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February 15 2018
A recent Ontario Court of Appeal decision has affirmed the favourable Canadian approach to the enforcement of international arbitration awards under the United Nations Commission on International Trade Law (UNCITRAL) Model Law. It rejected a challenge to an international arbitral award based on arguments that:
The court of appeal's restraint when asked to set aside and refuse to enforce an international arbitral award is consistent with recent cases, which have upheld the narrow circumstances in which courts can do so.(1)
In its decision,(2) the Ontario Court of Appeal upheld a lower court's decision to dismiss the application of Consolidated Contractors Group SAL (CCG) to set aside an arbitral award under Ontario's International Commercial Arbitration Act,(3) which adopts the UNCITRAL Model Law.(4) The court of appeal upheld the judge's finding on the tribunal's broad interpretation of its own jurisdiction.(5) The decision reiterates the deferential approach that courts generally take when reviewing international arbitration awards. This respect for the arbitral process is one of the factors that makes Canada an attractive place for arbitration or to pursue an international arbitral award.
The arbitration arose from a $258 million mining project for the construction of a pipeline to carry nickel ore slurry from Ambatovy Minerals SA's open pit mine in the Madagascar mountains to the coast. The contract in question contained a tiered dispute resolution clause consisting of three stages whereby disputes would:
The dispute resulted in a unanimous final award issued in September 2015, which awarded CCG $7 million of its $91 million claim and Ambatovy $25 million for its counterclaims. The tribunal ordered CGG to pay Ambatovy $9.8 million in costs.
The Ontario Superior Court dismissed CCG's application to set aside the award, rejecting CCG's arguments and upholding the narrow circumstances under which a court can refuse to enforce an international award. The court of appeal dismissed the appeal.
CCG's first ground for the setting aside and refusal to enforce the award was that the arbitral tribunal had acted without jurisdiction. The Ontario Superior Court rejected CCG's argument that the tribunal had erred in finding that it had jurisdiction to hear Ambatovy's counterclaims. CCG argued that the tribunal had no jurisdiction to hear the counterclaims because it had not been through the tiered phases of the dispute resolution clause, which it argued were precedential to arbitration. The superior court rejected this argument, deferring to the tribunal's decision regarding procedural issues relating to the conduct of the arbitration.
The tribunal had found that the parties' agreement which stipulated that CCG's main claims could go directly to arbitration, bypassing the adjudication stage of the dispute resolution process, reflected the intention that any disputes between the parties be resolved efficiently. As such, the tribunal concluded that there was a common intention that disputes would be dealt with at the same time and by the same tribunal when there was sufficient connection between the disputes. The tribunal determined that there was indeed a sufficient connection between the counterclaims and the main claims, and therefore heard them together.
On appeal, CCG argued that the tribunal's jurisdiction was purely consensual and, since there was no agreement regarding the issue of arbitrating the counterclaims, the tribunal had exceeded its jurisdiction. Following its earlier decision in United Mexican States v Cargill Inc,(6) the court of appeal held that the question was to be reviewed on the standard of correctness and that a reviewing court should interfere only where there was a true error of jurisdiction (eg, where a tribunal has decided a matter outside its geographic or temporal jurisdiction).(7) Considering the terms of reference, the contractual terms relating to arbitration, the parties' submissions and the arbitral award, the court of appeal found that the tribunal had jurisdiction to determine the issues and rule on the parties' requests for relief. Therefore, CCG had not raised a true question of jurisdiction and the tribunal's decision could not be reviewed under Article 34 of the International Commercial Arbitration Act.
The court was careful to note that not every dispute submitted to arbitration will necessarily draw in any counterclaims between the parties, emphasising that it will depend on the contractual intention of the parties in each case. The court also cautioned that parties should not ignore pre-arbitration dispute resolution requirements.
Denial of procedural fairness
The court of appeal agreed with the lower court in rejecting CCG's argument that it had been denied procedural fairness. Although CCG had received proper notice of the proceedings and participated in the arbitration from the start, CCG argued that it had been denied procedural fairness and was unable to present its case because:
The court of appeal found that CCG was attempting to reargue the merits of its case and its arguments did not meet the high bar required to constitute a denial of procedural fairness. On the issue of costs, the court noted that the tribunal had discretion over costs under the ICC Rules and was entitled to consider which party was the winner.(8) CCG did not demonstrate that it had been prevented from presenting its case on costs or that the decision was the result of an error in principle.
No conflict with public policy
CCG argued that the tribunal's award had resulted in Ambatovy being granted double recovery, which constituted an unfair penalty contrary to Ontario public policy. The tribunal ruled that CCG had forfeited certain tranche payments owed by Ambatovy if CCG met certain milestones, while also awarding Ambatovy liquidated damages due to delays in project completion. The application judge rejected CCG's argument that the tribunal had compensated Ambatovy twice for delays in the project. The court agreed that the characterisation of the tranche payments as bonuses (which were forfeited when the project milestones were not reached) was appropriate and that there had been no double recovery. The court held that the tribunal's award did not violate public policy, nor did it offend local principles of justice and fairness in a fundamental way.
The case demonstrates the courts' continued deference to international arbitral tribunal decisions, particularly with respect to the tribunal's competence to decide issues relating to its own jurisdiction. It also provides a cautionary note to counsel and parties with respect to including tiered dispute resolution provisions in contracts. These provisions, as was the case here, can often provide unhappy parties with an avenue to increase the costs of resolving disputes unnecessarily. Parties which choose arbitration can limit potential procedural and jurisdictional wrangling, and the inevitable increased costs, by drafting clear and straightforward arbitration agreements.
For further information on this topic please contact Sarah McEachern or Jennifer Choi at Borden Ladner Gervais LLP by telephone (+1 604 687 5744) or email (email@example.com or firstname.lastname@example.org).The Borden Ladner Gervais LLP website can be accessed at www.blg.com.
(1) For further details please see "Ontario court recognises arbitral award and confirms narrow scope of public policy defence" and "A friendly place to seek enforcement of international arbitral awards".
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