“Out here, due process is a bullet”, said John Wayne’s Col. Kirby in The Green Berets.
Due process. Procedural fairness. Natural justice. Audi alteram partem. These are all different ways of formulating one of the bedrock principles of “civilized” dispute resolution processes, which distinguishes such processes from the guerrilla justice dispensed on the battlefield. Parties must be treated fairly and equally. Parties must be given the opportunity to present their case. The process – taken as a whole – must be fair.
In this article, I explore procedural fairness through the lens of international arbitrations seated in Canada or subject to enforcement proceedings in Canada. I begin with an overview of the relevant sources of law, and then review Canadian cases released in 2022 that help put some meat on the bones of the general principles. I finish with some thoughts on one non-Canadian cases from 2022 that Canadian courts and parties may find useful as they grapple with procedural fairness-related issues.
Sources of law – For international arbitrations seated in Canada, the main procedural safeguards are set out in Article 34(a) of the UNCITRAL Model Law on International Commercial Arbitration (the “Model Law”), which has been enacted into the various provincial international arbitration statutes. In summary, an arbitral award may be set aside on procedural grounds if: (1) the party seeking set-aside was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings, (2) that party was unable to present its case, or (3) the procedure was not in accordance with the parties’ agreement or with the Model Law. Article 18 of the Model Law further provides that “[t]he parties shall be treated with equality and each party shall be given a full opportunity of presenting his case.”
Similar grounds exist for refusing recognition and enforcement of international arbitral awards, pursuant to Article V(1)(b) and (d) of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention) and Article 36(1)(a)(ii) and (iv) of the Model Law for international arbitral awards.
Procedural fairness: key Canadian cases from 2022 -Two set-aside cases concerning international arbitral awards stood out this year: Clayton v. Canada, 2022 ONSC 6583 and Nelson v. United Mexican States, 2022 ONSC 1193. I will review them in turn before considering a third case, Enmax Energy Corporation v. TransAlta Generation Partnership, 2022 ABCA 206, which provided a useful survey of the procedural fairness jurisprudence which courts may find useful in considering the procedural fairness-related provisions of the Model Law, although the award at issue was a domestic one.
Clayton v. Canada – In this case, Justice Akbarali of the Ontario Superior Court of Justice reaffirmed the high bar that applies to setting aside international arbitral awards on procedural fairness grounds. She cited the Ontario Court of Appeal’s decision in Consolidated Contractors Group S.A.L. (Offshore) v. Ambatovy Minerals S.A., 2017 ONCA 939, which held that the test under Art. 34(2)(a)(ii) of the Model Law is whether the tribunal’s conduct is “sufficiently serious to offend our most basic notions of morality and justice” and that “judicial intervention for alleged violations of the due process requirements of the Model Law will be warranted only when the Tribunal’s conduct is so serious that it cannot be condoned under the law of the enforcing State.” (paras. 57-58).
The procedural fairness argument at issue in Clayton stemmed from the tribunal’s refusal to allow the applicants to submit additional expert evidence. The parties had exchanged two rounds of expert evidence on damages. The applicants considered that the respondent’s second round of expert reports improperly split its case, because it responded to matters raised in the applicants’ experts’ first expert report, when it should only have responded to issues raised in the second one. It sought to file additional expert reports less than one month before the hearing was scheduled to begin.
Justice Akbarali noted that the applicants had not sought leave to file the additional expert reports soon after receiving the respondent’s reports, nor had they brought a motion to strike the portions of the responding reports that the applicants considered to be improper case-splitting, as the tribunal had invited them to do. In rejecting the procedural fairness argument, Justice Akbarali emphasized that “[t]he applicants did not do what they could have done to address whatever prejudice they believed arose from Canada’s reply expert reports […] [t]hey engineered the problem that was facing the Tribunal – less than a month before the damages hearing was to begin – through their choices.” (para. 72).
