The United Mexican States v. Burr et al.; United States of America and Attorney General of Canada, Intervenors
[Indexed as: United Mexican States v. Burr]
Ontario Reports Court of Appeal for Ontario
Before: Lauwers, Miller and Nordheimer JJ.A.
Date: February 2, 2021
154 O.R. (3d) 321 | 2021 ONCA 64
Case Summary
Arbitration — Appeal — Jurisdiction — Arbitral tribunal constituted under North American Free Trade Agreement bifurcating proceedings into jurisdiction phase and merits and damages phase — Tribunal's decision that it had jurisdiction affirmed by Superior Court of Justice — Appeal to Court of Appeal quashed — Arbitral tribunal's ruling was clearly on a question of jurisdiction such that there was no further appeal beyond Superior Court of Justice — UNCITRAL Model Law on International Commercial Arbitration, art. 16(3).
The 39 respondents brought claims individually and on behalf of seven Mexican companies to compensate for losses allegedly caused by the appellant's closure of the casinos that they had been operating in Mexico. The claims were advanced under the North American Free Trade Agreement. An arbitral tribunal bifurcated the proceedings into a jurisdiction phase and a merits and damages phase. A majority of the panel determined that the tribunal had jurisdiction over all but one of the respondents' claims. The appellant applied to the Superior Court of Justice to set aside the tribunal's decision under s. 11 of the International Commercial Arbitration Act and articles 16 and 34 of the UNCITRAL Model Law on International Commercial Arbitration ("Model Law"). The application judge held that the appellant had not discharged its burden of proof of establishing that the tribunal was incorrect, and dismissed the application. When the appellant appealed the dismissal, the respondents moved to quash the appeal.
Held, the appeal should be quashed.
The arbitral tribunal's ruling was on a preliminary question of jurisdiction such that there was no further appeal. Article 16(3) made a clear distinction between a jurisdictional plea pursued as a preliminary question and a jurisdictional plea pursued in an award on the merits. If an arbitral tribunal ruled on jurisdiction as a preliminary question, a party was entitled to request that the matter be decided by the Ontario Superior Court of Justice, which decision was subject to no appeal. Based on the language used by the tribunal, the tribunal saw itself as addressing jurisdiction as a preliminary question. The decision did not address the substantive merits of the dispute. The merits phase of the dispute had since commenced despite the appeal of the jurisdiction phase. Article 34 provided for a right of recourse to a court against an arbitral award. However, although the appellant cited art. 34 of the Model Law in the title of its notice of application and in three paragraphs of its factum, the argument before the application judge did not address art. 34. Nor did the application judge's ruling turn on the substance of art. 34. The argument proceeded substantially under art. 16 and so an appeal from the ruling of the application judge was prohibited. Despite assertions of counsel for both parties, it remained an open question as to whether a party could rely on both arts. 16 and 34 at once.
United Mexican States v. Cargill, Inc. (2011), 107 O.R. (3d) 528, 2011 ONCA 622 (C.A.), distd [page322]
Other Cases Referred To
- Russia Federation v. Luxtona Ltd., 2019 ONSC 7558 (S.C.J.)
- United Mexican States v. Burr, 2020 ONSC 2376 (S.C.J.)
- United Mexican States v. Cargill, Inc., 2010 ONSC 4656 (S.C.J.)
Statutes Referred To
Authorities Referred To
- United Nations Commission on International Trade Law, UNCITRAL Model Law on International Commercial Arbitration (1985), with amendments as adopted in 2006, arts. 16, (1), (2), (3), 34, (1)
Motion to Quash Appeal
MOTION to quash an appeal of a judgment of Dietrich J. reported at [2020] O.J. No. 3234, 2020 ONSC 2376 (S.C.J.).
Counsel: John Terry and Hannah Allen, for moving parties. Robert J.C. Deane, Hugh Meighen and Ashley Thomassen, for responding party.
The judgment of the court was delivered by
LAUWERS J.A.: —
[1] The application judge dismissed the application by the United Mexican States ("Mexico") to set aside an arbitral tribunal's "Partial Award". Mexico appealed. The moving parties, who were the respondents in the application below, move to quash Mexico's appeal. For the reasons that follow, I would quash the appeal.
A. Background
[2] The North American Free Trade Agreement gives investors the right to seek damages for the failure of a party (Canada, Mexico, or the United States of America) to honour a treaty commitment. The moving parties are 39 U.S. nationals who brought claims individually and on behalf of seven Mexican companies totalling some US$100 million to compensate for losses allegedly [page323] caused by Mexico's closure of the casinos they had been operating in that country.
