Canada: Ontario Court Of Appeal Decision Highlights High Threshold For Interference With International Arbitrations

In its recent decision in All Communications Network of Canada v. Planet Energy Corp. (All Communications),¹ the Ontario Court of Appeal upheld a nearly CA$30 million arbitral award, rejecting the appellant's arguments under international arbitration law that procedural fairness had been breached and that the arbitral award was contrary to public policy.

The Court of Appeal's holding is illustrative of the particularly high threshold and narrow test that the courts will apply before interfering with international arbitration decisions. In Ontario, judicial intervention in international arbitrations for violating procedural fairness requires conduct "so serious it cannot be condoned under the law," and even intervention purely on jurisdiction requires a "circumspect" approach and a "narrow view." Similarly, the public policy argument for judicial interference should only be invoked if the judgment involves an illegal act, or the action involves acts "repugnant to the orderly functioning of the forum," which offends principles of justice and fairness "in a fundamental way."

All Communications highlights that attempting to use the Ontario courts in order to interfere with an international arbitration is no easy undertaking and is not taken lightly by the courts.

The agreement and the dispute

The arbitration award derived from the arbitration of a 2012 agreement (the Agreement) between Planet Energy, a provider of gas and energy to residential consumers in Canada and the US, and All Communications Network of Canada (ACN), a marketing business that contracts independent business owners who earn commission by referring customers.

The Agreement stated that Planet Energy would pay gross margin commission payments to ACN for every successfully registered customer, in exchange for ACN using its network of independent business owners to make reasonable efforts to sell Planet Energy's products. The Agreement also stipulated that ACN would not take actions that would be harmful to Planet Energy's business, within a defined territory. The Agreement expired in 2016, but Planet Energy's obligation to pay commissions survived its termination.

The dispute arose from Planet Energy's claim that ACN breached the agreement in 2015 by working with a US-based energy company, Xoom Energy LLC (Xoom), to develop a competing energy retail business. In 2018, Planet Energy advised ACN that it would not pay any further commissions, as there was an ongoing regulatory investigation into the conduct of the independent business owners who sold Planet Energy's products.

According to the Agreement, all claims must be resolved by arbitration, with any arbitral award being "final, conclusive, non-appealable, and binding."

The dispute goes to arbitration

At the arbitration hearing in 2018, ACN claimed that Planet Energy owed them unpaid commissions, while Planet Energy claimed that ACN and its independent business owners had failed to make reasonable efforts to sell Planet Energy's products, and that ACN had breached their confidentiality obligations and commitment to not harm Planet Energy by working with Xoom.

During the hearing, after being dissatisfied with ACN's productions, Planet Energy sought documents from Xoom through the US court system. Xoom eventually produced voluminous documents, including some "highly relevant" documents, just four days before closing submissions.

The arbitrator granted ACN's claims for commissions payable under the Agreement, and dismissed Planet Energy's claims for breach of the Agreement, assessing the damages to ACN at almost CA$30 million, including costs and pre-judgment interest.

International arbitration law applied

The dispute proceeded as an international arbitration, governed by Ontario's International Commercial Arbitration Act,² which incorporates into Ontario law the UN Commission on International Trade Law's Model Law of International Commercial Arbitration (the Model Law).³ The Model Law is an instrument designed to provide consistent and predictable rules as to the conduct of international commercial arbitrations, and how these arbitrations are to be dealt with by domestic courts.

The Model Law provides that each party be given a full opportunity to present its case, and that an arbitral award may be set aside where the party making the application was unable to present its case,⁴ or where the court finds that the award is in conflict with public policy.⁵ The Model Law's rules are consistent with the trend of upholding the parties' conscious decision to limit court involvement by electing to proceed to international arbitration: it only allows for court involvement in certain circumstances, such as where a party seeks to set aside the arbitral award.

Application brought to set aside the award

In response, Planet Energy brought an application to the Ontario Superior Court of Justice to set aside the arbitral award, arguing that the Model Law had been violated in two ways, (i) Planet Energy was unable to present its case because it had been denied the right to cross-examine or make closing submissions on a complete evidentiary record: and (ii) the award was contrary to public policy because it violated the Energy Consumer Protection Act (the ECPA).⁶

The application judge rejected this claim and upheld the arbitral award, deferring to the arbitrator's decision and noting that the arbitrator, and not likely the application judge, had the benefit of hearing all of the evidence, reviewing the full evidentiary record and considering Planet Energy's submissions.

The application judge held that Planet Energy had failed to provide proof that it had been unable to present its case, and rejected Planet Energy's submission that the arbitral award violated the ECPA.

The Court of Appeal upholds the award

Planet Energy relied on three grounds for appeal, arguing that the application judge had erred by
(i) failing to conduct a fresh trial; (ii) finding that the arbitrator had not denied Planet Energy the opportunity to present its case; and (iii) finding that the arbitral award was not contrary to public policy. The Court of Appeal rejected all three grounds and dismissed the appeal.

