Divided No Longer: Admissibility of New Evidence on Appeals from UNCITRAL Arbitrations Determined According to Domestic Law

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Justice Penny’s ruling in The Russia Federation v Luxtona Limited, 2019 ONSC 7558 provides guidance on two elements of international arbitration practice.

First, parties challenging an arbitral tribunal’s award on jurisdiction under Articles 16 and 34 of the UNCITRAL Model Law on International Commercial Arbitration (the “Model Law”) cannot, as of right, file new evidence for the review. Rather, parties require leave to do so by providing a reasonable explanation for why new evidence is necessary, including why that evidence was not, or could not have been, put before the tribunal in the first place (the “R v Palmer Test”).[1]

Second, when drafting arbitration clauses, parties should consider whether they would prefer that the seat of any future arbitration be subject to the Model Law or another regime, such as the United Kingdom’s Arbitration Act.

Facts & Background

Please see our previous post for a detailed account of the events leading up to Justice Penny’s decision.

Briefly, the Federation of Russia (“Russia”) filed an application with the Superior Court of Ontario (“ONSC”) challenging an arbitral tribunal (“Tribunal”) finding that it had jurisdiction to hear a dispute between Russia and Luxtona Limited (“Luxtona”). Russia’s view was that, at the hearing of the application, it could as of right file new evidence that was not before the Tribunal. Luxtona disagreed and submitted that Russia could only file new evidence if it satisfied the R v Palmer Test.

Applicable Law

The Model Law Provisions

Article 16 of the Model Law has two important features. First, it contains the competence-competence principle, which grants the Tribunal the power to rule on its jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement.[2] Second, where the Tribunal so rules, any party may request the court of the “seat” to decide the matter and the decision of the court is not subject to appeal.[3]

Article 34 of the Model Law simply provides that recourse to the court must be brought by way of application to set aside the award and provides the grounds on which the award may be challenged.[4]

Judicial Precedent

On challenges to jurisdiction brought under Article 34 of the Model Law, Ontario courts apply a correctness standard of review: the Tribunal must be correct in its determination that it had the ability to make the decision it made.[5] The pertinent considerations for this approach are as follows:

  • in hearing an application to set aside an arbitral decision for lack of jurisdiction, the court is performing a review of the decision;
  • the onus is on the party challenging the award;
  • the court must be satisfied that the challenge raises a “true question of jurisdiction”;
  • if there is a “true challenge of jurisdiction”, the Tribunal has to be correct in its assumption of jurisdiction and it is up to the reviewing court to determine, without deference, whether it was (the “Cargill Principles”).[6]

As to what constitutes the “record” that is the subject of the court’s review, and in what circumstances that “record” could be supplemented with new evidence, Justice Penny noted that there “is in fact no case in Canada dealing with this issue”.[7]

Justice Penny’s Analysis & Decision

Having established the standard of review, Justice Penny started the analysis by distinguishing the standard of review from the format of review. Justice Penny held that a correctness standard of review does “not necessarily result in the conclusion that new evidence may be filed as of right”.[8] Justice Penny was thus tasked with determining (for the first time in Canada) the format of review on an Article 34 application in light of the parties’ competing submissions whether new evidence could be filed as of right versus only in accordance with the R v Palmer Test.

International Case Law

In support of its position, Russia cited a body of law emanating from the London Commercial Court (“LCC”). The position taken by the LCC in a majority[9] of its decisions is that a challenge to a Tribunal affirming its jurisdiction proceeds as a trial de novo. The parties are at liberty to advance whatever evidence they deem appropriate and is otherwise admissible, regardless of the procedures followed, the evidence filed, or the issues raised before the Tribunal itself. In other words, the LCC allows for a rehearing.

Importantly, however, such challenges are commenced by way of section 67 of the UK Arbitration Act (“UKAA”), which is not based on the Model Law. In recognition of this, Russia cited a decision from Singapore, which, like Canada, had adopted the Model Law. The ruling in that case[10] accorded with the majority of the LCC decisions, though was not directly concerned with the admission of new evidence. Justice Penny found that the same court had recently ruled on this issue,[11] and held that new evidence should only be admitted according to an R v Palmer-like test. The Singapore Court of Appeal upheld that decision.[12] Justice Penny therefore proceeded to consider the extent to which section 67 of the UKAA and the LCC’s approach accorded with Article 34 of the Model Law and the Cargill Principles.

