Enforcement Remedy Crafted By Ontario Court To Foil 'Shell Game' Tactics

The Divisional Court recently upheld the Ontario Superior Court's decision in T. Films S.A. v. Cinemavault Releasing International Inc. ("T. Films") which granted recognition and enforcement of a successful arbitral plaintiff's award and crafted an enforcement remedy using other legal tools (the oppression remedy and breach of trust) to foil the arbitral defendant's "shell game" tactics.1 Corporate affiliates and a director were ultimately held liable for the arbitral award. These tools should be considered by parties seeking enforcement in Ontario.

The Arbitration

In 2012, a Luxembourg film production company, called T. Films commenced an arbitration against Cinemavault Releasing International Inc. ("CRI"), an Ontario corporation distributing T. Films' film, for unpaid distribution revenue to which T. Films was entitled pursuant to an exclusive sales agency agreement.2 T. Films won and was awarded USD$359,218 in damages (including interest) for unpaid distribution revenues, as well as USD$136,377 in costs, making for a total arbitral award of USD$495,595.

Failure to Pay the Award

CRI did not pay or appeal the award. According to CRI's Director and President, Mr. S., the company ceased operations in 2011, had no assets, and was unable to pay the arbitral award. In fact, in 2011, after a dispute between CRI and T. Films regarding distribution revenues and only a few months before the arbitration was commenced, Mr. S. restructured CRI along with two of CRI's corporate affiliates (an Ontario corporation and a Canadian corporation) (the "CRI Affiliates"), for which Mr. S. was also the directing mind. CRI's accounts receivable relating to the distribution of films were transferred to the CRI Affiliates and CRI was wound down with no assets.

Recognition and Enforcement

In May 2013, T. Films commenced an application seeking recognition and enforcement of the arbitral award as against CRI (which CRI did not oppose). On September 13, 2013, Justice Stinson granted recognition and enforcement of the arbitral award against CRI under the International Commercial Arbitration Act ("ICAA").3 Since CRI was now defunct and without assets, T. Films also sought to enforce the award against the CRI Affiliates and Mr. S. (collectively with CRI and the CRI Affiliates, the "Cinemavault Parties") on various grounds including oppression under the Ontario Business Corporations Act ("OBCA")4 and breach of trust (which the Cinemavault Parties opposed). Justice Stinson...