ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: Guelph File 918/13
DATE: 20140411
BETWEEN:
Proseeds Marketing Inc.
Applicant
– and –
Power Seeds Inc.
Respondent
L. Fishleigh, for the Applicant
S. McGrath, for the Respondent
HEARD: March 31, 2014
Andre J.
[1] The Applicant company brings an application for an order to recognize and uphold an Arbitration Award made in Nebraska, U.S.A., which resolved a contractual dispute between the Applicant and Respondent. On May 30, 2013, an Arbitrator found that the Applicant had partially paid for seeds provided by the Respondent who had subsequently sold the seeds to a company in China. The Arbitrator held that the Respondent should refund the money it received from the Applicant, plus interest, and that both parties should equally share the costs of the arbitration. The Respondent has refused to comply with the Arbitrator’s decision on the ground he exceeded his jurisdiction in ordering the return of the partial payment after finding that both parties had breached the terms of the contract.
[2] This matter therefore raises the following issue:
Did the Arbitrator exceed his jurisdiction in ordering that the Respondent should refund the Applicant the partial payment?
FACTS:
[3] On March 5, 2007, the Applicant and Respondent entered into a Multiplication Contract in which the Respondent agreed to supply the Applicant with 4,000 pounds of Palmer V Perennial Ryegrass, a type of grass typically used in golf courses. The contract provided that the Applicant shall pay for the seeds immediately upon receipt of the invoice. The Respondent, a company based in Lindsay, Canada, delivered the seeds to the Applicant, a company based in Oregon, U.S.A. The latter made a partial payment of $62,460.80 to the Respondent. The Respondent completed the delivery of the seeds to the Applicant on or about April 2009.
[4] In January 2010, the Applicant raised an issue about the quality of the seeds provided by the Respondent, who took them back and re-cleaned them. The Respondent then sought $51,330.25 from the Applicant, which represented the balance of the money for the seeds, failing which they would liquidate the product. The Respondent then marketed and sold the seeds to a company in China without the Applicant’s knowledge.
[5] The Applicant then commenced arbitration proceedings in November 2011, as provided for in the contract. Both parties executed an arbitration agreement and agreed to be bound by the arbitrator’s decision.
[6] The Multiplication Contract provided as follows:
- RULES AND ARBITRATION
Any controversy or claim arising out of or relating to this contract or the breach thereof, shall be settled by arbitration in accordance with the Noramseed Rules. The arbitration shall be rendered in Canada unless the parties agree upon another locality or territory. This agreement shall be enforceable and judgment upon the award rendered by the Arbitrators may be entered in any court having jurisdiction thereof.
ARBITRATOR’S DECISION:
[7] The Arbitrator issued his decision on May 13, 2013. He found as follows:
Both parties failed to fulfill their obligations under the contract.
The Breach of Contract effectively waived the terms of the original contract in that:
a) The applicant only paid for part of the crop within the time prescribed in the contract.
b) Power Seeds sold the seeds to China without written authorization from the owner, Proseeds Marketing Inc.
Because the parties waived the terms of the contract, the Applicant should be refunded the original amount paid to the Respondent, plus interest, or $62,460.80 plus $13,585.23, or $76,046.03
The Respondent was entitled to retain other monies received from the sale of the seeds to China and should stand associated expense.
The Respondent’s counterclaim was denied.
The parties would equally share the compensation of the arbitrator and that each party would be responsible for their own legal and other expenses.
NORAMSEED RULES (the Rules)
[8] Both parties agreed that these rules govern the Multiplication Contract they entered into. The rules provide, under Rule 1(3), that conditions stipulated in a contract which constitutes an exception to the Rules, shall automatically supersede the corresponding parts of these Rules.
[9] Rule VIII of the Noramseed Rules provides that:
2.a. The seller shall promptly inform the buyer of any failure or deficiency in quantity of the corresponding field and/or resulting seed crop.
2.b If the quality is below the contractual specifications, the buyer shall retain the right to refuse the seed or accept it at a reduced price. If Seller and Buyer cannot agree amicably to a settlement, an arbitration (see Rule xvi) may be initiated to determine an equitable solution.
