The Asia Pacific Arbitration Review 2008

Section 2: Country Overviews

Canada

Joel Richler, Seumas Woods

Blake Cassels & Graydon LLP

There are many reasons to choose Canada as the seat of international arbitrations. It is a desirable neutral venue with proximity to Europe and the US. The legislative regime is modern, robust and attuned to the needs of the international commercial and arbitration communities. Canada is the home of sophisticated and experienced counsel and arbitrators who are active in the arbitration community and well-versed and trained in the law of arbitration. There are several cities in Canada that can host arbitrations at reasonable cost. Moreover, Canadian courts are consistent in according a high degree of deference to arbitral decisions and protecting arbitration awards from an inappropriate degree of intervention in the arbitration process. Indeed, with one notable exception (where one part of an award of an international arbitration panel was set aside),1 there has been no case in which a Canadian court has refused to enforce or has set aside an award of an international commercial arbitration tribunal on any of the grounds set out in the UNCITRAL Model Law. This article reviews two recent appellate cases that continue the trend of judicial support for the arbitration process as a viable alternative to litigation in the public courts.2


The international arbitration regime in Canada

Before reviewing the case, a brief review of the international arbitration regime in Canada is appropriate.

Canada is a federal state comprised of a federal government, 10 provinces and three territories. Property and civil rights, and the administration of justice in particular, are within provincial jurisdiction. Hence, except for limited matters particularly germane to the federal level of government,3 it is provincial legislation that governs and provides the framework for international arbitration.

International arbitration legislation in Ontario typifies that of all the provinces. There the International Commercial Arbitration Act, RSO 1990, chapter I.9 adopts, with few exceptions, the UNCITRAL Model Law. The principles provided for by the New York Convention have also been adopted. For purposes of the Model Law, Ontario is a 'state'. The primary divergences from the Model Law are that arbitrators are permitted without subsequent disqualification and with the consent of the parties to utilise mediation and conciliation in order to settle cases;4 in the absence of agreement by the parties, the arbitrators are to apply the rules of law that they consider appropriate;5 and the courts are empowered to consolidate arbitration proceedings.6

Consistent with the foregoing, in all Canadian jurisdictions, the principles of Kompetenz-Kompetenz are applied; arbitrators are empowered to make interim awards; and, most importantly, the courts interpret arbitration clauses very broadly in order to ensure that parties do not avoid their contractual obligations to arbitrate.7

As for court intrusion on arbitration awards, all Canadian provinces have followed the Model Law in precluding all appeals, even on pure questions of law, except, of course, where the parties have otherwise agreed.8 Even where the parties have agreed to permit appeals, it is noteworthy that appellate courts in Canada are generally deferential to decisions made in first instance. Appeal courts will only reverse trial judgments (and presumably arbitral awards) where there are errors of law or 'overriding and palpable errors' on questions of fact or questions of mixed fact and law. Insofar as defences to recognition and enforcement and applications to set aside awards are concerned, articles 34 and 36 of the Model Law are incorporated into provincial law and cannot be avoided or even limited by agreement of the parties. In brief, arbitration awards can be set aside only on very limited grounds; primarily where a panel exceeds its jurisdiction, and this jurisdictional exception will apply where there is a fundamental denial of due process, or where there are breaches of the rules of natural justice, or where there is a contravention of public policy.


The Jardine decision

In Jardine, the Alberta Court of Appeal was called upon to deal with the issue of court-assisted disclosure and discovery. The primary issue was whether the court could lend assistance in obtaining discovery evidence from third parties.

The dispute arose in relation to insurance coverage for the construction by Western Oil Sands of a large oil sands project. SJO Catlin was one of several insurers, and Jardine was Western's insurance broker. The parties to the international commercial arbitration, pursuant to an arbitration clause contained in the insurance policy, were Western and SJO Catlin. Notably, the parties had agreed that the arbitration would be conducted on the basis that discovery would be permitted as under the Alberta Rules of Court.

It was alleged in the proceedings that Jardine, as Western's agent and broker, had made misrepresentations that served to void the policy. Jardine and Western entered into a written mutual cooperation agreement. They took the position that the terms of that agreement were confidential and Jardine refused to disclose the document to SJO Catlin. Also, Jardine and Western resisted SJO Catlin's attempt to conduct oral examinations for discovery of current and former Jardine employees prior to the arbitration hearing. The arbitral tribunal ruled in first instance that:


  • the mutual cooperation agreement would have to be produced to the tribunal which would then rule upon its relevance;
  • current and former employees of Jardine could be examined for discovery; and
  • Catlin could seek the assistance of the Alberta courts to obtain that discovery.

Both of these rulings were premised on the fact that the parties had agreed to permit discovery as under court rules.

