INTRODUCTION
In its recent decision, The Russia Federation v. Luxtona Limited,[1] the Ontario Superior Court addressed the standard of review applicable to a challenge to an arbitral tribunal’s jurisdictional decision under Article 16(3) and 34(2)(a)(iii) of the UNCITRAL Model Law on International Commercial Arbitration. The Court notably dealt with the inclusion of fresh evidence[2] as part of that challenge. The Court ruled that the judicial review of an arbitral tribunal’s jurisdiction takes the form of a review on a “correctness” standard, not a trial de novo. Consequently, while a court may review questions of law to reach the correct decision, it must defer to the arbitral tribunal’s factual findings, unless the challenging party shows the tribunal made a “clear and overriding” error in its appraisal of the facts.[3] As such, parties must obtain leave of the Court to adduce fresh evidence.[4]
This decision breaks from tradition. Ontario case law, like in other Model Law jurisdictions has generally tended more toward a trial de novo approach granting courts unfettered original jurisdiction to determine an arbitral tribunal’s jurisdiction, including the right to make factual findings and rehear witnesses.[5] As such, parties could file fresh evidence as of right.
The Ontario Court’s decision in Luxtona is a welcome evolution. Its outcome achieves an appropriate balance between holding a trial de novo and giving full deference to an arbitral tribunal’s jurisdictional ruling. While the decision regrettably fails to address the strongest arguments from jurisdictions having adopted the trial de novo approach, which opens it up to future challenges, stronger reasons can be offered in support of the “correctness” review approach.
1. SUMMARY OF THE DECISION
In Luxtona, the plaintiff, Luxtona Limited initiated arbitral proceedings against the Russian Federation pursuant to the Energy Charter Treaty for failing to protect its investment in Yukos, one of Russia’s largest oil companies at one point. While Russia signed the Treaty, it had never ratified it. Luxtona argued that Russia was bound by the Treaty and its arbitration clause,[6] since signatories of the Treaty also agree to its provisional application pending ratification.[7] Russia argued that the provisional application of the Treaty is inconsistent with Russian law and therefore, does not apply. Following an initial arbitration hearing in Toronto in which Russian law experts testified for both sides, the arbitral tribunal determined that it had jurisdiction to hear the dispute.[8]
Russia challenged the ruling in the Ontario Superior Court under Articles 16(3) and 34(2)(a)(iii) of the Model Law, in force in Ontario.[9] In support of its application, Russia filed additional expert evidence. Luxtona objected to its inclusion. A first Superior Court judge, Dunphy J., ruled that the evidence could be admitted as of right,[10] referring to the precedent of United Mexican States v. Cargill, Inc.[11] rendered by the Ontario Court of Appeal in 2011. In Cargill, the Court had stated that correctness review “is consistent with the reasoning in [Dallah Real Estate Holdings v. Pakistan].”[12] In that case, rendered months before Cargill, the Supreme Court of the United Kingdom set aside an arbitral award on the basis that the arbitral tribunal did not have jurisdiction to render an award on the parties’ dispute. In reaching its conclusion, the Court heard additional evidence including expert evidence on French law.[13]
The second judge, Penny J., took over the proceedings and ordered submissions from the parties on the standard of review and admissibility of the fresh evidence. At trial, Penny J. ruled that review on a “correctness” standard applies. As such, the court must consider whether the arbitral tribunal has reached the correct decision on jurisdiction. Normally, this will entail deference to the evidence on the arbitral record and thus, a party must obtain leave of the court to submit fresh evidence on a review of the type found under Article 16(3) of the Model Law.[14] Penny J. ruled that a party seeking to adduce fresh evidence must show that the evidence: (1) “could not have been obtained using reasonable diligence, (2) would probably have an important influence on the case, (3) is apparently credible, and (4) is such that, if taken with the other evidence adduced in the arbitration, it would be expected to have affected the result.”[15] Russia conceded that its evidence would be inadmissible under this test.
2. APPRAISAL
Luxtona adopts an appropriately deferential standard of review for a tribunal’s jurisdictional decision. While the decision suffers from its failure to address the strongest arguments for the trial de novo approach, “correctness review” remains appropriate, nonetheless.
