COURT FILE NO.: CV-22-00681030-00CL

DATE: 20240515

ONTARIO

SUPERIOR COURT OF JUSTICE [Commercial List]

BETWEEN:

SHANGHAI LIANYIN INVESTMENT CO. LTD.

Plaintiff

– and –

ZHENG YAO LU aka CHARLES LU, LICHUN GUO aka GUO LI CHUN

Defendants

DATE HEARD: May 1, 2024

BEFORE: Justice Jana Steele

COUNSEL:

Nathan Shaheen and Shaan Tolani, counsel for Shanghai Lianyin Investment Co., Ltd.

Ian Matthews and Shereen Khalfan, counsel for Zheng Yao Lu

Sarah Kemp, counsel for Lichun Guo

ENDORSEMENT

Overview

[1] The plaintiff, Shanghai Lianyin Investment Co., Ltd. (“SLIC”), brings a motion seeking the recognition of a foreign arbitral award. The defendant, Zheng Yao Lu (“Lu”), characterizes the plaintiff’s motion as a partial summary judgment motion. Lu takes the position that SLIC’s motion does not satisfy the test for granting partial summary judgment as set out in the case law.

[2] For the reasons set out below, the Arbitral Award shall be made enforceable as a judgment of this Court. Further, I am satisfied that partial summary judgment is appropriate.

Background

[3] Lu founded UCAR Inc. which is a publicly traded company that provides chauffeured cars and other services to customers in China. Lu is UCAR’s largest shareholder and Chairman of the Board.

[4] SLIC entered into a Share Subscription and Capital Increase Agreement (the “Subscription Agreement”) with UCAR pursuant to which SLIC acquired a significant number of UCAR shares for over CAD $470 million.

[5] At the same time as SLIC entered into the Subscription Agreement, SLIC also entered into an agreement with Lu in his personal capacity (the “Supplemental Agreement”). Under this Supplemental Agreement, Lu and SLIC agreed that the price of UCAR’s shares had to reach a certain threshold by May 8, 2020, and if they failed to do so, then Lu would have to make a cash payment to SLIC in the amount of the difference.

[6] The share price of UCAR was short of the target under the Supplemental Agreement. As a result, Lu became liable under the Supplemental Agreement to pay SLIC RMB 1,189,535,620, which was more than CAD $233 million.

[7] When Lu failed to make payments to SLIC, SLIC commenced arbitration before China International Economic and Trade Arbitration Committee (“CIETAC”), in accordance with the arbitration clause in the Supplemental Agreement.

[8] In accordance with the Supplemental Agreement and the CIETAC rules, an arbitral panel consisting of one member selected by each of Lu and SLIC and a final member selected by the CIETAC Chairman was seated.

[9] The arbitration was heard in August 2020 and CIETAC rendered the Arbitral Award on October 5, 2020.

[10] In the final and binding Arbitral Award, CIETAC determined that Lu is liable to SLIC for RMB 1,189,535,620, in addition to other amounts particularized in the award. The Arbitral Award came into effect on the day it was rendered, October 5, 2020.

[11] Following the Arbitral Award, Lu failed to make any payment owing to SLIC.

[12] In May 2022, SLIC commenced the action in this court.

[13] This motion was originally scheduled for July 2022. Both parties assert that the other is responsible for delays in advancing these proceedings. Among other things, Lu advanced certain procedural arguments, including the argument that he had not been served with the statement of claim, which were rejected by this Court, and leave to appeal was refused.

Analysis

Should the Arbitral Award be recognized and made enforceable as a judgment of this Court?

[14] I am satisfied that the Arbitral Award should be recognized and made enforceable as a judgment of this Court.

[15] Section 2(1) of the International Commercial Arbitration Act, 2017, S.O. 2017, c. 2, Sch. 5 (the “Arbitration Act”), incorporates the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “Convention”):

Subject to this Act, 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 10 June 1958 and set out in Schedule 1, has force of law in Ontario in relation to arbitral awards or arbitration agreements in respect of differences arising out of commercial legal relationships.

[16] Article III of the Convention requires that “[e]ach Contracting State shall recognize arbitral awards as binding and enforce them in accordance with the rules of procedure of the territory where the award is relied upon”. The Convention further sets out the conditions for recognition in Article IV:

1. To obtain the recognition and enforcement mentioned in [Article III], the party applying for recognition and enforcement shall, at the time of the application, supply:

a. The duly authenticated original award or a duly certified copy thereof;

b. The original agreement referred to in article II [the agreement under which the parties undertake to submit differences to arbitration] or a duly certified copy thereof.

2. If the said award or agreement is not made in an official language of the country in which the award is relied upon, the party applying for recognition and enforcement of the award shall produce a translation of these documents into such language. The translation shall be certified by an official or sworn translator or by a diplomatic or consular agent.