[3] The arbitral tribunal was constituted under c. 11 of NAFTA on February 14, 2017. On April 4, 2017, the tribunal bifurcated the proceedings into a jurisdiction phase and a merits and damages phase. The jurisdiction phase was heard over five days in May 2018.
[4] A majority of the tribunal determined that the tribunal had jurisdiction over all but one of the moving parties' claims. Mexico applied to the Superior Court of Justice to set aside the tribunal's decision under s. 11 of the International Commercial Arbitration Act, 2017, S.O. 2017, c. 2, Sch. 5 ("ICAA") and arts. 16 and 34 of the UNCITRAL Model Law on International Commercial Arbitration, adopted by the United Nations Commission on International Trade Law on June 21, 1985, as amended on July 7, 2006 (the "Model Law"). The Model Law has the force of law in Ontario under s. 5 of the ICAA, subject to any modifications set out in the Act. The legislation specified that the Ontario Superior Court of Justice is the court with jurisdiction to review the decision of the arbitral tribunal.
[5] The application judge dismissed the application, holding [at para. 7] that Mexico had "not discharged its burden of proof of establishing that the Tribunal was incorrect in its conclusion that it had jurisdiction over all but one of the claims before it".
B. The Issue
[6] The issue before this panel is whether the application judge's ruling can be appealed to this court.
[7] Whether the appeal should be quashed depends upon whether Mexico's application is governed only by art. 16(3) of the Model Law, which would prohibit an appeal of the application judge's decision, or if it is also governed by art. 34 of the Model Law, which would permit an appeal.
C. Analysis
[8] The focal point of the analysis in this case is art. 16 of the Model Law. Article 16(1) gives arbitral tribunals the competence to rule on their own jurisdiction, as the tribunal did in this case. Article 16(2) specifies when a party must raise a "plea that the arbitral tribunal does not have jurisdiction". Article 16(3) specifies how the tribunal may proceed when its jurisdiction is challenged. It also gives a role to the Ontario Superior Court of Justice and prohibits certain appeals.
[9] The text of art. 16(3) makes a clear distinction between a jurisdictional plea that is pursued "as a preliminary question" [page324] and a jurisdictional plea that is pursued "in an award on the merits". Article 16(3) provides:
16(3) The arbitral tribunal may rule on a plea referred to in paragraph (2) of this article either as a preliminary question or in an award on the merits. If the arbitral tribunal rules as a preliminary question that it has jurisdiction, any party may request, within thirty days after having received notice of that ruling, [the Ontario Superior Court of Justice] to decide the matter, which decision shall be subject to no appeal; while such a request is pending, the arbitral tribunal may continue the arbitral proceedings and make an award.
(Emphasis added)
[10] The text of art. 16(3) requires this court to consider whether the tribunal's ruling was on a "preliminary question" of jurisdiction. If it was, then the application judge's ruling cannot be appealed to this court; in the language of art. 16(3), the application judge's ruling is "subject to no appeal".
[11] By contrast, art. 34 of the Model Law also provides for a right of "[r]ecourse to a court against an arbitral award" (emphasis added), but this language arguably contemplates only the recourses available against an award on the merits rather than on a preliminary question of jurisdiction. In an application under art. 34, the Model Law places no limits on the parties' ability to appeal from the decision of the Superior Court.
[12] In this case, I conclude that the arbitral tribunal's ruling was on a "preliminary question" of jurisdiction under art. 16(3) so that a further appeal does not lie to this court. I reach this conclusion for four reasons.
(1) The arbitral tribunal's view of what it was doing
[13] First, the arbitral tribunal saw itself as addressing jurisdiction as a preliminary question. In its partial award, dated July 19, 2019, the tribunal noted that "from 21 May 2018 to 25 May 2018, the Tribunal held a hearing on jurisdiction in Washington, D.C." (emphasis added): at para. 22. The tribunal specified: "In this first phase the Tribunal shall decide . . . three preliminary issues" (emphasis added): at para. 41. Based on its interpretation of various provisions of NAFTA, the tribunal dismissed most of Mexico's objections, decided that it had jurisdiction over certain claims and, in its final paragraph: "directs the Parties to confer regarding a procedural timetable for the merits phase . . ." (emphasis added): at para. 273.
