This case note has been prepared by Hew Dundas, International Arbitrator, Mediator and Expert Determiner, who is a contributor to this website

Facts
Pan Liberty Navigation ("Owners") were Cyprus-based ship owners owning, amongst others, the Cyprus-flagged ships "Panli" and "Arctic". In November 2000, the ships were chartered to a company referred to in each charterparty as "Worldlink Transport Co Ltd of Beijing" ("WorldLink Beijing"). In 2001, the latter having defaulted re payment of hire, Owners launched LMAA arbitration proceedings; WorldLink Beijing did not respond in any way. Accordingly, in August 2001, the Sole Arbitrator issued a "final award" in favour of Owners for some US$355,000 plus interest and costs. For the next two years Owners sought without success to enforce the award, their solicitors’ efforts to track down WorldLink Beijing leading them to suspect that if any entity bearing the name ‘Worldlink Transport Co Ltd of Beijing’ had existed at all, it had been a worthless shell which had been used by World Link (HK) Resources Ltd ("Resources") to obtain the benefit of the charter without paying for it. Owners’ solicitors put Resources’ solicitors on notice of intention to arrest bunkers; they duly did so on the vessel "Eirini" in British Columbia on 30 November 2003. Resources paid C$850,000 into Court to secure the release of the vessel/its bunkers.

Resources applied for a stay of proceedings pursuant to the Commercial Arbitration Act 1985 and submitted that the question of its liability (if any) should be remitted to the Arbitrator. A judge in Chambers dismissed that application on the basis that the present proceedings were enforcement proceedings and did not fall under the Arbitrator’s jurisdiction. Resources (and only Resources) appealed to the BC Court of Appeal.

Owners argued in the appeal that World Link HK was the directing mind and alter ego of WorldLink Beijing and at all times material had made use of WorldLink Beijing as a mere façade concealing the true facts and had undertaken a campaign to defraud Owners. Amongst other matters, (a) there was no company registered in Beijing with the name of WorldLink Beijing; (b) World Link HK operated WorldLink Beijing from its office in Beijing using the same telephone and fax numbers, as was admitted by solicitors for the former; (c) a Mr Wen Jianming controlled both World Link HK and WorldLink Beijing from Beijing; (d) World Link HK had previously paid hire due from WorldLink Beijing; (e) in or about June and September 2003 the Beijing office of World Link HK had responded to inquiries made to WorldLink Beijing and World Link HK had responded by paying an arbitration award against WorldLink Beijing; (f) World Link HK, although a registered Hong Kong company, chartered vessels on the basis that it is "of Beijing" or a Beijing company with all contact details being the same as WorldLink Beijing.

Esson JA delivered the sole judgment, with which Saunders (Mrs) and Oppal JJA agreed. Esson JA agreed with Resources’ contention that Owners' allegations fell squarely within the scope of the arbitration because the real issue was whether World Link HK was actually "WorldLink Beijing". This aspect of the dispute was, in the words of clause 17 of the charterparty, one "arising out of or in connection with this Charter Party." He noted that Owners had sought to meet that submission by contending that the Arbitrator, having delivered a "final award", had no remaining jurisdiction in the matter (and was therefore "functus officio") but held that that was a question which could only be determined by the Arbitrator by the application of English law.

The application to stay had been brought under Article 8(1) of the schedule to the Commercial Arbitration Act, RSC 1985 (2nd Supp.), c.17 (namely, the Model Law). That legislation applied because, as a matter of Canadian law (not disputed), this was an issue falling within the federal power over navigation and shipping. Article 8(1) states:

"A court before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so requests not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed."

The leading BC authority on Art.8(1) is the decision of the Appeal Court in Prince George (City) v McElhanney Engineering Services Ltd (1995), 9 BCLR (3d) 368 (CA). In defining the approach to be taken by a court called upon to apply Art.8(1), Cumming JA had adopted the following passage from the reasons of Campbell J in Boart Sweden AB v NYA Stromnes AB (1988), 41 BLR 295 (Ont.HC) at 302-303:

"Public policy carries me to the consideration which I conclude is paramount having regard to the facts of this case, and that is the very strong public policy of this jurisdiction that where parties have agreed by contract that they will have the arbitrators decide their claims, instead of resorting to the Courts, the parties should be held to their contract...

To deal with all these matters in a single proceeding in Ontario instead of deferring to the arbitral process in respect of part of the action and temporarily staying the other parts of the action, would violate that strong public policy.

It would also fail to give effect to the change in the law of international arbitration which, with the advent of Art.8 of the Model Law and the removal of the earlier wide ambit of discretion, gives the Courts a clear direction to defer to the arbitrators even more than under the previous law of international arbitration.

