Ontario Court of Appeal confirms that parties may introduce fresh evidence in a de novo consideration of an arbitral tribunal's preliminary jurisdictional decision, but the failure to raise such evidence before the arbitral tribunal may be relevant to the weight the Court should assign that evidence.
Facts
In a contractual dispute that was subject to arbitration, the Russian Federation brought an application before the Ontario Superior Court of Justice under Article 16(3) of the UNCITRAL Model Law on International Commercial Arbitration (the Model Law), enacted as Schedule 2 of Ontario's International Commercial Arbitration Act, 2017, to set aside the arbitral tribunal's preliminary decision on jurisdiction. The arbitral tribunal had ruled in favour of Luxtona and concluded that it had jurisdiction. In the application, a procedural issue arose as to whether Russia could file fresh expert evidence relating to Russian law.
Justice Dunphy of the Commercial List ruled that Russia could file the fresh evidence. However, Justice Dunphy subsequently left the Commercial List and Justice Penny was assigned to the matter.
In the context of determining additional evidentiary issues respecting the new evidence, Justice Penny determined that he was not bound by Justice Dunphy's prior interlocutory ruling. He directed re-argument on the fresh evidence issue. Departing from Justice Dunphy's decision, Justice Penny concluded that Russia could not file the fresh evidence as of right. Russia could only do so if it could meet the stringent test set out in Palmer v The Queen, [1980] 1 SCR 759 or bring itself within one of the exceptions to the principle that court review is conducted based on the record before the tribunal below. Justice Penny declined to admit the fresh evidence.
Russia appealed this decision to the Divisional Court. A panel of the Divisional Court held that Justice Penny had jurisdiction to revisit Justice Dunphy's interlocutory hearing. The Court concluded that an application under Article 16(3) of the Model Law is a hearing de novo. Accordingly, the parties can, as of right, introduce evidence (including expert evidence) relevant to the jurisdictional issue that was not before the arbitral tribunal. The Court of Appeal for Ontario granted Luxtona leave to appeal the Divisional Court's decision.
Decision
The Court of Appeal dismissed the appeal. The Court rejected Luxtona's argument that the Divisional Court erred in not referring to the competence-competence principle, which allows an arbitral tribunal to rule on its own jurisdiction in the first instance. The Court commented that the competence-competence principle serves two purposes:
- "Resolves a legal loophole whereby an arbitral tribunal that finds itself lacking jurisdiction would, ipso facto, lose its ability to make a ruling to that effect."
- "Promotes efficiency by limiting a party's ability to delay arbitration through court challenges to the tribunal's jurisdiction."
The Court noted that the competence-competence principle is best understood as "a rule of chronological priority" rather than allowing arbitrators to be the sole judge of their own jurisdiction. It thus does not require that any special deference be paid to an arbitral tribunal's determination of its own jurisdiction made in the first instance. The Court also reviewed international authorities demonstrating that the competence-competence principle does not limit the fact-finding power of a court assessing an arbitral tribunal's jurisdiction.
Because the court retains final say over jurisdictional matters, it must not be limited in its fact-finding ability, and is not limited to the record before the arbitral tribunal. In other words, an application to set aside a preliminary jurisdictional decision under Article 16(3) of the Model Law is a hearing de novo, not a review of or appeal from the tribunal's decision. However, the Court introduced a significant caveat: "While there is no need to strictly apply the Palmer test, where a party has participated fully in the arbitration, its failure to raise a piece of evidence before the tribunal may be relevant as to the weight the court should assign that evidence."
Analysis
In this decision, the Court of Appeal confirms that an application to set aside a preliminary jurisdictional decision under Article 16(3) is a hearing de novo, such that fresh evidence on the jurisdictional issue can be filed by the parties as of right.
It helpfully prevented a potential abuse of the competence-competence principle. The principle does not create any special deference in favour of the arbitral tribunal's determination of its own jurisdiction; it merely preserves the tribunal's authority to make that determination in the first instance.
This authority is subject to the framework set out in Dell Computer Corp v Union des consommateurs, 2007 SCC 34, which applies to motions to stay court proceedings in favour of arbitration. In those circumstances, the Supreme Court ruled that a court may exceptionally address the jurisdictional issue in the first instance when doing so would require the court to decide only a question of law, or a question of mixed fact and law necessitating only a superficial review of the factual record.
However, parties should take care in seeking to adduce fresh evidence on an application under Article 16(3) of the Model Law or its domestic equivalent, subsection 17(8) of the Arbitration Act, 1991 (and analogous provisions in other provincial domestic arbitration statutes). This is particularly so where they have participated fully in the arbitration, given the Court of Appeal's comments as to the weight that evidence may carry.
To avoid this potential issue, parties should carefully consider the evidence put before the arbitral tribunal and ensure that, wherever possible, all relevant evidence as to jurisdiction is advanced. Not only will this enhance the prospects of a correct jurisdictional determination before the arbitral tribunal, thus reducing the possibility of having to bring a jurisdictional challenge in the first place, it will ensure such evidence receives proper weight in any hearing de novo under Article 16(3) (or in an application to set aside an arbitral award on jurisdictional grounds under Article 34(2)(a)(iii)).
Russian Federation v Luxtona Limited, 2023 ONCA 393