(i) Amended Motion to Declare Unlawful, Null and Vacated an Order by an Arbitration Tribunal to Reconsider its Award and to Reopen Proof and Hearing (the "Tusculum Motion for the Annulment of the Order"), wherein Tusculum seeks to set aside the "Second", "Third" and "Fourth" rulings contained in an "Order" issued by an Arbitration Tribunal (hereinafter defined) on March 21, 1996, agreeing to reconsider elements of its previous "Partial Award" rendered on January 31, 1996 ("Arbitration Award # 1")(S.C.M. No. 500-05-017680-966); and

(ii) Amended Motion for the Partial Annulment of an Arbitration Award (the "Tusculum Motion for the Partial Annulment of Arbitration Award #2"), wherein Tusculum seeks the partial annulment of a "Final Award" of an Arbitration Tribunal" rendered on May 29, 1997 ("Arbitration Award # 2")(S.C.M. No. 500-05-035275-971).

(both Motions sometimes referred to collectively as the "Tusculum Motions").

(i) the relationship and various shareholder rights and obligations of the parties inter se in Beta; and

(ii) the intention of the parties to subsequently reorganize the corporate and commercial structure of the joint business venture referred to therein, as specified in the following extract of the Preliminary Statement to the Agreement:

It is intended further that Beta shall become a wholly-owned direct or indirect subsidiary of a non-German holding company ("Parent") to be jointly owned by B.V. and by Dreyfus. The precise details of the reorganization pursuant to which Beta will become a subsidiary of Parent have not yet been, determined, but it is anticipated that B.V. and Dreyfus may each contribute their Beta shares in exchange for fifty percent of the shares of Parent.

The parties intend to enter into more formal and complete agreements incorporating the general provisions of this Agreement and such other provisions as they may agree. Nevertheless it is the intention of the parties that this Agreement shall constitute a binding agreement of each of them until they otherwise agree in writing.

In the event that at any time after the first anniversary of Recommissioning abona fide impasse develops between B.V. and Dreyfus as shareholders of Beta, Parent or the "Operating Companies" (as defined in Section 6 (a)) or between representatives of B.V. and Dreyfus as directors of Beta, Parent or the Operating Companies which prevents the shareholders or the directors from acting with respect to a matter of material significance affecting Beta, Parent and the Operating Companies taken as a whole and required to be submitted to a vote of their shareholders or directors in accordance with the terms of this Agreement or applicable law, the provisions contained in this paragraph (d) may be invoked by either party. (This paragraph (d) shall not apply to impasses created by B.V. or Dreyfus for the specific purpose of availing themselves of its provisions).

(our emphasis)

(1) a declaration by the arbitrators that there exist between the parties impasses within the meaning of paragraph 4(d) of the Shareholders' Agreement and that, accordingly, Dreyfus is required to buy out Tusculum's interest in Beta at a value to be determined by appraisal under paragraph 4(d).

(2) declarations and/or determinations by the arbitrators that (i) Dreyfus engaged in a course of conduct by which it repeatedly breached the Shareholders' Agreement and thereby damaged the value of Beta and the Refinery, or (ii) the appraisers should take such course of conduct and the economic consequences thereof into account in appraising Beta for purposes of the buy-out of Tusculum's interest in Beta.¹

(i) A declaration that Tusculum wrongfully breached and repudiated the Joint Venture Agreement and violated its fiduciary duty and that Louis Dreyfus properly terminated the Agreement as a consequence:

(ii) An award against Tusculum in an amount representing its fifty (50%) share of the losses from the joint venture operations, plus accrued interest.

(iii) An award against Tusculum in the amount of the "expense" reimbursements that Tusculum wrongfully obtained from Louis Dreyfus, plus accrued interest.

(jv) An award dissolving Beta in view of Tusculum's violations of fiduciary duty and illegal, fraudulent and oppressive actions toward Louis Dreyfus.

(v) An award of damages satisfactory to remedy any and all breaches of contract and any and all breaches of fiduciary obligations;

(vi) Reimbursement of all costs and expenses incurred by Louis Dreyfus in connection with the preparation for, and conduct of, these arbitration proceedings, including, but not limited to, the fees and/or expenses of the International Court of Arbitration, the arbitrators, legal counsel, experts, consultants and witness, together with interest thereon.²

[…]

(iv) Dreyfus is not entitled to and cannot obtain an award dissolving Beta. Tusculum engaged in no conduct in violation of Dreyfus's or Beta's rights or interests, as alleged by Dreyfus. Rather, the opposite is true, as set forth in Tusculum's Request for Arbitration. Thus, as a factual matter, there is no basis for the relief sought by Dreyfus. Separately, the arbitral panel is without power or jurisdiction under the parties' November 7, 1990 agreement or otherwise to dissolve Beta.³

Gentlemen;

After consultation, the Tribunal has decided to put to the parties for consideration in the preparation of their legal arguments the questions stated in the attachment to this letter. In putting these questions, the Tribunal does not suggest that these are more important than other legal issues which will be discussed by the parties or, indeed that any of the questions are of controlling importance. Moreover, the Tribunal does not intend that the parties draw any inferences from the questions posed. They are put forth only because the Tribunal believes that their consideration may be helpful to the parties in the shaping of their arguments.

[…]

[Attachment]

C. The Conduct of the Parties

1. What effect, if any, did the conduct of the parties have on their rights and obligations?

2. Do doctrines such as reliance, frustration, change of circumstances, or failure of essential purpose have an impact on the rights and obligations of the parties to the Agreement? If so, what is the effect of the application of such doctrine or doctrines?

3. Does the principle of mitigation of damages apply and, if so, how?

(our emphasis)

(i) Tusculum, June 21, 1995:

A resolution in accordance with the impasse and buy-out provisions of the November 7 Agreement would be fair and equitable and what the parties bargained for¹¹.

[…]

"Frustration of purpose" and the related doctrines do not apply in a situation where, as here, the parties simply were unable to agree on how to implement an agreement. […] Under the doctrine of frustration, one party is discharged from performing the contract because the consideration it would receive from the other has been rendered valueless to it. Such a doctrine cannot be invoked here since Dreyfus has already received its benefit of the bargain - one-half of the shares of Beta and control (more than it bargained for) of the Refinery¹².

(ii) Dreyfus, June 21, 1995:

The Tribunal should declare the joint venture and the November 7 Agreement terminated as of October 14, 1993, and order Tusculum to pay its half of the losses, with pre-judgment and postjudgment interest as provided under New York law¹³.

[…]

[W]hen 'frustration' in the legal sense occurs, it does not merely provide one party with a defence in an action brought by the other. It kills the contract itself and discharges both parties automatically." (internal citations omitted). Where a court finds frustration of purpose, an "implied condition will be read into the contract that it shall be abrogated on the nonhappening of [the assumed] event¹⁴.

(iii) Tusculum, July 5, 1995:

In the final section of its post-hearing memorial, Dreyfus contends, for the first time, that if the Tribunal rejects its claim that the November 7 Agreement created a joint venture, Dreyfus should nevertheless be able to recover on theories of frustration, quantum merit, unjust enrichment, quasi-contract or mistake (the "new claims"). These new claims should be rejected in their entirety because, as they are beyond the scope of the parties' agreement to arbitrate and are not encompassed in the Terms of Reference, this Tribunal lacks jurisdiction to decide them. The Tribunal therefore need not even consider the merits of these claims¹⁵.

(iv) Dreyfus, July 6, 1995:

Tusculum also argues that "the time has come for the parties to be separated once and for all" […] and that, not so coincidentally, the only vehicle for achieving that result and avoiding additional proceedings requires that Louis Dreyfus give Tusculum a $65 million going-away party. Of course, this is not divorce court. Nor is this a court of general jurisdiction faced with a petition for dissolution. It is not theTribunal's fault that these parties went into business together, and it is not the Tribunal's responsibility to find a way to end that relationship.

[…]

We respectfully submit that, once the Tribunal makes clear that there was no bona fide impasse and that there will be no abovemarket payout for Tusculum's Beta shares, the parties will be well positioned to disentangle their affairs. In any event, that is the responsibility of the parties, once the Tribunal has discharged its duty of applying the parties' contract and the governing law to the facts¹⁶.

(our emphasis)

VII. THE AWARD

On the basis of the foregoing, the Tribunal renders the following Partial Award:

A. Answers to Section VII Questions

The Tribunal answers the question posed in Section VII of the Terms of Reference as follows:

Question 1: It finds that no joint venture was established.

Question 2: It finds that the Agreement of November 7, 1990 was never amended or modified.

Question 3: It finds that the relation established by the Agreement of November 7, 1990, insofar as that Agreement relates to Beta, has not been terminated. If further finds that the Agreement imposed upon the parties an obligation to negotiate in good faith with respect to the corporate holding company structure envisioned by the Agreement. Such negotiations have ceased and the Tribunal holds that neither party has asserted or proved any claim with respect to failure to negotiate in good faith.

Question 4: It finds that neither party has properly invoked the provisions of Section 4(d) of the November 7, 1990 Agreement and that Claimant is not entitled to any monetary damages.

Question 5: If finds that neither party has breached any commitments, duties or obligations to the other which entitle either party to any monetary of other relief. It reserves decision, however, as to what relief should be afforded to Dreyfus if and to the extent that any liens or encumbrances remain on Tusculum's interest in Beta after completion by the parties of the procedures set forth in Section B of this Partial Award. See p. 42-43 supra.

Question 6: It finds that neither party's ability to maintain an arbitral claim or defence has been barred, diminished or otherwise affected.

Question 7: See Section B below.

Questions 8 and 9: See Section C below.

B. Finding of Frustration of Purpose and Transfer of Interest in Beta

The Tribunal finds that the purpose of the November 7, 1990 Agreement has been frustrated. It decides that the remaining relationship between the parties should be terminated with the interest held by Tusculum in Beta being transferred to Dreyfus. Accordingly, the Tribunal directs as follows:

Dreyfus shall purchase from Tusculum, and Tusculum shall transfer to Dreyfus, Tusculum's one-half ownership interest (Geschaeftsantei) in Beta for a transfer price that shall be one-half of the transfer value determined in accordance with the formula TV = V - $111,248,000.

(our emphasis)

3. Supervision of valuation program: The parties and/or the experts may seek the views of the Tribunal with respect to any questions which arise in connection with the valuation process and the Tribunal may, at its sole discretion, modify the time periods set forth in this Partial Award.

