New International Commercial Arbitration Act Enacted In Ontario

On March 22, 2017, a new International Commercial Arbitration Act, 2017 came into force in Ontario (the 2017 ICAA). The 2017 ICAA is contained in Schedule 5 to the Burden Reduction Act, 2017, SO 2017, c. 2.. The 2017 ICCA replaces the existing Ontario International Commercial Arbitration Act, RSO 1990, c I.9 (the Old ICAA).

The 2017 ICAA introduces into Ontario law the UNCITRAL Model Law updated as of July 7, 2006 (Updated Model Law). The Updated Model Law is attached as Schedule 2 to the 2017 ICAA. The 2017 ICAA also makes other amendments to the existing Ontario International Commercial Arbitration Act (Old ICAA).

In addition, a number of other statutes are annexed to Burden Reduction Act, 2017 which affect international dispute resolution, including the International Choice of Court Agreement Convention Act, 2017.

Practitioners involved in arbitration in Ontario should be aware of the changes that are introduced by the 2017 ICAA. Here are some of the more notable changes.

  1. Limitation period

Section 10 of the 2017 ICAA introduces a new ten year limitation period for the recognition and enforcement of international commercial arbitration awards, starting in January 2019. Section 10 states as follows:

“10. No application under the Convention or the Model Law for recognition or enforcement (or both) of an arbitral award shall be made after the later of December 31, 2018 and the tenth anniversary of:

(a)  the date on which the award was made; or

(b)  if proceedings at the place of arbitration to set aside the award were commenced, the date on which the proceedings concluded.”

A similar ten-year limitation period for domestic arbitrations is introduced by section 13 of the 2017 ICAA. Under that section, subsection 52 (3) of the Arbitration Act, 1991 is repealed and the same 10 year limitation period is introduced, commencing in 2019. The commencement of the limitation period is expressed slightly differently, as being:

(a)  the day the award was received; or

(b)  if an application to set aside the award was commenced, the date on which the application was finally determined. (underlining added)

The Old ICAA and the Model Law attached to it do not contain a limitation period. The limitation period for the enforcement of international commercial arbitration awards was settled in Canada in Yugraneft Corp. v. Rexx Management Corp., [2010] 1 S.C.R. 649. In that decision, the Supreme Court of Canada held that the general two-year limitation period in Alberta’s limitation statute applied to such an enforcement in Alberta.

The March 2014 report of the Uniform Law Conference of Canada (ULCC) expressed the view that a two-year limitation period for the enforcement of an arbitral award is too short and not consistent with the limitation periods in other countries. The ULCC report recommended a 10-year period, which has been adopted by the Ontario legislature.

  1. Appeals re Preliminary Decision Declining Jurisdiction

Section 11 of the 2017 ICAA provides for an appeal to the Superior Court in the following words:

(1)  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.

(2)  The court’s decision under subsection (1) is not subject to appeal.

(3)  If the arbitral tribunal rules on the plea as a preliminary question and an application is brought under this section, the proceedings of the arbitral tribunal are not stayed with respect to any other matters to which the arbitration relates and are within its jurisdiction. (underlining added)

Article 16(3) of the Model Law says that if the arbitral tribunal “rules as a preliminary question that it has jurisdiction,” there is an appeal to the court, and that there is no appeal from the court’s decision. The Model Law does not expressly provide for an appeal in the event that the arbitral tribunal decides that it does not have jurisdiction. Section 11 if the 2017 ICAA now provides for an appeal in that situation, but (reflecting the Model Law on this point) there is no appeal from the Superior Court’s decision.

There are several interesting questions about Section 11 and Article 16. First, why did drafters of the Model Law not provide for an appeal if the tribunal declines jurisdiction? According to the March 2014 report of the ULCC, the drafters of the Model Law felt that it was “inappropriate to compel a tribunal to decide matters that it concluded it lacked jurisdiction to decide“ and accordingly gave the court no power to reverse the tribunal’s decision and require it to decide the dispute. The drafters of the Model Law may also have been of the view that a decision by the arbitral tribunal declining jurisdiction is a final award and subject to an application for judicial review of the award under Article 34 of the Model Law. The view that a negative jurisdictional decision is a final award and subject to appeal under Article 34 is apparently shared by Gary Born as expressed in International Commercial Arbitration (2nd ed., 2014, Vol. 1, p. 1104).

