ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: CV-14-518402
DATE: 20150709
BETWEEN:
EMPRESA MINERA LOS QUENUALES S.A.
Applicant
– and –
VENA RESOURCES INC.
Respondent
David I.W. Hamer and Carole Piovesan, for the Applicant
Andrew Winton, for the Respondent
HEARD: June 25, 2015
K. HOOD J.
REASONS FOR DECISION
A. Introduction and Factual Background
[1] This is a motion by the within respondent to adjourn the enforcement of an arbitral award by the within applicant. This proceeding started out as an application by the applicant Empresa Minera Los Quenuales S.A. (LQ), a Peruvian subsidiary of Glencore plc (Glencore), one of the world’s largest mining companies, for an order recognizing an arbitral award rendered on May 14, 2014 in Peru against the respondent Vena Resources Inc. (Vena) and enforcing same in Ontario against Vena. Vena’s head office is in Toronto.
[2] The arbitral award, in a 2:1 decision, held that Vena breached an option agreement with LQ. Vena and its subsidiaries were ordered to pay LQ approximately $2.3 million (USD).
[3] Vena commenced an annulment application in the Peruvian courts, seeking to set aside the arbitral award. The application was heard in June 2015. Based on the usual timeframe, it is anticipated that a decision will be delivered in September or October, 2015. It is not an appeal as we know it, but rather a procedural review of the award.
[4] Vena believes that the annulment application has a good chance of success. This is a bald statement by its CEO without any expert legal opinion in support. LQ believes that the likelihood of the annulment application succeeding is very low. This is the opinion of a Peruvian legal expert retained by LQ. I find that the chance of success for Vena in having the arbitral award annulled by the Peruvian court is very low as stated by LQ’s expert. I reject Vena’s CEO’s statement as clearly biased, coming as it does from an interested party. I also reject Vena’s argument that LQ’s expert has had his credibility weakened because he was recommended by LQ’s Peruvian counsel. I place no stock in that argument.
[5] If the annulment application is denied, that ends matters in Peru. If the annulment application succeeds LQ will appeal the decision to the Supreme Court of Peru, which process will take about another year to be resolved.
[6] Despite the annulment application, LQ is entitled under Peruvian law to pursue enforcement of the award. It is doing so against Vena in Ontario and Vena’s subsidiaries in Peru. If Vena posted the full amount of the arbitral award in Peru as security with the courts there, the award would be stayed pending the annulment decision. Vena states that it lacks sufficient funds and fund-raising ability to post any amount of security, let alone the full amount of the award.
B. Nature of Motion
[7] LQ moves here, in Ontario, to enforce the arbitral award under Article 35 of the Model Law on International Commercial Law which is set out as a schedule to the International Commercial Arbitration Act, RSO 1990, c. I. 9 (ICAA). Under this Article an arbitral award shall be recognized by the Ontario courts upon the moving party supplying a certified copy of the authenticated arbitration agreement and a certified copy of the arbitral award. LQ has done this.
[8] Once this is done there is no discretion to refuse enforcement unless the party resisting enforcement can bring itself within Article 36. (Articles 35 and 36 are attached to these reasons.) This is what Vena seeks to do with this motion. Although Vena states that it is seeking to stay LQ’s application, this is really a motion to adjourn the application pursuant to Article 36. Vena argues that this request comes within either Article 36(1)(a)(v) – in that the arbitral award has not yet become binding or has been set aside by a Peruvian court – or, alternatively, within Article 36(2) because the annulment proceeding is pending. I find that Article 36(1)(a)(v) does not apply in this case. The award is binding in Peru and has not been set aside. That leaves Article 36(2) to be considered.
[9] Under this Article, an Ontario court may, if it considers it proper, adjourn LQ’s enforcement application if an application has been made to the Peruvian court to set aside the arbitral award. It is agreed by the parties that the annulment proceedings in Peru constitute an application to set aside the award. What is at issue is (1) whether I should exercise my discretion under Article 36(2) to adjourn LQ’s enforcement application; and if so, (2) whether I should further exercise my discretion to order Vena to post security. Vena asks to adjourn without posting security. LQ asks to dismiss the motion to adjourn or, in the alternative, to have Vena post security of $2.3 million (USD) – i.e., the full amount of the arbitral award.