4. The Tribunal has not been discharged and is has not determined finally the matters dealt with in Sections VI and VII (B) and (C) of the Partial Award. Subject to the challenge to its jurisdiction asserted by Dreyfus in the Canadian litigation, it has the power to review and, if appropriate, to alter, the matters dealt with in Section VI and VII(B) and (C).

Therefore, the Tribunal rules as follows:

First, it has no jurisdiction to reconsider the jurisdictional questions raised by Dreyfus.

Second, it has jurisdiction to reconsider the terms and conditions of the resolution of the relationship, unless and until the Canadian courts hold that the relationship of the parties fell outside of the jurisdiction conferred by the parties on the Tribunal.

[…]

The Tribunal's work is complete. The parties' claims have been decided. The divorce that the Tribunal recognized as salutary will be effected by German Law. The Tribunal should thus issue its final award (1) adopting the final portions of the January 31, 1998 Partial Award relating to the parties' claims; and (2) declaring that the non-final portions of the Partial Award, Sections VI, VII(B) and (C) are now moot.

…the bankruptcy filing by Beta, a non-party to this arbitration, will not eliminate the need for further proceedings by the Tribunal to discharge its responsibilities and to resolve the disputes between the parties to this arbitration.

…the Tribunal should not disband because it has continuing and significant obligations with respect to its mission.

• Sections VI and VII.B and VII.C of Arbitration Award #1 had been rendered moot;

• the judgment of the Wilhelmshaven District Court would effect the valuation and disposition of all of Beta's assets; and that consequently

• it would result in the termination of Beta as a legal entity and the termination of the parties' relationship as shareholders of Beta.

For all practical purposes, there are no assets for the Tribunal to distribute or award that could be the subject of any "relief" by the Tribunal.

[…]

The Tribunal does not have jurisdiction to consider "claims" arising in 1996 and it lacks the power to distribute Beta's assets. Its mission is now at an end. The Tribunal should dismiss all remaining issues as moot and enter a final award terminating this arbitration.

(i) …[T]he Tribunal has jurisdiction to consider the conduct of the parties subsequent to the issuance of the Partial Award; and

(ii) …[T]he very language of the stay shows that the Tribunal considers its jurisdiction to cover post-Partial Award conduct of the parties.

Since all of Beta's assets have been sold and the proceeds will be completely distributed to creditors, it has become a mere shell without any assets. Therefore, "Beta after the forthcoming final distribution, will … no longer have any assets and will in due course be struck from the commercial register, and, thus, end its corporate life as a legal entity". Exhibit D to Dreyfus 21 March 1997 Memorial, Memorandum of Dr. Manfred Balz, p. 1

[…]

The German bankruptcy proceeding has achieved the objective of the non-final portion of the Partial Award—termination of the relationship between the parties. To do so, a value was established pursuant to German law for Beta's assets. Because the allowed claims against Beta exceed the proceeds from the sale of its assets, Dreyfus and Tusculum will receive a distribution only as creditors and will receive nothing as shareholders. However, their relationship as shareholders will terminate by operation of German law after the bankruptcy proceeding has been concluded.²⁰

(internal citations omitted)

1. The German bankruptcy system has accomplished what the non-final portion of the Partial Award was designed to do; it has set in motion a train of events that, under German law, will terminate the relationship of the parties. Thus, the action of the courts of a sovereign government has done what the Tribunal would have done in the absence of the events subsequent to 31 January 1996 outlined in Part I above. These governmental acts have in effect mooted the relief that the non-final portion of the Partial Award provided. The Tribunal does not have any jurisdiction to review the actions of the German courts.

[…]

3. It is, therefore, the decision of the Tribunal that it cannot and will not implement the valuation procedure as requested by Tusculum.²¹

(internal citations omitted)

(A) With Respect to the Tusculum Motion for the Partial Annulment of Arbitration Award #2:

(i) Did the Tribunal have jurisdiction to render Arbitration Award #2?

(ii) Referring to the Terms of Reference, what is the significance of the wording and what was the intention of the parties in providing "…the Tribunal shall decide all issues of jurisdiction…" (Section VII, p. 51) ?

(iii) Did the Bankruptcy Order regarding Beta render moot the Valuation and Buyout Remedy contained in Sections VI and VII.B of Arbitration Award #1, thus justifying the issuance of Arbitration Award #2 by the Tribunal?

(iv) Was the determination, in Arbitration Award #2, that it was no longer appropriate to implement the Valuation and Buyout Remedy described in Arbitration Award #1, a determination involving the merits of the dispute and, accordingly, one into which this Court cannot enquire?

(v) Has Tusculum discharged its burden of proving appropriate grounds for the annulment of Arbitration Award #2? and

(vi) Under reserve of the foregoing, do Tusculum's actions subsequent to the issuance of the Order constitute an express or implied authority to the Tribunal to address the new circumstances arising from the bankruptcy of Beta, thereby precluded it from seeking the annulment of Arbitration Award #2?

(B) With Respect to the Tusculum Motion for the Annulment of the Order:

(i) Assuming the Tribunal had jurisdiction to fashion the Valuation and Buyout Remedy and thereby issue the conclusions found in Sections VI and VII.B of Arbitration Award #1, was it, to the extent of such conclusions, a "final award" within the meaning of Article 32(2) of the UNCITRAL Model Law on International Commercial Arbitration²² ?

(ii) Accordingly, did the Tribunal become functus officio upon rendering Arbitration Award #1, save for the matters expressly reserved therein?

(iii) Do the determinations and the decisions contained in Sections VI and VII.B of Arbitration Award #1 have the authority of res judicata ?

(iv) Or, alternatively, did the Tribunal reserve jurisdiction with respect to the conclusions dealt with in Sections VI and VII.B of Arbitration Award #1, thereby allowing it to issue the Order?

(v) Was the Tribunal competent to decide issues of jurisdiction? In so doing, did it err in determining, in the Order, that it had jurisdiction to re-consider such conclusions in the same proceedings? Does this error give rise to judicial intervention?

(vi) Referring to the Terms of Reference, what is the significance of the wording and what was the intention of the parties in providing "…the Tribunal shall decide all issues of jurisdiction…" (Section VII, p. 51)? and

(vii) Has Tusculum discharged its burden of proving appropriate grounds for the annulment of the Order?

36. Notwithstanding that in sections VI and Vllb) of Award #1 the Tribunal had established and ordered implemented a specific valuation procedure for the transfer price of Petitioner's interest in Beta as part of the Valuation and Buyout Remedy, described in paragraphs 6 and 7 hereof, the Tribunal subsequently refused to apply the Valuation and Buyout Remedy, […]

37. Thus, the Tribunal erred regarding its jurisdiction in two separate respects: (1) the Tribunal acted "functus officio" when it abrogated and refused to implement the Valuation and Buyout Remedy contained in Award #1 and (2) the Tribunal misconstrued its own jurisdiction when it held in Award #2 that it "cannot... implement the valuation procedure as requested by Tusculum";

38. In this regard and in the context of Beta's bankruptcy proceedings in Germany, a subsidiary of Respondent purchased Beta's assets through the bankruptcy for a price of approximately US $60 million, as is evidenced in Award #2 and as previously explained above in paragraph 29;

39. The said amount of US $60 million was far below the expert evidence submitted to the Tribunal by both Petitioner and Respondent hereto, the Respondent itself having valued the Refinery at US $ 160 million and the other valuations of the Refinery referred to in Award #1 being for approximately US $ 300 million or in excess thereof;

40. Moreover, Award #1 stipulated that the fair market value was to be estimated as between a willing buyer and a willing seller, neither being under any compulsion to act, such criteria being non existent in the bankruptcy sale to Respondent's subsidiary which purchased Beta's assets;

41. And yet, notwithstanding the foregoing, the Tribunal in its Award #2 considered the effects and potential effects of the subsequent German bankruptcy so as to conclude that it would not implement the Valuation and Buyout Remedy in sections VI and VlIb) of Award #1;

42. However, after having established and ordered implemented, in sections VI and VIIb) of Award #1, the Valuation and Buyout Remedy, the Tribunal was "functus officio" and had no jurisdiction to nullify and to refuse to implement, as it did, the Award #1 Valuation and Buyout Remedy;

43. Indeed, notwithstanding that it was entitled a Partial Award, Award #1 rendered by the Tribunal on January 31, 1996 […], was final and binding as to its decisional content, inclusive of Sections VI and VlI(B), wherein the Tribunal established and ordered implemented the Valuation and Buyout Remedy;

44. In accordance with the ICC Rules of Arbitration, Award #1 […] was submitted to the International Court of Arbitration of the ICC, which approved Award #1 at its session of January 25, 1996 […];

45. The fact that the Tribunal reserved unto itself a supervisory role as to the application of the valuation procedure set forth in Award #1, did not render any less final Award #1 as to all matters decided therein, …;

[…]

46. As a consequence, by deciding in Award #2 not to implement the Valuation and Buyout Remedy it had established and ordered implemented in Award #1, the Tribunal both disregarded the applicable arbitration procedure, according to which Award #1 was final as to all matters decided therein, and, further, exceeded its jurisdiction, being "functus officio" to render null and of no effect a remedy which was final and binding as set forth in Award #1;

47. It is further evident from Award #2 […] that the Tribunal did not simply attempt to complete, its mission of finalizing the evaluation of quantum in accordance with the determined method but, rather, considered itself empowered to refuse to implement the method which it had established in Award #1, whereas it was "functus officio" to do so. Moreover, contrary to its conclusion in Award #2, the Tribunal had jurisdiction to implement the Valuation and Buyout Remedy but failed to exercise that jurisdiction;

48. The Tribunal's Award #2 […] is not only contrary to generally recognized principles of international commercial arbitration, as established in the Quebec Code of Civil Procedure and in the ICC Rules of Arbitration, but Award #2 is tantamount to the Tribunal sitting in Appeal of Award #1, which it is "functus officio" and without jurisdiction to do;

19. The Award rendered by the Tribunal on January 31, 1996 […] is final and binding as to its decisional content, inclusive of Sections VI and VII(B), notwithstanding that it is a partial award.

20. The Tribunal was authorized not only by customary practice in international commercial arbitration but also specifically by the parties at Section XI of the Terms of Reference […], to issue partial awards for the purposes of concluding substantive issues between the parties, which it accordingly decided to do.