If there is a right to review an arbitral award declining jurisdiction, then the normal rights of appeal would presumably apply to that application. The drafters of the Model Law may have decided to provide for an appeal from a decision of an arbitral tribunal accepting jurisdiction because such a decision is an interlocutory, not a final award, and there is no other recourse against such an award.

The Ontario legislature has accepted the recommendation of the ULCC that there should be an appeal if the arbitral tribunal declines jurisdiction. The reasons for the ULCC’s recommendation were that:

  • the international consensus favours allowing appeals from negative rulings;
  • it is unfair and inconsistent to allow appeals from positive rulings without also allowing appeals from negative rulings;
  • denying the opportunity to correct erroneous negative rulings can lead to injustice and frustrate the parties’ intention of avoiding litigation in national courts; and
  • parties may prefer to seat their arbitrations in states that allow appeals from negative rulings.

Section 11(1) of the 2017 ICAA is drafted in a rather ambiguous way. One is left to wonder whether the words “that it does not have jurisdiction” modify the word “plea” or the word “rules”. If the former, then an appeal may be taken whichever way the tribunal rules. If the latter, then an appeal may not be taken if the ruling is that the tribunal does have jurisdiction. Since Article 16 provides for an appeal if the tribunal decides that it has jurisdiction this ambiguity may not be important since on either reading, Section 11(1) provides for an appeal if the tribunal holds that it does not have jurisdiction. It is likely that the 2017 ICAA was drafted to allow for an appeal when the tribunal held that it did not, to fill this loophole in the Model law.

What is the impact of section 11 of the 2017 ICAA? Is an appeal under section 11 the exclusive remedy if the arbitral tribunal declines jurisdiction, in which case there is no appeal from the order of the Superior Court? Or is there a right, under Article 34, to bring an application to the Superior Court to review an arbitral decision declining jurisdiction on the basis that the decision is a final award? If there is a right of review under Article 34, is there a right of appeal from that review notwithstanding section 11(2) of the 2017 ICAA?

The second issue relates to res judicata and issue estoppel. If the arbitral tribunal decides to accept jurisdiction and continue with the hearing, and there is no appeal from that decision, presumably there is no issue res judicata at that point, and the final arbitral award is subject to review on all grounds, including jurisdiction. But if, under Article 16(3) of the Model Law, a party appeals to the court the decision of the arbitral tribunal accepting jurisdiction, is the court’s decision res judicata?  If so, then that factor has a big impact on the decision to appeal to the Superior Court.

Similarly, if the arbitral tribunal declines jurisdiction, an appeal is taken, and the court reverses the arbitral tribunal and sends the matter back to the tribunal, is that decision of the court res judicata? Or is the party objecting to the tribunal’s jurisdiction entitled to raise that objection in a later application to review the final award, or in defence in an application to enforce the final award? Articles 34 and 35 of the Model Law expressly state that lack of jurisdiction is a ground to review, and to refuse the recognition and enforcement of, an arbitral award. In effect, can the jurisdiction of an arbitral tribunal always be raised?

  1. Interim relief

The Updated Model Law contains a much broader power for an arbitral tribunal to grant interim relief. As summarized in the ULCC report:

  • Article 17 of the Updated Model Law re-states the authority of arbitrators to award interim measures and then adds a description of the categories of permissible interim measures.
  • Article 17A sets out the tests that applicants for interim measures must meet. The tests are:

(a) Irreparable Harm that substantially outweighs the harm that is likely to result to the party against whom the measure is directed if the measure is granted; and

(b)  A reasonable possibility that the requesting party will succeed on the merits of the claim. The determination on this possibility is not to affect the discretion of the arbitral tribunal in making any subsequent determination.