THE APPLICANT SUBMITS THAT:
The Arbitrator had the jurisdiction to order the return of the Applicant’s partial payment for the seeds.
The contract signed by the parties gave the Arbitrator the necessary jurisdiction to make the order which he made.
The Rules gave the Arbitrator the equitable jurisdiction to decide whether the Respondent should refund the money received from the Applicant.
The International Commercial Arbitration Act (ICAA) R.S.O. 1990, Chapter 1.9. confers jurisdiction on the court to recognize and uphold the Arbitrator’s decision.
THE RESPONDENT’S SUBMISSIONS:
[10] The Respondent submits that the court should refuse to uphold the Arbitrator’s decisions for two reasons:
The Applicant violated Rule VI of the Rules which required that a complaint about the quality of the seeds had to be made within forty-five (45) days following receipt of the seeds. The final delivery of the seeds by the Respondent to the Applicant was in April 2009. The Applicant complained about the quality of the seeds approximately ten (10) months after receiving them. To that extent, the Applicant did not comply with the Rules. Despite a finding that the Applicant had failed to comply with this rule, the Arbitrator nevertheless ruled in the Applicant’s favour. Given the Applicant’s violation of Rule VI of the Rules, the Arbitrator lacked any “equitable jurisdiction” in deciding the contractual dispute between the Applicant and the Respondent.
Once the Arbitrator found that the contract’s provisions were “waived” by both parties, he should have refrained from making any decision. The Arbitrator, the Respondent submits, lacked equitable jurisdiction to continue. In support of this position, the Respondent relies on the case of Smart Systems Technologies Inc. v. Domotique Secant Inc., [2008] Q.J. No. 1782 (Que. C.A.) for the proposition that:
In the context of globalization of trade, the legislator encourages all parties to regulate their disputes through arbitration in accordance with certain rules. The courts would be acting counter to the wishes of the legislator if they approved awards rendered contrary to these rules. A trader who agrees to subject a dispute to arbitration must be able to count on the fact that these rules will be respected. If they are not and the court closes its eyes, traders will turn their backs on arbitration.
ANALYSIS:
[11] Both parties agree that pursuant to s.35(1) of the ICAA, 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.
[12] The parties, however, are at odds over the implications of Article 36 of the ICAA, which provides 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.
(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.
[13] The applicant submits that that arbitral award is entirely consistent with Article 36 of the ICAA, while the Respondent strongly contends that it contravenes Article 36 (1)(a)(iii).
[14] There is no suggestion by either party that subsections(i), (ii), (iv) or (v) of Article 36(1)(a) of the ICAA were contravened in this matter. The central contention of the Respondent is that the Arbitrator exceeded his jurisdiction by his award and that he lacked “equitable jurisdiction” in so doing.
[15] The Respondent’s contention that the Applicant violated Rule VI of the Rules and therefore breached the contract with the Respondent is not supported by the evidence. Rule XVI of the Rules states that an application for arbitration must be made within thirty (30) days either:
a) From the occurrence of the event, or first possible recognition of the deficiency giving rise to the claim, or
b) After the date of telecommunication or delivery of a registered letter attempting to enter into friendly negotiations, which remained without positive reply, or
c) From the date of breaking-off of negotiations to settle the case amicably.
[16] The Arbitrator found that the application for arbitration was made within 30 days (30) of the breaking-off of negotiations to settle, and therefore was within the time limitations set out in the Rules.
[17] To the extent that the Applicant and Respondent breached the contract in the fashion claimed by the latter, does that justify a finding that the Arbitrator either lacked the jurisdiction to make the award in question or exceeded his jurisdiction in doing so?
[18] In my view, it does not, for the following reasons:
The contract executed by both parties provided that:
Any controversy or claim arising out of or relating to this contract or the breach thereof shall be settled by arbitration in accordance with the Noramseed Rules. (emphasis added).