21. In accordance with the ICC Rules of Arbitration, the Award […] was submitted to the International Court of Arbitration of the ICC, which approved same at its session of January 25, 1996, […]

22. The fact that the Tribunal reserved unto itself a supervisory role as to the valuation program for damages, which would give rise to a final determination of the fair market value of Beta through a procedure established in the Award, does not render any less final the Award as to all matters decided therein, […].

23. The Order of the Tribunal […] as regards Sections VI and VII(B) extends beyond the jurisdiction of the Tribunal, the latter being "functus officio" to review, alter and reconsider matters which are final and binding as set forth in the Award […].

24. It is evident from the Order […] and the subsequent correspondence from the Chairman of the Tribunal […] that the Tribunal intends to go beyond the express provisions of the Award, which it is "functus officio" to do; in addition, even if it could make simple corrections in clerical errors, interpretations of ambiguous wording or decisions on issues omitted in the Award, it is clear that the Tribunal does not intend to restrict itself to such simple gestures in this case.

25. It is further evident from the Order […] and the subsequent correspondence […] that the Tribunal is not simply attempting to complete its mission of finalizing the evaluation of quantum in accordance with the determined method but, in addition, considers itself empowered to even reconsider, alter and modify the method which it established, whereas it is "functus officio" to do so.

26. The Tribunal, in its majority decision supporting the Order, has erred as to its jurisdiction by concluding, for all intents and purposes, that a "Partial Award" is not final and binding so long as a "Final Award" is contemplated, the whole contrary to the intentions of the parties as expressed in the Terms of Reference and, as well, to recognized principles of international commercial arbitration, including those expressed in the UNCITRAL Rules of Arbitration.

27. The said Order of the Tribunal […] is not only contrary to generally recognized principles of international commercial arbitration as established in the Quebec Code of Civil Procedure, in the ICC Rules of Arbitration and in the UNCITRAL Rules of Arbitration, but it is tantamount to the Tribunal sitting in Appeal of its own award, which it is "functus officio" to do.

147. In its Motion for Annulment of Final Award filed on 8 September 1997, Tusculum seeks the annulment of the Final Award dated 29 May 1997 on the grounds that the Tribunal was functus officio once the Partial Award had been rendered and that it thereby exceeded its jurisdiction and disregarded the applicable procedure by issuing the Final Award.

148. Tusculum's said Motion must be dismissed because it constitutes an impermissible attempt to enquire into the merits of the dispute before the Tribunal. Article 946.2 CCP, together with Article 947.2 CCP, provide that the Court may not enquire into the merits of the dispute when examining a matter for homologation or annulment. Because it seeks review of the merits of the dispute, Tusculum's said Motion improperly invades the exclusive province of the Tribunal and must be dismissed by this Honourable Court.

149. The burden of proving that the award as a whole, in its disposition of the case, violates enumerated and explicit grounds contemplated under Article 946.4 CCP, rests entirely with Tusculum.

150. Except for the allegation that "the applicable arbitration procedure was not observed", none of the grounds enumerated and relied upon by Tusculum to request annulment of the Final Award fall within the specific and narrow grounds which the legislature has identified for annulment of arbitral awards.

151. Contrary to Tusculum's allegations, the Tribunal followed the "applicable arbitration procedure" in rendering the Final Award. It fully observed the ICC Rules, the Terms of Reference, and any mandatory provisions of any applicable law.

152. The form, content and delivery of the Final Award were consistent with the applicable arbitration procedure, including international commercial arbitration practice, principles and usage, particularly those relating to the ICC arbitration proceedings. The Final Award was submitted in draft form to the ICC Court for scrutiny. In approving the Final Award, the ICC Court plainly viewed it as consistent with the ICC Rules, the Terms of Reference, and any mandatory provisions of any applicable law.

153. In the Final Award, the Tribunal determined that Sections VI and VII(B) and (C) of the Partial Award were non-final. The Tribunal's decisions in the Final Award relating to its own Partial Award is a question pertaining to the merits of the dispute before the Tribunal and cannot be subject to annulment under the CCP. ICC arbitration procedure leaves it to the Tribunal to determine the questions concerning whether, or which parts of, a partial award are final or non-final. Under New York and other applicable law, the finality of an award relates to the merits of the dispute.

154. Although unreviewable by this Honourable Court, the Tribunal's determination that portions of the Partial Award dealing with the valuation and buy-out procedure were non-final was correct. These matters of procedure, as set forth in Sections VI and VII (B) and (C) of the Partial Award, were directions and not binding decisions. There was no final determination in respect of these issues.

155. Under the ICC Rules, a tribunal is free to revisit or reconsider any of its procedural or other directions, and indeed, it must do so if there are new circumstances or developments including new pleadings of the parties.

156. […]

157. […]

158. Moreover, in the Final Award, the Tribunal did not re-determine any issue already finally decided by the Partial Award. Instead, it addressed new and different issues that had arisen after issuance of the Partial Award, notably the effect of the German bankruptcy proceedings and decisions of the German bankruptcy court on Sections VI and VII(B) and (C) of the Partial Award.

159. In considering the effect of these subsequent events, the Tribunal determined that the German bankruptcy proceedings … achieved the objective of the non-final portion of the Partial Award—termination of the relationship between the parties. Further, it determined that"the action of the courts of a sovereign government has done what the Tribunal would have done in the absence of the events subsequent to 31 January 1996…". The Tribunal also determined that "these governmental acts have in effect mooted the relief that the non-final portions of the Partial Award provided." Finally, it determined that "the Tribunal does not have jurisdiction to review the actions of the German courts." […]

160. […]

161. Contrary to Tusculum's allegations, the Tribunal was not precluded by the doctrine of functus officio from issuing the Final Award. Under New York and other applicable law, the doctrine of functus officio is of doubtful, or at least reduced, applicability when the issue is the proper scope of the future decision-making of a properly constituted and continuously functioning arbitral tribunal following up on its rendering of a Partial Award. […]

162. […]

163. […]

164. As already discussed, even where it applies, the doctrine of functus officio does not prevent an arbitrator from issuing necessary clarifications or addressing, inter alia, contingencies that later arise. The doctrine is customarily applied with flexibility in international arbitrations. The bankruptcy was a supervening event that had not been foreseen, and the Tribunal was required to consider its effect on the valuation and buy-out procedure and the fulfillment of the objective underlying the non-final portions of the Partial Award.

165. Moreover, Tusculum consented to the Tribunal determining the impact of the bankruptcy and post-Partial Award conduct on the relevant portions of the Partial Award. […]

166. By its conduct, Tusculum waived any objection to the Final Award and is estopped under New York and other applicable law from seeking to annul it.

167. […]

168. Furthermore, the Tribunal's determination that the valuation and buy-out procedure of the Partial Award had been rendered moot by the actions of the German bankruptcy law was clearly correct. […]

169. The result was that Beta had no assets to appraise, sell or transfer. Furthermore, Beta's shares had no value, and Beta itself did not exist. The parties' relationship as shareholders in Beta was terminated by operation of law. Any decision of the Tribunal relating to the liquidation and/or winding up of Beta could simply not be enforced or carried out, given that Beta had no assets and was no longer in existence.

170. Indeed, in the Final Award, the Tribunal determined that the relationship between the parties "will terminate by operation of German law after the bankruptcy proceedings have been concluded" and, furthermore, "the Tribunal does not have any jurisdiction to review the actions of the German courts" […]

171. […]

172. Although the foregoing reasons are sufficient to require dismissal or denial of Tusculum's Motion for Annulment of the Final Award, Tusculum's other conduct would require the same result.

173. Tusculum was a full participant in the bankruptcy auction. It availed itself of a fair opportunity to obtain value for its interest in the Refinery by submitting a bid through its affiliate. In so doing, Tusculum renounced its rights with regard to its proceedings instituted before this Honourable Court relating to the annulment of the Order and the Final Award.

127. As a preliminary matter, Tusculum's Motion for Annulment of Order must be dismissed because it improperly seeks the annulment of a procedural order. Articles 947 to 947.4 of the Quebec Code of Civil Procedure (the "CCP"), which Tusculum alleges is the statutory basis for its said Motion, allow only motions to annul arbitration awards. A procedural order, on the other hand, cannot be the subject of either homologation or annulment proceedings under the CCP. Respondent therefore reserves the right to have Tusculum's Motion for Annulment of Order dismissed on preliminary grounds.

128. The Order is clearly a procedural order, not an arbitration award….

[…]

130. An arbitrator's expression of views concerning the arbitrator's own prior interim ruling, when such views are expressed in the context of providing directions to the parties in a procedural order that will lead to a final award, is in accord with custom and practice in international arbitration and is not understood as constituting an award and a final determination of the merits of the dispute.

131. Furthermore, the Order was not treated as an award under the ICC Rules. […] Because it was a procedural order, the Order was not submitted to the ICC Court for scrutiny, and the ICC Secretariat did not notify the parties of the Order.

132. […]

133. In sum, because the Order is a procedural order, and not an arbitration award, this Court cannot review the Tribunal's actions in issuing the Order, and Tusculum may not make the Order the subject of a motion for annulment under Articles 947 to 947.4 of the CCP.

134. Even if the CCP permitted a motion to annul a procedural order, Tusculum's said Motion must be denied.

135. Contrary to Tusculum's contention, the Tribunal was not precluded by the doctrine of functus officio from issuing the Order. As of 21 March 1996, the Tribunal had not fulfilled its function and had not been discharged. Rather, it remained in existence, having issued only a Partial Award. […]

136. In addition, the Tribunal expressly reserved its jurisdiction with respect to Sections VI and VII (B) and (C) of the Partial Award, as it was entitled to do. Both "the parties and/or the experts" could, under Section VII (B) (3) of the Partial Award, seek the views of the Tribunal with respect to "any questions which arise in connection with" the valuation and buy-out procedure […].

137. Even if the doctrine of functus officio were relevant here, under New York and other applicable law, the doctrine contains several exceptions, including the right of an arbitrator to clarify an award that fails to address,

inter alia, a contingency that later arises. This is consistent with custom and practice in international arbitration.

138. In all events, the doctrine of functus officio must be applied with flexibility in the context of international arbitration proceedings, and the Tribunal was entirely justified and empowered to act as it did.

139. The Tribunal's authority to issue the Order is further supported by the broad powers regarding matters of procedure that the parties conferred on it in the Terms of Reference. […]

140. As stated above, the Terms of Reference provided that "[t]he Arbitral Tribunal shall determine the procedure to be followed in this arbitration, subject to mandatory provisions of any applicable law and of January 1, 1988 ICC Rules of Conciliation and Arbitration." Granting such broad powers to arbitrators to determine matters of procedure is customary in international arbitration, and particularly in ICC arbitrations.

