Court of Appeal for Ontario

Date: December 4, 2017 Docket: C63134

Judges: Strathy C.J.O., van Rensburg and Trotter JJ.A.

Between

Consolidated Contractors Group S.A.L. (Offshore)

Applicant (Appellant)

and

Ambatovy Minerals S.A.

Respondent (Respondent)

Counsel:

• John A. Keefe, Brad Halfin and Jesse-Ross Cohen, for the appellant
• Duncan W. Glaholt and Michael A. Valo, for the respondent

Heard: September 6, 2017

On appeal from the judgment of Justice Michael A. Penny of the Superior Court of Justice, dated November 28, 2016, with reasons reported at 2016 ONSC 7171.

Reasons for Decision

Strathy C.J.O.:

[1] Introduction

[1] The appellant challenged an international commercial arbitral award, arguing that portions of the award were made without jurisdiction, were made in breach of procedural fairness and violated public policy. The application judge dismissed the claim.

[2] For the reasons that follow, I would dismiss the appeal. My reasons are structured as follows: first, I will describe the arbitration process and will summarize the parties' claims; second, I will explain the grounds for judicial intervention in international arbitral awards under the United Nations Commission on International Trade Law (UNCITRAL) Model Law (the "Model Law"); and third, I will examine the appellant's grounds of appeal, including, in each case, the nature of the claim, the standard of review, the Tribunal's reasons, the application judge's reasons for dismissing the claim, and my analysis and disposition of the ground.

A. THE ARBITRATION

[3] The arbitration arose out of a US$258 million project for the construction of a slurry pipeline from a nickel mine in the mountains of Madagascar to the coast. The appellant, ("CCG"), was the contractor and the respondent, ("AMSA"), tendered the project.

[4] The contract for the project contained a three stage dispute resolution process. The first stage required disputes to be determined by the respondent's supervising engineer. If the dispute was not resolved, it would be referred to adjudication by a sole adjudicator. A party who did not accept the adjudication could refer the dispute to arbitration pursuant to the International Commercial Arbitration Act, R.S.O. 1990, c. I.9, which incorporates the Model Law. In that event, the arbitration was to take place in Ontario, in accordance with Ontario law.

[5] The contract provided that the arbitration procedure was to be governed by the International Chamber of Commerce ("ICC") Rules of Arbitration. Article 23(1) of those Rules provides that the arbitration tribunal is required to draw up terms of reference setting out, among other things, the parties' respective claims, the relief sought, the issues to be determined and the applicable procedure. The terms of reference must be signed by the tribunal and by the parties.

[6] Terms of reference were duly prepared and signed. They described the procedural history of the dispute, summarized the claims, counterclaims and defences of the parties, and set out the issues.

[7] The terms of reference also delineated the issues to be determined by the Tribunal. Section 89 provided:

The issues to be determined by the Arbitral Tribunal shall be those arising from the submissions, statements, pleadings, and applications of the Parties, provided that these are made in accordance with the directions of the Arbitral Tribunal, and include any questions of fact or law that the Arbitral Tribunal may deem necessary to decide, in its own discretion, in order to determine such issues and rule on the Parties' respective requests for relief.

[8] The appellant claimed that the respondent had breached the contract, causing delays and additional costs. It claimed an extension of the time for performance by at least 294 days, compensation for its costs arising from delay, and compensation for additional work it claimed to have performed.

[9] In accordance with the arbitration clause in the contract, the appellant had submitted its claims to the respondent's engineer for determination. It disputed the engineer's decision and proposed to refer the dispute to adjudication. The respondent suggested that the dispute go directly to arbitration, by-passing adjudication, and the appellant agreed.

[10] The respondent defended the appellant's claims and asserted a counterclaim for liquidated damages due to the appellant's failure to complete the project on time. It also counterclaimed for additional costs caused by the appellant's failure to properly complete its work. The appellant agreed that the respondent's claim for liquidated damages could proceed directly to arbitration, because a determination of the appellant's claim for an extension of time would necessarily determine the respondent's liquidated damages claim.

[11] Although at various times the appellant proposed that the respondent's other counterclaims should proceed directly to arbitration, the respondent equivocated. Ultimately, the respondent proposed to do so, but at this point the appellant balked. As is discussed below, this required the Tribunal to decide whether it could properly hear these counterclaims.

