Court File and Parties

COURT FILE NO.: CV-22-00677226-00CL DATE: 20230320 SUPERIOR COURT OF JUSTICE – ONTARIO (COMMERCIAL LIST)

RE: TIANJIN DINGHUI HONGJUN EQUITY INVESTMENT PARTNERSHIP (LIMITED PARTNERSHIP), Applicant/Responding Party on Fresh Evidence Motion AND: SHA DU and RAN DU, Respondents/Moving Parties on Fresh Evidence Motion

BEFORE: KIMMEL J.

COUNSEL: Robert Wisner / Guneev Bhinder, for the Applicant/Responding Party Junior Sirivar / Adriana Forest, for the Respondents/Moving Parties

HEARD: October 7, 2022 and January 18, 2023

Endorsement (application for recognition and enforcement of a foreign arbitral award and motion for leave to file fresh evidence)

[1] Tianjin Dinghui Hongjun Equity Investment Partnership (Limited Partnership) (“TDH”) seeks a declaration recognizing and enforcing, as against the respondents, an award of the Shenzhen Court of International Arbitration (the “SCIA”) arbitral tribunal (the “Tribunal”) dated August 27, 2021 (the “Award”). TDH also seeks an order requiring the respondents to pay the Canadian equivalent of the amount of the Award, an estimated $120 million inclusive of interest and costs.

[2] The International Commercial Arbitrations Act, 2017, S.O. 2017, c. 2, Sch. 5 (the “ICAA”) governs the framework for the recognition and enforcement of the Award in Ontario (the “ICAA”) and, more specifically, brings into force under Ontario law the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “Convention”) and the Model Law on International Commercial Arbitration, adopted by the United Nations Commission on International Trade Law on June 21, 1985, as amended by the United Nations Commission on International Trade Law on July 7, 2006 (the “Model Law”) (both of which are set out as Schedules to the Act). The applicant relies upon the Model Law (and corresponding sections of the ICAA and Convention) for the recognition and enforcement of the Award.

[3] Of the available grounds for opposing the recognition and enforcement, the respondents contend that:

a. they did not receive notice of the arbitration proceeding before the Tribunal (the “Arbitration Proceeding”);

b. they did not have an opportunity to present a defence; and

c. the enforcement of the Award would be contrary to public policy in Ontario.

[4] After the initial hearing of this application on October 7, 2022, the court was asked to delay its decision pending the respondents’ motion for leave to file fresh evidence (the “Fresh Evidence Motion”). The Fresh Evidence Motion was heard on January 18, 2023. It was agreed that the court would decide the application and the Fresh Evidence Motion together. This endorsement does so.

[5] For the reasons that follow, the Fresh Evidence Motion is dismissed and the application is dismissed.

The Parties and Their Agreements

[6] The Award is in respect of amounts that TDH loaned to Tianjin Kapolei Business Information Consultancy Co., Ltd. (“TKB”). TKB is a company indirectly owned and controlled by Mr. Sha Du through another company, Pacific Links international (“Pacific Links”). The loan was made on terms, including terms of repayment, contained in a convertible debt agreement dated April 24, 2018. The April 24, 2018 convertible debt agreement was replaced by a new one dated December 11, 2019. Other companies and persons affiliated with Sha Du and his wife, Ran Du (Mr. and Mrs. Du, or the “Dus”), and the Dus personally, were party to some of the other agreements documenting the loan from TDH and security for the debt obligation.

[7] The liability of the Dus for the Award is predicated on a secured guarantee signed by them dated December 11, 2019 in favour of TDH (the “Secured Guarantee”). [1] Mr. Du was the chairman of both TKB and Pacific Links at times material to this dispute. Mrs. Du is a shareholder and investor in other affiliated companies. They are also parties to the broader framework agreement of the same date in which the loan and its security are documented (the “Framework Agreement”). The Secured Guarantee and Framework Agreement are together referred to as the “Loan Agreements.”

[8] The Loan Agreements are governed by Chinese law and each provide for arbitration before the SCIA in Shenzhen, China.

The SCIA Arbitration in China

[9] Early in the COVID-19 pandemic, the Dus decided to stay in Canada rather than return to China. This was communicated to TDH in a WeChat message dated March 7, 2020. The Dus are both Canadian citizens with a residence in Toronto, Canada. For the purposes of serving them with this application, TDH was able to ascertain the Dus’ current and prior residential addresses in Toronto through private investigators.

[10] In addition to their residence in Canada, the Dus had two known residences in China, including a residence on Wenyu Manor in Beijing (the “Wenyu Address”). The Wenyu Address was listed in the Secured Guarantee as their domicile. However, unbeknownst to TDH, that residence was sold prior to the commencement of the Arbitration Proceeding. The TKB corporate office in Fengtai District, Beijing (the “Fengtai Address”) was the address identified in the Loan Agreements as the Dus’ address for service.

[11] On July 10, 2020, after having provided prior notice to TKB of default under the Loan Agreements, TDH commenced the Arbitration Proceeding against TKB, the Dus, certain Pacific Links entities and the other individual parties to the Framework Agreement (collectively, the “Arbitration Respondents”).

[12] The notice of arbitration and other arbitration materials were delivered to the TKB’s Fengtai Address. Ms. Xing Sun, TKB’s controller who is listed as the contact person for TKB in the Loan Agreements, accepted delivery of these arbitration materials by courier. Attempts to personally serve the Dus at their Wenyu Address were unsuccessful, although the arbitration materials were eventually mailed to that address.

[13] Guantao Law Firm (“Guantao”) filed an appearance on behalf of all the Arbitration Respondents, including the Dus, and appeared as counsel at the arbitration hearing. Guantao also represented the Dus and TKB at the time the Loan Agreements were signed. The firm submitted a power of attorney together with copies of each of Mr. and Mrs. Du’s passports to the SCIA in support of their authority to appear for them in the Arbitration Proceeding. Ms. Zhang signed the power of attorney authorizing Guantao to represent the Dus. She signed on behalf of each of the Dus; neither of the Dus signed the Guantao power of attorney directly.

[14] The arbitration proceeded without any evidence from, or personal appearances by, the Dus. They say that they had no actual knowledge of the Arbitration Proceeding or that Guantao was purporting to represent them in it. TDH challenges the credibility of this assertion that they were unaware of the Arbitration Proceeding against them given that Mr. Du acknowledges that he was, at the relevant times, and remains, in contact with and on good terms with Ms. Zhang; that he was at the relevant times, and remains, in contact with management at TKB, including Ms. Xing Sun; and that he continued to indirectly control TKB (through Pacific Links, a company that Mrs. Du is also an investor and shareholder in) and remained its chairman throughout the Arbitration Proceeding.

[15] The Tribunal rendered its Award on August 27, 2021 in favour of TDH. The Award provides that, amongst other relief, Mr. Du and Mrs. Du shall be jointly and severally liable for the debts that amount to RMB 427,172,734.22, plus interest from April 14, 2020 to the date of completion of the debt repayment. To date, the debt remains unpaid and the amounts owing exceed $120 million at the exchange rates applicable when this application was commenced on February 22, 2022.

The Set-Aside Applications in China

[16] On February 22, 2022, after learning of the Award, Mr. Du commenced a proceeding before the Shenzhen Intermediate People’s Court (the “SIPC”) seeking an order setting aside the Award. The SIPC dismissed his set-aside application in a decision rendered June 13, 2022 that made, inter alia, the following findings:

a. The signature pages of the Secured Guarantee were first stamped with Mr. Du’s signature seal and then signed by Mr. Du himself, indicating his approval of the signature seal.

b. Mr. Du failed to establish that the Secured Guarantee was invalid.

c. The domicile of DU SHA recorded in the Secured Guaranty signed by DU SHA and TDH is “Room 71, Floor 1-2, Building 71, Zone 2, Wenyu Manor, Shunyi District, Beijing”, which is the residence address of DU SHA during his life in Beijing, but no arbitration documents have been served to this address.

d. Article 15 of the Framework Agreement signed by TDH with TKB (the legal representative: DU SHA) and DU SHA, et al. in December 2019 stipulates that “all notices hereunder shall be served at the following address”, in which DU SHA’s mailing address is Room 7008, Tianlu Lantu Building, No. 12, Yangqiao, Fengtai District, Beijing, China, with Tel.: 65387660. TKB and other parties hereto with DU SHA as the legal representative or the authorized representative also have the mailing address: Room 7008, Tianlu Lantu Building, No. 12, Yangqiao, Fengtai District, Beijing, China, with the contact person Xing Sun and the mobile phone number with the tail number 8877.

