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ONCA may have provided more insight in NAFTA case if proceedings not bifurcated: arbitrator

Issue is whether Superior Court’s ruling on Mexico’s application is appealable to ONCA

ONCA may have provided more insight in NAFTA case if proceedings not bifurcated: arbitrator

In quashing the appeal in United Mexican States v. Burr, 2021 ONCA 64, the Ontario Court of Appeal might have offered additional insights if the tribunal had not bifurcated the proceedings into a jurisdiction phase and a merits and damages phase, an arbitrator has said.

Daniel Urbas, litigator, arbitrator and mediator at Urbas Arbitral, discussed the case in an article.

Thirty-nine U.S. nationals filed individual claims and claims on behalf of seven Mexican organizations to compensate for losses amounting to about USD$100 million, allegedly resulting from Mexico’s closure of several Mexico-based casinos that they were operating. The claims were filed pursuant to the North American Free Trade Agreement, which allows investors to seek damages for the failure of Canada, Mexico or the U.S. to abide by a treaty commitment and which provides for the constitution of an arbitral tribunal for this purpose.

In April 2017, the arbitral tribunal bifurcated the proceedings to separate the jurisdiction issue from the damages issue and the determination of the merits. In the jurisdiction phase, the majority of the tribunal found that it had jurisdiction over all except one of the claims of the moving parties.

The United Mexican States filed an application before the Ontario Superior Court of Justice to set aside the tribunal’s partial award, citing s. 11 of the International Commercial Arbitration Act, 2017, S.O. 2017, c. 2, Sch. 5 (“ICAA”), and art. 16 and art. 34 of the UNCITRAL Model Law on International Commercial Arbitration, which had been adopted by the United Nations Commission on International Trade Law in June 1985 and amended in July 2006 (Model Law). The Model Law, which has the force of law in Ontario, provides that the Superior Court has the jurisdiction to review decisions of the arbitral tribunal.

The Superior Court dismissed Mexico’s application on the basis that Mexico had failed to discharge its burden of proof to establish the incorrectness of the tribunal’s decision in the partial award. Mexico therefore took the case to the Court of Appeal for Ontario.

The appellate court granted the moving parties’ motion to quash the appeal. To decide the issue of whether the ruling of the application judge at the Superior Court could be appealed to the Ontario Court of Appeal, the appellate court considered whether Mexico’s application was governed by art. 16(3) of the Model Law, which would not allow an appeal of the application judge’s decision on the arbitral tribunal’s ruling on the preliminary issue of jurisdiction, or governed by art. 34 of the Model Law, which would allow such an appeal.

The appellate court decided that it would apply art. 16(3) of the Model Law, which would prohibit this appeal, because the argument advanced before the application judge substantially invoked art. 16, not art. 34. The appellate court noted that, although art. 34 was mentioned scantly in the argument, in pleadings and in the material, the application judge did not deal with substantive issues based on art. 34 and did not rely on art. 34 in making the decision.

In his article discussing this case, Urbas said that “in quashing the appeal, the Court of Appeal provided no comment on whether the decision in first instance was correct or reasonable, in either result or reasoning. The decision in first instance withstood appeal if only because no appeal lay.”

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