[12] There were three arbitrators. Each party nominated one and the chair was appointed by the Chairman of the International Court of Arbitration of the ICC. The arbitrators were a blue chip international panel, with expertise in both commercial arbitration and mega-project construction disputes.

[13] The arbitrators held a case management conference and issued several procedural orders. Pleadings were filed and witness statements and expert reports were delivered. An evidentiary hearing was held in Toronto between June 3 and 20, 2014. Post-hearing memoranda were filed by the parties.

[14] The Tribunal issued its final award on September 30, 2015. Its reasons were over 200 pages long and contained a detailed analysis of the appellant's claims and the respondent's counterclaims. It rejected most of the appellant's claim for an extension of time and its claim for costs relating to the delay. It heard and adjudicated the respondent's counterclaims. At the end of the day, the appellant lost more than it won. It was awarded only $7 million of its $91 million claim. In contrast, the respondent was awarded nearly $25 million for its counterclaims.

[15] In the court below, the appellant challenged the Tribunal's award in four broad respects:

(a) the Tribunal had no jurisdiction to deal with some of the respondent's counterclaims;

(b) the Tribunal failed to exercise its jurisdiction in not compensating the appellant for costs due to delays caused by the respondent;

(c) the Tribunal denied the appellant procedural fairness in its disposition of two claims and its award of costs; and

(d) part of the Award was made in breach of Ontario public policy.

[16] The application judge dismissed these attacks and upheld the award in its entirety.

[17] I turn to the relevant provisions of the Model Law and the grounds on which an international arbitral award may be set aside.

B. JUDICIAL INTERVENTION UNDER THE MODEL LAW

[18] The Model Law provides a standard process for the conduct of international commercial arbitrations. It covers all stages of the arbitral process, including the arbitration agreement, the composition and jurisdiction of the arbitral tribunal, the conduct of arbitral proceedings, the extent of court intervention in arbitral awards and the recognition and enforcement of awards. It has received broad international acceptance. In Ontario, it has been given the force of law by the International Commercial Arbitration Act, 2017, S.O. 2017, c. 2, Sched. 5, and by predecessor legislation. Federally, it has been enacted by the Commercial Arbitration Act, R.S.C. 1985, c. 17 (2nd Supp.).

[19] Article 5 of the Model Law limits the scope of judicial oversight of international arbitral awards. It states:

In matters governed by this Law, no court shall intervene except where so provided in this Law.

[20] Article 34 identifies the circumstances under which an international commercial arbitral award can be set aside by a domestic court. These grounds are narrow. They are: (a) incapacity of a party or legal invalidity of the agreement; (b) absence of notice or an opportunity to present the party's case (i.e. procedural unfairness); (c) absence of jurisdiction; (d) non-compliance with the arbitration agreement concerning the tribunal's composition or procedure; (e) non-arbitrability of the dispute; and (f) a conflict between the award and domestic public policy.

[21] The relevant provisions of Article 34 are as follows:

(2) An arbitral award may be set aside by the court specified in article 6 only if:

(a) the party making the application furnishes 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 this State, or

(ii) the party making the application 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 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, only that part of the award which contains decisions on matters not submitted to arbitration may be set aside, or

(iv) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Law from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Law; or

(b) the court finds that:

(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law of this State, or

(ii) the award is in conflict with the public policy of this State.

[22] The main focus of this appeal is the application of the grounds for intervention under Article 34.

[23] The appellant concedes that, as a matter of principle, 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: see Quintette Coal Ltd. v. Nippon Steel Corp. (1990), 47 B.C.L.R. (2d) 201 (S.C.), aff'd , [1991] 1 W.W.R. 219 (B.C.C.A.), leave to appeal refused, [1990] S.C.C.A. No. 431; Corporacion Transnacional de Inversiones S.A. de C.V. v. STET International S.p.A. (1999), 45 O.R. (3d) 183 (S.C.), aff'd (2000), 49 O.R. (3d) 414 (C.A.), leave to appeal to refused, [2000] S.C.C.A. No. 581.

[24] Moreover, this 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: see United Mexican States v. Cargill Inc., 2011 ONCA 622, 107 O.R. (3d) 528, at para. 33; United Mexican States v. Karpa (2005), 74 O.R. (3d) 180 (C.A.), at paras. 34-37.

[25] The standard to be applied by a reviewing court depends on the specific Model Law grounds on which the appeal is based. In this case, the appellant alleges that the application judge applied the wrong legal test under Article 34(2)(a)(iii) (jurisdiction), Article 34(2)(a)(ii) (procedural fairness), and Article 34(2)(b)(ii) (public policy). The appellant also argues that the application judge erred in his interpretation of the discretion available to the court to refuse to set aside an award under Article 34.

