Background to the Discussion Paper

In 1985, The United Nations Commission on International Trade Law (UNCITRAL) adopted the UNCITRAL Model Law on International Commercial Arbitration.  The Model Law sets forth legislative provisions relating to the conduct, enforcement and recognition of arbitral awards in international commercial arbitrations. The Model law was developed so that it could be implemented by statute in each country adopting the Model Law, to provide a consistent approach among those countries to international commercial arbitrations.

The Uniform Law Conference of Canada was founded in 1918 to harmonize the laws of Canadian provinces and territories and, where, appropriate, federal laws.  The ULCC brings together government and private lawyers, analysts and law reformers to study areas in which provincial and territorial laws might benefit from harmonization. The history, study papers, discussion documents and many of the Uniform Laws which it has drafted, may be seen on the ULCC’s website: www.ulcc.ca.

In 1986, the ULCC issued a Uniform International Commercial Arbitration Act (the “Uniform ICAA” or the “existing” Act). The Uniform ICAA was intended to provide a template for the implementation of the UNCITRAL Model by Canadian provinces, territories and the federal Parliament.  In large measure, the ULCC’s Uniform ICAA was enacted across Canada. The Uniform ICAA may be seen at: http://www.ulcc.ca/en/uniform-acts-en-gb-1/462-international-commercial-arbitration-act.

The Model Law was amended by UNCITRAL in 2006. In response to these amendments to the Model Law, in August 2011 the ULCC established a Working Group to bring forward recommendations for a new Uniform ICAA (or “new Act”).  In August 2012, the ULCC authorized the preparation of a Discussion Paper for consideration by the ULCC at its meeting in August 2013.

Elements of the Discussion Paper

The Discussion Paper recently issued by the Working Group can be divided into two elements.

First, the Working Group has made recommendation on a wide ranging group of issues.

Second, the Working Group has identified further issues upon which it is seeking the view of others.

Recommendations of the Working Group

There are nine main recommendations of the Working Group:

 1.      The form of the existing Act should be used in the new Act.

 The existing Uniform ICAA is a relatively short statute of fifteen sections, to which the Model Law is attached as Schedule B. Also attached, as Schedule A, is the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards adopted by United Nations Conference on International Commercial Arbitration in June 1958. The existing Uniform ICAA does not incorporate domestic arbitration legislation.

 In other words, the ULCC’s recommended statute for international commercial arbitration does not itself set out the effective statutory provisions and does not deal with domestic arbitration, as do the statutes in some jurisdiction (such as Quebec and the U.K.).  Rather the ULCC’s existing Uniform ICAA leaves most of the substantive provisions in the attached Model Law, and few in the enacting statute itself, and deals only with international commercial arbitration.

 The Working Group recommends that this approach be used in the new statute, on the ground that it more readily identifies the Model Law as the operative document and promotes uniformity among Canadian statutes.  The Working Group recommends that, if any legislature believes that departures from the Model Law are required, those changes should be made in the statute, not the attached Model Law, and that the new Act should only deal with international, not domestic arbitration.

2.    The Working Group has tentatively recommended that all the 2006 amendments to the Model Law be incorporated into the ULCC’s new Uniform ICAA.  This approach has not been taken in every country, as some countries have selected only those amendments they thought were appropriate to adopt.  In particular, some countries have not adopted the provisions in the 2006 amendments to the Model Law relating to the interim measures which may be granted by the arbitral tribunal, on the basis that those interim powers should only be exercised by courts.  The view of the Working Group is that the granting of interim powers to the arbitral tribunal allows the tribunal, but does not compel it, to exercise those powers, and that it is better that these powers be available to arbitral tribunals, only to be exercised if appropriate.

3.   The new Act should apply only to written arbitration agreements (as does the existing Uniform ICAA) but that a flexible approach to “writing” should be taken so that agreements arising from electronic communications would be included.  The Working Group did not recommend that oral arbitration agreements be included within the new Act.

 4.    The new Act should not harmonize the limitation periods applicable under Canadian laws for the commencement of arbitration proceedings. Accordingly, the relevant limitation period would be determined by the parties in their agreement, or by the applicable substantive law.

5.    International arbitration awards made elsewhere in Canada should be enforceable under the new Act, to        allay doubts that such awards are not “international” and not enforceable under that Act.

As a corollary, the Working Group recommended that domestic awards in other provinces should only be enforced through domestic arbitration statutes in other provinces or territories. Also, clearly being of the view that foreign domestic awards should not be enforceable through the new Act, the Working Group is seeking comments as to how this result can be best achieved.

 6.      The words “Commercial Arbitration” and “Commercial Relationship” should be defined in the new Act.

 7.      The Working Group considered that it might be helpful to clarify that an international commercial arbitration award may be raised by way of defence, set-off, or counterclaim in existing proceedings.  This would obviate the need to commence separate proceedings seeking recognition and enforcement.

