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23 October 20237 minute read

To enforce or not to enforce? Canadian Courts establish a high threshold in finding foreign arbitral ‎awards unenforceable

Arbitration as a form of alternative dispute resolution is an increasingly preferred method of resolution among commercial parties as it can offer a more efficient and faster resolution of complex legal problems at a lower cost. An additional benefit that arbitration provides, compared to litigation, is that any information discussed amongst ‎disputing parties is confidential. ‎Parties of an agreement will typically include an arbitration clause or enter into an arbitration agreement providing that any disputes that arise will be settled by arbitration.

In the case of Prospector PTE Ltd. v. CGX Energy Inc., 2023 ONSC 4207‎, both parties agreed to submit all disputes to the International Chamber of Commerce (“ICC”) arbitration. In 2023, Prospector PTE Ltd. (“Prospector”) brought an application before the Ontario Superior Court (“ONSC”) under the International Commercial Arbitration Act (“ICAA”) for recognition and enforcement of an international arbitral award issued by the ICC International Court of Arbitration. CGX Energy Inc. (“CGX”) opposed the relief sought and asked the ONSC to exercise its discretion to not enforce the award. The resulting decision by the ONSC demonstrates the high threshold established by Canadian courts when asked to find foreign arbitral awards unenforceable.

The Arbitration

A contractual dispute arose out of the acquisition and processing of marine seismic data. Prospector claimed CGX breached its obligation to pay for its services and suspended delivery of the seismic data. When the data was delivered, CGX alleged it was late and of poor quality. CGX asserted a contractual counterclaim that it had to enter into an agreement with a third party to reprocess the inadequate data. CGX claimed the event of reprocessing data resulted in a missed opportunity to enter into an arrangement with a third party investor for exploratory well drilling. 

Following the ICC arbitration in London, England, Prospector’s claim was allowed and CGX’s counterclaim was dismissed. Two awards were rendered, a Partial Final Award and Final Award in the amount of $10,055,687.44 USD and $14,807,372.20 USD, respectively.

CGX brought an application to the UK High Court of Justice to set aside parts of the Partial Final Award under section 68 of the UK Arbitration Act 1966. CGX asserted that the arbitration tribunal, appointed by the ICC International Court of Arbitration, improperly dismissed CGX’s counterclaim which constituted a substantial injustice to CGX. Prospector moved to dismiss the application without a trial. The UK High Court of Justice granted the dismissal claiming “CGX failed to adduce sufficient evidence to satisfy the arbitration tribunal on its counterclaim. On the evidence before it the tribunal regarded the counterclaim as speculative” and confirmed the arbitration tribunal “was fully entitled to reach that decision”.

The Ontario Superior Court Judgement

The ICAA provides that in Ontario the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“Convention”) and the UNCITRAL Model Law (“Model Law”) on International Commercial Arbitration have force of law in matters related to foreign arbitral awards. The ICAA further provides that an Ontario court must recognize and enforce an award unless a party can demonstrate one of the limited grounds of exception set out in the Convention or Model Law. If a party can demonstrate one of the limited grounds of exception, the court has the discretion to recognize and enforce the award.

In its pleadings, CGX asked the ONSC to exercise its discretion to decline enforcement pursuant to Article 34 of the Model Law. Article 34 identifies the circumstances under which a domestic court may set aside an international arbitral award. In the case at bar, CGX challenged the arbitral award under Article 34(2)(a)(ii), which stipulates that an arbitral award may be set aside if the party making the application provides proof that it was unable to present their case. CGX argued that it was denied the opportunity to fully present its case, and thus, the arbitration proceedings constituted procedural unfairness.

The ONSC, citing Consolidated Contractors Group S.A.L. (Offshore) v. Ambatovy Minerals S.A., 2017 ONCA 939, stated:

‎“a reviewing court cannot set aside an international arbitral award simply ‎because it believes that the arbitral tribunal wrongly decided a point of fact or ‎law…[T]his court has repeatedly held that reviewing courts should accord a high ‎degree of deference to the awards of international arbitral tribunals under the ‎Model Law‎”.

The ONSC continued to cite Consolidated Contractors, which explained that the standard of review based on procedural fairness is narrowly interpreted. While there are very few Canadian cases that address the standard of the review under Article 34, the Ontario Court of Appeal (“ONCA”) relied on a 1999 case, Corporacion Transnacional de Inversiones S.A. de C.V. v. STET International S.p.A. (“Corporacion”), which stated that “judicial intervention for alleged violations of the due process requirements of the Model Law will be warranted only when the Tribunal’s conduct is so serious that it cannot be condoned under the law of the enforcing State”.

The ONSC held that CGX did not meet the test outlined in Corporacion. Justice Osborne explained that CGX was a sophisticated commercial party that freely entered into the arbitration agreement, the contractual dispute fell within the scope of the arbitration agreement and CGX fully participated in the arbitration proceeding. The ONSC accepted Prospector’s submission that for CGX to have succeeded on its counterclaim it was required to adduce evidence to demonstrate that if the seismic data was of sufficient quality it would have attracted investors. CGX failed to provide such evidence and as a result, the ONSC agreed with the arbitration tribunal’s finding that the claim was speculative.

The ONSC rejected CGX’s argument that the enforcement of the arbitral award would offend public policy. Justice Osborne cited Schreter v. Gasmac Inc., 1992 CanLII 7671 (ON SC) where:

“the purpose of the public policy exception to enforcement is to “guard against enforcement of an award which offends our local principles of justice and fairness in a fundamental way, and in a way which the parties could attribute to the fact that 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 which could not be seen to be tolerated or condoned by our courts”.

In response, the ONSC found that CGX’s counterclaim was not dismissed without having the opportunity for it to be heard and agreed with the arbitration tribunal that CGX failed to meet its evidentiary burden. There was no proof the arbitration tribunal’s conclusion offended the principles of justice and fairness.

Ultimately, the ONSC granted Prospector’s application to recognize and enforce the arbitral award. Prospector PTE Ltd. v. CGX Energy Inc. highlights the deference given to international arbitration tribunals and the high threshold parties must meet in order to demonstrate they were unable to present their case under Article 34(2)(a)(ii). If a party has the opportunity to fully participate in the arbitration proceedings, has agreed to arbitrate but failed to adduce evidence to prove its claim, it is unlikely that a domestic court will refuse to recognize and enforce such an award. 

If you have any questions about this decision, arbitrations or arbitral awards, please do not hesitate to contact any lawyer in our Canadian Litigation, Arbitration, and Investigations Law Group.