Dylan S. Fisher
by Dylan S. Fisher
Many parties enter in agreements requiring that disputes be determined by binding arbitration. Additionally, some parties may voluntarily choose arbitration at a later time instead of pursuing a dispute through the court system. While arbitration is generally considered to be quicker and less expensive than litigation, this is not always the case. In any event, obtaining a favourable arbitral award is often not the end of the process.
A common scenario plays out as follows: A debtor neglects to pay a creditor. Their commercial relationship is subject to an arbitration agreement. The creditor pursues arbitration and is successful in obtaining an arbitral award in a more streamlined fashion and may have been awarded some costs and interest as well. But the debtor still won’t pay. An arbitrator has already determined the dispute, so surely the creditor can begin to exercise enforcement remedies, right? Not so fast…
Off to court you go.
Even though the parties intended to avoid the courts by arbitrating, the award must be recognized by the courts in order to exercise enforcement remedies.
This article deals with enforcing international arbitral awards under the International Commercial Arbitration Act, 2017 (“ICAA”).[1] A similar process exists for domestic arbitral awards under the Arbitration Act, 1991.[2]
Regardless of the applicable statute, a creditor will need to obtain a court order recognizing the arbitral award in order to proceed with enforcement remedies in Ontario.
The ICAA
The ICAA applies to international commercial arbitration. Even if an arbitral award was made in a jurisdiction within Canada, it may still be considered international. An arbitration is international if:
The parties to an arbitration agreement have, at the time of the conclusion of that agreement, their places of business in different countries;
One of the following places is situated outside the country in which the parties have their places of business:
- The place of arbitration if determined in, or pursuant to, the arbitration agreement;
- Any place where a substantial part of the obligations of the commercial relationship is to be performed or the place with which the subject-matter of the dispute is most closely connected; or- The parties have expressly agreed that the subject-matter of the arbitration agreement relates to more than one country.
To enforce an international arbitral award in Ontario, a creditor will need to commence a court application in the Superior Court of Justice. There is a strong “pro-enforcement” legal regime for the recognition and enforcement of international commercial arbitral awards and the general rule is that “the grounds for refusal of enforcement are to be construed narrowly”.[3]
Recognition or enforcement of an international commercial arbitral award may be refused only where the debtor proves one of the following:
A party to the arbitration agreement was under some incapacity or the agreement is not valid under the law to which the parties have subjected it or under the law of the country where the award was made;
The debtor was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present its case;
The award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or goes beyond the scope of the submission to arbitration (but note, if the matters properly before arbitration can be separated, they may still be recognized and enforced);
The composition of the arbitral tribunal or the procedure was not in accordance with the parties’ agreement, or was not in accordance with the law of the country where it took place;
The award has not yet become binding on the parties or has been set side or suspended;
The subject-matter of the dispute is not capable of settlement by arbitration; or
The recognition or enforcement of the award would be contrary to the public policy of the law of Ontario and any laws of Canada that are in force in Ontario.[4]
With respect to the “public policy” defence, the Ontario courts have commented that it is intended to guard against enforcement of an award that offends our local principles of justice and fairness in a fundamental way because the award was made in another jurisdiction where the procedural or substantive rules diverge markedly from our own, or where there was ignorance or corruption on the part of the tribunal that cannot be tolerated or condoned by our courts.[5] That being said, the public policy defence should be narrowly construed and should apply only where enforcement would violate our “most basic notions of morality and justice”.[6]
If the debtor has commenced an application to set aside or suspend an arbitral award, then recognition and enforcement proceedings may be adjourned and security may be ordered against the debtor.[7] A party seeking to set aside or suspend an international commercial arbitral award has three months to do so after receiving the award.[8]
Once an international commercial arbitral award has been recognized by the Ontario Superior Court of Justice, all enforcement remedies available to a judgment creditor under the Rules of Civil Procedure are available to the party seeking enforcement, including examinations in aid of execution, writs of seizure and sale, and garnishment.
Final Remarks
Parties are often surprised that winning an arbitration is not the end of the road, and that further legal proceedings are required to recover the arbitral award. This is undoubtably frustrating. Fortunately for creditors, Ontario has a pro-enforcement regime where it is difficult for an arbitral award to be set aside or not recognized by the courts.
If you are looking to enforce an arbitral award, a member of our Commercial Litigation group would be pleased to speak with you regarding any questions you may have.
[1] International Commercial Arbitration Act, 2017, SO 2017, c. 2., Sched. 5 (the “ICAA”).
[2] Arbitration Act, 1991, SO 1991, c. 17 (the “Arbitration Act”).
[3] Popack v. Lipszyc, 2018 ONCA 635 at paras 35-40.
[4] ICAA, article 36(1).
[5] Belokon v. The Kyrgz Republic et al., 2015 ONSC 5918 at para 42.
[6] Ibid at para 43.
[7] ICAA, article 36(2).
[8] ICAA, article 34(3).
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