Both of these issues were resolved in first instance by a motion judge who ruled that: the arbitral tribunal did not have jurisdiction to order the oral examination of a third party prior to the hearing; and the arbitral tribunal did have the power to order the disclosure of the mutual cooperation agreement. As to the former, his decision was based on the proposition that Alberta's international arbitration statute (the Act), which incorporated the Model Law, did not authorise examinations for discovery. Article 27 of the Model Law, which entitles arbitral tribunals to seek court assistance in 'the taking of evidence', was held not to apply to pre-hearing disclosure.9 As to the latter, the court ruled that inasmuch as a party to the arbitration did have a document that was arguably relevant, the tribunal under article 19 of the Model Law (which gives tribunals the power to determine their own procedures) allowed the arbitrators to compel production without the need to resort to court discovery and assistance rules.

The Court of Appeal reversed the motion judge on the issue of third-party discovery for the following reasons. Article 19 of the Model Law permits parties to agree upon arbitral procedures and permits arbitral tribunals to determine the admissibility, relevance and weight of any evidence. Article 27 of the Model Law permits tribunals to seek court assistance in taking evidence, and thus gives arbitral tribunals some power over parties that are not directly involved in the arbitration proceedings. Party autonomy is a core principle of international arbitration, and it is 'axiomatic' that parties are entitled 'to make specific agreements concerning the arbitration proceedings'.10

On the foregoing principles, the Court of Appeal identified the key issue as being whether the arbitration agreement actually did contemplate the examination for discovery of third parties. It noted the express agreement to have discovery as permitted by Alberta court rules and the fact that no limitation was placed upon that right. Relying upon the analytical commentary on the Model Law, article 19 of the Model Law was recognised as giving wide plenary authority to arbitral tribunals to give effect to all aspects of the parties' agreement to arbitrate and also to determine their own rules of evidence.

The Court further noted that the tribunal had determined that Jardine had acted as agent in the placing of the insurance and that Jardine witnesses did have relevant evidence to give on material issues in the dispute. The tribunal then analysed the Alberta court rules and relevant case law and determined that, under those rules, the discovery sought by the applicant would be permitted.

The Court then specifically addressed the distinction that the motion judge had made between the taking of evidence and discovery, and rejected that distinction. In the result, the Court disagreed with the narrow construction of article 27 of the Model Law, and perforce the decisions in BNP Paribas and Vibroflotation.

Specifically, the Court held that the words 'at the hearing' ought not to be implied into article 27. In Canadian law, the ordinary and plain meaning of evidence includes evidence gathered by way of discovery, with no distinctions made between such evidence and evidence actually adduced at a hearing. The mere fact that the parties had agreed to arbitrate did not mean that they had agreed to a 'lesser form of litigation than that being conducted in the courts'. The interference into the rights of third parties would be controlled by the courts if, as and when court assistance was sought under article 27 of the Model Law, it being noted that the courts would not in any circumstance be obliged to grant such assistance. Finally, it is noteworthy that while all of Canada's provinces have discovery procedures that are fairly uniform, many provinces do not permit the examination of third parties to the same extent as in Alberta. In Ontario, for example, it is only by exception that anyone other than parties can be examined for discovery prior to a hearing. While the Court's decision was premised upon articles 19 and 27 of the Model Law, the fact that the parties had agreed to discovery under Alberta court rules was a significant factor. Thus, the broad scope of discovery permitted in Jardine may not be replicated where arbitrations are seated in other Canadian provinces. Party autonomy will govern.


The Dell decision

In Dell, the Supreme Court of Canada was called upon to deal with several issues pertinent to class actions and arbitration. As to the latter, the Court clarified the degree to which the principle of Kompetenz-Kompetenz applies in Canada.

The case arose out of an error in an advertisement that Dell had placed on its website. The posted sale prices for two particular models of handheld computers were much lower than the actual prices. Dell identified the errors and immediately blocked public access to the usual address for the erroneous postings. The plaintiff and many others nevertheless accessed the order page and placed orders at the low prices. Dell refused to honour those orders. The plaintiff instituted court proceedings and sought leave to have his action certified under Quebec's class-action legislation. Dell's response was to have all claims referred to arbitration, pursuant to arbitration clauses set out in the terms and conditions of sale that appeared by way of a hyperlink on the order pages. The arbitration clause provided that any arbitrations were to be governed by the rules of the National Arbitration Forum located in the US.

As far as the arbitration issues were concerned, the first instance judge ruled that inasmuch as the arbitration was international, Quebec legislation precluding waiver of court jurisdiction in consumer and employment claims disentitled Dell from forcing arbitration upon the plaintiff and potential class members. She then ruled that the action could be certified as a class action.