[26] Each of these three grounds is discussed below.

C. ANALYSIS OF THE APPELLANT'S CLAIMS

[27] The appellant's claims can be grouped according to the provisions of Article 34(2) that they invoke.

(1) Claims under Article 34(2)(a)(iii): Jurisdiction

[28] Under Article 34(2)(a)(iii), the court may set aside an arbitral award, or part thereof, where the tribunal acts without jurisdiction by dealing with a dispute not contemplated by or not falling within the terms of the submission to arbitration.

[29] The standard of review on questions related to a tribunal's jurisdiction under Article 34(2)(a)(iii) is one of correctness: Cargill, at para. 42. However, while endorsing a correctness standard in Cargill, Feldman J.A. was careful to limit the application of this standard to what she described as a "true question of jurisdiction", at para. 44:

It is important, however, to remember that the fact that the standard of review on jurisdictional questions is correctness does not give the courts a broad scope for intervention in the decisions of international arbitral tribunals. To the contrary, courts are expected to intervene only in rare circumstances where there is a true question of jurisdiction.

[30] After noting that in the domestic context courts are required to take a narrow view of what constitutes a question of jurisdiction (see Dunsmuir v. New Brunswick, 2008 SCC 9, [2008] 1 S.C.R. 190, at para. 59; Quebec (Attorney General) v. Guerin, 2017 SCC 42, 412 D.L.R. (4th) 103, at para. 32), she continued, at paras. 46-7:

This latter approach is magnified in the international arbitration context. Courts are warned to limit themselves in the strictest terms to intervene only rarely in decisions made by consensual, expert, international arbitration tribunals, including on issues of jurisdiction. In my view, the principle underlying the concept of a "powerful presumption" is that courts will intervene rarely because their intervention is limited to true jurisdictional errors…

Therefore, courts are to be circumspect in their approach to determining whether an error alleged under Article 34(2)(a)(iii) properly falls within that provision and is a true question of jurisdiction. They are obliged to take a narrow view of the extent of any such question. And when they do identify such an issue, they are to carefully limit the issue they address to ensure that they do not, advertently or inadvertently, stray into the merits of the question that was decided by the tribunal.

[31] Feldman J.A. then explained the proper approach for a reviewing court to take in hearing a case invoking Article 34(2)(a)(iii), at para. 53:

The role of the reviewing court is to identify and narrowly define any true question of jurisdiction. The onus is on the party that challenges the award. Where the court is satisfied that there is an identified true question of jurisdiction, the tribunal had to be correct in its assumption of jurisdiction to decide the particular question it accepted and it is up to the court to determine whether it was. In assessing whether the tribunal exceeded the scope of the terms of jurisdiction, the court is to avoid a review of the merits.

[32] She suggested, by way of example, that an award would be subject to attack under Article 34(2)(a)(iii) as a "true" error of jurisdiction where the tribunal decides a matter outside of its geographic or temporal jurisdiction: see Cargill, at para. 49.

[33] I turn now to the two jurisdictional claims raised on appeal.

(a) Jurisdiction over Counterclaims

[34] The appellant initiated the arbitration with the respondent's agreement that the appellant's claims need not go through the pre-arbitration adjudication process. The respondent in turn advanced counterclaims. Ultimately, after twice suggesting that the respondent's counterclaims should be addressed in the arbitration, the appellant objected to the counterclaims (other than the liquidated damages claim) proceeding to arbitration because they had not gone through the dispute resolution process outlined in the project contract.

[35] The respondent's counterclaims were fully pleaded and defended in the arbitration. Evidence was adduced by both parties on the substance of the claims. There was full argument on the counterclaims. It was left to the Tribunal to determine whether it had jurisdiction to address them.

[36] The Tribunal ultimately concluded that it had jurisdiction to address the counterclaims.

[37] As a prelude to its discussion, the Tribunal noted the respondent claimed an entitlement to set off the amounts of its counterclaims against any amounts found owing to the appellant. The Tribunal considered this proposition "seemingly uncontroversial", although it was not accepted by the appellant.

