Court File and Parties
COURT FILE NO.: CV-23-00692504-00CL DATE: 20230717 ONTARIO - SUPERIOR COURT OF JUSTICE – COMMERCIAL LIST
APPLICATION UNDER the UNCITRAL Model Law on International Commercial Arbitration and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards being Schedules to the International Commercial Arbitration Act, 2017, S.O. 2017, c. 2, Sched. 5.
RE: Prospector PTE. Ltd., Applicant AND: CGX Energy Inc., Respondents
BEFORE: Peter J. Osborne J.
COUNSEL: Junior Sirivar and Gregory Ringkamp, for the Applicant Nick Carmichael and Kimberly Potter, for the Respondent
HEARD: March 29, 2023
Endorsement
Context for this Application
[1] This Application is brought pursuant to the International Commercial Arbitration Act, 2017 (the “ICAA”) and particularly Schedule 5. The UNCITRAL Model Law on International Commercial Arbitration and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards are Schedules to the ICAA.
[2] The ICAA provides for and governs the recognition and enforcement of foreign arbitral awards in Ontario. The Applicant seeks recognition and enforcement of two arbitral awards rendered by an arbitration tribunal appointed by the International Chamber of Commerce International Court of Arbitration in the United Kingdom.
[3] The ICAA provides that recognition of a foreign arbitral award as binding and enforceable in Ontario is mandatory, unless the party against which the award is sought to be enforced can establish that one of the enumerated exceptions in the Schedules applies. If it does, there remains a discretion in the Court to recognize and enforce the award.
The Parties and the Underlying Contractual Dispute
[4] The Applicant, Prospector, is a Singapore company. It conducts and analyses the results of offshore seismic surveys. The Respondent, CGX Energy, is an Ontario-based oil and gas exploration company.
[5] The arbitration related to a contractual dispute arising out of the acquisition and processing of marine seismic data. The parties had entered into an acquisition agreement on September 26, 2014, pursuant to which Prospector agreed to conduct a 3D seismic survey of a defined area off the coast of Guyana. CGX agreed to pay Prospector for the services.
[6] Payment was not made. The parties entered into an addendum agreement in October, 2016 pursuant to which Prospector agreed to process the 3D seismic survey data in exchange for the performance of certain obligations by CGX.
[7] A dispute arose. Prospector alleged that CGX had breached its obligations and it suspended delivery of the seismic data. When it was ultimately delivered, CGX alleged that it was late and that the data delivered was of poor quality.
[8] The acquisition agreement and the addendum agreement provided that the parties had agreed to submit all disputes to binding ICC arbitration.
[9] Accordingly, on July 20, 2018, Prospector referred the dispute to ICC arbitration, asserting breach of contract and claiming the amounts owing. CGX asserted a contractual counterclaim. If successful, that counterclaim would have effectively nullified any right of recovery in Prospector.
The Arbitration
[10] Following an arbitration hearing in London, England in March and April 2022, including evidence and submissions, the arbitration tribunal allowed Prospector’s Claim and dismissed CGX’s counterclaim. It rendered two arbitral awards.
[11] The first was a Partial Final Award rendered on September 13, 2022 dismissing the counterclaim of CGX and awarding Prospector USD $10,055,687.44 pursuant to the agreements.
[12] The second was a Final Award rendered on November 30, 2022 pursuant to which Prospector was awarded additional interest and costs with the result that pursuant to the two awards, CGX owes Prospector USD $14,807,372.20 together with post-award interest.
Proceedings in the United Kingdom to Challenge the Awards
[13] On October 11, 2022, CGX brought an application to the High Court of Justice, Business and Property Courts, Commercial Court pursuant to section 68 of the UK Arbitration Act 1966 in which it challenged and sought an order setting aside certain components of the Partial Final Award.
[14] In summary, CGX based its application on the argument that the arbitration tribunal improperly dismissed its counterclaim on the basis that Prospector had not advanced and to which CGX had not been given any opportunity to respond. Accordingly, CGX submitted, this constituted a breach of the general duty by the arbitral tribunal under section 33 of the UK Arbitration Act, and that in turn was a serious irregularity within the meaning of section 68 of the UK Arbitration Act, and resulted in a substantial injustice to CGX.
[15] Prospector applied for a dismissal of the application without a hearing as is permitted in the UK. The UK High Court granted that dismissal on December 19, 2022, observing that:
“The Claimant [CGX] failed to adduce sufficient evidence to satisfy the arbitration tribunal on its counterclaim. On the evidence before it the tribunal regarded the counterclaim as speculative. The tribunal, as the dispute resolution forum chosen by the parties, was fully entitled to reach the decision it did. The section 68 challenge has no prospect of success”.