  • Article 17B empowers the arbitral tribunal to make preliminary orders and the conditions for granting such orders. These orders may be granted ex parte if the tribunal decides that the disclosure of the request for an interim measure will frustrate the purpose of the interim measure.
  • Article 17 C sets forth the specific regime for preliminary orders. While a preliminary order expires twenty days after its issuance, its terms may be adopted or modified in an interim measure. A preliminary order is binding on the parties but not subject to enforcement by a court, and does not constitute an award.
  • Article 17D authorizes arbitrators to modify, suspend or terminate interim measures.
  • Article 17E authorizes arbitrators to require applicants for interim measures to provide security.
  • Article 17F requires prompt disclosure of all material circumstances and of any changes in circumstances that might have a bearing on the interim measure.
  • Article 17G creates a cause of action for damages and costs against parties who obtain interim measure that the tribunal later concludes should not have been granted.
  • Article 17H makes orders or awards for interim measures enforceable in a similar manner to other awards.
  • Article 17I sets out the grounds on which a court may refuse recognition and enforcement of interim measures.
  • Aricle 17J gives the court the same powers regarding interim measures in relation to arbitration proceedings as the court has in relation to court proceedings.

With the 2017 ICAA now in force, Ontario practitioners in the field of international commercial arbitration will have to become familiar with the broader interim relief regime contained in the Updated Model Law.

  1. Written Agreement

Article 7 of the Updated Model Law provides two alternative forms of arbitration agreement that qualify as an “arbitration agreement” under that Law. Option 1 is a written agreement which is of the same nature as the arbitration agreement as defined in the present Model law. Option 2 is a less formal agreement, simply “an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.” Section 5(2) of the 2017 ICAA adopts Option 1, so there is no change in the Ontario law in this respect.

  1. Enforcement of an award

Article 35(2) of the Updated Model Law states that the party relying on an award or seeking to enforce it “shall supply the original award or a copy thereof.” Article 35(2) of the prior Model Law required that party to provide a “duly authenticated original award or a duly certified copy thereof, and the original arbitration agreement….or a duly certified copy thereof.” So, under the Updated Model Law, the party seeking to rely upon the award or enforce it need not, at least in the first instance, provide the arbitration agreement or a copy of it.

Other Statutes annexed to the Burden Reduction Act, 2017

In addition to the 2017 ICAA, there are many other statutes attached to the Burden Reduction Act, 2017, including the International Choice of Court Agreement Convention Act, 2017, the International Electronic Communications Convention Act, 2017, the International Recognition of Trusts Act, 2017 and the International Sale of Goods Act Amendments.

For practitioners involved in international disputes, the International Choice of Court Agreement Convention Act, 2017 is particularly important. That Act adopts the International Choice of Court Agreement Convention. The Convention seeks to put court litigation in a similar position to arbitration, so far as reciprocal enforcement is concerned. Clearly, reciprocal enforcement is one of the great advantages of international arbitration. Those engaged in court litigation have long since wanted court judgments to enjoy the same reciprocity of enforcement.

Reciprocity of enforcement for court judgments is achieved in the Convention by permitting parties to enter into a written “exclusive choice of court agreement” for the purpose of choosing a court to decide disputes “which have arisen or may arise in connection with a particular legal relationship.” If they do, then the selected court may not decline to exercise jurisdiction on the ground that some other court should decide the dispute and, except in limited circumstances, any other court shall decline to decide the dispute. The judgment of the chosen court shall be enforced by the courts in all other signatory countries, and those latter courts shall not review the merits of the dispute or the facts found by the chosen court. A judgment shall be recognised only if it has effect in the State of origin, and shall be enforced only if it is enforceable in the State of origin.

The Convention is subject to a broad exclusion of subject matters, including amongst others: consumer claims; employment contracts including collective agreements; status and legal capacity of natural persons; maintenance and family law matters; wills and succession; insolvency and composition; carriage of passengers and goods; marine pollution, limitation of liability for marine claims, anti- trust; person injury for natural persons; tort claims for damage to tangible person property not arising from contracts; and certain claims relating to intellectual property. By these exclusions, the Convention appears to focus on the court resolution of commercial disputes.

Ontario’s adoption of the International Choice of Court Agreement Convention may well encourage Ontario parties to insert choice of court agreements into their dealings with foreign parties and to rely on that Convention to enforce their rights, and not international arbitration. The difficulty, of course, is in coming to an agreement on a court to settle all claims between the parties. Each party may not want the courts of the other party’s country to decide the disputes between them. So arbitration may still be their preferred option.