The Quebec Court of Appeal disagreed. The arbitration was not international, and the parties could agree to submit their claims to an arbitration that would take place in Quebec. Nevertheless, because the arbitration was 'external' (being accessible only by hyperlink) and because there was no evidence that the arbitration clause had been brought to the attention of the plaintiff, Dell could not set that clause up against the plaintiff. The Court then ruled that, under then-current Quebec law, consumer claims could be arbitrated and that there was no public-policy principle that class actions would take precedence over arbitration. (It should be noted that after the appeal decision and before the Supreme Court hearing, legislation was passed that does preclude arbitrations in consumer claims. That legislation had no bearing on the Supreme Court decision.)

The Supreme Court, in a 6:3 decision, held that:


  • the preclusion of arbitration in consumer claims only applied to international arbitrations;
  • inasmuch as the only international factor in this case was the reference to the rules of the National Arbitration Forum, the arbitration in this case would have been domestic, such that the preclusion would not apply;
  • notwithstanding that the arbitration clause was accessible only by hyperlink, the clause was as easily found by a reader as a written provision would have been and was thus not external, such that it did apply to the plaintiff 's contract of sale; and
  • there was no public policy that, in the face of a valid agreement to arbitrate, would force parties to litigate in a class action procedure.

For present purposes, the significance of Dell is in the way that the Court interpreted and applied Kompetenz-Kompetenz. This issue arose in respect of the following legislative framework. The Quebec Code of Civil Procedure, provides that where an action is commenced in the face of an arbitration agreement, the court is required to refer the matter to an arbitral tribunal unless the matter has already been set down for trial or unless the court finds that the arbitration agreement is null.11 The Code further provides, however, that while a court action remains pending, an arbitration may be commenced or pursued to the issuance of an award. Then, like the Model Law, the Code provides that arbitrators may decide 'the matter of their own competence'.12 Where a tribunal finds that it is competent, a party can within 30 days seek to have that decision reviewed by the court, during which time the arbitration may be continued to the issuance of an award.13 Any court decision on a review is final and not subject to any further appeal.14 As noted by the Supreme Court, these provisions incorporate the 'essence'of the New York Convention and article 8 of the Model Law and "clearly indicates acceptance of the competence-competence principle incorporated into article 16 of the Model Law".15

The Supreme Court then delved into the question as to where the first recourse for a party seeking to challenge the competence of an arbitral tribunal should be. A review of prior case law suggested that Quebec courts were prone to accept or give effect to arbitration clauses 'without reflecting on the degree of scrutiny required of them' but that the courts were also 'reluctant to engage in a review on the merits' where the analysis of an arbitration clause 'requires an assessment of contradictory factual evidence'.16 The Supreme Court then noted that the courts have not adopted a distinction between a clause's validity and its applicability as a criterion for intervention and that in the other Canadian provinces a prima-facie analysis has been extended to cases concerning the applicability of arbitration clauses.17

The Supreme Court then developed a 'test for reviewing the application to refer a dispute to arbitration that is faithful to article 943 [of the Code of Civil Procedure] and to the prima facie analysis test that is increasingly gaining acceptance around the world',18 in the following terms:19


  • As a general rule, any challenge to an arbitrator's jurisdiction must first be resolved by the arbitrator. Such tribunals are equipped to entertain and decide upon a review of documents and factual evidence pertinent to the question of competence and jurisdiction. Such challenges are also made appropriately to the arbitrators where the issue involves questions of mixed fact and law.
  • Given the courts' expertise in respect of legal questions, and given that the court is where parties apply when seeking stays of court actions, where a challenge to jurisdiction is based solely on a question of law, an immediate court application may be entertained. This exception will reduce unnecessary duplication of proceedings, but courts must not, on such applications, consider factual issues.
  • Where applications may be made directly to the courts, the courts must be satisfied that the challenge is not simply a delaying tactic and that the challenge will not unduly impair the conduct of the arbitration. So, even where the issue requires the consideration of a pure question of law, the courts may refer the matter to the arbitral tribunal for its initial determination.

As the foregoing principles were applied in Dell, the Supreme Court noted that the following issues required factual determinations: whether there was a foreign element to the case that would have entailed a finding that the arbitration was international; and whether the arbitration clause was external to the sales agreement. Accordingly, the matter ought to have been first referred to an arbitral tribunal for an initial determination of jurisdiction.

* * *

As stated above, Canada is an arbitration-friendly jurisdiction. Dell and Jardine demonstrate that arbitration proceedings may be conducted in any of Canada's provinces with assurance that the courts will give effect to the terms of arbitration agreements, that the courts will lend assistance where required in order to assist in the securing of pre-hearing evidence, and that the courts will accord deference to arbitral tribunals' pronouncements on their own competence, all consistent with the provisions of the New York Convention and the Model Law.

