Ontario – proof of concept for merchants opting for international commercial arbitration – #008

In a brisk decision granting recognition and enforcement an arbitral award made in Stockholm, Ontario’s Superior Court demonstrated Ontario’s commitment to international commercial arbitration.  The November 1, 2017 decision in Profoto AB v. Blazes Photographic, 2017 ONSC 6455 sends a reassuring message to international traders that Ontario is arbitration-friendly even when the final award is unfavourable to the Ontario-based litigant. 

Profoto AB, incorporated in Sweden with head offices there, applied under Ontario’s International Commercial Arbitration Act, 2017, SO 2017, c 2, Sch 5. to the Ontario Superior Court to enforce a final award granted in its favour.  It sought to enforce that award against Blazes Photographic Inc., a company incorporated in and carrying on business in Ontario.  

Mr. Justice James F. Diamond’s no-fuss decision protected many of the promises arbitration makes.  His decision stuck to the terms of article 36(1) of the UNCITRAL Model Law on International Commercial Arbitration (“Model Law”), and issued promptly just over a week after the hearing on the motion.  As a judge sitting in Ontario, Diamond J. respected the process chosen by the parties and the terms of Ontario’s adoption of the Model Law.   He recognized and enforced an arbitral award issued in a foreign county, by a foreign arbitral institution, under foreign law in favour of a foreign corporation and did so against a corporation incorporated and operating in Ontario.  In a further nod to facilitating the execution of the initial award in favour of the successful party located in Europe, Diamond J. did not order that his award be expressed in Canadian dollars.  

 The respondent is hereby ordered to pay the applicant an amount in Canadian currency sufficient to purchase: 

(a)        $112,956.94 (USD) on account of outstanding invoices;  

(b)        36,877.50 EUR in legal costs; and  

(c)        11,157.92 EUR for arbitration costs, together with interest as awarded by the AISCC. 

The interest was set by reference to the rate set out in the Sweden Interest Act. 

Relying on Corporacion Transnacional de Inversiones, S.A. de C.V. v. STET International, S.p.A., 1999 CanLII 14819 and the Model Law, Diamond J. began his analysis by noting that “broad deference and respect are to be accorded to decisions made by foreign arbitral tribunals pursuant to the Model Law.”  He followed on that approach with a further pair of statements of the approach required by courts: “An arbitral award is not invalid if the court hearing the application is of the opinion that the tribunal wrongfully decided an issue of fact or law.  There is a powerful presumption that the foreign arbitral tribunal acted within its powers and jurisdiction. 

The Respondent resisted the motion to recognize and enforce on the basis that (a) the arbitrator lacked jurisdiction and (b) the arbitration award is unenforceable under the provisions of the ICAA.  Diamond J. held that the ICAA provided only “certain restricted, enumerated grounds” and that failing proof, a foreign arbitral award will be recognized and enforced in Ontario.  

The parties worked together for 10 years without a written contract.  They entered into a Formal Distribution Agreement (“FDA”) on June 1, 2013 in which they included the following arbitration clause.   

This Agreement shall be governed by the substantive laws of Sweden.  Any dispute, controversy or claim arising out of, or any connection with, this Agreement shall be finally settled by arbitration administered by the Arbitration Institute of the Stockholm Chambers of Commerce.  The Rules of expedited arbitration of the Arbitration Institute of the Stockholm Chambers of Commerce shall apply unless the SCC Institute, taking into account the complexity of the case, the amount and dispute and other circumstances, determines in its discretion that the Rules of the Arbitration Institute of the Stockholm Chambers of Commerce shall apply.  In the latter case, the SCC Institute shall also decide whether the arbitral tribunal shall be composed of one or three arbitrators. 

The parties subsequently negotiated and signed an Addendum which modified the FDA’s arbitration agreement.  The modifications reflected a determined reciprocity in that a respondent to an arbitration would enjoy arbitration in its home location if the other party as claimant initiated the arbitration. 

Notwithstanding the foregoing, any dispute, controversy or claim arising out of, or in connection with this Agreement which cannot be settled amicably between the parties shall be finally settled by arbitration (1) in Canada if instituted by Profoto or (2) in Stockholm, Sweden if instated by the Distributor.  In avoidance of doubt, any actions or proceedings between the parties, including any proceedings to reduce an arbitration or to subsequent judgment, shall be brought only (1) in Canada if instituted by Profoto or (2) in Stockholm Sweden if instituted by the Distributor. 

Further to a dispute between the parties, Profoto AB terminated the FDA.   The parties continued to do business and exchanged further terms and conditions to do so, including a revised arbitration agreement.  The reciprocity of the Addendum was abandoned in the third version sent by Profoto AB. 

All Agreements shall be governed by the substantive laws of Sweden.  Any dispute, controversy or claim arising out of, or in connection with, and Agreement shall be finally settled by arbitration administered by the Arbitration Institute of the Stockholm Chambers of Commerce.  The Rules for expedited arbitration of the Arbitration Institute of the Stockholm Chambers of Commerce shall apply unless the SCC Institute, taking into account of the complexity of the case, the amount and dispute and other circumstances, determines in its discretion that the Rules of the Arbitration Institute of the Stockholm Chambers of Commerce shall apply.  In the latter case, the SCC Institute shall also decide whether the arbitral tribunal shall be composed of one or three arbitrators. 

Neither party ever signed a written contract containing the new terms and conditions or the last iteration of the arbitration agreement.  Respondent did ask questions on other terms and conditions but made no comment on the new arbitration agreement. 

Despite exchanges, the parties did not resolve their dispute and Profoto AB as claimant located in Sweden initiated arbitration proceedings in Sweden with the Arbitration Institute of the Stockholm Chamber of Commerce (“AISCC”).  Respondent, Blazes Photographic Inc., challenged jurisdiction of but AISCC determined that it did have jurisdiction but only for disputes over amounts incurred under the last set of terms and conditions. 

In a single two sentence paragraph, Diamond J. summed up the AISCC process now under challenge by Respondent. 

[15Once the jurisdiction issue was determined, the parties (including the respondent) exchanged and filed pleadings, documentary evidence and legal submissions in respect of the arbitration.  It appears the respondent was given a full opportunity to present its case/defence, including the opportunity to lead evidence and make submissions (although in writing).  

Diamond J. was not distracted by the competing versions of the arbitration clauses and did not allow the parties’ prior contractual dealings to find relevance in whether AISCC could rely on the third arbitration agreement. He summarily listed and dismissed any of Respondent’s reliance on article 36(1) of the Model Law, determining that none of the conditions listed therein were met in the case. 

[23The respondent has not taken any steps to attempt to have the arbitral award set aside or suspended.  There is no basis to find that enforcement of recognition of the AISCC arbitral award would be contrary to public policy.  There is nothing in the arbitral award which fundamentally offends the basic principles of fundamental justice and fairness in Ontario. 

Diamond J.’s application of the law and caselaw to the facts in Profoto AB v. Blazes Photographic Inc. serves as a clear proof of concept for merchants opting for international commercial arbitration to resolve their international disputes in a commercially reasonable and prompt manner across borders.