141. In issuing the Order, the Tribunal did not contravene the ICC Rules, the Terms of Reference or any mandatory provisions of any applicable law but, on the contrary, acted within the spirit of those rules and in accordance with general international arbitration custom and practice.

142. In any event, by its conduct, Tusculum waived its challenge to the Order when it failed to diligently pursue its Motion for Annulment of Order. […]

143. Accordingly, […], on 25 June 1996, Tusculum again wrote to the Tribunal […] asking it not dissolve itself before a ruling from the Canadian court because termination of the arbitration proceedings "would deny Tusculum the chance to meaningful relief in the Canadian courts".

144. Again, rather than prosecuting its Motion for Annulment of Order promptly in this Court, Tusculum attempted instead to obtain Beta's Refinery for itself by placing a bid in the bankruptcy auction (see paragraph 112 above). By its failure promptly to pursue its objection to the Order with this Court and by its election to seek alternative relief in the German bankruptcy process, Tusculum has waived its challenge to the Order.

145. The Order was, moreover, superseded by and merged into the Final Award and, even if the CCP permitted the annulment of a procedural order, which it does not, the Order would no longer be the proper subject of annulment proceedings.

Further to our meeting of December 17, 2007 and our recent written and telephone exchanges, we hereby confirm the understanding reached between us with respect to the continuances of suit filed in the above-captioned court file numbers by Bulk Oil Group Ltd. ("Bulk Oil") and the trustee of bankruptcy of Holding Tusculum B.V. ("Tusculum"), Mr. Ronald W. de Ruuk ("de Ruuk").

We confirm that the parties will not, in the context of the above-captioned court files coming up for hearing before the Quebec Superior Court, raise the issue of standing or legal interest of Bulk Oil or de Ruuk. These and any other connected issues are simply matters that the Quebec Superior Court need not address at this time. We also confirm that agreement of S.A. Louis Dreyfus & Cie ("Dreyfus") to proceed in this manner is without prejudice to any of its rights to raise the above and other related issues in the future and it does not constitute an admission by Dreyfus that Tusculum's interests, if any, were validly transferred to de Ruuk or Bulk Oil. Finally, it is agreed and understood that the parties authorize Justice Silcoff to incorporate the terms of this agreement in his judgment.

This Agreement shall be governed by, and construed in accordance with the laws of the State of New York (regardless of the laws that might otherwise govern under applicable New York principles of conflict of laws). Any disputes with respect to the interpretation of this Agreement or claims for damages for breach of this Agreement shall be resolved by arbitration in the English language by one or more arbitrators chosen in accordance with the rules of the International Chamber of Commerce.

(our emphasis)

VII. Statement of the issues to be Determined

The Arbitral Tribunal shall decide all issues of jurisdiction, if any, and all issues of merits arising from the Terms of Reference herein and from the pleadings properly filed by the parties under the directions of the Tribunal, in one or more awards, in particular the following:

1. Did the Agreement of November 7, 1990, considered alone or in the context of the conduct of the parties, establish a joint venture? If it did, what was the scope thereof and the obligations of the parties thereunder?

[…]

2. Was the Agreement of November 7, 1990 amended or modified at any time?

3. Has the relationship, if any, between the parties established by the Agreement of November 7, 1990 (referred to in paragraphs 1 and 2 above) and their conduct thereunder been terminated? If so, by what communications and/or conduct, and when was the termination effective?

a. In particular, did Defendant's letter of October 14, 1993 operate to terminate the relationship and, if so, what are the consequences of the termination;

b. Was either party entitled to terminate the relationship as a result of breaches, repudiation or other wrongful conduct by the other; and

c. Have any events taken place such as positions taken in court -proceedings or transfer of stock interests in Beta which had the effect of repudiating or terminating the relationship?

4. Has an "impasse" within the meaning of Section 4(d) of the November 7, 1990 Agreement occurred and, if so, has either party properly invoked the provisions of Section 4(d)?

a. In particular, if one party has properly invoked an impasse, what are the legal consequences thereof and what action should the Arbitral Tribunal take with respect thereto?

b. Is the Claimant entitled to the "call price" or the "put price" and/or to the right of appraisal provided under the November 7, 1990 Agreement?

c. If the remedies provided in subparagraph (b) are inapplicable, is the Claimant entitled to any monetary damages?

d. Should any recovery by the Claimant be offset by the amount of its liability, if any, for any joint venture losses?

5. If one party is found to have breached any contractual commitments, fiduciary duties or other obligation to the other, to what money damages or other relief is the injured party entitled?

a. In particular, is either party entitled to recover anything from the other in respect of operating losses, profits or other assets or liabilities of any joint venture, including any joint venture described in subparagraphs 1(a), 1(b), or 1 (c) of this Section VII;

b. Is Defendant entitled to recover from Claimant 50% of losses incurred in the first instance by Defendant with respect to any claimed joint venture as described in subparagraph 1(a), 1(b), or 1(c) of this Section VII; and

c. Is either party entitled to recover from the other any money damages as a result of a wrongful breach, repudiation, or termination of the Agreement of November 7, 1990?

6. Is either party's ability to maintain an arbitral claim or defense with respect to the November 7, 1990 Agreement, its right to damages or its right to other relief barred, diminished, waived or otherwise affected by:

a. The doctrines of unclean hands, waiver and/or estoppel;

b. The statute of frauds;

A change in the status of the Claimant, if such has occurred, such that it ceased to remain a shareholder of Beta;

d. Contentions which any party has made in related judicial proceedings;

e. Any party's filing and/or pursuing any judicial proceedings; and

f. A party's breaches, repudiation or other wrongful conduct?

7. If Claimant is no longer a Beta shareholder due to the April 28, 1994 Beta resolution and is not entitled to the relief described in subparagraphs 4(b) and 4(c), is Claimant entitled to any other relief or is Defendant entitled to dismissal of Claimant's claims?

8. What interest, if any, should be awarded to a party with respect to claims where it is successful and to awards entered in its favor?

9. Taking into account the rulings of the Arbitral Tribunal on the issues set forth above in this Section VII, the conduct of the arbitration procedure and any other factors which the Tribunal may deem relevant, what costs, if any, should the Tribunal award?

Article 11 – Rules Governing the Proceedings

The rules governing the proceedings before the arbitrator shall be those resulting from these Rules and, where these Rules are silent, any rules which the parties (or, failing them, the arbitrator) may settle, and whether or not reference is thereby made to a municipal procedural law to be applied to the arbitration.

Article 13 – Terms of reference

[…]

The arbitrator shall assume the powers of an amiable compositeur if the parties are agreed to give him such powers.

Article 16

The parties may make new claims or counter-claims before the arbitrator on condition that these remain within the limits fixed by the Terms of Reference provided for in Article 13 or that they are specified in a rider to that document, signed by the parties and communicated to the international Court of Arbitration.

Article 21 – Security of Award by the Court

Before signing an award, whether partial or definitive, the arbitrator shall submit it in draft form to the international Court of Arbitration. The Court may lay down modifications as to the form of the award and, without affecting the arbitrator's liberty of decision, may also draw his attention to points of substance. No award shall be signed until it has been approved by the Court as to its form.

Article 24 – Finality and Enforceability of Award

1. The arbitral award shall be final.

2. By submitting the dispute to arbitration by the international Chamber of Commerce, the parties shall be deemed to have undertaken to carry out the resulting award without delay and to have waived their right to any form of appeal insofar as such waiver can validly be made.

CHAPTER I

GENERAL PROVISIONS

940. The provisions of this Title apply to an arbitration where the parties have not made stipulations to the contrary. However, articles 940.2, 941.3, 942.7, 943.2, 945.8 and 946 to 947.4, as well as article 940.5 where the object of the service is a judicial proceeding, are peremptory.

[…]

940.6 Where matters of extraprovincial or international trade are at issue in an arbitration, the interpretation of this Title, where applicable, shall take into consideration:

(1) the Model Law on International Commercial Arbitration as adopted by the United Nations Commission on International Trade Law on 21 June 1985;

(2) the Report of the United Nations Commission on International Trade Law on the work of its eighteenth session held in Vienna from the third to the twenty-first day of June 1985;

(3) the Analytical Commentary on the draft text of a model law on international commercial arbitration contained in the report of the SecretaryGeneral to the eighteenth session of the United Nations Commission Trade Law.

[…]

CHAPTER V

ORDER OF ARBITRATION PROCEEDINGS

944.10 The arbitrators shall settle the dispute according to the rules of law which they consider appropriate and, where applicable, determine the amount of the damages. They cannot act as amiable compositeurs (sic) except with the prior concurrence of the parties.

CHAPTER VII

HOMOLOGATION OF THE ARBITRATION AWARD

946. An arbitration award cannot be put into compulsory execution until it has been homologated.

946.1 A party may, by motion, apply to the court for homologation of the arbitration award.

946.2 The court examining a motion for homologation cannot enquire into the merits of the dispute.

946.3 The court may postpone its decision on the homologation if an application has been made to the arbitrators by virtue of article 945.6.

If the court acts pursuant to the first paragraph, it may, on the application of the party applying for homologation, order the other party to provide security.

946.4 The court cannot refuse homologation except on proof that

(1) one of the parties was not qualified to enter into the arbitration agreement;

(2) the arbitration agreement is invalid under the law elected by the parties or, failing any indication in that regard, under the laws of Québec;

(3) the party against whom the award is invoked was not given proper notice of the appointment of an arbitrator or of the arbitration proceedings or was otherwise unable to present his case;

(4) the award deals with a dispute not contemplated by or not failing within the terms of the arbitration agreement, or it contains decisions on matters beyond the scope of the agreement; or

(5) the mode of appointment of arbitrators or the applicable arbitration procedure was not observed.

In the case of subparagraph (4) of the first paragraph, the only provision not homologated is the irregular provision described in that paragraph, if it can be dissociated from the rest.

946.5 The court cannot refuse homologation of its own motion unless it finds that the matter in dispute cannot be settled by arbitration in Québec or that the award is contrary to public order.

CHAPTER VIII

ANNULMENT OF THE ARBITRATION AWARD

947. The only possible recourse against an arbitration award is an application for its annulment.

947.1 Annulment is obtained by motion to the court or by opposition to a motion to the court or by opposition to a motion for homologation.

