ONTARIO – Recognition and Enforcement of Foreign Award – Recognition and enforcement of a foreign arbitral award refused pursuant to ICAA (Model Law) where contractual notice and stepped dispute resolution provisions not followed. The Model Law defers to the contractual means of delivery or service when specified and this is not considered a violation of due process.
ONTARIO – Fresh Evidence – A US decision dismissing an application to enforce a foreign judgment predicated on a foreign arbitral award based on different considerations than those set out in Ontario’s ICAA Article 36 (New York Convention) has no relevance or probative value in the Ontario application and does not establish that the evidence would change the result.
Tianjin Dinghui Hongjun Equity Investment Partnership v Du et al.
2023 ONSC 1808 (March 20, 2023)
Ontario Superior Court of Justice – Commercial List (Kimmel J.)
Tianjin Dinghui Hongjun Equity Investment Partnership (“TDH”) sought a declaration recognizing and enforcing a foreign arbitral award from the Shenzhen Court of International Arbitration (“SCIA”) and an order that the Respondents pay CDN $120 million. The Respondents opposed the application on the basis that: i) they did not receive notice of the arbitration; ii) they did not have an opportunity to present a defence; and iii) enforcement of the award was against Ontario public policy.
The International Commercial Arbitrations Act 2017 (“ICAA”) Article 36 sets out the framework for recognition and enforcement of a foreign arbitral award. Article V of Schedule 1 to the ICAA adopting the Model Law provides in s. 1(b) that recognition and enforcement of an award may be refused if the party against whom it is invoked furnishes to the court proof that it was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present their case. (para. 109)
The subject matter of the award related to Loan Agreements from TDH to TKB, a company indirectly owned and controlled by one of the Respondents, Mr. Sha Du, a Framework Agreement, and personal guarantees the Respondents Mr. and Mrs. Du signed. The Agreements were governed by Chinese Law and provided that arbitration of disputes take place before SCIA in China.
The Respondents were Canadian citizens, currently living in Canada. The Respondents were unable to leave Canada due to the Covid Pandemic and had been in Canada since February 2020. That the Respondents were in Canada was communicated to TDH in March 2020. The Respondents had a residence (Wenyu) and business address (Fengtai) in Beijing, China, and a residence in Toronto. The Fengtai address was listed as the Respondents’ address for service in the Loan Agreements. The Respondents’ address for service in the Guarantee agreements was the Wenyu address. The Respondents sold the Wenyu property prior to the commencement of the arbitration and did not provide TDH with notice of the change of address.
TDH commenced the arbitration in July 2020. The demand for arbitration was delivered to the TKB offices (Fengtai) and service was accepted by TKB’s controller. The Respondents were not personally served with the demand for arbitration.
Guantao Law Firm filed an appearance in the arbitration proceeding on behalf of all of the Respondents, including the Dus. The law firm filed powers of attorney from these Respondents as evidence of the firm’s authority to act for them. The powers of attorney were not signed by the Dus but rather by someone purporting to have their power of attorney who was an authorized representative of the other corporate arbitration respondents. (para. 98)
The arbitration proceeded without evidence from these Respondents and an award was made against the Respondents in August 2021.
Set aside application in China.
In February 2022, upon learning of the arbitral award, the respondent Mr. Du brought an application to set aside the award in the Shenshen Intermediate People’s Court (SIPC). SIPC did not set aside the arbitral award against Mr. Du and found he had notice of the arbitration on the basis inter alia that:
- The 2nd Guarantee was stamped with Mr. Du’s signature seal and signed;
- The 2nd Guarantee indicated that the Wenyu address was his address for service;
- The related Framework Agreement indicated that the Fengtai address was Mr. Du’s address for service and arbitration documents were mailed here ;
- The controller at the TKB Fengtai address accepted service of the notice of arbitration and other documents on behalf of Mr. and Mrs. Du;
- The Guantao law firm filed the notice of appearance supported by the power of attorney and appeared as counsel at the arbitration for the respondents, including the Dus. (para.16)
SIPC also dismissed Mrs. Du’s set aside application for similar reasons, including that Mrs. Du was the spouse of Mr. Du and even if the signature on her power of attorney was not her signature, she intended to authorise Guantao law firm to act on her behalf. (para.17)
Fresh Evidence Application and Ex Parte Judgment in China
In October 2021, TDH applied ex parte to a Beijing Court for recognition and enforcement of the arbitral award. TDH was successful and the “Chinese Enforcement Order” was made.
On August 19, 2022, TDH filed the Award and the Chinese Enforcement Order with the First Circuit Court in Hawaii. On August 26, 2022, TDH made an application for an ex parte special proceeding with the First Circuit Court in Hawaii to have the Chinese Enforcement Order recognized and enforced.(“US Enforcement Proceeding”) The motion was granted.
When the Dus learned of the US Enforcement Proceeding, they moved to dismiss the proceeding on the basis that the Chinese Enforcement Order should not be recognized in the USA because they did not receive notice of the SCIA arbitration in sufficient time to defend themselves and they were therefore denied due process. (para. 25) The Dus’ application was successful. (para.21)
The oral reasons of the Hawaiian judge on the Dus’ application were;
“ Based on Hawaii revised statute 658F-4C1 which reads, ‘A court of this state need not recognize a foreign country judgment if the defendant in the proceeding in the foreign court did not receive notice of the proceeding in sufficient time to enable the defendant to defend.’” (para. 21)
Ontario Application to recognize and enforce the foreign arbitral award
In response to TDH’s Ontario application to have the foreign arbitral award recognized and enforced, the Dus sought leave to file the evidence filed in the US Enforcement Proceeding, namely, the transcript, written judgment and an expert report on US Law as Fresh Evidence.