[17] SLIC has complied with the mandatory terms set out in Article IV of the Convention. SLIC has provided certified copies of the Arbitral Award and the Supplemental Agreement, along with certified translations of both documents.

[18] There are limited grounds under which the recognition and enforcement of the foreign arbitral award may be refused set out in Article V, which I have summarized as follows:

i. The parties to the agreement under which they agreed to submit differences to arbitration were under some incapacity, or the agreement is not valid under the law of one of the countries;

ii. The responding party was not given proper notice of the appointment of the arbitrator or the proceedings;

iii. The award deals with matters that do not fall within the terms submitted to arbitration or it contains decisions on matters beyond the scope of the submission to arbitration;

iv. The composition of the arbitral authority or the arbitral procedure was not in accordance with the parties’ agreement or was not in accordance with the law of the country where the arbitration occurred;

v. The award has not yet become binding on the parties or has been set aside or suspended in the country where the award was made;

vi. The subject matter of the difference is not capable of settlement by arbitration under the law of that country; or

vii. The recognition and enforcement of the award would be contrary to the public policy of that country.

[19] Lu has not provided any evidence that any of the grounds upon which the Court may refuse to recognize and enforce the Arbitral Award are present in this case.

[20] In Yugraneft Corp v. Rexx Management Corp, 2010 SCC 19, [2010] S.C.R. 649, at para. 9, the Supreme Court of Canada confirmed that recognition of a foreign arbitral award may only be refused on “limited grounds:”

The purpose of the Convention is to facilitate the cross-border recognition and enforcement of arbitral awards by establishing a single, uniform set of rules that apply worldwide. It requires each Contracting State to recognize and enforce arbitral awards made in the territory of another State, and that recognition and enforcement can only be refused on the limited grounds set out in art. V (see Appendix B). Pursuant to art. I, the obligation to recognize foreign awards applies not only to awards granted in other Contracting States, but also to those granted in all States other than the one in which enforcement is being sought, regardless of whether or not they are party to the Convention.

[21] None of the limited grounds upon which the Court may refuse recognition exist. The Arbitral Award shall be recognized as an enforceable judgment of this court.

Does the recognition and enforcement of the Arbitral Award amount to improper partial summary judgment?

[22] Although what the plaintiff requests is a partial summary judgment, it is not improper.

[23] The plaintiff’s amended statement of claim sets out what the plaintiff calls “two distinct stages.” The plaintiff submits that as a threshold matter, SLIC seeks judgement pursuant to the Arbitration Act recognizing and making enforceable as a judgment of this Court the Arbitral Award.

[24] The plaintiff submits that if SLIC is successful on the threshold matter and judgment is granted, then at state two, SLIC claims against Lu and the other defendant, Lu’s wife, Lichun Guo (“Guo”), for, among other things, a declaration that Guo holds her interest in two Ontario real properties for and on behalf of Lu and that SLIC may enforce the judgment against those properties. The structure of the Amended Statement of Claim reflects the plaintiff’s submission:

1. The plaintiff, Shanghai Lianyin Investment Co., Ltd. (“SLIC”), claims against the defendant Zheng Yao Lu aka Charles Lu (“Charles Lu”):

a. Judgment pursuant to the International Commercial Arbitration Act, 2017 (Ontario) recognizing and making enforceable as a judgment of this Court the arbitral award of the China International Economic and Trade Arbitration Commission (“CIETAC”) dated October 5, 2020 (the “Arbitral Award”), which was granted in favour of SLIC against the defendant Charles Lu (“Judgment”).

2. If Judgment is granted, in order to facilitate its enforcement, SLIC claims against Charles Lu and the other defendant, Lichun Guo aka Guo Li Chun (“Lichun Guo”):

a. A declaration that the defendant Lichun Guo holds all right, title and interest in and to the following Ontario properties for and on behalf of Charles Lu, and that those properties form part of Charles Lu’s assets in Ontario:

b. A declaration that SLIC is entitled to enforce the Judgment against the Properties on the basis that the Properties are owned by, or held by or for the benefit of, Charles Lu, whether directly or indirectly, including, without limitation, under a resulting trust.

[25] Lu submits that the relief sought on this motion amounts to partial summary judgment and the Court must therefore determine “whether, in the circumstances, partial summary judgment will achieve the objectives of proportionate, timely, and affordable justice or, instead, cause delay and increase expense:” Malik v. Attia, 2020 ONCA 787, 29 R.P.R. (6th) 215, at para. 61.

[26] What the plaintiff asks is, in effect, partial summary judgment, because the two stages are contained in the same action. Accordingly, I agree that the Court must consider “whether partial summary judgment [is] appropriate in the context of the litigation as a whole:” Butera v. Chown, Cairns LLP, 2017 ONCA 783, 137 O.R. (3d) 561, at para. 38.