947.2 Articles 946.2 to 946.5, adapted as required, apply to an application for annulment of an arbitration award.

947.3 On the application of one party, the court, if is considers it expedient, may suspend the application for annulment for such time as it deems necessary to allow the arbitrators to take whatever measures are necessary to remove the grounds for annulment, even if the time prescribed in article 945.6 has expired.

947.4 The application for annulment must be made within three months after reception of the arbitration award or of the decision rendered under article 945.6.

[…]

948. This title applies to an arbitration award made outside Québec whether or not it has been ratified by a competent authority.

The interpretation of this Title shall take into account, where applicable, the Convention on the Recognition and Enforcement of Foreign Arbitral Awards as adopted by the United Nations Conference on International Commercial Arbitration at New York on 10 June 1958.

39 The New York Convention entered into force in 1959. Article II of the Convention provides that a court of a contracting state that is seized of an action in a matter covered by an arbitration clause must refer the parties to arbitration. At present, 142 countries are parties to the Convention. The accession of this many countries is evidence of a broad consensus in favour of the institution of arbitration. Lord Mustill²⁶ wrote the following about the Convention:

This Convention has been the most successful international instrument in the field of arbitration, and perhaps could lay claim to be the most effective instance of international legislation in the entire history of commercial law.

(M. J. Mustill, "Arbitration: History and Background" (1989), 6 J. Int'l Arb. 43, at p. 49)

Canada acceded to the New York Convention on May 12, 1986.

40 The Model Law is another fundamental text in the area of international commercial arbitration. It is a model for legislation that the UN recommends that states take into consideration in order to standardize the rules of international commercial arbitration. The Model Law was drafted in a manner that ensured consistency with the New York Convention: F. Bachand, "Does Article 8 of the Model Law Call for Full or Prima Facie Review of the Arbitral Tribunal's Jurisdiction?" (2006), 22 Arb. Int'l 463, at p. 470; S. Kierstead, "Referral to Arbitration under Article 8 of the UNCITRAL Model Law: The Canadian Approach" (1999), 31 Can. Bus. L.J. 98, at pp. 100-101.

41 The final text of the Model Law was adopted on June 21, 1985 by the United Nations Commission on International Trade Law ("UNCITRAL"). In its explanatory note on the Model Law, the UNCITRAL Secretariat states that it:

... reflects a worldwide consensus on the principles and important issues of international arbitration practice. It is acceptable to States of all regions and the different legal or economic systems of the world.

(Explanatory Note by the UNCITRAL secretariat on the Model Law on International Commercial Arbitration, at para. 2)

In 1986, Parliament enacted the Commercial Arbitration Act, R.S.C. 1985, c. 17 (2nd Supp.), which was based on the Model Law. The Quebec legislature followed suit that same year and incorporated the Model Law into its legislation. Quebec's Minister of Justice at the time, Herbert Marx, reiterated the above-quoted comment by the UNCITRAL Secretariat: National Assembly, Journal des débats, 1st Sess., 33rd Leg., June 16, 1986, at p. 2975, and Oct. 30, 1986, at p. 3672.

4.3.2 Nature and Scope of the 1986 Amendments to the Civil Code of Lower Canada and the Code of Civil Procedure

42 In 1986, the Act to amend the Civil Code and the Code of Civil Procedure in respect of arbitration, S.Q. 1986, c. 73 ("Bill 91"), which established a scheme for promoting arbitration in Quebec, was tabled in the legislature. Bill 91 added a new title on arbitration agreements to the Civil Code of Lower Canada. This title consisted of only six provisions setting out a few general principles relating to the validity and applicability of such agreements. The legislature's decision to place arbitration agreements among the nominate contracts in the Civil Code of Lower Canada is significant. After that, there was no longer any reason to regard arbitration agreements as being outside the sphere of the general law; on the contrary, they were now an integral part of it: Condominiums Mont St-Sauveur inc. v. Constructions Serge Sauvé Ltée, [1990] R.J.Q. 2783 (C.A.), at p. 2785; J. E. C. Brierley, "Arbitration Agreements: Articles 2638-2643", in Reform of the Civil Code (1993), vol. 3B, at p. 1. The provisions added by Bill 91 would be restated without any major changes in the chapter of the Civil Code of Québec on arbitration agreements.

43 Bill 91 also had a considerable impact on the Code of Civil Procedure. Substantial additions were made to Book VII on arbitrations, which was divided into two titles. Title I is a veritable code of arbitral procedure that regulates every step of an arbitration proceeding subject to Quebec law, from the appointment of the arbitrator to the order of the proceeding to the award and homologation. Most of these rules apply only "where the parties have not made stipulations to the contrary" (art. 940 C.C.P.). Title II sets out a system of rules applicable to the recognition and execution of arbitration awards made outside Quebec.

44 Although Bill 91 was the Quebec legislature's response to Canada's accession to the New York Convention and to UNCITRAL's adoption of the Model Law, it is not identical to those two instruments. As the Quebec Minister of Justice noted, Bill 91 was [TRANSLATION] "inspired" by the Model Law and [TRANSLATION] "implement[ed]" the New York Convention: Journal des débats, 1st Sess., 33rd Leg., October 30, 1986, at p. 3672. For this reason, it is important to consider the interplay between Quebec's domestic law and private international law before interpreting the provisions of Bill 91.

45 This Court analysed the interplay between the New York Convention and Bill 91 in GreCon Dimter inc. v. J.R. Normand inc., [2005] 2 S.C.R. 401, 2005 SCC 46, at paras. 39 et seq. After noting that there is a recognized presumption of conformity with international law, the Court mentioned that Bill 91 "incorporate[s] the principles of the New York Convention" and concluded that the Convention is a formal source for interpreting the provisions of Quebec law governing the enforcement of arbitration agreements: para. 41. This conclusion is confirmed by art. 948, para. 2 C.C.P., which provides that the interpretation of Title II on the recognition and execution of arbitration awards made outside Quebec (arts. 948 to 951.2 C.C.P.) "shall take into account, where applicable, the [New York] Convention".

46 The same is not true of the Model Law. Unlike an instrument of conventional international law, the Model Law is a non-binding document that the United National General Assembly has recommended that states take into consideration. Thus, Canada has made no commitment to the international community to implement the Model Law as it did in the case of the New York Convention. Nevertheless, art. 940.6 C.C.P. [previously reproduced] attaches considerable interpretive weight to the Model Law in international arbitration cases:

[…]

47 In short, to quote Professor Brierley, Bill 91 opened Quebec arbitration law to "international thinking" in this area; this international thinking "has become a formal source of Quebec positive law": J. E. C. Brierley, "Quebec's New (1986) Arbitration Law" (1987-88), 13 Can. Bus. L.J. 58, at pp. 63 and 68-69.

Article 28. Rules applicable to substance of dispute

(3) The arbitral tribunal shall decide ex aequo et bono or as amiable compositeur only if the parties have expressly authorized it to do so.

Article 32. Termination of proceedings

(1) The arbitral proceedings are terminated by the final award or by an order of the arbitral tribunal in accordance with paragraph (2) of this article.

(2) The arbitral tribunal shall issue an order for the termination of the arbitral proceedings when:

(a) the claimant withdraws his claim, unless the respondent objects thereto and the arbitral tribunal recognizes a legitimate interest on his part in obtaining a final settlement of the dispute;

(b) the parties agree on the termination of the proceedings;

(c) the arbitral tribunal finds that the continuation of the proceedings has for any other reason become unnecessary or impossible.

(3) The mandate of the arbitral tribunal terminates with the termination of the arbitral proceedings, subject to the provisions of articles 33 and 34(4).

CHAPTER VII. RECOURSE AGAINST AWARD

Article 34. Application for setting aside as exclusive recourse against arbitral award

(1) Recourse to a court against an arbitral award may be made only by an application for setting aside in accordance with paragraphs (2) and (3) of this article.

(2) An arbitral award may be set aside by the court specified in article 6 only if:

(a) the party making the application furnishes proof that:

(i) a party to the arbitration agreement referred to in article 7 was under some incapacity; or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of this State; or

(ii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or

(iii) the award deals with a dispute not contemplated by or not failing within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the award which contains decisions on matters not submitted to arbitration may be set aside; or

(iv) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Law from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Law; or

(b) the court finds that:

(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law of this State; or

(ii) the award is in conflict with the public policy of this State.

(i) the Tusculum Motion for the Partial Annulment of Arbitration Award #2; and

(ii) the Tusculum Motion for the Annulment of the Order.

22 The parties to an arbitration agreement have virtually unfettered autonomy in identifying the disputes that may be the subject of the arbitration proceeding. As we shall later see, that agreement comprises the arbitrator's terms of reference and delineates the task he or she is to perform, subject to the applicable statutory provisions. The primary source of an arbitrator's competence is the content of the arbitration agreement (art. 2643 C.C.Q.). If the arbitrator steps outside that agreement, a court may refuse to homologate, or may annul, the arbitration award (arts. 946.4, para. 4 and 947.2 C.C.P.). In this case, the arbitrator's terms of reference were not defined by a single document. His task was delineated, and its content determined, by a judgment of the Superior Court, and by a lengthy exchange of correspondence and pleadings between the parties and Mr. Rémillard.

67 The legislature has affirmed the autonomy of arbitration by stating, in art. 946.2 C.C.P., that "[t]he court examining a motion for homologation cannot enquire into the merits of the dispute". (That provision is applicable to annulment of an arbitration award by the reference to it in art. 947.2 C.C.P.) In addition, the reasons for which a court may refuse to homologate or annul an arbitration award are exhaustively set out in arts. 946.4 and 946.5 C.C.P.