e. On August 24, 2020, the SCIA served the “Arbitration Notice and Exhibits” to DU SHA’s domicile in Shunyi District, Beijing, which was returned because no one signed for it (the tracking record stated that Tel.: 65387660 was vacant number).

f. On September 8, 2020, the SCIA served the “Notice of Arbitration and Exhibits” to the above address: Room 7008, Tianlu Lantu Building, No. 12, Yangqiao, Fengtai District, Beijing, and they were returned due to rejection; on September 16, 2020, “Letter No. 3 and Exhibit” were served to DU SHA’s domicile in Shunyi District, Beijing, and also returned. The recipient’s Tel.: 65387660 was stated on above mails.

g. On September 16, 2020, the SCIA mailed “Letter No. 3 and Exhibit” to DU SHA’s address: 7008, Tianlu Lantu Building, No. 12, Yangqiao, Fengtai District, Beijing, and wrote the mobile phone number of Ms. Xing Sun with tail number 8877. The mail was signed for by Ms. Xing Sun.

h. On September 17, 2020, the “Notice of Arbitration and Exhibits” were mailed to DU SHA’s address: 7008, Tianlu Lantu Building, No. 12, Yangqiao, Fengtai District, Beijing, with the mobile phone number of Ms. Xing Sun with tail number 8877, and the mail was signed for later.

i. Mr. Du was properly served when the SCIA mailed the Notice of Arbitration and other arbitration documents to the Fengtai Address and the Wenyu Address delivery. According to the means of service agreed upon in the Framework Agreement, the Secured Guaranty and the Supplemental Agreement to the Secured Guaranty, the SCIA mailed the Notice of Arbitration and other materials to the mailing address and domicile of DU SHA, which satisfies the above requirements [under Article 6 of the Arbitration Rules]. All the arbitration documents shall be deemed to have been properly served.

j. TKB and other parties with DU SHA as the legal representative or the authorized representative entrust the lawyer of Beijing Guantao Law Firm as an agent to participate in the arbitration proceedings, which can prove that DU SHA actually knows the arbitration case.

k. After the SCIA serves the Notice of Arbitration to DU SHA, Beijing Guantao Law Firm submits the Power of Attorney with signature of “DU SHA” and a copy of DU SHA’s passport to the SCIA. The signature of “DU SHA” on the Power of Attorney is not different from that before DU SHA’s signature in the Secured Guaranty. Even if the signature is stamped with the signature seal, the Power of Attorney shall be regarded as DU SHA’s true intention when DU SHA knows the arbitration case, and DU SHA and the parties of which DU SHA acts as the legal representatives and the authorized representatives also entrust the same arbitration agent.

l. After Beijing Guantao Law Firm submitted DU SHA’s Power of Attorney to the SCIA, the SCIA served the arbitration-related documents to DU SHA’s agent specified in the Power of Attorney.

m. Therefore, there is no situation in the Case that DU SHA has not been notified of appointing arbitrators or the existence of the arbitration proceedings, or has failed to state his opinions for reasons other than his own.

[17] After withdrawing her initial proceeding to resist enforcement of the Award in China, Mrs. Du also brought a proceeding before the SIPC for an order setting aside the Award on the same grounds as Mr. Du had argued. Mrs. Du’s set-aside application was also dismissed in a decision rendered September 30, 2022, that made, inter alia, the following findings:

a. The arbitration agreement is duly formed between the parties. DU RAN’s allegation that she was unaware of the relevant agreements and the arbitration clauses therein is against common sense and the facts of this Case and is therefore not supported by this Court.

b. In the Framework Agreement signed by TDH with TKB, DU SHA and DU RAN in December 2019, the initial part of the document says that DU SHA and DU RAN’s domicile is “Room 71, Floor 1-2, Building 71, Zone 2, Wenyu Manor, Shunyi District, Beijing” while Clause 15 stipulates that “all notices hereunder shall be served at the following address”, in which DU SHA’s mailing address is Room 7008, Tianlu Lantu Building, No. 12, Yangqiao, Fengtai District, Beijing, China, with Tel.: 65387660 [the Fengtai Address].

c. TKB and other parties hereto with DU SHA as the legal representative or the authorized representative also have the same mailing address: Room 7008, Tianlu Lantu Building, No. 12, Yangqiao, Fengtai District, Beijing, China, with the contact person Ms. Xing Sun and the mobile phone number with the tail number 8877.

d. DU SHA and DU RAN are husband and wife.

e. The Secured Guaranty and the Supplemental Agreement to the Secured Guaranty signed by Creditor TDH, Guarantor 1 DU SHA and Guarantor 2 DU RAN each have the signature of both DU SHA and DU RAN.

f. On the front page of the Secured Guaranty, it is provided that DU SHA and DU RAN’s domicile is “Room 71, Floor 1-2, Building 71, Zone 2, Wenyu Manor, Shunyi District, Beijing” and their mailing address is Room 7008, Tianlu Lantu Building, No. 12, Yangqiao, Fengtai District, Beijing, China, with Tel.: 65387660.

g. Clause 8 of the Secured Guaranty stipulated that the contact information filled in by the Parties at the beginning of this agreement are their respective effective address for service. DU SHA and DU RAN’s domicile in Shunyi District of Beijing [the Wenyu Address] was stated on the front page of Supplemental Agreement to the Secured Guaranty (the same as Secured Guaranty).

h. On August 24, 2020, the SCIA served the “Arbitration Notice and Exhibits” to DU RAN’s domicile in “Room 71, Floor 1-2, Building 71, Zone 2, Wenyu Manor, Shunyi District, Beijing”, which was returned because no one signed for it.

i. On September 8, 2020, the SCIA served the “Arbitration Notice and Exhibits” to DU RAN’s mailing address of “Room 7008, Tianlu Lantu Building, No. 12, Yangqiao, Fengtai District, Beijing” and the package was returned.

j. On 16 September 2020, “Letter 3692-3 and Exhibits” were served to DU RAN’s domicile in Shunyi District, Beijing again but returned again. The telephone number of 65387660 was written on all these waybills.

k. On 16 September 2020, the SCIA once again mailed “Letter 3692-3 and Exhibits” to DU RAN’s mailing address at Room 7008, Tianlu Lantu Building, No. 12, Yangqiao, Fengtai District, Beijing and used the telephone number of 65387660. This package was accepted and signed by Ms. Xing Sun.

l. On 17 September 2020, the SCIA once again mailed the “Arbitration Notice and Exhibits” to DU RAN’s mailing address of Room 7008, Tianlu Lantu Building, No. 12, Yangqiao, Fengtai District, Beijing and used Ms. Xing Sun’s cellphone number with tail number 8877. This package was also accepted and signed by Ms. Xing Sun.

m. The SCIA mailed the Arbitration Notice and other documents to DU RAN in accordance with her mailing address and domicile provided in the Framework Agreement, the Secured Guaranty and the Supplementary Agreement to the Secured Guaranty. This complied with [Article 6 of] the Arbitration Rules and service shall be deemed to have been completed.

n. Beijing Guantao Law Firm submitted a Power of Attorney dated 30 September 2020 with “DU RAN’s” signature and a copy of her GK696927 [new] passport.

o. On 12 October 2020, the SCIA received the Power of Attorney submitted by DU RAN’s lawyers, i.e. Shen Yijun and Li Weihua from Beijing Guantao Law Firm, together with the firm’s letter confirming such authorization and copies of their lawyer’s license certificates. The SCIA forwarded these documents to the other parties to the arbitration and, during the hearing, none of the parties raised objections to the qualification of other parties’ representatives. In subsequent arbitration proceedings, none of the parties raised any objections either. The SCIA has sent a Letter re Cooperation on Investigation to Shen Yijun and Li Weihua and received their Clarification of Circumstances. The main contents of this Clarification of Circumstances provided by Beijing Guantao Law Firm is that: The authorization documents received by the firm was provided by Ms. Xing Sun, who was an employee of the first respondent, i.e. Tianjin Kapolei, and this was in accordance with the usual work method and practice.

p. The lawyers always believe that the DU RAN signature was her own, and further that DU RAN knew and agreed to the firm’s lawyers acting as her representatives in the arbitration.

q. Subsequently, as Beijing Guantao Law Firm submitted DU RAN’s Power of Attorney to the SCIA, the SCIA mailed all documents relating to the arbitration to the attorneys of DU RAN as shown on the Power of Attorney.

r. Further, with regard to the arbitration respondents, DU SHA and DU RAN are spouses, and other arbitration respondents for which DU SHA was the legal representative or authorized representative all engaged the same lawyers from Beijing Guantao Law Firm together with DU SHA and DU RAN. The address, contact information and method for service for DU SHA and DU RAN provided in the Framework Agreement, the Secured Guaranty and the Supplementary Agreement to the Secured Guaranty are all the same, and the effective and binding (2022) Y03MT No. 293 Civil Ruling issued by this Court has rejected DU SHA’s setting aside application and ascertained that DU SHA had received the Arbitration Notice and authorized lawyers from the Beijing Guantao Law Firm to represent him in the arbitration.

s. It was DU RAN’s genuine intention to authorize the Beijing Guantao Law Firm to represent her in the arbitration. Even if the signature on the Power of Attorney was not signed by DU RAN herself, it is still sufficient to conclude that DU RAN was aware of and agreed to such authorization and therefore she should be held liable for any legal consequences.

t. Hence, there is no circumstance in this Case where DU RAN did not receive notice on the appointment of an arbitrator or the conduct of arbitration proceedings, where DU RAN was unable to present her opinions due to reasons not attributable to herself, or where the arbitration procedure was not compliant with the Arbitration Rules.