See Heintzman and Goldsmith on Canadian Building Contracts, 5th Ed. Chapter 11

Arbitration – International Commercial Arbitration – new legislation

Thomas G. Heintzman O.C., Q.C., LL.D (Hon.), FCIArb                     April 9, 2017

This article contains Mr. Heintzman’s personal views and does not constitute legal advice. For legal advice, legal counsel should be consulted.




ULCC Working Group Issues Discussion Paper On A New Uniform International Commercial Arbitration Act

In January 2013, a Working Group of the Uniform Law Conference of Canada (“ULCC”) issued a Discussion Paper with respect to proposals for a new Uniform International Commercial Arbitration Act. The Discussion Paper is intended to generate consultations by May 2013 and final approval by the ULCC in August 2013.

Background to the Discussion Paper

In 1985, The United Nations Commission on International Trade Law (UNCITRAL) adopted the UNCITRAL Model Law on International Commercial Arbitration.  The Model Law sets forth legislative provisions relating to the conduct, enforcement and recognition of arbitral awards in international commercial arbitrations. The Model law was developed so that it could be implemented by statute in each country adopting the Model Law, to provide a consistent approach among those countries to international commercial arbitrations.

The Uniform Law Conference of Canada was founded in 1918 to harmonize the laws of Canadian provinces and territories and, where, appropriate, federal laws.  The ULCC brings together government and private lawyers, analysts and law reformers to study areas in which provincial and territorial laws might benefit from harmonization. The history, study papers, discussion documents and many of the Uniform Laws which it has drafted, may be seen on the ULCC’s website:

In 1986, the ULCC issued a Uniform International Commercial Arbitration Act (the “Uniform ICAA” or the “existing” Act). The Uniform ICAA was intended to provide a template for the implementation of the UNCITRAL Model by Canadian provinces, territories and the federal Parliament.  In large measure, the ULCC’s Uniform ICAA was enacted across Canada. The Uniform ICAA may be seen at:

The Model Law was amended by UNCITRAL in 2006. In response to these amendments to the Model Law, in August 2011 the ULCC established a Working Group to bring forward recommendations for a new Uniform ICAA (or “new Act”).  In August 2012, the ULCC authorized the preparation of a Discussion Paper for consideration by the ULCC at its meeting in August 2013.

Elements of the Discussion Paper

The Discussion Paper recently issued by the Working Group can be divided into two elements.

First, the Working Group has made recommendation on a wide ranging group of issues.

Second, the Working Group has identified further issues upon which it is seeking the view of others.

Recommendations of the Working Group

There are nine main recommendations of the Working Group:

1.      The form of the existing Act should be used in the new Act.

The existing Uniform ICAA is a relatively short statute of fifteen sections, to which the Model Law is attached as Schedule B. Also attached, as Schedule A, is the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards adopted by United Nations Conference on International Commercial Arbitration in June 1958. The existing Uniform ICAA does not incorporate domestic arbitration legislation.

In other words, the ULCC’s recommended statute for international commercial arbitration does not itself set out the effective statutory provisions and does not deal with domestic arbitration, as do the statutes in some jurisdiction (such as Quebec and the U.K.).  Rather the ULCC’s existing Uniform ICAA leaves most of the substantive provisions in the attached Model Law, and few in the enacting statute itself, and deals only with international commercial arbitration.

The Working Group recommends that this approach be used in the new statute, on the ground that it more readily identifies the Model Law as the operative document and promotes uniformity among Canadian statutes.  The Working Group recommends that, if any legislature believes that departures from the Model Law are required, those changes should be made in the statute, not the attached Model Law, and that the new Act should only deal with international, not domestic arbitration.

2.    The Working Group has tentatively recommended that all the 2006 amendments to the Model Law be incorporated into the ULCC’s new Uniform ICAA.  This approach has not been taken in every country, as some countries have selected only those amendments they thought were appropriate to adopt.  In particular, some countries have not adopted the provisions in the 2006 amendments to the Model Law relating to the interim measures which may be granted by the arbitral tribunal, on the basis that those interim powers should only be exercised by courts.  The view of the Working Group is that the granting of interim powers to the arbitral tribunal allows the tribunal, but does not compel it, to exercise those powers, and that it is better that these powers be available to arbitral tribunals, only to be exercised if appropriate.