[…]

69 This latter approach has been adopted by a significant line of authority. It recognizes that the remedies that may be sought against arbitration awards are limited to the cases set out in arts. 946 et seq. C.C.P. and that judicial review may not be used to challenge an arbitration decision or, most importantly, to review its merits (Compagnie nationale Air France, supra, at pp. 724-25; International Civil Aviation Organization v. Tripal Systems Pty. Ltd., [1994] R.J.Q. 2560 (Sup. Ct.), at p. 2564; Régie intermunicipale de l'eau Tracy, St-Joseph, St-Roch v. Constructions Méridien inc., [1996] R.J.Q. 1236 (Sup. Ct.), at p. 1238; Régie de l'assurance-maladie du Québec v. Fédération des médecins spécialistes du Québec, [1987] R.D.J. 555 (C.A.), at p. 559, per Vallerand J.A.; Tuyaux Atlas, une division de Atlas Turner Inc. v. Savard, [1985] R.D.J. 556 (C.A.)). Review of the correctness of arbitration decisions jeopardizes the autonomy intended by the legislature, which cannot accommodate judicial review of a type that is equivalent in practice to a virtually full appeal on the law. Thibault J.A. identified this problem when she said:

[TRANSLATION] In my view, the argument that an interpretation of the regulation that is different from, and in fact contrary to, the interpretation adopted by the ordinary courts means that the arbitration award exceeds the terms of the arbitration agreement stems from a profound misunderstanding of the system of consensual arbitration. The argument makes that separate system of justice subject to review of the correctness of its decisions, and thereby substantially reduces the latitude that the legislature and the parties intended to grant to the arbitration board.

(Laurentienne-vie, compagnie d'assurance, supra, at para. 43)

(our emphasis)

If the task is delicate, the language by which this is accomplished in the Model Law is direct. Article 5 of the Model Law - entitled "Extent of Court Intervention" -states simply: "no court shall intervene except where so pro vided" in this Law. By this language, article 5 is intended to exclude any so called general, supervisory or residual powers of intervention of national courts. There are now several Canadian cases confirming that the federal and provincial equivalents of art. 5 have precisely that effect¹.

(our emphasis internal footnote included below)

¹ The fundamental principle embodied in article 5 has been explicitly considered and applied in: Quintette Coal Ltd. v. Nippon Steel Corp (1990), B.C.J. No. 2241 (C.A.); and in Compagnie Nationale Air France c. Mbaye, [2000] R.J.Q. 717.

(i) Article 946.4 (4) C.C.P.

946.4 The court cannot refuse homologation except on proof that:

[…]

(4) the award deals with a dispute not contemplated by or not failing within the terms of the arbitration agreement, or it contains decisions on matters beyondthe scope of the agreement;

(our emphasis)

… Any dispute with respect to the interpretation of this Agreement or claims for damages for breach of this Agreement shall be resolved by arbitration in the English language by one or more arbitrators chosen in accordance with the rules of the International Chamber of Commerce.

(our emphasis)

VII. Statement of the issues to be Determined

The Arbitral shall decide all issues of jurisdiction, if any, and all issues of merits arising from the Terms of Reference herein and from the pleadings property filed by the parties under the directions of the Tribunal, in one or more awards, in particular the following:

1. Did the Agreement of November 7, 1990, considered alone or in the context of the conduct of the parties, establish a joint venture? If it did, what was the scope thereof and the obligations of the parties thereunder?

a. In particular, did the parties ever enter into any unincorporated joint venture to process oil at the Beta Refinery; and

b. Did Claimant and Defendant participate in a joint venture to purchase crude oil, process it at the Beta Refinery, market the refined products, and trade and hedge crude and products positions?

c. If a joint venture existed between the parties and was terminated, to what relief, if any, is either party entitled arising out of or relating to such termination?

2. Was the Agreement of November 7, 1990 amended or modified at any time?

3. Has the relationship, if any, between the parties established by the Agreement of November 7, 1990 (referred to in paragraph 1 and 2 above) and their conduct thereunder been terminated? If so, by what communications and/or conduct, and when was the termination effective?

a. In particular, did Defendant's letter of October 14, 1993 operate to terminate the relationship and, if so, what are the consequences of the termination?

b. Was either party entitled to terminate the relationship as a result of beaches, repudiation or other wrongful conduct by the other; and

c. Have any events taken place such as positions taken in court proceedings or transfer of stock interests in Beta which had the effect of repudiating or terminating the relationship?

4. Has an "impasse" within the meaning of Section 4(d) of the November 7, 1990 Agreement occurred and, if so, has either party properly invoked the provisions of Section 4(d)?

a. In particular, if one party has properly invoked an impasse, what are the legal consequences thereof and what action should the Arbitral Tribunal take with respect thereto?

b. Is the Claimant entitled to the "call price" or the "put price" and/or to the right of appraisal provided under the November 7, 1990 Agreement?

c. If the remedies provided in subparagraph (b) are inapplicable, is the Claimant entitled to any monetary damages?

d. Should any recovery by the Claimant be offset by the amount of its liability, if any, for any joint venture losses?

5. If one party is found to have breached any contractual commitments, fiduciary duties or other obligation to the other, to what money damages or other relief is the injured party entitled?

a. In particular, is either party entitled to recover anything from the other in respect of operating losses, profits or other assets or liabilities of any joint venture, including any joint venture described in subparagraph 1(a), 1(b), or 1(c) of this Section VII;

b. Is Defendant entitled to recover from Claimant 50% of losses incurred in the first instance by Defendant with respect to any claimed joint venture as described in subparagraph 1(a), 1(b), or 1(c) of this Section VII; and

c. Is either party entitled to recover from the other any money damages as a result of a wrongful breach, repudiation, or termination of the Agreement of November 7, 1990?

6. Is either party's ability to maintain an arbitral claim or defence with respect to the November 7, 1990 Agreement, its right to damages or its right to other relief barred, diminished, waived or otherwise affected by:

a. The doctrines of unclean hands, waiver and/or estoppel;

b. The statute of frauds;

c. A change in the status of the Claimant, if such has occurred, such that it ceased to remain a shareholder of Beta;

d. Contentions which any party has made in related judicial proceedings;

e. Any party's filing and/or pursuing any judicial proceedings; and

f. A party's breaches, repudiation or other wrongful conduct?

7. If Claimant is no longer a Beta shareholder due to the April 28, 1994 Beta resolution and is not entitled to the relief described in subparagraph 4(b) and 4(c), is Claimant entitled to any other relief or is Defendant entitled to dismissal of Claimant's claims?

8. What interest, if any, should be awarded to a party with respect to claims where it is successful and to awards entered in its favour?

9. Taking into account the rulings of the Arbitral Tribunal on the issues set forth above in this Section VII, the conduct of the arbitration procedure and any other factors which the Tribunal may deem relevant, what costs, if any, should the Tribunal award?

The parties to an arbitration agreement have virtually unfettered autonomy in identifying the disputes that may be the subject of an arbitration proceeding³⁵.

The arbitrator's mandate must not be interpreted restrictively by limiting it to what is expressly set out in the arbitration agreement. The mandate also includes everything that is closely connected with that agreement, or, in other words, questions that have [TRANSLATION] "a connection with the question to be disposed of by the arbitrators with the dispute submitted to them" (S. Thuilleaux, L'arbitrage commercial au Québec: droit interne — droit international privé (1991), at p. 115). Since the 1986 arbitration reforms, the scope of arbitration agreements has been interpreted liberally (N. N. Antaki, Le règlement amiable des litiges (1998), at p. 103; Guns N’Roses Missouri Storm Inc. v. Productions Musicales Donald K. Donald Inc., [1994] R.J.Q. 1183 (C.A.), at pp. 1185-86, per Rothman J.A.)³⁶.

115. The Terms of Reference expressly confer authority to decide "all issues of jurisdiction" and "all issues of merits" arising from the Terms themselves, as well as from the "pleadings properly filed by the parties under the directions [sic] of the Tribunal…" (Id.) As Professor Gaillard noted, the parties' consent to arbitrate was extremely broad. (See, e.g., April 9 Tr. 52 (Testimony of E. Gaillard) (characterizing the Terms of Reference as the parties basically telling the Tribunal, "You decide anything which comes before you.").)

116. The arbitration agreement, read in conjunction with the Terms of Reference, requires the dismissal of Tusculum's motion under Article 946.4(4). The effect of the German bankruptcy proceedings on the valuation and share transfer program of the Partial Award, and the related application of the doctrine of res judicata, were "issues of merits" within the meaning of Section VII of the Terms of Reference. Furthermore, they were issues "arising from the Terms of Reference," certainly to no lesser extent than was the question of frustration of the Shareholders' Agreement and the remedial procedure crafted by the Arbitral Tribunal to separate the parties in Section VI and VII(B).³⁷

117. Indeed, in the Partial Award the Arbitral Tribunal held that the parties had consented to submit to the Tribunal their entire relationship and every associated dispute. In the Arbitral Tribunal's words, "The Tribunal concludes that the parties intended to submit to the Tribunal the entire dispute between them and to grant the Tribunal authority to fashion appropriate remedies irrespective of whether the particular dispute in question or the remedy requested fell within the ambit of Section 13 of the Agreement." (J-4, pp. 20-21, JBE I, pp. 115-16.) (…)

[…]

118. Tusculum has not challenged these findings of the parties' consent to arbitral jurisdiction over their entire relationship or the Tribunal's authority to award whatever relief, if any, it might deem appropriate. See note 37, supra.

119. Moreover, the question of the effect of the German bankruptcy proceedings on the valuation and transfer procedure was an issue of merits arising "from pleadings properly filed by the parties under the directions [sic] of the Tribunal," as provided in the Terms of Reference. (J-2, p. 33, JBE I, p. 51.) In January 1997 Tusculum moved the Tribunal to modify and then implement the valuation and share transfer procedure of the Partial Award as so modified. (Compare J-44, JBE V, pp. 905-21; J-50, JBE V, pp. 1007-40; J-54, p. 5, JBE VI, p. 1173 ("The measurement of the value of these shares can still be made by conducting an appraisal of the assets Beta had at all times from the commencement of this arbitration through the issuance of the Partial Award— which included the refinery assets." (emphasis in original) with Partial Award, J-4, p. 46, JBE I, p. 141 ("the current fair market value of Beta" (emphasis supplied); id. at 47, JBE I, p. 142 (same, two references); id. at 49, JBE I, p. 144 (same).) The modifications requested by Tusculum were designed to take into account the bankruptcy proceedings and the sale of the Refinery. As previously explained, Tusculum asked the Arbitral Tribunal to change the date on which the value assets would be measured from the "current" fair market value at the time of the appraisal to, instead, the value in November 1993 or, alternatively, January 1996. (J-55, pp. 11462-63, JBE VI, p. 1226 (Argument of Tusculum's counsel).) It also asked that the identity of the assets to be valued be changed from the Refinery to, instead, potential claims that Tusculum contended Beta had against Dreyfus. (Compare J-50, pp. 2-3, JBE V, pp. 1010-11 with Partial Award, J-4, pp. 65-69, JBE I, pp. 160-64.) These were "all issues of merits" that the Arbitral Tribunal was entitled to decide.