Very limited standard of review

The Court of Appeal found that the application judge was entitled to rely on the arbitrator's findings, given that Planet Energy had failed to meet its onus of proving how the arbitrator had erred.

The onus on Planet Energy was high: judicial intervention for violating procedural fairness is only warranted where the conduct is "so serious that it cannot be condoned under the law of the enforcing State."⁷ In a case like this, where a party seeks to set aside an arbitral award for reasons of fairness or natural justice, the test to be applied is a very narrow one: whether the decisions "offend our most basic notions of morality and justice."⁸ The court distinguished this case from a case that had involved a jurisdictional challenge, but noted that, even in appeals of pure jurisdiction, courts are "to be circumspect in their approach" and are "obliged to take a narrow view," and even when such an issue is identified, they are to "carefully limit the issue [.] to ensure they do not stray into the merits of the question that was decided."⁹

Further, the Court of Appeal found that, even if a fresh hearing were conducted, Planet Energy's submissions repeated the same submissions that were made to the arbitrator, such that a fresh hearing would not have changed the result.

No arbitrary denial of reasonable discovery rights

The question before the application judge was whether the arbitrator had breached procedural fairness and, if so, if the breach was "sufficiently serious to offend our most basic notions of morality and justice such that it cannot be condoned."¹⁰

The arbitrator had made the following findings: of those voluminous productions, only three were highly relevant; they were all part of the same email chain; they did not shed any light on the evidence presented at the hearing; any dispute regarding the deficiency of the productions was an appropriate subject for pre-hearing submissions and/or cross-examination at the evidentiary hearing; and Planet Energy had experienced legal counsel.

The Court of Appeal found no error in the application judge's finding that Planet Energy's counsel had had the opportunity to request the right to cross-examination on the productions but had decided not to, and that, having made that decision, they could not later argue that it had been unfairly denied.

High standard for public policy argument

Planet Energy had argued before the arbitrator that payment of the arbitral award was contrary to public policy because it breached the ECPA. Planet Energy relied on a 2017 amendment to the ECPA that provided that renumeration to salespersons selling electricity or gas to consumers must not include any renumeration based on commission, and further relied on a memorandum from the Ontario Electricity Board that this exclusion applied to "any new, renewed or extended contract based on a commission [.] including the renewal/extension of contracts" entered on or before the amendment in 2017.¹¹

The arbitrator had concluded that the ECPA does not preclude payment of commissions for renewals that became effective on or after the 2017 amendment. On review of the Agreement, she found that it was clear and unambiguous on gross margin payments, and that the negotiations between the parties had shown "a consistent and uniform course or conduct with respect to ACN's entitlement to commissions from renewals."¹²

The Court of Appeal saw no error in the application judge's conclusion that the arbitrator had appropriately considered and applied the ECPA, and that her interpretation was reasonable.

The Court of Appeal reiterated the application judge's statement that the public policy argument should only be invoked if the judgment involves an illegal act or if the action involves acts "repugnant to the orderly functioning of the social or commercial life of the forum."¹³ The Court of Appeal emphasized that it is a high standard; the claimant has the onus of showing that it "offends our local principles of justice and fairness in a fundamental way."¹⁴

Significance of the decision

Parties seeking to rely on the Model Law to set aside an international arbitral award should be aware of the high threshold that must be reached. Those seeking to set aside a decision by reason of procedural fairness must be prepared to provide compelling evidence. Those seeking to make a public policy argument must assess, where the judgment does not involve an illegal act, that it otherwise meets the high standard of "acts repugnant to the functioning of the forum." All Communications serves as a reminder that asking the Ontario courts to interfere with an international arbitration decision is no small thing. In this case, the Agreement expressly stated that any arbitral award was "final, conclusive, non-appealable, and binding." In the face of a final award, parties would do well to carefully consider whether their case meets the high bar before applying to set aside an arbitral award.

Footnotes

1. All Communications Network of Canada v. Planet Energy Corp., 2023 ONCA 319 ("Planet Energy")

2. International Commercial Arbitration Act, 2017, S.O. 2017, c. 2, Sched. 5.

3. Model Law on International Commercial Arbitration 1985 (United Nations Commission on International Trade Law [UNCITRAL]) UN Doc A/40/17, Annex I ("Model Law").

4. Model Law, Article 34(2)(a)(ii).

5. Model Law, Article 34(2)(b).

6. Model Law, Articles 34(2)(a)(ii)) and 34(2)(b)(ii) respectively.

7. Consolidated Contractors Groups S.A.L. (Offshore) v. Ambatovy Minerals S.A., 2017 ONCA 939 ("Consolidated Contractors"), at para. 65.

8. Consolidated Contractors, at para. 65.

9. United Mexican States v. Cargill, Inc., 2011 ONCA 622, at para. 47.

10. Consolidated Contractors, at para. 65.

11. Planet Energy, at para. 67.

12. Planet Energy, at para. 71.

13. Depo Traffic v. Vikeda International, 2015 ONSC 999, at para. 47.

14. Consolidated Contractors, at para. 99.

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