[18] The two set-aside applications before the SIPC will be collectively referred to herein as the “Set-Aside Proceedings.” There is no appeal from the dismissal of the Set-Aside Proceedings under Chinese law.

[19] I will return to the relevance of the SIPC’s findings regarding service of the materials for the Chinese Arbitration Proceeding and the deemed knowledge and participation of the Dus later in this endorsement.

The Fresh Evidence: The ex parte Judgment in China and Enforcement Proceedings in Hawaii

The Fresh Evidence

[20] In October 2021, TDH applied to the Beijing No. 3 Intermediate People’s Court for a Notice of Enforcement and a court order recognizing and enforcing the Award in that jurisdiction (the “Chinese Enforcement Order”). The application was brought and the order was issued, as a matter of course by the Beijing court on an ex parte and prima facie basis.

[21] On August 19, 2022, TDH filed a copy of the Award and the Chinese Enforcement Order with the Circuit Court of the First Circuit in the State of Hawaii (the “US Enforcement Proceeding”). On August 26, 2022, TDH filed an ex parte “special proceeding” to have the Chinese Enforcement Order recognized and enforced in Hawaii. The motion was granted. When the Dus learned of this motion, they moved to dismiss the special proceeding. That motion was argued and decided in favour of the Dus on October 12, 2022, less than a week after this application was originally argued on October 7, 2022. In oral reasons, McWhinnie J. of the Hawaii State Court concluded:

Based on Hawaii revised statute 658F-4Cl, which reads, “A court of this state need not recognize a foreign country judgement if the defendant in the proceeding in the foreign court did not receive notice of the proceeding in sufficient time to enable the defendant to defend,” based upon 658F-4C1, the court will grant the motion.

[22] The Fresh Evidence that the Dus seek leave to file is comprised of the certified transcript, concluding oral judgment in the transcript (“Transcript”) and the written judgment later entered (the “Judgment”) in the US Enforcement Proceeding (together, the “Fresh Evidence”), all of which only came into existence after the October 7, 2022 hearing in this court. If this Fresh Evidence is admitted, the Dus also ask that the expert affidavits on US law (described below) be admitted [2] as they “interpret” the Judgment and findings in the US Enforcement Proceeding and provide an important foundation for the Dus’ argument that the Fresh Evidence renders the recognition and enforcement question on this application res judicata.

The Jurisdiction and Judgment Rendered Under the Hawaii Recognition Act

[23] The foreign law experts agree that in the State of Hawaii the controlling statute for the enforcement of foreign money judgments, based on a model statute promoted by a uniform law body (the “Uniform Recognition Act”), is the Uniform Foreign-Country Money Judgments Recognition Act, HRS 658F (the “Hawaii Recognition Act”). Section 4(c)(1) of the Hawaii Recognition Act and its relevant provisions refer to a “foreign country judgment” and the notice of a proceeding in the “foreign court”.

[24] Section 4(c)(1) provides that a state court may not recognize a foreign judgment if the defendant in the proceeding in the foreign court did not receive notice of the proceeding in sufficient time to enable the defendant to defend. Section 4(c)(3) goes on to identify circumstances in which the state court need not recognize a foreign judgment if the specific proceeding in the foreign court leading to the judgment was not compatible with the requirements of due process of law.

[25] While there are broader circumstances under which it would have been open to the Hawaii State Court to decline to recognize the Chinese Enforcement Order, the fact that the Chinese Enforcement Order was granted in an ex parte proceeding in the Beijing court, and therefore by definition without any notice to the Dus or opportunity to defend the entry of that order, was in and of itself a sufficient basis for it not to be granted comity under the Hawaii Recognition Act.

[26] Relying on the same evidence on that motion to dismiss the US Enforcement Proceeding as they filed in this application, the Dus also argued in the US Enforcement Proceeding that the Chinese Enforcement Order should not be enforced because they did not receive notice of the proceeding before the SCIA in sufficient time to enable them to defend the Arbitration Proceeding. As such, the proceedings upon which the Award and order were predicated were not compatible with the requirements of due process.

[27] TDH and the Dus have each filed reports from US law experts. The Dus expert analyzes the totality of the submissions, the Transcript and the Judgment and suggests a broader scope of review as the basis for the decision in the US Enforcement Proceeding with regard to the lack of proper notice and due participation in the Arbitration Proceeding. The Dus argue that the decision is on all fours with this case and gives rise to an issue estoppel in this case on the question of whether the Dus were on notice of the SCIA Arbitration Proceeding and afforded a sufficient opportunity to defend it.

[28] TDH’s expert focuses on the specific section of the Hawaii Recognition Act (s. 4(c)(1)) and the wording of the oral and entered judgment in the US Enforcement Proceeding to suggest that the basis for this decision in the US Enforcement Proceeding was the ex parte nature of the court proceeding in China that resulted in the grant of the Chinese Enforcement Order (to which the Award was attached). An ex parte order is, by definition, made without notice or any opportunity to the defendants to present a defence.

[29] Neither side made any reference to the US Enforcement Proceeding or put the Chinese Enforcement Order into the evidentiary record for this application before it first came before the court for a hearing on October 7, 2022.

The Requirements for the Admission of Fresh Evidence

[30] Two requirements guide the exercise of the court’s discretion when deciding whether to consider fresh evidence:

a. Would the evidence, if presented at the hearing, probably have changed the result (e.g. is it relevant and material to the issues in dispute)?

b. Did the evidence exist, and could it have been obtained before the hearing by the exercise of reasonable diligence?

See Brasseur v. York, 2019 ONSC 4043, at paras. 45-49. See also Cochrane v. Ontario (Attorney General), 2007 ONSC 9230 (Ont. S.C.), at para. 9; 671122 Ontario Ltd. v. Sagaz Industries Canada Inc., 2001 SCC 59, [2001] 2 S.C.R. 983; Mehedi v. 2057161 Ontario Inc. (c.o.b. Job Success), 2015 ONCA 670, 391 D.L.R. (4th) 374.

[31] The Fresh Evidence did not exist before the October 7, 2022 hearing of this application. TDH argues that the Dus made a strategic decision not to tell this court about the existence of the US Enforcement Proceeding and identical materials that they had filed therein, all of which was available at the time of the hearing of this application. TDH contends that the Dus should not be permitted to wait for the outcome of that proceeding to now introduce a favourable decision as fresh evidence in this application: see Risorto v. State Farm Mutual Automobile Insurance Co. (2009), 72 C.C.L.I. (4th) 60 (Ont. Div. Ct.), at para. 36.

[32] In this case, both parties strategically decided not to reference the US Enforcement Proceeding in connection with the initial hearing of the application. Both were likely hedging their bets. Their competing submissions about the motives behind their mutual strategy not to draw the existence of the US Enforcement Proceeding to the attention of this court when this application was heard on October 7, 2022 neutralize each other and are not particularly instructive in this case.

[33] It is the decision in, and not the existence of, the US Enforcement Proceeding that comprises the Fresh Evidence. That decision only came into existence after the October 7, 2022 hearing. That meets the second requirement of the test for admitting fresh evidence. However, the Fresh Evidence does not meet the first requirement of the test so it will not be admitted.

[34] When fresh evidence is sought to be admitted before the decision has been rendered in a case, the criteria are applied less stringently. It comes down to a consideration of whether it would be in the interests of justice to admit the fresh evidence: see Brasseur, at paras. 37-49. See also Fiorito v. Wiggins, 2022 ONSC 3920, at paras. 150-152; Merrifield v. Canada (Attorney General), 2015 ONSC 7266, at paras. 12-13.