[38] The Tribunal found that "the parties to a complex construction contract may be presumed, when making it, to agree that any disputes that may arise will be resolved in an efficient manner." This intention was reflected, it said, in the parties' agreement that the appellant's claims could go directly to arbitration, by-passing adjudication if they could not be determined by the respondent's engineer or by negotiation.

[39] It concluded that the parties' agreement reflected a common intention that disputes would be dealt with at the same time by the same tribunal when there was "sufficient connection" between the disputes to enable them to be dealt with efficiently. The parties were in agreement, it found, "that it would not be necessary for one party to submit to prior adjudication of a claim that was so connected to a claim of the other party that the two claims should be determined at the same time." This applied to the respondent's counterclaims.

[40] The application judge rejected the appellant's submission that the Tribunal exceeded its jurisdiction in considering the counterclaims. In so doing, he noted that the appellant had full knowledge of the substance of those claims, had exercised a right to make a full and comprehensive defence to those claims and there was no evidence to suggest that the result would have been different had the claims gone through the pre-arbitration process.

[41] He found, at para. 28, that the terms of reference signed by the parties and the arbitrators expressly gave the Tribunal jurisdiction to determine "any questions of fact or law that [it] may deem necessary to decide, in its own discretion, in order to determine such issues and rule on the Parties' respective requests for relief" (emphasis added).

[42] He noted the Tribunal's conclusion that two arbitrations, one on the appellant's claims and some of the respondent's counterclaims and the other on the respondent's remaining counterclaims, would have made no sense and could not reasonably have been in the contemplation of the parties. The Tribunal's mandate included everything closely connected to the matters subject to arbitration: Desputeaux v. Éditions Chouette (1987) inc., 2003 SCC 17, [2003] 1 S.C.R. 178, at para. 35. There was ample evidence on which the Tribunal could reach the decision it did.

[43] The application judge also found, at para. 33, that the pre-arbitration dispute resolution steps were not true conditions precedent to the Tribunal's jurisdiction, noting that "[i]t [was] accepted that the [counterclaims] were always going to be arbitrated under the Agreement; the only issue was when." He concluded, at para. 35, that "[p]rocedural issues relating to the conduct of the arbitration are preeminently matters for the arbitrators to decide and the court must view the determination with deference" (citations omitted).

[44] On this appeal, the appellant submits that the Tribunal's jurisdiction was purely consensual and that the parties never consented to the counterclaims being arbitrated. They had not gone through the contractual dispute resolution procedure that was a pre-condition to arbitration. The Tribunal recognized that its jurisdiction rested solely on consent, but erred in finding consent. There was never a meeting of minds on the issue.

[45] The appellant says that it is irrelevant that the issues were fully pleaded before the Tribunal, that a complete evidentiary record was developed and full argument was made. There was simply no consent to jurisdiction, and that portion of the award should be set aside pursuant to Article 34(a)(iii) of the Model Law.

[46] I would reject this submission. Article 34(2)(a)(iii) requires the court to consider whether the award deals with a "dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration". To answer this question, I must have regard to the contractual provisions with respect to arbitration, the submission to arbitration, the agreed terms of reference of the arbitrators and the arbitral award.

[47] I have summarized the relevant contractual terms. The terms of reference set out at length the claims, defences and positions of the parties. The respondent asserted its counterclaims and the appellant advanced its argument that the respondent had failed to comply with the "mandatory pre-arbitration dispute resolutions steps specified in the Contract for each of its counterclaims and/or claims of set-off." It said that "[s]uch compliance is a condition of admissibility." In addition to taking this position, the appellant set out its defences to the counterclaims and to the claims for set-off.

[48] The terms of reference conferred jurisdiction on the Tribunal to decide questions of fact and law necessary to determine the issues and to rule on the parties' requests for relief.

[49] The Tribunal had intimate familiarity with the conduct and communications between the parties leading up to and after the commencement of the arbitration. It was also immersed in their claims and counterclaims. It found that "a claim that was so connected to a claim of the other party that it should be decided at the same time" could proceed to arbitration without passing through the contractual dispute resolution process.

[50] It came to this conclusion based on a review of the contract, the communications between the parties and their conduct, both before and after the initiation of the arbitration. The parties' conduct reflected a common intention that disputes would be resolved in an efficient manner.

[51] As the application judge said, at para. 31:

CCG argues that failure to follow the pre-arbitration steps with respect to the counterclaims deprived it of the opportunity to settle those claims or, perhaps, to conduct a separate arbitration. That issue was addressed squarely by the Tribunal. It decided that two arbitrations, one on CCG's claims and some of AMSA's counterclaims, and another on AMSA's remaining counterclaims, would have made no sense and could not reasonably have been in the contemplation of the parties.

