In Costco Wholesale Corporation v. TicketOps Corporation, 2023 ONSC 573, Justice Vermette enforced international arbitral awards rendered in an arbitration seated in Washington State. In doing so, she decided not to enforce a US judgment that enforced the arbitral awards. She rejected the respondent’s arguments that (a) the awards were not for a definite and discernable amount, (b) it had been unable to present its case, and (c) recognising and enforcing the awards would be contrary to Ontario public policy. (And by the way: being Facebook “friends” does not give rise to a reasonable apprehension of bias.)
The dispute – The applicant, Costco, is a US company incorporated in Washington State. The respondent, TicketOps, is an Ontario company that provided digital services to Costco for its electronic ticket/voucher program, through which Costco sold electronic tickets for third-party vendors. At the beginning of the pandemic, TicketOps stopped paying suppliers and stopped payments on cheques to suppliers.
Costco brought an arbitration pursuant to its contract with TicketOps, which had an arbitration clause providing for arbitration before a sole arbitrator seated in Seattle, Washington under the American Arbitration Association Commercial Arbitration Rules. The sole arbitrator issued two partial awards and a final award in Costco’s favour.
TicketOps brought a petition to vacate the awards before the US District Court for the Western District of Washington, which was dismissed. Costco brought a cross-petition to confirm the awards, which was granted. TicketOps’s appeal to the US Court of Appeal for the Ninth Circuit was dismissed. Costco then applied to the Ontario Superior Court of Justice for a judgment recognizing and enforcing the arbitral awards and the US court judgment confirming them.
Application to enforce awards and U.S. judgment -Justice Vermette began her analysis by noting that foreign arbitral awards are enforceable in Ontario through the International Commercial Arbitration Act, 2017, S.O. 2017, c. 2, Sched. 5, which provides that the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”) and the UNCITRAL Model Law on International Commercial Arbitration (the “Model Law”) have force of law in Ontario. Citing the Supreme Court of Canada’s decision in Yugraneft Corp. v. Rexx Management Corp., 2010 SCC 19, she noted that the New York Convention requires each Contracting State to recognize and enforce arbitral awards made in the territory of another State, and provides only limited grounds for refusing such recognition and enforcement. The same is true of Articles 35 and 36 of the Model Law.
Citing the Ontario Court of Appeal’s decision in Popack v. Lipszyc, 2018 ONCA 635, Justice Vermette stated that the grounds for refusing recognition and enforcement set out in the New York Convention and the Model Law are to be construed narrowly. They are substantially the same as the grounds for setting aside an arbitral award under Article 34 of the Model Law.
Under Article 36(a)(ii) of the Model Law, recognition and enforcement of a foreign arbitral award may be refused where “the party against whom the award is invoked was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case”. The same is true under Article V.1(b) of the New York Convention.
Relying on the Ontario Court of Appeal’s decision in Consolidated Contractors Group S.A.L. (Offshore) v. Ambatovy Minerals S.A., 2017 ONCA 939, Justice Vermette stated that, for an award to be set aside (and by extension, for recognition and enforcement to be refused) on procedural fairness or natural justice grounds, “the conduct of the arbitral tribunal must be sufficiently serious to offend our most basic notions of morality and justice”. Further, “[j]udicial 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 Ontario law.”
Justice Vermette first rejected TicketOps’s arguments that the applicable regime was that for enforcing foreign judgments, rather than the New York Convention and the Model Law. The US court judgment was a derivative judgment, in the sense that it enforced the arbitral awards. Using the analytical framework applicable to foreign judgments would “inject a certain level of uncertainty and confusion in the analysis.”
She next rejected TicketOps’s arguments that the awards were not for a definite and discernible amount. This is not a valid ground for refusing recognition and enforcement of an arbitral award under the Model Law. In any event, she found that the amounts owing were ascertainable and clear as to what was expected from TicketOps.
Justice Vermette then rejected TicketOps’ arguments that it had been unable to present its case.
First, the fact that the arbitration clause provided for a summary procedure of only two days was not unconscionable and did not offend our most basic notions of morality and justice. Both parties had the opportunity to present evidence, examine and cross-examine witnesses under oath, offer exhibits, object and offer arguments. This “satisfies the Canadian notions of fundamental justice.”
