A recent decision of the British Columbia Supreme Court sent a warning to companies that ignore international arbitration proceedings—they do so at their own peril. Assam Company India, Ltd. v. Canoro Resources Ltd. concerned a joint operating agreement between a Canadian public company, Canoro Resources, and an Indian company, Assam Company India, to develop an oil field in India. The 2004 agreement contained an arbitration clause, which, when a dispute arose between the parties, the Indian company invoked.

The arbitration clause provided that disputes would be heard by a panel of three arbitrators, with each party nominating one arbitrator. Those two would agree on the appointment of a third to complete the panel. If they failed to choose the third, the agreement provided for the party initiating the arbitration to appoint that person, provided he or she was not a national of either party’s country.

In 2010 the companies were in dispute and Assam and Canoro each nominated retired Indian judges as their arbitrators. When they could not agree on the selection of the third arbitrator, Assam moved to appoint a senior Malaysian barrister to complete the tribunal’s composition. Canoro objected to this appointment and filed a petition in the Indian courts claiming that they should have been consulted on the appointment of the third arbitrator.

Before the court proceedings started, Canoro’s counsel withdrew its petition but maintained the objection within the arbitration proceedings. Dates were set for submissions to be made on Canoro’s objection but Canoro’s counsel, for unexplained reasons, never appeared at the arbitration. The arbitration panel delayed hearing argument on Canoro’s objection until steps were taken to place notifications in two New Delhi newspapers advising of the scheduled hearing date as well as providing notice to Canoro’s offices in Canada and India.

However, no one ever appeared on behalf of Canoro at the arbitration from that point onwards. The three panel members unanimously decided that the third arbitrator’s appointment had been conducted in strict conformance with the arbitration clause in the contract and was a valid appointment. They proceeded to hear evidence from Assam on the merits of its claim and, at the conclusion of the arbitration, the tribunal awarded damages of $32 million against Canoro.

Assam sought to have the arbitration award recognized and registered as a decision of the B.C. Supreme Court pursuant to British Columbia’s International Commercial Arbitration Act. By registering the judgment here, Assam could enforce it against Canoro as if it were a judgment of the B.C. Court. Canoro opposed recognition of the arbitral award and sought to have the matter set for trial in British Columbia.

The B.C. legislation follows principles based on a model set of rules implemented by the United Nations about 30 years ago to bring clarity and consistency to the recognition of international commercial arbitration awards. It provides that our Courts must recognize foreign arbitration awards and can only decline to do so if one or more of six circumstances arise:

  1. A party to an arbitration agreement was incapacitated.
  2. The arbitration agreement was not valid under the laws of the state where the arbitration award was made.
  3. A party against whom an award is made was not given proper notice of the proceedings.
  4. The arbitration award deals with a dispute that does not fall within the terms of arbitration agreement.
  5. The arbitration does not proceed according to the rules set out in the arbitration agreement.
  6. Recognition and enforcement would be contrary to public policy in British Columbia.

In Assam, there was no evidence that any of the first five conditions existed. On the sixth, the question of whether enforcement would offend public policy, the B.C. Court said that not recognizing the decision in the circumstances of this case would be offensive to public policy. In the Court’s view, Canoro had full and fair opportunity within the arbitration proceedings to present any arguments concerning the validity of the appointment of the third arbitrator and to defend itself in the proceedings.

For unexplained reasons, Canoro chose not to follow their initial participation in the Indian proceedings. The B.C. Court was not prepared to provide the Canadian company an opportunity to retry the case. Clearly, if the Court had decided otherwise, it would have offended the broad deference that the Act requires our courts to give to foreign arbitration awards.

The Indian decision was therefore registered as a judgment of the B.C. Supreme Court and Assam is entitled to enforce it against Canoro.

This case should serve as a warning to Canadian companies that conduct business in other parts of the world and that find themselves in a dispute which is subject to an arbitration conducted outside Canada. If such a situation arises, the participants should prosecute and defend those issues within the arbitration proceedings provided for in their contracts and according to applicable arbitration procedures. As this case demonstrates, a decision to abandon or ignore proceedings is fraught with risks.