Ontario reviews enforcement of a foreign arbitral award

Costco Wholesale Corporation v. TicketOps Corporation 2023 ONSC 573

14 minute read
03 April 2023

The Ontario Superior Court of Justice considered the principles governing the enforcement of a foreign arbitral award under Ontario's International Commercial Arbitration Act, 2017 (the "ICAA"), the Convention on the Enforcement of Foreign Arbitral Awards (the "Convention") and the Model Law on International Commercial Arbitration (the "Model Law") in a dispute between the United States based corporations, Costco Wholesale Corporation and TicketOps Corporation; which dispute also involved related litigation between Costco's Canadian entity and various parties within Canada.

In considering whether an award secured by Costco against TicketOps in the United States could be enforced, the Court confirmed the test to refuse such enforcement was narrow and if the reason for doing so was for procedural fairness or natural justice, the conduct of the arbitrator in granting the original award must be "sufficiently serious to offend our most basic notions of morality or justice." The Court upheld the decision of the arbitrator and was unconvinced by arguments of a lack of procedural fairness and perceived bias.


Costco and TicketOps were parties to a contractual relationship whereby Costco offered its online customers sales of tickets to events issued by various third party vendors and distributed through TicketOps. That relationship was governed by a Master Tickets and Program Agreement (the "MTPA"), an Amended and Restated Ticket/Gift Card Program and a Hosting Agreement (collectively the "Ticket Agreement"). After purchase by a Costco customer of an event ticket advertised on Costco.ca, TicketOps issued the ticket to that Costco customer. Once tickets had been purchased through Costco.ca from TicketOps, TicketOps was required to pay the third party vendors of those tickets to secure them for the Costco customers. On the basis that these tickets were secured from the third party vendors by TicketOps on behalf of its customers, Costco paid TicketOps every 25 days for the tickets purchased through its website.

Given significant financial pressures on its industry arising as a result of COVID-19, TicketOps stopped paying its third party vendors for tickets it had distributed including through Costco.ca. It failed to remit payment to the third party vendors despite having received payment from Costco in the ordinary course. Litigation in various forums arose in both Canada and the United States as a result of the failure of TicketOps to pay the third party vendors and Costco sought recovery of the amounts it had paid TicketOps for the purpose of refunding either the Costco customers who had paid for but not received event tickets or, alternatively, the unpaid third party vendors.

The Ticket Agreement contained an arbitration clause whereby Costco and TicketOps agreed disputes under the Ticket Agreement would be referred to an arbitrator and pursuant to which Costco issued a demand for arbitration. Prior to being appointed, the arbitrator was required to complete an arbitrator Oath Form and in so doing disclosed that, while he was acting as in-house counsel nearly twenty years earlier, Costco's counsel in the arbitration ("Costco's Counsel") had been his primary external counsel. He also advised that since that time he had had some limited social interaction with members of Costco's Counsel's firm. Despite the disclosure, his appointment proceeded.

Applications were brought in advance of the final hearing in the arbitration including an application by TicketOps to strike the two day hearing limit defined by the arbitration clause in the Ticket Agreement on the ground that it was unconscionable and therefore unenforceable. The arbitrator refused the application on the basis that a short hearing procedure that reduced the cost of dispute resolution was not unusual in an arbitration context and there were no grounds in this case to consider it substantially unconscionable. As a result of this order, the arbitration proceeded over two days. The Arbitration was decided in Costco's favour. In his first Partial Final Award, the Arbitrator held that the agreement between Costco and TicketOps created an agency relationship. As a result of this agency relationship, TicketOps was required to deliver all of Costco's funds to the third party vendors and having not done so, could not keep the funds for its own use and was obligated to return them to Costco.

After the initial two day hearing, further submissions were made in connection with the amounts that were owing from TicketOps to Costco. The issues submitted to arbitration did not include any question of liability as between Costco and the third party vendors and none of those third party vendors were parties to the arbitration. Additionally, Costco's Canadian Entity, Costco Wholesale Canada Ltd. ("Costco Canada"), had taken assignment of many of the claims of the third party vendors against TicketOps in Canada and Costco Canada was party to litigation in Canada on both its own behalf of as the assignee of the claims of various third party vendors. As a result, the arbitrator issued a Second Partial Final Award and noted that while it lacked jurisdiction to decide the question of any liability of TicketOps to Costco Canada on behalf of the third party vendors, Costco was still required to reduce the amount of any recovery from TicketOps pursuant to the Partial Final and the Second Partial Final Arbitration Awards by whatever amounts its Canadian entity recovered in its litigation on behalf of the third party vendors. The Arbitrator then delivered its Final Award encompassing both the earlier Partial Awards (the "Final Award").

Following delivery of the Final Award to the arbitrator, TicketOps brought a petition in United States District Court of Washington at Seattle (the "US District Court") to vacate the arbitrator's decision. TicketOps argued before the US District Court first, that the arbitrator exceeded his jurisdiction or made a manifest legal error by finding that TicketOps acted as Costco's agent and, second, that given the risk of double recovery against TicketOps based on the claims being brought by Costco Canada, the Final Award was contrary to public policy. These arguments were unsuccessful before the US District Court and the Final Award was upheld and a judgement issued (the "Judgement"). The Court was persuaded, in part, by the fact that the Second Partial Final Award attempted to address the double exposure risks by finding an obligation on the part of Costco to reduce any amounts granted by the Final Award to reflect Costco Canada's recovery. TicketOps unsuccessfully appealed the decision of the US District Court to the United States Court of Appeal for the Ninth Circuit (the "Appeal Court").

