



COURT OF APPEAL FOR ONTARIO

CITATION: United Mexican States v. Burr,
    2021 ONCA 64

DATE: 20210202

DOCKET: M51771 (C68571)

Lauwers, Miller and Nordheimer JJ.A.

BETWEEN

The
    United Mexican States

Applicant
    (Appellant/Responding Party)

and

Gordon
    G. Burr, Erin J. Burr, John Conley, Neil Ayervais, Deana Anthone, Douglas
    Black, Howard Burns, Mark Burr, David Figueiredo, Louis Fohn, Deborah Lombardi,
    P. Scott Lowery, Thomas Malley, Ralph Pittman, Daniel Rudden, Marjorie Peg
    Rudden, Robert E. Sawdon, Randall Taylor, James H. Watson Jr., B-Mex, LLC,
    B-Mex II, LLC, Oaxaca Investments, LLC, Palmas South, LLC, B-Cabo, LLC,
    Colorado Cancun, LLC, Sante Fe Mexico Investments, LLC, Caddis Capital, LLC,
    Diamond Financial Group, Inc., J. Paul Consulting, LAS KDL, LLC, Mathis Family
    Partners, Ltd., Palmas Holdings, Inc., Trude Fund II, LLC, Trude Fund III, LLC,
    Victory Fund, LLC

Respondents
    (Respondents/Moving Parties)

and

United
    States of America and Attorney General of Canada

Interveners

John Terry and Hannah Allen, for the
    moving parties

Robert J.C. Deane, Hugh Meighen and
    Ashley Thomassen, for the responding party

Heard: November 30, 2020 by video conference

On appeal from the judgment of Justice Bernadette
    Dietrich of the Superior Court of Justice, dated July 20, 2020 with reasons
    reported at 2020 ONSC 2376.

Lauwers J.A.:

[1]

The application judge dismissed the application
    by the United Mexican States (Mexico) to set aside an arbitral tribunals Partial
    Award. Mexico appealed. The moving parties, who were the respondents in the
    application below, move to quash Mexicos appeal. For the reasons that follow,
    I would quash the appeal.

A.

Background

[2]

The North American Free Trade Agreement gives
investors the right to seek damages for the failure of a party
    (Canada, Mexico, or the United States of America) to honour a treaty commitment.
    The moving parties are thirty-nine USA nationals who brought claims
    individually and on behalf of seven Mexican companies totalling some USD$100
    million to compensate for losses allegedly caused by Mexicos closure of the
    casinos they had been operating in that country.

[3]

The arbitral tribunal was constituted under c.
    11 of NAFTA on February 14, 2017. On April 4, 2017 the tribunal bifurcated the
    proceedings into a jurisdiction phase and a merits and damages phase. The
    jurisdiction phase was heard over five days in May 2018.

[4]

A majority of the tribunal determined that the
    tribunal had jurisdiction over all but one of the moving parties claims.
    Mexico applied to the Superior Court of Justice to set aside the tribunals
    decision under s. 11 of the
International Commercial Arbitration Act
,
2017
,
    S.O. 2017, c. 2, Sch. 5 (ICAA) and arts. 16 and 34 of the
UNCITRAL Model
    Law on International Commercial Arbitration
, adopted by the United Nations
    Commission on International Trade Law on June 21, 1985, as amended on July
    7, 2006 (the Model Law). The Model Law has the force of law in Ontario under
    s. 5 of the ICAA, subject to any modifications set out in the Act. The
    legislation specified that the Ontario Superior Court of Justice is the court
    with jurisdiction to review the decision of the arbitral tribunal.

[5]

The application judge dismissed the application,
    holding that Mexico had not discharged its burden of proof of establishing
    that the Tribunal was incorrect in its conclusion that it had jurisdiction over
    all but one of the claims before it.

B.

The Issue

[6]

The issue before this panel is whether the
    application judges ruling can be appealed to this court.

[7]

Whether the appeal should be quashed depends
    upon whether Mexicos application is governed only by art. 16(3) of the Model
    Law, which would prohibit an appeal of the application judges decision, or if
    it is also governed by art. 34 of the Model Law, which would permit an appeal.

C.

Analysis

[8]

The focal point of the analysis in this case is
    art. 16 of the Model Law. Article 16(1) gives arbitral tribunals the competence
    to rule on their own jurisdiction, as the tribunal did in this case. Article
    16(2) specifies when a party must raise a plea that the arbitral tribunal does
    not have jurisdiction. Article 16(3) specifies how the tribunal may proceed
    when its jurisdiction is challenged. It also gives a role to the Ontario
    Superior Court of Justice and prohibits certain appeals.