3.    The new Act should apply only to written arbitration agreements (as does the existing Uniform ICAA) but that a flexible approach to “writing” should be taken so that agreements arising from electronic communications would be included.  The Working Group did not recommend that oral arbitration agreements be included within the new Act.

4.    The new Act should not harmonize the limitation periods applicable under Canadian laws for the commencement of arbitration proceedings. Accordingly, the relevant limitation period would be determined by the parties in their agreement, or by the applicable substantive law.

5.    International arbitration awards made elsewhere in Canada should be enforceable under the new Act, to allay doubts that such awards are not “international” and not enforceable under that Act.

As a corollary, the Working Group recommended that domestic awards in other provinces should only be enforced through domestic arbitration statutes in other provinces or territories. Also, clearly being of the view that foreign domestic awards should not be enforceable through the new Act, the Working Group is seeking comments as to how this result can be best achieved.

6.    The words “Commercial Arbitration” and “Commercial Relationship” should be defined in the new Act.

7.    The Working Group considered that it might be helpful to clarify that an international commercial arbitration award may be raised by way of defence, set-off, or counterclaim in existing proceedings.  This would obviate the need to commence separate proceedings seeking recognition and enforcement.

8.    The new Act should clarify what is meant by “State”, in a similar fashion to that accomplished in Section 6 of Ontario’s International Commercial Arbitration Act.

9.    The new Act should emphasize the need to promote Canadian uniformity in the application of laws relating to international commercial arbitration.

Views Sought by the Working Group

 The Working Group is seeking input on a wide variety of other issues, including the following:

1.    Whether the new Act should clarify that the limitation periods for commencing arbitration proceedings under Canadian laws (if they apply) are the same for international commercial arbitrations as for court actions.

 2.    Whether there should  be a provision for interprovincial enforcement of Canadian judgments recognizing and enforcing international arbitration awards. The recent decision of the Supreme Court of Canada in Yugraneft Corp. v. Rexx Management Corp. raises the issue of whether an award in an international commercial arbitration can be enforced in one province, where the limitation period is longer, and then whether that judgment can be enforced in another province where the original award could not be enforced due to a shorter limitation period.

3.    Whether the new Act should say anything about the nationality of the chair or single arbitrator. British Columbia’s International Commercial Arbitration Act provides that the Court shall not, without the agreement of the parties appoint a sole or third arbitrator who is of the same nationality as that of any of the parties.

4.    Whether the new Act should preclude opting in or out of the Act, in whole or in part.

5.    Whether the new Act should deal with the confidentiality of arbitration proceedings.

6.    Whether the new Act should deal with retroactivity, that is, whether the new Act should apply to arbitration proceedings commenced before, or only after, the new Act comes into effect.

7.    Whether the mediation/conciliation provisions in the existing Act (section 6) should be included in the new Act.

8.    Whether an arbitration should be required to be re-commenced if the chair or one of the other arbitrators ceases to be an arbitrator (as the existing Act requires in section 7), or whether the arbitral tribunal should have the option of continuing the proceeding with the replacement arbitrator familiarizing himself or herself with the evidence already tendered.

9.    Whether any amendment needs to be made with respect to the law that governs the substance of the dispute if there is no specific choice of law by the parties.  The present Uniform Act enables the arbitral tribunal to select the law that is appropriate having regard to all the circumstances (section 8).

10.    Whether the court should have power to consolidate arbitration proceedings if the parties do not agree. Presently, the court has power only to consolidate if, at the time of the motion to consolidate, the parties agree to that consolidation (section 9 of the existing Act).


 Clearly, the issues which the Working Group and the ULCC are considering are of vital importance to international commercial arbitration in Canada. Canada must continue to modernize its arbitration regime, not only to ensure that cost effective justice is achieved in Canada but also to ensure that the world has continued confidence in Canada as a good place to do business.  For these reasons, any comments about the proposed new International Act should be forwarded to the ULCC as soon as possible. Comments can be delivered to the ULCC on the Contact form on its website:

Thomas G. Heintzman O.C., Q.C., FCIArb                                                                                                January 18, 2013

Can An Arbitration Survive Fraud?

When material evidence tendered to an arbitral tribunal is fraudulent, we expect the court having jurisdiction to be very inclined to set the award aside.  But as the recent decision of the English High Court in Chantiers de l’Atlantique S.A. v. Gaztransport & Technigaz S.A.S. demonstrates, “it ain’t necessarily so.”  In that case the award was upheld despite the findings by the court that the arbitral tribunal heard material evidence which it held to be fraudulent.  How did the court arrive at that conclusion?