 8.      The new Act should clarify what is meant by “State”, in a similar fashion to that accomplished in Section 6 of Ontario’s International Commercial Arbitration Act.

 9.     The new Act should emphasize the need to promote Canadian uniformity in the application of laws relating to international commercial arbitration.

 Views Sought by the Working Group

 The Working Group is seeking input on a wide variety of other issues, including the following:

 1.      Whether the new Act should clarify that the limitation periods for commencing arbitration proceedings under Canadian laws (if they apply) are the same for international commercial arbitrations as for court actions.

 2.    Whether there should  be a provision for interprovincial enforcement of Canadian judgments recognizing and enforcing international arbitration awards. The recent decision of the Supreme Court of Canada in Yugraneft Corp. v. Rexx Management Corp. raises the issue of whether an award in an international commercial arbitration can be enforced in one province, where the limitation period is longer, and then whether that judgment can be enforced in another province where the original award could not be enforced due to a shorter limitation period.

 3.    Whether the new Act should say anything about the nationality of the chair or single arbitrator. British Columbia’s International Commercial Arbitration Act provides that the Court shall not, without the agreement of the parties appoint a sole or third arbitrator who is of the same nationality as that of any of the parties.

 4.    Whether the new Act should preclude opting in or out of the Act, in whole or in part.

 5.    Whether the new Act should deal with the confidentiality of arbitration proceedings.

 6.    Whether the new Act should deal with retroactivity, that is, whether the new Act should apply to arbitration proceedings commenced before, or only after, the new Act comes into effect.

 7.    Whether the mediation/conciliation provisions in the existing Act (section 6) should be included in the new Act.

 8.    Whether an arbitration should be required to be re-commenced if the chair or one of the other arbitrators ceases to be an arbitrator (as the existing Act requires in section 7), or whether the arbitral tribunal should have the option of continuing the proceeding with the replacement arbitrator familiarizing himself or herself with the evidence already tendered.

 9.    Whether any amendment needs to be made with respect to the law that governs the substance of the dispute if there is no specific choice of law by the parties.  The present Uniform Act enables the arbitral tribunal to select the law that is appropriate having regard to all the circumstances (section 8).

 10.    Whether the court should have power to consolidate arbitration proceedings if the parties do not agree. Presently, the court has power only to consolidate if, at the time of the motion to consolidate, the parties agree to that consolidation (section 9 of the existing Act).

 Conclusion

 Clearly, the issues which the Working Group and the ULCC are considering are of vital importance to international commercial arbitration in Canada. Canada must continue to modernize its arbitration regime, not only to ensure that cost effective justice is achieved in Canada but also to ensure that the world has continued confidence in Canada as a good place to do business.  For these reasons, any comments about the proposed new International Act should be forwarded to the ULCC as soon as possible. Comments can be delivered to the ULCC on the Contact form on its website: http://www.ulcc.ca/en/contact.

Thomas G. Heintzman O.C., Q.C., FCIArb                                                        January 18, 2013

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The Background

The dispute arose from a shareholders agreement which contained an arbitration clause.  Vranich commenced an action in the Ontario Superior Court and sued both parties to the shareholders agreement and other parties.  Kolios moved to stay the action so far as the claim against parties to the shareholders’ agreement, asserting that that claim must be dealt with by arbitration. Vranich said that the parties had never reached an agreement on a schedule to the shareholders’ agreement relating to shareholders loans, and therefore had never reached an agreement on the whole agreement.

Section 7(1) of the Ontario Arbitrations Act, 1991 (the Act), provides that, subject to certain exceptions, if a party to an arbitration agreement commences a proceeding in respect of a matter to be submitted to arbitration, the court shall stay the action.  The Ontario Superior Court dismissed an application to stay the action under this sub-section.  The Ontario Court of Appeal allowed the appeal and stayed the action against the defendants who were parties to the shareholders agreement, and allowed the action to proceed against the defendants who were not parties to that agreement.

The Court of Appeal applied two sub-sections of the Act. Section 17(1) provides that the arbitral tribunal has authority to determine its own jurisdiction and in doing so, to rule on the validity or existence of the arbitration agreement.  This sub-section introduces into Ontario law the now well-know principle of “competence-competence”, that is, that an arbitral tribunal is competent to decide its own competence.

The Court of Appeal also applied Section 17(2) which says that, if an arbitration agreement forms part of a main agreement, then the arbitration agreement shall be treated as an independent agreement for the purposes of a ruling on jurisdiction, even if the main agreement is invalid.

Based on these sub-sections, the Ontario Court of Appeal held that it was up to the arbitral tribunal to decide the question of the validity of the shareholders agreement, not the court.  In so holding, the Court of Appeal noted that Vranich did not assert that the shareholders agreement was invalid or void ab initio.