[52] The issue before the Tribunal was not a "true question of jurisdiction" in the sense used by Feldman J.A. in Cargill. The respondent's counterclaims were clearly the proper subject of arbitration under the contract. The only question, as noted by the application judge, was when they would be arbitrated. It was open to the Tribunal to find that the pre-arbitration dispute resolution process did not apply to claims of one party that were closely connected to the claims already submitted to arbitration by the other party.

[53] This is not to say that every dispute submitted to arbitration will necessarily draw in counterclaims. It will depend, as in this case, on the contractual intention of the parties as determined by all the surrounding circumstances. Nor will it permit a party initiating an arbitration to completely ignore pre-arbitration dispute resolution requirements: Emirates Trading Agency LLC v. Prime Mineral Exports Pte. Limited, [2014] EWHC 2104 (Comm.), [2015] 1 W.L.R. 1145.

[54] The Tribunal's decision to determine this issue was not a true question of jurisdiction. Consequently, it is not reviewable under Article 34 and I would decline to set aside the award on this basis.

[55] I would also reject the appellant's submission, advanced in the court below and in its factum, that it was denied procedural fairness under Article 34(2)(a)(ii) because the Tribunal developed its own "novel theory" of an implied agreement without notice to the parties. The Tribunal did not develop a "novel theory". It simply made findings of fact concerning the parties' intentions, having regard to all the surrounding circumstances, all of which were raised by the parties in their submissions.

(b) Prolongation Costs

[56] I turn to the appellant's second claim under Article 34(2)(a)(iii).

[57] The appellant sought a 36-day extension of time and US$482,480 for costs allegedly due to delays caused by the respondent's failure to deliver materials and failure to complete work required to enable the appellant to complete its own work on the pipeline. The respondent argued that the appellant had not proven that it had incurred any additional costs as a result of the delay.

[58] The Tribunal granted an 18-day extension, resulting in a corresponding reduction of the respondent's claim for liquidated damages. But it did not specifically address the appellant's claim for damages caused by the delay, other than in its summary of its award. There, the Tribunal awarded "nil" for the appellant's claim for costs incurred as a result of this and other alleged delays. It gave no reasons for dismissing the appellant's claim under this head.

[59] The appellant submits that in so doing, the Tribunal committed a jurisdictional error and denied it procedural fairness by failing to address an issue put before it.

[60] The application judge dismissed this claim. He found that, although the Tribunal's reasoning was not explicit, it could reasonably be inferred that the Tribunal found that the appellant had not proven that it had incurred additional costs due to the delay. He noted, at para. 49, that in proceedings under the Model Law, "the failure to give reasons, although less helpful to the parties, is not on its own a ground for refusing to enforce an award", citing Schreter v. Gasmac Inc. (1992), 7 O.R. (3d) 608, at p. 621 (Gen. Div.).

[61] He also referred to cases in other jurisdictions where it has been held that the failure to give reasons, as opposed to a failure to deal with an issue, does not invalidate the award, specifically Margulead Ltd. v. Exide Technologies, [2004] EWHC 1019 (Comm.), and a decision of the Federal Supreme Court of Switzerland, Swiss Fed. Court, 26 May 2010, 4A-433/2009. He found that in this case, "there was evidence, and argument joined" before the Tribunal to support its decision.

[62] I need not address the question of whether the failure to deal with a claim justifies setting aside an award under Article 34(2)(a)(iii), because I agree with the application judge that the Tribunal dealt with the prolongation costs claim. There is nothing in the Model Law that requires the Tribunal to give reasons, although it is unquestionably desirable that it do so. The reasonable conclusion from the award, in the context of the submissions at the hearing, is that the Tribunal accepted the respondent's argument that the appellant had failed to meet its burden of proof by identifying additional costs actually incurred as a result of the delay as opposed to per diem costs that would have been incurred in any event. I would therefore dismiss this ground of appeal.

(2) Claims under Article 34(2)(a)(ii): Procedural Fairness

[63] As noted above, Article 34(2)(a)(ii) permits a challenge to an arbitral award based on procedural unfairness – where a party has not received proper notice of the proceedings "or was otherwise unable to present his case."

