ONTARIO – Arbitration – Recognition and Enforcement of Award under ICAA, 2017 and UNCITRAL Model Law, Art. 36(1) – The refusal of a Chinese Arbitral Tribunal to permit appraisal evidence after the evidence portion of the arbitration was completed was not a basis to refuse recognition and enforcement of the Arbitral Award in Ontario. The Arbitral Tribunal’s decision about procedural matters was entitled to deference.
China Yantai Friction Co. Ltd. v Novalex Inc.,
2024 ONSC 608 (CanLII) (January 26, 2024)
Ontario Superior Court of Justice (Chang J.)
This was an application pursuant to the International Commercial Arbitration Act, 2017, S.O. 2017, c. 2, Sched. 5 (the “Act”) for recognition and enforcement of a commercial arbitral award dated November 18, 2018 (the “Award”) for USD$578,509.88 rendered by a three-member arbitral tribunal (the “Arbitral Tribunal”) of the China International Economic and Trade Arbitration Commission (“CIETAC”). The Award was for the supply and delivery of automobile brake pads manufactured by the Applicant and delivered to the Respondent, which operates in Ontario. (paras. 1, 28)
Facts
The uncontested evidence before Justice Chang was that:
- Both parties were represented by legal counsel during the arbitration proceedings and fully engaged and participated in the arbitral process.
- Each of the parties selected one arbitrator to sit on the Arbitral Tribunal that would adjudicate the dispute and CIETAC, under its rules, selected the third.
- Following the arbitration hearings held in China on December 19, 2017 (the initial hearing) and July 13, 2018 (the re-hearing) and the delivery of additional written submissions, the Arbitral Tribunal rendered the Arbitral Award, which was released in the Chinese language.
- The Respondent did not appeal the Arbitral Award pursuant to Chinese law and did not apply under the Model Law on International Commercial Arbitration to have it set aside and did not otherwise challenge it before the Applicant commenced the application to the Ontario Superior Court.
- English translations of various Chinese language documents were not adduced in evidence and there were no issues with any of the translations. ( 28)
Issues
The Respondent opposed the application for recognition and enforcement of the Award on two grounds:
- Under Article 36(1)(a)(ii) of the UNCITRAL Model Law (Schedule 2 to the Act), alleging that it was denied the opportunity to present its case at the arbitration. Specifically, the Arbitral Tribunal refused to permit the Respondent to engage an appraiser to inspect and assess the quality of the subject brake pads and based its Award on the absence of evidence of quality issues; and ( 28m., 31)
- Under Article 36(1)(b)(ii) of the UNCITRAL Model Law, alleging that recognition or enforcement of the Arbitral Award would be contrary to public policy. ( 28m.)
Analysis
In Ontario, the enforcement of awards made in international commercial arbitrations is governed by the Act, which adopts and gives force of law to the UNCITRAL Model Law. (para. 33)
The Court noted that Art. 5 of the Model Law provides that “In matters governed by this Law, no court shall intervene except where so provided in this Law.” Arts. 35(1) and 36(1) of the Model Law mandate the recognition and enforcement of international commercial arbitral awards and repose in this court a limited discretion to refuse such recognition and enforcement. (para. 35)
Relying on the ONCA decisions in Consolidated Contractors Group S.A.L. (Offshore) v Ambatovy Minerals S.A., 2017 ONCA 939, at para. 24, and Popack v Lipszyc, 2016 ONCA 135, at para. 26, the Court noted that awards are accorded a high degree of deference, particularly where the award was rendered in a private arbitration by an arbitrator/panel chosen by the parties, where the parties’ choice of forum “implies both a preference for the outcome arrived at in that forum and a limited role for judicial oversight of the award made in the arbitral forum”. (para. 36)
Art. 36 of the Model Law sets out the limited grounds on which a Court can refuse to enforce an award:
(1) Recognition or enforcement of an arbitral award, irrespective of the country in which it was made, may be refused only:
(a) at the request of the party against whom it is invoked, if that party furnishes to the competent court where recognition or enforcement is sought proof that:
(i) a party to the arbitration agreement referred to in article 7 was under some incapacity; or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made; or
(ii) 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; or
(iii) the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be recognized and enforced; or
(iv) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties or, failing such agreement, was not in accordance with the law of the country where the arbitration took place; or
(v) the award has not yet become binding on the parties or has been set aside or suspended by a court of the country in which, or under the law of which, that award was made; or
(b) if the court finds that:
(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law of this State; or
(ii) the recognition or enforcement of the award would be contrary to the public policy of this State.
Referring to Depo Traffic v Vikeda International, 2015 ONSC 999, at para. 32, Justice Chang held that the Respondent had the burden or proving that one or more the circumstances referred to in Art. 36 existed. (para. 37)
The Court held that the applicable test is whether the arbitrators’ procedural decisions “offend our most basic notions of morality and justice” such that the consequent procedural unfairness “cannot be condoned” and referred to the ONCA decision in All Communications Network of Canada v Planet Energy Corp., 2023 ONCA 319, at paras. 48 and 54). (para. 39 and see our summary at Case #091E)
Justice Chang rejected the Respondent’s position that the Arbitral Tribunal’s refusal of its request to retain appraisers to assess the quality of the brake pads denied the Respondent the ability to present its case. The Court held that the Respondent’s request was an improper attempt to re-open its case after the arbitration had already been conducted. The Respondent’s request to retain appraisers was made after the evidence portion of the arbitration had already been completed. There was no allegation of bad faith on the part of the Arbitral Tribunal (paras. 40-45)
As to the Respondent’s allegation that the Award was contrary to public policy, the Court rejected the Respondent’s argument that the Applicant claimed an amount that was directly contrary to an alleged oral agreement between the parties. (para. 50)
Editor’s Note:
This case is also noteworthy because of comments the Court makes about the conduct of counsel during the hearing (paras. 20-27) and about the pervasive introduction of inadmissible evidence in affidavits, some of which was struck by the Court. (paras. 4-19)