Moreover, the fact that the action would proceed against other defendants did not disturb the Court of Appeal since those other defendants had not sought a stay.  The Court of Appeal did not mention sub-section 7(5) of the Act but that sub-section expressly authorizes the court to stay that part of an action which is dealt with in an arbitration agreement, and allow to proceed to trial the balance of the action not covered by the arbitration agreement. 

This decision of the Court of Appeal demonstrates the sea change that has taken place in Canada with respect to the stay of actions based upon arbitration agreements.  A generation ago, a Canadian court would have had no hesitation in permitting an action to proceed when some of the allegations or some of the parties were not subject to the arbitration agreement.  Three fundamental changes have occurred.

First, Section 7(1) uses the “shall” word and thereby mandates arbitration, unless very specific exceptions apply.  The courts are reading those exceptions very narrowly.  Before 1992, the Arbitration Acts of Ontario used the “may” word and gave the courts discretion to stay or not stay an action brought in the face of an arbitration clause.  In those days, the courts were usually prepared to exercise that discretion in favour of the action proceeding and not the arbitration.

Second and as noted above, the Act now clearly addresses, in section 17, many of the former objections to arbitration and provides the arbitrator with the jurisdiction to determine them, even in the face of objections that the main agreement or the arbitration agreement is unenforceable or that the dispute involves persons who are not parties to the agreement. These sections effectively drive all disputes about the subject matter or its arbitrability back to the arbitral tribunal.

Third, the attitude of Canadian judges has fundamentally changed. Judges do not now consider that courts are the superior means of adjudicating disputes.  Indeed, they recognize that courts have become so expensive and time-consuming that parties are well advised to go elsewhere to have their dispute resolved.  And when they do, judges also now give great, indeed overriding, effect to the parties’ choice to go to arbitration, and are prepared to hold the parties to their bargain.

Further Questions

Some further question remains.  How will arbitrators deal with the new authority which they have to determine their own jurisdiction?  Will the future track record of arbitrators’ decisions demonstrate that arbitrators are making these jurisdictional decisions responsibly? Or will arbitrators tend to rule that they have jurisdiction, so that they can continue with the arbitration?  Will the legislature’s decision to hand these jurisdictional disputes to arbitrators be justified, and will arbitrator’s jurisdictional disputes be upheld by the courts?  And since arbitrator’s decisions are made privately and are unknown to the public unless challenged in court, how will the track record of arbitrators relating to jurisdictional matters be judged?

Only time and judges will tell.  Ironically, it will take the decisions of judges, and a developed body of judicial decisions reviewing the jurisdictional decisions of arbitrators, to determine how well arbitrators are discharging their responsibility to determine their own authority.

Arbitration agreement  -  challenging arbitral award   -  enforcing  -

Kolios v. Vranich, 2012 ONCA 269

Thomas G. Heintzman O.C., Q.C., FCIArb                                                                May 20, 2012

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Should A Court Or An Arbitral Tribunal Resolve Domain Name Disputes?

The Court of Appeal for Ontario has just released its decision in Tucows.Com Co. v. Lojas Renner S.A.  This decision is a legal landmark in relation to Internet domain names. The Court held that domain names are personal property and may be the subject matter of an action which may be served on a defendant outside Ontario.

This aspect of the decision has been widely reported. But there is another aspect of the decision which is important to the law of arbitration. That issue relates to the proper response by courts when an arbitral tribunal decides not to hear a dispute.  Should the court nevertheless hold that arbitration is preferable to court proceedings and send the dispute back to arbitration?  

Tucows is a Canadian company which purchased the domain name “renner.com” from Mailbank Inc., the registrant of that domain name, with the International Corporation for Assigned Names and Numbers (ICANN).  Renner is a Brazilian company which carries on business under that name in Brazil and owns the trade mark in that name in Brazil and other countries.

Renner commenced a claim against Tucows under the Uniform Names Dispute Resolution Policy (“UDRP”) maintained by ICANN.  Under the UDRP Rules, Renner selected arbitration through the World Intellectual Property Organization (”WIPO”).  Instead of responding to the arbitration, Tucows commenced an action in the Ontario Superior Court claiming a declaration of its rights in the domain name and that Renner was not entitled to a transfer of the domain name.

Tucows asked the WIPO Administrative Panel to suspend or terminate its proceedings in light of the Ontario action.  That Panel decided to do so.  It ruled that the issues in the Ontario action were substantially identical to the WIPO proceeding. The Panel cited prior decisions in which WIPO panels had deferred to courts.  It noted that there was some conflict in the decisions of past WIPO panels on the issues raised in the proceeding.  It held that a court could better deal with the factual issues and that an “authoritative court decision” on the legal issues would be of assistance.

