Znamensky Selekcionno-Gibridny Center LLC v. Donaldson International Livestock Ltd., 2010 ONCA 303

CITATION: Znamensky Selekcionno-Gibridny Center LLC v. Donaldson International Livestock Ltd., 2010 ONCA 303

DATE: 20100429

DOCKET: C51225

COURT OF APPEAL FOR ONTARIO

Gillese, Rouleau and Watt JJ.A.

BETWEEN

Znamensky Selekcionno-Gibridny Center LLC

Applicant (Respondent)

and

Donaldson International Livestock Ltd.

Respondent (Appellant)

Jan-Paul Waldin and Allan L. Herman, for the appellant

Christopher D. Bredt and Markus F. Kremer, for the respondent

Heard and released orally: April 7, 2010

On appeal from the judgment of Justice Romain W. M. Pitt of the Superior Court of Justice, dated September 29, 2009, with reasons reported at [2009] O.J. No. 4011.

By the Court:

[1] This appeal concerns article 36 of the Model Law on International Commercial Arbitration, 1985, UN Doc. A/40/17, Annex I, adopted by the United Nations Commission on International Trade Law, as incorporated by the International Commercial Arbitration Act, R.S.O. 1990, c. I.9 (the “Act”).

[2] Article 36 reads as follows:

(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

(b) if 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 recognition or enforcement of the award would be contrary to the public policy of this state.

BACKGROUND

[3] The respondent, Znamensky Selekcionno-Gibridny Center LLC, brought an application pursuant to the Act in which it sought to have two Russian arbitral awards recognized and enforced. The arbitral awards, made by the International Commercial Arbitration Court at the Chamber of Commerce and Industry of the Russian Federation (the “ICAC”), were in favour of the respondent and against the appellant, Donaldson International Livestock Ltd. They give the respondent damages arising from a contract in which the appellant was to supply pigs to the respondent in Russia. The appellant did not participate in the arbitral proceedings.

[4] The appellant opposed enforcement on grounds set out in art. 36(1) (a) (i), (ii) and (b). It also moved for an order that the application proceed to trial or that it be granted leave to call witnesses at the hearing of the application. Through the motion, the appellant sought to have the court deal with its allegation that the respondent’s principal had made death threats to the appellant’s principal. The appellant said that its capacity to defend itself in the arbitral proceedings had been undermined because its witnesses were aware of the alleged death threats and refused to travel to Russia and participate in the proceedings because of them. It argued that it would be contrary to public policy for the Ontario courts to enforce the awards without having the issue of the death threats resolved.

[5] The respondent denied that the death threats had been made and argued that, in any event, the appellant was barred from raising the issue because of prior proceedings that had taken place in Ontario.

[6] The application judge concluded that the issue of the alleged death threats had been dealt with by this court in a prior proceeding (the “Prior Appeal Decision”).[^1] He refused to consider the appellant’s evidence proffered in respect of the alleged death threats on the basis of the doctrine of issue estoppel.

[7] In reaching his conclusion that issue estoppel applied, the application judge placed heavy reliance on the first sentence in para. 28 of the Prior Appeal Decision (the “Sentence”). The Sentence reads as follows: “In my view, the time to have requested the trial of the issue concerning the death threats was when the parties were before the motion judge.”

[8] The Prior Appeal Decision arose from an appeal from the order of Gans J. dated November 27, 2007. Justice Gans had been called on to decide a motion brought by the appellant for an anti-suit injunction prohibiting the respondent from proceeding with the arbitration before the ICAC. In deciding the injunction motion, Gans J. considered an offer that the respondent had made in respect of the venue for the arbitration. He found the offer to be a complete answer to the alleged death threats. The application judge said that this finding by Gans J., by itself, was sufficient to dispose of the proceeding in favour of the respondent.

[9] By judgment dated September 29, 2009 and November 13, 2009 (the “Judgment”), the application judge dismissed the appellant’s motion, granted the respondent’s application and ordered that the two arbitral awards be recognized and enforced.

