SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: CV-12-447111
DATE: 20120504

RE: SPIROS PANTZIRIS, TEXSPIN S.A. de C.V., PAJNA S.A. de C.V., 1635278 ONTARIO INC. and 1739820 ONTARIO INC.

Applicants

and

COBALT CAPITAL CA TEXTILE INVESTMENTS, L.P.

Respondent

BEFORE: S. Chapnik J.

COUNSEL:
Paul Michell, Counsel for the Applicants

Robb Heintzman and Marina Sampson, Counsel for the Respondent

HEARD: May 1, 2012

ENDORSEMENT

1## Endorsement

The applicants herein seek an order under s. 46 of the Arbitration Act , 1991 , S.O. 1991, c. 17 (“the Act ” ) setting aside an arbitral award rendered January 27, 2012 (“the award”).

2In a related proceeding, the respondent Cobalt Capital CA Textile Investments, L.P. (“Cobalt Capital”), (applicant in court file no. CV-12-445069), seeks to have the award recognized and enforced under s. 50 of the Act .

3Upon reading the materials filed and hearing the submissions of counsel, I find no errors in fact or law and no lack of procedural fairness in the proceedings or decision of the arbitral tribunal. The application to set aside the award is, therefore, dismissed and judgment shall issue to recognize and enforce the award pursuant to s. 50 of the Act .

ANALYSIS

4## Analysis

The applicants assert two arguments in support of their motion to set aside the award: first, that the issue of cause, that is, whether Texspin had cause to terminate the Professional Services Agreement (“the PSA”) with Pantziris was beyond the scope of the arbitration’s parameters and thus, the panel’s jurisdiction. More specifically, since the arbitration was conducted pursuant to an arbitration clause in a Shareholders’ Agreement and the determination of cause flowed from a separate agreement, namely the PSA, this issue did not fall within the panel’s jurisdiction. Secondly, the panel failed to address a claim raised by the applicant, Pajna S.A. de C.V. (“Pajna”), in para. 43(b) of the Amended Answer, indicating it had no jurisdiction to decide it. Thus, its failure to assume jurisdiction constituted a breach of natural justice and procedural fairness.

5As to the first issue, I reject the applicants’ arguments for the following reasons:

(a) in a preliminary award, (“the jurisdiction award”) dated December 22, 2009, the panel determined its scope of jurisdiction, given the particular items as set out in the parties’ agreements. In that award, the panel specifically concluded that it was within its jurisdiction to determine whether the PSA had been terminated for cause;

(b) the applicants did not object to or appeal from that award;

(c) moreover, in its pleadings and arguments before the panel, they took the position that the very issue to be determined in the arbitration was whether the PSA was properly terminated for cause and they asked the panel to determine specific issues under the PSA;

(d) the broader and principal issue as to whether Cobalt Capital could retrieve its monies under the Shareholders Agreement had to be triggered by a decision as to whether the PSA had been properly terminated for cause.

6In my view, such a determination did not fall outside the scope of the arbitration agreement and, in any event, any right to object to the panel’s finding in that regard was waived by the applicants. This ground asserted by the applicants to set aside the award must fail.

7Regarding the second issue, that is, the alleged breach of procedural fairness as a result of the tribunal’s failure to address a claim for declaratory relief raised by Pajna in the Counter-complaint. The panel concluded that it did not have jurisdiction to deal with the claim in that the respondent “seeks a declaratory remedy based entirely on questions of El Salvador law”. It is the applicant’s position that these reasons are cursory and result in a failure of natural justice in that the said claim could and should have been addressed on its merits.

8A broader review of the materials, however, leads to the conclusion that this matter was addressed properly by the tribunal. First, in the amended Answer to Complaint and Counter-complaint, Pajna at para. 43(b) invokes the oppression remedy under the Ontario Business Corporations Act , R.S.O. 1990, c. B.16, where no such remedy exists in the Shareholders’ Agreement that provided the framework for the arbitration hearing.

9Secondly, the relevant jurisprudence confirms that where an arbitrator’s reasons are intelligible and it is possible to understand the basis for the decision, this is “far from amounting to an infringement of the rules of natural justice”. See for example, Blanchard v. Control Data Canada Ltd , 1984 27 (SCC) , [1984] 2 S.C.R. 476, 14 D.L.R. (4th) 289.

10In my view, this issue was addressed by the panel in an intelligible manner. There is no basis to set aside the award on this ground.

CONCLUSION

11## Conclusion

The hearing in this matter spanned a total of 19 days before a very experienced three-person panel. The written decision is comprehensive and well-reasoned. I see no basis to set it aside. Accordingly, the application is dismissed.

12The application by Cobalt Capital is allowed. The award is final and binding and is not subject to appeal pursuant to the provisions of the Shareholders’ Agreement.

13Judgment in favour of the applicant, Cobalt Capital, in Court file no. CV-12-445069 shall issue in the draft form attached hereto, as amended.

14Costs of both applications to the respondent in the all-inclusive sum of $15,000.00 payable forthwith.

S. Chapnik J.