120. Similarly, in February 1997 Dreyfus moved to dismiss the arbitration as moot in light of the German bankruptcy proceedings and the impossibility of implementing the valuation and share transfer program. (J-47, pp. 29-34, JBE V, pp. 965-70.) Again, Dreyfus's pleading raised issues of merits that the Terms of Reference authorized the Tribunal to decide. (See, e.g., id. at 32, JBE V, p. 968 ("All of Beta's assets are in the hands of the Receiver and will be liquidated and distributed in accordance with German law.").)

121. Given that an arbitration agreement (including the Terms of Reference that expand that agreement) is to be construed liberally, Desputeaux, p. 204, para. 35 (R.A. Tab 1), and that a "powerful presumption" that the Arbitral Tribunal acted within its powers must be applied, Quintette Coal, p. 10 (R.A. Tab 9), Corporacion Transnacional, p. 7 (R.A. Tab 10), it is difficult to perceive how Tusculum can meet its burden of establishing that the Final Award "contains decisions beyond the scope of the [arbitration] agreement." Article 946.4(4) C.C.P. Again, the Arbitral Tribunal held that the parties had consented to have their "entire relationship" resolved by the Arbitral Tribunal and that the Tribunal could order any relief it thought appropriate. (J-4, p. 22, JBE I, p. 117.) Tusculum has not challenged that finding of broad consent to arbitral jurisdiction.

142. D'ailleurs, ce n'est pas aux arbitres qu'il revient de déterminer ce qu'il convient de faire si leur sentence n'est pas (ou n'est plus) susceptible d'exécution. Si les arbitres doivent tenter de s'assurer que la sentence qu'ils s'apprêtent à rendre sera susceptible d'exécution, il ne leur revient pas de la mettre en application. C'est aux tribunaux nationaux que cette tâche revient, les arbitres n'ayant d'ailleurs aucun pouvoir de contrainte sur les parties :

B. Moreau, « Le prononcé de la sentence entraîne-t-il le dessaisissement des arbitres? », Études de procédure et d'arbitrage en l'honneur de Jean-François Poudret, Berne (Suisse), Stampfli Verlag, 1999 [Onglet 68) :

« Si l'exécution amiable de la sentence se révèle impossible, il ne reste plus qu'à poursuivre l'exécution forcée de la sentence, et à cet égard, seule la juridiction étatique compétente en matière d'exécution des décisions juridictionnelles peut en connaître ».

77. As Lord Mustill candidly acknowledged, the situation confronting the Arbitral Tribunal and the parties at the time of the Final Award was "ridiculous." (April 3 Tr. 57, 74.) The valuation and transfer procedure in the Partial Award had been "falsified by events." (Id. at 70.)

78. Article 26 of the 1988 ICC Rules, which governed these arbitral proceedings, provides that "in all matters not expressly provided for in these Rules, the International Court of Arbitration and the arbitrator shall act in the spirit of these Rules and shall make every effort to make sure that the award is enforceable at law." (S-3, p. 14, JLS I, p. 31.) As Mr. Craig points out in his second report, for the Arbitral Tribunal to have forced Dreyfus to pay anything for worthless shares in a non-existent Beta would have been a violation of natural justice, and thus a violation of art. 26. (Craig 2d Rep., p. 7, para. 23, JER X, p. 1310.)

79. The Arbitral Tribunal's Final Award was fully consistent with article 32(2)(c) of the Model Law and thus consistent with the C.C.P. That provision states:

(2) The arbitral tribunal shall issue an order for the termination of the arbitral proceedings when:

[...]

(c) the arbitral tribunal finds that the continuation of the proceedings have for any reason become unnecessary or impossible.

(our emphasis)

[…] Having made its determination concerning the effect of the supervening German bankruptcy proceedings on the valuation and share transfer program of the Partial Award, the Arbitral Tribunal was thus empowered to terminate the arbitration.

Has Tusculum satisfied the Court that Arbitration Award # 2 … deals with a dispute not contemplated by or not failing within the terms of the arbitration agreement, or […] contains decisions on matters beyond the scope of the agreement³⁸ ?

(ii) Article 946.4(5) C.C.P.

946.4 The court cannot refuse homologation except on proof that:

[…]

(5) the mode of appointment of arbitrators or the applicable arbitration procedure was not observed.

(our emphasis)

The rules governing proceedings before the arbitrator shall be those resulting from these Rules and, where these Rules are silent, any rules which the parties (or failing them, the arbitrator) may settle, and whether or not reference is thereby made to a municipal procedural law to be applied to the arbitration.

1. Article 19 may be regarded as the most important provision of the model law. It goes a long way towards establishing procedural autonomy by recognizing the parties' freedom to lay down the rules of procedure (paragraph (1)) and by granting the arbitral tribunal, failing agreement of the parties, wide discretion as to how to conduct the proceedings (paragraph (2)), both subject to fundamental principles of fairness (paragraph (3)). Taken together with the other provisions on arbitral procedure, a liberal framework is provided to suit the great variety of needs and circumstances of international cases, unimpeded by local peculiarities and traditional standards which may be found in the existing domestic law of the place.

Articles 2643 C.C.Q. and 944.1 C.C.P., as we know, affirm the principle of procedural flexibility in arbitration proceedings, by leaving it to the parties to determine the arbitration procedure or, failing that, leaving it up to the arbitrator to determine the applicable rules of procedure (Entreprises H.L.P. inc. v. Logisco inc., J.E. 93-1707 (C.A.); Moscow Institute of Biotechnology v. Associés de recherche médicale canadienne (A.R.M.C.), J.E. 94-1591 (Sup. Ct.), at pp. 12-14 of the full text)⁴⁰.

…determine the procedure to be followed in this arbitration, subject to the mandatory provisions of any applicable law and of the…ICC Rules, and shall not have to follow any particular municipal system of procedure…

(our emphasis)

In practice, very few awards are annulled or refused enforcement under the international instruments on the ground that there was a violation of the applicable arbitration procedure. This is likely due in part to the generality of the terms of arbitral rules of procedure, which give a broad discretion to arbitrators…[…]⁴²

(internal citations omitted)

62. The standard of a "material breach of procedure" or a breach that "presumably affected the award" and the requirement of a prejudice, simpliciter, sufficient or substantial, have one thing in common: they all operate to avoid the trivialization of judicial review in cases of minor violation of the procedure while at the same time avoiding the risk of subsuming this separate ground of review under other grounds referring to due process or public order.

63. Having somewhat clarified what might be called an emerging international standard with respect to annulment or refusal of enforcement under this ground, one can easily grasp that it was met in the present case. First, the violation was of a fundamental principle of procedure: the doctrine of functus officio and the attendant finality of awards. Second, the violation obviously had an impact on the final award which caused a substantial prejudice to Tusculum. The parties find themselves in situations that are drastically different from that in which they would have found themselves had the tribunal implemented Award #1. While Award #1 ordered Dreyfus to purchase the shares of Tusculum and to pay for them, Tusculum finds itself with nothing at the end of the process⁴³.

69. I take the view in this report that Award # 1… I take the view in this report that Award #1 was final in respect of the principle of the remedy. In violation of the applicable procedure, which reflects fundamental procedural principles, the tribunal reconsidered a final determination made in Award #1, which reconsideration had a significant impact on the outcome and caused a substantial prejudice; it follows that Award #2 may be annulled on the ground that it was not made in accordance with the applicable procedure⁴⁴.

You have where, …which is jurisdiction, where do you resolve the dispute, before a court or before a tribunal. Then you have a question of process, which is how you resolve it. Do you want... will you have witnesses, discoveries, what is the process? How will it be, the conduct of the arbitration, is another phrase to describe that.⁴⁵

But the fact that the rule or a question which arises can be characterized as procedural in any given legal system or in all actually, doesn't mean that it pertains to the applicable arbitrable procedure.

There may be procedural rules or substance, but it's merit, if you will. And the merits are not limited to contractual issues or the substance. It can be substantive issues or it can be procedural issues, but it may be still merits if it doesn't pertain to the applicable arbitral procedure. […] Because it has nothing to do with how we get there…⁴⁶

67. The 1988 ICC Rules give wide discretion to the Arbitral Tribunal both to adopt procedural rules it considers appropriate and to conduct the arbitral proceeding in any manner the Arbitral Tribunal deems appropriate. The Arbitral Tribunal duly followed the procedures called for by the ICC Rules and in the Terms of Reference. Furthermore, in light of the above and of the fact that the German bankruptcy proceeding has undeniably a mandatory nature in respect to the liquidation of Beta, the Arbitral Tribunal has, by respecting such a proceeding, acted in accordance with Article 11 of the 1988 ICC Rules. Moreover, if Tusculum intends to argue that the Arbitral Tribunal had allegedly violated "the applicable arbitration procedure" by not implementing the valuation process, it would indirectly acknowledge the procedural nature of such process (See Motion for Partial Annulment, §46) and therefore the powers of the arbitrators to modify it at any time during the course of the arbitration.

68. Judicial review of procedural issues in international arbitration practice is narrowly defined and is intended to permit intervention in extreme cases only to prevent flagrant denial of due process to an arbitrating party. This is typified by provisions V(1)(b) and V(1)(d) of the New York Convention pursuant to which a recognition court may (it is not mandatory) decline to recognize and enforce a foreign award where:

"(b) the party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case;"

…

(d) The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place."

Substantially the same standards are applied in the UNCITRAL Model Law for an application for setting aside under Article 34:

"2. An arbitral award may be set aside by the court specified in Article 6 only if:

a. The party making application furnishes proof that:

…

ii) the party making application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case;

…

iv) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of the Law from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Law.

69. A similar position is reflected in Quebec law, adopting for procedural issues only the first of the two criteria referred to in the New York Convention and the Model Law. […]⁴⁷

(iii) Article 946.5 C.C.P.

946.5 The court cannot refuse homologation of its own motion unless it finds that the matter in dispute cannot be settled by arbitration in Québec or that the award is contrary to public order.