Notes

  1. United Mexican States v Metalclad Corp (2001), 89 BCLR (3d) (SC).
  2. Jardine Lloyd Thompson Inc v SJO Catlin, [2006] AJ No. 32 (Alta, Can), and Dell Computer Corporation v Union des consommaterurs and Olivier Dumoulin, 2007 SCC 34 (Supreme Court, Canada)
  3. The federal Commercial Arbitration Act, RSC 1985, c 17 (2nd Supplement) applies to international and domestic arbitrations where one of the parties is the Crown, a department of the federal government or where the subject matter of the arbitration relates to marine or maritime matters.
  4. Section 3.
  5. Section 6
  6. Section 7. The acts of the other provinces are: Alberta: International Commercial Arbitration Act, RSA 2000, chapter I(5); British Columbia: International Commercial Arbitration Act, RSBC 1996, chapter 233; Manitoba: International Commercial Arbitration Act, CCSM chapter C(151); New Brunswick: International Commercial Arbitration Act, SNB 1986, chapter 112(2); Newfoundland and Labrador: International Commercial Arbitration Act, RSN 1990, chapter I(15); Northwest Territories and Nunavut: International Commercial Arbitration Act, RSNWT 1988, chapter I(6); Nova Scotia: International Commercial Arbitration Act, RSNS 1989, chapter 234; Prince Edward Island: International Commercial Arbitration Act, RSPEI 1988, chapter I(5); Quebec: An Act to Amend the Civil Code and the Code of Civil Procedure in Respect of Arbitration, SQ 1986, chapter 73; Saskatchewan: International Commercial Arbitration Act, SS 1988-89, chapter I(10)(2); Yukon: International Commercial Arbitration Act, RSY 2002, chapter 123.
  7. Desputeaux v Editions Chouette (1978) Inc, [2003] SCR 178
  8. Generally, in domestic arbitrations, appeals are permitted on questions of law where prior leave is obtained, with the applicant having to establish a degree of importance that transcends the immediate result in the award under appeal.
  9. Relying, in part on BNP Paribas et al v Deloitte & Touche LLP, [2003] EWHC 2874 (Comm) and Vibroflotation AG v Express Builders Co Ltd [1994] 3 HKC 263.
  10. Paragraph 24.
  11. Section 940.1.
  12. Section 943.
  13. Section 943.1.
  14. Section 943.2.
  15. Paragraph 80.
  16. Paragraph 81.
  17. Paragraph 82. See, most notably, Gulf Canada Resources Ltd v Arochem International Ltd (1992), 66 BCLR (2d) 113 (CA) and Dalimpex Ltd v Janicki (2003), 228 DLR (4th) 179 (Ont Can).
  18. Paragraph 83.
  19. Paragraphs 84 to 86.

Blake Cassels & Graydon LLP

Blakes

199 Bay Street
Suite 2800, Commerce Court West
Toronto ON M5L 1A9
Canada
Tel: +1 416 863 2400
Fax: +1 416 863 2653
www.blakes.com

Contacts

Joel Richler

jr@blakes.com

Seumas Woods

rsmw@blakes.com

Blake, Cassels & Graydon LLP (Blakes) is one of Canadaﾒs leading business law firms, with more than 500 lawyers in offices in Montreal, Ottawa, Toronto, Calgary, Vancouver, New York, Chicago, London and Beijing. Our integrated office network gives clients access to the full spectrum of capabilities found throughout the firm. Whether an issue is local or multi-jurisdictional, practicearea- specific or cross-disciplinary, Blakes can provide solutions at every level.

Blakes has been part of new economies since 1856. We are proud of our 150-year history and our role in helping clients prosper during that period. We understand that our continued success depends on our ability to meet the needs of clients today and tomorrow.

Blakes provides guidance and expertise in virtually every area of business law to a diverse national and international base of clients, and is recognised as one of Canadaﾒs pre-eminent law firms. Our lawyers are continually recommended in the Legal Lexpert Directory (Canadaﾒs leading guide to lawyers) in almost every category of law. In Chambers Global: The Worldﾒs Leading Lawyers for Business 2007, Blakes is the only Canadian law firm to rank in all 14 categories. This includes three practice groups that have rated number one: financial services, competition and infrastructure/P3.

Our clients include some of the best-known, and soon-to-be-known names in business, ranging from major corporations and financial institutions to start-ups in manufacturing and knowledgebased industries. To better serve this broad client base, we continue to develop industry-specific teams that combine leading-edge experience with industry acumen.

Next Chapter: China