[35] In Estanol v. York Condominium Corporation No. 299, 2020 ONSC 298, at paras. 53-54 and 56, the following further authoritative points were summarized:

a. It is ultimately a matter for my discretion to consider whether this evidence would have changed the result and should be received and considered before my decision is rendered. In exercising my discretion, I must balance finality with fairness. However, the Supreme Court of Canada has indicated that this discretion must still be exercised sparingly: see Sagaz Industries, at paras. 60-61; Mehedi, at para. 16.

b. That said, re-opening the record remains the exception, not the norm: see Brasseur, at para. 48.

c. The mere possibility that the fresh evidence might impact the outcome of the application is not enough to justify admitting it, even in a situation where the bar is lower for doing so because this is a case in which the decision had not yet been rendered when the request for leave to file the Fresh Evidence was made.

[36] The Dus suggest that the Hawaii State Court made an implicit ruling on the (in)validity of the notice leading to the Award appended to the Chinese Enforcement Order. They contend that the Hawaii State Court dismissed the US Enforcement Proceeding on the basis that the Dus: (i) did not receive notice of the arbitration; and (ii) did not have an opportunity to present a defence. They say that these are the very same questions of fact and law that must be decided in this case under the Model Law upon which the ICAA is based. It is for this reason that the Dus argue that the decision of the Hawaii State Court comprising the Fresh Evidence is highly relevant and material to the issues on this application. It could give rise to an issue estoppel in favour of the Dus, thereby likely changing the outcome had they not otherwise been successful. [3]

[37] While the Dus made submissions on their motion in the US Enforcement Proceeding with reference to the alleged lack of “notice” and “due process” in the SCIA Chinese Arbitration Proceeding, and made arguments that correspond with the same requirements under the Model Law on the recognition and enforcement of foreign arbitral awards under the New York Convention and the US Federal Arbitration Act, none of those arguments were referenced in the ultimate decision dismissing the US Enforcement Proceeding. Similarly, the SIPC Set-Aside Proceedings relied upon by TDH in the US Enforcement Proceedings were also not referenced in the ultimate dismissal of that proceeding. Just because both sides referred to the issues of notice and due process in the SCIA Arbitration Proceeding in their submissions in the US Enforcement Proceeding, does not mean that the court necessarily decided those issues.

[38] Given the ex parte nature of the Chinese Enforcement Order, the question of the sufficiency of the notice and due process in the underlying Arbitration Proceeding did not need to be decided in the US Enforcement Proceeding for the Hawaii State Court to dismiss it. TDH argues that the very fact that two US law experts have interpreted the decision in the US Enforcement Proceeding very differently underscores the lack of specificity and speculative nature of that decision, beyond the obvious finding that the ex parte nature of the Chinese Enforcement Order was a sufficient reason not to recognize and enforce it.

[39] The reply report of the Dus’ expert Professor Brower states that: US courts have recognized that the prevailing parties in foreign arbitrations may secure foreign judgments confirming awards. When this happens, the prevailing party may seek to enforce the award, the judgment, or both in the US. TDH seeks to enforce the Award in Ontario through this application, whereas it sought to enforce the Chinese Enforcement Order in the US through the US Enforcement Proceeding.

[40] Professor Brower relies on a case from the Southern District of New York, Ocean Warehousing B.V. v. Baron Metals and Alloys, Inc., 157 F. Supp. 2d 245 (2001), which reinforces this distinction and the lack of correspondence between the defences to two types of enforcement proceedings:

Defendants’ argument confuses the applicability of the [New York] Convention defenses to [Uniform Recognition Act] proceedings. A court’s decision whether to recognize and enforce a foreign arbitral award is governed by federal law – specifically the Convention. A court may refuse recognition of a foreign arbitral award only on the limited grounds enumerated in Article V of the Convention. [...] By contrast, a New York court’s decision whether to recognize a foreign judgment is governed only by the [Uniform Recognition Act] and the principles of comity. [ ... ] This is true even where the foreign judgment is based on a foreign arbitral award. [ ... ] The Convention defenses simply do not apply to an [Uniform Recognition Act] proceeding seeking recognition and enforcement of a foreign judgment, even if that judgment was based on a foreign arbitral award.

[41] Professor Brower suggests that there nonetheless remains a distinction between direct applicability of the New York Convention defences and the legal relevance of the underlying arbitration proceeding, which may still be considered relevant to the test being applied under the US (in this case, the Hawaii) Recognition Act.

[42] Reading the Transcript of the US Enforcement Proceeding, the only thing that is clear is that the court’s decision to dismiss TDH’s request for recognition and enforcement of the Chinese Enforcement Order was based on the Hawaii Recognition Act, which is concerned with the recognition of a foreign judgment. There is nothing in the decision that directly deals with the due process and notice issues associated with the Arbitration Proceeding nor did it undertake any analysis under the Model Law. On its face, the Hawaii Recognition Act is not concerned with the underlying Arbitration Proceeding and is only concerned with the proceeding in the SIPC that resulted in the Chinese Enforcement Order.

[43] Thus, even if Professor Brower is correct and in theory the same principles of due process and fairness can be engaged in respect of both the defences under the Model Law to oppose recognition and enforcement of an arbitral award and the defences under the Hawaii (or other state) Recognition Act to oppose recognition and enforcement of a foreign judgment significantly overlap, the same facts were not expressly engaged in the analysis in this case when the Hawaii State Court considered the notice and due process of the ex parte SIPC proceeding.

[44] The cases from New York, Florida and Connecticut that Professor Brower relies upon where state courts considered the notice given in the underlying arbitration were cases in which, unlike this one, the state court specifically addressed that in its reasons: see Ocean Warehousing Corporacion Salvadorena de Calzado, S.A. (Corsal, S.A.) v. Injection Footwear Corp., 533 F. Supp. 290, 299 (S.D. Fla. 1982), Fiske Emery & Associates v. Ajello, 277 A 2d 1139 (Conn. Super. 1989).

[45] I am not satisfied on the record before the court that there is a recognized category of “cross-over” cases involving the enforcement of foreign judgments predicated on foreign arbitral awards in which the court necessarily considers the notice and due process of the underling arbitration proceedings when deciding whether the foreign judgment ought to be enforced. More to the point, there is no indication whatsoever in the Transcript or the Judgment that the decision in the US Enforcement Proceedings was approached on this basis.

[46] The Dus submit that the only evidence before the Hawaii State Court about notice and due process was evidence they submitted in respect of the underlying Arbitration Proceeding, and responded to by TDH through reliance upon the SIPC set-aside decisions and submissions asserting that the Dus were given notice of and afforded due process in the Arbitration Proceeding. The fact that the Dus made submissions on this point, that TDH responded to those submissions and that the Hawaiian State Court asked questions about those submissions does not mean that the US Enforcement Proceedings were decided on the basis of those submissions.

[47] As this application is solely about the New York Convention defences under the Model Law in respect of a foreign arbitration Award, a decision in the US Enforcement Proceeding about the enforcement of a foreign judgment based on a statute that does not require recourse to such defences does not satisfy the first branch of the fresh evidence test. The first branch requires some demonstration of the relevance and probative value of the Fresh Evidence to establish that it would probably have changed the result.

[48] The same question must have been directly decided (or inferred) for issue estoppel to apply: see Danyluk, at para. 24. The parties agree that the Fresh Evidence could be influential in other ways even if it does not rise to the level of an issue estoppel. However, I have found that it is not sufficiently probative or influential so as to meet the test for the introduction of fresh evidence, even if considered beyond the strict requirements for issue estoppel.

[49] The proposed Fresh Evidence is not likely to change the result of this application, whether or not it rises to the level of an issue estoppel. The Fresh Evidence does not inform the analysis about the enforceability of the Award and should not influence, let alone determine, this court’s decision on that very question. Doing so would ignore the clear distinction between court orders and arbitration awards: see Yugraneft Corp. v. Rexx Management Corp., 2010 SCC 19, [2010] 1 S.C.R. 649, at para. 44.

[50] I do not consider it to be in the interests of justice to admit the Fresh Evidence into the record to decide the application for recognition and enforcement of the Award.

[51] The Fresh Evidence is not on the same footing as the decisions of the SIPC in the Set-Aside Proceedings that TDH asks the court to consider in the context of TDH’s submissions on the main application, which it submits gives rise to an issue estoppel in TDH’s favour. I will consider this in due course, but in the context of the Dus’ proposed Fresh Evidence this is not a quid pro quo. The SIPC Set-Aside Proceedings considered the question of notice in the Arbitration Proceeding. The question is whether they considered the same issues of notice and due process as are before the court on this application.