Renner then brought a motion to stay the Ontario action.  The Superior Court stayed the action, holding that the WIPO proceeding was more suited to the resolution of the dispute and that if the Court accepted jurisdiction it would undermine the administrative process for resolving disputes over domain names. 

The Court of Appeal allowed the appeal and permitted the Ontario action to proceed.  The Appeal Court observed that the UDRP Rules do not establish the UDRP procedures as the sole means to resolve disputes over domain names.  Those Rules expressly contemplate parties resolving their dispute in court proceedings.  The Court also noted that ICANN had stated that UDRP procedures are particularly suited to “abusive registration” cases, and not to legitimate trade mark or trade name disputes which are relegated by the UDRP Rules to the courts. The Court of Appeal held that the reasons of the WIPO Administrative panel for declining jurisdiction were reasonable and should be accorded deference.

The Court of Appeal held that Tucows’ claim for a declaration was a sufficient “cause of action” to fall within the Ontario Rules of Civil Procedure allowing service of the Statement of Claim outside Ontario.  The Court also held that the rights to a domain name are personal property because the rights holder “can enforce those rights against all others.” 

Besides being a landmark decision relating to the Internet, this decision is also important for arbitration law.  It reminds us to ask two important questions:

First, what is the true nature and purpose of the jurisdiction of the arbitration regime?  Is that regime intended to be exclusive or not?  In the present case, the Court of Appeal was impressed by the ICANN policy that the URRP Rules and procedures are not intended to be exclusive and are not intended to apply to legitimate trade mark disputes.

The same issue may arise under any contract, including a construction contract. The first question is not necessarily:  Does this dispute fall within the arbitration clause?  The first question may be:  Was this dispute intended to be within the exclusive jurisdiction of the arbitration tribunal?

The second question raised by this decision is:  What is the role of the arbitral tribunal in declining jurisdiction, and what is the appropriate response of the court to such a decision by an arbitral tribunal?

This case was not about whether one of the parties could decline to participate in the arbitration.  This case was about whether the arbitral tribunal could allow a party to do so.

The Supreme Court of Canada has recently adopted the competence-competence principle in relation to the determination of the jurisdiction of an arbitral tribunal: Seidel v. TELUS Communications Inc. 2011 SCC 15; Dell Computer Corp. v. Union des consummateurs (2007), 2 S.C.R. 801.  Under that principle, the arbitral tribunal is competent to rule on its own competence. Accordingly, that tribunal and not the court should first decide on the jurisdiction of the arbitral tribunal unless the jurisdictional issue is essentially a legal one. 

In the present case the Court of Appeal held that the arbitral tribunal had the jurisdiction to make a decision to decline jurisdiction.  Having done so, the same competence-competence principle required the court to respect that decision and allow the Ontario action to proceed.

This decision raises two further questions:

First, if the arbitration agreement gives no discretion on the matter, can the arbitral tribunal nevertheless exercise a discretion to decline jurisdiction in favour of the court?  Likely not, since the arbitral tribunal’s declining of jurisdiction would itself amount to a jurisdictional error.  

Second, if the WIPO tribunal had decided to the contrary, and insisted on dealing with the dispute, would the Ontario court have respected that decision or would it have allowed the action to proceed?  The likely answer is as follows: 

If, after giving full deference to that arbitral decision, the Ontario court had concluded that the tribunal had acted within its jurisdiction, then the court would have upheld it and stayed the Ontario action. 

If, on the other hand, the Ontario court had concluded that, having regard to the ICANN regime and the UDRP Rules, the WIPO tribunal had erred in jurisdiction by proceeding with the substantive dispute over trade names, then the Ontario court would likely have held that the Ontario action could proceed alongside the WIPO proceeding.

The same result could occur in any contractual dispute.  If a Canadian court concludes that the arbitral tribunal made a jurisdictional error in accepting jurisdiction over the dispute, then the court might well allow an action to proceed alongside the arbitration.

All of these issues are a consequence of the competence-competence policy adopted by Canadian courts.  Except in instances of pure legal controversy, that policy allows arbitrators, and not the courts, to initially decide the jurisdiction of the arbitral tribunal.  That policy also requires that the courts accord deference to the arbitrators’ jurisdictional decision, whether that decision is to accept or decline jurisdiction.  Implementing that policy, the Court of Appeal held that the decision of the WIPO tribunal to decline jurisdiction in favour of court proceedings should be respected and implemented.

Arbitration  –  Stay of court proceedings -  Exclusive jurisdiction   -  Competence-Competence

Tucows.Com Co. v. Lojas Renner S.A., 2011 ONCA 548 

Thomas G. Heintzman, O.C., Q.C.                                                                                August 21, 2011

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