ONCA Confirms UNCITRAL Jurisdictional Set-Aside Applications Are De Novo Hearings But Cautions Parties Against Seeking “Two Evidential Bites of the Cherry”
The ruling of the Ontario Court of Appeal (“ONCA”) in The Russia Federation v Luxtona Limited (“Luxtona”) contains a number of important takeaways, chief among them being that parties to a judicial challenge of an arbitral tribunal’s (“Tribunal”) award on jurisdiction under Article 16 and jurisdictional challenges under Article 34 of the UNCITRAL Model Law on International Commercial Arbitration (“Model Law”) are entitled as of right to submit new evidence because the application is a de novo hearing, not a review or an appeal of the award. However, this is subject to the “significant caveat” that a party’s failure to raise and rely on a piece of evidence during the jurisdictional hearing before the Tribunal may affect the weight given to that evidence by the court on the set-aside application.
Facts & Background
Please see our previous posts on both the 2018 decision and 2019 decision of the Ontario Superior Court of Justice (“ONSC”) as well as the 2021 appeal decision of the ONSC Divisional Court for a detailed account of the events and judicial findings leading up to the ONCA’s ruling.
Briefly, the Federation of Russia (“Russia”) filed an application to the court challenging the Tribunal’s finding that it had jurisdiction to hear a dispute between itself and Luxtona Limited (“Luxtona”). Russia argued that it was entitled as of right to file new evidence on the court application that was not before the Tribunal in accordance with international case law. Luxtona objected, asserting that new evidence could only be filed in accordance with the R vPalmer (“Palmer”) test. In Palmer, the Supreme Court of Canada (“SCC”) established a four-part test for the admission of new evidence in an appeal of a trial decision:
- the evidence could not have been obtained using reasonable diligence;
- the evidence would probably have an important influence on the case;
- the evidence must be apparently credible; and
- the evidence must be such that if believed it could reasonably, when taken with the other evidence adduced at the hearing, be expected to have affected the result.
The application court ruled initially that Russia could not introduce its proposed new evidence. Luxtona appealed this decision to a three-justice panel at the Divisional Court. The Divisional Court reversed the earlier decision and found that because the court was hearing the jurisdictional issue de novo, the parties were entitled as of right to adduce new evidence. Luxtona then appealed the Divisional Court’s decision to the ONCA.
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 an arbitration agreement. Second, where the Tribunal so rules, any party may request the court of the seat “to decide the matter”.
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.
On challenges to jurisdiction brought under Art. 34 of the Model Law, Ontario courts apply a correctness standard of review, meaning that the Tribunal must be correct in its determination. The ONCA in United Mexican States v Cargill Inc established the pertinent judicial consideration for this analysis, noting:
- 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”; but once that criterion is satisfied,
- 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.
As to what constitutes the “record” that is the subject of the review, and in what circumstances that “record” can be supplemented with new evidence, however, was a legal matter that had not received direct judicial comment.
The ONCA’s Analysis & Decision
The Competence-Competence Principle
The ONCA’s dismissal of Luxtona’s appeal largely rested on the competence-competence principle. Luxtona argued that the Divisional Court improperly failed to apply the principle. Luxtona took the position that the competence-competence principle, which allows the Tribunal to rule on its own jurisdiction, requires that parties be given strong incentives to put as much of the record before the Tribunal as possible. While the ONCA agreed with Luxtona that the competence-competence principle “is fundamental to international commercial arbitration”, it disagreed with Luxtona’s view on the breadth of the principle.
The competence-competence principle has two aims. First, it resolves a legal loophole whereby an arbitrator that finds itself lacking jurisdiction would, ipso facto, lose its ability to make a ruling to that effect. Second, it promotes efficiency by limiting a party’s ability to delay arbitration through court challenges to an arbitrator’s jurisdiction. The principle accomplishes these aims by placing the arbitrator at the start of the chronology of decision making. This, however, is “as far as the competence-competence principle goes”. The principle does not mandate judicial deference to an arbitrator, nor does it render an arbitrator the sole judge of its jurisdiction.
