The requirement to give reasons is generally considered an inherent and fundamental component of the arbitrator's role. However, the Ontario Superior Court of Justice recently enforced an international commercial arbitral award despite the fact that the award did not include written reasons. In doing so, the decision upholds the freedom of parties to tailor arbitral proceedings, including the form of award, to suit their circumstances.
In Activ Financial Systems, Inc. v Orbixa Management Services, Inc., 2011 ONSC 7286, the two companies were parties to a software licence agreement. Activ claimed payment for licence fees during a period in which Orbixa alleged the agreement had been terminated. The software licence agreement provided for disputes to be settled pursuant to the commercial arbitration rules of the American Arbitration Association. These rules do not require a written award unless requested by the parties or determined by the arbitrator to be appropriate. In this case, the parties had expressly agreed that, as a cost-saving measure, the arbitration hearing would proceed without a court reporter and the parties would accept a standard award format that did not necessarily include written reasons. The arbitrator awarded in favour of Activ in the amount of approximately US$550,000.
After obtaining a judgment in New York which confirmed the award, Activ then applied to enforce this judgment in Ontario. Although the award was a commercial arbitral award made outside Canada, Activ did not rely on the International Commercial Arbitration Act (ICAA)to enforce its award, but instead relied on the common law regarding enforcement of foreign judgments. Orbixa's arguments in response to enforcement, among others, were as follows:
- The enforcement of the award was governed exclusively by the ICAA and could not be enforced at common law; and
- The award was unenforceable because it contained no reasons and the ICAA required written reasons.
Justice Perell agreed that the enforcement of foreign arbitral awards must take place exclusively under the ICAA rather than the common law. He noted that it would be an unnecessary source of confusion and expense to have two enforcement mechanisms. Further, as a matter of statutory interpretation, he found that the Ontario Legislature intended to introduce a complete code regarding the enforcement of foreign arbitration awards under the ICAA. It is notable that all provinces but Quebec have legislation similar to the ICCA. Justice Perell allowed Activ to amend its application to rely on the ICAA.
Orbixa's second argument was rejected by Justice Perell. He noted that Article 31(2) of the UNCITRAL Model Law, which is appended to and forms part of the ICAA, states that "the award shall state the reasons upon which it is based, unless the parties have agreed that no reasons are to be given". Justice Perell concluded that, where agreed to by the parties, the absence of reasons is not grounds to categorically refuse enforcement of an award under the ICAA. Any concerns regarding the ability of the parties to determine whether the arbitrator strayed beyond their jurisdiction or whether enforcement would be contrary to public policy could be resolved by a review of the record. Here, there was no doubt that the arbitrator decided a dispute within his jurisdiction and applied essentially the same law as would apply in Ontario. Therefore, the award in favour of Activ was enforced pursuant to the ICAA.
This decision is an example of judicial deference to the ability of parties to tailor the international commercial arbitral process to their unique needs and circumstances. It should be noted that the requirement for written reasons may not be so easily dodged in the domestic arbitration context. Provincial arbitration statutes typically require awards to be in writing though, depending on the specific legislation at issue, it may be possible for parties to contract out of this requirement.
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