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“Riding both horses”: can parties to an arbitration seek court review of a jurisdiction award under both Articles 16 and 34 of the UNCITRAL Model Law?

9 minute read

United Mexican States v Burr, 2021 ONCA 64, concerns the right to appeal an arbitral award on the basis of jurisdiction, and leaves open an interesting question about the potential interplay between Articles 16 and 34 of the UNCITRAL Model Law (the “Model Law”).

The background

American and Mexican investors initiated an arbitration before a tribunal against Mexico pursuant to the former North American Free Trade Agreement, to compensate them for losses allegedly caused by Mexico’s closure of casinos they had been operating there.

The tribunal’s jurisdiction ruling

Mexico challenged the tribunal’s jurisdiction. It had bifurcated the proceedings into a jurisdiction phase and a merits/damages phase. The tribunal issued a Partial Award in which it determined that it had jurisdiction over all but one of the claims.

The ONSC upholds the tribunal’s ruling

The seat of the arbitration was Toronto. Mexico applied to the Ontario Superior Court of Justice for a declaration that the tribunal had no jurisdiction, or limited jurisdiction, under s. 11 of the International Commercial Arbitration Act, 2017, S.O. 2017, c.2, Sch. 5 (“ICCA”), and Articles 16(3) and 34 of the Model Law (which has the force of law in Ontario pursuant to s. 5 of ICCA). The application judge dismissed the application, holding that Mexico had not shown that the tribunal was incorrect in its conclusion on jurisdiction.

Mexico appealed to the Ontario Court of Appeal.

Is there an appeal to the ONCA?

The investors moved to quash the appeal on the basis that the application judge’s ruling could not be appealed. The Court of Appeal said that whether there was an appeal depended upon whether Mexico’s application was governed “only” by Article 16(3) of the Model Law (which would prohibit an appeal) or “also” by Article 34 (which would permit an appeal).

The relevant statutory provisions

S. 11 of ICCA provides:

(1) (“Appeals re jurisdiction”) 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) (“No appeal”) The court’s decision under subsection (1) is not subject to appeal…

Pursuant to Article 16 of the Model Law:

(1) The arbitral tribunal may rule on its own jurisdiction….

(2) A plea that the arbitral tribunal does not have jurisdiction shall be raised no later than the submission of the statement of defence…A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised…The arbitral tribunal may, in either case, admit a later plea if it considers the delay justified.

(3) The arbitral tribunal may rule on a plea [that it does not have jurisdiction] … either as a preliminary question or in an award on the merits. If the arbitral tribunal rules as a preliminary question that it has jurisdiction, any party may request, within thirty days…, the [Ontario Superior Court of Justice] …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.

Article 34 of the Model Law provides:

(1) Recourse to a court against an arbitral award may be made only by an application for setting aside in accordance with paragraphs (2) and (3) of this article.

(2)(a) An arbitral award may be set aside by the [Ontario Superior Court of Justice] …only if…:

(iii) the award deals with a dispute… not falling within the terms of the submission to arbitration; or
(iv) the composition of the tribunal or the arbitral procedure was not in accordance with the agreement of the parties....

(3) An application for a setting aside may not be made after three months have elapsed…

(4) The court…may…suspend the setting aside proceedings for a period of time…to give the tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the arbitral tribunal’s opinion will eliminate the grounds for setting aside.

Court of Appeal’s analysis

1. Was the tribunal’s jurisdiction ruling a “preliminary question of jurisdiction” which would prohibit an appeal under Article 16(3) of the Model Law?

Yes.

