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Case #105D – EDE Capital Inc. Guan et al. 2023 ONSC 3273
December 6, 2023

ONTARIO – Arbitration – Application to Set Aside Arbitral Award – In a set aside application pursuant to Article 34(2)(a)(ii) of the Model Law for reasons of fairness, the conduct of the tribunal must be sufficiently serious to offend our basic notions of morality and justice and Ontario Law on damages.

ONTARIO – Arbitration – Procedural Fairness – A question of fairness or natural justice is not a question of jurisdiction. The courts are not to permit a re-argument of the merits of the case in the guise of a claim for breach of procedural fairness. Where a party had an opportunity to put forth a different damages methodology, cross examine the Respondent’s expert and make submissions on an appropriate methodology, there was no breach of procedural fairness.

EDE Capital Inc. Guan et al. 2023 ONSC 3273
2023 ONSC 3273 (CanLII)
Ontario Superior Court of Justice (Vermette J.)

The Applicant is EDE Capital, the parent of “EDE Group of companies” and the 100% shareholder of EDE Asset Management Inc. (“EDE Asset”), EDE Securities Inc. (EDE Securities) and EDE GP Inc., which is the general partner in EDE Value Fund. The directors and officers are the same for the Applicant, EDE Asset and EDE GP Inc. ( paras. 3-4)

The Respondents are high net worth investors in the Applicant and EDE Value Fund. One Respondent resides in China. (para. 5) The Respondents were minority shareholders in the Applicant.


In February 2018, the Applicant met with potential investors and provided a Term Sheet describing the proposed investment in the Applicant by way of private placement. The relevant terms of the Term Sheet were:

  • Share price.
  • Use of the proceeds to register a licenced broker.
  • That EDE Securities would apply for registration as an investment dealer with IIROC.
  • That the Applicant owned all the shares in EDE Assets and EDE Securities


The Respondents signed share subscription agreements on March 10, 2018. The proceeds from the private placement were for the most part transferred to the Applicants trading account at BMO (BMO Account”). (para. 13) In the Fall of 2018, the Respondents signed the Shareholders Agreement.

The Applicant kept the proceeds in its BMO Account instead of seeking IIROC registration. The Respondents were not advised of these decisions or that the proceeds were invested in speculative stocks. (para. 16)

In October 2019, the Applicant requested that the shareholders pass a resolution. The Respondent Guan refused to sign the resolution, which required that Applicant hold a shareholders meeting. (paras. 1718)

At the shareholders meeting the Applicant admitted it had not pursued the IIROC registration for EDE Securities and some shareholders demanded their money back. The Applicant advised the shareholders that it would not buy back any shares from the 2018 financing. (para. 20)

On March 23, 2020, the Respondents delivered a demand for the return of their funds. The Applicant refused to do so.

On May 15, 2020, at a Special Meeting of Shareholders, the Applicant sought shareholder approval for the Applicant to subscribe for $3M units in the EDE Value Fund. The resolution was passed in July 2020. The Applicant invested $2.4 in the EDE Value Fund. The return on this investment was 34.2% in December 2020. (Paras. 2124)

In June 2020, the Respondents delivered a Notice to Arbitrate (“NOA”) pursuant to the dispute resolution clause in the Shareholders Agreement (“SA”). The clause indicated the Ontario Arbitration Act, 1991 applied, that a sole arbitrator would preside and deliver their award notwithstanding the default by a party of any procedural award and that the award would be final and binding and that there was no right of appeal. The SA stated that the governing law of the agreement were the laws of Ontario and Canada. (para. 25)

The NOA referenced Article 21 of the Model Law, which is set out in Schedule 2 to the International Commercial Arbitration Act, 2017, S.O. 2017, c. 2, Sched. 5 (“ICAA”) (para. 27)

The Applicant’s Statement of Defence denied the Respondents’ claims and that the ICCA applied. (para. 28)

The Arbitration

The arbitration hearing on liability took place, and the arbitrator issued a partial award on liability. The award did not deal with which arbitration legislation applied because the parties agreed to the procedure to be followed in the arbitration. (paras. 3035)

On June 23, 2023, the Arbitrator released the Partial Award – Liability and held that the Applicant was liable as follows:

  • The Term Sheet was a “Related Party Agreement.”
  • EDE Capital’s refusal to pursue IIROC registration as a dealer was a breach of a Related Party Agreement and the Shareholder Agreement.
  • EDE Capital made misrepresentations to the Claimants contrary to s.130.1 of the Securities Act.
  • EDE Capital’s conduct was oppressive pursuant to s. 241 of the Canada Business Corporation Act. (“CBCA”).
  • Damages would be determined in the subsequent hearing and the Arbitrator reserved jurisdiction to determine any other matters in dispute that have been submitted to arbitration and that are not determined by this award. (para. 36)

The subsequent damages hearing took place. In the Damages Award the Arbitrator held the following:

  • A finding of a breach of the Securities Act did not preclude the Claimants from pursuing other remedies based upon their other causes for action. (para. 44)
  • The Claimants did not have to restrict their remedies to those available pursuant to the Securities Act.
  • The Applicant was required to purchase the Respondents’ shares to rectify the oppressive conduct for $1,050,000 within 30 days.
  • The Respondents were required to disgorge the profits earned from the investment of the funds raised.
  • The Arbitrator accepted the Respondent Expert’s opinion to calculate the amount to be disgorged based upon a first in/last out methodology. The amount calculated was $1,065,474.00.
  • The Award required EDE Capital to pay the Claimants the after-tax profits attributable to the Claimants investment plus interest. (para. 49)

