ONTARIO – Arbitration – On an application to set aside an arbitral award pursuant to Art. 34(2)(a)(iii) of the UNCITRAL Model Law of the International Commercial Arbitration Act, 2017 on the ground that a party was denied the right to present its case, the test is whether the arbitrator’s decision offends our most basic notions of morality and justice. ONCA dismissed an appeal from the application judge’s decision upholding the arbitral award despite the Respondent’s late delivery of a few highly relevant documents. The Appellant failed to adduce evidence that the Respondent’s late delivery of documents prevented cross-examinations or responding evidence, or affected its closing argument.
ONTARIO – Arbitration – Opportunity to Present a Case – Where a party fails to seek an opportunity to cross-examine or to present further evidence about a late-delivered production, it is not open for that party to later complain that it did have an opportunity to present its case.
All Communications Network of Canada v. Planet Energy Corp.
2023 ONCA 319 (May 8, 2023)
Ontario Court of Appeal (Lauwers, Paciocco and Thorburn JJ.A.)
This was an appeal from the decision of P. Cavanaugh J., which upheld a $29,259,787 arbitral award in favour of the Respondent (“ACN”). Thorburn JA, writing the unanimous decision of the Court of Appeal, dismissed the appeal.
The Appellant (“Planet”) is a supplier of fixed price electricity natural gas to customers in Canada and the US. ACN is a marketing business that has contracts with thousands of Canadian businesses and earns commissions by referring customers, inter alia, to its third-party providers like Planet.
ACN and Planet made an agreement on November 9, 2012 (“Agreement”) for Planet to pay a gross margin commission for every customer referred by ACN for its products and services as long as customers were purchasing Planet’s services, even after the November 2016 termination of the agreement. (para. 7) ACN agreed to use commercially reasonable efforts to sell Planet’s products and not to take any actions that would be harmful to Planet’s business. (para. 6)
Planet claimed that in 2015, ACN began working with Xoom Energy (“Xoom”), Planet’s competitor, and that ACN was the alter ego of Xoom. (para. 22)
Planet eventually refused to pay further commissions. Pursuant to the arbitration clause in their Agreement, the parties submitted both claims to arbitration in April 2018. Numerous procedural issues arose in the arbitration concerning production of documents, particularly from Xoom, whose participation in the arbitration was refused by the arbitrator. There was an intervening court application to an American court. In June 2020, the arbitrator allowed Planet five days to submit any Xoom documents upon which it wished to rely from ACN’s productions. (paras. 23-30)
In the days preceding closing arguments. ACN produced 400 Xoom documents. The arbitrator held that only eigher were relevant and that three were highly relevant. (paras. 31-32)
On February 3, 2021, the arbitrator granted ACN’s claims for commissions payable under the Agreement and dismissed Planet’s claims against ACN for breach of its confidentiality obligations and commitment not to harm Planet by working with a competitor. (para. 11, 35)
The Court Applications
Planet applied to set aside the arbitral award. ACN applied for recognition and enforcement of the award. The application judge dismissed Planet’s application and upheld the arbitral award. (para. 13)
Issues on the Appeal
Planet raised three grounds of appeal in support of its appeal to set aside the application judge’s decision upholding the arbitral award:
- The application judge applied an incorrect standard of review of the arbitration award. Planet claimed that the application judge should have conducted a de novo hearing to determine whether Planet was able to present its case. ( 41)
- The application judge erred by failing to recognize that Planet was denied an opportunity to present its case because relevant documents were not produced by ACN in time for cross-examination and preparation of closing submissions ( 51) and by “ignoring” the evidence of Planet’s audit expert (para. 63)
- The application judge erred by directing Planet to pay commission payments to ACN on the basis that such payments were “illegal” under Energy Consumer Protection Act, 2009, SO 2010, c 8, (“ECPA”). (paras. 67-69)
Standard of Review where a Party Claims it was Unable to Present its Case
Relying on Consolidated Contractors Groups S.A.L. (Offshore) v. Ambatovy Minerals S.A., 2017 ONCA 939, the ONCA held that “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.” (para. 42)
The ONCA distinguished lululemon athletica Canada inc. v. Industrial Color Productions Inc., 2021 BCCA 428, where a de novo hearing was ordered, on the basis that lululemon referred to “disputes not contemplated by or not falling within the terms of the submission to arbitration”, a factor not present in Planet’s allegation. (paras. 43-46)
Relying on United Mexican States v. Cargill, Inc., 2011 ONCA 622, (para 47,) Thornton JA further held that Courts are obliged to take a narrow view of whether an alleged error under Art. 34(2)(a)(iii) of the UNCITRAL Model Law actually falls under that section and must carefully limit the issue they address to ensure that they do not, advertently or inadvertently, stray into the merits of the question that was decided by the tribunal. (para. 47).