  • First, the tribunal saw itself as addressing jurisdiction as a preliminary question. It held a “hearing on jurisdiction” as part of the “first phase” of the arbitration, during which it would decide “three preliminary issues” and, following its ruling on jurisdiction, directed the parties to confer on a procedural timetable for the “merits phase”.
  • Second, although the substantive merits of the dispute were not addressed in this first phase of the arbitration, a “final” decision on jurisdiction may still be dealt with as a “preliminary question” within the meaning of Article 16.
  • Third, despite its arguments contra on this motion, Mexico “did not focus on” the set aside provisions of Article 34 of the Model Law during the application before the Ontario Superior Court of Justice, and conceded in the court below that there was no appeal right, so the application judge’s ruling did not turn on that provision.
  • Last, despite the fact that the tribunal’s jurisdictional ruling was called a “Partial Award”, it did not invoke Article 34 – this was not an award on the merits.

2. Is it possible for a party to rely upon both Articles 16 and 34 of the Model Law?

Not in this case.

Although both parties said it was possible to “ride both horses”, the position that an appeal is prohibited where a jurisdictional ruling is pursued “as a preliminary question” under article 16(3) “has the benefits of clarity, simplicity and expediency for which international commercial arbitration is touted”.

But it was not necessary to undertake an interpretation of the interplay between Articles 16(3) and 34 in this case.

The unanswered question

The most interesting aspect of this decision is the question the Court of Appeal did not answer. Is it possible for a party to rely upon both Articles 16 and 34 of the Model Law?

We must first examine the purposes of Articles 16 and 34.

What is the purpose of Article 16?

  • Article 16(3) gives the tribunal discretion on when to rule on an objection to jurisdiction and contemplates bifurcation of proceedings. If the tribunal rules that it has jurisdiction as a “preliminary question”, any party may apply to the Ontario Superior Court of Justice, whose decision may not be appealed.
  • A party which wishes to raise the jurisdiction issue before the tribunal shall do so promptly [Article 16(2)]. A court challenge to the tribunal’s ruling “as a preliminary question” may be brought within 30 days [Article 16(3)]. The tribunal may continue with the hearing.
  • The purpose of this provision is two-fold:
    • 1) to prevent unnecessary legal costs associated with a hearing over which the tribunal has no jurisdiction; and
    • 2) to prevent spurious challenges from slowing down the hearing.
  • However, the fact that there is a timeline within which the party challenging the tribunal’s ruling “may”, rather than “shall”, seek a review by the court is confusing – does a party who does not raise this issue under Article 16 waive the right to raise it later under Article 34? Article 4 of the Model Law provides generally for a deemed waiver of any right to object that is not exercised in a timely way. But Model Law jurisdictions differ on this issue.

What is the purpose of Article 34?

  • Article 34 provides that the only “recourse to a court against an arbitral award” is by application to the Ontario Superior Court of Justice to set aside the award for specified grounds, including a lack of jurisdiction. Such an application may not be made after 3 months.
  • The purpose of Article 34 is to further the policy objective of finality, a hallmark of international arbitration.

Can a party rely upon both?

  • Counsel in this case argued that it was possible for a party to “ride both horses” - at the same time.
  • On the one hand, it can be argued that both the timing and purpose of court reviews under Articles 16 and 34 of the Model Law are different, so it does not appear to be possible to rely upon them both at the same time. But it may be possible to rely upon them both. If, for example, a party brings a court application under Article 16 to challenge the tribunal’s assumption of jurisdiction as a preliminary question and loses the application, it can be argued that the party may later raise the issue again under Article 34(2)(a) (iii) or (iv) after the award on the merits. Article 16 provides that there is no appeal of the judge’s decision, but a set aside application under Article 34 is not an appeal.
  • But on the other hand, Article 34(2)(a) (iii) and (iv) provides for recourse against an “arbitral award” on jurisdictional grounds. A “Partial Award” is an “arbitral award” and can be a final determination of the preliminary jurisdictional question made early in the arbitration.
  • See The Russian Federation v Luxtona Ltd., 2018 ONSC 2479 and 2019 ONSC 7558, leave to appeal granted June 29, 2020, ONSC 4668, in which a party seeks relief under both Article 16 and 34 (although that is not the issue squarely before the court) on the question of whether a party can adduce, on the court application, new evidence that was not before the tribunal.

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Lisa C. Munro, FCIArb, Q.Arb

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