...le tribunal, en bafouant de façon flagrante l'autorité de la chose jugée et le principe de la finalité des décisions de justice, a rendu des décisions contraires à l'ordre public québécois tel qu'entendu dans les relations internationales (art. 946.5 C.p.c.);

The broad deference and respect to be accorded to decisions made by arbitral tribunals pursuant to the Model Law; has been recognized in this jurisdiction by the Ontario Court of Appeal in Automatic Systems Inc. v. Bracknell Corp. (1994), 18 O.R. (3d) 257 at p. 264, 113 D.L.R. (4th) 449 at p. 456:

The purpose of the United Nations Conventions and the legislation adopting them is to ensure that the method of resolving disputes in the forum and according to the rules chosen by the parties, is respected. Canadian courts have recognized that predictability in the enforcement of dispute resolution provisions is an indispensable precondition to any international business transaction and facilitates and encourages the pursuit of freer trade on an international scale: Kaverit Steel & Crane Ltd. V. Kone Corp. (1992), 87 D.L.R. (4th) 129 at p. 139, 85 Alta. L.R. (2d) 287 (C.A.)

[...]

The grounds for challenging an award under the Model Law are derived from Article V of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the "New York Convention"). Accordingly, authorities relating to Article V of the New York Convention are applicable to the corresponding provisions in Articles 34 and 36 of the Model Law. These authorities accept that the general rule of interpretation of Article V is that the grounds for refusal of enforcement are to be construed narrowly: A.J. Van Den Berg, New York Convention of 1958 Consolidated Commentary, cited in Yearbook Comm. Arb. XXI (1996) at pp. 477-509.

An arbitral award is not invalid because, in the opinion of the court hearing the application, the Arbitral Tribunal wrongly decided a point of fact or law: Quintette Coal, supra, at p. 277. Where a tribunal's jurisdiction is called into question as it is here, an applicant must overcome "a powerful presumption" that the Arbitral Tribunal acted within its powers: Quintette Coal, supra, per Hutcheon J.A., at p. 223, citing with approval Parsons & Whittemore Overseas Co., Inc. v. Société Générale de L'Industrie du Papier, 508 F.2d 969 (2nd Cir. 1974).

The public policy ground for resisting enforcement of an arbitral award has also been narrowly construed. In Schreter v. Gasmac Inc. (1992), 7 O.R. (3d) 608, 89 D.L.R. (4th) 365 (Gen.Div.) Feldman J., as she then was, states at p. 623:

The concept of imposing our public policy on foreign awards is to guard against enforcement of an award which offends our local principles of justice and fairness in a fundamental way, and in a way which the parties could attribute to the fact that the award was made in another jurisdiction where the procedural or substantive rules diverge markedly from our own, or where there was ignorance or corruption on the part of the tribunal which could not be seen to be tolerated or condoned by our courts.

At p. 624 of Schreter v. Gasmac, supra, the court quotes with approval from the decision of the United States Court of Appeals Second Circuit in Waterside Ocean Navigation Co v. International Navigation Ltd., 737 F.2d 150 91984) at p. 152. It was held there that public policy grounds for the setting aside of an award should apply only where enforcement would violate our "most basic notions of morality and justice". In this jurisdiction, the Ontario Court of Appeal has emphasized the care which courts must exercise in relying upon public policy as a reason for refusing enforcement of a foreign award. In Boardwalk Regency Corp. v. Maalouf (1992), 6 O.R. (3d) 737 at p. 743, 88 D.L.R. (4th) 612 (C.A.), the court states:

The common ground of all expressed reasons for imposing the doctrine of public policy is essential morality. This must be more than the morality of some persons and must run through the fabric of society to the extent that it is not consonant with our system of justice and general moral outlook to countenance the conduct, no matter how legal it may have been where it occurred.

Accordingly, to succeed on this ground the awards must fundamentally offend the most basic and explicit principles of justice and fairness in Ontario, or evidence intolerable ignorance or corruption on the part of the Arbitral Tribunal. The applicants must establish that the awards are contrary to the essential morality of Ontario.

(our emphasis)

125. Or, le principe de la finalité ou de l'autorité de chose jugée des décisions définitives constitue un des fondements du système judiciaire comme de l'arbitrage, et est à ce titre clairement considéré comme un principe d'ordre public :

• Roberge c. Bolduc, [1991] 1 R.C.S. 374, 402, […]

• Lagacé c. Cloutier, J.E. 94-789 (C.S.), à la p. 20, […]

• B. Cheng, General Principles of Law as Applied by International Courts and Tribunals, Cambridge, Grotius Publications, 1987, à la p. 338 […]

• H. Kélada et S. Naguib, Les moyens de se pourvoir contre les jugements, 2e éd., Toronto, Carswell, 1997 aux pp.18-19 […]

• J.-C. Royer, La preuve civile, 3e éd., Cowansville, Yvon Blais, 2003, à la p. 561 […]

• H. Roland et L. Boyer, Adages du droit français, Vol. 1, 2e éd., Lyon, Éditions l'Hermès, 1986 […]

• Union des artistes et Productions John Baun inc., D.T.E. 2004T-961 (T.A.A.), M.-F. Bich (arbitre) […]

126. La reconnaissance du caractère d'ordre public ne s'impose pas que dans le contexte du droit interne, bien au contraire, et constitue un principe d'ordre public tel qu'entendu dans les relations internationales;

127. En effet, l'autorité de la chose jugée est si généralement reconnu qu'il constitue un principe de droit international ayant le statut de « principe général de droit » au sens de l'article 38(1)(c) du Statut de la Cour internationale de justice, c'est-à-dire qu'il s'agit d'une source du droit international public liant les États :

• Cheng, General Principles of Law as Applied by International Courts and Tribunals, Cambridge, Grotius Publications, 1987, à la p. 336 […]

• Chorzow Factory Case, Cour permanente de Justice Internationale (1927), cité par B. Hanotiau, […]

• Affaire Trail Smelter (cité par B. Hanotiau, « L'autorité de la chose jugée des sentences arbitrales », L'arbitrage complexe, questions et procédures, Supplément spécial 2003 Bulletin de la CCI, Paris, ICC, 2003) […]

128. Le fait que les parties puissent renoncer au principe de la finalité des sentences n'implique pas, par ailleurs, que la violation de ce principe par le tribunal lui-même, en l'absence d'une renonciation des parties, ne soit pas contraire à l'ordre public […]

(internal citations are omitted)

[52] [...] In interpreting and applying this concept [of public order] in the realm of consensual arbitration, we must therefore have regard to the legislative policy that accepts this form of dispute resolution and even seeks to promote its expansion. For that reason, in order to preserve decision-making autonomy within the arbitration system, it is important that we avoid extensive application of the concept by the courts. Such wide reliance on public order in the realm of arbitration would jeopardize that autonomy, contrary to the clear legislative approach and the judicial policy based on it. [...]

[54] [...] The court must determine whether the decision itself, in its disposition of the case, violates statutory provisions or principles that are matters of public order. In this case, the Code of Civil Procedure is more concerned with whether the disposition of a case, or the solution it applies, meets the relevant criteria than with whether the specific reasons offered for the decision do so. An error in interpreting a mandatory statutory provision would not provide a basis for annulling the award as a violation of public order, unless the outcome of the arbitration was in conflict with the relevant fundamental principles of public order. That approach, which is consistent with the language used in art. 946.5 C.C.P., corresponds to the approach taken in the law of a number of states where arbitration is governed by legal rules analogous to those now found in Québec law. The courts in those countries have limited the consideration of substantive public order to reviewing the outcome of the award as it relates to public order. (See: E. Gaillard and J. Savage, eds., Fouchard, Gaillard, Goldman on International Commercial Arbitration (1999), at pp. 955-56, No. 1649; J.-B. Racine, L'arbitrage commercial international et l'ordre public, vol. 309 (1999), at pp. 538-55, in particular at pp. 539 and 543; Société Seagram France Distribution v. Société GE Massenez, Cass. civ. 2e, May 3, 2001, Rev. arb. 2001.4.805, note Yves Derains.) And lastly, in considering the validity of the award, the clear rule stated in art. 946.2 C.C.P., which prohibits a court from inquiring into the merits of the dispute, must be followed. In applying a concept as flexible and changeable as public order, these fundamental principles must be adhered to in determining the validity of an arbitration award.

(our emphasis)

Thus, in arbitration as in ordinary private international law thinking, it is not so much the abstract rule of law applied by the arbitrators which must be measured against the requirements of international public policy, as the actual result reached by the arbitrator or the court. ⁵¹

(i) does not … fundamentally offend the most basic and explicit principles of justice

and fairness in Québec; and

(ii) is not …contrary to the essential morality of Québec.

(i) res judicata was a recognized principle of international public order, the non respect of which could be the basis of annulment; and

(ii) the portion of Arbitration Award # 1, wherein the Tribunal fashioned the Valuation and Buyout Remedy, constituted a final judgment not reviewable according to the principles of res judicata,

Tusculum's challenge, founded on the exception contained in article 946.5 C.C.P. would still fail.

The German bankruptcy system has accomplished what the non-final portion of the Partial Award was designed to do; it has set in motion a train of events that, under German Law, will terminate the relationship of the parties. […]

These governmental acts have in effect mooted the relief that the non-final portion of the partial award provided. The Tribunal does not have any jurisdiction to review the actions of the German Courts.

77. As Lord Mustill candidly acknowledged, the situation confronting the Arbitral Tribunal and the parties at the time of the Final Award was "ridiculous." (April 3 Tr. 57, 74.) The valuation and transfer procedure in the Partial Award had been "falsified by events." (Id. at 70.)

78. Article 26 of the 1988 ICC Rules, which governed these arbitral proceedings, provides that "in all matters not expressly provided for in these Rules, the International Court of Arbitration and the arbitrator shall act in the spirit of these Rules and shall make every effort to make sure that the award is enforceable at law." (S-3, p. 14, JLS I, p. 31.) As Mr. Craig points out in his second report, for the Arbitral Tribunal to have forced Dreyfus to pay anything for worthless shares in a non-existent Beta would have been a violation of natural justice, and thus a violation of art. 26. (Craig 2d Rep., p. 7, para. 23, JER X, p. 1310.)

79. The Arbitral Tribunal's Final Award was fully consistent with article 32(2)(c) of the Model Law and thus consistent with the C.C.P. That provision states:

(2) The arbitral tribunal shall issue an order for the termination of the arbitral proceedings when:

[...]

(c) the arbitral tribunal finds that the continuation of the proceedings have for any reason become unnecessary or impossible.

(S-7, p. 11, JLS I, p. 164 (emphasis supplied).) Having made its determination concerning the effect of the supervening German bankruptcy proceedings on the valuation and share transfer program of the Partial Award, the Arbitral Tribunal was thus empowered to terminate the arbitration.