Dalimpex Ltd. v. Janicki et al. Agros Trading Spolka Z.O.O. v. Dalimpex Ltd. [Indexed as: Dalimpex Ltd. v. Janicki]
64 O.R. (3d) 737
[2003] O.J. No. 2094
Docket Nos. C37306 and C35732
Court of Appeal for Ontario,
Carthy, Charron and Rosenberg JJ.A.
May 30, 2003
Arbitration -- Stay of proceedings -- Stay of civil action should be granted on motion for referral to arbitration under article 8 of Schedule to International Commercial Arbitration Act where it is arguable that dispute falls within arbitration agreement or that party to legal proceedings is party to arbitration agreement -- Those matters should be determined by arbitral tribunal and not by court -- Arbitration clause in 1983 agreement providing for arbitration by Polish "College of Arbitrators/Arbitration Court" -- New arbitral body created in 1989 in form of Court of Arbitration -- Interpretation of arbitration clause as encompassing new Court of Arbitration being reasonable -- Plaintiff asserting tort claims in action against defendant -- Defendant's defences to those tort claims calling into question interpretation of agreement between parties and manner in which contract was performed -- Dispute could reasonably be construed as dispute in connection with interpretation or execution of agreement -- Whether dispute was covered by arbitration clause should be left to Court of Arbitration for final determination -- Civil action stayed -- International Commercial Arbitration Act, R.S.O. 1990, c. I.9.
D Ltd. was a Canadian company that imported and distributed various goods, most of which were manufactured in Poland. A Ltd., a large Polish food conglomerate and broker, was its major supplier. In 1983, D Ltd. and A Ltd. entered into an Agency Agreement which provided that only Polish law applied to the agreement and which contained an arbitration clause. The arbitration clause provided that any disputes that might arise in connection with the interpretation or execution of the agreement were to be settled by the College of Arbitrators/ Arbitration Court at the Polish Chamber of Foreign Trade in Warsaw. In 1989, the Polish Chamber of Foreign Trade ceased to exist. A new body, the National Chamber of Commerce, was created to take over its functions. It created a new arbitral body, the Court of Arbitration.
In 1994, A Ltd. guaranteed a portion of D Ltd.'s line of credit with a Canadian bank by posting a time-limited letter of credit in the amount of US$400,000. D Ltd. ran into financial difficulties and the bank satisfied its claims against D Ltd. from the guarantee to the full extent of the letter of credit. In 1998, A Ltd. terminated the Agency Agreement. J, a long-term employee of A Ltd. who became an employee and senior executive of D Ltd. in 1993, resigned after the Agency Agreement was terminated and subsequently became an employee and senior executive of AIT Ltd. D Ltd. alleged that J conspired with A Ltd. and then with AIT Ltd. to injure D Ltd. by appropriating for themselves D Ltd.'s customers, confidential information and food business in Canada. D Ltd. brought an action against A Ltd., J and AIT Ltd. claiming damages for breach of contract, breach of trust, breach of fiduciary duty, conspiracy, interference of economic relations and inducing breach of contract.
In its statement of defence, A Ltd. pleaded that the only competent body to hear D Ltd.'s claim was the Court of Arbitration at the Polish Chamber of Commerce. [page738] Shortly after the commencement of D Ltd.'s action, A Ltd. instituted a proceeding against D Ltd. in the Court of Arbitration in Poland claiming reimbursement of the moneys paid under the letter of credit, plus reimbursement for unpaid goods purchased by D Ltd. The Court of Arbitration found that the dispute fell within the scope of its jurisdiction and granted an award in the amount of US$440,236.56. An application by D Ltd. before the Polish courts to set that award aside was dismissed. D Ltd.'s appeal from that decision was pending. A Ltd. brought a motion under s. 106 of the Courts of Justice Act, R.S.O. 1990, c. C.43 and article 8 of the Schedule to the Ontario International Commercial Arbitration Act for a stay of D Ltd.'s action and a referral of the underlying disputes to the Court of Arbitration in Poland.
The motion was dismissed on the grounds that the arbitrator named in the arbitration clause had ceased to exist and that the tort claims fell outside the scope of the arbitration agreement. That decision was overturned on appeal to the Divisional Court, which held that the arbitration clause was broad enough to encompass the existing Court of Arbitration and that the disputes fell within the scope of the arbitration clause. The Divisional Court granted a stay of D Ltd.'s action pending final resolution by arbitration of all disputes between D Ltd. and A Ltd. and referred the disputes to the Court of Arbitration in Warsaw. D Ltd. appealed (Appeal No. 1). A Ltd. filed a notice of application in the Ontario Superior Court of Justice under article 35 to the International Commercial Arbitration Act for recognition and enforcement of the arbitral award. The application was granted and a "provisional" judgment was awarded recognizing the award of the Polish Court of Arbitration as valid and enforceable in Ontario. The judgment provided that it must be vacated in the event that the arbitral award was set aside by the Polish courts. D Ltd. also appealed from this judgment (Appeal No. 2).
Held, Appeal No. 1 should be dismissed; Appeal No. 2 should be allowed.
It is not for the court on an application for a stay of proceedings to reach any final determination as to the scope of the arbitration agreement or whether a particular party to the legal proceedings is a party to the arbitration agreement, because those are matters within the jurisdiction of the arbitral tribunal. Only where it is clear that the dispute is outside the terms of the arbitration agreement, or that the party is not a party to the arbitration agreement, or that the application is out of time should the court reach any final determination in respect of such matters on an application for a stay of proceedings. Where it is arguable that the dispute falls within the terms of the arbitration agreement or where it is arguable that a party to the legal proceedings is a party to the arbitration agreement, then the stay should be granted and those matters left to be determined by the arbitral tribunal.