The arbitration was an ICC arbitration held in Paris between French companies. The arbitration clause stated that the seat of the arbitration was in London, so the English Courts exercised supervisory jurisdiction over the arbitration and the application to set aside the award was made to the English courts.

The applicant to the arbitration, Chantiers de l’Atlantique (CAT), built LNG carriers.  It licensed a technology from the respondent to the arbitration, Gaztransport & Technizaz (GTT) for the construction of the containment system in the tankers.  During the sea trials of the tankers, it was discovered that nitrogen was passing through the barriers in the containment system, suggesting faults in that system.  The faults could be due to GTT’s design or poor construction by CAT.  Eventually, the ships were constructed with a barrier system that worked.  However, CAT commenced an arbitration against GTT alleging that the initial failures in the barrier system were due to mis-design by GTT.

The arbitral tribunal dismissed the arbitral proceeding.  It did so as it found that CAT could not establish “gross fault” on the part of GTT and thus could not meet the test imposed by French law for liability by a licensor to a licensee for a design fault or economic fault.

After the arbitral decision, CAT received a tip-off from a whistleblower raising questions about tests of the barrier system conducted by GTT and the alleged non-disclosure of those tests in the evidence that GTT had presented to the arbitral tribunal.  CAT accordingly brought an application before the English courts for an order setting aside the arbitral award under section 68(2)(g) of the English Arbitration Act, 1996.  That clause, like Section 46(1).9 of the Ontario Arbitration Act, 1991, authorizes the court to set aside the award if it is “obtained by fraud”.

After a very long review of the evidence led before the arbitral tribunal, the English Court concluded that fraud had been established for the purpose of section 68(2)(g) of the English Act.   The misconduct arose from the non-disclosure of tests conducted by GTT.  Yet the court declined to set aside the award.  The reasoning of the judge is an important explanation and exploration of the factors which should guide a court in its consideration of the power to set aside an arbitral award for fraud.

First, the court set out the four principles:

(a)   An arbitral award will only be set aside for fraud in extreme cases;

(b)   Fraud is dishonest, reprehensible or unconscionable conduct.  Fraud must be distinctly pleaded and proven to a heightened burden of proof.

(c)    The Award must have been caused by the fraud.  There must have been fraud “in the arbitration itself” and there must be “a causative link between the deliberate concealment of the document and the decision in the award”.

(d)   The evidence of fraud must not be “of such as could have been obtained or produced at the arbitration hearing with reasonable diligence” and must be “so material’ it “would probably have affected the result of the arbitration.”  The test does not require that the applicant show that the evidence would have affected the result, as such a test would usurp the function of the arbitral tribunal in the event that the matter is remitted to the tribunal, but the applicant must show that the evidence “would have had an important influence on the result.”

Except for the second test, these tests appear to be relevant for use by Canadian courts. But Canadian courts generally hold that there are only two standards of proof:  balance of probabilities in civil cases, and beyond a reasonable doubt in criminal cases.  So a Canadian Court would more likely apply a balance of probabilities to the second element of these principles.

Second, the judge went out of his way to point out that the arbitration had been conducted under the IBA rules.  Under those rules, he said that “there was no duty to disclose relevant documents, akin to CPR Part 31, such as would be the case with London arbitration conducted in accordance with English procedure. In these circumstances, the court must be careful not to import into its assessment of GTT’s conduct….English concepts of the duty of disclosure.”

In the result, the judge found that, while some of GTT’s answers were misleading and inaccurate, there had been no fraud arising from the Requests that had been made during the arbitration.  One is left to wonder whether the result would have been the same under common law duties of disclosure.

