Citation

CITATION: China Yantai Friction Co. Ltd. v. Novalex Inc., 2021 ONSC 3571

DIVISIONAL COURT FILE NO.: DC 169/21

COURT FILE NO.: CV 20 0000289 0000

DATE: 20210518

Superior Court of Justice – Ontario

Divisional Court

RE: CHINA YANTAI FRICTION CO. LTD., Applicant/Moving Party

AND:

NOVALEX INC., Respondent/Respondent

BEFORE: R. Smith, Lederer and Kristjanson JJ.

COUNSEL: Paul H. Starkman, for the Applicant/Moving Party

Jason Wadden and Michael Wilson, for the Respondent/Respondent

HEARD at Toronto: May 13, 2021 (in writing)

Endorsement

Lederer J.

[1] This is a motion for leave to appeal.

[2] It arises from an arbitral award issued in Beijing, China on November 19, 2019. The award required Novalex Inc. (“Novalex”) to pay China Yantai Friction Co. Ltd. (“Friction”) $1,000,000 (USD) in respect of a contract for automobile brake pads it had received but not paid for.

[3] Novalex Inc. could have, but did not, move to set aside the award.[^1] Friction brought an application before the Superior Court to have the arbitral award recognized as binding in Ontario.[^2]

[4] Novalex responded with a motion seeking security for costs under r. 56.01(1)(a) of the Rules of Civil Procedure. This was met with a cross-motion, brought by Friction, to require Novalex to post the amount of the arbitral award with the Court.

[5] The motions were heard together.

[6] The cross-motion requiring the posting of the arbitral award was dismissed. Friction was ordered to post $76,376.71 as security for costs.

[7] It is these orders which Friction seeks leave to appeal.

[8] It is understood that any order for security for costs should only be set aside if the judge “made an error of law or exercised his or her discretion on the wrong principles or misapprehended the evidence such that there is a palpable and overriding error”.[^3]

[9] The application for recognition is subject to the provisions set out in the International Commercial Arbitration Act, Article 36.[^4] This article sets out the grounds, one of which a party against whom the arbitral award is invoked must establish in order for the court to refuse to recognize the award:

(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)….

[Emphasis added]

[10] In the absence of an allegation that one of these grounds applies, the opposition to recognition would be without substance. There is no suggestion of, or evidence to demonstrate, which, if any, of the requirements listed in Article 36(1)(a) is the foundation for Novalex to oppose recognition. In the absence of such reliance the opposition is without merit and could be frivolous. This is the proposition put by Friction. It does not appear to have been considered by the judge deciding the motions and making the orders from which leave to appeal is now sought. The failure to take account of Article 36(1)(a) is an error in principle. The possibility that opposition to recognition is without merit would be directly relevant to a consideration of whether Novalex should be required to post security for the value of the award.

[11] Moreover, while in this case, security for costs was ordered to be posted by Friction under r. 56.01(a) (“…the applicant is ordinarily resident outside Ontario”), the statute governing recognition makes particular note of the circumstances in which security for cost may be ordered:

(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.[^6]

[Emphasis added]

[12] Novalex has not, and is not, requesting an adjournment of this proceeding to allow for the setting aside of the award by a court in China (see: Article 36(1)(a)(v) quoted above). The order for security for costs and the reasons for it, as reviewed by the judge who heard the application, make no reference to this provision, and its relationship to rule 56.01 of the Rules of Civil Procedure. There is no review or discussion of which, if either, has primacy. This, too, is an error in principle.

[13] There is reason to doubt the correctness of the decision of the application judge. This matter is important because it speaks to the response of Canadian courts to international comity and our relationship to the courts of other countries.

[14] The motion satisfies the requirements of rule 62.02(4)(b). Leave is granted.

[15] We understand and acknowledge that this order will serve to delay this proceeding and, in itself, may raise concern reflecting on the ability of this court to respond with the expedition our international relations look for and expect. Thus, we add to this order the requirement that the parties immediately upon receipt of this endorsement, contact the office of the Divisional Court for an appointment with a case management judge in order that the appeal be expedited.

[16] Cost to be paid by Novalex to Friction in the amount of $5,000.

Lederer, J.

I agree _______________________________

R. Smith, J.

I agree _______________________________

Kristjanson, J.

Date: May 18, 2021

[^1]: International Commercial Arbitration Act, 2017, S.O. 2017, c. 2 Sched. 5, Article 34 [^2]: Ibid at Article 35 [^3]: Miraz v. Pervais [2009] O.J. No. 2026 at para. 11 citing Zeitoun v. Economical Insurance Group, 2008 20996 (Div. Ct.) at para. 40 [^4]: Supra (fn. 1) [^5]: International Commercial Arbitration Act, 2017, supra (fn. 1) Article 36(1)(a) [^6]: Ibid at Article 36(2)