The Divisional Court did not err in holding that the arbitration clause was broad enough to encompass the existing Court of Arbitration. It was reasonable to interpret the arbitration clause as encompassing the new Court of Arbitration and, since this interpretation fairly provided for arbitration and was consistent with the intention of the parties to submit their disputes to arbitration, it should govern. Moreover, D Ltd. never questioned the identity of the tribunal as the proper arbitrator in its submissions before the Court of Arbitration or in its pending appeal from the arbitral award. That failure to object provided further support to the conclusion that the parties intended by the inclusion of the generic words "Arbitration Court" to import a measure of flexibility in respect of the identity of the arbitration tribunal. Given the ambiguity of the language, the court could consider the conduct of the parties in determining what was intended under the agreement. [page739]
For the reasons given by the Divisional Court, the motion judge erred in concluding that D Ltd.'s tort claims fell outside the scope of the arbitration clause and were not arbitrable. In determining whether or not the dispute was one that related to the interpretation or execution of the Agency Agreement, it was relevant to consider whether the existence of the contractual obligation was a necessary element to create the claim or to defeat it. In its defence, A Ltd. pleaded that under the agreement, D Ltd. was to be A Ltd.'s agent, that all of the customers and confidential information were the property of A Ltd. and not D Ltd., that J was at all times the agent of A Ltd. to protect its interests under the agreement and that A Ltd. was entitled under the agreement to terminate its relationship with D Ltd. at any time. Therefore, A Ltd. argued that because of the contract terms between A Ltd. and D Ltd., the claims asserted by D Ltd. were without foundation. The defences raised by A Ltd. called into question the interpretation of the agreement as well as the manner in which the contract was performed. As such, they could reasonably be construed as a dispute in connection with the interpretation or execution of the agreement. The question of whether the dispute between D Ltd. and A Ltd. in the civil action was covered by the arbitration clause should be left to the Court of Arbitration for final determination.
The application for recognition and enforcement of the arbitral award was brought under article 35 of the Schedule to the International Commercial Arbitration Act. Unlike the situation on a motion for a stay, it was for the court to make a final determination of any issue that might be raised as a ground for refusing recognition or enforcement under article 36 of the Schedule. The application judge had no jurisdiction to make a provisional judgment under the Act. The only avenues open to him under articles 35 and 36 were to allow, adjourn or dismiss the application. The application should have been adjourned under article 36(2) pending the final decision of the Polish courts. If the appeal was dismissed, the application could be brought back before a justice of the Superior Court of Justice to be dealt with on the merits.
APPEAL from an order of the Divisional Court (Carnwath, Matlow and Molloy JJ.), [2000] O.J. No. 2927 staying an action pending final arbitration; Appeal from a judgment of Keenan J. (2001), 14 C.P.C. (5th) 134 (S.C.J.) recognizing an award of the Polish Court of Arbitration as a valid and enforceable judgment in Ontario.
Gulf Canada Resources Ltd. v. Arochem International Ltd. (1992), 1992 4033 (BC CA), 66 B.C.L.R. (2d) 113, 43 C.P.R. (3d) 390 (C.A.), apld Statutes referred to Courts of Justice Act, R.S.O. 1990, c. C.43, s. 106 International Commercial Arbitration Act, R.S.O. 1990, c. I.9, Sched., arts. 8, 16, 35, 36
Marek Z. Tufman, for appellant. J. Brian Casey, for respondents.
The judgment of the court was delivered by
CHARRON J.A.: -- [page740]
I. OVERVIEW
1These two appeals were heard together, as the proceedings are related. The first appeal is from an order of the Divisional Court staying the action commenced by the appellant Dalimpex Ltd. ("Dalimpex") against all three respondents pending the final arbitration, by the Court of Arbitration in Poland, of all disputes between Dalimpex and the respondent Agros Trading Spolka Z.O.O. ("Agros"). The second appeal is from a "provisional" judgment recognizing an award of the Court of Arbitration in Poland obtained by Agros against Dalimpex as a valid and enforceable judgment in Ontario.
2Two central questions are raised on these appeals: (1) whether the Court of Arbitration in Poland is the proper arbitrator under the arbitration agreement between Dalimpex and Agros; and (2) whether the disputes that have arisen between Dalimpex and Agros fall within the scope of that agreement. In the event that these questions are answered in the affirmative, a subsidiary question is raised on the first appeal as to whether the other two defendants in the Dalimpex action, Andrzej Janicki and Agropol International Trade Ltd., are privies in interest to Agros such that Dalimpex's action against all three respondents should be stayed pending final resolution of the disputes by arbitration.
3On the first issue, I have concluded that the Court of Arbitration in Poland is the proper arbitrator under the arbitration agreement. On the second issue, it is my view that it is at least arguable that the disputes, in both the Dalimpex action in Ontario and the Agros arbitration proceeding in Poland, fall within the scope of the arbitration agreement and that the preferable approach is to leave any definitive pronouncement on the scope of the agreement to be determined by the arbitral tribunal as decision-maker of first instance. On the subsidiary question, I have concluded that all three defendants in the Dalimpex action are privies in interest and that Dalimpex's claims essentially stand or fall on the merits of its action against Agros.
4Consequently, it is my view that Dalimpex's action as against all three respondents was properly stayed pending final arbitration of the disputes between Dalimpex and Agros before the Court of Arbitration in Poland and I would dismiss the appeal from the order of the Divisional Court. On the second appeal, it is my view that the "provisional" judgment should be set aside, and the application to recognize and enforce the arbitral award obtained by Agros should be adjourned pending the final disposition of Dalimpex's appeal from the arbitral award in [page741] the Polish courts. I would therefore allow the second appeal and order accordingly.
