Many parties enter into agreements requiring that disputes be determined by binding arbitration. Some parties may voluntarily choose arbitration at a later time instead of pursuing a dispute through the court system.
While arbitration is generally considered to be quicker and less expensive than litigation, this is not always the case. In any event, obtaining a favourable arbitral award is often not the end of the process.
A common scenario plays out as follows: A debtor neglects to pay a creditor. Their commercial relationship is subject to an arbitration agreement. The creditor pursues arbitration and is successful in obtaining an arbitral award in a more streamlined fashion and may have been awarded some costs and interest as well. But the debtor still won’t pay. An arbitrator has already determined the dispute, so surely the creditor can begin to exercise enforcement remedies, right? Not so fast…
Off to court you go
Even though the parties intended to avoid the courts by arbitrating, the award must be recognized by the courts in order to exercise enforcement remedies.
If the arbitration is subject to the Arbitration Act, 1991, then the arbitral award may be enforced in Ontario by commencing a court application in the Superior Court of Justice. In order for the Arbitration Act to apply, its application cannot be excluded by law and the International Commercial Arbitration Act, 2017 (“ICAA”) cannot apply. If the ICAA applies, then a court application is still possible, but under different legislation based on the Model Law on International Commercial Arbitration, adopted by the United Nations Commission on International Trade Law.
Regardless of whether the Arbitration Act or the ICAA applies, a creditor will need to obtain a court order recognizing the arbitral award in order to proceed with enforcement remedies in Ontario.
The ICAA – International Awards
The ICAA applies to international commercial arbitration. Even if an arbitral award was made in a jurisdiction within Canada, it may still be considered international. An arbitration is international if:
- The parties to an arbitration agreement have, at the time of the conclusion of that agreement, their places of business in different countries,
- One of the following places is situated outside the country in which the parties have their places of business:
- The place of arbitration if determined in, or pursuant to, the arbitration agreement;
- Any place where a substantial part of the obligations of the commercial relationship is to be performed or the place with which the subject-matter of the dispute is most closely connected; or
- The parties have expressly agreed that the subject matter of the arbitration agreement relates to more than one country.
Take the following for example. The creditor has its place of business in Niagara Falls, New York. The debtor has its place of business in Niagara Falls, Ontario. The arbitration is conducted in Ontario. As the parties have their places of business in different countries, the award is an international arbitral award subject to the ICAA.
To enforce an international arbitral award in Ontario, a creditor will need to commence a court application in the Superior Court of Justice. There is a strong “pro-enforcement” legal regime for the recognition and enforcement of international commercial arbitral awards and the general rule is that “the grounds for refusal of enforcement are to be construed narrowly”.
Recognition or enforcement of an international commercial arbitral award may be refused only where the debtor proves one of the following:
- A party to the arbitration agreement was under some incapacity or the agreement is not valid under the law to which the parties have subjected it or under the law of the country where the award was made;
- The debtor was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present its case;
- The award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or goes beyond the scope of the submission to arbitration (but note, if the matters properly before arbitration can be separated, they may still be recognized and enforced);
- The composition of the arbitral tribunal or the procedure was not in accordance with the parties’ agreement, or was not in accordance with the law of the country where it took place;
- The award has not yet become binding on the parties or has been set side or suspended;
- The subject-matter of the dispute is not capable of settlement by arbitration; or
- The recognition or enforcement of the award would be contrary to the public policy of the law of Ontario and any laws of Canada that are in force in Ontario.
With respect to the “public policy” defence, the Ontario courts have commented that it is intended to guard against enforcement of an award that offends our local principles of justice and fairness in a fundamental way because 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 that cannot be tolerated or condoned by our courts. That being said, the public policy defence should be narrowly construed and should apply only where enforcement would violate our “most basic notions of morality and justice”.
If the debtor has commenced an application to set aside or suspend an arbitral award, then recognition and enforcement proceedings may be adjourned, and security may be ordered against the debtor. A party seeking to set aside or suspend an international commercial arbitral award has three months to do so after receiving the award.