This understanding of the competence-competence principle conforms with the uniformity principle, which encourages uniformity of decision making among the various Model Law jurisdictions. The ONCA considered how similar issues in other Model Law jurisdictions had been dealt with and found that the competence-competence principle had not been interpreted as limiting the fact-finding power of a court assessing an arbitrator’s decision. Stated otherwise, the court’s role in assessing an arbitrator’s finding on jurisdiction is “to examine as a matter of law and as a matter of fact all circumstances relevant to the alleged defects”. The court retains the final say over questions of jurisdiction and, as such, it necessarily follows that the court is not fettered in its fact-finding ability. The ONCA observed that the international community agrees with these propositions.
A “Significant Caveat” to the De Novo Hearing
The ONCA included a “significant caveat” to its conclusion on the competence-competence principle. The ONCA adopted a decision from the English Commercial Court, which noted that “[n]othing said here should encourage parties to seek two evidential bites of the cherry in disputes as to the jurisdiction of arbitrators” because:
- evidence introduced late in the day may well attract a degree of skepticism; and
- the court has ample power to address such matters when dealing with questions of costs.
Accordingly, the ONCA reasoned that while there is no need to strictly apply the Palmer test, where a party has participated fully in the arbitration and failed to submit a piece of evidence to the Tribunal, the court may limit the weight accorded to that evidence. Implicit in this finding is that a court may in fact apply the Palmer test to new evidence not to determine its admissibility but, rather, to assign it a particular weight.
Significance of this Decision
Subject to an appeal to the SCC, including the SCC granting leave to appeal, Luxtona is the latest installment in the international trend recognizing that parties to Model Law jurisdictional set-aside applications are entitled as of right to submit new evidence at the hearing of the application. Fundamentally, the reason for this is that the courts tasked with reviewing such applications are mandated to “decide the matter”. That said, a party who submits new evidence at the hearing of such applications without satisfying one of the Palmer factors may suffer prejudice, including in particular having the new evidence accorded less weight. As such, arbitral parties should put their best foot forward, so to speak, and tender all evidence relevant to jurisdictional issues to their arbitrator to avoid potential prejudice later at court.
It is worth noting the distinction between the ONCA’s decision in Luxtona and its recent decision in All Communications Network of Canada v Planet Energy Corp (“Planet Energy”), which is discussed in our blog post here, as to when a de novo hearing is required in an application to set aside under Article 34. In the Planet Energy matter, the court was tasked with determining whether the arbitral award was to be set aside on grounds of procedural fairness pursuant to Article 34. In such circumstances, while the court is still mandated “to decide the matter”, the court is not tasked with determining a “true question of jurisdiction”. The court is tasked with reviewing the arbitral award and circumstances giving rise to the arbitral award to determine the existence of procedural unfairness. In other words, procedural unfairness cannot be resolved anew, or de novo, but can only be resolved with reference to what in fact occurred at the hearing before the Tribunal.
CITATION: Russian Federation v Luxtona Limited, 2023 ONCA 393
DATE: June 2, 2023
Model Law on International Commercial Arbitration, 21 June 1985, UNCITRAL, as amended [Model Law], enacted in Ontario as Schedule 2 to the International Commercial Arbitration Act, 2017, SO 2017, c 2, Sch 5.
Ibid at 775.
Model Law, supra note 2 at art 16(1).
Ibid at art 16(3).
Ibid at art 34.
Luxtona 2023, supra note 1 at para 28.
Ibid at para 34.
Ibid at para 34.
Ibid at para 34.
Ibid at para 36.
Ibid at para 37 [emphasis in original].
Ibid at para 38.
Ibid at paras 43-49.
Ibid at para 41.
Ibid at para 42.
Ibid at para 47; see also Cargill, supra note 8 at para 47.
aribtration law international arbitration commercial arbitration De Novo jurisdiction competence-competence principle UNCITRAL Model Law article 16 article 34