Arbitration Award Enforced Through The Oppression Remedy

Arbitration law and corporate law are usually thought to be two separate legal categories. But when it comes to remedies, they can overlap, especially in Canada where the oppression remedy is available. In the recent decision in T.Films S.A. Future Films (Three) Ltd. v. Cinemavault Releasing International Inc., the Ontario Supreme Court of Justice relied upon the oppression remedy in the Ontario Business Corporations Act (OBCA) to enforce an arbitral award. Any parties coming to Ontario to enforce arbitration awards against Ontario corporations, or person or corporations affiliated with an Ontario corporation, should be aware of this means of enforcing the award.

Background

The applicants were Luxembourg and U.K. companies which in 2004 entered into a film sales agency agreement with the respondent Cinemavault, an Ontario company. That agreement provided that any disputes under it were to be resolved by arbitration in Toronto in accordance with rules and procedures established by the Independent Film and Television Alliance (IFTA).

The applicants commenced an arbitration seeking to exercise contractual audit rights and for unpaid distribution revenues. The respondents failed to participate in the arbitration and ultimately the arbitrator awarded the applicants damages and costs in the total amount of about US $496,000.00.

The award was not paid and in May 2013, the applicants applied to the Ontario Superior Court to enforce the award. In their application the applicants also sought enforcement of the award by way of the oppression remedy in the OBCA. The applicants also asserted the monies received by the respondents were trust funds held for their benefit. In a prior decision, another judge of Ontario Superior Court had granted judgment enforcing the award and ordered that the balance of the application be dealt with in a separate hearing. In addition, in a further hearing another judge of the Superior Court had dismissed the respondents’ argument that the oppression and trust fund claims ought to have been asserted by way of arbitration.

The Decision

The Court found that the individual person behind the Cinemavault companies had:

“used the Cinemavault companies interchangeably to achieve whatever ends were thought desirable at the time. He cannot, under the law articulated in Sidaplex-Plastic and SCI, supra, treat his corporations’ contractual and financial obligations like an elaborate shell game where, unless the pea happens to sit under the shell selected by a creditor, [the principal] and his companies are judgment proof.”

The court concluded that the re-orgainzation of the Cinemavault companies was “carried out for the purpose, of denuding CRI of its assets such that it was not in a position to fulfill its financial obligations to the applicants under” the sales agreement. The court accordingly concluded that the respondents had acted in a manner which was oppressive and unfairly prejudicial to the applicants.

In making an order against Mr. S., who was a director of Cinemavault, the court said that person was:

“the directing mind of the Cinemavault operating corporations and the corporations, ……. which held the controlling interest over the operating corporations. He derived a direct personal benefit from the reorganization of Cinemavault’s business operations. Funds that the arbitrator found ought to have been paid to the applicants were diverted within the Cinemavault group to [the director’s] ultimate benefit. I conclude, therefore, that qua director [Mr. S]….. through the control he exercised over the Cinemavault companies, acted in a manner which was oppressive and unfairly prejudicial to Cinemavault’s creditors, namely the applicants. I therefore find [the director] to be personally liable for the arbitration award as well.”
The court also found that the funds received from the film distribution were trust funds in respondents’ hands. The Court then found that the respondents had knowingly participated in a breach of trust and knowingly received trust funds which they knew to be the rightful property of the applicants and were therefore liable for the arbitrator’s award for knowing participation in a breach of trust.

Discussion

It is unusual to see an application to enforce an arbitration award combined with other remedies. But this decision demonstrates that there may be more than one arrow in the enforcement quiver.

The oppression remedy is a particularly useful remedy if an arbitral award has been made against a corporation incorporated in a Canadian province. Most of those provinces have a Business Corporations Act or other corporate statute that contains the oppression remedy. The oppression remedy is available if the corporation, or its directors, officers or affiliates have conducted themselves in a manner which is oppression of, or unfairly prejudices the complainant or unfairly disregards the complainant’s interests. In some provinces, such as Alberta, creditors are listed as potential complainants. In other provinces, such as Ontario, creditors are not so listed and the court has to determine that a creditor is a proper complainant.

The oppression remedy usually provides a substantive remedy. That is, it usually addresses the wrongful conduct or management of the corporation which leads to a substantive wrong and the institution of an action or arbitral claim. But it may also provide a remedy after a judgment or award has been obtained, if oppressive conduct occurs which renders the corporation unable to pay the judgment or award. If that occurs, then the oppression remedy may be available to recover against the directors and affiliates who engaged in that conduct.

See Heintzman and Goldsmith on Canadian Building Contracts, 5th ed., chapter 10, part 9.

T.Films S.A. Future Films (Three) Ltd. v. Cinemavault Releasing International Inc., 2015 CarswellOnt 112, 2015 ONSC 6608

Arbitration – Enforcement of Arbitral Award – Oppression Remedy

Thomas G. Heintzman O.C., Q.C., FCIArb                                                 January 31, 2015

 

 

 

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