Once an international commercial arbitral award has been recognized by the Ontario Superior Court of Justice, it can be enforced in the normal course under the Rules of Civil Procedure.
Arbitration Act, 1991 – Domestic Awards
The Superior Court of Justice, must give a judgment enforcing an arbitral award made in Ontario, unless:
- The period for appealing or applying to set aside the award has not expired (30 days in Ontario);
- There is a pending appeal, application to set the award aside or application for a declaration of invalidity in the province where the award was made;
- The award has been set aside or the arbitration declared invalid;
- The subject matter of the award is not capable of being the subject of an arbitration under Ontario law; or
- The award is a family arbitration award.
In Ontario, domestic arbitral awards may be appealed on questions of law. Leave of the court is required unless the arbitration agreement provides for appeals on a question of law. A party may only appeal an award on a question of fact or mixed fact and law if the arbitration agreement so provides. Even then, courts are reluctant to overturn arbitral awards.
Domestic arbitral awards may be set aside on grounds similar to the ICAA, particularly as follows:
- A party entered into the arbitration while under a legal incapacity;
- The arbitration agreement is invalid or has ceased to exist;
- The award deals with a dispute that the arbitration agreement does not cover or contains a decision on a matter that is beyond the scope of the agreement.
- The composition of the arbitral tribunal was not in accordance with the arbitration agreement, or not in accordance with the Arbitration Act;
- The subject-matter of the dispute is not capable of being the subject of arbitration under Ontario law;
- The party seeking to set aside the award was not treated equally and fairly, was not given an opportunity to present a case or to respond to another party’s case, or was not given proper notice of the arbitration or appointment of an arbitrator;
- The procedures followed in the arbitration did not comply with the Arbitration Act;
- An arbitrator committed a corrupt or fraudulent act or there is a reasonable apprehension of bias;
- The award was obtained by fraud; or
- The award is a family arbitration award that is not enforceable under the Family Law Act.
Domestic arbitration may be declared invalid at any stage during or after an arbitration, where the party who has not participated in the arbitration commences a court application and,
- A party entered into the arbitration agreement while under a legal incapacity;
- The arbitration agreement is invalid or has ceased to exist;
- The subject-matter of the dispute is not capable of being the subject of arbitration under Ontario law; or
- The arbitration agreement does not apply to the dispute.
An amendment to the Arbitration Act modified the limitation period for enforcing domestic arbitral awards to the later of December 31, 2018 and the 10th anniversary of the day the award was received, or, if an application to set aside the award was commenced, the date on which the application was finally determined.
Once a domestic arbitral award has been recognized by the Ontario Superior Court of Justice, all enforcement remedies available to a judgment creditor under the Rules of Civil Procedure are available to the party seeking enforcement. If it is a monetary award, this will include examinations in aid of execution, writs of seizure and sale, and garnishment. Non-monetary awards, such as orders for the detention, preservation or inspection of property and documents, and orders for specific performance, injunctions or other equitable remedies, may also be enforced.
Parties are often surprised that winning an arbitration is not the end of the road, and that further legal proceedings are required to recover the arbitral award. This is undoubtably frustrating. Fortunately for creditors, Ontario has a pro-enforcement regime where it is difficult for an arbitral award to be set aside or not recognized by the courts.
If you are looking to enforce an arbitral award, a member of our Commercial Litigation group would be pleased to speak with you regarding any questions you may have.
 Arbitration Act, 1991, SO 1991, c. 17 (the “Arbitration Act”), s. 50.
 Arbitration Act, s. 2(1).
 International Commercial Arbitration Act, 2017, SO 2017, c. 2., Sched. 5 (the “ICAA”).
 Popack v. Lipszyc, 2018 ONCA 635 at paras 35-40.
 ICAA, article 36(1).
 Belokon v. The Kyrgz Republic et al., 2015 ONSC 5918 at para 42.
 Ibid at para 43.
 ICAA, article 36(2).
 ICAA, article 34(3).
 Arbitration Act, s. 45.
 Arbitration Act, s. 46(1).
 Arbitration Act, s. 48(1).
 Arbitration Act, s. 52(3).
 Arbitration Act, ss. 18, 31.