[9]

The text of art. 16(3) makes a clear distinction
    between a jurisdictional plea that is pursued as a preliminary question and a
    jurisdictional plea that is pursued in an award on the merits. Article 16(3)
    provides:

(3) The arbitral tribunal may rule on a plea
    referred to in paragraph (2) of this article
either as a
    preliminary question or in an award on the merits
.
If
the arbitral tribunal rules as a
preliminary question
that it has jurisdiction, any party
    may request, within thirty days after having received notice of that ruling, [the
    Ontario Superior Court of Justice] to decide the matter,
which
    decision shall be subject to no appeal
; while such a request is pending,
    the arbitral tribunal may continue the arbitral proceedings and make an award.
    [Emphasis added.]

[10]

The text of art. 16(3) requires this court to
    consider whether the tribunals ruling was on a preliminary question of
    jurisdiction. If it was, then the application judges ruling cannot be appealed
    to this court; in the language of art. 16(3), the application judges 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
    tribunals 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.

(1)

The arbitral tribunals view of what it was
    doing

[13]

First, the arbitral tribunal saw itself as
    addressing jurisdiction as a preliminary question. In its Partial Award, dated
    July 19, 2019 the tribunal noted that from 21 May 2018 to 25 May 2018, the
    Tribunal held a
hearing on jurisdiction
in
    Washington, D.C. (emphasis added): at para. 22. The tribunal specified: In
    this
first phase
the Tribunal shall decide
three preliminary issues
 (emphasis added): at para. 41.
    Based on its interpretation of various provisions of NAFTA, the tribunal dismissed
    most of Mexicos objections, decided that it had jurisdiction over certain
    claims and, in its final paragraph: directs the Parties to confer regarding a
    procedural timetable for
the merits phase

    (emphasis added): at para. 273.

(2)

The arbitral tribunal has embarked on the merits
    phase

[14]

Second, the arbitral tribunals decision did not
    address the substantive merits of the dispute, and the merits phase of the
    dispute is now proceeding despite Mexicos effort to appeal the application
    judges ruling. As noted, this sequence of proceedings is contemplated and
    expressly permitted by art. 16(3): while such a request [to the Superior
    Court] is pending, the arbitral tribunal may continue the arbitral proceedings
    and make an award.

(3)

The argument before the application judge did
    not address art. 34 of the Model Law

[15]

Third, Mexico did not focus on art. 34 in its
    application to the Superior Court. Mexico cited art. 34 only in the title of its
    notice of application, and in the introductory paragraph of its factum. Its
    factum contained only two other references to art. 34:

23. The application to set aside the Partial
    Award is governed by Article 34 of the
Model Law
. Article 34(2)(a)
    provides that an arbitral award may be set aside if the award deals with a
    dispute [] not falling within the terms of the submission to arbitration or
    if the composition of the arbitral tribunal or the arbitral procedure was not
    in accordance with the agreement of the parties. (Citing Model Law, Art.
    34(2)(a)(iii) and (iv).)

76. The failure to comply with Articles 1119
    and 1121 meant that Mexicos consent to arbitration was not engaged, and the
    Tribunal was deprived of jurisdiction. The Partial Award holding the contrary
    must therefore be set aside, in whole or in part, pursuant to Article 34(2)(a)(iii)
    and (iv) of the
Model Law
.

[16]

It is difficult to reconcile these positions
    with Mexicos statement at para. 22 of its factum before the application judge
    that: The Partial Award,
issued pursuant to Article
    16(2) of the Model Law
, is a final decision by the Tribunal in respect
    of its jurisdiction (emphasis added). As noted above, a final decision on
    jurisdiction may still be dealt with as a preliminary question within the
    meaning of art. 16.

[17]

Similarly, Mexicos counsel did not address the
    substance of art. 34 in oral argument before the application judge. The context
    was set in oral argument before the application judge by counsel for the NAFTA
    claimants, who are the moving parties before this court. Counsel focused on s.
    11(1) of the ICAA and on art. 16 and steered the application judge away from
    art. 34. He said, speaking for himself and counsel for Mexico: 
[W]e agree  that there is no appeal from your decision in this
    case
. And this  thats an unusual circumstance obviously (emphasis
    added). Counsel then provided an explanation to the application judge:

[T]here are two ways in which  in which a
    party under the
International Commercial Arbitration Act
here in
    Ontario can bring forward an application to this court to set aside a decision.
    One way is the Article 34 route, this is article 34 of the Model Law. And you
    can bring forward a decision and
quite often thats done
    in a case where the Tribunal has reached a final award
, and youre
    seeking to set aside that for exceeding jurisdiction or some other issue.
    Sometimes that can be done also if there is a jurisdictional award. Under that
     under that it would follow the normal process, youd make your decision and
    then there would be, you know, the normal rights of appeal. Under this
    particular provision, and Mr. Deane took you to the particular provision
    under s. 11 of the
International Commercial Arbitration Act
which
    replicates which  whats in
Article 16 of the Model Law.
    Its designed to be an expedited process where a party can seek recourse to a
    judge, the judge makes the determination, and thats the end of it, theres no
    appeal
. So, for better or for worse, thats the  that is the statutory
    framework under which were operating here. [Emphasis added.]