Justice Vermette further noted that “it would be ill-advised for an Ontario court to find that (a) a hearing in an international arbitration proceeding that does not sufficiently resemble a trial in an Ontario court proceeding is contrary to Canadian notions of fundamental justice; and (b) a party to such an international proceeding is unable to present its case.”
Second, the fact that third parties could not participate in the hearing did not mean that TicketOps had been unable to present its case. There was no evidence suggesting that TicketOps was in any way prevented from adducing evidence from those third parties.
Third, the arbitrator’s decision not to allow TicketOps to depose a witness also did not mean that TicketOps had been unable to present its case. TicketOps had already deposed nine witnesses. This was substantially more than would have been allowed in an Ontario proceeding. The fact that it could not depose one more witness “is not something so serious that it cannot be condoned under Ontario law.”
Justice Vermette also rejected the argument that there was a reasonable apprehension that the arbitrator was biased, on the basis that the arbitrator was Facebook friends with Costco’s counsel. She found that “in today’s world, a reasonably informed person would place little or no weight on the fact that two persons are ‘friends’ on Facebook”.
Lastly, Justice Vermette rejected TicketOps’s argument that recognising and enforcing the arbitral awards would be contrary to Ontario public policy because it would lead to overcompensation. The fact that TicketOps had “failed to identify any law of the State of Washington in issue in the arbitration proceeding that is contrary to our view of basic morality” was in itself sufficient to reject the defence. Regardless, she found that there was no overcompensation in any event.
I will be (uncharacteristically!) measured in my commentary on this case, because I am counsel for Vento Motorcycles in its application before Justice Vermette to set aside a NAFTA arbitral award against Mexico on the ground, among others, that Vento was unable to present its case (see the Case Note on a procedural decision in the case: Ontario – Fresh evidence test the same on set aside applications on fairness grounds and judicial review applications – #572 ).
Let me then reuse a technique I have used before in this forum when I had no choice but to mince words: that of asking questions rather than making statements.
What basis is there in the Model Law or the New York Convention, or their respective preparatory work, for the language originally used in 1999 by Justice Lax in Corporación Transnacional de Inversiones S.A. de C.V. v. STET International S.p.A (1999), 45 O.R. (3d) 183 – and cited by Ontario courts ever since – that “unable to present his case” means “conduct so serious as to offend our most basic notions of morality and justice” or “conduct so serious that it cannot be condoned under Ontario law”?
Is there a wide gap between these standards set out through the language of the international instruments and the standard created by Ontario case law?
If so, what is the legal basis for creating such a gap?
In the Vento case, we have brought to Justice Vermette’s attention the Judicial Committee of the Privy Council’s recent decision in Gol Linhas Aereas S.A. v. MatlinPatterson Global Opportunities Partners, 2022 UKPC 21 (PDF). In that case, after conducting an extensive review of the international case law on the “unable to present his case” ground in Article V(1)(b) of the New York Convention from the UK, the US, France, Germany and Sweden, Lords Hamblen and Leggatt stated:
“It follows that in interpreting and applying Article V(1)(b) of the New York Convention, as transposed into English or Cayman law, the court should regard the domestic statutory provision as imposing a standard of due process capable of application to any international arbitration whatever the procedural law applicable and the nationality of the participants. This does not mean that the court should be seeking to identify the lowest common denominator of standards required by different national systems. But it does mean that the court should be seeking to identify and apply basic minimum requirements which would generally, even if not universally, be regarded throughout the international legal order as essential to a fair hearing.”
Is a standard that would “seek to identify and apply basic minimum requirements which would generally, even if not universally, be regarded throughout the international legal order as essential to a fair hearing” more faithful to the “unable to present his case” language than is the standard formulated by Ontario courts to date?
Recall that Article 2A(1) of the Model Law states that, in interpreting the Model Law, “regard is to be had to its international origin and to the need to promote uniformity in its application and the observance of good faith.”
Is it time for Ontario case law concerning the “unable to present his case” ground for set-aside/refusing recognition and enforcement of arbitral awards to align with the international case law interpreting the very same provisions?