Federal – court declines to intervene regarding counsel’s alleged conflict of interest in investor-state arbitration – #398

In Geophysical Service Incorporated v. Canada (Attorney General), 2020 FC 984,  Madam Justice Martine St-Louis declined to intervene in a decision by Canada’s legal representative refusing to remove a member from the legal team representing Canada in an investor-state arbitration.  St-Louis J. held that (i) the staffing decision did not qualify as a public decision made by an entity subject to judicial review under the Federal Courts Act, RSC 1985, c F-7 and (ii) Applicants had not demonstrated the arbitral tribunal’s lack of jurisdiction to deal with the issue.  Applicants raised concerns regarding an individual newly assigned to the legal team representing Canada in the arbitration.  Applicants alleged a conflict based on that individual’s recent, prior employment relationship with the third-party funder with which Applicants had signed an agreement regarding its investor-state claim against Canada. Though St-Louis J. declined to intervene, in obiter she considered “there is little unambiguous evidence that [the individual] received information that would cause a conflict of interests”.

October 10, 2018, Geophysical Service Incorporated (“GSI”) and three (3) individuals (“Applicants”) served a notice of intent to submit against the Government of Canada (“Canada”) under Chapter 11 of the North America Free Trade Agreement Between the Government of Canada, the Government of Mexico and the Government of the United States, 17 December 1992, Can TS 1994 No 2 (“NAFTA”).  Sources stated the value of the claim at $1 billion.

On April 18, 2019, Applicants served a notice of arbitration, thereby initiating their investor-state arbitration (“NAFTA Proceeding”), relying on articles 1116, 1117 and 1120 of the NAFTA.  In order to submit a claim, NAFTA Articles 1121(1)(b) and 1121(2)(b) require that Applicants “waive their right to initiate or continue before any administrative tribunal or court under the law of any Party, or other dispute settlement procedures, any proceedings with respect to the measure of the disputing Party that is alleged to be a breach referred” respectively in Articles 1116 and 1117.  The waiver expressly excludes any proceedings for injunctive, declaratory or other extraordinary relief, not involving payment of damages.

Between those two (2) dates, Applicants’ lawyers of record on February 8, 2019 signed a non-disclosure and common-interest agreement with Vannin Capital (“Vannin”), a third-party funder.  When introducing Vannin in her reasons, St-Louis J. explained the role of a third-party funder as one which “provides financial resources to potential claimants in exchange for a share of the case proceeds”.  One of the Applicants’ individual representatives signed an appendix to the Agreement as the law firm’s instructing client.

Between July 1, 2018 and May 3, 2019, Vannin employed an investment advisor (“IA”) in one of its offices.  Following discussions in late 2018, IA joined the Trade Law Bureau of Global Affairs Canada (“Trade Law Bureau”), commencing employment June 7, 2019.

On July 24, 2019, Applicants learned that IA worked at the Trade Law Bureau on the NAFTA Proceeding.  On August 2, 2019, Applicants wrote Canada seeking IA’s exclusion from Canada’s team on the NAFTA Proceeding, on the basis of an alleged conflict of interest.

[12] In brief, the Applicants allege that [IA] is in a conflict of interests, having received and had access to certain non-public, confidential, and privileged information regarding the Applicants and their claims in the NAFTA Proceeding. They claim said information includes (i) that the Applicants were seeking third-party litigation funding in the NAFTA Proceeding; (ii) that the Applicants had approached Vannin for third-party litigation funding; (iii) that the Applicants had been identified as a prospective “lead” by Vannin; and (iv) the amount of funding the Applicants had requested from Vannin. They add that no measure was put in place at Vannin to prevent [IA] from obtaining information about potential claims against the Government of Canada, despite her having been informed that she would receive a written offer of employment after her January 2019 interview with the Trade Law Bureau”.

As of August 2, 2019, the Trade Law Bureau temporarily removed IA from the NAFTA Proceeding, pending receipt of more information and, on August 16, 2019 corresponded with Applicants requesting and regarding details of the alleged conflict. 

On September 18, 2019, the Trade Law Bureau wrote to advise Applicants that it did not know that Applicants had a relationship with Vannin prior to Applicants’ August 2, 2019 letter. In its letter, the Trade Law Bureau commented that Applicants had provided no further justification for IA’s removal, and that absent such justification, the Trade Law Bureau would reinstate IA as legal counsel to Canada in the NAFTA Proceeding.

The parties continued to exchange on the matter.  A key exchange occurred on October 9, 2019 when the Trade Law Bureau reiterated its decision to reinstate IA as a member of the legal counsel to Canada for the NAFTA Proceeding.  Despite that decision and remaining unsatisfied with Applicants’ responses, IA had not yet been reinstated as of the date of St-Louis J.’s reasons.

