In Shanghai Investment Co. Ltd. V. Lu et al., 2024 ONSC 2762 the Chambers Judge concluded that to grant a motion asking that a foreign award be “domesticated” (that is, recognized and made enforceable as a judgment of the Ontario Court), the motion must also meet the additional requirements for partial summary judgment. In this case, the recognition of the foreign award was pleaded as a threshold issue and formed part of a larger enforcement action. As a result, if the motion for recognition were granted, it would bifurcate the action. Although the Ontario Court of Appeal in cases like Butera v. Chown, Cairns LLP, 2017 ONCA 783 (“Butera”) has held that partial summary judgment should rarely be granted as it usually not efficient nor cost effective, the Chambers Judge determined that it was appropriate in this case. Among other factors she noted was that the recognition portion of the action was distinct from the rest and there was no risk of inconsistent findings.
Background – The Plaintiff obtained a final and binding arbitral award through the China International Economic and Trade Arbitration Committee (“CIETAC”) against the Defendant, Mr. Lu. When the award remained unsatisfied, the Plaintiff commenced an action in Ontario against Mr. Lu, his spouse, Ms. Guo, and four corporations indirectly owned by Ms. Guo. According to the Statement of Claim, the purpose of the action was to first obtain recognition of the award as a judgment of the Ontario Court pursuant to the International Commercial Arbitration Act, 2017, S.O. 2017, c. 2, Sch. 5 (“ICCA”) and to then to enforce it against some properties he was alleged to own in Ontario, but that were registered in the name of the “non-Lu defendants”. Recognition of the award was pleaded as a threshold issue.
The Motion – The Plaintiff moved for recognition of the award under ICCA. Section 2(1) incorporates the New York Convention. Article III of the New York Convention mandates that “[e]ach Contracting State shall recognize arbitral awards as binding and enforce them in accordance with the rules of procedure of the territory where the award is relied upon.” Articles IV and V of the New York Convention outline the conditions for recognition and the limited grounds for refusal.
The Chambers Judge found that the requirements for recognition of the award were met and that none of the limited grounds for refusal were established.
However, that did not end the matter. Mr. Lu argued that the motion amounted to an application for impermissible partial summary judgment and should be refused. The Chambers Judge agreed that the motion was effectively an application for partial summary judgment as “two stages are contained in the same action.” Therefore, she was required to consider whether partial summary judgment was appropriate in the context of the litigation as a whole.
The Chambers Judge cited the decision in Butera which upheld previous case law to the effect that granting partial summary judgment is usually inadvisable because it results in delay. She also cited Malik v. Attia, 2020 ONCA 787 which set out the following factors that should be demonstrated before partial summary judgment is granted (at para. 62):
“(i) Demonstrate that dividing the determination of this case into several parts will prove cheaper for the parties;
(ii) Show how partial summary judgment will get the parties’ case in and out of the court system more quickly;
(iii) Establish how partial summary judgment will not result in inconsistent findings by the multiple judges who will touch the divided case.”
The Chambers Judge found that partial summary judgment was appropriate in this case. She noted that the recognition aspect of the action was distinct from the rest of the action and that unless the Court determined that the foreign award should be recognized as a judgment, the other relief sought would become redundant. She found no risk of inconsistent findings and concluded that bifurcating the action was expeditious and cost-effective. The fact that Mr. Lu might face enforcement measures at each stage and, therefore, potentially more than one examination was not impermissible and would not cause delay.
Contributor’s Notes:
This case raises a couple of points for practitioners.
First, this unusual decision appears to be the product of the “litigation choice” made by the Plaintiff to combine, in a single statement of claim, the recognition of the foreign award with a separate enforcement action that included parties who did not participate in the underlying arbitration. An application for recognition is straightforward under the New York Convention and need not be brought by statement of claim or as part of an action to enforce. In Alberta, for example, it can be done by originating application.
Second, the entirety of Article III of the New York Convention provides that:
“Each Contracting State shall recognize arbitral awards as binding and enforce them in accordance with the rules of procedure of the territory where the award is relied upon, under the conditions laid down in the following articles. There shall not be imposed substantially more onerous conditions or higher fees or charges on the recognition or enforcement of arbitral awards to which this Convention applies than are imposed on the recognition or enforcement of domestic arbitral awards.” [Emphasis added.]
The purpose of the second sentence of Article III is to prevent Contracting States from discriminating against foreign awards by creating barriers to recognition that domestic awards are not required to meet: See: Travaux préparatoires, United Nations Conference on International Commercial Arbitration, Summary Records of the Tenth Meeting, E/CONF.26/SR.10.
Based on Ontario case law, the test for partial summary judgment can be challenging to meet. Being required to meet it arguably presents a barrier to recognition and enforcement that is contrary to Article III. At the same time, given the nature of a motion for recognition under the New York Convention, meeting the test is a somewhat perfunctory exercise and so may not constitute a “substantially more onerous condition” than what would have been required for a domestic award. In any event, practitioners should be aware of the possibility that conditions placed on recognition and enforcement of an award may run afoul of Article III. For example, Brian Casey, in his book Arbitration Law of Canada: Practice and Procedure (4th ed. 2022), at ch. 10.3.1 states that Article III should operate to prevent an order for security for costs. Related decisions include: Shanghai Lianyin Investment v. Lu, 2023 ONSC 399; Shanghai Lianyin Investment Co. Ltd. v. Lu, 2023 ONCA 285; Shanghai Lianyin Investment Co., Ltd. v. Lu, 2023 ONSC 5249.