Jim Reflects (2023): Browne v Dunn is just a rule of fairness: a comment on the Vento case – #810

I’ll take Vento Motorcycles, Inc. v. United Mexican States 2023 ONSC 5964 (Vento) as my top pick for 2023. It’s a reminder that just because the strict rules of evidence may not apply in an arbitration doesn’t mean the rationale for some of those rules should be ignored. In this case, it was an alleged breach of the rule in Browne v Dunn, the very rule all Commonwealth litigators had beaten into their heads by their professors, their principals, or, for some of the less fortunate among us, a judge. At heart Browne v Dunn is about fairness, and ensuring fairness is a, perhaps the, cornerstone of arbitration.  

In Vento the ONSC refused to set aside an international award based on an alleged breach of the Rule in Browne v Dunn (the “Rule”). In my view, the Court was correct in doing so.

The Rule – By way of a brief refresher, the Rule comes from the 1893 House of Lords decision, Browne v Dunn. It provides that a party is required to challenge in cross-examination the evidence of any witness of the opposing party if they wish to call contradictory evidence and submit to the court that the witness’s evidence should not be accepted on that point. 

In Vento the Court relied on the Ontario Court of Appeal’s 2015 discussion of the Rule in
R. v. Quansah, 2015 ONCA 237 and drew the following principles from that case: 

  1. The Rule is rooted in considerations of fairness and as such, isn’t a fixed rule. 
  1. The Rule is very flexible and highly dependent on the specific circumstances of the case. 
  1. The Rule does not require, “every scrap of evidence on which a party desires to contradict the witness for the opposite party be put to that witness in cross-examination.” Rather, “the cross-examination should confront the witness with matters of substance on which the party seeks to impeach the witness’ (sic) credibility and on which the witness has not had an opportunity of giving an explanation because there has been no suggestion whatever that the witness’ (sic) story is not accepted.”
  1. Whether the Rule has been breached can’t be determined in the abstract. The full context of the case must be considered. 
  1. The trial judge – here the Tribunal – is best suited to assess whether any unfairness has been visited on a party because of the failure to cross-examine. 
  1. There are various ways any unfairness related to the failure to cross-examine could be remedied, including, taking the breach of the Rule into account when assessing a witness’s credibility to decide the weight to attach to that witness’s evidence, and allowing counsel to recall the witness whose evidence was impeached without notice. 

The arbitration – Vento, a U.S.-based manufacturer of motorcycles, entered a joint venture agreement with a Mexican company to sell and market motorcycles in Mexico (the “JV”). In 2017, Vento brought a NAFTA Chapter 11 claim against Mexico saying its actions destroyed  Vento’s business under the JV. A three-person tribunal, seated in Toronto, heard the arbitration under the ICSID Arbitration (Additional Facility) Rules. 

Early in the process the Tribunal issued a procedural order, (“PO #1”) that included the following:

  1. Direct examination would be in the form of witness statements and expert reports.
  1. There would be two rounds of pleadings: Vento’s Memorial, Mexico’s Counter-Memorial, Vento’s Reply and Mexico’s Rejoinder.
  1. Unless the Tribunal found exceptional circumstances to exist, neither party could:
  1. submit additional or responsive documents after filing its last written submission, or
  1. submit any testimony that had not been filed with the written submissions.

Any factual or expert witness whose written testimony was advanced with the pleadings had to be produced at the hearing for cross-examination.

In its Memorial, Vento argued (among other things) Mexican officials, acting under express “marching orders”, specifically targeted Vento and the JV operations to reach a predetermined outcome intended to drive Vento out of the Mexican motorcycle market.

In its Reply, Vento included a witness statement from a Mr. O, a Mexican government official, in which he testified to being under “undue and unusual pressure” from his superiors to resolve the case against Vento. He also referred to his interactions with the Mexican government after the arbitration had commenced.

Mexico’s Rejoinder included a witness statement from another Mexican government official, Ms. M, attaching a recording of a telephone conversation Mexican officials (including Ms. M) had with Mr. O  regarding the arbitration. Mexico argued the recording undermined Mr. O’s credibility. 

Vento sought to have the recording removed from the record arguing it: (1) was obtained without Mr. O’s consent, (2) was incomplete, (3) violated Mr. O’s right to privacy, and (4) principles of procedural fairness at least required Mr. O be allowed to respond to Mexico’s allegations. 

The Tribunal declined to strike the evidence and did not allow Mr. O to provide further evidence in response to the recording. It did so because Ms. M had participated in the conversation and because it was neither prohibited nor illegal in Mexico for a participant in a conversation to record that conversation even if the recording was made without other participating parties’ knowledge.

Vento lost the arbitration. It sought to have the award set aside on two grounds:

  1. It was unable to present its case because the Tribunal refused to strike Mr. M’s evidence; and
  1. There was a reasonable apprehension of bias on the part of one of the arbitrators. [This issue was addressed in Arbitration Matters Case note: VentoNo unfairness despite Browne v Dunn violation and arbitrator reasonable apprehension of bias – No. 796].

The Ontario Superior Court declined to set aside the award on either ground. 

Decision of the Ontario Superior Court of Justice – Vento applied to set aside the award pursuant to Articles 18 and  34(2)(a)(ii) of the Model Law under Ontario’s International Commercial Arbitration Act, which provide that a party must be given a full opportunity to present its case, failing which the award may be set aside. 