[18]

Mexicos counsel did not object to these statements
    before the application judge. For his part, Mexicos counsel made scant
    reference to art. 34. At the outset he noted that this was an application under
    s. 11(1) of the ICAA, and arts. 16 and 34 of the Model Law. However, most
    of his oral submissions focused on s. 11(1) of the ICAA and art. 16 of the
    Model Law, not art. 34. The references to art. 34 came only in his reading of lengthy
    quotations from this courts decision in
United Mexican States v. Cargill,
    Inc.
, 2011 ONCA 622, 107 O.R. (3d) 528, on the standard of review applicable
    to a decision of an arbitral tribunal.

[19]

In his submissions to the application judge, Mexicos
    counsel also invoked the decision of Penny J. in
The

Russia Federation
    v. Luxtona Limited
,

2019 ONSC 7558. That ruling concerned
    the admissibility of fresh evidence in an application under art. 16 of the
    Model Law. Penny J. cited art. 34 in his discussion of the standard of review
    set out in
Cargill
. Although he referred incidentally to both arts. 16
    and 34, he did not explain the connection between the two articles or explicate
    art. 34.

[20]

Cargill
does
    not assist Mexico. In that case, the arbitral tribunal made an award on the
    merits of the dispute that gave the claimant
Cargill
damages against
    Mexico for protectionist measures it enacted in favour of its sugar industry. During
    the proceedings, an objection was raised as to whether the tribunal could award
    upstream damages for losses
Cargill
suffered in the United States as
    well as downstream losses it suffered in Mexico. Mexico framed this as a
    question of the tribunals jurisdiction. In its final award, however, the
    tribunal ruled that the damages issue was not a jurisdictional question and
    that NAFTA permitted
Cargill
to recover upstream losses. Mexico
    applied to the Superior Court to decide the matter and set aside the award.

[21]

The application judge in
Cargill
dismissed the application on the basis that the arbitral tribunals decision
    hinged on factual findings to which deference was owed: 2010 ONSC 4656. Because
    the tribunals ruling was not on a preliminary question but an award on the
    merits, the art. 16(3) prohibition on an appeal from the Superior Courts ruling
    did not apply. Mexico appealed the Superior Courts ruling to this court, as it
    was entitled to do. This court dismissed the appeal in a decision that largely
    focussed on the interpretation of art. 34 and, as noted, set the standard of
    review.

(4)

The application judges ruling did not turn on
    the substance of art. 34

[22]

Fourth, the application judges ruling,
    consistent with the arguments she heard, did not turn on the substance of art.
    34. She noted, at para. 37, that Mexico was applying under s. 11(1) of the ICAA
    and art. 34 of the Model Law. She then stated, at para. 38, effectively quoting
    counsel:

The
ICAA
applies because ICSID chose
    the City of Toronto as the seat of the arbitration. Section 11(1) of the
ICAA
provides that where the majority of the arbitration tribunal determines it has
    jurisdiction, any party may apply to the Superior Court of Justice to decide
    the matter. The decision of the Superior Court of Justice is subject to no
    appeal:
Model Law
, Article 16(3).

[23]

The application judge quoted art. 34 at para. 39
    and did not refer to it again until para. 155 in her discussion of the standard
    of review emerging from
Cargill
. The substance of art. 34 played no
    role in her decision, just as it did not in the argument of the parties before
    her.

[24]

Perhaps Mexicos occasional references to art.
    34 were intended to assist the application judge in understanding her function
    under art. 16. Perhaps Mexico was seeking to preserve plausible
    arguability under art. 34 in the event that the application did not go
    well for it. Regardless, it is clear that there was no substantive argument on
    how art. 34 applied on the facts of this case before the application judge. Mexicos
    argument that art. 34 of the Model Law applies to this appeal, along with art. 16(3),
    does not bear scrutiny.

[25]

There is also no basis for concluding, as Mexico
    argues, that the label of Partial Award, which the arbitral tribunal attached
    to its ruling, is a sufficient hook with which to snag art. 34(1). I would
    reject this argument. This was not an award on the merits, as the tribunal
    itself noted.

D.

Additional Observations

[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 tribunals
    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 tribunals
    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.

E.

Disposition

[29]

To summarize, I would quash the appeal to this
    court because the argument before the application judge proceeded substantially
    under art. 16. While there were several references to art. 34 in the pleadings,
    in the material, and in argument, they were scant. Neither the substantive issues
    before the application judge nor her decision turned on art. 34. Accordingly, I
    would give effect to the language in art. 16(3) of the Model Law that prohibits
    an appeal from the ruling of the application judge on the arbitral tribunals
    ruling on a preliminary question of jurisdiction.

[30]

The moving parties are entitled to costs in the
    all-inclusive amount of $9,000, as agreed.

Released: P.L. February 2, 2021

P.
    Lauwers J.A.

I
    agree. B.W. Miller J.A.

I
    agree. I.V.B. Nordheimer J.A.