Reconsideration of the Damages Award

The Applicant submitted a request for reconsideration of the Damages Award pursuant to s. 44(1)(b) of the Arbitration Act, 1991 (“Domestic Act”), which deals with typographical errors. The Applicant’s position was that funds raised were intermingled with funds from other sources that were in the BMO Account. After the parties made submissions, the Arbitrator issued a Procedural Order that dismissed the Applicant’s request. With respect to which legislation governs recourse to the courts and control of arbitral procedure, the Arbitrator held that this was an issue for the courts to decide. (paras. 5354)

The Arbitrator held that the arbitration agreement evidenced the party’s intention to apply the Domestic Act to the day-to-day procedures of the arbitration and that s.44 of the Domestic Act was not inconsistent with the ICCA. (para. 55)

The Arbitrator held that the scope of 44 (1)(b) of the Domestic Act cannot be extended to correct an injustice to non-parties to the arbitration possibly arising because funds were intermingled and that the “overall impression” from the evidence was that the total amount raised from the initial offering was $2 Million. The application to amend the Damages Award was denied.(para.55)

Analysis of the Application to Set Aside the Arbitral Awards

The Applicants brought an application to set aside the damages award pursuant to s. 46(1) of the Domestic Act. The Applicant’s lengthy legal position is set out in paras. 6070 of the case. The Respondents’ legal position is set out in paras. 7179.

Applicable Law

Vermette J. held that the applicable law on the Application was section 34 of Model Law as set out in the ICCA. (para. 92)

Section 2(1) of the Arbitration Act provides that the Arbitration Act applies to an arbitration conducted under an arbitration agreement unless the ICAA applies. Thus, the ICAA and the Arbitration Act are exclusive: if the ICAA governs an agreement, the Arbitration Act does not, and vice versa. See Uber Technologies Inc. v. Heller2020 SCC 16 at para. 20 (“Uber”). (para. 80)

Vermette J. held that the nature of the arbitration was commercial (para. 82) and that an arbitration is international if the parties to the arbitration agreement have at the time of conclusion of the agreement their places of business in different countries as set out in Articles 1(1), 1(3)(a) and 1(4)b of the Model Law. As the Respondent (Ruyu Yan) moved to Beijing after signing the Subscription Agreement and was living in Beijing at the time of signing the Shareholders Agreement and the agreement to arbitrate was in the SA, Vermette J. held that the arbitration was international, and the Model Law applied.

Courts have recognized that the Model Law includes mandatory provisions that cannot be excluded by agreement of the parties. Thus, the parties cannot contract out of the ICAA and the Model Law. (Paras. 8593)

General Principles applicable on a set aside application pursuant to Article 34 of the Model Law

To justify setting aside an arbitral award pursuant to Article 34(2)(a)(ii) of the Model Law for reasons of fairness or natural justice, the conduct of the arbitral tribunal must be sufficiently serious to offend our most basic notions of morality and justice and cannot be condoned under Ontario Law. (para.95)

Vermette J. referred to Nelson v The Government of the United Mexican States in which the ONSC set out three situations when a party is said to have been unable to present their case pursuant to the Model Law Article 34(2)(a)(ii). (para. 96) The courts are not to permit a re-argument of the merits of the case in the guise of a claim for breach of procedural fairness. (para. 97)

When reviewing s. 46(1)3 of the Domestic Act, Vermette J. referred to Alectra Utilities Corporation v. Solar Power Network Inc., 2019 ONCA 254, which requires that arbitrators act within the bounds of authority granted by the arbitration agreement to which they are appointed. (para. 99) Jurisdiction is determined not by asking whether the arbitrator made a correct decision but whether they had authority to make the decision. (para. 100)

Procedural Fairness Grounds- Article 34(2)(a)(ii) to set aside Damages Award

The Application Judge rejected the Applicant’s argument that they were denied procedural fairness because it is impossible to adopt a first in/last out methodology for disgorgement of profits when the funds have been comingled. Vermette J reasoned that the Applicant had an opportunity to put forth a different methodology, cross examine the Respondent’s expert and make submissions on an appropriate methodology. (para. 102)

Vermette J held that the arbitrator provided reasons for adopting the methodology and did not ignore the fact of comingled funds in the Damages Award or PO #3. The Applicant was not successful on these grounds to set aside the Damages Award.

Jurisdiction Grounds Article 34(a)(iii) to set aside Damages Award

Vermette J. rejected the Applicant’s arguments that the arbitrator exceeded her jurisdiction under the arbitration agreement. Vermette J. held that a question of procedural fairness or natural justice is not a true question of jurisdiction because any breach of the duty of fairness only arises after the inquiry has begun. (para. 109)

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Arbitration & Business Cases is a blog created by Igor Ellyn and Robin Dodokin in September 2021. Kathryn Manning joined us in October 2022. Our intention is to provide timely, concise summaries and commentary of Ontario and Canadian case law on arbitration and business matters.


Igor Ellyn,
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Robin Dodokin,
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Kathryn J. Manning,