Set-Aside Applications Cannot Be Used To Reargue Merits Of The Claim

• Published date: 29 April 2022
• Subject Matter: Litigation, Mediation & Arbitration, Arbitration & Dispute Resolution
• Law Firm: Bennett Jones LLP
• Author: Mr Ranjan Agarwal, Sakina Babwani, Sabrina Bandali and Lincoln Caylor

The Ontario trial court has once again emphasized that an application to set aside an arbitral award under Article 34 of the Model Law is not to be used as an opportunity to reargue the merits of the claim. Under Article 34(2)(a)(ii), where the issue before the court is whether a party could not present its case, the court's analysis will focus on whether the arbitral tribunal's conduct was "sufficiently serious to offend [Ontario's] most basic notions of morality and justice."

In Nelson v Mexico, a U.S. investor's investment treaty claim under the NAFTA was rejected by a tribunal on the basis that there was no underlying agreement that granted interconnection rights to the investor's local enterprise. As the arbitration's "seat" was in Toronto, the U.S. investor applied to the Ontario Superior Court of Justice to set aside the award. The applicant alleged that the tribunal: (a) decided the issue on a novel theory not advanced or argued by either party, which violated his right to present his case and to be heard; and (b) disregarded his expert evidence and submissions on the core issue in the arbitration, offending his procedural and substantive fairness rights.

The Ontario Court found that there was no failure of fairness or natural justice by the tribunal and, as such, the application was dismissed.

The outcome in Nelson follows a series of Ontario cases in which the Ontario Court has repeatedly stated that it cannot engage in a review of the arbitral award on its merits on a set-aside application under Article 34. In Vento Motorcycles v Mexico, the Court held that the reviewing court must accord a high degree of deference to arbitral tribunals under the Model Law. The award cannot be set aside simply because the court believes that the tribunal wrongly decided a point of fact or law. Like Nelson, the issue before the Court in Vento Motorcycles related to procedural fairness raised under Article 34(2)(a)(ii).

Background

The applicant was an investor in a Mexican corporation, Tele F'cil México, S.A. de C.V., that sought interconnection rights from Mexico's largest telecom providers, who are referred to jointly as Telmex.

Tele F'cil and Telmex negotiated but did not conclude an agreement. During negotiations and exchanges of proposals, and after a change in Telmex's status and rate regime, Tele F'cil initiated disagreement proceedings before the Federal Telecommunications Institute (or IFT) to resolve the "divergences" between Tele F'cil and Telmex...