Procedural Fairness and Arbitral Justice
By William G. Horton, C.Arb., FCIArb
This article highlights some aspects of a recent decision of the Ontario Superior Court of Justice applying a deferential standard of review on an application to set aside an international arbitration award. On that basis, the Court found that, considering the procedure agreed by the parties and ordered by the tribunal, the refusal of a tribunal to allow a witness to provide additional evidence did not deprive a party of an opportunity to present its case.
The decision of Justice Marie-Andrée Vermette in the Superior Court of Ontario Vento Motorcycles, Inc. v. United Mexican States,[1] is an exemplary instance of a case in which a judge upheld an arbitration award in the face of challenges to key procedural decisions made by the tribunal.
On its face, the procedural basis for the challenge to the award appears to be compelling. The three-member tribunal had denied Vento Motorcycles, the Claimant in an investor/state case against Mexico, an opportunity to provide evidence from a witness (“Ortúzar”) in response to an audio recording in which Ortúzar appeared to contradict earlier evidence he had given in the arbitration. Vento argued that this refusal prevented Vento from providing Ortúzar’s explanations of the circumstances under which he had made the statements in his telephone call with Mexican officials. In support of that position Vento also referred to the rule in Browne v. Dunn and the “long-recognized principle of procedural fairness” that holds that “a party who intends to impeach the credibility of a witness must give that witness the opportunity to explain themselves”. In making these arguments Vento relied on Article 34(2)(b)(ii), of the UNCITRAL Model Law on International Commercial Arbitration (“Model Law”),[2] which provides that a court may set aside an international commercial arbitration award if “the party making the application was … unable to present his case” and on Article 18 of the Model Law which provides that the parties to arbitral proceedings “shall be treated with equality and each party shall be given a full opportunity of presenting his case.”
With regard to the standard of review to be applied, the parties were in agreement that:
…[T]o justify setting aside an award for reasons of fairness or natural justice, the conduct of the Tribunal must be sufficiently serious to offend our most basic notions of morality and justice. Judicial intervention for alleged violations of the due process requirements of the Model Law will be warranted only when the arbitral tribunal’s conduct is so serious that it cannot be condoned under Ontario law.[3]
This standard was adopted by the Ontario Court of Appeal in Consolidated Contractors Group S.A.L. (Offshore) v. Ambatovy Minerals S.A., 2017 ONCA 939 at para. 65 and more recently in All Communications Network of Canada v. Planet Energy Corp., 2023 ONCA 319 at paras. 42, 48. It is noteworthy that, by applying the “basic notions of morality and justice” standard to challenges relating to procedural fairness under Article 34(2)(a)(ii), the Ontario Court of Appeal has adopted an approach that is consistent with the approach to challenges based on “conflict with public policy” under Article 34(2)(b)(ii), which primarily relates to substantive law. Based on this deferential standard of review, applied consistently within Article 34, laws of the State in which the application to set aside is made are not to be applied directly to challenges based on either substantive or procedural concerns; rather, it is only fundamental values that are to be considered.[4]
Applying this deferential standard of review, Justice Vermette found that Vento had failed to establish that it was unable to present its case or that the Tribunal’s conduct was so serious that it cannot be condoned under Ontario law. Her reasons should be read in full. However, some key points may be summarized as follows:
- The parties agreed to a procedure, which was incorporated into an order of the tribunal, whereby evidence would be exchanged by witness statements with two rounds of Memorials. The procedure did not allow for a right to file further evidence after the second round of reply and sur-reply memorials.
- Vento chose, without explanation, to provide the evidence of Ortúzar with its reply Memorial rather than as part of its initial case. Had it followed the agreed procedure it would have had an opportunity to respond to any contradictory evidence in Mexico’s reply, such as the recording.
- The rule in Browne v Dunn was not applicable or breached, and its essential objective of fairness was not undermined in the circumstances.
This decision is important because the procedure adopted by the parties and the tribunal is very common in international arbitration and is now being used widely in non-international arbitrations as well. One of the objectives of the procedure is to ensure that evidence supporting a party’s claim or defence is put forward as early as possible, precisely so that the opportunity to impeach and present contradictory evidence is afforded to the opposite party and evidence can be closed on a fixed schedule before the hearing. In this regard arbitration procedure is critically different from court litigation in which all evidence is presented at a trial where the element of surprise is always possible and needs to be guarded against by rules such as Browne v Dunn.
The objective of creating a more efficient, expeditious and finite, evidentiary process in arbitration cannot be met if tribunals are afraid to apply procedural discipline for fear of having their awards set aside when they do so. The deferential formulation of the standard of review applied with an appreciation of the differences between arbitration and litigation is critical to avoiding this result.
[1] 2023 ONSC 5964 (Ontario Superior Court of Justice)
[2] The Model Law has been enacted in Ontario with some modifications not relevant to this case comment: see section 5 and Schedule 2 of the International Commercial Arbitration Act, 2017, S.O. 2017, c. 2, Sched. 5
[3] Vento, para 61.
[4] This formulation of the standard of review has also been considered relevant to domestic arbitrations in Ontario and in other provinces. See for example the cases cited in ENMAX Energy Corporation v TransAlta Generation Partnership, 2022 ABCA 206 at para 53: “As noted earlier, while we recognize the wording in the domestic and international arbitration legislation is not identical, we see no principled reason to disregard judicial comment and insight from cases involving international arbitrations.”
William G. Horton, C.Arb., FCIArb is an independent arbitrator of Canadian and international business disputes. He is based in Toronto.