The Enforcement of the Award in Ontario Under the ICAA

[52] TDH applies under Article 35 of the Model Law for the recognition and enforcement of the Award, having submitted the required documents (the Loan Agreements containing the arbitration provisions and the Award itself). Broad deference and respect are to be accorded to the awards of international arbitral tribunals: see Depo Traffic Facilities (Kunshan) Co. v. Vikeda International Logistics and Automotive Supply Ltd., 2015 ONSC 999, at para. 27, citing Corporacion Transnacional de Inversiones v. STET International (1999), 45 O.R. (3d) 183 (S.C.), at p. 190, aff’d Corporacion Transnacional de Inversiones v. STET International (2000), 49 O.R. (3d) 414 (C.A.), leave to appeal refused, [2000] S.C.C.A. No. 581. The preference for maintaining and recognizing arbitral awards is “well established”: see Popack v. Lipszyc, 2016 ONCA 135, 129 O.R. (3d) 321, at para. 26. However, there are some available grounds upon which the enforcement and recognition of a foreign arbitration award can be opposed.

[53] The Dus have asked this court to exercise its discretion under:

a. Article 36(1)(a)(ii) of the Model Law [4] not to recognize and enforce the Award on the basis that they were not given proper notice of the arbitration and did not have an opportunity to present their case; and

b. Article 36(1)(b)(ii) [5] on the basis that enforcing the Award would be contrary to Ontario public policy. [6]

[54] Article 36(1) of the Model Law states that:

36(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:

(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 [their] case.

(b) if the court finds that:

(ii) the recognition or enforcement of the award would be contrary to the public policy of this State.

[55] The evidence that the Dus rely upon in opposition to the recognition and enforcement of the Award was summarized by them [7] as follows:

a. They were not made aware of the Arbitration until after the Award was rendered;

b. They were stuck in Toronto, Ontario starting in February 2020 due to the COVID-19 pandemic and therefore could not access the addresses at which the Arbitration Proceeding materials were served and/or attempted to be served;

c. They do not know Ms. Xing Sun, the TKB controller who signed (without their authorization) for the packages containing the Arbitration Proceeding materials addressed to them sent to the Fengtai Address by a means of delivery that was not in compliance with the notice requirements specified in the Loan Agreements;

d. They were not able to participate in the Arbitration Proceeding in any capacity and the lawyers who purported to represent them did not have their authority to do so, nor did they ever correspond with those lawyers about the Arbitration Proceeding;

e. The lawyers who purported to represent them in the Arbitration had submitted an unauthorized power of attorney on their behalf; and

f. The enforcement of the Award would be contrary to basic principles of due process.

[56] TDH’s response rests on the primary assertion that the Arbitration Proceeding materials were delivered to the Dus in compliance with the notice provisions of the Loan Agreements and the SCIA Arbitration Rules. TDH further contends that the respondents had knowledge, through Mr. Du and his role with TKB, of the pending Arbitration Proceeding and that the Dus were represented by lawyers with at least ostensible authority to defend them before the Tribunal. TDH further maintains that these issues were all decided by the SIPC in the Set-Aside Proceedings.

Article 36(1)(a)(ii): Did the Dus Receive Proper Notice of the Arbitration Proceeding?

What Constitutes Proper Notice?

[57] “Proper notice” under the Model Law has been held to mean notice that is reasonably calculated to inform the party of the arbitral proceedings and give them an opportunity to respond. It does not require actual notice: see Tianjin v. Xu, 2019 ONSC 628, at paras. 31, 43, citing Tianjin Port Free Trade Zone International Trade Service Co., Ltd. v. Tiancheng International Inc., 2018 WL 4502497 (C.D. Cal. 2018).

[58] Article 3(1) of Schedule 2 to the ICAA (being the Model Law) provides for the deemed receipt of written communications, stating that:

(1) Unless otherwise agreed by the parties: (a) any written communication is deemed to have been received if it is delivered to the addressee personally or if it is delivered at his place of business, habitual residence or mailing address; if none of these can be found after making a reasonable inquiry, a written communication is deemed to have been received if it is sent to the addressee’s last-known place of business, habitual residence or mailing address by registered letter or any other means which provides a record of the attempt to deliver it; (b) the communication is deemed to have been received on the day it is so delivered.

[59] Article 6 of the SCIA Arbitration Rules similarly stipulates that, where the parties have agreed upon the means of service, such agreement shall prevail. Absent agreement, the Rules allow for service by mail, facsimile, email or other electronic means, or any other means the SCIA considers appropriate and under that Rules proper delivery is deemed to have occurred if materials are mailed to the specified place of business or residence in the governing agreements. This rule was relied upon by the SIPC in the decisions in the Set-Aside Proceedings to reach the conclusion that all of the arbitration documents shall be deemed to have been properly served.

[60] What is evident from the foregoing is that both the Model Law and the SCIA Arbitration Rules defer to the contractual means of delivery or service when specified. Various authorities have determined that holding parties to their contracts is not a violation of due process, such as: Nanoelectro Research and Production Co v. Alphysica Inc., 2018 WL 3795889 at +5 (D Mass), Ebbe v. Concorde Investment Services LLC, 392 F Supp 3d 228 at *241 (D Mass 2019), Intel Capital (Cayman) Corporation v. Yi, 2015 WL 7075954 at *3 (ED Michigan).

Did the Dus Receive Proper Notice of the Arbitration Proceeding?

[61] The notice that TDH relies upon is primarily the SCIA’s delivery of the arbitration materials to the Dus by express mail service to TKB’s corporate address, the Fengtai Address, that was eventually signed for by Ms. Xing Sun, a representative of certain of the corporate respondents (including TKB). Secondarily, the arbitration materials were also mailed to the attention of the Dus to their domicile at the Wenyu Address, although those packages were returned as undeliverable.

[62] TDH argues that these methods of delivery were in accordance with the contractual notice requirements and thus constitute proper notice. If the arbitration materials had been delivered in accordance with the contractual notice requirements, that reasoning would be sound.

[63] The Loan Agreements contain the following provisions that relate to notice to parties:

a. Article 15.1 of the Framework Agreement provides for notice to be delivered by hand, registered mail, facsimile or courier. Notices delivered by registered mail are deemed received on the 5th Working Day after the date of the domestic mail receipt held by the sender. Notices delivered by courier are deemed under Article 15.1(4) to have been received on the date when the recipient signs to acknowledge its receipt of the notice, if delivered by courier; if the recipient refuses to sign, the notice shall be deemed received on the 3rd Working Day after the date when the notice is sent.

b. Article 15.2 of the Framework Agreement specifies the following address for service for both of the Dus: Address: Room 7008, Tianlulantu, 12 Yangqiao, Fengtai District, Beijing, China Tel: 65387660 Fax: 65387660.

c. Article 15.2 of the Framework Agreement further provides that: Where the mailing address or any other contact detail of a Party is changed, the Party shall notify the other Parties of the change within 5 Working Days after the date on which the change is made. If the Party fails to do so, it shall be liable for any effect or loss that may be caused by such change, unless the law provides otherwise.

d. Article 8 of the Secured Guaranty does not provide for service by courier, only by person, registered mail, fax or express mail. The Dus domicile was specified as the Wenyu Address and their address was specified as the Fengtai Address, both of which would have been valid addresses at which to serve them pursuant to the specified means of service. The Secured Guarantee provided that notices delivered by express mail are deemed served when “signed by the recipient.”

[64] All means of physical “delivery” under the Loan Agreements, by mail or courier, require some form of receipt or acknowledgment by the recipient. In its reply factum and at the application hearing, TDH argued that the “recipient” who signs can be whomever happens to receive the package at the specified address, and that the “recipient” should not be interpreted to mean the party to whom the material is being sent. No authority for that interpretation is provided and it is illogical to me that a contract would require a signature from a recipient other than the “intended” recipient.

[65] TDH properly points out that there is one contractual method of service that did not require a signature: service by fax. However, TDH did not serve the arbitration documents on the Dus by fax.

[66] The notice of arbitration was served on Ms. Xing Sun in her capacity as a corporate representative. Ms. Xing Sun is listed as the contact person for TKB and other Pacific Links entities in the Loan Agreements. TDH contends that TKB was specified as the Dus’ agent for service under the Loan Agreements. I cannot find any such specification in the Loan Agreements. The Loan Agreements go no further than to specify that the Fengtai Address (which is the company TKB’s corporate address) is an address at which the Dus may also be served. Since the company and Ms. Xing Sun were not the intended “recipients” of the packages addressed to the Dus and sent to the Fengtai Address, Ms. Xing Sun’s signature cannot be taken to be the signature of the recipient or an acknowledgment of receipt of notice of the arbitration under the Loan Agreements.