(2) The arbitral tribunal has embarked on the merits phase
[14] Second, the arbitral tribunal's decision did not address the substantive merits of the dispute, and the merits phase of the dispute is now proceeding despite Mexico's effort to appeal the [page325] application judge's ruling. As noted, this sequence of proceedings is contemplated and expressly permitted by art. 16(3): "while such a request [to the Superior Court] is pending, the arbitral tribunal may continue the arbitral proceedings and make an award".
(3) The argument before the application judge did not address art. 34 of the Model Law
[15] Third, Mexico did not focus on art. 34 in its application to the Superior Court. Mexico cited art. 34 only in the title of its notice of application, and in the introductory paragraph of its factum. Its factum contained only two other references to art. 34:
- The application to set aside the Partial Award is governed by Article 34 of the Model Law. Article 34(2)(a) provides that an arbitral award may be set aside if "the award deals with a dispute [. . .] not falling within the terms of the submission to arbitration" or if "the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties". (Citing Model Law, Art. 34(2)(a)(iii) and (iv).)
- The failure to comply with Articles 1119 and 1121 meant that Mexico's consent to arbitration was not engaged, and the Tribunal was deprived of jurisdiction. The Partial Award holding the contrary must therefore be set aside, in whole or in part, pursuant to Article 34(2)(a)(iii) and (iv) of the Model Law.
[16] It is difficult to reconcile these positions with Mexico's statement at para. 22 of its factum before the application judge that: "The Partial Award, issued pursuant to Article 16(2) of the Model Law, is a final decision by the Tribunal in respect of its jurisdiction" (emphasis added). As noted above, a "final" decision on jurisdiction may still be dealt with as a "preliminary question" within the meaning of art. 16.
[17] Similarly, Mexico's counsel did not address the substance of art. 34 in oral argument before the application judge. The context was set in oral argument before the application judge by counsel for the NAFTA claimants, who are the moving parties before this court. Counsel focused on s. 11(1) of the ICAA and on art. 16 and steered the application judge away from art. 34. He said, speaking for himself and counsel for Mexico: "[W]e agree ... that there is no appeal from your decision in this case. And this -- that's an unusual circumstance obviously" (emphasis added). Counsel then provided an explanation to the application judge:
. . . [T]here are two ways in which -- in which a party under the International Commercial Arbitration Act here in Ontario can bring forward an application to this court to set aside a decision. One way is the Article 34 route, this is article 34 of the Model Law. And you can bring forward a decision and quite often that's done in a case where the Tribunal has reached a final award, and you're seeking to [page326] set aside that for exceeding jurisdiction or some other issue. Sometimes that can be done also if there is a jurisdictional award. Under that -- under that it would follow the normal process, you'd make your decision and then there would be, you know, the normal rights of appeal. Under this particular provision, and Mr. Deane took you to the particular provision under s. 11 of the International Commercial Arbitration Act which replicates which -- what's in Article 16 of the Model Law. Its designed to be an expedited process where a party can seek recourse to a judge, the judge makes the determination, and that's the end of it, there's no appeal. So, for better or for worse, that's the -- that is the statutory framework under which we're operating here.
(Emphasis added)
[18] Mexico's counsel did not object to these statements before the application judge. For his part, Mexico's counsel made scant reference to art. 34. At the outset he noted that this was an application under s. 11(1) of the ICAA, and arts. 16 and 34 of the Model Law. However, most of his oral submissions focused on s. 11(1) of the ICAA and art. 16 of the Model Law, not art. 34. The references to art. 34 came only in his reading of lengthy quotations from this court's decision in United Mexican States v. Cargill, Inc. (2011), 107 O.R. (3d) 528, 2011 ONCA 622 (C.A.), on the standard of review applicable to a decision of an arbitral tribunal.
[19] In his submissions to the application judge, Mexico's counsel also invoked the decision of Penny J. in Russia Federation v. Luxtona Ltd., 2019 ONSC 7558 (S.C.J.). That ruling concerned the admissibility of fresh evidence in an application under art. 16 of the Model Law. Penny J. cited art. 34 in his discussion of the standard of review set out in Cargill. Although he referred incidentally to both arts. 16 and 34, he did not explain the connection between the two articles or explicate art. 34.
[20] Cargill does not assist Mexico. In that case, the arbitral tribunal made an award on the merits of the dispute that gave the claimant Cargill damages against Mexico for protectionist measures it enacted in favour of its sugar industry. During the proceedings, an objection was raised as to whether the tribunal could award upstream damages for losses Cargill suffered in the United States as well as downstream losses it suffered in Mexico. Mexico framed this as a question of the tribunal's jurisdiction. In its final award, however, the tribunal ruled that the damages issue was not a jurisdictional question and that NAFTA permitted Cargill to recover upstream losses. Mexico applied to the Superior Court to "decide the matter" and set aside the award.