II. THE NATURE OF THE DISPUTES BETWEEN THE PARTIES
5The main protagonists in this litigation are Dalimpex and Agros. Prior to the commencement of this action in 1998, these two parties did business together for approximately 30 years. Dalimpex is a Canadian company that imports and distributes various goods, most of which are manufactured in Poland. A large portion of Dalimpex's business consists of food products, and its major supplier was Agros, a large Polish food conglomerate and broker.
6In 1983, Dalimpex and Agros entered into an amended Agency Agreement (an earlier one had been entered into in 1968) giving Dalimpex the right to sell products of Agros in Canada on commission. Under the terms of the agreement, Agros could trade in the same goods in Canada on its own behalf but Dalimpex was to be paid a reduced commission on such direct sales. Dalimpex could also purchase goods directly from Agros and trade on its own behalf with its own customers. Dalimpex was obliged to keep Agros fully informed about all of its activities and to "keep business secret" both within the duration of the agreement and after its expiration. The agreement, which came into effect on January 1, 1984, was for an unlimited period of time. However, it could be terminated by either party upon six months notice. The Agency Agreement was drafted in English but provided that only Polish law applied to it. It contained the following arbitration clause:
Any disputes which may arise in connection with interpretation or execution of this Agreement will be settled by the College of Arbitrators /Arbitration Court/ at the Polish Chamber of Foreign Trade in Warsaw. Decision of this College will be final and binding for both parties. Competence of any state courts is absolutely excluded.
7In 1989, legislative changes were made by the Polish government and the Polish Chamber of Foreign Trade ceased to exist. A new body known as the National Chamber of Commerce was created to "[take] over all matters, liabilities and assets of the hitherto Polish Chamber of Foreign Trade". The National Chamber of Commerce was given the power to create a separate Polish Chamber of Foreign Trade, and through it, a new College of Arbitrators. Rather, it created a new arbitral body known as the Court of Arbitration. As will be discussed in more detail later, the question whether the arbitration clause encompassed this new arbitral tribunal as the chosen arbitrator of disputes [page742] between the parties became one of the central issues in the litigation between the parties before the Ontario courts.
8During the course of 1994, Agros guaranteed a portion of Dalimpex's line of credit with the Toronto Dominion Bank by posting a time-limited letter of credit with the Toronto Dominion Bank in the amount of US$400,000. Dalimpex ran into financial difficulties and on June 28, 1998, the bank satisfied its claims against Dalimpex from the guarantee to the full extent of the letter of credit. On June 29, 1998, Dalimpex received a letter from Agros terminating the Agency Agreement effective at the end of 1998.
9The respondent Andrzej Janicki ("Janicki") was a long- term employee of Agros who became an employee and senior executive of Dalimpex in 1993. Shortly after Agros gave notice of termination of the Agency Agreement, Janicki resigned from his employment with Dalimpex in July 1998 and subsequently became an employee and senior executive of the respondent Agropol International Trade Ltd. ("Agropol"), an Ontario corporation incorporated in July 1998.
10Dalimpex alleges that, during the years 1996, 1997 and 1998, Janicki conspired with Agros and then with Agropol to injure Dalimpex by appropriating for themselves Dalimpex's customers, confidential information and food business in Canada. Among other things, Dalimpex alleges that the respondents made secret arrangements with each other for Agros to withdraw its commitment to guarantee Dalimpex's indebtedness with the TD bank for the purpose of causing Dalimpex severe financial difficulty.
11Dalimpex therefore commenced this action on September 2, 1998 claiming as against Janicki damages for breach of contract, breach of trust and breach of fiduciary duty. As against Agros, Dalimpex claims damages for conspiracy, interference with the economic relationship between Dalimpex and Janicki and inducing a breach of the contract between Dalimpex and Janicki. Dalimpex further claims against all respondents an injunction, an accounting of all transactions conducted with its customers and disgorgement of all profits generated by those transactions.
12In its Statement of Defence, Agros agrees that the relationship between Dalimpex and itself is governed by the terms of the 1983 Agency Agreement. Agros pleads firstly that the only competent body to hear Dalimpex's claim against it is the Court of Arbitration at the Polish Chamber of Commerce in Warsaw. The respondents further plead that, under the terms of the Agency Agreement, Dalimpex was to be the agent of Agros; that [page743] all of the customers and confidential information were the property of Agros; that Janicki was at all times the agent of Agros appointed to protect its interests under the agreement; and that Agros was entitled to terminate its relationship with Dalimpex at any time with proper notice. Agros further pleads that it was under no obligation to renew its guarantee of Dalimpex's indebtedness. Consequently, the respondents plead that Dalimpex's claims are without foundation.
13On October 23, 1998, shortly after the commencement of Dalimpex's action in Ontario, Agros instituted a proceeding against Dalimpex in the Court of Arbitration in Poland claiming reimbursement of the moneys paid under the letter of credit in the amount of US$403,646.16 plus interest, and US$36,590.40 for unpaid goods purchased by Dalimpex. Dalimpex defended the claim on the ground of lack of jurisdiction only and did not present evidence on the merits of the claim. As will be further discussed later, Dalimpex's jurisdictional argument was based, not on the identity of the tribunal but on the ground that the bank guarantee fell outside the scope of the Agency Agreement and the arbitration clause. By majority decision dated September 30, 1999, the Court of Arbitration held that the dispute fell within the scope of its jurisdiction and granted an award in the amount of US$440,236.56. In November 1999, Dalimpex brought an application before the Polish courts to set the award aside based on the same jurisdictional argument. Sometime after the decisions under appeal before this court were rendered, the application to set aside the arbitral award was dismissed and Dalimpex launched an appeal from that decision. That appeal is still pending before the Polish courts.