The two requirements to guide the Ontario court’s exercise of its discretion for admitting fresh evidence are set out in Brasseur v. York:
- Would the evidence, if presented at the hearing, probably have changed the result?
- Did the evidence exist or could it have been obtained before the hearing by exercising reasonable diligence? (paras. 45–49)
The fresh evidence did not exist before the Ontario October 7, 2022 hearing. (para. 22)
The requirements for admitting fresh evidence are less onerous before the decision is made. When deciding to exercise its discretion to grant leave, the court also considers whether it is in the interests of justice to admit the fresh evidence (see Brasseur at paras. 37–49 and Estanol v York Condominium Corporation No 299 at paras. 53–54 and 56.
The Dus argued that the US Enforcement Proceeding decision was based upon lack of notice and due process in the SCIA Chinese Arbitration proceeding pursuant to the requirements under the Model Law. Kimmel J. held that the US Enforcement Proceeding decision did not refer to the Model Law requirements (para. 37) and that the US Enforcement Proceeding set aside decision was based upon the Hawaii Recognition Act. The Hawaii Recognition Act did not require a consideration of notice and due process because the ex parte nature of the Chinese Enforcement Order was sufficient for the Hawaiian Court not to recognize and enforce the foreign judgment. (paras. 38, 42, and 45)
Because the Ontario application was based upon the New York Convention defences under the Model Law , the US decision made in the US Enforcement Proceeding based on the Hawaii Recognition Act that did not consider those defences did not satisfy the first prong of the fresh evidence test and the Du’s motion was dismissed. (para. 47)
Enforcement of the Arbitral Award in Ontario pursuant to ICAA Article 36(1)(a) (ii) and 36 (1)(b)ii
Ontario courts generally give broad deference and respect to the awards of international tribunals. (para.52) The grounds for a court to not recognize and enforce an international arbitral award are set out in Article 36 of the Model Law as adopted in the ICAA.
The Respondents’ position was that the award should not be recognized because they were not given proper notice of the arbitration, they did not have an opportunity to present their case, and enforcing the award would be contrary to Ontario public policy.
“Proper notice” under the Model Law has been held to mean notice that is reasonably calculated to inform the party of the arbitral proceedings and to give them an opportunity to respond. It does not require actual notice. (para. 57)
The ICAA (Model Law) Article 3(1) Schedule 2 (para. 58) and Article 6 (para. 59) of the SCIA Arbitration Rules defer to the contractual means of delivery or service when specified, which is not considered a violation of due process. (para. 60)
The notice to party sections in the Loan Agreements required some form of receipt or acknowledgment by the recipient. Kimmel J. held that no authority was provided for TDH’s position that anyone could acknowledge service on an intended party to the arbitration. (para. 64)
There was nothing in the Loan Agreements that established that TKB was the Dus’ agent for service and therefore, the signature of TKB’s controller could not be considered a signature of the Dus or of the intended recipient or an acknowledgment of the notice of arbitration. (para. 66) As a result, the Dus were not served with the notice of arbitration documents by the contractual methods of service in the Loan Agreements.
Kimmel J. also found that the Court in the Dus’ SIPC Set Aside proceeding decision did not find service on the Dus pursuant to the contractual provisions in the Loan Agreements but by virtue of the SCIA Rules of Arbitration and the concept of deemed service. (para. 67)
Kimmel J. held that THD did not strictly comply with the contractual notice provisions and that proper service was not effected on the Dus for the following reasons:
- TDH knew that the Dus were in Canada in March 2020 and that there were travel restrictions between Canada and China between March 2020 and Fall 2020 (para. 72)
- TDH did not engage in the required Framework Agreement and Guaranty Agreements’ contractual pre-arbitration dispute resolution steps of “friendly consultation” or “amicable negotiation” with the Dus. (paras. 72, 74,76 and 77)
- SCIA’s packages to the Dus at the Wenyu and Fengtai addresses were returned “undeliverable”; and
- TDH had been in contact with Mr. Du and did not advise the SCIA that the Dus might still be in Canada or suggest another method of contacting the Dus outside of China. (para. 76)
Kimmel J. also held that issue estoppel on the “proper notice” argument failed because the SIPC Set Aside Proceeding Decision finding of “deemed service” was made based on the SCIA Rules of Arbitration, the power of attorney, and service on the law firm. The SPIC decision was not based on the contractual notice provisions in the Loan Agreements, Framework Agreement and Guaranty Agreement. SIPC. (paras. 87 and 88)
Kimmel J. dismissed the application to recognize and enforce the foreign arbitral award because the Dus did not receive proper notice of the arbitration proceeding pursuant to the contractual notice provisions and they did not have an opportunity to present their case. The Dus had no communication with and did not instruct the Guantao lawyers and service on the law firm did not constitute proper service. (paras. 98 99,112–116) As a result, the Dus had no opportunity to meaningfully present their case as set out in Nanoelectro Research and Production Co. v. Alphysica Inc 2018 WL 3795889. (para. 112)