[16] CGX moved before the High Court, as permitted under the UK Civil Procedure Rules, for an order setting aside the dismissal. That application to set aside was itself dismissed on March 3, 2023, and the High Court found that there were no irregularities in the arbitral proceedings. CGX was ordered to pay to Prospector the equivalent of full indemnity costs.
This Application and the Positions of the Parties
[17] The challenge proceedings in the UK having come to an end, Prospector brought this application for recognition and enforcement of the Partial Final Award and the Final Award in Ontario. CGX opposes the relief sought and asks this Court to exercise its discretion not to enforce the awards. That is the sole issue on this Application.
[18] The parties are in general agreement as to the applicable provisions. The ICAA provides that both the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, adopted by the United Nations Conference on International Commercial Arbitration in New York on June 10, 1958 (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”), have the force of law in Ontario. Both the Convention and the Model Law are set out as Schedules to the ICAA.
[19] This Court must recognize and enforce a foreign arbitral award unless the responding party can demonstrate one of the limited grounds of exception set out in the Convention or Model Law to decline enforcement.
[20] One of those grounds include circumstances where “the party against whom the award is invoked was unable to present his case”. This ground permits a challenge to the enforcement in recognition of an arbitral award based on procedural unfairness: Consolidated Contractors Group S.A.L. (Offshore) v. Ambatovy Minerals S.A., 2017 ONCA 939, leave to appeal to S.C.C. refused, , at para. 63.
[21] CGX submits that I should exercise my discretion to refuse to recognize and enforce the awards since they were procedurally unfair. As noted above, CGX asserted in its UK counterclaim that the processed data required to be delivered by Prospector was delivered late and was of poor quality.
[22] As a consequence, CGX submitted, it entered into an agreement with a third party, WesternGeco LLC, a geophysical services company, for the reprocessing of the inadequate data it had received from Prospector.
[23] CGX argued that if Prospector had met its obligations and provided processed data of adequate quality on time, CGX would have been in a position to take advantage of favourable market conditions to conclude an arrangement with a third party investor which in turn would have enabled it to drill exploratory wells in 2018 and/or 2019. As a result of Prospector’s breach of the agreements, and particularly the addendum agreement however, CGX lost this opportunity and suffered damages as a result.
[24] The position of CGX was that Prospector did not raise WesternGeco’s re-processed data as an issue in the Arbitration. That issue only arose, it argued, when the arbitration tribunal itself asked questions of the witness for CGX about his knowledge on the point.
[25] There followed an exchange between counsel for CGX and the arbitration panel in which counsel stated that “he would wish to reserve his position on in relation to adducing further evidence that may be necessary to address the topic”. In closing submissions, counsel for CGX reiterated his position that CGX could adduce evidence if necessary. (Affidavit of Gavin Foggo, Exhibit “I”, Transcript, Day 3, and Exhibit “L”, Closing Submissions).
[26] CGX therefore submitted that it counterclaim should succeed. As stated, the arbitration tribunal dismissed that counterclaim.
[27] The UK High Court then dismissed the challenge by CGX to the arbitral award in which it (CGX) argued that it was procedurally unfair for the arbitration tribunal to rely on the absence of such evidence to dismiss the counterclaim, observing that the challenge had “no prospect of success”. The High Court then dismissed the request by CGX to set aside that dismissal.
[28] CGX now challenges the enforcement and recognition of those arbitral awards on the very same ground: it was denied the opportunity to fully present its case, and that constitutes a procedural unfairness with the result that the awards should not be recognized in Ontario.
Analysis and Decision
[29] As observed by the Court of Appeal in Consolidated Contractors at para. 18, the Model Law provides a standard process for the conduct of international commercial arbitrations. Pursuant to Article 5, “In matters governed by this Law, no court shall intervene except were so provided in this Law.”
[30] I accept the submission that the Convention and the Model Law, according to their own terms and as recognized by the Supreme Court of Canada, provide that a court must recognize and enforce a foreign arbitral award unless the respondent can establish one of the limited grounds to decline enforcement. Those grounds are to be construed narrowly: Yugraneft Corp. v. Rexx Management Corp., 2010 SCC 19, [2010] 1 S.C.R. 649, at para. 9; and Popack v. Lipszyc, 2018 ONCA 635, 141 O.R. (3d) 561, at para. 40.
[31] Article 34 of the Model Law identifies the circumstances under which an international commercial arbitral award can be set aside by a domestic court. Also as observed by the Court of Appeal, the grounds are narrow:
a. incapacity of a party or legal invalidity of the agreement; b. absence of notice or an opportunity to present the party’s case (i.e. procedural unfairness); c. absence of jurisdiction; d. non-compliance with the arbitration agreement concerning the tribunal’s composition or procedure; e. non-arbitrability of the dispute; and f. a conflict between the award and domestic public policy (Consolidated Contractors, at para. 20).