[27] In Butera, at paras. 30-35, the Court of Appeal cautioned that in considering whether partial summary judgment is appropriate in “the context of the litigation as a whole”, the Court should consider the following factors:

i. Whether the rest of the main action will be delayed;

ii. The additional cost of summary judgment, which may result in only a partial adjudication of the issues;

iii. The additional burden on judicial resources in hearing and addressing a motion that does not dispose of the action; and

iv. The risk of inconsistent findings.

[28] In Malik, at para. 62, the Court of Appeal set out three enquiries that must be considered in a summary judgment motion. The parties are required to:

i. Demonstrate that dividing the determination of [a] case into several parts will prove cheaper for the parties;

ii. Show how partial summary judgment will get the parties’ case in and out of the court system more quickly; [and]

iii. Establish how partial summary judgment will not result in inconsistent findings by the multiple judges who will now touch the divided case.

[29] The recognition aspect of this action is discrete. It is a threshold issue to the other relief sought in the action. That is, unless the Court determines that the foreign Arbitral Award shall be recognized as a judgment of this Court, the other relief sought becomes redundant. Guo would not need to be involved if the recognition aspect was not determined in favour of the plaintiff.

[30] There is no risk here of inconsistent findings if stage one is determined now and stage two at a later date. As noted by the plaintiff, none of the factual or legal matters relevant to this motion are relevant to the issues to be addressed at stage two.

[31] I agree with the plaintiff’s submission that the recognition of the Arbitral Award can clearly be bifurcated from the rest of SLIC’s action and dealt with in an expeditious and cost-effective manner.

[32] Lu’s position is that dividing the case into two tracks will not get any party in and out of the court system more quickly. Lu submits that the two-track approach will require him to engage on multiple fronts simultaneously. The remainder of this action will proceed to discoveries and then to trial. Lu posits that if SLIC is granted partial summary judgment on track one, SLIC will resort to post-judgment enforcement measures against Lu under Rule 60. Further, if the plaintiff is successful on the second stage of the action, SLIC will again be entitled to use enforcement measures under Rule 60 within the same action.

[33] Lu owes SLIC the equivalent of more than $233 million CAD further to the Arbitral Award that was made three and half years ago. Lu has not paid SLIC. Stage one of the plaintiff’s action simply asks the Court to do what it is required to do in the circumstances and recognize the Arbitral Award. Stage two of the action relates to certain real properties in Ontario in respect of which the plaintiff seeks declarations, to facilitate enforcement of the Arbitral Award. Stage two also includes the defendant Guo.

[34] While I understand that it is possible that Lu may be subject to enforcement measures under Rule 60 in respect of both stages, the determination of stage one today and stage two later should not delay the end point of the proceedings. While it may not shorten the proceedings, the partial summary judgment should not extend the time either.

[35] Further, although Zakhary v. Age-Less Dermal Therapy Inc., 2015 ONSC 5428, 27 C.B.R. (6th) 328, leave to appeal to the Divisional Court dismissed at Kristina Zakhary Prof. Corp. v. Age-Less Dermal Therapy Inc., 2015 ONSC 7736, 33 C.B.R. (6th) 117, relied upon by the plaintiff, involved two actions, I am satisfied that a party may be exposed to multiple examinations on the same issues. At para. 16 of the Divisional Court decision, Molloy J. noted that it was not in the interests of justice to further delay the matter:

[...] I see not injustice to Ms. Palmer if she is subjected to more than one examination on related topics. The plaintiffs could have examined her in aid of execution and then immediately turned around and started their second action. Two examinations would be the inevitable result. Further delay in this matter is not in the interests of justice.

[36] I also note that in Malik the amount of money in dispute was $100,000. The Court of Appeal stated, at para. 64, that the “case involves a modest amount of money, when assessed in proportion to the high costs of litigating civil cases in Ontario courts.” That is not the case here. SLIC’s action involves a significant amount of money, and there has already been a finding by an arbitral panel three and half years ago that Lu must pay it to SLIC. Delay has already occurred, in part because of the procedural matters raised by Lu. If Lu has assets, there is no reason to further delay SLIC’s recovery.

[37] For the same reasons, I also decline Lu’s request to stay the enforcement of the Arbitral Award under Rule 20.08 pending the outcome of this action.

Disposition and Costs

[38] The Arbitral Award shall be recognized as an enforceable judgment of this Court.

[39] Lu shall pay the plaintiff’s partial indemnity costs fixed in the amount of $17,750 (inclusive of taxes and disbursements).

J. Steele J.

Released: May 15, 2024

COURT FILE NO.: CV-22-00681030-00CL

DATE: 20240515

ONTARIO

SUPERIOR COURT OF JUSTICE [Commercial List]

BETWEEN:

SHANGHAI LIANYIN INVESTMENT CO. LTD.

Plaintiff

– and –

ZHENG YAO LU aka CHARLES LU, LICHUN GUO aka GUO LI CHUN

Defendants

ENDORSEMENT

J. Steele J.

Released: May 15, 2024