Applicants initially filed a October 11, 2019 application under section 17(5) of the Federal Courts Act, RSC 1985, c F-7 (“FCA”) concerning the September 18, 2019 letter from the Trade Law Bureau.

Applicants abandoned that initial application on October 23, 2019 and initiated an application for judicial review under section 18.1 of the FCA which targeted the Trade Law Bureau’s October 9, 2019 letter.  Section 18.1(4) provides the following grounds of review:

18.1(4) The Federal Court may grant relief under subsection (3) if it is satisfied that the federal board, commission or other tribunal

(a) acted without jurisdiction, acted beyond its jurisdiction or refused to exercise its jurisdiction;

(b) failed to observe a principle of natural justice, procedural fairness or other procedure that it was required by law to observe;

(c) erred in law in making a decision or an order, whether or not the error appears on the face of the record;

(d) based its decision or order on an erroneous finding of fact that it made in a perverse or capricious manner or without regard for the material before it;

(e) acted, or failed to act, by reason of fraud or perjured evidence; or

(f) acted in any other way that was contrary to law”.

St-Louis J.’s reasons set out some of the affidavit material provided by each of the parties.  See paras 13, 25-26.  St-Louis J. expressed concerns about whether the application was “properly supported” or whether Applicants’ “prayer for relief is entirely available” but determined that she need not decide those issues given her determinations on jurisdiction.

At paras 28-37, St-Louis J. outlined Applicants’ and Canada’s arguments for and against Applicants’ application.  Independent of those arguments addressing the Federal Court’s own jurisdiction, a key argument raised by Applicants involved the arbitral tribunal lack of jurisdiction over the issue Applicants put before the court:

[30] The Applicants submit that the arbitral tribunal will not have jurisdiction over this issue, since it has no inherent jurisdiction. They stress that the arbitral tribunal will be limited to the jurisdiction conferred by the arbitration agreement and that this type of matter is not provided for in the relevant legislation and rules (the Commercial Arbitration Act (RSC 1985, c 17 [the Commercial Arbitration Act]), the NAFTA, or UNCITRAL Rules). They cite Rompetrol Group NV v Romania (ICSID Case No ARB/06/3, January 14, 2010) at paras 15-16, 25”.

As part of her tally of Canada’s five (5) responses to Applicants’ application, St-Louis J. at para. 37 noted as Canada’s first response that “as per paragraphs 5(4)(a) of the Commercial Arbitration Act, articles 1112, 1116 and 1117 of the NAFTA, the UNCITRAL Arbitration Rules, and articles 5 and 34 of the Model Law, the Court must not involve itself in this matter, which is subject to a NAFTA arbitration (Quintette Coal v Nippon Steel Corp et al, 1991 CanLII 5708 (BC CA), [1990] BCJ No 2241), as the arbitral tribunal has the requisite jurisdiction to hear these arguments”.

For her analysis, St-Louis J. addressed two (2) issues.

Issue 1 – Whether the content of the October 9, 2019 letter was amenable to judicial review – paras 39-54

St-Louis J. considered the applicable legislation and held that the October 9, 2019 letter was not subject to her jurisdiction.

[40] The Court’s jurisdiction is circumscribed by the definition of the terms federal board, commission or other tribunal provided at section 2 of the Federal Courts Act. The terms are defined as “any body, person or persons having, exercising or purporting to exercise jurisdiction or powers conferred by or under an Act of Parliament or by or under an order made pursuant to a prerogative of the Crown […].” In Canada (Attorney General) v TeleZone Inc, 2010 SCC 62 (CanLII), [2010] 3 SCR 585, the Supreme Court of Canada noted that the definition is “sweeping” and includes entities “from the Prime Minister and major boards and agencies to the local border guard and customs official and everybody in between” (at para 3).

[41] The definition is not, however, broad enough to encompass in “federal board, commission or other tribunal” decisions by all bodies which are even loosely related to the Crown. At issue here is the decision of the Senior Counsel and Deputy Director of the Trade Law Bureau, a joint initiative of the Department of Justice and Global Affairs Canada, with regards to the composition of the team which represents the federal government in an arbitration file. Significantly, the Trade Law Bureau is acting here in a representative capacity”.

St-Louis J. characterized the role of the Trade Law Bureau letter writer, in his role as Senior Counsel and Deputy Director, as “exercising his power to manage his litigation team” in the context of representing Canada in an arbitration.  Without deciding it, she assumed, as Applicants argued, that the letter writer exercised a power under section 5(d) of the Department of Justice Act, RSC 1985, c J-2.  That particular provision stipulates that Canada’s Attorney General “shall have the regulation and conduct of all litigation for or against the Crown or any department, in respect of any subject within the authority or jurisdiction of Canada”.