III. THE PROCEEDINGS UNDER APPEAL
1. The motion for a stay and referral to arbitration
14On April 30, 1999, Agros moved under s. 106 of the Courts of Justice Act, R.S.O. 1990, c. C.43 and article 8 of the Schedule to the Ontario International Commercial Arbitration Act, R.S.O. 1990, c. I.9 for a stay of the action commenced by Dalimpex and a referral of the underlying disputes to the Court of Arbitration in Poland. The motion was dismissed by Mandel J. on the grounds that the arbitrator named in the arbitration clause had ceased to exist, and the tort claims fell outside the scope of the arbitration agreement. On appeal to the Divisional Court, the motion judge's decision was overturned by majority judgment delivered by Molloy J. (Carnwath J. concurring, Matlow J. dissenting). The majority of the court held that the arbitration clause was broad enough [page744] to encompass the existing Court of Arbitration and that the disputes fell within the scope of the arbitration clause. The Divisional Court granted a stay of Dalimpex's action against the three respondents pending final resolution by arbitration of all disputes between Dalimpex and Agros, and referred the disputes to the Court of Arbitration of the Polish Chamber of Commerce in Warsaw.
15Dalimpex appeals from the order of the Divisional Court, with leave of this court. Dalimpex raises two main issues, the first relating to the identity of the arbitrator named under the arbitration clause, and the second relating to the scope of arbitrable disputes under the Agency Agreement.
2. The application for recognition and enforcement of the arbitral award
16On March 1, 2000, Agros filed a notice of application in the Ontario Superior Court of Justice under article 35 of the Schedule to the International Commercial Arbitration Act for recognition and enforcement of the arbitral award. The application was heard on July 4, 2001. Keenan J. granted the application and made a "provisional" judgment recognizing the award of the Court of Arbitration in Poland against Dalimpex as valid and enforceable in Ontario. The judgment further provides that it must be vacated in the event that the arbitral award is set aside by the Polish courts.
17Dalimpex appeals from this judgment essentially on the same grounds that it advances on the first appeal. It argues that the arbitral award should not be enforced in Ontario for two reasons: first, because the Court of Arbitration in Poland was not the parties' chosen arbitrator, and second, because it did not have jurisdiction over the dispute in question. Agros cross-appeals on the basis that the judgment should not have been "provisional" but, rather, should have been final and then stayed pending any appeal from the award in the Polish courts. On the cross-appeal, Dalimpex agrees that, if the judgment recognizing the arbitration award is to stand, the judgment should be amended as submitted by Agros.
IV. ANALYSIS
A. The Motion for a Stay and Referral to Arbitration
1. The role of the court
18An additional question was raised as part of the argument on the two main issues before the court. It is an important one in [page745] the context of a motion for a stay of a court action pending arbitration proceedings. The question is whether it is the role of the court, in cases where the arbitrator or arbitral tribunal has the power to rule on its own jurisdiction, to make a definitive pronouncement on the jurisdiction of the arbitrator, or whether the preferable approach is to leave the matter to the arbitrator as decision- maker of first instance. The answer to that question depends largely on any applicable legislative provisions, the wording of the arbitration agreement, and the nature of the dispute.
19In this case, the motion for referral to arbitration was brought under article 8 of the Schedule to the International Commercial Arbitration Act. It reads as follows:
Article 8.Arbitration agreement and substantive claim before court
(1) A court before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so requests not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed.
(2) Where an action referred to in paragraph (1) of this article has been brought, arbitral proceedings may nevertheless be commenced or continued, and an award may be made, while the issue is pending before the court.
20The wording of article 8 is mandatory. Hence, a court that would otherwise have jurisdiction over an action that is brought before it is required to refer those matters which are the subject of an arbitration agreement to arbitration in accordance with the agreement of the parties. There is no doubt that the court, not the arbitral tribunal, has the competence to determine the court's own jurisdiction in respect of the action that is brought before it. It is in the context of determining the scope of its own jurisdiction that a court will often make determinative findings in respect of the scope of the arbitration agreement. However, article 16 of the Schedule to the International Commercial Arbitration Act makes it clear that the arbitral tribunal has the competence to rule on its own jurisdiction:
Article 16.Competence of arbitral tribunal to rule on its jurisdiction
(1) The arbitral tribunal may rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement. For that purpose, an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract. A decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.
(2) A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence. A party is not precluded from raising such a plea by the fact that he has appointed, or participated in the appointment of, an arbitrator. A plea that the arbitral [page746] tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings. The arbitral tribunal may, in either case, admit a later plea if it considers the delay justified.
(3) The arbitral tribunal may rule on a plea referred to in paragraph (2) of this article either as a preliminary question or in an award on the merits. If the arbitral tribunal rules as a preliminary question that it has jurisdiction, any party may request, within thirty days after having received notice of that ruling, the [Superior Court of Justice] to decide the matter, which decision shall be subject to no appeal; while such a request is pending, the arbitral tribunal may continue the arbitral proceedings and make an award.
21It is my view that the proper approach to be taken by the court on a motion pursuant to article 8 is that set out by Hinkson J.A. of the British Columbia Court of Appeal in Gulf Canada Resources Ltd. v. Arochem International Ltd. (1992), 1992 4033 (BC CA), 43 C.P.R. (3d) 390, 66 B.C.L.R. (2d) 113 (C.A.). That case was decided under the British Columbia International Commercial Arbitration Act, S.B.C. 1986, c. 14 of which ss. 8 and 16 are substantially identical to articles 8 and 16 of the Schedule to the Ontario statute. Hinkson J.A. wrote at p. 397 C.P.R.:
Considering s. 8(1) in relation to the provisions of s. 16 and the jurisdiction conferred on the arbitral tribunal, in my opinion, it is not for the court on an application for a stay of proceedings to reach any final determination as to the scope of the arbitration agreement or whether a particular party to the legal proceedings is a party to the arbitration agreement, because those are matters within the jurisdiction of the arbitral tribunal. Only where it is clear that the dispute is outside the terms of the arbitration agreement, or that a party is not a party to the arbitration agreement, or that the application is out of time should the court reach any final determination in respect of such matters on an application for a stay of proceedings.
