Why this decision matters

In China Yantai Friction Co. Ltd. v Novalex Inc., 2024 ONSC 608, the Ontario Superior Court of Justice reiterated its continued commitment of deference towards international commercial arbitral awards, and recognized an arbitral award rendered in the People's Republic of China relating to a dispute over the sale of brake pads.

Strategic re-litigation under the guise of assertions of procedural unfairness will likely not be rewarded by the Court.

Factual overview

China Yantai Friction Co. Ltd (the "Applicant"), a Chinese automotive brake pad manufacturer, and Novalex Inc. (the "Respondent"), an Ontario corporation operating in the automotive industry, entered into a series of contracts in 2012, 2013 and 2014. Pursuant to these agreements, the Respondent ordered brake pads from the Applicant. The Respondent never satisfied its side of the bargain, insisting on paying only a fraction of the purchase price. The Applicant commenced arbitral proceedings accordance with the dispute resolution provision under the contracts, the dispute was referred to a three-member tribunal of the China International Economic and Trade Arbitration Commission ("CIETAC").1

Arbitration hearings were held in China in 2017 and 2018, after which the tribunal rendered an award in favour of the Applicant. Both the Applicant and the Respondent fully participated in the CIETAC proceedings and were represented by legal counsel. The Respondent did not appeal the award or otherwise applied to set aside the tribunal's decision.

The Applicant brought an application pursuant to the International Commercial Arbitration Act, 2017 (the "Act") for the recognition and enforcement of the arbitral award in Ontario. The Respondent opposed the application on two grounds:

  • that the Respondent was denied the opportunity to present its case at the arbitration, invoking article 36(1)(a)(ii) in Schedule 2 of the Act; and
  • that recognition or enforcement of the arbitral award would be contrary to public policy, invoking article 36(1)(b)(ii) in Schedule 2 of the Act.2

The Court's decision

The Court declined to exercise its discretion to refuse recognition of the arbitral award. The Court held that the Respondent failed to discharge its heavy burden to prove the enumerated grounds and to justify a departure from the high degree of deference accorded to commercial arbitrators.

Denial of Procedural Fairness

The Respondent's first argument focused on the tribunal's refusal to permit the retainer of appraisers to inspect the brake pads supplied by the Applicant for quality deficiencies. On this basis, the Respondent claimed that the tribunal rendered its award in the absence of a fulsome evidentiary record.

The Court rejected this argument for two reasons. First, the Court reviewed the CIETAC rules and found that these fully supported the evidentiary decision reached by the tribunal. Under the regime, tribunals are granted a wide scope of authority to render decisions related to the admissibility of evidence.

Second, the Court took into account the circumstances under which appraisal evidence was sought, noting that the Respondent's request occurred after the evidentiary portion of the arbitration had concluded.3 Taking into account both the procedural authority and the Respondent's delay, the Court held that the tribunal was well within its authority to refuse the request.

Importantly, the Court clarified that even if it had found that the Respondent was denied procedural fairness, it would have nonetheless denied to exercise its authority to refuse recognition of the arbitral award in the circumstances before it. The Court found that the parties entered into a private bargain to have their despite rendered in the forum of their choice, with a panel of arbitrators that they selected, with the resultant award to be subject to limited judicial oversight. The parties are to be held to their bargain, including the consequences that flow from that bargain.4

Award Not Contrary to Public Policy

The Respondent argued that recognition of the arbitral award by the Court would be contrary to public policy, asserting that a prior oral agreement had been reached between the parties' which resolved their dispute. This, according to the Respondent, rendered enforcement of the tribunal's award in favour of the Applicant contrary to public policy.

The Court found no evidence to support the contention that the alleged oral agreement had ever been reached. While the Respondent claimed to have strategically omitted evidence of this agreement during arbitration, the Court was unmoved, noting that a party's choice of strategic cannot excuse its failure to discharge an evidentiary onus.5

In rejecting the Respondent's argument, the Court commented on the truly exceptional nature of the public policy defence. Restating the test expressed in All Communications Network of Canada v Planet Energy Corp, 2023 ONCA 319, the Court remarked that the high bar applicable to the defence requires a fundamental offence to "local principles of justice and fairness."6

Concluding thoughts

The decision emphasizes the Court's commitment to the high degree of deference towards international commercial arbitration awards. The Act is not meant to serve as an avenue for re-litigation when recognition and enforcement of an award is sought in Ontario, and litigants should heed the Court's warning to avoid treating it as such.

Footnotes

1. China Yantai Friction Co. Ltd. v Novalex Inc., 2024 ONSC 608, at para 28.

2. China Yantai Friction Co. Ltd. v Novalex Inc., 2024 ONSC 608, at para 28.

3. China Yantai Friction Co. Ltd. v Novalex Inc., 2024 ONSC 608, at para 42.

4. China Yantai Friction Co. Ltd. v Novalex Inc., 2024 ONSC 608, at para 47.

5. China Yantai Friction Co. Ltd. v Novalex Inc., 2024 ONSC 608, at para 58.

6. China Yantai Friction Co. Ltd. v Novalex Inc., 2024 ONSC 608, at para 54

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