The Pendulum Swings: Parties to UNCITRAL Arbitrations Can Tender New Evidence as of Right on Jurisdictional Challenges

The Russian Federation v Luxtona Limited, 2021 ONSC 4604 (“Luxtona 2021”) is the latest installment in a series of decisions addressing the admissibility of new or “fresh” evidence on appeals from an arbitral tribunal’s jurisdiction decision arising in the context of the UNCITRAL Model Law on International Commercial Arbitration (the “ModelLaw”).

In this case, the Divisional Court of the Ontario Superior Court of Justice, an appellate level court (the “Divisional Court”), held that an application to set aside an arbitral tribunal’s (the “Tribunal”) jurisdiction under Article 16 of the Model Law proceeds by way of a hearing de novo. By implication, the parties to that application are entitled as of right to adduce new evidence at the application, including expert evidence, so long as that evidence is relevant to the jurisdictional issue.

Facts and Background

Please see our previous post, as well as our still more previous post cited therein, for a detailed account of the events and decisions leading up to Luxtona 2021.

Briefly, the Russia Federation (“Russia”) filed an application with the Ontario Superior Court of Justice (“ONSC”) challenging the Tribunal’s 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 according to the R v Palmer test.[1] Penney J., on behalf of the ONSC, decided that parties challenging a tribunal’s award on jurisdiction under Articles 16 and 34 of the Model Law cannot, as of right, file new evidence for the review.[2] Rather, parties must seek leave to do so according to the test established in R v Palmer. Russia appealed to the Divisional Court.

The Divisional Court’s Decision

The Divisional Court reversed Penney J.’s ruling, and held that jurisdictional challenges under the Model Law proceed by way of a hearing de novo, such that arbitral parties are not bound by the evidentiary record that was before the tribunal.[3] The Divisional Court’s decision was premised on the statutory framework, domestic and international case law, and international trends.

The Statutory Framework

The Divisional Court’s interpretation of the applicable statutory framework was largely decisive. The statutory framework has two parts: (i) the Model Law; and (ii) the International Commercial Arbitration Act, 2017 (the “ICAA”), which implemented the Model Law in Ontario.

Article 16 of the Model Law provides:

Competence of arbitral tribunal to rule on its jurisdiction

  • The arbitral tribunal may rule on its jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement.
  • …. If the arbitraltribunal rules as a preliminary question that it has jurisdiction, any party may request, within thirty days after having received notice of that ruling, the court specified in article 6 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.[4]

Subsection 11(1) of the ICAA provides:

If, pursuant to article 16(2) of the Model Law, an arbitral tribunal rules on a plea that it does not have jurisdiction, any party may apply to the Superior Court of Justice to decide the matter.[5]

The Model Law and ICAA provide that the reviewing court is “to decide the matter”, not “to review the tribunal’s decision”.[6] “The matter”, as referenced in the above provisions, is the issue of the tribunal’s jurisdiction. The Divisional Court noted that its task was entirely described by the phrase “decide the matter”.[7]

Domestic Case Law

Penney J. found that he was bound by the Ontario Court of Appeal’s (“ONCA”) decision in Mexico v Cargill, 2011 ONCA 622 (“Cargill”) and that, as a result, in Ontario, an application to review an interim arbitral award was a review and not a hearing de novo. On appeal, Luxtona adopted that argument, which proved to be problematic as the Divisional Court noted that the Cargill proceedings were initiated under a different provision of the Model Law, which provided for a different test to be applied.

The court in Cargill dealt with Article 34(2), which provides that an award of a certain kind of damages could be appealed and set aside if the objecting party proved one of the enumerated deficiencies.[8] This was a review of the final award, not on the basis that the tribunal lacked jurisdiction over the dispute pursuant to Article 16 of the Model Law, but rather under Article 34(2), which prescribed a limited review before the court from a final award of a tribunal.[9] In other words, the reviewing court on an Article 34(2) application was to determine whether the tribunal was correct, whereas on an Article 16 application, the court was to “decide the matter” itself, which necessitated a hearing de novo.[10]Cargill was thus distinguished from the facts at hand.