[10] For the reasons that follow, I order LQ’s application adjourned pending the outcome of the annulment proceeding in Peru. I also order Vena to post security in the amount of $250,000.00, to be paid to a special trust account with McCarthy Tétrault LLP and held pending further order of this court.
C. The Applicable Law
[11] In Europcar Italia S.p.A v. Alba Tours International Inc. [1997] O.J. No. 133 (Gen. Div.) Justice Dilks reviewed the purpose of the ICAA at paragraph 13:
The purpose of enacting the Model Law in Ontario and in other jurisdictions is to establish a climate where International Commercial Arbitration can be resorted to in confidence by parties from different countries on the basis that if the arbitration is conducted in accordance with the agreement of the parties, a (sic) award will be enforceable if no defences are successfully raised under Articles 35 and 36. See Schreter v. Gasmac Inc. (1992), 1992 7671 (ON SC), 7 O.R. (3d) 608 (Gen.Div.)
[12] LQ asks me to follow the strict three-part test set out in RJR-MacDonald v. Canada, 1994 117 (SCC), [1994] 1 S.C.R. 311, in considering whether to grant an adjournment under Article 36. It argues that Vena must show that there is a serious issue to be determined; that compliance with the arbitral award will cause irreparable harm if the adjournment is not granted; and that the balance of convenience favours a stay.
[13] However, in the few cases that have considered Article 36, this does not appear to be the actual test used.
[14] In Europcar Justice Dilks held that the main test is whether the balance of convenience supports an adjournment with consideration of irreparable harm and whether there is a serious issue to be tried. Without too much analysis he held at para 24 “that justice to both parties can best be achieved by an adjournment of this court’s decision conditional upon Alba furnishing security pending a determination of the appeal”. He ordered security equal to the foreign award to be posted.
[15] Justice Dilks held that there was nothing before him to indicate this amount of security would be an insurmountable obstacle for the party seeking the adjournment and it would show bona fides on their behalf in pursuing its remedy in the foreign court to set aside the arbitral award in a timely fashion.
[16] Europcar was considered by the British Columbia Supreme Court in Powerex Corp v. Alcan Inc., 2004 BCSC 876. There Powerex had obtained a $100 million (USD) arbitral award against Alcan in Oregon. The award was upheld by two levels of court in Oregon. Alcan filed a further appeal in Oregon. A decision on the appeal was approximately 1½ years away when the application to enforce and the motion to adjourn came before the British Columbia court.
[17] In Powerex at para 24 the court initially stated that the party seeking the adjournment must first meet the threshold of establishing there is a serious issue to be tried. Then the court weighs the balance of convenience and irreparable harm. In considering irreparable harm the court recognized that someone like LQ will be prejudiced by delay and that there is potential prejudice to someone like Vena, should the adjournment be refused and the award enforced only to have the court in Peru set aside the award.
[18] Then at para 26 Justice Brown held:
In assessing the balance of convenience, the court will consider a number of factors, including the estimated time to complete the case in the originating jurisdiction; whether the party opposing enforcement is merely delaying the inevitable; whether a court in the originating jurisdiction has already refused to set aside the award; the availability of security and the possibility of asset removal prior to enforcement; and the willingness of the party resisting enforcement to undertake diligent prosecution of the action in the originating jurisdiction.
[19] In considering the threshold issue Justice Brown concluded at para 27 that “there is an issue to be tried”, rather than a serious issue to be tried relying on conflicting affidavit evidence that Alcan had some prospect of success, to Alcan having very little prospect of success. She stated she could not conclude that Alcan’s appeal had no prospect of success.
[20] She then concluded that Powerex would be prejudiced by delay in payment, being unable to use the proceeds which had been awarded to it and confirmed by the U.S. court, that Alcan was moving expeditiously on its appeal of the award and would continue to do so and that Alcan was not pursing the appeal as a delaying tactic, that the decision on the appeal was likely a year to a year and half away and that Alcan was able to pay the award.
[21] Accordingly she ordered that the enforcement was to be adjourned upon Alcan posting security of $100 million (USD) and allowing Powerex to access the funds on the condition that if Alcan was successful on its appeal Powerex would repay the monies accessed and would also give security to secure this repayment.