[32] The relevant provisions of Article 34 are as follows:
(2) An arbitral award may be set aside by the court specified in article 6 only if:
(a) the party making the application furnishes 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 this State, or
(ii) the party making the application 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 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, only that part of the award which contains decisions on matters not submitted to arbitration may be set aside, or
(iv) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Law from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Law; or
(b) 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 award is in conflict with the public policy of this State.
[33] As stated by the Court of Appeal in Consolidated Contractors at paras. 23 and 24:
a reviewing court cannot set aside an international arbitral award simply because it believes that the arbitral tribunal wrongly decided a point of fact or law: see Quintette Coal Ltd. v. Nippon Steel Corp. (1990), 47 B.C.L.R. (2d) 201 (S.C.), aff’d , [1991] 1 W.W.R. 219 (B.C.C.A.), leave to appeal refused, [1990] S.C.C.A. No. 431; Corporacion Transnacional de Inversiones S.A. de C.V. v. STET International S.p.A. (1999), 45 O.R. (3d) 183 (S.C.), aff’d (2000), 49 O.R. (3d) 414 (C.A.), leave to appeal to refused, [2000] S.C.C.A. No. 581.
Moreover, this court has repeatedly held that reviewing courts should accord a high degree of deference to the awards of international arbitral tribunals under the Model Law: see United Mexican States v. Cargill Inc., 2011 ONCA 622, 107 O.R. (3d) 528, at para. 33; United Mexican States v. Karpa (2005), 74 O.R. (3d) 180 (C.A.), at paras. 34-37.
[34] The Court of Appeal went on to state that the standard of review with respect to a challenge pursuant to Article 34(2)(a)(ii) based on procedural unfairness where a party was “otherwise unable to present his case” was very narrow.
[35] The English law appears to be to the effect that there must be “such a mishandling of the arbitration as to likely amount to some substantial miscarriage of justice”. Observing that there were few cases in Canada addressing the standard of review under this Article, the Court of Appeal quoted with approval from the decision of Lax, J. in Corporacion Transnacional de Inversiones S.A. de C.V. v. STET International S.p.A., to the effect that “judicial intervention for alleged violations of the due process requirements of the Model Law will be warranted only when the Tribunal’s conduct is so serious that it cannot be condoned under the law of the enforcing State”: Consolidated Contractors, at paras. 64 and 65.
[36] In my view, CGX cannot meet this test. I accept the submission of Prospector that the basic chronology is unchallenged: CGX, a sophisticated commercial party, freely entered into the arbitration agreement. That agreement was valid under English law. Proper notice of the arbitral proceedings pursuant to the agreement was given, and CGX fully participated in the arbitration proceeding, represented by counsel throughout.
[37] I am also satisfied that the dispute referred to above, which principally arises out of the addendum agreement, fell within the scope of the arbitration agreement. The parties agreed to Terms of Reference to the arbitration which provided that the arbitration agreement would apply to disputes arising out of the addendum (Affidavit of Zhu Baoming, Exhibit “D”).
[38] That agreement was the basis for the statement of the arbitration tribunal in the Partial Final Award that “the jurisdiction of the Tribunal to determine the claims and counterclaims arising between Prospector and CGX is not disputed” (Affidavit of Zhu Baoming, Exhibit “C”, Partial Final Award).
[39] The awards rendered by the arbitration tribunal are final and binding in the UK, because the section 68 application challenge and the subsequent application for reconsideration were both dismissed and all applicable time periods have now long expired.
[40] I do not accept the argument that enforcing the arbitral award here would offend public policy. The purpose of the public policy exception to enforcement is to “guard against enforcement of an award which offends our local principles of justice and fairness in a fundamental way, and in a way which the parties could attribute to the fact that the award was made in another jurisdiction where the procedural or substantive rules diverge markedly from our own, or where there was ignorance or corruption on the part of the tribunal which could not be seen to be tolerated or condoned by our courts”: Schreter v. Gasmac Inc. (1992), 7 O.R. (3d) 608 (Gen. Div.).
[41] The Court of Appeal in Consolidated Contractors expressed it this way: “the conduct of the tribunal [is] sufficiently serious to offend our most basic notions of morality and justice” (para. 56).
[42] That is simply not the case here. The parties agreed to arbitrate their dispute pursuant to agreed-upon Terms of Reference, subject to the laws of England and Wales. The parties then did exactly that. There is simply nothing in what occurred in the arbitration that offends our principles of justice and fairness in a fundamental way.
[43] The counterclaim of CGX asserted a claim for damages based on an alleged loss of opportunity: if the seismic data of sufficient quality had been delivered on time, it could have attracted greater investment. The response to the counterclaim was that it was speculative in nature. That was squarely the issue.
[44] I accept the submission of Prospector to the effect that, to succeed on the counterclaim, CGX would have to adduce some evidence to show that the seismic data, if delivered on a timely basis and of sufficient quality, would have attracted the investors. In other words, it would have allowed CGX to exploit the opportunity that CGX alleges was lost.