Nelson v. United Mexican States – In Nelson, Justice Penny of the Ontario Superior Court of Justice cited the principles from Consolidated Contractors set out above. He also cited from that case the following three factors that may lead a court to conclude that a party was unable to present its case:
“(a) the award is based on a theory of liability that either or both of the parties were not given the opportunity to address, or based on a theory of the case not argued for by either of the parties;
(b) a party was not given an opportunity to respond to arguments made by an opposing party; or
(c) the tribunal ignored or failed to take the evidence or submissions of the parties into account.” (para. 34).
At issue in Nelson was whether the tribunal decided the case based on a novel issue not advanced or argued by either party, and whether the tribunal failed to consider the applicant’s expert evidence. Justice Penny recognized that, “the principle that a tribunal cannot decide a case on a basis that was not argued is well established and not in doubt”. However, after reviewing the parties’ pleadings, the transcripts from the hearings, a question asked from the tribunal and oral submissions in response to the question, he found that the issue in question had in fact been argued.
Justice Penny also rejected the argument that the tribunal had failed to consider the applicants’ expert evidence. He recognized that “[i]t is generally accepted that a trier of fact cannot ignore or fail to evaluate relevant portions of the evidence” (para. 51). He agreed with the applicants that the tribunal had not explicitly referred to the expert evidence in its award, but found that the tribunal’s references to portions of the applicants’ submissions in which they referenced the expert evidence showed that the tribunal had considered it.
Enmax – The Alberta Court of Appeal’s decision in Enmax was also significant. The Court reviewed the case law applicable to both international and domestic arbitrations, although the arbitral award before it was a domestic one. It distilled the following general principles from that case law, which should provide useful guidance for courts in international arbitration matters, as well as domestic ones:
“First, parties to an arbitration are entitled to a fair hearing, not a perfect hearing. Second, the overall fairness of the proceedings must be considered, not individual rulings. Third, parties must take advantage of and exercise diligence in pursuing issues and cannot later complain of some perceived unfairness resulting from their failure to do so. Fourth, not every refusal to admit relevant evidence is a breach of natural justice. Fifth, the threshold for setting aside an arbitration award on grounds of unfairness has been described in various ways, but the cases make it clear that something of a significant nature is required, or that the excluded evidence was crucial to the case being presented” (para. 66).
As in Clayton, the Alberta courts in Enmax were influenced by the applicant’s tactical choices in rejecting a procedural fairness argument. The Alberta Court of Appeal, affirming the lower court decision, rejected the argument that failure to order production of certain documents amounted to “manifest unfairness”. After conducting a detailed review of the procedural history, the lower court found that the tribunal had in fact left the door open to a request to produce the documents, and that the applicant had made a tactical decision not to pursue the issue.
Contributor’s Notes:
Canadian jurisprudence under the Model Law is rich with examples of what does not amount to a breach of procedural fairness that is sufficiently serious to warrant setting aside an arbitral award. The cases reviewed above all have in common the fact that the court conducted a detailed review of the record before the tribunal and reached its own decision as to whether the process was fair, having regard to all relevant circumstances. The question of whether the procedural fairness issue could have been fixed before the tribunal, had the party raising it availed itself of available options, is an important part of this analysis.
There were also a few key decisions involving procedural fairness under the Model Law and the New York Convention, one of which warrants mention here, as it could prove useful to Canadian courts in future cases. The Privy Council in Gol Linhas Aereas AS v. MattlinPatterson Global Opportunities Partners (Cayman) II LP, [2022] UKPC 21 interpreted the procedural fairness requirements under Article V(1)(b) of the New York Convention. One of the grounds raised for resisting enforcement of the award was that the tribunal had adopted a legal basis for the award that had not been raised during the arbitration. Lords Hamblin and Legatt provided a detailed comparative analysis of the due process standards that apply to international arbitral awards in various jurisdictions. They concluded that the question must not be answered by applying local standards of due process. Rather, Article V(1)(b) imposes a standard of due process capable of being applied to any international arbitration, regardless of the applicable procedural law and the nationality of the participants. They said: “This does not mean that the court should be seeking to identify the lowest common denominator of standards required by different national systems. But it does mean that the court should be seeking to apply basic minimum requirements which would generally, even if not universally, be regarded throughout the international legal order as essential to a fair hearing.” (para. 76).