[67] It has not been established that the Dus received notice of the Arbitration Proceeding by any of the methods of service provided for in the Loan Agreements. The SIPC found in the Set-Aside Proceedings that the arbitration documents were served on the Dus by a recognized mode of service under the Arbitration Rules. There is no prior finding that the Dus received the arbitration materials by a contractually prescribed method.

[68] I do not agree with TDH’s characterization that the company (and its controller Ms. Xing Sun) had been designated as agents for service for the Dus under the Loan Agreements. The company address (the Fengtai Address) was indicated as an address at which the Dus could be served by an accepted means of service, but that does not make the company and its other representatives their agents for service. In contrast, Mr. Du was a specified agent or representative for service on the company, although service of the company was not effected through him but was effected through other means.

[69] TDH further contends that delivery by courier and acceptance by Ms. Xing Sun is nonetheless sufficient notice to the Dus, reasonably calculated to inform them of the arbitral proceedings. This is because Ms. Xing Sun was the controller of TKB and would have reported to the CFO of Pacific Links, with whom Mr. Du has a close relationship, and to the management of TKB with whom he was in regular contact by email and WeChat.

[70] TDH invites the court to examine this context to infer that the Dus received proper notice of the Arbitration Proceeding. However, to the extent that it is appropriate to consider the context in the determination of whether proper notice was given, the relevant context is broader than that.

[71] First, there is the context of the March 2020 discussions between Mr. Du and TDH about the Dus decision not to return to China when the global travel restrictions and lockdowns were imposed in both China and Canada.

[72] Further, both the Framework Agreement and the Secured Guaranty contemplated that there would be efforts to resolve any dispute between the parties before it was submitted to arbitration:

a. Article 16.8 of the Framework Agreement provides that: Any dispute arising from or in relation to this Agreement shall first be resolved by the Parties through friendly consultation. If consultation fails, the Parties agree to submit such dispute to the Shenzhen Court of International Arbitration (“SCIA”) for arbitration pursuant to the SCIA arbitration rules effective at the time the dispute is submitted.

b. Article 10(II) of the Secured Guaranty provides that: Any dispute arising from or in connection with this Contract shall be settled by the parties through amicable negotiation. Where the negotiation fails, the parties agree to submit such dispute to the Shenzhen Court of International Arbitration for arbitration in accordance with the arbitration rules in effect of the Shenzhen Court of International Arbitration during the Request for Arbitration.

[73] TDH suggests that it attempted to resolve the dispute through pre-arbitration notices it claims to have delivered in April 2020 announcing the early termination of the Loan Agreements, but the Dus deny receiving these and there is no evidence in the record of how they were delivered.

[74] The principal of TDH was in contact with Mr. Du in March of 2020 through an exchange of WeChat messages. There is no evidence to suggest that TDH made any attempt to engage the Dus (or TKB) in a “friendly consultation” or “amicable resolution” to first try to resolve the dispute that was eventually submitted to arbitration. An attempt to settle a dispute before it is arbitrated is one reasonably calculated way to put the other side on notice of a forthcoming arbitration. This would have opened the lines of communication and provided a direct means of bringing the Arbitration Proceeding to the attention of the Dus.

[75] While the Dus did not formally change their address for notice under the Loan Agreements, TDH also did not advise the SCIA that the Dus were in Canada in March 2020 when the lockdown and travel restrictions began (and which remained in place at the time of the Arbitration Proceeding). There is no evidence that any alternative means of notifying the Dus of the Arbitration Proceeding was suggested or even considered.

[76] In the circumstances of this case, where:

a. Mr. Du had advised the principal of TDH that he and Mrs. Du were in Canada in March 2020 with their return to China uncertain due to unprecedented business shut downs, wide-spread travel restrictions and lockdowns around the world, including in both China and Canada (that I can take judicial notice remained in place in the summer and fall of 2020);

b. TDH made no attempt to engage in any “friendly consultation” or “amicable negotiation” with TKB or the Dus personally (or any of the other Arbitration Respondents);

c. The SCIA’s packages addressed to the Dus previously mailed to their domicile in in China at the Wenyu address and to the Fengtai company address were returned undeliverable; and

d. TDH having been in contact with Mr. Du and having other means of communicating with him (for example, by WeChat and/or email), did not advise the SCIA that the Dus might still be in Canada or suggest any other means of contacting them outside of China during these unprecedented times,

the re-delivery of packages addressed to the Dus at the Fengtai Address that were signed for by the designated representative for service on the company is not notice reasonably calculated to inform them personally of the Arbitration Proceeding. Rather, it was a way to achieve deemed service under the applicable Arbitration Rules that I find did not amount to proper service in this case.

[77] If TDH wanted to rely upon the contractual notice provisions it should have complied with them, and it should have followed the contractual obligation to attempt to resolve the dispute with the Arbitration Respondents before initiating the arbitration. Instead, it seeks to rely on deemed service, which although sufficient for purposes of the SIPC’s determination in the Set-Aside Proceedings, I have found was not proper service under the Model Law in the circumstances of this case.

[78] The circumstances of this case are not analogous to those in the Xu case that TDH relies upon, in which the applicants made efforts to locate the respondent and they asked the tribunal to send the arbitration materials to her at other addresses, not just the specified addresses in the contract; however, she refused to accept them.

[79] For TDH to come to this court seeking recognition and enforcement of an arbitration Award in excess of $100 million (CDN) granted during an Arbitration Proceeding conducted in China in the summer of 2020 against two Canadians who TDH’s representative knew had decided in March of 2020 to stay in Canada and not return to China at the beginning of the global COVID-19 pandemic, strict compliance with the contractual notice requirements is what would have to be demonstrated for “proper notice” to be grounded in the contractual notice provisions that TDH seeks to rely upon.

[80] TDH tries to fault the Dus for not providing notice of a change in their address under the Loan Agreements. That may have been problematic for the Dus had TDH strictly complied with the contractual notice requirements, but it did not.

[81] The Dus have met their onus of demonstrating that they did not receive proper notice of the Arbitration Proceeding.

Is the Question of Proper Notice Res Judicata?

[82] TDH argues that the issue of whether the Dus received proper notice of the Arbitration Proceeding has already been decided by the SIPC in the Set-Aside Proceedings and it is res judicata and precluded from consideration again on this application.

[83] Issue estoppel (one of the branches of res judicata) arises where: (1) the same question has been decided in both proceedings; (2) the judgment said to create the estoppel is final; and (3) the parties to the judgment are the same persons as the parties to the proceedings. The issue giving rise to the estoppel must be central or fundamental to the decision in the earlier proceeding: see Danyluk v. Ainsworth Technologies Inc., 2001 SCC 44, [2001] 2 S.C.R. 460, at paras. 24-25. The court retains a residual discretion not to apply issue estoppel if there are concerns about fairness in the prior proceeding: see Danyluk, at paras. 30-33. See also Penner v. Niagara (Regional Police Services Board), 2013 SCC 19, [2013] 2 S.C.R. 125, at paras. 28-29, 39.

[84] TDH relies on a recent Privy Council decision holding that issue estoppel prevents a party from resisting recognition and enforcement of a foreign arbitral award after a failed attempt to set-aside the award at the seat of arbitration: see Gol Linhas Aereas SA (formerly VRG Linhas Aereas SA) v. MatlinPatterson Global Opportunities Partners (Cayman) Il LP and others (Cayman Islands), 2022 UKPC 21, at paras. 25, 29, 60.

[85] In its written submissions before this court, TDH advanced the following arguments on the applicability of the doctrine issue estoppel in respect of the SIPC Set-Aside Proceedings:

a. In both cases, the specific issue to be decided is whether the respondents were given “proper notice” or otherwise unable to present his case.

b. It does not matter whether the issue of “proper notice” is being decided under minimum standards of natural justice by the court in Ontario or decided by the SIPC under Chinese law. Issue estoppel prevents re-litigation of the material facts that the cause of action in the prior action embraces (i.e., the invalidity of the Secured Guaranty and lack of proper notice).

c. The application of issue estoppel under the Model Law would also be consistent with the approach of Canadian courts to the recognition of final foreign non-monetary judgments, which will be recognized if the foreign court had jurisdiction and its order is clear.