Where it is arguable that the dispute falls within the terms of the arbitration agreement or where it is arguable that a party to the legal proceedings is a party to the arbitration agreement then, in my view, the stay should be granted and those matters left to be determined by the arbitral tribunal.
22An issue may also arise on an article 8 motion as to whether the agreement is (a) null and void; (b) inoperative; or (c) incapable of being performed. In the same way, where it is clear that one of these situations exist, the court will make a determinative finding to that effect and dismiss the motion for referral. However, in cases where it is not clear, it may be preferable to leave any issue related to the "existence or validity of the arbitration agreement" for the arbitral tribunal to determine in the first instance under article 16. In my view, this deferential approach is consistent with both the wording of the legislation and the intention of the parties to refer their disputes to arbitration. [page747]
23I will comment further on the desirability of this approach as I deal with each of the substantive issues on the appeal.
2. The identity of the arbitrator
24The first issue raised by Dalimpex is whether the Court of Arbitration in Poland is the proper arbitrator under the agreement. For convenience, I repeat the wording of the arbitration clause:
Any disputes which may arise in connection with interpretation or execution of this Agreement will be settled by the College of Arbitrators /Arbitration Court/ at the Polish Chamber of Foreign Trade in Warsaw. Decision of this College will be final and binding for both parties. Competence of any state courts is absolutely excluded.
25The question of whether the existing Court of Arbitration was the legal successor to the College of Arbitrators became central to the proceedings below and, indeed, it formed a substantial part of Dalimpex's argument before this court. Expert opinion evidence was filed by both parties on this question.
26At first instance, the motion judge held that the new tribunal was not the legal successor of the arbitrator named in the Agency Agreement. He then accepted the opinion of one of the experts that under Polish law, the arbitration clause fails if the arbitrator can no longer act. Therefore he concluded that the arbitration clause was incapable of being performed.
27On appeal, the Divisional Court held that the motion judge erred in so concluding. Molloy J., in writing for the majority, stated as follows at paras. 23-26:
With the greatest of respect, we are of the view that Mandel J. erred in framing the question before him as he did. It is certainly true that if the new Court of Arbitration is the legal successor of the former "College of Arbitrators" then the arbitration clause is enforceable. However, the reverse is not necessarily true. To uphold the arbitration clause, it is not necessary to prove as a matter of law that the Court of Arbitration is the legal successor of the College of Arbitrators. Rather, the appropriate test is to consider whether the language used by the parties, reasonably interpreted, is capable of being construed as including a referral of disputes to the new Court of Arbitration in Warsaw.
It is significant that the language used in the arbitration clause in naming the arbitrator is not limited to "College of Arbitrators". The agreement refers to the "College of Arbitrators/Arbitration Court/ at the Polish Chamber of Foreign Trade in Warsaw". In our opinion the inclusion of the generic words "Arbitration Court" imports a measure of flexibility in respect of the identity of the arbitration tribunal. Otherwise there would be no need to include those words at all. The insertion of the words "Arbitration Court" also brings a degree of ambiguity to the arbitration clause. Where an arbitration clause is capable of bearing two interpretations, and one of those interpretations fairly provides for arbitration, the courts should lean towards that option: [page748]Canadian National Railway Co. v. Lovat Tunnel Equipment Inc. (1999), 1999 3751 (ON CA), 174 D.L.R. (4th) 385 at 390 (Ont. C.A.) citing, Blair J. in Onex Corp. v. Ball Corp. (1994), 1994 7537 (ON SC), 12 B.L.R. (2d) 151 at 160 (Ont. Ct. Gen. Div.).
It was clearly the intention of the parties to submit their disputes to arbitration. It is possible to interpret the arbitration clause as referring to the College of Arbitrators or other arbitration court at the Polish Chamber of Foreign Trade. The National Chamber of Commerce has pursuant to statute taken over "all matters" of the Polish Chamber of Foreign Trade. The National Chamber of Commerce has created an arbitration court. There is no other arbitration body to which the clause could refer. It is either the Court of Arbitration created by the Chamber of Commerce, or nothing. The expert evidence filed by the defendant established that:
-- the Court of Arbitration was created by the National Chamber of Commerce to perform the same function as the College of Arbitrators;
-- as a practical matter, the Court of Arbitration carries on the same function as did its predecessor, the College of Arbitrators;
-- the Court of Arbitration at the National Chamber of Commerce is the de facto successor to the College of Arbitrators;
-- the Court of Arbitration arbitrates disputes over contracts which refer to the former College of Arbitrators.
Although the expert evidence filed by the plaintiff takes issue with whether the new arbitration entity is the legal successor of the former, it does not rebut the evidence that as a practical matter the Court of Arbitration has simply replaced the College of Arbitrators. In these circumstances, and given the language of the agreement, it is possible and reasonable to interpret the arbitration clause as encompassing the new Court of Arbitration. Since this interpretation "fairly provides for arbitration" and is consistent with the objective intention of the parties, we are of the view that it is the one that should govern in this case [emphasis in original].
28Dalimpex submits that there was no basis for the Divisional Court to interfere with the motion judge's conclusion on this issue. Dalimpex relies mainly on the reasons of the dissenting justice in the Divisional Court in support of its argument. In essence, the dissenting justice held that there was never any doubt about the identity of the arbitration tribunal contemplated by the parties during the period that the College of Arbitrators existed and that the parties had chosen that arbitrator and no other.