Third, the judge found that, while there had been fraud in the arbitration arising from the non-disclosure of testing results, the disclosure of the true position would not have affected the result of the arbitration.  He gave seven reasons for arriving at that result.  The most material and interesting are as follows:

  1. The other tests and evidence submitted by GTT to the arbitral tribunal demonstrated that the design of the barrier system was satisfactory.  In light of all the evidence, the judge concluded that the impugned tests would not have affected the arbitral decision.
  2. Ultimately, the barrier system did work.  In this context, a defect in design was not a likely explanation.
  3. If the impugned tests had been revealed, they would not have had a devastating impact on the conduct of the arbitration.
  4. The non-concealment of some tests was not the “tip of the iceberg.”  It did not demonstrate that non-concealment was a wider issue.
  5. The arbitral tribunal had held that, even if design fault was proven, the standard of misconduct required by French law had not been established.  The tribunal decided that, under French law, the design had to be “technically unusable or extremely difficult to use” to give rise to liability.  Since the barrier technology had ultimately been implemented, that test could not be met.

These conclusions are noteworthy on a number of accounts:

First, the judge went into the technical evidence, and the evidence before the arbitral tribunal, to an extraordinary extent.  His conclusions, and particularly as to whether the impugned evidence would probably have impacted the arbitral tribunal, came very close to a re-trial of the merits of the substantive issue between the parties, something which the judge warned himself that he should not undertake.

Second, the judge was largely unmoved by the impact on credibility that the disclosure of the impugned tests would have had on the arbitration process and tribunal.  This reaction of the judge is somewhat surprising, having regard to the unpredictable impact which non-disclosure can have upon the credibility of parties and witnesses during any contested proceeding.  Here, the issue might be what exactly is the question:

Is it:  Would the disclosure of the true position probably have affected the result of the arbitration? (as stated by the judge).  Or is it, or does it include:  Did the non-disclosure of the true position probably affect the result of the arbitration?  Those two questions do not necessarily lead to the same answer.

Third, the principles applied by English courts are based upon a strong disinclination to interfere with arbitration proceedings, even in the presence of fraud.  Is this the right judicial attitude?  Is the test used by the court too high a test?  Is using this test the best way to ensure that both the stature and credibility, and the independence, of arbitral proceedings are protected?  These questions will be further debated in the courts as arbitration proceedings, and in particular international commercial arbitrations, become even more common.

Fourth, the court’s decision seems to have been overwhelmingly driven by the very high test for liability under French law which the arbitrators applied, and the fact that the barrier system ultimately did work.  The judge seems to have felt that, since the system did work, the applicant’s complaint was something of a tempest in a teapot, no matter how serious were his findings of misconduct.

These latter two factors may well not be present in another case. In North America, the test for negligence does not appear to be nearly as high as the test under French law used by the arbitrators.  And if, in another case, the design or manufacture of the article is ultimately shown to be faulty, then the second factor will not exist.

In any event, this decision will be a useful precedent for future considerations of arbitral awards attacked on the ground of fraud.

See Heintzman and Goldsmith, Canadian Building Contracts (4th ed.), Chapter 10, Part 3

International Arbitration  –  Setting Aside Arbitration Award  –  Fraud or Misconduct

Chantiers de l’Atlantique S.A. v. Gaztransport & Technigaz S.A.S., 2011 EWHC 3383 (Comm)

Thomas G. Heintzman O.C., Q.C., FCIArb                                                                          July 15, 2012

Ontario’s Highest Court Upholds NAFTA Arbitration Against Mexico

The Ontario Court of Appeal has just released an important decision upholding an arbitration award under NAFTA against Mexico.  This decision shows that Canadian courts will be reluctant to interfere on jurisdictional grounds with the remedial decisions of international commercial arbitrations.

In The United Mexican States v. Cargill, Incorporated, Mexico opposed the recognition in Ontario of an award by an international commercial arbitration tribunal relating to Mexico’s protection of its refined sugar industry.  Cargill had established a business in which its wholly-owned Mexican subsidiary distributed HFCS, a low-cost substitute for caned sugar.  Cargill’s Mexican subsidiary imported HFCS from Cargill’s U.S.’s plants, and sold it to Mexican customers.  Mexico enacted a number of prohibitions which were found by the arbitration tribunal to constitute breaches of NAFTA.  As a result of those prohibitions, Cargill shut down a number of its HFCS plants and distribution centres in the U.S.A.

Cargill claimed damages for both the “downstream losses” that its Mexican subsidiary suffered, and also the “upstream losses” which it suffered by reason of the closing down of its U.S. production and distribution facilities.  The arbitral tribunal awarded damages on both accounts.  In particular, in relation to the damages suffered by reason of the impact on Cargill’s U.S. plants and distribution centres, the arbitral tribunal found that those damages were caused by the prohibitions implemented by Mexico.