First, a review on a “correctness” standard is appropriate to resolve challenges to jurisdictional decisions under Article 16(3) of the Model Law. Under this approach, a court retains the power to overturn an arbitral tribunal while giving deference to the arbitral tribunal’s factual findings. This protects the parties’ consent to arbitrate only disputes agreed upon in advance, while, at the same time, promoting the finality and effectiveness that arbitration seeks to promote.[16]
While the trial de novo approach protects consent to arbitration, this approach overstates the court’s importance in ensuring that the parties’ consent is being respected and devalues the arbitral tribunal’s ability. Indeed, an arbitral tribunal will often be just as capable if not more capable than a court to rule on its jurisdiction. A tribunal is often constituted with three arbitrators who are experts in the subject area of the dispute, whereas a domestic court judge usually sits alone and has no expertise.[17] Reviewing a jurisdictional decision on a “correctness” standard gives proper weight to the arbitral tribunal’s factual findings. It recognizes, first, that the arbitral tribunal has assessed the credibility of witnesses and considered the evidence at length, while at the same time giving the court the power to overturn its decision if it finds legal errors. Second, “correctness” review focuses the court’s analysis on specific challenges to the arbitral tribunal’s legal reasoning. Contrary to a trial de novo, which demands completely rehearing the jurisdictional question, including the factual findings, from a practical point of view, “correctness” review forces the challenging party to point out specific legal errors made by the arbitral tribunal.[18]
Second, while Penny J. regrettably fails to address significant arguments usually put forward by courts applying the trial de novo approach, “correctness” review remains appropriate and can withstand these objections. The most consistently stated argument put forward for adopting the trial de novo approach is that Article 16(3) of the Model Law states that, after an arbitral tribunal has ruled on its jurisdiction, a party may request that a domestic court “decide the matter”.[19] No provision in Article 16 or the Analytical Commentary supports this interpretation.[20]
Another objection is that if the court was limited to a process of review, “it might be reviewing the decision of a tribunal that itself had no jurisdiction to make such a finding.”[21] This argument ignores the arbitral tribunal’s competence-competence, that is, its capacity to “rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement” [our emphasis] enshrined in Article 16(1) of the Model Law. A trial de novo sterilizes this principle and wastes significant party resources. Since, under Article 8 of the Model Law, a court must refer the parties to arbitration at one party’s request, this forces the parties to obtain an initial jurisdictional ruling from the arbitral tribunal, which a court may completely disregard if a party decides to challenge it.
Finally, commentators argue that a court is not in a worse position to make assessments than the tribunal and should therefore be able to examine witnesses in the usual way.[22] As explained earlier, several reasons can make an arbitral tribunal’s factual findings of higher quality.
CONCLUSION
Luxtona paves the way for future challenges to arbitral jurisdiction being resolved through a review on the “correctness” standard. This is an appropriate break from Model Law jurisdictions which conduct the jurisdictional analysis de novo. While properly ensuring that parties have consented to arbitration, a review leaves space for domestic courts to overturn findings of arbitral tribunals. This promotes the efficiency that makes arbitration desirable in the first place.
Laurent Crépeau is an LL.M Candidate in the International Business Regulation, Litigation and Arbitration specialization at New York University School of Law. He holds a Bachelor of Civil Law and Juris Doctor from McGill University’s Faculty of Law.
[1] The Russia Federation v. Luxtona Limited, 2019 ONSC 7558 (Can. Ont.).
[2] Fresh evidence is evidence that was not submitted during the arbitration but is submitted at the review stage.
[3] In Canada, this has been elaborated in Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65.
[4] Luxtona, 2019 ONSC 7558, para. 66.
[5] See United Mexican States v. Cargill, Inc., 2011 ONCA 622 (Can.). See also Insigma Technology Co. Ltd. v. Alstom Technology Ltd. [2008] SGHC 134 (Sing.); M/s. Schlumberger Asia Services Ltd. v. Oil & National Gas Corporation Ltd. FAO(OS) No. 712/2006 (India Delhi HC). See also; Bowen Construction Limited (in receivership) v. Kelly’s of Fantane (Concrete) Limited (in receivership) [2019] IEHC 861 (Ir.); S Co. v. B Co., [2014] 6 H.K.C. 1436 (C.F.I.). Contra Government of the Lao People’s Democratic Republic v. Sanum Investment Ltd. [2016] SGCA 57; M/s Emkay Global Financial Services Ltd. v. Girdhar Sondhi, (2018) 9 SCC 49.
[6] Energy Charter Treaty art. 26(3)(a), Dec. 17, 1994, 2080 UNTS 95.
[7] Id. at art. 45.
[8] See Luxtona, 2019 ONSC 7558, para. 1-7.
[9] International Commercial Arbitration Act, 2017, S.O. 2017, c. 2, Sch. 5. See UNCITRAL Model Law on International Commercial Arbitration, arts. 16(3), 34.
[10] The Russia Federation v. Luxtona Limited, 2018 ONSC 2419, para. 28 (Can.).
[11] United Mexican States v. Cargill, Inc., 2011 ONCA 622 (Can.).
[12] Cargill, supra para. 43.
[13] Dallah Real Estate and Tourism Holding Company v. Pakistan[2010] UKSC 46, para. 14.
[14] The Russia Federation v. Luxtona Limited, 2019 ONSC 7558, para. 66. (Can.).
[15] Id., para. 69.
[16] See William W. Park, Why Courts Review Arbitral Awards, in Law of International Business and Dispute Settlement in the 21st century: Liber Amicorum Karl-Heinz Böckstiegel 595, 596 (Robert Briner ed., 2001).
[17] See Emilia Onyema, The Jurisdictional Tension between Domestic Courts and Arbitral Tribunals, in International Arbitration and the Rule of Law: Contribution and Conformity(Andrea Menaker, ed., 2017), 481, 484-85.
[18] See Luxtona, supra note 15, para. 67.
[19] See e.g. Insigma Technology Co. Ltd. v. Alstom Technology Ltd. [2008] SGHC 134, para. 21 (Sing.).
[20] See Ilias Bantekas et al. UNCITRAL Model Law on International Commercial Arbitration: A Commentary (Cambridge University Press, 2020), 312 (stating the lack of clearly indicated standard of review for challenges under Art. 16(3)).
[21] See Insigma at para. 22.
[22] Id.