Arbitration allows parties to play a more active role in designing how they wish to resolve their dispute. Despite being an attractive “DIY” alternative to court, the benefits of arbitration are lost if the arbitral award is not binding on the parties and enforceable in the relevant legal jurisdiction. This is the issue at the heart of the Ontario Court of Appeal’s recent decision in Popack v Lipszyc.
Popack v Lipszyc is a case read with interest by arbitration enthusiasts for two primary reasons:
- the Court has reinforced the binding nature of arbitral awards beginning from the moment they are issued; and
- the Court has defended the long-standing rules of recognition and enforceability of foreign arbitral awards in Ontario courts.
With this decision, the Ontario Court of Appeal has yet again strengthened Ontario’s role as a leading legal jurisdiction in international commercial arbitration.
Context: Feuding business partners
The dispute between Joseph Popack (appellant) and Moshe Lipszyc (respondent) arose in 2005 and related to their joint investment in a Toronto commercial real estate development. Mr. Popack and Mr. Lipszyc eventually entered into an arbitration agreement and referred the dispute to arbitration before a rabbinical court, known as a Bais Din, in New York in 2011.
Importantly, the arbitration agreement allowed the arbitrator to freely choose the appropriate procedures by which to conduct the arbitration, meaning there was no requirement for a record to kept of the evidence before the arbitral panel or the submissions made, nor was there a requirement for the arbitral panel to provide reasons for its decision. The arbitration agreement provided that the decision was “not open for appeal neither in any religious court nor in any secular court”.
An eight-week arbitration was held in Toronto between 2011 and 2013, following which the rabbinical court issued an arbitral award (the “Arbitral Award”).
Arbitral Award made in favour of Mr. Popack, but the story does not end here
The Arbitral Award required Mr. Lipszyc to return $440,000 held in escrow to Mr. Popack, as well as to pay $400,000 to Mr. Popack to resolve the dispute. From Mr. Popack’s perspective, these amounts were not enough. No reasons were provided for the decision, nor was there a record of the eight-week arbitration.
Dissatisfied with the Arbitral Award, Mr. Popack brought an application under Article 34 of the UNCITRAL Model Law on International Commercial Arbitration (“Model Law”) to have it set-aside. The Model Law has force of law in Ontario by virtue of the International Commercial Arbitration Act.
Mr. Popack’s alleged ground to set-aside the Arbitral Award was that the rabbinical court breached the agreed upon procedure by holding an ex parte meeting with another rabbi who had initially been appointed to arbitrate the parties’ dispute.
The Ontario Court dismisses the application to set aside the Arbitral Award
Justice Matheson of the Ontario Superior Court of Justice heard Mr. Popack’s application to set aside the Arbitral Award in 2015 and determined that the applicaion should be dismissed. Although the ex parte meeting had indeed breached the parties’ procedure, Justice Matheson exercised her discretion under Article 34(2)(a)(iv) of the Model Law to refuse to set it aside.
Still dissatisfied, Mr. Popack appealed Justice Matheson’s decision to the Ontario Court of Appeal, which dismissed the appeal in 2016. Justices Doherty, Pardu and Benotto of the Court of Appeal agreed with Justice Matheson’s articulation and application of the factors on which she relied on to find that setting-aside the Arbitral Award was not warranted:
 In my view, all of the factors identified by the application judge as relevant to the exercise of her discretion (listed above, at para. 23) were properly considered in deciding whether the improper ex parte meeting with Rabbi Schwei produced “real unfairness” or “real practical injustice”. The relevance of the seriousness of the breach (factors one and two) and the potential impact of that breach on the result (factors three and four) to the fairness of the arbitral proceedings are obvious. The potential prejudice flowing from the need to redo the arbitration if the order is set aside can also be relevant in assessing “real practical injustice” (factors five and six). I think Mr. Popack’s conduct after learning of the procedural breach (factors seven and eight) is also significant in this case.
In sum, the ex parte meeting did not reach the point of becoming a “real unfairness” significant enough to render the Arbitral Award unenforceable.
Further disputes arising from the arbitration relating to costs and currencies
Mr. Lipszyc sought his costs for having to respond to the application to set aside the Arbitral Award and the subsequent appeal. Mr. Lipszyc’s lawyers requested that those costs be set-off against the amount owing to Mr. Popack pursuant to the Arbitral Award.