More than six months after the US District Court upheld the Final Award, TicketOps discovered that the arbitrator and Costco's Counsel were friends on Facebook. At its appeal of the US District Court decision to the Appeal Court, TicketOps sought leave to bring this evidence before the Appeal Court and was denied. The trial award which had been upheld by the US District Court, was then also upheld on appeal.

The decision

After being issued the Final Award and the Judgement, Costco brought its application before the Ontario Court seeking enforcement of both. The Court conducted a helpful review of the principles that apply both to enforcement of foreign arbitral awards and also foreign judgements. However, the Court rejected TicketOps' arguments regarding the application of the law of enforcement of foreign judgments and analyzed the issue of enforcement of the Final Award and Judgment based on the analytical framework for enforcement of arbitral awards because the Judgment was derivative of the Final Award.

Provision for enforcement of a foreign arbitral award is provided at Article 35 of the Model Law which proscribes that upon delivery of the original award to the Court, an arbitral award is to be enforced subject to the criteria set out in Article 36. Article 36 defines an express number of grounds on which to refuse enforcement. In response to Costco's application for enforcement under Article 35, TicketOps argued the Final Award should be not be enforced because:

  1. The Model Law, the ICAA and the Convention as it related to enforcement of arbitral awards should not apply but, rather, the Court's analysis should be restricted to application of the law of enforcement of foreign judgments;
  2. The Final Award allowed for potential double recovery by Costco that was contrary to public policy; and,
  3. The restriction of the arbitration to only two days, the lack of participation by the third party vendors, denial of a TicketOps request to depose a witness and potential bias by the arbitrator offended natural justice.

They found Costco had satisfied Article 35 of the Model Law by providing certified copies of the Final Award and that as result, enforcement could only be refused if TicketOps could satisfy one of the criteria at Article 36. The Court found as follows:

  1. The Court first addressed TicketOps' argument that the enforcement should be declined because the Award was not for a definitive amount and held that this did not constitute a valid ground under Article 36.
  2. The Court next considered whether TicketOps had shown it had been unable to present its case in the initial arbitration in order to satisfy Article 36(a)(ii). The focus of TicketOps' grounds that it had been unable to present its case as required under s. 36(1)(a)(ii) of the Model Law were that the hearing was restricted to two days, that the third party vendors were not part of the arbitration, that while TicketOps had been granted rights pre-arbitration to depose nine witnesses but denied the right to depose a tenth and finally that there was a reasonable apprehension of bias given their discovery of the Facebook status of Costco's Counsel and the arbitrator. The Court rejected all of these arguments finding none of them individually or, as whole, had reached the point of being "contrary to Canadian "notions of fundamental justice."
  3. The Court finally considered whether enforcing the Final Award would be contrary to the public policy of Ontario based primarily on the possibility of double recovery.

None of the restrictions to the arbitral procedure met the threshold of showing TicketOps had been unable to present its case. The Court held that while the two day arbitration was certainly shorter than a trial in the Ontario Courts would have been, that trial was not the appropriate point of comparison. The Court had no evidence before it of the likely trial process in the US Courts and further, TicketOps had agreed to the two day limit and had a significant opportunity to conduct discovery and present evidence and argument. The Court also rejected TicketOps' argument that the absence of the third party vendors at the arbitration was a denial of natural justice. There was evidence TicketOps had declined an arbitration with one vendor and TicketOps was free to have the third party vendors give evidence at the arbitration. The lack of access to depose the additional witness also didn't amount to a denial of natural justice as unlimited discovery of witnesses would not have been allowed even in a judicial proceeding.

In expressly addressing the interesting argument that the fact that Costco's Counsel and the arbitrator were 'friends' on Facebook constituted a reasonable apprehension of bias, the Court adopted the reasoning in DeMaria v. Law Society of Saskatchewan[1] that a reasonable person in today's world would place little or no weight on the fact that two persons are friends on Facebook. The Facebook connection did not reflect a reasonable apprehension that the arbitrator would not have decided the matter fairly.

The Court further concluded that recognition and enforcement of the Final Award would not be contrary to public policy due to the risk of double recovery. In arriving at this finding, the Court stated that the defence of public policy "has a narrow application and should not be used lightly", and "does not extend to perceived injustices that do not offend our sense of morality." Ultimately the Court determined that even though TicketOps might have a claim for set-off, this did not make the Final Award contrary to public policy.

What does it mean?

As in other recent decisions, the Court continued to show considerable deference to the decisions of arbitrators. What is clear is that a hearing with a defined and relatively short timeline, some restrictions on pre-arbitral discovery and a limited link between the arbitrator and one of the parties is not enough for the Court to find that there has been an impact on the ability of a party to present its case. In order to successfully prevent the enforcement of an international arbitral award, some more significant restrictions of principles of natural justice or clear breaches of public policy are required.

Given that the ICAA, the Model Law and the Convention are also collectively the governing legislation applicable to the enforcement of international arbitral awards in Alberta, the decision and its reasoning likely provides useful direction in enforcement application in the Alberta jurisdiction. Moreover, a similar finding would likely occur in other common law jurisdictions in Canada, given a similar adoption of the Model Law and the Convention in each.

[1] 2015 SKCA 106 at para 49

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