[86] The problem with TDH’s assertion of issue estoppel is that the SIPC did not decide the question of whether the Dus received “proper notice” of the Arbitration Proceeding in the Set-Aside Proceedings. As noted earlier in this endorsement, the SIPC decided first and foremost that the Dus were deemed to have received notice of the Arbitration Proceeding under the Arbitration Rules.

[87] In the SIPC Set-Aside Proceedings, the Chinese court considered whether an arbitral award rendered in its own jurisdiction ought to be set-aside. In summary, the SIPC found, in its decisions on the two applications, that:

a. The Arbitration documents were “deemed” to have been properly served on both Mr. and Mrs. Du in accordance with the SCIA Rules and under Chinese law.

b. The power of attorney appointing Guantao was to be “regarded” as Mr. Du’s true intention to authorize them to act even if it did not have his signature on it, given that he is an authorized representative of the other corporate Arbitration Respondents and they had appointed that law firm to represent them in the Arbitration Proceeding.

c. Based on the fact that Mrs. Du is Mr. Du’s spouse, other Arbitration Respondents with which Mr. Du is affiliated had engaged the same law firm, the addresses for service of both Mr. and Mrs. Du in the Loan Agreements are the same, and the SIPC had dismissed Mr. Du’s set-aside application, it was to be “regarded” as Mrs. Du’s genuine intention to authorize Guantao to act on her behalf even if the signature on the power of attorney was not hers.

d. After Guantao was appointed to represent the Dus and the other Arbitration Respondents, all arbitration materials were properly served on the law firm.

[88] Unquestionably, the court should defer to decisions made by the court in the seat of the arbitration on questions decided by that court. See Depo Traffic, at paras. 41-42. However, the SIPC did not expressly review and consider whether the initiating arbitration materials had been delivered in accordance with the notice requirements under the Loan Agreements. Nor did it expressly review and consider the question of whether the notice that the Dus were provided of the Arbitration Proceeding was reasonably calculated to inform them of the Arbitration Proceeding (in other words, whether it was proper notice). The SIPC decided the Set-Aside Proceedings on the basis of “deemed” notice and how the representation of all of the Arbitration Respondents (including the Dus) should be “regarded.”

[89] The SIPC finding of “deemed” service on the Dus is not conceptually, or in fact, equivalent to a finding that the means of service (delivery of material to a contractual address for service but by a method of service not provided for in the contracts) was reasonably calculated to bring the Arbitration to the Dus’ attention.

[90] The Chinese law expert, whose evidence was filed on behalf of TDH (Zhengxin Huo, report dated July 11, 2022, the “Huo Report”), opined that personal service on the respondents is not required under the SCIA rules or Chinese law. While that may be so, that does not address the specific requirements of Article 36(1)(a)(ii) of the Model Law regarding “proper notice”.

[91] Under Ontario law, service reasonably calculated to bring notice of a proceeding to the attention of the intended recipient is codified in the alternatives to personal service provided for in r. 16.03 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194: see Teskey v. Peraan, [1999] O.J. No 1801 (Ont. Gen. Div.), at para. 8. The prescribed alternatives to personal service all require some form of acknowledgement of receipt (by the individual or their lawyer), or physical delivery to an adult person at the place of residence, followed by delivery by mail. In other words, service is reasonably calculated to bring the materials being served to the attention of the intended recipient. Other means of service can be validated under r. 16.08 in cases of actual notice or service evasion, neither of which has been demonstrated here.

[92] The question of whether the Dus themselves received “proper notice” of the Arbitration Proceeding was not decided in the SIPC Set-Aside Proceedings and is not res judicata.

Did the Dus Have Notice of the Arbitration Proceeding Through Guantao?

[93] Even if the Dus had not been given proper notice of the Arbitration Proceeding at the outset, if they later engaged Guantao to represent them in the Arbitration Proceeding, arguably the original notice deficiency could have been remedied by the subsequent notices delivered to the law firm.

[94] According to the SIPC decisions in the Set-Aside Proceedings, it was to be “regarded” as the true intention of the Dus to have retained Guantao to represent them in the Arbitration Proceeding. This was inferred from the power of attorney and identifying documents that the law firm presented to the SCIA evidencing its retainer by the Dus and from the SIPC’s inference that Mr. Du would have known about the Arbitration Proceeding as a result of the positions he held with the corporate Arbitration Respondents.

[95] The SCIA relied on the power of attorney from the law firm thereafter to mail all subsequent notices to all Arbitration Respondents, including the Dus, and to receive the submissions made on behalf of all the Arbitration Respondents.

[96] In the Huo Report, TDH’s Chinese law expert opines that:

In China, submitting a power of attorney and photocopies of identity documents of the litigants or applicants to a court or an arbitration commission is necessary to prove the Attorney-Client Relationship. Article 62 of the Civil Procedure Law of the PRC states that when a person appoints another person to represent him or her in an action, he or she shall submit to the people’s court a power of attorney bearing his or her signature or seal. […] In the absence of evidence to the contrary, a court or an arbitration commission will recognize the authority of [an] attorney to represent his or her client once such materials have been submitted.

[97] A party’s participation in a proceeding (including through counsel) would ordinarily be evidence that a party had notice of that proceeding. However, the fact that the power of attorney appointing the law firm was not signed directly by the Dus, but rather by someone purporting to, in turn, have their power of attorney, complicates matters.

[98] There is no dispute that the Dus did not personally sign the power of attorney appointing the law firm to represent them in the Arbitration Proceeding. Rather, it was signed by someone purporting to have their power of attorney who was an authorized representative of the other corporate Arbitration Respondents represented by Guantao, from whom the law firm had previously taken instructions.

[99] It is the unchallenged evidence of the Dus that they did not communicate with the Guantao lawyers at all about the arbitration, never instructed them or provided them with any information or evidence, and never received any correspondence from them throughout the course of the Arbitration Proceeding.

[100] In the Huo Report, TDH’s Chinese law expert opines that even where a client’s signature on the power of attorney is forged, the lawyer may act on behalf of the client in an arbitration proceeding with apparent authority after submitting the requisite documents with the forged power of attorney.

[101] TDH argues that this outcome is consistent with Ontario law, which provides that if a power of attorney has been forged and absent a duty to make an inquiry, the loss is borne by the party who purportedly granted the power of attorney, not by the innocent third party: see CIBC Mortgages Inc v. Chan (2004), 6 R.F.L. (6th) 73 (Ont. S.C.), at para. 34, aff’d CIBC Mortgages Inc v. Chan (2005), 261 D.L.R. (4th) 679 (Ont. C.A.).

[102] In contrast, the Dus’ Chinese law expert, Ms. Zhou opined in her report dated July 27, 2022 that, under Chinese law, a power of attorney is required to establish the client-solicitor relationship. In the case of an unauthorized signature on a power of attorney, the critical question turns on whether the principal intended to confer power on the agent to act on their behalf. If it is determined that there was no such intention then the award in question shall be set side.

[103] This appears to be what the SIPC had in mind in the Set-Aside Proceedings when it determined that, regardless of whether the Dus actually signed the power of attorney authorizing Guantao to act, it was to be “regarded” as their true intention to appoint that law firm based on Mr. Du’s involvement with the other corporate Arbitration Respondents who had retained the same law firm and that law firm’s prior experience with the person who signed the power of attorney having been authorized to speak on behalf of Mr. Du in respect of corporate matters. [8]

[104] I am not revisiting whether the Award should be set aside.

[105] For the purposes of this part of the analysis, I see a distinction between the SCIA’s recognition of Guantao as the lawyers for the Dus and whether the Dus received “proper notice” of the Arbitration Proceeding in a manner reasonably calculated to bring that proceeding to their attention, which is what this application for recognition and enforcement under the Model Law is concerned with.

[106] Ostensible or apparent authority addresses the question of whether an innocent third party dealing with the lawyer (in this case, the SCIA) can rely upon the lawyer’s authority to speak for their client. It does not address the question of whether the Dus received proper notice of the Arbitration Proceeding, nor does it change the conclusion I reached earlier in this endorsement on that point.

[107] Further, I do not consider TDH to be an “innocent” third party in this case, when it knew that the Dus were in Canada when the lockdown and travel restrictions were imposed and did not advise the SCIA of this or take the steps that they later took (after the Award was made) to locate the Dus in Canada.

[108] Notice received by Guantao acting under the power of attorney signed by another power of attorney does not amount to proper notice of the Arbitration Proceeding to the Dus in the circumstances of this case.

Were the Dus Otherwise Able to Present Their Case before the SCIA?