Vento argued the Tribunal’s refusal of Vento’s request to call Mr. O as a witness after Ms. M had testified:

  1. Prevented Vento from putting the recording in context and providing Mr. O’s explanation of the circumstances under which he had made the statements. 
  1. Allowed Mexico to impugn Mr. O’s credibility in writing but denied Mr. O the opportunity to respond directly to the attacks on his credibility contrary to the Rule in Browne v. Dunn.
  1. Failed to admit evidence, namely Mr. O’s, “critical to the core issue in the case” specifically, whether there were “marching orders” against Vento. 

Mexico argued the Tribunal’s conduct was not “sufficiently serious to offend the most basic notions of morality and justice” to warrant set aside.

Looking to two Ontario Court of Appeal cases and one English High Court case, the Court described the standard Vento had to meet as being whether the Tribunal’s conduct “offended our most basic notions of morality and justice” such that it could “not be condoned under Ontario law”. The party alleging an inability to present their case had to prove a “fundamental unfairness that went to the essence of the right to be heard” and not “merely the adoption of a procedure that was irregular or undesirable” and that the Tribunal should apply “basic minimum requirements that would generally, even if not universally, be regarded throughout the international legal order as essential to a fair hearing”. [Consolidated Contractors Group S.A.L. (Offshore) v. Ambatovy Minerals S.A., 2017 ONCA 939, All Communications Network of Canada v. Planet Energy Corp., 2023 ONCA 319, and Gol Linhas Aereas SA v. MatlinPatterson Global Opportunities Partners (Cayman) II LP, [2022] UKPC 21.] 

The Court summarized the issue before it as being whether Vento was unable to present its case as a result of the attack on Mr. O’s credibility but, as described below, concluded Vento was able to present its case.

While the Rule was much discussed in Vento, the Court made no mention of the fact the strict rules of evidence don’t normally apply in an arbitration. That proposition is expressly enshrined in the domestic Arbitration Acts in BC, Alberta, Manitoba, Nova Scotia, and Saskatchewan. Other provinces – New Brunswick, Quebec, and Ontario – give arbitral tribunals very broad powers to deal with evidence and it is understood they are not bound by the strict rules of evidence. The Model Law gives a similarly wide latitude to tribunals. Some institutional rules also specifically state the strict rules of evidence don’t apply, e.g., ADRIC Rule 4.19.2. While others simply leave the issue up to the tribunal, giving it broad discretion to determine the admissibility, relevance, materiality, and weight of the evidence, e.g., ICDR Art. 18(6) and UNCITRAL Art. 28(4). However, in all cases the underlying proposition is “fairness”; the tribunal must ensure all parties are treated fairly, which extends to how the tribunal handles evidence.

At first blush one can legitimately question why the Court in Vento gave the Rule the airtime it did. Indeed, Vento may be the only Canadian case on arbitration that even deals with the Rule. 

While widely adopted in Commonwealth jurisdictions including Canada, Australia, New Zealand, Hong Kong, and Singapore, the Rule is not recognized in the United States nor, of course, in civil law jurisdictions where cross-examination doesn’t play a role. That’s not to say these jurisdictions don’t have comparable procedural rules directed at fairness but the Rule in Browne v Dunn per se isn’t one of them. 

And that’s really the point. 

Canadian arbitration statutes are clear – the parties cannot contract out of fairness. 

At its core the Rule is one of fairness so, even if the Rule itself may not apply, its underlying logic should. The Rule aims to achieve fairness to both witnesses and parties. Of course, “fairness” can take many forms. It may require that when a witness gives evidence as to a specific factual matter about which the court will later be asked to disbelieve them, the witness should be challenged on it so as to have the chance to affirm or at least comment on the challenge. However, that isn’t, nor should it be, always the case. As all Canadian litigators will recall, the Rule is  flexible. There may be cases where unfairness isn’t a concern because, looked at more generally, the procedures adopted in the arbitration or litigation mean a party and the relevant witness(es) have had ample opportunity to comment on the other side’s case or the controversial issue was clear before the witness gave evidence. In other words, the underlying question remains, was the process fair?

In Vento the Court was satisfied the process regarding the evidence was fair. And from at least this writer’s perspective, that was the proper conclusion. The Rule itself recognizes the tribunal is best positioned to assess whether a party or witness has been ambushed. Accordingly, reviewing courts should be slow to intervene. The Court in Vento identified several factors to support its conclusion. 

First, it viewed Vento’s approach to Mr. O’s evidence as clearly tactical. Inconsistent with the agreed procedural order (PO #1), it entered the evidence only in Reply. When it did so, it was aware Mexico disputed the position Mr. O’s evidence was intended to support. Vento could have cross-examined Ms. M; that was its opportunity to raise questions about the recording. However, it chose not to take that opportunity. It had full opportunity to raise the issue in argument but chose not to.

Most importantly, the Tribunal itself paid little if any attention to the recording. It made no reference to the recording or to Mr. O’s telephone conversation with Ms. M and others in the award. Further, the Tribunal positively commented on Mr. O’s evidence in a number of respects and not only did the Tribunal decline to make any adverse credibility findings against Mr. O, it in fact gave significant weight to his evidence, preferring it to that of Vento’s main witness.

In my view, under those circumstances it would be inappropriate to set aside an award based on what at best might rise to the level of a technical breach of a Canadian rule of evidence that didn’t impact the outcome of the case. As they say, no harm no foul.

To be clear, I am not commenting on whether the apprehension of bias warranted a set aside. That’s an entirely different issue for an entirely different blog; my colleague James Plotkin’s blog in fact [No. 796].

It’s also worth noting that on Browne v Dunn at least, Vento seems to be entirely consistent with the English High Court decision from earlier this year BPY v MXV, which came to the same conclusion on a challenge to a London-seated LCIA award.