The UKAA and the Model Law Differ

While both the UKAA and the Model Law are similar in some respects, they diverge in others. For instance, unlike the Model Law, pursuant to the UKAA: (1) an appeal lies from the UK court’s decision under section 67 with leave; (2) an arbitral decision may be challenged on the basis of “serious irregularity” under section 68; and (3) an appeal lies from the court’s decision under section 69 on a question of law with leave. Such provisions are absent from the Model Law.

Justice Penny noted that “While these differences are not dispositive of… the applicability of the [LCC’s] views on the admissibility of new evidence on a jurisdictional challenge, they offer insight into a significant difference in emphasis and scope for court intervention in the decisions of arbitral tribunals between the two statutory regimes”.[13]

The LCC’s Approach and the Cargill Principles Differ

The Ontario Court of Appeal (“ONCA”), in enunciating the Cargill Principles, delineated an important but narrow role for court intervention under Article 34 of the Model Law. It determined that only “true” jurisdictional challenges will be heard and, where heard, the court is to conduct a review, not a rehearing. Justice Penny expressed that this was a “profound” difference between the two regimes.[14]

The LCC’s Approach Undermines the Competence-Competence Principle

If parties could adduce new evidence as of right, then both parties to the jurisdictional challenge would have an incentive, knowing what the Tribunal’s decision was, to file new evidence providing further support for their position and why the Tribunal was right or wrong in its determination. This would result in such evidence being routinely filed and the court thereby routinely conducting a trial de novo on jurisdiction. As a result, the record before the court would similarly routinely be materially different than that put before the Tribunal.

The Tribunal, in that scenario, would not have, as Article 16 requires, the ability to “rule on its own jurisdiction including any objections with respect to the existence or validity of the arbitral agreement [italics added]”.[15] It would be strange if the losing party could, on a jurisdictional review by the court, effectively replace or substantially amend the record it put before the Tribunal and proceed with its jurisdictional challenge to the court on the basis of potentially entirely different evidence. In Justice Penny’s view, to permit that would upset the significant policy concerns involving order, finality, and the integrity of adjudicative processes.

Significance

The significance of this latest installment in the Luxtona saga is both national and international in scope. Each province and territory in Canada is a Model Law jurisdiction. This decision is the first of its kind in Canada, and stands for the proposition that Arbitral parties that file an application to set aside a Tribunal’s jurisdictional award under Articles 16 and 34 of the Model Law may not introduce new evidence as of right but, rather, must comply with the R v Palmer Test.

In Ontario, this means that parties must show that the evidence sought to be filed:

  • could not have been obtained using reasonable diligence;
  • would probably have an important influence on the case;
  • is apparently credible; and
  • is such that if believed it could reasonably, when taken with the other evidence adduced at the hearing, be expected to have affected the result.[16]

Arbitral parties should also consider the above when deciding on a seat of arbitration. On a challenge to a Tribunal’s jurisdictional award, the courts of Ontario, and perhaps the rest of Canada too, may now be prone to conduct a review of the record upon which the Tribunal made that finding. This is to be contrasted with the same situation arising in the United Kingdom, where it would appear that the LCC could bypass the Tribunal’s record and conduct a rehearing.

It should be noted that Russia has appealed Justice Penny’s decision to Ontario’s highest court. Once that decision is released, be sure to visit The International Arbitration Blog for our analysis of the Ontario Court of Appeal’s take on these issue. 

[1]The Russia Federation v Luxtona Limited, 2019 ONSC 7558 at para 10 [Luxtona]. R v Palmer, [1980] 1 SCR 759 established that new evidence should only be admitted on appeal according to a four-part test (see “Significance” section for the test).

[2] Model Law, Article 16(1).

[3] Model Law, Article 16(3).

[4] Model Law, Article 35.

[5]Luxtona at paras 30-32 (emphasis in original), citing United Mexican States v Cargill Inc, 2011 ONCA 622.

[6]Luxtona at para 32.

[7]Luxtona at para 34.

[8]Luxtona at para 38.

[9] Two of the six decisions on the issue indicate that a party must put its best evidentiary foot forward at the arbitration and, in seeking to admit new evidence on review, must seek leave from the court to do so; see Luxtona at paras 42-46.

[10]Insigma Technology Co Ltd v Alstom Technology Ltd, [2008] SGHC 134.

[11]Government of the Lao People’s Democratic Republic v Sanum Investment Ltd, [2015] SGHC 15.

[12]Government of the Lao People’s Democratic Republic v Sanum Investment Ltd, [2016] SGCA 57 at para 27.

[13]Luxtona at para 54.

[14]Luxtona at paras 57-58.

[15]Luxtona at para 61 (emphasis in original).

[16]Luxtona at para 69.

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