[64] In responding to the appellant's submissions under this provision, the respondent cites Michael J. Mustill & Stewart C. Boyd, The Law and Practice of Commercial Arbitration in England, 2nd ed. (London: Butterworth's, 1989), at p. 550, cited in J. Casey, Arbitration Law of Canada: Practice and Procedure, 2nd ed. (New York: Juris, 2011), at p. 420, for the proposition that before a court can set aside an award under Article 34(2)(a)(ii), there must be "such a mishandling of the arbitration as to likely amount to some substantial miscarriage of justice."

[65] There are few cases in Canada addressing the standard of review under Article 34(2)(a)(ii). However, in Corporacion Transnacional de Inversiones S.A. de C.V. v. STET International S.p.A., Lax J. interpreted Article 34(2)(a)(ii) as including procedural as well as substantive fairness. She held, at p. 194, that to justify setting aside an award for reasons of fairness or natural justice, the conduct of the Tribunal "must be sufficiently serious to offend our most basic notions of morality and justice." Thus, she concluded, at p. 194, 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."

[66] The appellant had proper notice of the proceedings and participated in the arbitration from the outset. It submits, however, that it was denied procedural fairness in relation to three claims, to which I now turn.

(a) Retention Monies

[67] Under the project contract, the respondent made regular progress payments to the appellant as construction proceeded. The respondent was contractually entitled to retain 5% of the amount of each of these interim progress payments (the money retained being referred to as "retention monies"). In total, the respondent retained $10,882,774.

[68] The first half of the retention monies was to be paid out by the respondent's engineer when a "Taking-Over Certificate" was issued for the works. The remaining half was to be released on the expiry of the "Defects Notification Period."

[69] The appellant argued that the respondent was required to release the retention monies on the dates in question. The respondent disagreed. It said that the contract permitted it to withhold certification of the estimated cost of correcting the appellant's defective work until the defect had been cured, and that it was entitled to withhold the retention monies until that occurred.

[70] With respect to the first half of the retention monies, the Tribunal found that the Engineer had acted reasonably in not releasing those monies, given the extent of the appellant's defective work.

[71] Additionally, the Tribunal found that the expiry of the Defects Notification Period (which triggered the payment of the second half of the retention monies) should be extended, because the appellant had failed to properly perform the contract. In fact, the period was continuing. Thus, the respondent was not yet liable to the appellant for the second half of the retention monies. However, once the appellant met its liability to the respondent for the costs of putting right its defective work, the respondent would be required to pay the retention monies to the appellant.

[72] Before the application judge, the appellant argued that it had been denied procedural fairness and had been unable to present its case because the Tribunal had developed its own theory to deny the appellant payment of the retention monies. It argued that the Tribunal also relied on a new argument raised by the respondent for the first time in reply, contrary to the Tribunal's own procedural order.

[73] The application judge rejected this argument. He noted that the provisions requiring repayment of the retention monies were subject to a proviso that if anything remained to be done by the appellant under its obligation to repair or pay for the repair of defective work, the Engineer was entitled to withhold certification of payment of the retention monies until the remedial work was done.

[74] The respondent's counterclaims formed the basis of the Tribunal's conclusion that the appellant had legal and financial responsibility for its defective work, and the contract permitted the withholding of the retention monies until the defects were remedied. The application judge found that the appellant's arguments were in substance less concerned with procedural fairness and more about the fact that the appellant disagreed with the outcome.

[75] On appeal, the appellant again asserts that the Tribunal breached its own procedural order and denied the appellant procedural fairness by disposing of its claims based solely on the respondent's reply submissions, to which it had no opportunity to reply. It says that instead of considering the procedural fairness issue, the application judge became unduly absorbed in the merits.

[76] I disagree. The application judge was fully attuned to the procedural fairness issue. But he made a perfectly valid observation, at para. 81, concerning, "the difficulty of isolating a single alleged procedural defect in the treatment of one out of many issues in a complex and lengthy arbitration." He found that the retention monies issue was bound up in the appellant's liability for the respondent's counterclaims and the ability of the respondent's engineer to refuse payment of the retention monies when there were unsatisfied defect claims. These issues were thoroughly aired in the course of argument before the Tribunal and, as the application judge noted, the Tribunal was not required to ignore its other findings, or the evidence on the other issues, in addressing the issue of retention monies. It was also entitled to consider all the terms of the parties' contract, which were plainly put on the table by the parties.

