Two recent Canadian decisions demonstrate the limited application of the procedural fairness exception to enforcing foreign arbitral awards, and reinforce the substantial deference that courts give to awards made in other countries.
Legislation based on the Model Law on International Commercial Arbitration is in force across Canada. Articles 34 and 36 of the Model Law allow the court to refuse enforcement of foreign arbitral awards on procedural fairness grounds, including where a party was unable to present its case.
The two decisions discussed below show that Canadian courts will hold parties to the procedure set out in their arbitration agreements, and that, in most circumstances, enforcement proceedings cannot serve to re-argue evidentiary points decided by the arbitration tribunal.
In order to resist enforcement, a party must prove that the procedural irregularity was so severe that it offends a Canadian court's most basic notions of morality and justice.
Inability to File Evidence Late in Arbitration Not a Basis to Refuse Enforcement
In China Yantai Friction Co. Ltd v Novalex Inc., 2024 ONSC 608, the Ontario Superior Court of Justice granted enforcement of an arbitration award rendered in favour of the applicant by a three-member tribunal under the Arbitration Rules of the China International Economic and Trade Arbitration Commission (the "CIETAC Rules"). The arbitration involved a dispute over the sale of brake pads.
China Yantai Friction Co. Ltd ("China Yantai") applied to enforce the award in the Canadian province of Ontario. Novalex argued that the award should not be enforced in accordance with Article 36(1)(a)(ii) of the Model Law due to the company's inability to present its case. The basis for Novalex's position was that the tribunal refused to permit appraisers to inspect the brake pads for quality deficiencies after completion of the evidentiary portion of the arbitration.
Similar to other provinces in Canada, in Ontario there is a strict test to meet to refuse enforcement under Article 36(1)(b)(ii) of the Model Law. The party resisting enforcement must prove that the tribunal's procedural decisions "offend our most basic notions of morality and justice" such that the consequent unfairness "cannot be condoned".
In rejecting Novalex's argument, the Court noted that the proceedings had been conducted in accordance with the CIETAC Rules and that the request for an appraiser was "an improper attempt to reopen its case" after arbitration concluded. The tribunal acted within its authority to refuse the late request to seek additional evidence.
As the parties agreed to resolve conflicts through arbitration under the CIETAC Rules, the Court emphasised that they should be held to the consequences that flow from it and the "resultant award be subject to limited judicial oversight".
The Court also denied Novalex's request to refuse enforcement on public policy grounds.
International Arbitration Does Not Have to Resemble Domestic Court Procedures
In Costco Wholesale Corporation v TicketOps Corporation, 2023 ONSC 573, the Ontario Superior Court of Justice also rejected arguments to resist enforcement of international arbitration awards due to a party's alleged inability to present its case.
The dispute involved an agreement under which TicketOps Corporation ("TicketOps") provided digital ticketing services to Costco.
Following arbitration under the American Arbitration Association rules, Costco sought enforcement of an arbitral award in Ontario. TicketOps asked the Court to refuse enforcement.
In granting enforcement of the award, the Court also found that TicketOps' procedural fairness arguments under Article 36(1)(a)(ii) of the Model Law were not "sufficiently serious to offend our most basic notions of morality and justice" nor so serious that they cannot be condoned under Ontario law.
The Court rejected the following grounds to refuse enforcement argued by TicketOps.
- Summary arbitration procedure: TicketOps argued that it was unable to present its case because the arbitration clause provided for a two-day summary procedure only. The Court found that this provision was not unconscionable and did not offend basic notions of morality and justice.
- Lack of third-party involvement: the second ground rejected by the Court was that the arbitration clause did not allow the third-party suppliers to participate in the arbitration.
- Denial of witness deposition: the Court found that the arbitrator's denial of TicketOps' motion to compel the deposition of one witness was not so serious that it cannot be condoned under Ontario law.
- Arbitrator and counsel were Facebook "friends": the final ground that the Court rejected was that there was reasonable apprehension of bias because the arbitrator was a friend of Costco's American counsel on Facebook. The Court noted that the arbitrator had disclosed past interactions with Costco's counsel, and that, "in today's world, a reasonable and informed person would place little or no weight on the fact that two persons are 'friends' on Facebook".
The Court also found that enforcement would not be contrary to public policy as none of the perceived injustices were sufficient to offend the Court's sense of morality.
Takeaways
These two decisions reinforce the Canadian courts' pro-enforcement stance with respect to foreign arbitration awards.
Parties seeking to resist enforcement in Canada may not be allowed to re-argue evidentiary points decided by the arbitration tribunal, nor to avoid the procedures that flow from their arbitration agreements, unless the procedural irregularity is so serious that it cannot be condoned or offends the Court's basic notions of morality and justice.
Originally published by Chambers and Partners
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