A Divided Court: ONSC Sets Stage for Ruling on Admissibility of New Expert Evidence on Appeals from UNCITRAL Arbitrations

While useful in its affirmation that an expert’s repeated use by affiliated parties and the expert’s ascension to becoming the “go to guy” is not necessarily “bought and paid for advocacy”,[1] the primary import of The Russian Federation v Luxtona Limited, 2019 ONSC 4503 (“Luxtona 2019”) is the Superior Court of Ontario’s (“ONSC”) split ruling on the admissibility of new expert evidence on an appeal from an arbitration. The genesis of Luxtona 2019 was an arbitral tribunal’s finding that it had jurisdiction to hear the dispute commenced by Luxtona Limited (“Luxtona”). The Russian Federation (“Russia”) appealed this finding to the Superior Court of Ontario, where Justice Dunphy allowed both Russia and Luxtona to admit new evidence (“Luxtona 2018”).[2] Russia then applied to the ONSC to strike only Luxtona’s new evidence from the record. In refusing to strike the expert’s evidence, Penny J. provided useful guidance to arbitral parties seeking to admit expert evidence on appeal.

Facts and Background

Luxtona, a Cyprus-incorporated entity and former shareholder of Yukos Oil Company (“Yukos”), alleged that Russia violated certain provisions of the Energy Charter Treaty (the “Treaty”) relating to the protection of investments, including Luxtona’s investment in Yukos,[3] and claimed USD $701M in damages.

Russia is a signatory to the Treaty, but never ratified it. Pursuant to Article 45(1) of the Treaty,[4] Luxtona argued that its provisions, including the arbitration provision, applied in Russia “to the extent that” its provisional application was “not inconsistent with its constitution, laws, or regulations.” The availability of arbitration to resolve Luxtona’s claim depended upon a determination of whether the salient portions of the Treaty were inconsistent with Russian law. To this end, Luxtona served a notice to arbitrate on Russia.

Reserving all rights, Russia participated in the appointment of an arbitral tribunal (the “Tribunal”),[5] which was seated in Toronto, Ontario. After both sides submitted evidence on relevant Russian Law, the Tribunal ruled that it had jurisdiction to hear Luxtona’s claim (the “Interim Award”). Pursuant to Articles 16(3) and 34(2) of the UNCITRAL Model Law on International Commercial Arbitration (the “Model Law”), Russia brought an application to the ONSC to set aside the Interim Award.[6] In connection with that application, Russia filed expert opinion evidence that was not before the Tribunal when it issued the Interim Award.

Luxtona, in turn, applied to strike out all evidence that was not before the Tribunal unless Russia satisfied the Ontario test for leave to introduce fresh evidence on appeal or, alternatively, to allow Luxtona also to submit new evidence. The application was heard by Justice Dunphy, who refused Luxtona’s primary relief, ruling that a hearing under Article 16(3) of the Model Law was not an appeal, but rather was a hearing de novo. He did, however, grant Luxtona’s alternative request.[7] Luxtona then filed additional evidence from Dr. Stephan. That new evidence submitted by Luxtona became the object of Russia’s application to strike on the grounds that Dr. Stephan lacked independence as well as qualifications (the “Application”).

The Decision of the ONSC

In Luxtona 2019, Penny J. dismissed the Application because Russia failed to demonstrate that Dr. Stephan was unable to discharge his duty to be fair, objective, and non-partisan. Penny J. also granted Luxtona’s cross-application for an order that Dr. Stephan’s reports be admitted into evidence.

Penny J. had “serious doubt” about the correctness of Luxtona 2018 insofar as its decision allowed new evidence not before the Tribunal to be considered by a reviewing court. On this issue, Penny J. directed the parties to be prepared at the main application reviewing the Interim Award to “reargue the narrow question of whether new evidence, which does not meet the test for new evidence under Ontario law, is admissible on a court review of an arbitral tribunal’s jurisdiction under Article 16(3) of the Model Law.”[8]

Test for Admissibility of Expert Evidence

Citing Marquand, the ONSC found that expert evidence is admissible where: (1) the expert witness has special knowledge and experience going beyond that of the trier of fact; and (2) the expert attests to or testifies on oath that he or she has a duty to be fair, objective, and non-partisan, and is able and willing to comply with that duty.[9] Where that is the case, the burden shifts to the party opposing the evidence to show that the expert is unable or unwilling to comply with that duty.