St-Louis J. then turned to consider an exception to powers, exercised under legislation, which are essentially private.  With regard to distinguishing between public and private matters, she observed that the analysis is “heavily fact-dependent” and referred to factors listed at para. 60 of Air Canada v. Toronto Port Authority et al, 2011 FCA 347 (CanLII), [2013] 3 FCR 605. St-Louis J. reproduces that list, culled from various cases, at para. 46 of her reasons.

[47] In considering these factors, I am satisfied that the issue raised before the Court here is of a private nature. The conflict of interests issue, as it relates to the October 9, 2019 letter from the Senior Counsel and Deputy Director of the Trade Law Bureau, cannot be construed as a public matter which ought to be resolved through public law.

[48] As noted, the Senior Counsel and Deputy Director of the Trade Law Bureau’s letter relates to the composition of his legal team. This is a routine decision regarding the management of litigation (arbitration), and similar routine decisions are presumably made every day. The Trade Law Bureau is a public entity that is acting as counsel. It represents Canada in a dispute, substantially in the way that any attorney would represent any other party”.

St-Louis J. further held that subjecting such decisions to judicial review would impede the Trade Law Bureau’s work but “providing no additional benefit” and disagreed that the alleged conflict of interest was so significant as to become one of public interest.  She gave three (3) reasons.

First – “The Applicants are essentially claiming damages for the misappropriation of their property. This issue is certainly important to the Applicants, but I have not been convinced it has broader implications”.

Second – St-Louis J. observed, without identifying them, that other remedies were available to Applicants. “Second, while I agree that there is a public interest in ensuring that “lawsuits are conflict free,” this interest is protected by existing remedies, which are available to the Applicants”.

Third – St-Louis J. added before closing that she had reserves on key facts, expressing doubt that IA was conflicted. “Without deciding on the applicable test, I note, as did the Respondent, that there is little unambiguous evidence that [IA] received information that would cause a conflict of interests”.

Issue 2 – Whether it was not proper for the Federal Court to intervene in a process engaged under Chapter 11 of the NAFTA – paras 55-64

St-Louis J. held that it was not proper for her to intervene, given article 5 of the UNCITRAL Model Law on International Commercial Arbitration (1985) (“Model Law”), forming part of the Commercial Arbitration Act, RSC 1985, c 17 (2nd Supp).  The definitions in the FCA were not broad enough to encompass decision making, made by the Trade Law Bureau in its representative capacity, regarding the composition of the legal team which represents Canada in arbitration.

A key determination involved St-Louis J.’s determination that Applicants had not demonstrated the arbitral tribunal’s lack of jurisdiction. 

[62] For the reasons set out above, the Applicants have not convinced me that the arbitral tribunal does not have jurisdiction to deal with the conflict of interests issue, and I therefore find, on the contrary, the tribunal to be the proper forum to deal with the issue – given the fact that the Applicants themselves chose to submit this dispute to arbitration”.

This determination should be read in light of Applicants’ submission, recorded earlier in St-Louis J.’s reasons, regarding the consequences of the Federal Court declining to intervene:

[31] The Applicants add that domestic Canadian law is applicable to the Application, that counsel are subject to Canadian conflict of interests rules, and that they will suffer extreme prejudice if the Court declines jurisdiction”.

St-Louis J. also addressed the role of the court’s role in providing “interim measures”.  Though she accepted that the courts do have such jurisdiction, she did also note, in closing, that the remedy should be sought from the arbitral tribunal to which the parties had agreed to submit their disputes for resolution.

[64] I am not convinced that this is a proper interpretation of the nature of an interim measure of protection, nor that this or any Application for judicial review can be qualified as an “interim measure of protection.” Even if it were, I note that the arbitral tribunal is expressly empowered, under article 17 of the Model Law, to grant interim measures. Again, pursuant to the fundamental principles of arbitration, I find that the Applicants, who have elected to proceed via the arbitral process, must raise their request for such relief before the arbitral tribunal”.

urbitral notes – First, see the earlier Arbitration Matters note “States’ legal submissions can qualify as “subsequent practice” in investor-state arbitration” regarding The United Mexican States v. Burr, 2020 ONSC 2376. Madam Justice Bernadette Dietrich accepted that legal submissions by parties to the NAFTA can qualify as “subsequent practice” under article 31(3) of the Vienna Convention on the Law of Treaties Can TS 1980 No 37 but that the facts fell short of meeting the standard in Mexico v. Cargill, Incorporated, 2011 ONCA 622 of a “clear, well-understood, agreed common position”.  Dietrich J. also distinguished between an objection to jurisdiction which relates to the authority of a tribunal to hear a dispute and an objection to admissibility which refers to the characteristics of the claim, determining that she had jurisdiction to review the former but not the latter.  She dismissed a challenge to an award on jurisdiction in which the tribunal found that investors had properly given notice of their intention to arbitrate by filing powers of attorneys authorizing legal counsel to initiate arbitration and to act on their behalf.  Dietrich J. held that non-compliance with the formal requirements of Articles 1119 did not vitiate the state’s consent to arbitrate under Article 1122(1).

