Lisa’s 2021 Top Pick: Ontario – Russian Federation v Luxtona Limited (Part 2) – #568

In Part 1 (case update #564), I reviewed the decision of Russian Federation v Luxtona Limited, 2018 ONSC 2419, 2019 ONSC 7558, and 2021 ONSC 4604 on the standard of review to be applied on an application to the court pursuant to Model Law Article 16(3) “to decide the matter” where the tribunal has decided jurisdiction “as a preliminary question” and what evidence is admissible on such an application. In this, Part 2, I discuss the interplay between Articles 16(3) and Art 34(2)(a)(iii). So far as I have been able to determine, this issue does not seem to have been categorically resolved anywhere under the Model Law.

Russia’s application to challenge the tribunal’s preliminary jurisdiction award was made pursuant to both Articles 16(3) and 34(2) of the Model Law. Article 16(3) provides that the decision of a court which has been asked to “decide the matter” of the tribunal’s ruling that it has jurisdiction as a preliminary question is not subject to appeal. On the other hand, an application by a party to set aside an award on a matter of jurisdiction under Art. 34(2)(a)(iii) may be appealed. It can only be presumed that Russia relied upon both provisions of the Model Law to retain the argument that it had a further right of appeal on the jurisdiction issue. The question is whether a party can rely upon both Model Law Articles at the same time to challenge the jurisdiction decision of the tribunal.

If Russia’s position is correct, the effect of these provisions is that a court’s decision on jurisdiction becomes final if it is decided as a preliminary question, but the same decision in a final award may be the subject of a set aside application in respect of which there is a right of appeal. This issue was not addressed in the Russian Federation case.

However, it arose in United Mexican States v Burr, 2020 ONSC; and 2021 ONCA 64. There, Mexico applied to the court for a declaration that the tribunal had no jurisdiction or limited jurisdiction to decide the claims before it. The tribunal had issued a partial award, before a merits determination, in which it found that it had jurisdiction over all the claims made under the North American Free Trade Agreement by nationals of the U.S. and Mexico, who claimed damages when Mexico closed down casinos they had been operating in Mexico.

Justice Dietrich heard the application, which she said was brought pursuant to s. 11(1) of the Ontario International Commercial Arbitration Act, 2017, SO 2017, c. 2, Sched. 5, which adopts the Model Law, and Article 34 of the Model Law. She also considered Art. 16(3). She applied the standard of review of correctness to the decision of the tribunal, relying upon United Mexican States v Cargill, 2011 ONCA 622, and found that the tribunal was correct. She therefore dismissed Mexico’s application.

Thereafter, Mexico appealed Justice Dietrich’s decision and the investors moved to quash Mexico’s appeal. The Court of Appeal, hearing the motion to quash, articulated the issue before it as follows: whether the appeal should be quashed depends upon whether Mexico’s application is governed only by Art. 16(3) of the Model Law, which would prohibit an appeal of the application judge’s decision, or if it is also governed by Art. 34 of the Model Law, which would permit an appeal. The Court stated as follows:

“[10] The text of art. 16(3) requires this court to consider whether the tribunal’s ruling was on a “preliminary question” of jurisdiction. If it was, then the application judge’s ruling cannot be appealed to this court; in the language of art. 16(3), the application judge’s ruling is “subject to no appeal”.

[11] By contrast, art. 34 of the Model Law also provides for a right of “[r]ecourse to a court against an arbitral award” (emphasis added), but this language arguably contemplates only the recourses available against an award on the merits rather than on a preliminary question of jurisdiction. In an application under art. 34, the Model Law places no limits on the parties’ ability to appeal from the decision of the Superior Court.

[12] In this case, I conclude that the arbitral tribunal’s ruling was on a “preliminary question” of jurisdiction under art. 16(3) so that a further appeal does not lie to this court. I reach this conclusion for four reasons”. These reasons were as follows.

First, the Court found that the tribunal viewed its decision as a “preliminary question” to be determined before the merits phase of the arbitration.

Second, the tribunal’s decision did not address the merits and, in fact, the merits phase of the hearing commenced after the jurisdiction award.

Third, Mexico’s argument before Justice Dietrich did not focus on Articl 34 of the Model Law, either in its factum or in oral submissions. The Court had the benefit of the factum filed on the application and the oral submissions before Justice Dietrich, which relied upon Art. 16(3).

Fourth, Justice Dietrich’s ruling did not turn on Article 34. It played no role in her decision, just as it did not in the parties’ argument. The fact that the tribunal’s jurisdiction was made in a “Partial Award” was not a “sufficient hook with which to snag art. 34(1)… this was not an award on the merits, as the tribunal itself noted” (para. 24).

Under the heading, “Additional Observations” the Court commented upon the idea that a party could rely upon both Articles 16(3) and 34(2)(a), which apparently counsel for both parties endorsed:

“[26] Counsel agreed that there is no right of appeal from the decision of an application judge under art. 16 and that there is a right of appeal from the decision of an application judge under art. 34. I would agree but on a more nuanced basis. The text of art. 16(3) prohibits an appeal from the ruling of a Superior Court judge on the correctness of an arbitral tribunal’s ruling on a jurisdictional plea that is pursued “as a preliminary question”. The text of art. 34(1) provides that a party may seek “[r]ecourse to a court against an arbitral award only by an application for setting aside”, where the tribunal’s ruling on a jurisdictional plea was contained “in an award on the merits”, in the words of art. 16(3).

[27] Counsel for both parties asserted that it is possible for a party to rely on both art. 16 and art. 34 in challenging the ruling of an arbitral tribunal, in other words, to “ride both horses”, which was the metaphor put to counsel and adopted by them in argument. However, I would observe that the position that an appeal is prohibited where a ruling is pursued “as a preliminary question” under art. 16(3) has the benefits of clarity, simplicity and expediency for which international commercial arbitration is touted.

[28] This question of whether both horses can be ridden might need to be resolved but it would be unwise for this court to undertake an interpretation of art. 34 and its interaction with art. 16 beyond what is required to dispose of this motion in the absence of full argument by parties committed to opposite perspectives in the court below. Mexico argues that it proceeded under both articles before the application judge but, as I have explained, it did not.

Therefore, the Court quashed Mexico’s appeal and left for another day whether a party can rely upon both Articles 16(3) and 34(2)(a)(iii) of the Model Law

To re-visit the issues raised in Part 1, it is interesting that the Court of Appeal articulated the role of the court on an Article 16(3) review to “decide the matter” as ruling on the “correctness” of an arbitral tribunal’s ruling on a jurisdictional plea as a “preliminary question”. However, since that question was not before the Court of Appeal, this cannot be taken to resolve the ambiguity on this issue that is evident from the Russian Federation v Luxtona Limited case.

For earlier Case Notes on the cases referred to in this case summary see: