Can You Change Horses When Appealing From An Arbitration Decision?

Arbitration and court proceedings may be different, but can a party substantially change its position when it appeals from an arbitration award to the court?  At the very least, it seems like questionable strategy to do so.  The British Columbia Court of Appeal held that the appellant could not do so in VIH Aviation Group Ltd v. CHC Helicopter LLC.

The Background

VIH asserted the right to terminate a joint venture between the parties.  CHC referred the matter to arbitration.  The arbitral tribunal held that the termination was invalid and that the joint venture agreement continued in force.  VIH sought leave to appeal from that decision.  Leave to appeal was denied by the BC Supreme Court and that decision was upheld by the BC Court of Appeal.

VIH had asserted the right to terminate the joint venture because it said that CHC had gone through a corporate re-organization that constituted the sale or transfer of all or substantially all of its assets.  VIH said that such a sale or transfer triggered its right to terminate the joint venture agreement under a specific term of that agreement.

Before the arbitral tribunal, both VIH and CHC took the position that the term ought to be interpreted to require the arbitral tribunal to determine whether the re-organization had, in a “qualitative” way, changed the nature of CHC’s business.  The real issue before that tribunal was whether one should look at the integral nature of CHC’s assets and business (as VIH submitted) or the ability of CHC to fulfil its obligations under the agreement (as CHC submitted).  The arbitral tribunal accepted CHC’s view of this issue, and held that the transfer of assets to CHC’s subsidiary and affiliate did not interfere with its ability to carry out its obligations under the agreement.

In seeking leave to appeal from the BC Supreme Court, VIH took the position that the term in the joint venture agreement should be interpreted in accordance with its plain meaning.  Basically, it said that there was no need to resort to a “qualitative” analysis:  there was either a “sale or transfer” or there wasn’t, and the arbitral tribunal erred in applying the “qualitative” test and holding that there had not been a sale.

The Decision

The BC Supreme Court held that, on a motion for leave to appeal from an arbitral award, a party should not be able to change its position, and on that ground it refused leave to appeal.  The BC Court of Appeal agreed with that view for a number of reasons.

The Court of Appeal noted that there must be an issue of law before leave could be granted under section 31(2) (a) of the BC Commercial Arbitration Act.  It also acknowledged that the application of an improper principle of interpretation to a contract is an error of law.

However, if a party could create an issue of law by asserting one legal principle to the arbitral tribunal and another to the court, that would create mischief.  As the judge of the BC Supreme Court said:  “during the arbitration the petitioners in fact urged on the arbitrators that they were required to follow the very approach that is now criticized by the petitioners as wrong in law.”  The Court of Appeal held that the court correctly exercised its discretion not to permit VIH to raise a point of law for appeal by changing its legal position.

The Court of Appeal said that, even in a motion seeking leave to appeal from one court level to another, the judge hearing that motion normally ought not to allow an inconsistent position to be the basis for the appeal.  It is one thing to argue a new position.  It is another thing to argue a completely inconsistent position and to assert that the lower court erred in adopting the very position asserted by the would-be appellant in the lower court.

The Court of Appeal said that this principle is even more important in a motion for leave to appeal from an arbitral award.  It said:  “Where parties have deliberately preferred arbitration as the method for resolving disputes, it is to be expected that they will fully argue their cases in that forum.” In the Court’s view, “allowing a party to change positions too readily on an arbitration appeal risks subverting the goals of the arbitration process, which is designed to be expeditious and provide finality.”

This decision is a welcome clarification of the power of a court to grant leave to appeal from an arbitral award.  That power does not exist in all jurisdictions.  In Canada, it exists in British Columbia and in those provinces which have adopted the Uniform Arbitration Act of the Uniform Law Conference (Alberta, Saskatchewan, Manitoba, Ontario, New Brunswick and Nova Scotia).  That right to obtain leave to appeal is considered by some to allow the court system to intrude into the arbitration process.

But the VIH decision discounts that fear on two bases:

First, the BC Court of Appeal has affirmed that there is a residual discretion not to grant leave to appeal even if the would-be appellant meets the strict terms of the section permitting leave to appeal.

Second, that court affirmed that the residual discretion can be exercised by considering whether granting leave to appeal supports or subverts the goals of the arbitration process.  If consistently applied, that principle will go a long way toward both upholding the integrity of arbitration and protecting it from unnecessary incursions by the court system.

Potential Impact on “As-of-Right” Appeals

The VIH decision may also raise an interesting issue if a party has a right to appeal to the courts from an arbitration decision.  Such a right exists in Prince Edward Island if the arbitration agreement so provides.  Other provinces have adopted the provision in the Uniform Arbitration Act of the Uniform Law Conference of Canada allowing the parties to insert a right of appeal (and not just appeal with leave) into their arbitration agreements.  Alberta, Saskatchewan, Manitoba, Ontario, New Brunswick and Nova Scotia have adopted that provision.

If a party has a right of appeal, should the appeal court allow the appellant to assert a position before the appeal court that is contrary to the position it asserted before the arbitral tribunal?  Should the appeal court treat the matter as though it were an appeal from another court?  Or does the appeal court have a discretionary power to dismiss the appeal because, to do otherwise, would subvert the arbitration process?  For an answer to those questions, we must wait for a party to be brave or unwise enough to change its position in an as-of-right appeal from an arbitration decision.

Arbitration   –   Appeal   –   Change of Position

VIH Aviation Group Ltd v. CHC Helicopter LLC, 2012 BCCA 125

Thomas G. Heintzman O.C., Q.C., FCIArb                                                                               April 10, 2012

When Is An Arbitration An International Commercial Arbitration?

Is an arbitration between two domestic companies arising from a contract for a shipment between two foreign countries an “international commercial arbitration” for the purposes of the UNCITRAL Model Rules, particularly if the arbitral agreement requires arbitration in a foreign location?  And if it is, does the domestic court have any residual discretion to stay the arbitration and allow the court action to proceed?

Those are the important issues which the Superior court of Ontario faced in Star Tropical Import &Export Limited v. International Management Consortium Ltd.

The facts in this case raised a conflict between the court’s sense of fairness, and the rigidity and almost total absence of discretion in the Model Rules.  How should a court resolve this conflict?

The two agreements in question were made in Canada between two companies carrying on business in Ontario. The agreements provided for the receipt of sugar in Brazil and the delivery of the sugar in Ghana.  The first contract dated November 2006 required all disputes to be settled in Paris or Zurich by arbitration under ICC Rules. The second agreement dated April 2007 stated that it replaced the first agreement and provided for arbitration under the “Refined Sugar Association” rules.  Those rules stated that disputes were to be resolved by arbitration to be held in London, U.K.

Problems with the performance of these contracts ensued.  In October 2007, Star Tropical commenced an action in Ontario against International Project and one of its officers.  In November 2007, International Project wrote to Star Tropical stating its position that the dispute must be resolved by arbitration.  But International Project took no steps to commence arbitration, and delivered no Statement of Defence in the Ontario action.  It consented to several orders reviving the Ontario action when it was struck out for the failure of the parties to advance it.

In November 2010, three years after the action was commenced with no Statement of Defence having been delivered, International Project brought a motion to stay the Ontario action on the basis that the dispute was required to be resolved by arbitration.  In its motion, International Project relied upon the stay provisions of Ontario’s domestic Arbitration Act, 1991.  It did not rely on the Ontario International Commercial Arbitrations Act (ICAA) which incorporates the UNCITRAL Model Rules.

Article 1(3) of the UNCITRAL Model Law states that an arbitration is “international” if:

(a)     at the time of the conclusion of the agreement, the parties had their places of business in different states: or

(b)(i)  the place of arbitration determined in or pursuant to the agreement is outside the    state in which the parties have their places of business; or

(b)(ii)   the place where a substantial part of the commercial relationship is to be performed, or in which the subject matter of the dispute is most closely connected, is a place outside the state in which the parties have their places of business; or

(c)   the parties have agreed that the subject matter of the agreement relates to more than    one country.

The Master of the Ontario Superior Court noted that section 2(3) of ICAA states that, despite Article 1(3) (c) of the Model Code, an arbitration conducted in Ontario between parties having their place of business in Ontario is not international only because the parties have expressly agreed that the subject matter of the agreement relates to more than one country.   While the Master said that section 2(3) helped to answer the question before the court, he did not say how that subsection could apply to the provisions of Article 1(3) other than clause (c).

The court concluded that the agreements did not give rise to “international commercial arbitrations” to which the ICAA and the Model Law applied.  The reasons for so concluding are not entirely clear.  The court appears to have decided that Article 1(3) (a) did not apply since the parties were Ontario corporations.  The Ontario court was clearly concerned about sending two parties off to arbitrate in Europe when they were both located right in Ontario.  However, Article 1(3) (b) (i) apparently applied to the facts because the state where the arbitration was to be held (France or Switzerland, or the U.K. if the second agreement applied) was not the state where the parties carried on business (Ontario or Canada).

This result could be avoided if the court were to hold that, by repeatedly using the plural word “places” in the expression “places of business” in Article 1(3), the Model Rules only intended an arbitration to be “international” if the parties are located in different states.  This conclusion does not seem appropriate since Article 1)3)(a) deals specifically with that situation and therefore the disjunctive provisions of Article 1(3)(b) and (c)  are logically not restricted to that situation.

The court did not expressly address Article 1(3(b)(ii) which also apparently applied.  The receipt (in Brazil) or delivery (in Ghana) of the sugar seems to have been substantial parts of the commercial relationship between the parties.  The states where those activities were to occur were not states in which the parties carried on their business (Ontario, Canada).  Perhaps the court considered that, since there were two places of performance, neither place predominated.  However, Article 1(3) (b) (ii) says “a substantial part of the obligation” not “the substantial part”.  Thus, an agreement may be substantially performed in several places, only one of which need be different than the parties’ place of business.

The court may also have applied a principle analogous to the forum non conveniens rule that the plaintiff’s choice of forum should prevail unless there is some other clearly preferable forum.  But Article 1(3) does not contain that principle.

The court dismissed the application to stay.  In doing so, the court applied the Ontario Arbitration Act, 1991, not the ICAA.  Section 7(2) of the Ontario domestic arbitration statute gives the court a much broader discretion to dismiss the stay motion than does the ICAA, most particularly if the motion is brought with undue delay. That particular ground is not found in the ICAA.

The motion to stay was dismissed for three reasons:

First, the motion to stay was only brought under the domestic Act, not the ICAA.   While the Master himself raised the issue of the ICAA, he appears to have been satisfied, either that the ICAA did not apply due to the factors referred to above, or that since the motion was not brought under the ICAA then he was not obliged to apply that statute.  If so, then his decision will not be applicable in the next case if the stay motion is brought under the ICAA.

Second, the delay of International Project to proceed with the arbitration disentitled it to rely upon the refined sugar association rules and to a stay under section 7(2) of the Ontario Arbitration Act, 1991.  A real question is whether this issue of delay should have been dealt with by the arbitral tribunal or the court.

Third, Star Tropical’s claim against the officer of Project International could not be arbitrated.

The Master held that the claim against International Project and the claim against its officer should be heard together by the same tribunal.  Under section 7(5) of the Ontario Act, the court had discretion to allow the two claims to be heard together by dismissing the stay motion.

This third reason is problematic for a number of reasons.  It seems to provide an open invitation to a party to an arbitration agreement to include an officer of the other party as a defendant in an action, in order to avoid arbitration.  The ICAA does not provide an exception to its rules of mandatory arbitration in relation to this circumstance.

This decision represents a classic conflict between the court’s perception of fairness and the strict provisions of the Model Rules.  The Model Rules were expressly drafted to stipulate the specific rules under which an international commercial arbitration is to proceed.  If a motion to stay the action is brought before or at the time of the delivery of the Statement of Defence in the action, then Article 8 of the Model Rules requires the Court to stay the action unless the arbitral agreement is null and void, inoperative or incapable of being performed. As long as the stay motion is brought no later than the deliver of the Statement of Defence, then delay and even egregious delay in advancing the arbitration or bringing the stay motion is not mentioned in the Model Rules as a ground upon which the court can decline to stay the action and force the parties to proceed by way of arbitration.  Nor is the expense and delay of two domestic corporations being forced to arbitrate their dispute in a distant country. These omissions may seem illogical and unfair, but they appear to follow from the Model Rules and, now in Ontario, from the ICAA.

In these circumstances, it is difficult to see how the court can avoid the Model Rules by adopting a discretionary approach to the stay motion.  If the delay in seeking arbitration is to be a factor, that factor is one to be applied by the arbitral tribunal.  The arbitral tribunal can consider the delay and either accept jurisdiction if it decides that it should do so, or dismiss or stay the arbitration and send the dispute back to the court system.  Pursuant to Article 8(2) of the Model Rules, the court can allow this process to unfold by staying the stay motion pending a hearing before the arbitral tribunal.  The primary role of the arbitral tribunal in this situation is consistent with the competence-competence principle now applied by Canadian courts.

In the alternative, the court might apply its own procedural law to the stay motion, found in Ontario in the Courts of Justice Act and the Rules of Civil Procedure.  Both that Act and those Rules contain specific prohibitions against undue delay and in favour of expedition.  If the court were to apply those rules on a motion to stay, then the issue would be:  which should prevail, the ICAA and the Model Rules, or the Courts of Justice Act and the Rules of Civil Procedure?  That is an issue which was not addressed in this case.

Arbitration –  International Commercial Arbitration  –  Stay –  Competence-Competence

Star Tropical Import & Export Limited v. International Management Consortium Ltd., 2011 ONSC 4005 (CanLII)

Thomas G. Heintzman, O.C., Q.C.                                                                   September 18, 2011

Can A Party Enforce An Arbitration Award In One Court And Litigate The Issue In Another Court?

Arbitration  –  Enforcement  –  Anti-Suit Injunction

The Ontario courts have recently considered two issues with respect to the enforcement of an arbitration award:

Should the court refuse to enforce an award because the party which seeks to enforce it is taking proceedings in another jurisdiction which contradict the award?

And should an anti-suit injunction be issued against that party to stop those other proceedings?

In Accentuate Ltd v. Asigra Inc, the Ontario courts answered No.  While this result occurred in the context of an international arbitration, the result would seem to be as applicable to arbitrations under domestic construction contracts.

Accentuate is a United Kingdom company and Asigra is an Ontario company.  They entered into a contract whereby Accentuate would act as a reseller of Asigra’s products in the UK.   The contract provided that the law of Ontario governed the contract and that all disputes would be resolved by arbitration in Toronto under the UNCITRAL Arbitration Rules.

In 2006, Asigra terminated the contract, first with six months notice and then peremptorily for cause.  Accentuate gave notice that it claimed damages for wrongful termination.  While it acknowledged that its claim was to be dealt with under the arbitration provisions of the contract, it also took the position that it was entitled to certain rights under the Commercial Agents Regulations of the UK and that those rights could not be excluded by the contract.

The arbitration occurred in Toronto.  The tribunal held that it had jurisdiction to deal with the claim under the UK Commercial Agents Regulations and to determine whether those Regulations applied.  It held that those Regulations did not apply as the parties had chosen the law of Ontario to apply to their arrangements.

The arbitration tribunal awarded $14,112.32 and interest to Accentuate.  Unhappy with the amount of this award, Accentuate commenced proceedings in the UK courts based on the Regulations.  The UK court held that Accentuate was entitled to bring its claim in the UK courts, but at the time of the enforcement proceedings in Ontario the UK court had not adjudicated upon the substantive issue.

At the same time Accentuate applied to the Ontario court to enforce the award.  Asigra submitted that the Ontario court should not enforce the award at the instance of Accentuate when Accentuate was pursuing a remedy, and effectively impugning the award, in the UK courts.  Asigra argued that Accentuate’s position amounted to an abuse of process.  Asigra also asked the Ontario court to issue an anti-suit injunction against Accentuate to prohibit Accentuate from continuing with its UK action.

The Ontario Superior Court of Justice disagreed.  It held that the arbitral award was final and would not be altered by the outcome of the English proceedings.  It decided that the conduct of Accentuate did not amount to a public policy consideration that precluded Accentuate from enforcing the award.

The Ontario court also refused to issue an anti-suit injunction.  It held that this case was not one in which one tribunal had been given jurisdiction by the parties under their contract and one of the parties, Accentuate, had gone off to another jurisdiction which had improperly accepted jurisdiction.  Here, the parties had gone through the very arbitration proceedings which they both agreed should apply.  Accentuate now asserted that it had additional rights not determinable under that arbitration proceeding. The Ontario court held that it should not preclude the arbitration decision from being enforced by Accentuate in Ontario merely because Accentuate was maintaining that other claim in the United Kingdom.

The Ontario Court of Appeal dismissed the appeal.  It agreed with the Superior Court that Accentuate’s “re-litigation” in the UK of issues between the parties did not warrant a refusal by the Ontario courts to enforce the arbitral award.  The arbitration award was a final award, and Accentuate’s conduct did not amount to a policy reason for not enforcing the award.

This decision is a clear reminder of the power and effect of an arbitral award, and the direction in Article 36 of the UNCITRAL Model Law.  Unless there are strong public policy reasons for not doing so, arbitral awards must be enforced by the courts.  If they are not, then the efficacy of the whole arbitration process is undermined.

Ironically and unusually, in the present case the party which was enforcing the award was the one which was discontented with it.  That party was apparently acting contrary to the award (or at least continuing the dispute in another court) while at the same time seeking to enforce it.  But that did not change the principle.  And the principle required the court to enforce the award, whatever the result of the UK proceedings might be.

The same principle applies under domestic arbitration law.  Section 50 of the Ontario Arbitration Act, 1991 provides that, on the application of a party to a non-family arbitration, the Superior Court “shall give judgment enforcing an award” unless the award is under appeal or subject to an application to set it aside or has been set aside.  In view of this mandatory statutory direction, arbitration awards will be enforced without regard to other considerations, unless the award has been or is being impugned by appeal or judicial review.


Arbitration – Enforcement – Anti-Suit Injunction

Accentuate Ltd v. Asigra Inc, 2010 ONSC 3364; 2011 ONCA 99 (CanLII)

Thomas G. Heintzman O.C., Q.C.                                                                                                July 24, 2011