Second, “Federal court dismisses jurisdictional challenge to NAFTA tribunal majority’s consideration of domestic law” regarding Canada (Attorney General) v. Clayton, 2018 FC 436.  In that decision, Madam Justice Anne L. Mactavish held that a NAFTA tribunal majority’s consideration of domestic law was either a factual finding or part of the factual matrix on which the majority considered the host state’s breach of customary international law.  In considering the domestic legal framework and the host state’s non-compliance with that law as facts on which it could determine whether investors had received unequal treatment without justification, Mactavish J. held that the majority had stayed within the scope of the submission to arbitration and did not exceed its jurisdiction. 

Third, regarding Applicants’ initial application and the Federal Court’s jurisdiction to intervene, section 17(5) of the FCA reads as follows:

17(5) The Federal Court has concurrent original jurisdiction

(a) in proceedings of a civil nature in which the Crown or the Attorney General of Canada claims relief; and

(b) in proceedings in which relief is sought against any person for anything done or omitted to be done in the performance of the duties of that person as an officer, servant or agent of the Crown”.

Fourth, at para. 33 of Quintette Coal Ltd. v. Nippon Steel Corporation, 1991 CanLII 5708 (BC CA), two of the judges in their concurring reasons mentioned that the matter had been identified in the notice of request for arbitration. “The arbitrators answered the question”. As such, they found no excess of jurisdiction.  The case is a touchstone for judicial deference and restraint.  See para. 32.

The Court of Appeal included the following comments when citing from The International Commercial Arbitration Act, S.B.C. 1986, C. 14 (Re), 1990 CanLII 304 (BC SC), the decision under review:

[27] At p. 204 of his judgment Chief Justice Esson drew attention to the relationship between the domestic law of arbitration and the law which applies to international arbitrations and he referred to “a world-wide trend toward restricting judicial control over international commercial arbitration awards”. Perhaps the strongest expression of that trend is to be found in the majority judgment of the Supreme Court of the United States in Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth Inc., 473 U.S. 614, 87 L. Ed. 2d 444, 105 S. Ct. 3346 (1985). At p. 629 Blackmun J. said:

… we conclude that concerns of international comity, respect for the capacities of foreign and transnational tribunals, and sensitivity to the need of the international commercial system for predictability in the resolution of disputes require that we enforce the parties’ agreement, even assuming that a contrary result would be forthcoming in the domestic context.

And at pp. 638-39 he said:

As international trade has expanded in recent decades, so too has the use of international arbitration to resolve disputes arising in the course of that trade. The controversies that international arbitral institutions are called upon to resolve have increased in diversity as well as in complexity. Yet the potential of these tribunals for efficient disposition of legal disagreements arising from commercial relations has not yet been tested. If they are to take a central place in the international legal order, national courts will need to “shake off the old judicial hostility to arbitration.” Kulukundis Shipping Co. v Amtorg Trading Corp. 126 F2d 978, 985 (CA2 1942), and also their customary and understandable unwillingness to cede jurisdiction of a claim arising under domestic law to a foreign or transnational tribunal. To this extent, at least, it will be necessary for national courts to subordinate domestic notions of arbitrability to the international policy favoring commercial arbitration. See Scherk, supra.

[28] In 1988 in CBI NZ Ltd. v. Badger Chiyoda (1989), 2 N.Z.R. 669, the New Zealand Court of Appeal was called upon to determine whether the award of an international commercial arbitration carried out under the International Chamber of Commerce rules, which exclude any form of appeal, was immune from review by the New Zealand courts. The several lengthy judgments refer to international conventions and statutes, including the British Columbia statute, and review judicial pronouncements about the approach to be followed by domestic courts, including the remarks of Blackmun J. in Mitsubishi, supra. At p. 687 Richardson J., appearing to reflect the views of the other members of the court, speaks of the trend Chief Justice Esson referred to:

As to that, the trend in international commercial arbitrations is clearly towards giving greater emphasis to party autonomy and contracting judicial control over the legal content of the reference and the award.

[29] The respondents cited two other United States cases, both at the Court of Appeals level, which found in favour of restraint upon domestic judicial review of international commercial arbitration awards: Parsons & Whittemore Overseas Co. v. Société Générale de l’Industrie du Papier (RAKTA), 508 F. 2d 969 (C.A., 2nd Circ., 1974), and Mgmt. & Tech. Consultants S.A. v. Parsons-Jurden Int. Corp., 820 F. 2d 1531 (C.A., 9th Circ., 1987)”.