[109] Article V of Schedule 1 to the ICAA adopting the Model Law provides in s. 1(b) that recognition and enforcement of an award may be refused if the party against whom it is invoked furnishes to the court proof that it was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case. The Dus have furnished proof of that they were not given proper notice. Arguably that is sufficient grounds in and of itself for the court to refuse to recognize and enforce the Award and the question of whether they were able to present their case need not be considered.

[110] Nonetheless, I will go on to consider whether the Dus have established that they were unable to present their case at the Arbitration Proceeding. Guantao’s ostensible or apparent authority under the power of attorney to represent all of the Arbitration Respondents might, on the surface, suggest that the Dus had the opportunity to present their defences in the Arbitration Proceeding, through the lawyers purporting to act for them.

[111] However, the Dus’ uncontested evidence is that they did not participate in the Arbitration Proceeding or correspond with or instruct the Guantao lawyers in connection with the Arbitration Proceeding. Consistent with this, there is nothing in the Award to indicate that any defences were advanced on their behalves, independent of the defences advanced on behalf of the corporate Arbitration Respondents.

[112] In Nanoelectro Research and Production Co. v. Alphysica Inc., 2018 WL 3795889, the court equated the Model Law with a constitutional due process defence, observing that “a party is unable to present its case at arbitration if it lacks the ‘opportunity to be heard at a meaningful time and in a meaningful manner’”, citing Research & Dev. Ctr. 182 F. Supp. 3d at 565, quoting in turn from Generica Ltd. v. Pharm. Basics Inc., 125 F 3d 1123, 1129-30 (7th Cir. 1997). In that case, the court found that there was no violation of due process of a compelling policy concern because “the Respondent received adequate and proper notice of the arbitration at the notice address that the Respondent designated in the Outsourcing Agreement and was represented at the arbitration by counsel who meaningfully participated on the Respondent’s behalf.”

[113] That is not this case. The SIPC’s findings in the Set-Aside Proceedings were based on Mr. Du’s role in the company and his presumed knowledge and involvement, perhaps even direction, of the conduct of the proceeding on behalf of the corporations. While the evidence of the Dus is to the contrary with respect to the knowledge and involvement of Mr. Du, it has never been suggested that Guantao did not have the authority to act for the corporate Arbitration Respondents based on the power of attorney signed by another duly authorized corporate representative.

[114] It is only the law firm’s authority to represent the individual defendants that is challenged. The knowledge that the SIPC imputed or inferred on the part of Mr. Du in respect of the conduct of the defences of the corporate Arbitration Respondents cannot be equated with proper notice of claims against him personally, or the presentation of a defence in respect of his own personal liability and that of his wife, even if he is presumed to have been generally aware of the Arbitration Proceeding involving the corporations.

[115] In practical terms, it is reasonable to expect an individual facing exposure to a claim of over $100 million to be looking for defences beyond the defences a corporate debtor may have. Here, the Dus argued (unsuccessfully) in the Set-Aside Proceedings that they had not signed the Secured Guaranty, or that they did not read or understand the documents that they did sign, including the Secured Guaranty. That may be res judicata. However, they say that other defences to the claims against them personally under the Secured Guaranty could have been, but were not, presented. At this stage, the court is concerned with the process and not the substance or merits of any such other defences as they may have been able to present.

[116] I am satisfied that the Dus did not have the opportunity to present their defences in the Arbitration Proceeding through Guantao, a law firm that was purporting to act for them without their direct authorization or instructions.

Conclusion: Article 36(1)(a)(ii) of the Model Law

[117] The Dus have proven that they were not given proper notice of the appointment of the Tribunal or of the Arbitration Proceeding in that they did not receive notice of the Arbitration Proceeding in a manner calculated to bring it to their attention. The notice and consultative procedures prescribed under the Loan Agreements were not strictly adhered to in the conduct of an arbitration proceeding in China while they were in Canada during the unprecedented time of the COVID-19 pandemic, travel restrictions and lockdowns. They have also proven that they were unable to present their case, having not retained and instructed counsel to present defences for them in their individual capacities separate and apart from the defences presented on behalf of the corporate Arbitration Respondents.

[118] Accordingly, TDH’s application for recognition and enforcement of the Award in Ontario is dismissed.

Article 36(1)(b)(ii): Would the Recognition and Enforcement of the Award be Contrary to Public Policy in Ontario?

[119] In light of my findings that the Dus were not given proper notice of the appointment of the arbitrator or of the Arbitration Proceeding or were otherwise unable to present their case at the Arbitration Proceeding, there is no need to consider or decide this application on public policy grounds.

[120] The public policy of ensuring that any foreign arbitral award sought to be enforced through Ontario courts was made on proper notice and with an opportunity to put in a defence is embodied in the other provisions of the Model Law that have already been considered and decided. That is itself a fundamental tenet of due process that I have found was not adhered to in this case, but public policy grounds do not need to be invoked where the Model Law has built this in as a specific ground upon which the court may refuse to enforce an arbitration award. That is the basis of my decision not to enforce the Award in this case, without resort to any other public policy grounds: see Gol Linhas, at paras. 108-109.

[121] I agree with TDH that the independent ground under the Model Law for refusal for public policy reasons has no application to this case. Public policy is “truly an exceptional defence” that only applies to acts that are “illegal in the forum [...] or repugnant to the orderly functioning of social or commercial life” such as awards resulting from “corruption, bribery, fraud and similar serious cases”: see Depo Traffic, at paras. 45-47; Entes v. Kyrgyz Republic, 2016 ONSC 7221, at para. 5.

[122] I am not aware of any blanket public policy against enforcing arbitration awards rendered in China and this is not the appropriate case in which to engage in that analysis.

Costs

[123] After the initial hearing of the application on October 7, 2022, the parties agreed that $160,000 in partial indemnity costs would be paid by the unsuccessful party to the successful party on this application. This was confirmed in an email to the court dated October 19, 2022. The Dus were successful on the application.

[124] After the Fresh Evidence motion heard on January 18, 2023, the parties agreed that $65,000 in partial indemnity costs would be paid by the unsuccessful party to the successful party on this motion. This was confirmed in an email to the court dated January 25, 2023. TDH was successful on the Fresh Evidence motion.

[125] Accordingly, the Dus shall pay to TDH partial indemnity costs of the Fresh Evidence Motion in the all-inclusive amount of $65,000 and TDH shall pay to the Dus partial indemnity costs of the application in the all-inclusive amount of $160,000. On a net basis, TDH shall pay $95,000 in partial indemnity costs to the Dus forthwith.

[126] This endorsement and the orders and directions contained in it shall have the immediate effect of a court order without the necessity of a formal order being taken out. Either side may take out a formal order by following the procedure under r. 59.

Kimmel J. Date: March 20, 2023

Footnotes

[1] The Secured Guarantee was originally signed on December 11, 2019 by Ms. Zhang, the CFO of Pacific Links who held a power of attorney for the Dus (the validity of which has since been challenged by the Dus). However, the Dus later personally signed the Loan Agreements themselves on December 25, 2019 while in Beijing. While the Dus have claimed not to have read or fully understood the scope of their personal liability under these agreements, the applicant’s Chinese law expert has opined that this does not relieve them of the consequences of the documents that they signed under Chinese law. This aspect of the applicant’s expert’s opinion evidence was not challenged or countered by the respondents’ Chinese law expert. The validity of their guarantees was also addressed in prior proceedings in China, discussed later in this endorsement.

[2] Both sides have argued that the other side’s foreign (US) law expert’s evidence should be disregarded or given little or no weight, based on various grounds. In light of my ruling that the Fresh Evidence is not being admitted on other grounds, I do not need to formally rule on these evidentiary objections.

[3] The Dus submit that the doctrine of issue estoppel ought to apply in their favour because the Hawaii State Court decided the same questions, on the basis of the same evidence, and between the same parties, as this court must decide in this application, relying upon Danyluk v. Ainsworth Technologies Inc., 2001 SCC 44, [2001] 2 S.C.R. 460, at para. 25.

[4] Article V of Schedule 1 to the ICAA, subsection (1)(b).

[5] Article V of Schedule 1 to the ICAA, subsection (2)(b).

[6] Other grounds were originally relied upon, including challenges to the validity of the Loan Documents, and, in particular, the Secured Guaranty, but those grounds were abandoned.

[7] In their factum on the Fresh Evidence Motion, among other places.

[8] Whether that was sufficient for the law firm to consider itself to have been properly retained by the Dus is a different question that this court need not consider or determine. According to the Dus, TDH commenced proceedings in China against Guantao lawyers in relation to the forged power of attorney. Mrs. Du has also filed a complaint against Guantao in China. Those matters are not before this court.