This clause in the contract therefore contemplated the resolution of any contractual disputes or alleged breaches of the contract by either party, by arbitration in accordance with the Rules. To that extent, it is simply wrong to suggest that the Arbitrator exceeded his jurisdiction in proceeding to arrive at a decision, upon finding that both parties had “breached” terms of the contract.
The Respondent further submits that the Arbitrator lacked any equitable jurisdiction to order repayment of the money which the Applicant paid to the Respondent.
The contract does not impose any limitations on an Arbitrator settling a controversy or claim arising out of or relating to the contract or the breach thereof, except for the caveat that such resolution should be “in accordance with the Noramseed Rules”. Subrule 2(b) of Rule VIII stipulates that where the parties cannot amicably settle a dispute concerning the quality of the seed which one party contracted to buy from the other, an arbitration may be initiated to determine an “equitable solution”.
I fail to see how, as the Respondent contends, subrule 2(b) of Rule VIII does not apply to this matter. The rule relates to Multiplication Contracts such as that in this case. The dispute arose because of the Applicant’s concerns regarding the quality of the seeds received from the Respondent, which it claimed were below the contractual specifications. The Applicant buyer exercised its right to refuse the seed until such time that it met the contractual specifications. Indeed, clause 4(a) of the contract provides the specifications of the seed to have been delivered by the Respondent to the Applicant.
Based on the above, I conclude that the Arbitrator had the jurisdiction to determine an equitable solution to the contractual dispute between the Applicant and the Respondent.
[19] The Respondent submits that the Arbitrator exceeded his jurisdiction by deciding the dispute outside of the terms of the contract and principles of Contract Law, after finding that the contract had been “waived” by the parties.
[20] With great respect, I disagree. The Arbitrator found as a fact that:
a) The Applicant had not paid the full price of the seed as it was contractually bound to do within thirty days after receiving an invoice from the Respondent.
b) The Respondent unilaterally sold the seeds to China for which it had received a partial payment of $63,426.80 from the Applicant.
[21] The Arbitrator then held that an equitable resolution of this dispute involved the Respondent returning the partial payment it had previously received, to the Applicant. There is nothing about this decision, in my view, which can be construed as having been contrary to the principles of Contract Law.
CONCLUSION:
[22] Based on the above, the Arbitration award in this matter should be recognized, pursuant to Article 36(a)(iii) of the ICAA.
COSTS:
[23] The Applicant seeks costs of $9,693.95 on a partial indemnity basis, while the Respondent seeks costs of $8,651.71 on a similar basis.
[24] In assessing what quantum of costs can be considered fair and reasonable, I consider the following:
The Applicant was wholly successful in its application.
The matter was of moderate complexity and involved the interpretation of international rules of trade and related legislation.
The $275 hourly rate charged by the applicant’s counsel, given his year of call, and the time spent on preparing this matter, cannot be considered unreasonable.
The total amount claimed by the Applicant from the Respondent.
[25] Given the above, costs payable by the Respondent to the Applicant, in the amount of $9,000, inclusive, are fair and reasonable in the circumstances of this case.
[26] Accordingly, I order that:
The Respondent, Power Seeds Inc., shall pay to the Applicant, Proseeds Marketing Inc., the sum of $79,796.03 U.S.D., inclusive of the arbitration costs.
The Respondent, Power Seeds Inc., shall pay to the Applicant, Proseeds Marketing Inc., pre-judgment interest at the Courts of Justice Act interest rate of 1.3%, calculated from July 1, 2013 to March 31, 2014, total pre-judgment interest of $775.88 U.S.D.
The Respondent, Power Seeds Inc., shall pay to the Applicant, Proseeds Marketing Inc., costs of this application, fixed at CAD $9,000 inclusive.
This judgment bears interest at the rate of 3% per year, commencing on April 10, 2014.
Andre J.
Released: April 11, 2014
COURT FILE NO.: Guelph File 918/13
DATE: 20140411
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Proseeds Marketing Inc.
Applicant
- and –
Power Seeds Inc.
Respondent
REASONS FOR JUDGMENT
Andre J.
Released: April 11, 2014