Since the seat of the arbitration was in Toronto, Ontario, Mexico challenged the damage award in the Ontario Superior Court.  Its position was that the arbitral tribunal had no jurisdiction to award the “upstream” damages, and its position was supported by the governments of the U.S.A. and Canada as intervenors.

Mexico argued that under Chapter 11 of NAFTA, Cargill could only recover losses as an “investor” in relation to its “investment” in Mexico.  Accordingly, Mexico argued that Cargill had no right to recover, and the arbitral tribunal had no jurisdiction to award, damages to Cargill as a U.S. producer and exporter of its product to Mexico.  The tribunal held that Cargill was an “investor”, that it had made an “investment”, that Mexico had adopted a prohibited measure and that everything else related to the measure of damages.  The tribunal found that there were no express or necessarily implied limitations on the scope and nature of the damages that could be awarded by it.

Mexico’s submissions were rejected by both the Superior Court judge who heard the initial application and the Court of Appeal.  The Court of Appeal went through a lengthy consideration of the standard of review to be applied, and basically held that if the issue was one of jurisdiction, the standard of review was “correctness”.  Having said that, the Court stated that this standard only applied in the rare case of a true jurisdictional dispute, and that a very narrow view should be taken of what amounted to a jurisdictional dispute in the case of international commercial arbitrations.

The Court of Appeal’s conclusion:

The Court of Appeal held that the arbitral tribunal had not exceeded its jurisdiction.  It arrived at that conclusion through a number of concessions by Mexico and other conclusions, such as:   Mexico’s concession that damage suffered by an investor is not limited to damage suffered in the country where the investment is located; and no territorial limitation for damages or the occurrence of damages is contained in NAFTA.

The Court concluded: “It is up to the tribunal to make findings of fact, apply the facts to the definitions, and determine whether, in any particular case, the claimed damages fall within the defined criteria.”

In particular, the Court held as follows;

“The only issue is whether the tribunal was correct in its determination that it had jurisdiction to decide the scope of damages suffered by Cargill by applying the criteria set out in the relevant articles of Chapter 11, and that there is no language in Chapter 11, or as agreed by the NAFTA Parties, that imposes a territorial limitation on those damages.  Once the court concludes that the tribunal made no error in its assumption of jurisdiction, the court does not go on to review the entire analysis to decide if the result was reasonable.”

Clearly, this decision is of great importance to arbitrations under NAFTA.  It is also of general importance under the UNCITRAL Model Law.  The Model Law was incorporated into Ontario law in the International Commercial Arbitration Act .

Everything is, of course, in the eyes of the beholder and depends upon the perspective from which one looks at the matter.  To the governments of Mexico, U.S.A. and Canada, the award of damages for activity in another country could not be the basis of a claim as an “investor” in the offending country.  From their perspective, damage was a jurisdictional issue.

But NAFTA does not quite say that loss in another country is a forbidden element of recovery. And from the perspective of the injured party, damage in the country of origin may well be a source of damage arising from an investment in the offending country.  In the absence of specific language in NAFTA removing such damage from the loss which the complainant may recover, the Court of Appeal was not able to say that the arbitral tribunal had made a jurisdictional error in awarding those damages.

There are at least three lessons to be learned from this decision:

First, Canadian courts will be very reluctant to interfere with the decisions of international commercial arbitrations.  This reluctance is due to the evident respect for those tribunals which legislatures have accorded to them.

Second, absent specific language excluding the jurisdiction of the arbitral tribunal, a Canadian court is unlikely to infer a limitation.

Third, it is very unlikely that a Canadian court will find that arbitral decisions relating to damages or other remedies contain jurisdictional error.  Once the arbitral tribunal has jurisdiction to deal with the merits of the dispute, it will require specific limitations on the tribunal’s jurisdiction for the remedial powers of the tribunal to be circumscribed.

Arbitration  –   International Arbitration  –   Enforcement-Remedies  –  Damages

The United Mexican States v. Cargill, Incorporated 2011 ONCA 622

Thomas G. Heintzman , O.C., Q.C.                                                                                                  October 14, 2011