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27 September 2018
In Popack v Lipszyc(1) the Ontario Court of Appeal interpreted when an international commercial arbitration award becomes binding on the parties for the purposes of judicial recognition and enforcement of foreign arbitral awards. The decision brings greater clarity to the enforcement of such awards in Ontario.
Specifically, the Court of Appeal held that the determination of whether an award is binding pursuant to Articles 35 and 36 of the United Nations Commission on International Trade Law (UNCITRAL) Model Law rests with the court rather than the arbitral tribunal.
The dispute in this case arose out of a failed business partnership that was submitted to arbitration before a rabbinical court. Popack applied unsuccessfully to the Ontario courts to have the award set aside.(2)
After the unsuccessful appeal, Popack's counsel sought payment of the arbitral award. Counsel for the defence advised that it would seek adjustment of costs from the rabbinical court and that it considered the matter to still be before the rabbinical court, meaning that the award was not yet binding or enforceable.
Nevertheless, on 24 June 2016 Popack applied for recognition and enforcement of the award, including payment in Canadian dollars of the C$400,000 award which, he alleged, had been made in US dollars.
Thereafter, the rabbinical court sent letters clarifying that:
The rabbinical court also indicated that the award was stayed pending Popack's appearance before them.
The application judge heard:
At trial, the judge refused the application for recognition, finding (among other things) that the two post-award statements by the rabbinical court indicated that:
On appeal, Popack's counsel argued that the application judge had erred in finding that the award had not yet become binding on the parties within the meanings of Article 36(1)(a)(v) of the UNCITRAL Model Law.
The court began by establishing two relevant legal principles. First, it determined that the standard of review for interpretation of a statute (eg, the International Commercial Arbitration Act and its schedules) is, as a question of law, the correctness standard.
Second, the court noted that Ontario has a strong pro-enforcement legal regime and that grounds for refusal of enforcement are to be construed narrowly when considering the enforcement and recognition provisions of the UNCITRAL Model Law and New York Convention.
The court then engaged in a review of foreign case law and commentary on the subject of the recognition and enforcement of arbitral awards. Many jurisdictions consider an award binding when it is not open to recourse on its merits and distinguish between ordinary (ie, substantive appeals) and extraordinary (ie, set aside under Article 34 of the UNCITRAL Model Law) avenues of recourse. Several states consider an award to become binding on the exhaustion of ordinary avenues of recourse.
This approach differs from that taken by the Supreme Court of Canada; in Yugraneft Corp v Rexx Management Corp(3) it specifically held that an award is not binding within the meaning of Article 36(1)(a)(v) of the UNCITRAL Model Law if it is open to being set aside under Article 34 of the same law. Therefore, per Yugraneft, the award became binding for the purposes of Articles 35 and 36 of the UNCITRAL Model Law after Popack's unsuccessful appeal was disposed of on 18 February 2016.
The Court of Appeal found that the application judge had made three errors.
Was there a pending proceeding to appeal the award?
The application judge found that Lipszyc was entitled to take steps to appeal the award. This was found to be a palpable and overriding error given, as noted above, that the arbitration agreement specifically precluded the appeal of the award to any court. Further, Lipszyc was not seeking to set aside an award per Article 34(3). As such, if the application judge was referring to this provision when he noted an unexplained three-month window, this would constitute another palpable and overriding error.
Correction or interpretation of the award – new issue or continued arbitration?
The Court of Appeal determined that the application judge had erred in interpreting and applying Article 33 of the UNCITRAL Model Law.
Under Article 33, a party may apply within 30 days of receipt of an award to:
The Court of Appeal found that the question of whether the award was denominated in Canadian or US dollars had been settled in the previous appeal, where the appellants acknowledged that the award was denominated in Canadian dollars. As such, clarification of this point could not be a valid interpretation request pursuant to Article 33(1)(b).
The Court of Appeal found that the question of adjusting the award to reflect the costs of the post-award court cases was a new issue, as it was based on events that took place after the award. Since it was a new issue, Article 33 did not apply.
Continuing jurisdiction of the arbitral tribunal
The Court of Appeal found that the application judge had erred by conflating the issues of whether:
The court found that the application judge had misinterpreted Article 32(1) of the UNCITRAL Model Law – which establishes that arbitral proceedings are terminated by the final award – and Article 32(3), which provides that the mandate of the arbitral tribunal terminates with the end of arbitral proceedings.(4)
The court observed that the order was final on its face, but the respondents argued that the issues of costs relating to the 2016 appeal created a continuing jurisdiction for the arbitral tribunal. As the arbitration agreement does not address costs and the matter was not raised during proceedings by either party or within 30 days of receipt of the award per Articles 33(1) and 33(3), the court found this costs matter to constitute a new issue.
The court also addressed the arbitration agreement and the respondent's claim that the rabbinical court was not functus officio even if costs were a new issue. The court found that Articles 35 and 36 of the UNCITRAL Model Law make clear that the final determination of whether an award is binding rests with the court rather than the arbitral tribunal. The potential jurisdiction of the rabbinical court to consider new issues under the arbitration agreement has no impact on the binding nature of the award in question. The rabbinical court's decision to stay the award was irrelevant in light of Article 36(1)(a)(v), which provides that enforcement of an award may be refused only where suspended by a court of the state in which the award was made, or under the law of that state.
This decision clarifies what constitutes a binding award for the purposes of recognition and enforcement in Ontario. It also affirms the final authority of the courts to determine whether an award is binding per Articles 35 and 36 of the UNCITRAL Model Law.
This decision also provides guidance on the application of Articles 32, 33 and 34 of the UNCITRAL Model Law in Canada – specifically with reference to other UNCITRAL Model Law jurisdictions around the world.
It remains to be seen whether Canadian courts will integrate the concept of 'ordinary' and 'extraordinary' recourses into future judgments dealing with the question of when an award becomes binding, as other jurisdictions have done.
For further information on this topic please contact Hugh A Meighen or Lucas Kilravey at Borden Ladner Gervais LLP by telephone (+1 416 367 6614) or email (email@example.com or firstname.lastname@example.org).The Borden Ladner Gervais LLP website can be accessed at www.blg.com.
(2) For further details please see "Type of arbitral error determines judicial discretion to set aside international award".
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Hugh A Meighen