[77] I agree with the application judge that the appellant's arguments on this issue are an attempt to re-argue the merits of the case. The Tribunal relied on a contractual term that permitted the respondent to withhold the retention monies until the appellant cured the defects in its work. The appellant was aware of this provision and addressed it in its submissions to the Tribunal. The appellant was therefore not prevented from presenting its case on this issue. Nor could the appellant have been surprised by the Tribunal relying on a contractual provision that it had addressed in its own submission.

(b) Hydro Seeding

[78] This was a claim by the respondent for US$7.64 million for the cost of "re-doing" defective restoration work (topsoil and seeding) over the completed pipeline. The contract required the respondent to give notice of its complaint to the appellant and give it an opportunity to remedy the defective work.

[79] The appellant argued before the Tribunal that the respondent was not entitled to assert this claim because it had gone ahead and performed the work without giving the appellant proper notice and an opportunity to correct the problem.

[80] The Tribunal found otherwise. In a passage referred to by the application judge, the Tribunal found that although the respondent had not observed the "contractual niceties", the evidence established that the appellant had accepted and almost acquiesced in the respondent's use of another contractor to redo the appellant's work. The Tribunal went on to say that "[a]lthough neither party followed contractual procedures to the letter", it was satisfied that the respondent was entitled to recover its costs. The documents established that the appellant had been warned about its work, had been requested to do better and had not done so.

[81] Before the application judge and in this court, the appellant claimed that in resolving this issue against it, the Tribunal developed its own "novel theory" of constructive notice and denied procedural fairness by failing to give notice of that theory and an opportunity to respond to it.

[82] I agree with the respondent's submission that this argument is essentially a complaint about arbitral fact-finding, under the guise of a procedural fairness argument. The application judge said as much, at paras. 99 to 100 of his reasons:

CCG's argument seems to me to be an undiluted attempt to re-argue this issue on the merits. The parties filed extensive evidence on the relevant meetings and documents. CCG's selective quoting from the Award ignores the depth, detail and nuance of the analysis undertaken by the Tribunal…

Once again, CCG's own submission emphasizes the fact that CCG's position throughout the arbitration was that AMSA retained Hydromulch to seed over CCG's work without providing notice to CCG as required under the Agreement. Issue was joined; CCG presented its evidence and arguments. There was no failure to afford CCG the opportunity to put its case before the Tribunal. Indeed, CCG admits that it did so. CCG's argument boils down to the assertion that the Tribunal got it wrong on the facts. That is not an argument falling within the purview of Article 34 of the Model Law. [Emphasis in original.]

[83] In my view, the application judge was correct to reject the appellant's submission, for the reasons he gave.

(c) Costs

[84] Although success was somewhat divided, the Tribunal concluded that the respondent should be regarded as the successful party and was entitled to recover the costs of the arbitration. It awarded the respondent costs of approximately $9.8 million plus $590,000 for its share of ICC administrative expenses and of the arbitrators' fees and expenses.

[85] Before the application judge, the appellant argued that the costs award was the result of a denial of natural justice, deprived the appellant of a fair opportunity to present its case, and also violated public policy contrary to Article 34(2)(b)(ii). It pointed out that before the Tribunal, both parties had argued that the costs of the arbitration should be in proportion to each party's degree of success. The resulting award, it said, was inconsistent with the parties' submissions, failed to give it any credit for its success and failed to give it a fair opportunity to present its case.

[86] The application judge rejected these arguments. He found that the Tribunal's disposition of costs did not deprive the appellant of an opportunity to present its case. The Tribunal found that the overwhelming expenditure on both sides had been incurred in relation to the appellant's main claims, in which it was largely unsuccessful, and the respondent's counterclaims, in which the respondent was largely successful. The Tribunal's finding that the respondent was to be regarded as the winning party did not result in the respondent getting more than it asked for.

[87] I agree with the application judge's conclusion on this issue. The ICC Rules of Arbitration give the Tribunal discretion with respect to costs. Article 37(5) of those Rules (now Article 38(5)) states that "[i]n making decisions as to costs, the arbitral tribunal may take into account such circumstances as it considers relevant, including the extent to which each party has conducted the arbitration in an expeditious and cost-effective manner." The Tribunal also referred to J. Fry, S. Greenberg & F. Mazza, The Secretariat's Guide to ICC Arbitration (ICC Publication 729E) (Paris: International Chamber of Commerce, 2012). That publication suggests some factors that arbitral tribunals may wish to consider in allocating costs, including (a) the outcome of the case; (b) that some tribunals may adopt a proportional approach allocating the costs in accordance with the parties' degree of success; (c) the extent to which each party has conducted the arbitration in an expeditious and cost-effective manner; and (d) conduct of a party which might abuse the procedure, cause delay or increase expense.

