Model Law, not common law, governs enforcement of foreign arbitral awards in Ontario

The recent Ontario decision in ACTIV Financial Systems, Inc. v. Orbixa Management Services Inc., 2011 ONSC 7286 (CanLII), [“ACTIV Financial”) deals with an application to enforce an international commercial arbitration award where the arbitrator awarded $553,070.38 (USD) plus interest at 9% per annum, but did not give reasons for his award. Interestingly, the decision  confirms that the exclusive procedure for enforcement of foreign arbitral awards is by way of application under the International Commercial Arbitration Act, R.S.O. 1990, c. I.9, (“ICAA”) which incorporates the Model Law on International Commercial Arbitration adopted by the United Nations Commission on International Trade Law on June 21, 1985, (“Model Law”). Essentially, when a foreign arbitral award is enforced in another jurisdiction (referred to as “domestication” or “homologation”), the correct procedure in Ontario is to make an application to enforce the underlying foreign arbitral award, not the subsequent foreign judgment.

The facts are straightforward. ACTIV Financial Systems, Inc., a software supplier, and Orbixa Management Services, Inc. were parties to a Software Licence Agreement dated January 28, 2008 [“SLA”]. ACTIV claimed that Orbixa failed to pay it for services in accordance with their SLA. Article XI.6 of the SLA contained an arbitration clause which provided as follows:

XI.6 Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment on the award rendered by the Arbitrator(s) may be entered in any court having jurisdiction thereof. The location of the Arbitration shall be New York, New York.

Article XI.7 of the SLA was the governing law clause, which read:

XI.7 This Agreement shall be construed in accordance with and governed by the laws of the State of New York.

The SLA incorporated by reference Rule 42 of the Commercial Arbitration Rules of the American Arbitration Association (“AAA”), making it optional for the arbitrator to give written reasons. Rule R-42 states:

R-42. Form of Award

(a) Any award shall be in writing and signed by a majority of the arbitrators. It shall be executed in the manner required by law.

(b) The arbitrator need not render a reasoned award unless the parties request such an award in writing prior to appointment of the arbitrator or unless the arbitrator determines that a reasoned award is appropriate.

The parties’ counsel conducted a conference call with the appointed arbitration where they agreed that to save costs, the arbitration hearing would proceed without a court reporter and the parties would accept a standard award format that did not require reasons for the award.

The arbitration of ACTIV’s claim for liquidated damages based upon software licensing fees proceeded in New York City on May 24 and 25, 2011. On June 8, 2011, Arbitrator Blechman issued his award in favour of ACTIV in the amount of $539,482.88 (USD) plus $13,587.50 (USD) for administrative fees.

The Commercial Arbitration Rules of the AAA provide for the registration of the award as a court order. Rule 48 (c) states:

R-48(c) Parties to an arbitration under these rules shall be deemed to have consented that judgment upon the arbitration award may be entered in any federal or state court having jurisdiction thereof.

ACTIV then applied to the U.S. District Court for the Southern District of New York to confirm the arbitration award and for entry of judgment against Orbixa for $553,070.38 (USD), plus interest at the rate of 9% per annum. Orbixa did not contest domestication of the arbitration award in New York and the time for appeal of the New York judgment had since expired.

ACTIV thereafter applied for an Ontario judgment to enforce the judgment of the New York State court. However, it did so by way of notice of application relying on the common law for enforcement of foreign judgments.

Orbixa opposed the enforcement application on two alternate grounds:

1. Since the enforcement of a foreign arbitration award is exclusively governed by the ICAA and ACTIV was time barred from converting its application under the common law to an application under the statute, which it was invited to do, the application should be dismissed, without prejudice to ACTIV commencing an application under the statute.

2. If the application can be converted or treated as an application under the International Commercial Arbitration Act, then it should be dismissed for one of three mutually exclusive reasons:

(1) under the ICAA, an Ontario court should not enforce a foreign arbitral award in the absence of reasons from the arbitrator and, therefore, Arbitrator Blechman’s award should not be enforced;

(2) under the ICAA, an Ontario court should not enforce a foreign arbitration award in lieu of an Arbitrator’s reasons, unless the record discloses the nature of the arbitrator’s decision and within the arbitrator’s jurisdiction to make, both of which were unascertainable here; or

(3) under the ICAA there are grounds to refuse to enforce Arbitrator Blechman’s award because he enforced a penalty which is contrary to New York State law and Ontario public policy.

Perell J. agreed with Orbixa’s argument that ACTIV’s common law claim to enforce the international commercial arbitration award was supplanted by the ICAA. However, relying in part on Schreter v. Gasmac Inc. [ (1992), 7 O.R. (3d) 608 (Gen. Div)], the application judge held that (1) the absence of reasons for an arbitration award is not categorically a reason not to enforce the award under the ICAA; and (2) the absence of reasons will not be grounds for refusing to enforce the award when the Court can fairly determine on the record before the Court that the arbitration award did not deal with a dispute beyond the terms of the submission and that the award was not contrary to the public policy of Ontario.