[21] The application judge in Cargill dismissed the application on the basis that the arbitral tribunal's decision hinged on factual findings to which deference was owed: [2010] O.J. No. 3698, 2010 ONSC 4656 (S.C.J.). Because the tribunal's ruling was not on [page327] a preliminary question but an award on the merits, the art. 16(3) prohibition on an appeal from the Superior Court's ruling did not apply. Mexico appealed the Superior Court's ruling to this court, as it was entitled to do. This court dismissed the appeal in a decision that largely focussed on the interpretation of art. 34 and, as noted, set the standard of review.
(4) The application judge's ruling did not turn on the substance of art. 34
[22] Fourth, the application judge's ruling, consistent with the arguments she heard, did not turn on the substance of art. 34. She noted, at para. 37, that Mexico was applying under s. 11(1) of the ICAA and art. 34 of the Model Law. She then stated, at para. 38, effectively quoting counsel:
The ICAA applies because ICSID chose the City of Toronto as the seat of the arbitration. Section 11(1) of the ICAA provides that where the majority of the arbitration tribunal determines it has jurisdiction, any party may apply to the Superior Court of Justice to decide the matter. The decision of the Superior Court of Justice is subject to no appeal: Model Law, Article 16(3).
[23] The application judge quoted art. 34 at para. 39 and did not refer to it again until para. 155 in her discussion of the standard of review emerging from Cargill. The substance of art. 34 played no role in her decision, just as it did not in the argument of the parties before her.
[24] Perhaps Mexico's occasional references to art. 34 were intended to assist the application judge in understanding her function under art. 16. Perhaps Mexico was seeking to preserve plausible arguability under art. 34 in the event that the application did not go well for it. Regardless, it is clear that there was no substantive argument on how art. 34 applied on the facts of this case before the application judge. Mexico's argument that art. 34 of the Model Law applies to this appeal, along with art. 16(3), does not bear scrutiny.
[25] There is also no basis for concluding, as Mexico argues, that the label of "Partial Award," which the arbitral tribunal attached to its ruling, is a sufficient hook with which to snag art. 34(1). I would reject this argument. This was not an award on the merits, as the tribunal itself noted.
D. Additional Observations
[26] Counsel agreed that there is no right of appeal from the decision of an application judge under art. 16 and that there is a right of appeal from the decision of an application judge under art. 34. I would agree but on a more nuanced basis. The text of [page328] art. 16(3) prohibits an appeal from the ruling of a Superior Court judge on the correctness of an arbitral tribunal's ruling on a jurisdictional plea that is pursued "as a preliminary question". The text of art. 34(1) provides that a party may seek "[r]ecourse to a court against an arbitral award only by an application for setting aside", where the tribunal's ruling on a jurisdictional plea was contained "in an award on the merits", in the words of art. 16(3).
[27] Counsel for both parties asserted that it is possible for a party to rely on both art. 16 and art. 34 in challenging the ruling of an arbitral tribunal, in other words, to "ride both horses", which was the metaphor put to counsel and adopted by them in argument. However, I would observe that the position that an appeal is prohibited where a ruling is pursued "as a preliminary question" under art. 16(3) has the benefits of clarity, simplicity and expediency for which international commercial arbitration is touted.
[28] This question of whether both horses can be ridden might need to be resolved but it would be unwise for this court to undertake an interpretation of art. 34 and its interaction with art. 16 beyond what is required to dispose of this motion in the absence of full argument by parties committed to opposite perspectives in the court below. Mexico argues that it proceeded under both articles before the application judge but, as I have explained, it did not.
E. Disposition
[29] To summarize, I would quash the appeal to this court because the argument before the application judge proceeded substantially under art. 16. While there were several references to art. 34 in the pleadings, in the material, and in argument, they were scant. Neither the substantive issues before the application judge nor her decision turned on art. 34. Accordingly, I would give effect to the language in art. 16(3) of the Model Law that prohibits an appeal from the ruling of the application judge on the arbitral tribunal's ruling on a preliminary question of jurisdiction.
[30] The moving parties are entitled to costs in the all-inclusive amount of $9,000, as agreed.
Appeal quashed.
End of Document