[88] While it is true that the Tribunal initially noted the parties' proposal that costs should be proportionate, it concluded that the appellant had succeeded on only four claims, only two of which required evidence. The respondent, on the other hand, had succeeded in defeating all the appellant's main claims and also succeeded on its counterclaims.

[89] The costs were within the discretion of the Tribunal. It was entitled to consider which party was substantially the "winner" and to award costs to that party alone. The appellant has not demonstrated that it was prevented from presenting its case with respect to costs or that this decision was the result of any error in principle.

(3) Claim under Article 34(2)(b)(ii): Public Policy

[90] The appellant claimed that a portion of the Tribunal's award offended public policy because it was a penalty. The following are the circumstances.

[91] The contract was for a lump sum price of $258 million, divided into a base lump sum of $249 million and two "tranche payments": (a) one for $5 million, payable to the appellant on achieving construction completion by December 31, 2009; (b) the other for $4 million, payable to the appellant on achieving mechanical completion by March 31, 2010. The payment was to be forfeited if the relevant completion date was not met.

[92] Neither of the tranche payment dates were met. The Tribunal found that the appellant forfeited both tranche payments.

[93] The contract also provided that if mechanical completion was not achieved prior to March 31, 2010, the respondent was entitled to liquidated damages. The Tribunal found that the respondent was entitled to 276 days of liquidated damages (after subtracting the 18-day extension awarded to the appellant). It found that the tranche payments were unearned bonus or incentive payments and, therefore, had no bearing on the liquidated damages.

[94] The Tribunal rejected the appellant's arguments that the respondent was unjustly enriched by the forfeiture of the tranche payments and the recovery of liquidated damages. The forfeiture of the tranche payment bonuses was pursuant to a contractual right that the respondent was entitled to exercise and there was nothing unconscionable about the result.

[95] The Tribunal also found that the tranche payments were not penalties for breach of contract; they were payments for compliance with the contract. The law of penalties was therefore inapplicable.

[96] Before the application judge, the appellant argued that the award resulted in double recovery. The respondent was compensated twice for the delay – once by the forfeiture of the tranche payments and again by the award of liquidated damages. This, it said, offended Ontario public policy.

[97] The application judge rejected this submission. He noted the high threshold to set aside an arbitral award as contrary to public policy. He held, at para. 146, that to be set aside, an award "must fundamentally offend the most basic and explicit principles of justice and fairness in Ontario or evidence intolerable ignorance or corruption on the part of the arbitral tribunal."

[98] The application judge agreed with the Tribunal's analysis. The liquidated damages and the forfeiture of the tranche payments performed different functions and achieved separate ends. The fact that both were triggered by the same or similar events did not mean there was double recovery.

[99] The court may set aside an arbitral award under Article 34(2)(b)(ii) if it is in conflict with the public policy of the state. The leading statement of Ontario law under this provision is found in Schreter v. Gasmac Inc., at p. 623:

The concept of imposing our public policy on foreign awards 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. [Emphasis added.]

[100] This statement was cited with approval by this court in Corporacion Transnacional de Inversiones S.A. de C.V. v. STET International S.p.A. (2000), 49 O.R. (3d) 414 (C.A.), at para. 2, and in United Mexican States v. Karpa, at para. 66.

[101] Suffice to say that I respectfully agree with the application judge for the reason he gave. The Tribunal's award does not come close to meeting the test.

(4) Discretion under Article 34

[102] Although the application judge dismissed the application in all respects, he went on to consider whether, had he found grounds to set aside the award, he would have exercised the discretion, conferred by Article 34(2), not to do so. He correctly identified this court's decision in Popack v. Lipszyc, 2016 ONCA 135, 129 O.R. (3d) 321, as the governing authority.

[103] The application judge's reasons on this issue are obiter and, in my view, it is unnecessary to address the issue.

D. DISPOSITION

[104] For the foregoing reasons, I would dismiss the appeal, with costs fixed at $100,000, inclusive of disbursements and all applicable taxes.

Released: December 4, 2017

"George R. Strathy C.J.O."

"I agree. K. van Rensburg J.A."

"I agree. G.T. Trotter J.A."