29Agros submits that the Divisional Court was correct in its interpretation of the arbitration clause. It submits that the words and marks "/Arbitration Court/" should be interpreted as meaning that a more generic arbitration court at the Chamber of Foreign Trade was contemplated by the parties. Agros submits that these words, together with the fact that the Chamber of Commerce is the legal successor to the Chamber of Foreign Trade, provide ample support for this interpretation. Agros also reiterates [page749] the submission it made in the courts below that the existing Court of Arbitration is the legal successor to the College of Arbitrators. On this point, Agros seeks leave to file further evidence to show that the Court of Arbitration itself has held in a decision dated May 14, 1993 that there is no basis to question its jurisdiction in cases for which there is a valid registration with the former College of Arbitrators of the Polish Chamber of Foreign Trade.
30In any event, Agros further submits that Dalimpex is estopped from disputing the jurisdiction of the Court of Arbitration on this ground of successorship because it failed to raise this issue before the arbitral tribunal in the proceedings that form the subject-matter of the second appeal. The basis of the estoppel argument is the following.
31As noted earlier, after Dalimpex brought this action in September 1998, Agros commenced an arbitration proceeding before the Court of Arbitration at the Polish Chamber of Commerce in Warsaw in October 1998. This arbitration proceeding was pending at the time Mandel J. heard and dismissed Agros's motion for a stay in April and May 1999. As set out earlier, it was Dalimpex's position before the motion judge, as it is on this appeal, that the arbitration clause is incapable of enforcement because the named arbitrator has ceased to exist. Agros seeks leave to introduce fresh evidence before this court to show that Dalimpex did not raise this argument before the Court of Arbitration.
32In May 1999, Dalimpex, through its Polish counsel, made a preliminary submission to the arbitral panel in Poland that it was not competent to conduct the arbitration by virtue of the wording of the arbitration clause in the Agency Agreement. However the proposed fresh evidence establishes that this jurisdictional argument was based on the scope of the arbitration clause and not the identity of the chosen arbitrator. The arbitration panel rejected the jurisdictional argument and, in September 1999, decided the arbitration in favour of Agros.
33The proposed fresh evidence further establishes that Dalimpex's outstanding appeal from the arbitral award before the Polish courts is also based on the argument that the scope of the arbitration clause does not include matters relating to the bank guarantee and not on any argument that the Court of Arbitration of the Polish Chamber of Commerce is not the tribunal referred to in the Agency Agreement. Agros submits that, given Dalimpex's failure to dispute the constitution of the arbitral panel as the proper arbitrator under the agreement, it is now estopped from raising the issue in these proceedings.
34Dalimpex opposes the motion to introduce the fresh evidence on the ground that the information was available to Agros [page750] and should have been presented on the motion for the stay before Mandel J. Indeed, counsel for Dalimpex states that Agros sought to introduce the proposed fresh evidence before Mandel J. but then withdrew its request to present this material. In response, counsel for Agros submits that while he was aware from the start that Dalimpex was disputing the jurisdiction of the Court of Arbitration, he did not know until sometime in 2001 that the jurisdictional issue did not include any argument with respect to the identity of the tribunal as the proper arbitrator.
35It is my view that the proposed fresh evidence relating to Dalimpex's position before the Court of Arbitration is properly before this court. The decision of the Court of Arbitration, including its ruling on the jurisdictional issue that was raised by Dalimpex, forms an integral part of the record on the second appeal before this court. It is apparent on the face of that record that Dalimpex never questioned the identity of the tribunal as the proper arbitrator in its submissions before the Court of Arbitration, or in its pending appeal from the arbitral award. This court has ordered that both appeals be heard together and Dalimpex presents the same jurisdictional argument in support of its position on both appeals. In these circumstances, it is my view that the evidence can be relied on by Agros on both appeals, regardless of the question of due diligence raised by Dalimpex. In any event, Dalimpex's submission that Agros, by the exercise of due diligence, ought to have discovered earlier that Dalimpex's position before the Ontario courts on this crucial jurisdictional question was, in effect, inconsistent with that adopted in the Polish courts, is rather hollow.
36There is much merit to the argument that Dalimpex should be precluded from arguing that the Court of Arbitration is not an arbitral institution contemplated by the parties' agreement in circumstances such as these when it has failed to raise this argument before the tribunal itself. The application of the doctrine of issue estoppel would serve to promote consistency and certainty in international commercial matters. However, I do not find it necessary in order to dispose of this ground of appeal to determine in the strict legal sense whether the doctrine applies to the facts of this case. I say this for two reasons.
37First, I am in agreement with the analysis and the conclusion of Molloy J. of the Divisional Court on the interpretation of the arbitration clause. In my view, it is reasonable to interpret the arbitration clause as encompassing the new Court of Arbitration and, as stated by Molloy J., since this interpretation fairly provides for arbitration and is consistent with the intention of the parties to submit their disputes to arbitration, it should govern. [page751] Second, it is my view that the evidence of Dalimpex's failure to object to the identity of the arbitral tribunal, quite apart from any question of estoppel, provides further support to the conclusion that the parties intended by the inclusion of the generic words "Arbitration Court" to import a measure of flexibility in respect of the identity of the arbitration tribunal. Given the ambiguity of the language, the court can consider the conduct of the parties in determining what was intended under the agreement.
38Before concluding my analysis on this issue, I note that, in my view, it would have been preferable in all the circumstances for this jurisdictional issue to have been decided in the first instance by the arbitral tribunal. On the evidence, it was far from clear that the Court of Arbitration was not the proper arbitrator under the agreement. The question was one that required a consideration of Polish law, including the legal constitution of the foreign arbitral tribunal. In these circumstances, the Court of Arbitration in Poland would have been in a better position to determine the question at probably much less cost to the parties. Hence, it is my view that the motion judge could and should have declined to make a definitive finding on this jurisdictional issue. However, in light of the unfolding of the proceedings, I find it appropriate at this point to simply uphold the definitive finding of the Divisional Court and conclude that the arbitration clause is still valid and capable of enforcement.