International Case Law

The Divisional Court noted that the ONCA in Cargill cited with approval the decision of the English Supreme Court (“UKSC”) in Dallah v Pakistan, [2011] AC 763 (“Dallah”). In Dallah, one of the parties challenged the tribunal’s jurisdiction, as Russia had done in Luxtona 2021. The UKSC found that the court’s role was “to reassess the issue [of jurisdiction] itself” and not to review the tribunal’s decision, primarily because the tribunal’s own view of its jurisdiction had no legal or evidential value.[11] Coupled with its observation that Cargill mandated an Article 34(2) – not an Article 16 – application to proceed as a “review”, the Divisional Court had no qualms holding that Article 16 provided for a hearing de novo.[12]

International Trends

The “uniformity” principle also factored into the Divisional Court’s decision. Article 2A of the Model Law places an imperative on courts to interpret the Model Law with regard to its international origin and the need to promote uniformity in its application. The Divisional Court observed that Dallah was a leading international authority on jurisdiction, and had been adopted and followed in both the United Kingdom as well as in many other respected jurisdictions.[13] The Divisional Court concluded that the legal regime upon which Dallah was based was part of the “international origin” of the Model Law, and that there was an international consensus that Article 16 applications were to proceed as a hearing de novo.

Significance

The first important point of Luxtona 2021 is that an Article 16 application to set aside a tribunal’s jurisdiction proceeds as a hearing de novo. By implication, the parties to that application are entitled as of right to adduce new evidence at the application, including expert evidence, so long as that evidence is relevant to the jurisdictional issue.

The second important point of Luxtona 2021 is the bright line between applications initiated pursuant to Articles 16 and 34. As above, on a jurisdictional issue brought to the court pursuant to Article 16, the court is to “decide the matter”; the tribunal’s view of its jurisdiction has no legal or evidential value, which is precisely why the parties thereto may adduce new evidence. By contrast, a jurisdictional issue brought before the court pursuant to Article 34 is a “review”, expressly circumscribed by the terms thereof, to which a standard of correctness applies.

The foregoing is made weightier by the fact that each province and territory in Canada, with the exception of Québec (which has implemented most provisions of the Model Law in substance through amendments to the Civil Code of Québec and Code of Civil Procedure), is a Model Law jurisdiction,[14] and their respective courts are under an imperative to interpret the Model Law with regard to international (including interprovincial) case law and the need for the Model Law to be applied uniformly.

Arbitral parties should consider the above when deciding on a seat of arbitration. On a challenge to a tribunal’s jurisdictional award, the courts of Ontario (and likely the rest of Canada, as well as other jurisdictions that have adopted the Model Law) will conduct a rehearing of the jurisdictional issue rather than a review of the record upon which the tribunal made that finding. Importantly, this approach appears to bring Model Law jurisdictions more in line with how the London Commercial Court approaches jurisdictional issues under the UK Arbitration Act.

This series of decisions may not be over, as Luxtona can submit a motion for leave to appeal the Divisional Court’s decision to the ONCA.[15] The question on appeal would likely relate to the Divisional Court distinguishing Cargill from the facts at hand on the premise that the phrase “decide the matter” precludes, by necessity, a review of an arbitral award.

[1]R v Palmer, [1980] 1 SCR 759 established that new evidence should only be admitted on appeal according to a four-part test.

[2]The Russian Federation v Luxtona Limited, 2019 ONSC 7558.

[3]Luxtona 2021 at para 10.

[4]Model Law at art 16 (emphasis in original).

[5]ICAA at s 11(1) (emphasis in original)

[6]Luxtona 2021 at para 22.

[7]Luxtona 2021 at para 22.

[8]Cargill at para 31.

[9]Luxtona 2021 at para 24.

[10]Luxtona 2021 at paras 24-27.

[11]Luxtona 2021 at para 30.

[12]Luxtona 2021 at para 32.

[13]Luxtona 2021 at para 33.

[14]ICAA; International Commercial Arbitration Act, RSBC 1996, c 233; International Commercial Arbitration Act, RSA 2000, c 1-5; International Commercial Arbitration Act, SS 1988-1989, c I-10.2; International Commercial Arbitration Act, CCSM, c C-151; International Commercial Arbitration Act, SNB 1986, c I-12.2; International Commercial Arbitration Act, RSNS 1989, c 234; International Commercial Arbitration Act, 1988, c I-5; International Commercial Arbitration Act, RSN 1990, c I-15; International Commercial Arbitration Act, RSNWT 1988, c I-6; International Commercial Arbitration Act, RSY 2002, c 123.

[15]Courts of Justice Act, RSO 1990, c C 43, s 6(1)(a); Rules of Civil Procedure, RRO 1994, Reg 194, s 61.03.1.

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