[45] The arbitration tribunal found that CGX had failed to prove its counterclaim (Partial Final Award, paras. 199 – 201):
…[I]t was important for CGX to satisfy the Tribunal, by reference to the best evidence available to it, that had data of satisfactory quality been provided in or around June 2017 it would have shown prospects of success of future petroleum operations sufficiently certain to attract third party investors.
CGX has failed to adduce such evidence, notwithstanding that WesternGeco finished its reprocessing work in June 2021. There is therefore an important lacuna in the evidence that CGX has put forward in support of its case.
In these circumstances, the Tribunal accepts Prospector’s submission that CGX’s claim is speculative…”
[46] On the basis of the record before me, I cannot conclude that the counterclaim of CGX was dismissed without CGX having had an opportunity to address it. On the contrary, the arbitration tribunal found that it simply failed to succeed in meeting its evidentiary burden to prove the counterclaim.
[47] It follows that there is nothing in that conclusion of the arbitration tribunal that offends our principles of justice and fairness at all, let alone in a fundamental way.
[48] A review of the Partial Final Award is clear about the basis for the conclusion of the High Court that the section 68 Application “had no prospect of success”. The High Court addresses repeatedly the basis for the counterclaim, the argument that CGX lacked the opportunity to present evidence, and the conclusion of the arbitration tribunal that the claim was, as a result, speculative: see in particular paras. 6, 14, 15, 16, 17, 18, 36 and 37.
[49] Prospector also argues that issue estoppel should apply here to prohibit CGX from arguing the same issue already determined by the English court.
[50] Issue estoppel may apply to questions finally decided in a foreign court if: i) the same question was decided; ii) the judicial decision was final; and iii) the parties to the decision or their privies were the same persons as the parties to the proceedings in which the estoppel is raised or their privies: Janet Walker, Canadian Conflict of Laws, 6th Ed., LexisNexis Canada Inc. 10.01, 2023 Update.
[51] CGX accepts and agrees with that formulation of the test, but submits that the requirements for issue estoppel are not met in this case since the question to be decided is different. I do not agree.
[52] In the Partial Final Award, that Court stated:
The Claimant [CGX] failed to adduce sufficient evidence to satisfy the arbitration tribunal on its counterclaim. On the evidence before it the tribunal regarded the counterclaim as speculative. The tribunal, as the dispute resolution forum chosen by the parties, was fully entitled to reach the decision it did…
[53] The UK High Court then declined to reconsider its decision dismissing the section 68 application. In so doing, it confirmed for a second time that the issues are identical:
[6] ...the Tribunal dismissed CGX’s counterclaim on the basis of a point that had not been raised by either side, which CGX never had any opportunity to address. That point was the absence of evidence from CGX addressing the results of seismic data re-processing that had been carried out by WesternGeco in parallel with the Arbitration, which led the Tribunal to conclude that CGX’s case on causation and loss was speculative.
[54] CGX frames the issue in these proceedings as follows:
[3] [T]he Tribunal dismissed CGX’s counterclaim on the basis of an issue that Prospector had not raised, and to which CGX was not given an opportunity to respond. …
[28] …it was procedurally unfair for the Tribunal to rely on the absence of [the WesternGeco] evidence to dispose of CGX’s counterclaim….
[55] I am satisfied that the question is the same, with the result that all of the requirements for issue estoppel are met here for the reasons set out above.
[56] For all of the above reasons, Prospector is entitled to have the arbitral award enforced here.
Costs
[57] Both parties made submissions on costs and sought costs in the cause; i.e., in the event that each was successful on this Application. Both parties submitted, and I agree, that an award of costs on a partial indemnity basis would be appropriate here.
[58] Prospector submitted a Bill of Costs for $92,245.05, inclusive of partial indemnity fees, disbursements and HST.
[59] CGX submitted a Bill of Costs on the same basis in the amount of $59,331.74.
[60] Prospector submits that it is logical that its costs would be higher, since it had to prepare the Application Record setting out the chronology of the matter and the evidentiary basis of the English proceedings relied on by both parties.
[61] Considering the factors set out in Rule 57.01, I am satisfied that Prospector, as the successful party, is entitled to its partial indemnity costs, and that an appropriate award of costs in this matter is $75,000, inclusive of disbursements and HST.
Result and Disposition
[62] The Application is allowed with costs.
[63] The arbitral award of the International Chamber of Commerce tribunal dated September 13, 2022 shall be, and hereby is, recognized by this Court and may be enforced pursuant to the ICAA.
[64] Order to go in accordance with these Reasons.
[65] I am grateful to all counsel for the efficient and cooperative manner in which this matter proceeded, and for their facta and oral submissions.
Osborne J.