Why this case matters?
The Ontario Court of Appeal recently dismissed an appeal from a lower court’s decision upholding an arbitral award. The appellant, Planet Energy Corp. (“Planet”), brought an application seeking to set aside the arbitral award on grounds that it had been denied an opportunity to present its case at the arbitration and the award was contrary to public policy. The application court dismissed the application, finding the arbitrator’s decision to be reasonable.
The Ontario Court of Appeal found no error in the application court’s decision to set aside the award, including the court’s refusal to conduct a de novo hearing on the matters in issue. The Court of Appeal confirmed that on an application to set aside an award under the International Commercial Arbitration Act that incorporates the UNCITRAL Model Law, it is appropriate for the reviewing court to give deference to the arbitral panel’s decision.
Planet provides fixed price electricity and natural gas to residential customers in Canada and the United States. All Communications Network of Canada Co (“ACN”) is a marketing business with a large referral network.. Planet and ACN entered into a Sales Agency Agreement in 2012 (the “Agreement”) whereby Planet would pay gross margin commission to ACN for every customer who registered for Planet’s products and services.
The Agreement provided that all claims were to be resolved by binding arbitration and that any award was final, conclusive, non-appealable and binding upon the parties.
In 2015, a dispute arose between Planet and ACN. Planet claimed that ACN was working with a competitor, Xoom, to develop an energy retail business. In response, ACN claimed that Planet owed it outstanding commissions.
In 2018, the parties proceeded to arbitration.
During the arbitration, Planet sought documentary production from Xoom, a non-party to the arbitration. The arbitrator did not order that ACN obtain and produce documents from Xoom. Undeterred, Planet brought an application in the US District Court of North Carolina seeking production of documents from Xoom.
The arbitrator acknowledged that by doing so, Planet had breached the applicable procedures agreed on by the parties by failing to seek leave to bring the application, and that any delay or impasse arising in the application would not be cause to extend the deadlines in the arbitration. The arbitration proceeded while the application for production remained outstanding.
The US District Court ultimately granted the application and ordered that the documents be produced by Xoom by June 22, 2020, which was four days before closing arguments were to be delivered in the arbitration.
On June 19, 2020, the arbitrator ordered that Planet submit any new Xoom documents by June 24, 2020 (two days before closing arguments). Xoom produced 400 documents. The arbitrator found that only 8 were relevant.
Closing submissions in the arbitration proceeded. The arbitrator issued the award, awarded ACN’s claim for outstanding commission and dismissed Planet’s claim for breach of its confidentiality obligations and commitment not to harm Planet by working with a competitor.
Application to Set Aside the Award
Planet brought an application in the Ontario Superior Court of Justice seeking to set aside the award on the grounds that Planet had been deprived procedural fairness by not being able to present its case, specifically, its right to discovery and cross-examination on a full evidentiary record (i.e., the Xoom documents). Planet also sought to set aside the award on the grounds that the decision was contrary to public policy for violating the Energy Consumer Protection Act, 2010 (“ECPA”).
This was an international arbitration governed by the International Commercial Arbitration Act, 2017, S.O. 2017, c. 2, Sched. 5, which in turn adopts the UNCITRAL Model Law on International Commercial Arbitration. This legislation provides limited grounds in which a party can seek to set aside an arbitral award, including where it is unable to present its case, or if the award is in conflict with the public policy of the state.
The court dismissed the application, finding that the arbitrator had the benefit of hearing all of the evidence and submissions from the parties, and that there was no evidence that Planet was unable to present its case. The court also found that the payment of gross margins on renewals was not contrary to public policy and did not violate the ECPA.
Planet then appealed the decision to the Court of Appeal.
The Court of Appeal’s Decision
Whether the Application Judge Applied the Correct Standard of Review
The Court of Appeal first considered the standard of review of the application judge’s decision. Planet submitted that the application judge ought to have conducted a de novo hearing. The Court of Appeal disagreed.
The Court of Appeal stated the onus on a party seeking to set aside an arbitral award on the basis of a failure of due process is high: “Judicial intervention for alleged violations of the due process requirements of the Model Law will be warranted only when the Tribunal's conduct is so serious that it cannot be condoned under the law of the enforcing State”.
The test is whether the arbitrator’s decision respecting document production, cross-examinations and closing submissions “offend our most basic notions of morality and justice” such that it constitutes a breach of procedural fairness.
Here, Planet failed to adduce any evidence that it was unable to present its case. Even if a de novo hearing was conducted, Planet’s submissions were the same as those made to the arbitrator. In this case, the application judge was entitled to defer to the findings of the arbitrator.
Whether Planet was Denied the Opportunity to Present its Case
The Court of Appeal determined that the application judge did not err in concluding that the arbitrator considered Planet’s arguments on procedural fairness, and that the evidentiary record supported that conclusion. It was open to the application judge to also conclude that Planet had failed to furnish proof that it was unable to present its case because of the arbitrator’s decision.
Whether the Application Judge Erred in Concluding that the Award was not Contrary to Public Policy
The arbitrator had concluded that the ECPA does not preclude payment of commissions for renewals that became effective after January 1, 2017. The application judge noted that the public policy defence should be invoked “only if the judgment involves an act that is illegal in the forum or if the action involves acts repugnant to the orderly functioning of the social or commercial life of the forum.”
The Court of Appeal found the application judge correctly observed that the arbitrator addressed the submissions and position of Planet and turned her mind to the statutory provisions of the ECPA. The application judge found that the arbitrator’s conclusion was reasonable and entitled to deference, especially where Planet had failed to establish how the award fundamentally offends the principles of justice and fairness in Ontario. The Court of Appeal found no error in the application judge’s conclusion.
The Court of Appeal’s decision affirming the application court’s deference to the arbitrator’s decision both on matters of procedural fairness and substantive legal determinations is yet another example of Ontario courts’ deference to arbitral tribunal’s decisions.
Where a party seeks to set aside an international arbitral award under article 34 of the UNCITRAL Model Law, it is incumbent on the party to lead evidence or “furnish proof”, as articulated in the UNCITRAL Model Law, rather than simply re-arguing their case before the application court.