The correct test is whether the arbitrator’s decisions in respect of document production, cross-examination and closing submissions, “offend our most basic notions of morality and justice.” The ONCA held that Planet failed to call evidence to show that it was unable to present its case. The application judge was therefore entitled to rely on the arbitrator’s decision that Planet was not prevented from presenting its case. (paras. 48-50)
Opportunity to Present Its Case
ONCA held that the failure to give a party the opportunity to present its case by ordering production of necessary documents, refusing to admit relevant evidence, or failing to deal with all issues for determination, may constitute a breach of the rules of procedural fairness and natural justice. (para. 53) In the present case, the question for the application judge was whether the arbitrator breached Planet’s right to procedural fairness, and if so, whether the breach was “sufficiently serious to offend our most basic notions of morality and justice” such that it “cannot be condoned”. (para. 54)
The application judge applied the correct test and referred to the arbitrator’s findings that only three of the documents obtained from Xoom were highly relevant; that the three documents were part of the same email chain and concerned the same subject; to the extent that ACN disputed the deficiencies raised by Plane, the “deficiencies will be appropriate subjects for the Parties’ pre-hearing submissions and/or cross-examination at the evidentiary hearing” and that Planet has experienced counsel”. (para.57)
However, the application judge noted the arbitrator’s findings that “[a]t no time before or after the Arbitrator admitted the Xoom Documents into the record did either Party ever argue that they should be permitted to recall one or more witnesses to testify or to seek the appearance of any new witness.” (para 57-58)
Thorburn JA. held that the application judge correctly concluded that, having decided not to cross-examine witnesses on the later delivered documents, it was not open to Planet to now argue that its ability to conduct further cross-examination was unfairly denied. (para. 59)
Illegality of Commission Payments
Planet also argued that the application judge erred by failing to set aside the arbitral award on the grounds of illegality. Planet claimed that under 2017 amendments to the ECPA “remuneration to salespersons selling electricity or gas to consumers must not include any remuneration based on a commission or the value or volume of sales.” (para. 67-68)
The arbitrator considered the parties’ submissions and the words of the statute and disagreed with Planet’s interpretation of the agreement with ACN in light of the factual findings she made. The arbitrator concluded that the ECPA does not preclude commissions on renewals and dismissed Planet’s claim. (paras. 69-71)
Relying on Depo Traffic v. Vikeda International, 2015 ONSC 999, para. 47, the application judge noted that the public policy defence should be invoked “only if the judgment involves an act that is illegal in the forum or if the action involves acts repugnant to the orderly functioning of the social or commercial life of the forum” and that the onus was on the Appellant to show that such enforcement “offends our local principles of justice and fairness in a fundamental way”. The ONCA held that the application judge addressed this issue in a reasonable manner and that there was no reversible error. (paras. 72-74)
This appeal is another example of the steep uphill battle a party who seeks to set aside an arbitration award faces under the International Commercial Arbitration Act, 2017 or under the Arbitration Act, 1991.
Thorburn JA pointed out that Article 5 of the Model Law provides that, “no court shall intervene except where so provided in this Law. This is consistent with the trend in favour of limiting court involvement in international commercial arbitration as the parties made a conscious decision to exclude court jurisdiction in favour of international arbitration. The Model Law provides for court involvement only where a party challenges and seeks the termination of the mandate of an arbitrator (articles 11, 13 and 14), challenges the jurisdiction of the arbitral tribunal (article 16), or seeks to set aside the arbitral award (article 34)”. (para. 19) [Emphasis added.]
In the present case, the Appellant was confronted with an arbitral award of more than $29 million so it is hardly surprising that it chose to exhaust all avenues to set aside the award. At the end of the day, however, none of the challenges succeeded.
In this editor’s view, there are useful lessons for arbitration counsel in these legal developments:
- Counsel should take time to select an arbitrator or an arbitration panel who is knowledgeable about arbitration law and procedure and will take the time to address the procedural and substantive issues in the arbitration thoroughly.
- Counsel should be especially mindful that the proceedings before the arbitrator are likely to be “your best shot.” Ensure that all material evidence is called and that all points of law are raised. A court is less likely to be sympathetic to a complaint about a lost opportunity before an arbitrator if the argument was not raised or the evidence was not called in the arbitration.
- There is a tendency for respondents in arbitrations to attempt to delay or derail the arbitration process by making applications to court both on procedural and substantive matters. While this process is understandable, especially in arbitrations involving significant amounts, counsel should be aware that the prospects for success in setting aside a carefully reasoned arbitral award are low.