ANALYSIS

[10] In our view, the application judge erred in two ways in refusing to consider and decide the issue of the alleged death threats.

[11] First, the doctrine of issue estoppel did not apply to preclude the application judge from considering the alleged death threats.

[12] When read in context, the Sentence does not amount to a pronouncement by this court that the appellant had lost its opportunity to raise the issue of the alleged death threats because it failed to so in the proceeding before Gans J. The Sentence was made in response to a request by the appellant that this court order a trial of the issue. The court refused, explaining that it was not appropriate to grant the request because the appellant had not requested that relief in the proceedings before Gans J.

[13] Paragraph 30 of the Prior Appeal Decision makes it clear that this court envisaged that the appellant would be free to raise the issue of death threats at any enforcement proceeding that the respondent might seek to bring. The first sentence of para. 30 of the Prior Appeal Decision reads as follows:

Should [the respondent] take steps to enforce its arbitral awards against [the appellant] in the Ontario courts, then it would seem to me that [the appellant] should be free to resist the enforcement of those awards on whatever basis it chooses, subject to the ruling of the presiding judge. [Emphasis added.]

[14] Nor do we accept that issue estoppel flows from the statements made by Gans J. in the injunction motion. Justice Gans’ observations on the issue of the alleged death threats were made in the context of an interim interlocutory proceeding seeking to prevent the ICAC arbitration from proceeding. In our view, those remarks do not bind the judge deciding the enforcement proceedings.

[15] In any event, it appears that Gans J.’s finding on this issue rests on a misapprehension of the evidence. The respondent had not, as Gans J. appears to have understood, offered to change the venue of the arbitration hearing to a neutral location. Rather, as the respondent confirmed to this court, the offer was to allow that part of the arbitration involving testimony by the appellant’s witnesses to be heard in a neutral location. The balance of the arbitration would have taken place in Moscow. Thus, the offer could not amount to a complete answer to the appellant’s concerns because the appellant would still have had to go to Russia for all aspects of the arbitration except for the giving of its testimony.

[16] The second error made in refusing to consider the appellant’s evidence of the alleged death threats is this. Even if the preconditions to the operation of issue estoppel had been established, the court still had to determine whether, as a matter of discretion, issue estoppel ought to be applied: see Danyluk v. Ainsworth Technologies Inc., 2001 SCC 44, [2001] 2 S.C.R. 460 at para. 33. The application judge was obliged to take into account the entirety of the circumstances, including the factors for and against the exercise of this discretion, to determine whether the application of issue estoppel in this case would work an injustice: Danyluk at paras. 66 and 80. It was an error to fail to consider this residual discretion. In the circumstances of this case – where the issue of the alleged death threats has never been decided on the merits and where that undecided issue goes to the heart of the appellant’s ability to participate in the arbitration – the application of issue estoppel would have worked an injustice.

[17] In conclusion, the application judge erred in failing to consider the issue of the alleged death threats when deciding how to respond to the appellant’s motion and in dealing with the merits of the application to recognize and enforce the arbitral awards pursuant to Article 36(1) of the Act.

DISPOSITION

[18] Accordingly, the appeal is allowed and the Judgment is set aside. The enforcement application is remitted for a fresh determination, which shall be made in accordance with these reasons.

[19] The parties have agreed that the appellant, as the successful party on appeal, is entitled to costs of the appeal fixed at $25,000, inclusive of disbursements and GST. Costs thrown away below are fixed at $20,000. Those costs are also ordered in favour of the appellant. Both of these costs orders are to be set off against outstanding costs orders in favour of the respondent.

RELEASED: “EEG” “Eileen E. Gillese J.A.”

“APR 29 2010” “Paul Rouleau J.A.”

“David Watt J.A.”

[^1]: (2008), 2008 ONCA 872, 305 D.L.R. (4th) 432 (Ont. C.A.).