On February 24, 2022, in Enrroxs Energy and Mining Group v Saddad, 2022 BCSC 285 (Enrroxs), the Supreme Court of British Columbia confirmed the high bar to establish that enforcement of an international arbitral award would be contrary to Canadian public policy. The courtheld that recognizing and enforcing a Swiss arbitral award under BC’s International Commercial Arbitration Act, RSBC 1996, c 233 (ICAA) would not be contrary to public policy as the possibility of double recovery is not necessarily contrary to public policy. Rather, the possibility of double recovery was an issue that ought to have been raised during the arbitration and, accordingly, refusing to enforce the arbitral award based on that issue would be a breach public policy.
In Enrroxs, the parties formed a business relationship with the intention of creating and operating an international oil and gas company. The parties entered into a loan agreement (among other agreements), whereby the petitioner was to loan the respondent money to purchase equipment necessary for the business venture (the Equipment).
The petitioner initiated arbitral proceedings in Geneva, Switzerland after the respondent relocated the equipment to a different country without the petitioner’s knowledge or consent, as provided for under the parties’ agreements.
The arbitrator ordered the respondent to pay the petitioner $4.8 million as repayment for the Equipment (the Award). The arbitrator declined to decide if the amount the respondent paid for the Equipment should be set off against the amount due under the loan as contemplated by the loan agreement.
The petitioner sought an order to recognize and enforce the Award in British Columbia.
Public policy defence to enforcing foreign arbitral awards
The court held that it will be rare for a court not to grant recognition and enforcement of foreign arbitral awards. Not only do concerns over international comity and predictability of the resolution of disputes favour the recognition of foreign arbitral awards, but the ICAA also requires that courts recognize arbitral awards as binding and enforce them, subject to only narrow exceptions.
One of the exceptions to recognizing and enforcing foreign arbitral awards prescribed in section 36(1)(b)(ii) of the ICAA iswhere such recognition and enforcement would be contrary to public policy.
The public policy defence is narrow and a high threshold to meet. It is predicated on whether the foreign law on which the arbitral award was granted fundamentally offends the standard of morality adopted by the Canadian legal system, such that recognizing and enforcing the arbitral award would fundamentally breach justice and fairness and amount to conduct that our courts could not tolerate or condone, shocking “the conscience of the reasonable Canadian”. Arbitral awards rendered in foreign jurisdictions where the procedural or substantive rules are markedly different from those of Canada, or where the foreign court was ignorant, biased, or corrupt, are examples of arbitral awards whose recognition and enforcement could breach public policy.
However, the public policy defence does not relate to the effects of local enforcement that are unconnected with any concerns about the foreign law or arbitral process. This was the argument that the respondent sought to make in Enrroxs.
The respondent in Enrroxs argued that the local recognition and enforcement of the Award without first valuing the Equipment and shares the petitioner seized from the respondent as security for the loan would breach public policy. The respondent argued that the court must first confirm that the value of the seized property does not exceed the value of the Award, as this could amount to double recovery.
The court rejected this argument. Recognizing and enforcing the Award would not breach public policy. The parties had agreed to resolve disputes under their agreements through arbitration in Switzerland. The respondent was obligated to raise the issue of obtaining a valuation of the Equipment and shares during the arbitration, and otherwise had the opportunity to do so during two other related proceedings between the parties. The respondent failed to do so, and waited two years after the Award was issued to raise the valuation issue in the context of this proceeding. Further, the Canadian courts have previously rejected that potential double recovery supports a public policy defence, and, in any event, there was no evidence of double recovery in this case.
This decision confirms the high bar litigants must meet in order to successfully displace the requirement that an international arbitral award be recognized and enforced in Canada. Local enforcement of the arbitral award possibly amounting to double recovery does not automatically meet that threshold. Further, relying on issues that could and should have been raised during the arbitration itself will also not support a public policy defence – an important reminder that parties should not wait to raise new arguments at the enforcement stage.
If you have any questions about this blog or the enforcement of an international arbitral award in Canada, please reach out to the authors, Chloe Snider and Kristin AuCoin, or any member of Dentons Canada’s Litigation and Dispute Resolution group.