I conclude that nothing in the nullity provisions of Art.8 prevents this Court from giving effect to the clear policy of deference set out in the article.

To conclude otherwise would drive a hole through the article by encouraging litigants to bring actions on matters related to but not embraced by the arbitration and then say that everything had to be consolidated in Court, thus defeating the policy of deference to the arbitrators."

Esson JA held that for a BC court to conclude that the Owners could pursue this action would fall directly within the evil described in the last paragraph of the above passage. Clearly, the present question was, in the words of the charterparty, a "dispute arising out of or in connection with this Charter Party". It was governed by English law and was to be referred to arbitration in London. He also noted the curious anomaly in that Owners, although party to the charterparty, were contending that the dispute did not arise out of it, whereas Resources, which contended that it was not party to the charterparty, was contending that the dispute arose under it.

A decision of the BC Court of Appeal which is more directly in point on its facts, although arising under Art.8(1) in the predecessor to the Commercial Arbitration Act, is Gulf Canada Resources Ltd v Arochem International Ltd. (1992), 66 BCLR (2d) 113 (CA) which included the following passage.

"In order to obtain a stay of proceedings, it is not enough to point to an arbitration agreement and assert that the parties are parties to the agreement and that the dispute is within its terms. The court continues to have some residual jurisdiction. Thus, if the court concludes that one of the parties named in the legal proceedings is not a party to the arbitration agreement, or if the alleged dispute does not come within the terms of the agreement, or if the application is out of time, the application should not be granted. But it is not for the court, on a stay application, to reach any final determination as to the scope of the arbitration agreement or whether a particular party to the legal proceedings is a party to the agreement. Those are matters within the jurisdiction of the arbitral tribunal. Only where it is clear that the dispute falls outside the agreement, or that a party is not a party to it, or that the application is out of time, should the court make a final determination. In this case, the fact that the defendants had not performed the contract at all did not mean that the issue between the parties was not in relation to the "performance" of the contract as that term was used in the agreement. Whether the dispute fell within the agreement and whether both defendants were parties to it would fall to be determined in the arbitration.

In addition, Esson JA cited with approval a passage in a judgment of Gross J in the English case of Norsk Hydro ASA v State Property Fund of Ukraine [2002] EWHC 2120 (Comm.)

"[Ss.100ff of the English Arbitration Act of 1996] provide for the recognition and enforcement of New York Convention Awards. There is an important policy interest, reflected in this country's treaty obligations, in ensuring the effective and speedy enforcement of such international arbitration awards; the corollary, however, is that the task of the enforcing court should be as "mechanistic" as possible. Save in connection with the threshold requirements for enforcement and the exhaustive grounds on which enforcement of a New York Convention award may be refused (ss.102-103 of the 1996 Act), the enforcing court is neither entitled nor bound to go behind the award in question, explore the reasoning of the arbitration tribunal or second-guess its intentions. Additionally, the enforcing court seeks to ensure that an award is carried out by making available its own domestic law sanctions."

Concluding, Esson JA allowed the appeal and granted Resources the relief it sought save that he fixed 60 days as the time for taking steps in England and, rather than providing for the C$850,000 in the BC court to be paid out at the expiration of that period should no steps be taken, ordered that World Link HK would then be at liberty to apply to the BC Supreme Court for payment out of the security.

A robust restatement of BC public policy! This is in stark contrast to those other jurisdictions where courts show an inclination to interfere in the arbitral process. However, Art.8(1) is evidently directed at the outset of proceedings, not matters post-Award, and it requires something of a leap of interpretation of public policy to apply it in the latter circumstances, a leap for which, I submit, the BC Courts are to be commended.

Further, the Art.8(1) ‘nullity’ principle ("the agreement is null and void, inoperative or incapable of being performed" was given the narrowest of public policy treatments which, again, must be correct. It should be noted that there is no appeal in BC against the Arbitrator’s decision as to whether or not Resources was party to the charterparty but there is in England under s.69 of the 1996 Act.

It would be inappropriate for any commentator to second-guess how the Arbitrator will address the issues remitted to him, particularly the question of whether, post-Award, he is functus officio and, if not, on what basis he can reopen the arbitration. In addition, while the 60 days granted by the BC Court of Appeal runs out on or around 7 June 2005, the Award was issued in August 2001 so is prima facie long time-expired in the contexts of ss.57 and 70(2) and (3).

The "disappearing counterparty" trick is not uncommon in doing business with Russia and neighbouring states, with the added twist of confusion through different transcriptions from the Cyrillic alphabet i.e. is ‘Atlantiya …’ the same company as ‘Atlantya …’ etc or in confusion between ZAOs (closed joint stock companies broadly equivalent to Ltd/Pte/Pty) and OAOs (open JSCs, equivalent to PLC) with the same name.