39For these reasons, I would not give effect to this ground of appeal.
3. The scope of the arbitration clause
40The motion judge held that Dalimpex's tort claims fell outside the scope of the arbitration clause and were not arbitrable. On appeal, the Divisional Court held that he erred in two respects in coming to this conclusion.
41First, the court held that the motion judge erred in failing to adopt the approach set out in Gulf Canada as discussed earlier. The court espoused the view at para. 30 that "[i]t is only where it is clear that the dispute in question is outside the terms of the arbitration agreement that the court should usurp the role of the arbitrator as the decision- maker of first instance in respect of jurisdiction." Second, the court held that the motion judge erred in focusing entirely on the claims made by the plaintiff without considering the defences raised by Agros in determining whether the subject matter of the action was within the arbitration clause. The court stated the following at paras. 31-32: [page752]
In determining whether the dispute is one that relates to the interpretation or execution of the agency agreement, it is relevant to consider whether the existence of the contractual obligation is a necessary element to create the claim or to defeat it: Kaverit Steel & Crane Ltd. v. Kone Corp. (1992), 1992 ABCA 7, 87 D.L.R. (4th) 129 at 135 (Alta. C.A.) leave to appeal denied, 93 D.L.R. (4th) vii (S.C.C.).
In its defence Agros pleads that under the agreement, Dalimpex was to be the agent of Agros, that all of the customers and confidential information were the property of Agros (not Dalimpex), that the individual defendant Janicki was at all times the agent of Agros to protect its interests under the agreement and that Agros was entitled under the agreement to terminate its relationship with Dalimpex at any time. Therefore, Agros argues that because of the contract terms between Agros and Dalimpex, the claims asserted by Dalimpex are without foundation. The defences raised by Agros call into question the interpretation of the agreement as well as the manner in which the contract was performed. As such, they can reasonably be construed as a "dispute in connection with (the) interpretation or execution" of the agreement. Therefore, the dispute between Dalimpex and Agros in the action in this court is covered by the arbitration clause and should be stayed pending determination of those issues by the Court of Arbitration of the National Chamber of Commerce in Warsaw.
42Dalimpex, of course, disagrees with this analysis and submits that the motion judge was correct in finding that its tort claims clearly fell outside the scope of the arbitration clause. Agros, on the other hand, supports the finding of the Divisional Court.
43I agree with the analysis and the conclusion of the Divisional Court, except where the court appears to make a definitive finding that "the dispute between Dalimpex and Agros in the action in this court is covered by the arbitration clause." In my view, it is preferable to leave the matter for final determination to the Court of Arbitration and to stay the action against Agros until final determination of the disputes by arbitration, including any jurisdictional issue, or until further order of the Superior Court of Justice.
4. Other respondents' privity of interest
44On this point, the Divisional Court simply concluded as follows at para. 33:
Since the main protagonists in this dispute are Dalimpex and Agros, the claims against other parties in this action should also be stayed pending the determination of the Court of Arbitration: Boart Sweden AB v. NYA Stromnes AB (1988), 41 B.L.R. 295 at 304 (Ont. H.C.).
45Dalimpex did not advance any credible argument to dispute the correctness of this conclusion. In my view, it is obvious from the pleadings that its action against the other two respondents will stand or fall on the merits of the action against [page753] Agros. I see no basis to interfere with the order of the Divisional Court extending the stay of the action to Janicki and Agropol.
B. The Application for Recognition and Enforcement of the Arbitral Award
46This application was brought under article 35 of the Schedule to the International Commercial Arbitration Act, supra. The relevant provisions read as follows:
Article 35. Recognition and enforcement
(1) An arbitral award, irrespective of the country in which it was made, shall be recognized as binding and, upon application in writing to the competent court, shall be enforced subject to the provisions of this article and of article 36.
Article 36. Grounds for refusing recognition or enforcement
(1) Recognition or enforcement of an arbitral award, irrespective of the country in which it was made, may be refused only:
(a) at the request of the party against whom it is invoked, if that party furnishes to the competent court where recognition or enforcement is sought proof that:
(i) a party to the arbitration agreement referred to in article 7 was under some incapacity; or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made, or
(ii) the party against whom the award is invoked was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case, or
(iii) the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be recognized and enforced, or
(iv) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties or, failing such agreement, was not in accordance with the law of the country where the arbitration took place, or
(v) the award has not yet become binding on the parties or has been set aside or suspended by a court of the country in which, or under the law of which, that award was made; or [page754]
(b) if the court finds that:
(i) the subject-matter of the dispute is not capable of settlement by arbitration under [the laws of Ontario and any laws of Canada that are in force in Ontario], or
(ii) the recognition or enforcement of the award would be contrary to the public policy of [Ontario].
(2) If an application for setting aside or suspension of an award has been made to a court referred to in paragraph (1) (a)(v) of this article, the court where recognition or enforcement is sought may, if it considers it proper, adjourn its decision and may also, on the application of the party claiming recognition or enforcement of the award, order the other party to provide appropriate security.
47Unlike the situation on a motion for a stay, it is clear that, at this stage of the proceedings, it falls upon the court to make a final determination of any issue that may be raised under article 36.
48In this case, it appears from the record that Dalimpex defended the application on the basis that the arbitral award was not yet binding between the parties. Although the position advanced by Dalimpex is far from clear, it appears from my review of the record that this position was based on three grounds: (a) its appeal to this court from the order of the Divisional Court was still pending; (b) its application to set aside the arbitral award was also pending before the Polish courts; and (c) there had been no confirmation of the arbitral award before a superior court in Poland. Hence, although it was not expressly stated, it would appear that Dalimpex defended the application for recognition and enforcement by invoking articles 36(1)(a)(iii) (the dispute does not fall within the terms of the arbitration agreement), 36(1)(a)(iv) (the composition of the arbitral tribunal was not in accordance with the agreement of the parties) and 36(1)(a)(v) (the award has not yet become binding on the parties).