[22] The only other Ontario case, other than Europcar, to consider Article 36 is Dalimpex Ltd v. Janicki, 2003 34234 (ON CA), [2003] O.J. No. 2094 (C.A.) where the Court of Appeal considered an arbitration award from Poland which had, in a Superior Court application, been recognized as binding under Article 35. One of the issues on appeal was whether the application judge had the jurisdiction under Articles 35 and 36 to make a “provisional” judgment in Ontario. The court held that he had no such jurisdiction and could only allow, adjourn or dismiss the application to enforce the award. It appears from a reading of the decision (particularly para. 59) that the parties were in agreement that the application before the Ontario court should be adjourned pending the disposition of the arbitral award by the Polish courts.
[23] At paragraph 61 Charron J.A. for the Court stated:
In the circumstances, it is my view that the application should have been adjourned under article 36(2) pending the final decision in the Polish courts. In the event that the arbitral award is set aside, the basis of the application will have disappeared. If the appeal is dismissed, the application can be brought back before a justice of the Superior Court of Justice to be dealt with on the merits on this outstanding issue.
[24] Vena argues that this decision is binding upon me and stands for the proposition that where it cannot be said that a foreign application to set an arbitral award is completely without merit and is merely an attempt to delay the inevitable, local enforcement should be adjourned.
[25] Vena also argues it should be inferred from Dalimpex that the giving of security as the condition for the adjournment was a live issue and was rejected by the court.
[26] LQ argues that Dalimpex can be readily distinguished: both parties agreed that enforcement should be adjourned; there was evidence that the arbitral award was not final and binding; Article 36(1)(a)(iii) (as opposed to Article 36(2)) was being relied upon as the ground for refusal; and there was expert opinion evidence that the appeal in Poland had a very substantial chance of success.
[27] I agree with LQ that Dalimpex is distinguishable from the matter before me. Nor can I infer that the posting of security was rejected. There is nothing in the decision about this. I expect security was not even considered as both sides agreed the enforcement ought to be adjourned.
[28] The only other Canadian case referred to by counsel which deals with Articles 35 and 36 is Wires Jolley LLP v. Wong, 2010 BSSC 391 which considers both Europcar and Powerex in the context of an Ontario law firm seeking to enforce an Ontario arbitral award in British Columbia against a former client Wong where Wong was seeking to set aside the award in the Ontario courts.
[29] Justice Willcock, in looking at whether there was a serious issue to be tried, held that he only had to find that there was an issue to be tried. This test was met as he could not say that the application in Ontario by Wong had no prospect of success.
[30] He then went on to consider the balance of convenience. He found that Wong was proceeding with alacrity in Ontario; that the firm, while prejudiced by the delay in collecting its award, was not suffering exceptional prejudice; that there was potential prejudice to Wong if the order was enforced; that Wong would likely appeal the Ontario application decision; and that Wong could afford to post security.
[31] Relying on Soleh Boneh International Ltd. v. Government of the Republic of Uganda, [1993] 2 Lloyd’s L.R. 208, Justice Willcock ordered the posting of security equal to the award. He found that the arbitral award was manifestly valid; that Wong had assets in British Columbia; and that there was no suggestion that the posting of security would preclude Wong’s appeal or cause other irreparable harm.
D. Discussion and Analysis
[32] While RJR MacDonald was referred to in Europcar the stricter three-part test has not been followed in the cases. “Serious issue to be tried” has been replaced by an issue to be tried. “Irreparable harm” appears to have been dropped altogether. What remains is the balance of convenience.
[33] I find that in all of the circumstances, it is proper to adjourn the enforcement application until the annulment application decision has been delivered.
[34] There is an issue to be tried. On LQ’s own evidence while the success of the annulment application is very low it is not without any prospect of success.
[35] As to balance of convenience: there is more prejudice to Vena if LQ is allowed to enforce its award here in Ontario and Vena is successful in Peru than to LQ in being unable to collect upon its award. LQ is a subsidiary of Glencore, which has a multibillion dollar capitalization. It is not as if LQ requires the award of $2.3 million (USD) to carry on business. LQ also has the award against the two subsidiaries in Peru which it is pursuing there. While each side blamed the other for the delay, I make no finding in that regard. Nothing more is required to be done on the annulment application in Peru. If LQ is correct that this will be dismissed it only has to wait until September or October to be proven right.
[36] This leaves the question of security. Security is only considered upon the ordering of an adjournment. It too is discretionary.
[37] In all of the cases where Article 36 and security was being considered there was no issue as to the ability of the moving party to post an amount of security equal to the award amount. In both Alcan and Wong it was found to have the clear ability to do so. In Europcar there was nothing before the court to indicate that the furnishing of security would pose an insurmountable obstacle for Alba.