In 2016, Mr. Popack brought an application under Articles 35 and 36 of the Model Law for the recognition and enforcement of the Arbitral Award in the Canadian dollars equivalent of US$400,000. Unlike Mr. Popack, Mr. Lipszyc took the position that the $400,000 granted in the Arbitral Award was in Canadian dollars.
In response to the disagreement, the arbitrator clarified that the Arbitral Award had been issued in Canadian dollars since that was the currency of the amounts at issue in the dispute and no submissions were made to the contrary.
The Arbitral Tribunal invites the parties to attend further hearings and states that the Arbitral Award is “stayed”
Years after the arbitration was concluded, the arbitrator wrote to the parties inviting them to appear before him in order to resolve outstanding issues. Specifically, the arbitrator wrote the following to the parties on September 18, 2016:
… should any of the parties have claims and/or proofs that relate to the currency issue and for that matter any other claims that the parties wish to be resolved by the Rabbinical Court, please contact the Court Clerk, to schedule a hearing before the Rabbinical Court.
The arbitrator then wrote to the parties again on June 7, 2017, this time stating that the Arbitral Award was “stayed”:
The Bais Din has ordered that the [Award] is stayed until Popack comes back to the Bais Din for a hearing to determine Lipszyc’s claim, that Popack continuously breached the Arbitration Agreement, and what are the consequences for breaching the Arbitration Agreement.
The Ontario Superior Court dismisses the application for the recognition and enforcement of the Arbitral Award
On August 28, 2017, Justice Dow of the Ontario Superior Court of Justice dismissed Mr. Popack’s application for the recognition and enforcement of the Arbitral Award.
Justice Dow found the Arbitral Award was “not yet binding” on the basis that the Arbitral Tribunal had stated a willingness to consider further issues:
 My conclusion that the communication by the arbitral tribunal or here, the Beth Din that the sum of $400,000.00 was to be paid by Moshe Lipszyc to Joseph Popack is not yet binding relies on the fact the Beth Din has released statements on two subsequent occasions, September 18, 2016 and June 7, 2017. On September 18, 2016 the Beth Din stated its willingness to consider additional issues. On June 7, 2017 the Beth Din stayed the award until Joseph Popack appears before it. Both statements are an indication that the arbitration process the parties committed to is not yet complete. As a result enforcement proceedings are premature. The Beth Din is not yet at the stage of being functus officio.
In making this conclusion, Justice Dow pointed to a for a path forward by requiring Mr. Popack to appear before the Bais Din in order to recover the $400,000 from the Arbitral Award.
The Ontario Court of Appeal allows the appeal, rendering the Arbitral Award as recognized and enforceable in Ontario courts
On February 8, 2018, Mr. Popack found himself back at the Ontario Court of Appeal seeking to overturn Justice Dow’s decision.
Justices Brown, Doherty and Nordheimer ultimately allowed the appeal, finding that the application judge had made palpable and overriding error in applying the Model Law, and rendered the Arbitral Award as recognized and enforceable in Ontario courts.
The Court of Appeal’s reasons not only detailed the saga that had now spanned 13-years, but also offered a thoughtful summary of broader principles surrounding what constitutes a “binding” arbitral award and at what point that arbitral award becomes enforceable, complete with references to the leading thinkers in international commercial arbitration.
The Court held that Articles 35-36 of the Model Law make it clear that it is up to competent court to determine whether to recognize and enforce an award, including determining whether an award is “binding” on the parties. In this case, the Arbitral Award was framed as a final one that was not subject to appeal:
 On the facts of this case, the potential jurisdiction of the Beth Din to entertain a new issue about post-Award events does not affect the binding nature of the Award. The Award is framed as a final one. The Arbitration Agreement did not permit any review or appeal from the Award. Mr. Popack’s set aside proceeding under art. 34 is at an end. Mr. Lipszyc’s request for post-Award costs does not fall within the categories of matters covered by art. 33 of the Model Law. The Award therefore is “binding” for the purposes of arts. 35 and 36 of the Model Law and should be recognized and enforced.
Accordingly, the Arbitral Award was finally found to be “binding” and a decision was substituted ordering the Arbitral Award to be recognized and enforced.
Interestingly, the Court of Appeal found that this conclusion was not affected by the Arbitral Tribunal’s statements saying that the Arbitral Award had been stayed. Article 36(1)(a)(v) of the Model states that an award may only be suspended by a court of the seat of arbitration.
Arbitration-friendly decisions abundant in Ontario
Popack v Lipszyc has added to the ever-growing body of jurisprudence continues to make Ontario an attractive jurisdiction as both a seat of arbitration and jurisdiction for enforcement.