UPDATE: Court of Appeal sets aside foreign arbitral enforcement judgment in Znamensky v. Donaldson

This is an update on the recent Ontario foreign arbitral award enforcement proceedings in Znamensky Selekcionno-Gibridny Center LLC v. Donaldson International Livestock Ltd., 2009 CanLII 51197 (ON S.C.);  See my backgrounder here.

In reasons released today and as I predicted, the Court of Appeal for Ontario has taken a fresh look at the arguments relating to issue estoppel and change of arbitral venue as they related to the underlying alleged death threats which apparently pre-empted Donaldson from participating in the arbitration in Russia.

Essentially, the per curiam opinion per Gillese, Rouleau and Watt JJ.A., allowed the appeal and set aside the judgment of Pitt, J., based upon two errors of law. First, the doctrine of issue estoppel did not preclude the application judge from considering the alleged death threat. The Sentence from the Prior Appeal Decision:”[i]n my view, the time to have requested the trial of the issue concerning the death threats was when the parties were before the motion judge” was held not to be dispositive:

“The Sentence was made in response to a request by the appellant that this court order a trial of the issue.The court refused, explaining that it was not appropriate to grant the request because the appellant had not requested that relief in the proceedings before Gans J.”

The Court points to the first sentence of para. 30 of the Prior Appeal Decision  which leaves the door open for Donaldson:

“Should [the respondent] take steps to enforce its arbitral awards against [the appellant] in the Ontario courts, then it would seem to me that [the appellant] should be free to resist the enforcement of those awards on whatever basis it chooses, subject to the ruling of the presiding judge. [Emphasis added.]

[14] Nor do we accept that issue estoppel flows from the statements made by Gans J. in the injunction motion. Justice Gans observations on the issue of the alleged death threats were made in the context of an interim interlocutory proceeding seeking to prevent the ICAC arbitration from proceeding. In our view, those remarks do not bind the judge deciding the enforcement proceedings.

[15] In any event, it appears that Gans J.’s finding on this issue rests on a misapprehension of the evidence. The respondent had not, as Gans J. appears to have understood, offered to change the venue of the arbitration hearing to a neutral location. Rather, as the respondent confirmed to this court, the offer was to allow that part of the arbitration involving testimony by the appellant’s witnesses to be heard in a neutral location. The balance of the arbitration would have taken place in Moscow. Thus, the offer could not amount to a complete answer to the appellant’s concerns because the appellant would still have had to go to Russia for all aspects of the arbitration except for the giving of its testimony.

Second, even if the preconditions to the operation of issue estoppel were established, the application judge failed to exercise the court’s residual discretion taking into account the entirety of the circumstances, including weighing the factors for and against the exercise of the residual discretion: citing, Danyluk v. Ainsworth Technologies Inc. [2001] 2 S.C.R. 460 at para’s 33, 66 and 80. 
The Court of Appeal concludes:
“…It was an error to fail to consider this residual discretion. In the circumstances of this case where the issue of the alleged death threats has never been decided on the merits and where that undecided issue goes to the heart of the appellant’s ability to participate in the arbitration the application of issue estoppel would have worked an injustice”

Accordingly, the enforcement application was remitted for a fresh determination to be made in accordance with the panel’s reasons. with costs of the appeal and thrown away below in favour of the appellant fixed at $25,000 and $20,000, respectively, to be set off against outstanding costs order in favour of the respondent.

H/T to Allan L. Herman, co-counsel for the appellant, Donaldson International Livestock Ltd. for alerting me to this decision.

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