Given that the arbitrator had competence/competence to decide the dispute, and having applied essentially the same law as would apply in Ontario, the court concluded that New York arbitration award should be enforced in Ontario pursuant to the ICAA.

On the enforcement procedure issue, the court concludes:

[66] In my opinion, it would be a source of unnecessary confusion and unnecessary expense to have two enforcement mechanisms. I conclude as a matter of statutory interpretation that it was the intention of the Legislature to introduce a complete code about the enforcement of foreign arbitration awards under theInternational Commercial Arbitration Act.

[67] Justice Feldman noted at para. 27 in Schreter v. Gasmac Inc. that the Act was designed to assist and encourage the mechanism of international commercial arbitration with relative ease and with confidence in the enforcement procedure. At para. 32, she stated that:

The purpose of enacting the Model Law in Ontario and in other jurisdictions is to establish a climate where international commercial arbitration can be resorted to with confidence by parties from different countries on the basis that if the arbitration is conducted in accordance with the agreement of the parties, an award will be enforceable if no defences are successfully raised under articles 35 and 36.

[68] The Model Law appears to be comprehensive, and, in my opinion, recognizing two means of enforcement would introduce unease and a lack of confidence in the enforcement procedure under the Model Law and perhaps result in inconsistency in enforcement of foreign arbitral awards. There is no apparent advantage to having two enforcement mechanisms and no apparent need for more than what the Model Law offers.

[69] Therefore, I conclude that an international commercial arbitration award must be enforced exclusively under the International Commercial Arbitration Act, which is what I purpose to do.

Justice Perell’s analytical approach to enforcement of foreign arbitral awards is sound. The fact that parties to a dispute may contract out of the ‘written reasons’ requirement in an arbitration clause or arbitration agreement may surprise some readers.

Compare and contrast the critical importance of written reasons to ensure procedural justice in litigation. Justice Binnie, writing for the Court in R. v. Sheppard ( a criminal appeal) notes,

1. The delivery of reasoned decisions is inherent in the judge’s role. It is part of his or her accountability for the discharge of the responsibilities of the office. In its most general sense, the obligation to provide reasons for a decision is owed to the public at large. (at para. 55).

In the civil context, the Supreme Court of Canada in F.H. v. McDougall 2008 SCC 53 (CanLII), (2008), 297 D.L.R (4th) 193 (S.C.C.) held that the adequacy of a trial judge’s reasons is based upon a functional assessment of whether they achieve their intended purposes. In F.H. v. McDougall, the Court held that a trial judge’s reasons serve the following main functions:

(i) to justify and explain the result;

(ii) to tell the losing party why he or she lost;

(iii) to provide for informed consideration of the grounds of appeal; and

(iv) to satisfy the public that justice has been done.

In Sagl v. Chubb Insurance Company of Canada, 2009 ONCA 388 (CanLII) , Epstein J.A. observed that:

[96] Reasons also help to ensure fair and accurate decision making by focusing the judge’s attention on the key issues and helping to ensure that important points of law or fact are not overlooked: see R.E.M. at para. 12.

[97] As the Supreme Court of Canada stated in H.S.B, at para. 8: “The task for the appellate court is simply to ensure that, read in the context of the entire record, the trial judge’s reasons demonstrate that he or she was alive to and resolved the central issues before the court.” An appellate court “is not given the power to intervene simply because it thinks the trial court did a poor job of expressing itself”: see F.H. v. McDougall at para. 99, quoting Sheppard at para. 26.

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5 Responses to “Model Law, not common law, governs enforcement of foreign arbitral awards in Ontario”

  1. Elizabeth Brodie David Says:

    Hi! This is a great blog. Where can I find a copy of the SLA at issue here online? Thanks!

  2. Antonin I. Pribetic Says:

    Thanks. The SLA at issue in this case is not available online.

  3. Elizabeth Brodie David Says:

    Hi! Thanks for your very speedy response. If I am looking to cite the SLA, would you be able to provide citation information? Many thanks!

  4. Antonin I. Pribetic Says:

    You have two options: (1) Attend at the Ontario Superior Court of Justice Courthouse, 393 University Avenue, 10th Floor, Toronto, Ontario, Canada and requisition the file to obtain a copy of the SLA from the motion records filed; or (2) Contact either counsel on the matter: Jason Squire for the Applicant or Morris Cooper for the Respondent. I leave it up to you to find their contact information. Good luck.

  5. Elizabeth Brodie David Says:


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