This article was first published in the Arbitration Matters Blog, here.
In Wang v. Luo, 2022 ONSC 5544, Justice LeMay, sitting as an Ontario Divisional Court judge, upheld the enforcement of a foreign arbitral award rendered under the auspices of the China International Economic and Trade Arbitration Commission (“CIETAC”). He rejected the Appellant’s arguments that the Superior Court of Justice erred in enforcing the award, including an argument that enforcement was improper given the Respondent’s previous attempt to pursue its claim before the Ontario Small Claims Court.
Background– The Appellant was a commissioned salesperson for a lobster supplier. He concluded an agreement with the Respondent for the sale of approximately 1,000 pounds of live lobster. The Parties’ agreement included the following dispute resolution clause (the “Clause”):
“All disputes arising from the execution of this agreement shall be settled through friendly consultations. In case no settlement can be reached, the case in dispute shall then be submitted to the Foreign Trad [sic] Arbitration Commission of the China Council for the Promotion of International Trade for Arbitration in accordance with its Provisional Rules of Procedure. The decision made by this commission shall be final and binding upon both parties. Arbitration fees shall be borne by the losing party unless otherwise awarded.”
The named Foreign Trade Arbitration Commission was CIETAC’s predecessor, a point the Parties did not contest before the Court.
The dispute arose when the Appellant’s employer never shipped the lobster. The Respondent sued in the Ontario Small Claims Court. The parties proceeded to a settlement conference but failed to resolve their dispute. The presiding Small Claims Court Deputy judge issued an endorsement stating the matter “may” proceed to trial. However, the Respondent declined to move the court claim forward and opted instead to pursue arbitration under the Clause. Despite having been notified of the proceeding, the Appellant declined to participate. The tribunal ultimately rendered an award in the Respondent’s favour.
Enforcement proceedings – The Respondent sought to enforce the CIETAC award before the Small Claims Court. That Court declined jurisdiction since ICAA 2017 section 3 vests authority to enforce awards under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (Schedule I of the ICAA 2017, the “New York Convention”) in the Ontario Superior Court of Justice.
The Respondent then commenced an enforcement application in the Superior Court. The application judge made an order enforcing the award. The Appellant appealed the application judge’s enforcement decision to the Divisional Court.
The Divisional Court’s Decision – The Appellant argued the application judge erred in enforcing the award, offering four arguments:
1. The Respondent lost the right to pursue arbitration when he “attorned” to the Small Claims Court’s jurisdiction.
2. CIETAC did not properly notify the Appellant of the proceeding.
3. The Parties were not ad idem on the Clause.
4. The Clause was unconscionable.
Justice LeMay rejected all of these arguments.
On the first argument, Justice LeMay began by noting the concept of “attornment” generally applies to defendants who accept a court’s jurisdiction through conduct where the court would otherwise lack jurisdiction over that party. This was not the case here since the “attorning party” was the plaintiff. He also distinguished the authorities upon which the Appellant relied. Importantly, he noted the absence of evidence showing the Respondent “had an unequivocal or conscious intention to abandon or waive the right to arbitration”. Justice LeMay also rejected the argument that, having commenced the Small Claims Court proceeding, the Respondent had a duty to advance that claim to trial. He relied on the fact that the Small Claims Court Judge’s settlement conference endorsement said the Respondent “may” set the matter down for trial.
On the second argument, Justice LeMay reviewed the record and concluded the Appellant had proper notice of the CIETAC proceedings. CIETAC in fact attempted to serve the Appellant and invited him to participate on four occasions.
Justice LeMay dealt summarily with the third and fourth arguments, neither of which were raised before the application judge.
With respect to the Parties’ alleged lack of consensus ad idem on the Clause, Justice LeMay observed that the parties had a signed agreement, and that there was no basis in the record to look behind it. It does not appear the Appellant led any evidence of fraud or any other indication that his consent to arbitrate was vitiated.
The unconscionability argument was similarly unsuccessful since it had no basis in the record. The Appellant baldly alleged that the cost of flying to Beijing to participate in an arbitration hearing would have been prohibitive. There was no evidence proving the costs of a flight to Beijing, how often the Appellant traveled to Beijing on business or whether CIETAC could conduct hearings remotely.
In the result, Justice LeMay dismissed the appeal, with costs.
First, Justice LeMay agreed that the Small Claims Court lacks jurisdiction to enforce an arbitral award under the ICAA 2017. The Court based this on the fact that ICAA 2017 section 3 vests enforcement authority in the Superior Court of Justice. Although subsection 22(1) of the Ontario Courts of Justice Act. RSO 1990, c C.43,states at section 22 that the Small Claims Court is a branch of the Superior Court, the Court opted to read ICAA 2017 section 3 narrowly. This is likely the correct approach.
It is worth noting that there is authority, albeit under the Arbitration Act, 1991, SO 1991 c. C-17, that the Small Claims Court is a “Court” as defined in that statute [see: Evergreen Solutions Ca Inc v Depositario, 2014 CanLII 41038 (ON SCSM), aff’d 2015 ONSC 6664 (Div. Ct.)]. One might suggest this authority should apply under the ICAA 2017 by analogy.
There are at least three reason to doubt that authority, however. First, the Court in that case does not appear to have grappled with the fact that enforcement of an award under the Arbitration Act, 1991 (and the ICAA 2017)occurs by way of an application, a procedure that is not available in the Small Claims Court. Second, due to the limits on its remedial jurisdiction, the Small Claims Court is incapable of performing many of the functions required of the “Court” under both the ICAA 2017 and the Arbitration Act, 1991, such as ordering interim measures and hearing applications to set aside an award. The Small Claims Court also lacks the authority to appoint a receiver [Bruyea v. Canada (Veteran Affairs), 2019 ONCA 599]. Finally, it has been held that the Ontario Court of Justice and the Divisional Court fall outside the definition of “Court” in the Arbitration Act, 1991 [Siddiqui v. Juzkiw, 2018 ONSC 1230 (Div. Ct.); Universal Settlements International Inc. v. Duscio, 2011 ONSC 41 (Div. Ct.)]. The same result would likely be reached in interpreting section 3 of the ICAA 2017. It would be curious if the Small Claims Court were not similarly excluded.
Second, to the extent the Appellant’s waiver argument (or an argument predicated on abuse of process) had merit, the proper venue to advance it would have been before the arbitral tribunal. The Appellant decided to ignore those proceedings, which appears to have been a tactical error in this case. Ironically, the Appellant’s omission was itself a waiver of the right to found an objection on the Respondent’s purported waiver. That said, query whether the Appellant’s position might have succeeded had it been raised at the appropriate time and place. The Appellant would have had to demonstrate the Respondent knew or could not reasonably have been unaware of the Clause such that its Small Claims Court proceeding was a conscious decision to decline the benefit of arbitrating under the clause.
Third, this case is a good reminder that unconscionability is not a magic “get out of arbitration free card”. Unconscionability is a question of fact. In the benchmark Uber Technologies Inc. v. Heller, 2020 SCC 16case, the record included evidence of Mr. Heller’s limited financial means and the administrative costs for which he would have been responsible under the applicable dispute resolution clause. There was also evidence on the pronounced inequality of bargaining power between Mr. Heller and Uber. The record in the present case was bereft of any such evidence.
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