49On the first ground, Dalimpex simply noted in its material that the question of whether the Court of Arbitration was the proper arbitrator was still pending before the Ontario courts and submitted that the award should not be enforced until final determination of that issue.
50On the second ground, Dalimpex filed opinion evidence indicating that its appeal from the arbitral award before the Polish courts had "very substantial chances of success, especially because of the strong dissent which was delivered by Professor Rajski, a prominent Polish jurist". In his dissenting opinion, Professor Rajski expressed the view that the majority of the Court of Arbitration had acted without jurisdiction because, in his view, the subject matter of the claim filed by Agros did not fall within [page755] the scope of the Agency Agreement. Rather, the bank guarantee was the subject matter of a separate and new agreement between the parties that did not fall within the scope of the arbitration clause.
51On the third ground, Dalimpex took the position that the arbitral award was not yet binding on the parties because Agros had not obtained a confirmation of the award from a Polish court superior to the Arbitration Court in accordance with the Polish Code of Civil Procedure.
52It would appear from the record and the reasons of the application judge that only the third ground was fully argued on the merits. The application judge stated that it was "the only real issue before the court". On this issue, Dalimpex filed expert evidence in support of its position that the award needed to be confirmed by a superior court in Poland before it was binding on the parties. Agros responded in kind and filed expert opinion evidence that the award was binding between the parties and that no confirmation by a higher Polish court was required. A confirmation was only required in the event that Agros sought to enforce the award in Poland. Since Dalimpex had no assets in Poland, there was no reason for Agros to seek a confirmation of the award in Poland. However, the lack of confirmation in Poland had no effect on the binding nature of the award.
53The application judge accepted the position advanced by Agros and concluded that the award was binding on the parties. Dalimpex has not advanced any argument before this court on this issue and I see no reason to interfere with the conclusion reached by the application judge on the binding nature of the arbitral award.
54As for the other two grounds, it is unclear from the reasons of the application judge whether he was of the view that the award was not yet binding on the parties because of the two outstanding appeals, one in the Ontario courts and the other before the Polish courts. The application judge expressly recognized that he had the authority to adjourn the application under article 36(2) because there was an outstanding application to set aside the arbitral award before the Polish courts. However, he found it more appropriate in the circumstances to recognize the arbitral award and enter a judgment, but to make the judgment "provisional" pending the outcome of the appeal brought by Dalimpex before the Ontario courts, and subject to being vacated in the event that the arbitral award was set aside by the Polish courts.
55Both parties take the position that the application judge had no jurisdiction to make a provisional judgment under the [page756] statute. As noted earlier, this question is the subject-matter of the cross-appeal. I agree with the joint position of the parties on this issue. The only avenues open to the application judge under articles 35 and 36 were to allow, adjourn or dismiss the application.
56In its argument before this court, Dalimpex reiterates its position that the application should have been dismissed because "it would be against public policy" to enforce the award before the issues raised in the two outstanding appeals had been finally disposed of.
57The argument with respect to the outstanding appeal before the Ontario courts and the question of the identity of the arbitral tribunal can be easily disposed of. For the reasons I have stated on the companion appeal, I conclude that the Court of Arbitration was a competent arbitrator under the parties' agreement. Further, I am of the view that Dalimpex's failure to raise this issue before the arbitral tribunal is fatal to his contention on this application that the award should not be recognized and enforced on that basis.
58As for the issue in the appeal before the Polish courts, the jurisdiction of the arbitral tribunal over the subject-matter, Dalimpex never really addressed the merits on the application or before this court. Rather, Dalimpex simply reiterates its position that the award is yet not binding on the parties until the appeal before the Polish courts is disposed of and submits that it would be against public policy to recognize and enforce the award before that time.
59Agros never really addressed the question whether the arbitral tribunal had the jurisdiction over the subject-matter of the dispute either. It simply takes the position that the judgment below should be final in its terms and stayed pending the final disposition of the appeal before the Polish courts. I did not understand Agros to take issue, however, with the provision that the judgment must be vacated in the event that the arbitral award was set aside by the Polish courts.
60In my view, it was entirely correct for the application judge to conclude that the judgment should be vacated in the event that the arbitral award was set aside by the Polish courts because, as he stated"the only reason for permitting its registration would thereby have disappeared". However, the converse does not follow. In the event that the appeal from the arbitral award is dismissed, it does not follow that it is automatically recognized and enforced by a final judgment in Ontario. Dalimpex is raising the question of the arbitral tribunal's jurisdiction over the subject-matter in defence of the article 35 application. It is entitled to do so under article 36(1)(a)(iii). As it stands, the effect of the [page757] judgment below is to leave the final determination on the question of whether the dispute falls within the scope of the arbitration clause to the arbitral process. This result renders article 36(1)(a)(iii) meaningless. Under its terms, the application judge must make his or her own determination of the matter.
61In the circumstances, it is my view that the application should have been adjourned under article 36(2) pending the final decision in the Polish courts. In the event that the arbitral award is set aside, the basis of the application will have disappeared. If the appeal is dismissed, the application can be brought back before a justice of the Superior Court of Justice to be dealt with on the merits on this outstanding issue.
V. DISPOSITION
62For these reasons, I would dismiss the appeal from the order of the Divisional Court with costs to the three respondents. I would allow the appeal on the application to recognize and enforce the arbitral award, set aside the judgment, and adjourn the application to be heard in the Superior Court of Justice after the final determination of the appeal from the arbitral award before the Polish courts. The parties have 30 days to exchange and file their written submissions on costs.
First appeal dismissed; second appeal allowed.
