Federal – no need to serve non-participating arbitral party with materials regarding post-recognition enforcement procedures

In Heddle Marine Service (NL) Inc. v. Kydy Sea (Ship), 2019 FC 1140, Mr. Justice Peter G. Pamel relieved a third party from serving a losing, non-participating arbitral party with court materials related to post-recognition enforcement measures instituted by the successful arbitral party.   The case offers a rare view into post-recognition skirmishes between an arbitral party and a third party competing over assets subject to judicial sale authorized as part of award enforcement.  The facts also confirm that the arbitration process – from award to execution on assets – will proceed whether a duly-notified arbitral party participates or not.

Heddle Marine Services (NL) Inc. applied ex parte to recognize and enforce a January 4, 2019 arbitration award (“Award”) made in its favour against Servimax-Servicos Ltd. (“Owners”), the owners of the Kydy Sea (“Ship”), in an arbitration administered by the Association of Maritime Arbitrators of Canada.

Provided the award falls within the jurisdiction of the Federal Court, a successful arbitral party wishing to execute on its award can apply to the Federal Court under Rule 327 for the registration, recognition or enforcement of a “foreign judgment” which, by the definitions provided by Rule 326, includes an “arbitral award”:

arbitration agreement means an agreement in writing as defined in article II of the convention set out in the schedule to the United Nations Foreign Arbitral Awards Convention Act [RSC 1985, c 16 (2nd Supp)] or an arbitration agreement as defined in Article 7 of the Commercial Arbitration Code, set out in Schedule 1 to the Commercial Arbitration Act [RSC 1985, c 17 (2nd Supp)]. 

foreign judgment means a judgment or arbitral award that may be registered in a court in Canada in accordance with

(a) sections 63 to 71 of the Marine Liability Act [SC 2001, c 6];

(b) the Canada-United Kingdom Civil and Commercial Judgments Convention Act [RSC 1985, c C-30];

(c) the United Nations Foreign Arbitral Awards Convention Act [RSC 1985, c 16 (2nd Supp)]; or

(d) articles 35 and 36 of the Commercial Arbitration Code, set out in Schedule 1 to the Commercial Arbitration Act.

On February 26, 2019, Mr. Justice George R. Locke, as he then was, granted recognition and enforcement of the January 4, 2019 Award under Rule 326 of the Federal Courts Rules, SOR/98-106..  His brief reasons are set out in Heddle Marine Service (NL) Inc. v. Kydy Sea (Ship), 2019 FC 232 .

Locke J. also ordered the appraisement and sale of the Ship.  Further orders issued from different judges of the Federal Court, on April 3 and on May 30, 2019, related to additional steps needed to complete the appraisal and sale of the Ship. After an incomplete, first attempt to sell the Ship, a second judicial sale was held and, at a higher price, a new buyer bid on the Ship.

On May 10, 2019, Halthorn Marine Group Inc. (“Halthorn”) learned of that second sale and applied for an extension of time in which to file its notice of claim against the Ship.  Halthorn’s claim did not relate to the Award but to services it had provided in February and August 2018 at the Port of Sydney, Nova Scotia.  Halthorn’s services sought to restore the Ship so that it could resume trading after being laid up alongside at the Port of Sydney.

The core reasons in Pamel J.’s decision concern the criteria applicable to extensions of time for obtaining an extension of time set out in the Rules.  Paras 16-32 set out the criteria and paras 33-42 apply them, successfully in Halthorn’s favour.

The reasons also illustrate how an arbitral award can be executed against an asset even when a duly-notified arbitral party fails or refuses to participate in the court proceedings related to its enforcement.  It is worth noting, as did Pamel J. in his reasons and the arbitrator in the Award, that the Owners also did not participate in the arbitration.

Halthorn applied for an extension under the Rules but had not served its materials on the Owners. Pamel J. had to determine whether it was “appropriate” to order Halthorn to do so.  Pamel J. observed that the Owners “have not seen fit at this point to participate in these proceedings”.

Paras 43-51 set out Pamel J.’s appreciation of the Owners’ lack of participation despite knowledge of the proceedings.  Pamel J. first looked back to the Owners’ involvement in the arbitration.

[46] The Arbitral Award which formed the subject matter of the Application for Enforcement under Rule 327 was filed as an exhibit to that Application. As part of the Arbitral Award, the arbitrator indicates that although the Owners were initially represented by counsel who confirmed the arbitrator’s appointment, once the Heddle’s points of claim were served, he received notice from the Owner’s counsel that they were no longer representing the Owners. Since that time and until the Arbitral Award was actually signed, the arbitrator received nothing from anyone claiming to be a representative of the Owners. Clearly, the Owners were aware of the arbitration proceedings, but chose for their own reasons not to take part, and in fact caused their solicitors to stand down.

Pamel J. next recorded the Owners’ receipt of notice of the Federal Court recognition and enforcement process and their opportunities to participate.  Despite service on them by e-mail and by newspaper publications as authorized by the Federal Court and their deemed awareness of the process, the Owners did not engage. His review of the facts and applicable Rules supported his determination that no further service need be made on the Owners. 

[50] To this day, neither an appearance nor any other sign that the Owners wish to take part in the present proceedings have been filed with this Court. The fact that this Court has authorized service upon the Owners by email does not create an obligation of service. It merely provides for a mechanism in the event service is to be undertaken.

[51] Under the circumstances, given that Owners have not filed an appearance, nor have they shown to this Court any interest in any other way to participate in the present proceedings, I see no reason to deviate from the provisions of Rule 145 of the FCR. Under the circumstances, I do not believe that compelling the service of the present motion is warranted.

Pamel J. concluded that it was not necessary to impose further efforts on Halthorn to serve its materials on the Owners. “Under the circumstances, I do not see any justifiable reason to put Heddle in a position where they have to serve the Owners with the present motion.

urbitral note – The reasons disclose that an arbitral party’s non-participation in the arbitration, and any resulting recognition and enforcement proceedings in court, will not serve to delay or prevent resolution of the dispute. 

The short timelines set out in the reasons demonstrate that the arbitral process – from award to execution on assets – will move forward in a steady manner despite an arbitration party’s failure or refusal to participate and that the Federal Court will facilitate that recognition and enforcement process. 

The reasons further acknowledge that, despite the ease with which arbitration awards can be recognized, a successful arbitration party must still compete with other creditors against the assets of the other arbitration party.