidated Contractors Groups S.A.L. (Offshore) v. Ambatovy Minerals S.A., 2017 ONCA 939 at para. 65, the Court held:
“The correct test is whether the arbitrator’s decisions respecting document production, cross-examination of witnesses, and closing submissions, ‘offend our most basic notions of morality and justice” such that the arbitrator committed a breach of procedural fairness.’”
Second, Planet asked the Court of Appeal to review Justice Cavanagh’s findings concerning the opportunity it was given to present its case. Considering its decision on the first argument, the Court upheld Justice Cavanagh’s decision, which held that :
“It was incumbent on Planet to demonstrate that it was unable to present its case. In the absence of evidence to demonstrate how the arbitrator erred in making her findings in respect of the documents, and why more time was needed to prepare cross-examinations and make closing submissions, the application judge was entitled to rely on the findings of the arbitrator. Even if a de novo hearing were conducted, as the application judge said, “Planet’s submissions…repeat the same submissions that were made to the Arbitrator”, Planet has not challenged the finding that only eight of the 400 Xoom Documents were relevant, and no new evidence has been adduced to demonstrate how it has been deprived of its ability to present its case. As such, this would have not changed the result.”
It affirmed Justice Cavanagh’s ruling that:
“[59]…The record shows that the Arbitrator considered the arguments made by Planet and, for the reasons given in the Award, she did not accept them. Planet is asking this Court to consider the evidentiary record anew and substitute new findings for those made by the Arbitrator. This is not the proper role of the Court in this application.”
Third, Planet argued that the award violated public policy because the amended Energy Consumer Protection Act precluded the payment of commissions on sales of gas and electricity. Therefore, the payment of the award would put Planet in breach of this Act and subject to penalties.
The Court of Appeal found that Justice Cavanagh interpreted the ECPA and the evidence and stated that: “The public policy defence is a high standard, and the onus is on the claimant to demonstrate that such enforcement ‘offends our local principles of justice and fairness in a fundamental way’”.
At para. 73, the Court confirmed Justice Cavanagh’s finding that:
“The Arbitrator’s interpretation of the ECPA and the regulation in this context is a reasonable one. Planet has not shown that the Arbitrator made an error in her factual findings with respect to the basis for the views of OEB staff. Planet has not shown that as a result of the Arbitrator’s decision, the Award fundamentally offends the principles of justice and fairness in Ontario. The Arbitrator’s decision on the question of statutory interpretation is entitled to deference.”
Therefore, the Court dismissed the appeal and confirmed the enforcement of the Award.
Contributor’s Notes:
This decision is interesting because it is a reminder of the Supreme Court of Canada’s decision in Desputeaux v. Éditions Chouette (1987) inc., 2003 SCC 17 with respect to the application of public order provisions. In that case, the Supreme Court of Canada held that it was the result of the award that was to be examined and not the interpretation of the provision itself, here the provision in the Act.
“The arbitration award is not contrary to public order. In interpreting and applying the concept of public order in the realm of consensual arbitration in Quebec, it is necessary to have regard to the legislative policy that accepts this form of dispute resolution and even seeks to promote its expansion. Except in certain fundamental matters referred to in art. 2639 C.C.Q., an arbitrator may dispose of questions relating to rules of public order, since they may be the subject matter of the arbitration agreement. Public order arises primarily when the validity of an arbitration award must be determined. Under art. 946.5 C.C.P., the court must examine the award as a whole to determine the nature of the result. It must determine whether the decision itself, in its disposition of the case, violates statutory provisions or principles that are matters of public order. An error in interpreting a mandatory statutory provision would not provide a basis for annulling the award as a violation of public order, unless the outcome of the arbitration was in conflict with the relevant fundamental principles of public order.”
For additional comment on the lululemon decision, see Case notes B.C. – commercial dispute “foundationally different” from investor-state claim – #409, BC – correctness standard of review applies on set aside applications on jurisdiction grounds – #555 and Myriam’s 2021 Top Pick: B.C. – lululemon athletica inc. v. Industrial Color Productions Inc. – #571.