[38] The matter here is different. Vena argues it does not have the resources to post security as part of the adjournment.
[39] Vena points to its most recent financial statements for the year ending December 31, 2014, which are in evidence. Its current liabilities greatly exceed its current assets. Its CEO swears that Vena is unable to post any amount of security, let alone the full amount of the award. He states that Vena does not have sufficient funds and it would suffer serious financial hardship if ordered to do so.
[40] LQ argues that Vena is no different from any other junior mining company. It is sitting on four projects and it can raise the necessary funds if need be against these assets.
[41] In Europcar Justice Dilks held that the posting of security would show good faith on the part of the respondent in pursuing its remedy in the foreign courts in a timely fashion. Arguably, that holding does not apply here; the annulment proceeding has been argued and the parties are now waiting for a decision. On the other hand, based on the alleged past delays, posting security will certainly give Vena an incentive to expedite the annulment decision and to avoid any future steps that would somehow delay it.
[42] Vena’s argument that it cannot post any amount of security and it will suffer financial hardship if ordered to do so is somewhat similar to the argument made in HSBC Bank USA v. Subramanian, 2006, 42661 (Ont.SCJ), where the Bank sought to enforce a U.S. judgment. The respondent argued that he would be prejudiced and suffer hardship if the Bank was entitled to enforce, pending an appeal in the U.S. courts. As pointed out by Morawetz J.:
Mr. Subramanian has stated that he has no income, no assets, no bank accounts or investments of any kind. In view of this evidence, I am at a loss to understand what type of prejudice will be suffered by Mr. Subramanian.
While Vena is not saying it has nothing, it is saying it cannot post anything. Therefore it makes little difference, on this argument, whether it is ordered to post $2.3 million (USD) or anything less.
[43] The annulment proceeding has been argued. The requirement to post security will not prejudice that from going ahead. Nothing further is to be done except to await the decision.
[44] The arbitral award is manifestly valid. Vena’s chances of success in annulling the award are very low.
[45] I have the discretion to order “appropriate” security. The arbitral award amount of $2.3 million (USD) as requested by LQ is not appropriate. No matter what LQ may think about Vena’s ability to raise funds, Vena’s financial statements disclose some financial difficulty. However, as at December 31, 2014 it had cash or cash equivalents amounting to $414,280.00. Considering the state of the annulment proceeding in Peru, the likelihood of success of this proceeding, Vena’s financial situation, and LQ’s financial situation I find that some security is appropriate as part of the adjournment.
E. Conclusion
[46] I order as a condition of the adjournment that Vena post security in the amount of $250,000.00 in a special trust account with McCarthy Tétrault LLP. This amount is not so substantial that it will cripple Vena, nor should it pose an insurmountable obstacle. This amount will also show good faith on Vena’s behalf that it does everything it can do to ensure that the annulment decision is rendered as soon as possible.
[47] The security is to remain in the trust account pending further order of this court. If the annulment proceeding is dismissed LQ’s application to enforce its award can be brought back before any justice of the Superior Court of Justice. I am not seized of this.
[48] If the parties cannot agree on the issue of costs they may make brief submissions of no more than five pages plus any necessary backup documentation, with LQ to provide its submissions within 20 days of the release of these reasons and Vena providing its submissions within 20 days thereafter.
K. HOOD J.
Released: July 9, 2015
COURT FILE NO.: CV-14-518402
DATE: 20150709
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
EMPRESA MINERA LOS QUENUALES S.A.
Applicant
– and –
VENA RESOURCES INC.
Respondent
REASONS FOR DECISION
K. HOOD J.
Released: July 9, 2015
Attachment
SCHEDULE
UNCITRAL MODEL LAW ON INTERNATIONAL COMMERCIAL ARBITRATION
(As adopted by the United Nations Commission on International Trade Law on 21 June, 1985)
CHAPTER VIII. RECOGNITION AND ENFORCEMENT OF AWARDS
Article 35. Recognition and enforcement
(1) 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.
(2) The party relying on an award or applying for its enforcement shall supply the duly authenticated original award or a duly certified copy thereof, and the original arbitration agreement referred to in article 7 or a duly certified copy thereof. If the award or agreement is not made in an official language of this State, the party shall supply a duly certified translation thereof into such language.
Article 36. Grounds for refusing recognition or enforcement
(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.