Application to the Facts

Russian law was obviously beyond the knowledge and experience of the ONSC.[10] The ONSC held that Dr. Stephan also recognized his duty to provide opinion evidence that was fair, objective, and non-partisan. The issue then was whether Dr. Stephan was “unable or unwilling” to comply with his duty.[11]

Russia argued that Dr. Stephan’s evidence should be excluded because he had:

  • acted on behalf of Yukos-related entities in at least 11 matters since 2005;
  • provided legal advice to Yukos and stated his support for Yukos’s cause against Russia;
  • provided assistance to Yukos entities in the enforcement of arbitral awards against Russia;
  • provided extensive advice on Russian tax and bankruptcy law issues to Yukos; and,
  • received substantial compensation from Yukos entities for his prior engagements.[12]

The ONSC ruled that inadmissibility requires a finding of actual bias, not merely an appearance of bias, and that Russia failed to demonstrate Dr. Stephan’s lack of independence.[13] Receiving payments from prior engagements with Yukos and its affiliates was not evidence of impartiality. Nor did Dr. Stephan have an inappropriate financial or personal interest in the arbitration or a stake in the litigation. His status as the “go to guy” for Yukos shareholders, without more, was more demonstrative of an accumulated expertise rather than partisanship.[14] Counter-balancing his strong public anti-Russian views were the facts that arbitral tribunals had made findings consistent with his statements and, more importantly, his role as a duty-bound expert witness at court was far removed from the academic position in which he made strident and colloquial comments. Dr. Stephan’s retainer did not lead to his beliefs, his beliefs led to his retainer.[15]

Russia’s second argument was that Dr. Stephan’s evidence should be excluded because he lacked qualifications, as evidenced by the facts that he:

  • was not a Russian lawyer, was not qualified to practice law in Russia, and had no degrees in Russian law or from any Russian university;
  • claimed expertise in a wide and disparate variety of topics, seemingly in response to whatever was required at the time; and
  • was not fluent in Russian.[16]

The ONSC ruled that foreign law experts were not required to have acquired their expertise in any particular way, nor were they required to be entitled to practice law in the foreign jurisdiction. Rather, the expert need only possess demonstrated knowledge of the relevant law. Dr. Stephan had a Master of Arts in Russian Studies as well as an American law degree. As a professor of law, his specialities included post-Soviet law, tax law, international business transactions, and international law. He had written and lectured extensively on various matters relating to Russian law and Russian public policy, and he had been qualified as an expert in Russian law before international tribunals and both American and European courts.[17] While Dr. Stephan’s inability to speak Russian would certainly be a limitation, it would not impair the core of his qualification. In the end, Russia’s complaints concerning Dr. Stephan’s qualifications related to the extent of his qualifications, not whether he had any.

Significance

Expert opinions must be impartial, independent, and unbiased. Further, the threshold for the admission of expert evidence is that the expert:

  1. has special knowledge and experience going beyond that of the trier of fact; and
  2. acknowledges, through an attestation or an oath, that he or she has a duty to the court to be fair, objective, and non-partisan.[18]

In order to strike expert evidence, the applying party must demonstrate that there is a “realistic concern” that the expert is “unable or unwilling” to discharge his or her duty to the court. This would include findings of actual bias or lack of qualifications. In order for there to be an actual finding of either, all the circumstances must be assessed to determine whether an apparent bias or an apparent lack of qualifications arises to a realistic concern.[19]

Perhaps of greater significance is the prospect of further guidance on the question of admissibility of new evidence when a party applies to set aside a Tribunal’s finding it had jurisdiction to hear an arbitration. Luxtona 2018 permitted new evidence on the premise that the application to set aside should be heard de novo in accordance with international case law. However, Penny J. in Luxtona 2019 expressed reservations about that finding, and therefore directed the parties to prepare to re-argue the question of whether the admission of new evidence, even in the context of Article 16(3) of the Model Law, must satisfy the test for new evidence under Ontario law. Penny J.’s ultimate decision on this issue will be of assistance in answering this question more definitively.

[1]The Russian Federation v Luxtona Limited, 2019 ONSC 4503 at para 27 [Luxtona 2019]

[2]The Russian Federation v Luxtona Limited, 2018 ONSC 2419 [Luxtona 2018].

[3] Numerous actions have been commenced by former Yukos shareholders against The Russian Federation. At the basis of all these actions is the claim that Russian courts acted in bad faith in launching tax evasion criminal proceedings against Yukos, which led to the bankruptcy of the company.

[4] Article 45(1) provides: “Each signatory agrees to apply this Treaty provisionally pending its entry into force… to the extent that such provisional application is not inconsistent with its constitution, laws, or regulations.”

[5]Luxtona 2019 at para 7.

[6]Luxtona 2018.

[7]Luxtona 2018 at paras 27-29, 36.

[8]Luxtona 2019 at para 38.

[9]R v Marquand, [1990] 4 SCR 223.

[10]Luxtona 2019 at para 23.

[11]Luxtona 2019 at para 22.

[12]Luxtona 2019 at para 14.

[13]Luxtona 2019 at para 26.

[14]Luxtona 2019 at para 25.

[15]Luxtona 2019 at para 27.

[16]Luxtona 2019 at para 15.

[17]Luxtona 2019 at para 30.

[18]Luxtona 2019 at para 19-22.

[19]Luxtona 2019 at para 22, citing White Burgess Langille Inman v Abbott and Haliburton Co, 2015 SCC 23.

arbitration international arbitration commercial arbitration

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