To Bifurcate Or Not? The Ontario Court Of Appeal Prohibits Appeal On A Preliminary Question Of Jurisdiction

• Published date: 11 March 2021
• Subject Matter: Litigation, Mediation & Arbitration, Arbitration & Dispute Resolution, Trials & Appeals & Compensation
• Law Firm: McCarthy Tétrault LLP
• Author: McCarthy Tetrault LLP, Raynell Hodge and Carley Frazer

Why This Decision is Important

In United Mexican States v Burr, 2021 ONCA 64 ("Mexico v Burr"), the Ontario Court of Appeal (the "Court") addressed a nuanced distinction for parties seeking to challenge an arbitral tribunal's award on jurisdiction as "a preliminary question" under Article 16(3) of the UNCITRAL Model Law on International Commercial Arbitration (the "Model Law") as opposed to "in an award on the merits" under Article 34 of the Model Law.

Pursuant to Article 16(3) of the Model Law, if a preliminary ruling is made by the tribunal on the issue of jurisdiction, the respondent may appeal that ruling to the supervisory court, which decision shall not be subject to appeal. By contrast, Article 34 of the Model Law provides for the right of recourse to a court for an arbitral award, but places no limits on the respondent's ability to seek appellate review of the supervisory court's decision.

In this case, the Court found that the argument before the application judge proceeded substantially under Article 16 of the Model Law and that neither the substantive issues before the application judge, nor her decision, turned on Article 34. Accordingly, the Court gave effect to the language of Article 16(3) of the Model Law that prohibited the appeal from the ruling of the application judge on the arbitral tribunal's decision on the preliminary question of jurisdiction. Consequently, the Court quashed the appeal.

Background to the Appeal

Mexico v Burr arose out of an international arbitration involving thirty-nine nationals of the United States of America ("USA") who brought claims totalling USD $100 million for losses allegedly caused by Mexico's closure of the casinos that they had been operating in Mexico.

The arbitral tribunal (the "Tribunal") was constituted on February 14, 2017 under chapter 11 of the North American Free Trade Agreement Between the Government of Canada, the Government of Mexico and the Government of the United States ("NAFTA"), December 17, 1992, Can TS 1994 No 2 (entered into force on January 1, 1994),¹ which includes an investor-state arbitration mechanism. On April 4, 2017, the Tribunal bifurcated the proceedings into a jurisdiction phase and a merits and damages phase. It also determined that Toronto, Canada, would be the seat of the arbitration. At the jurisdictional phase of the proceedings, a majority of the Tribunal held that the Tribunal had jurisdiction over all but one of the USA nationals' claims (the "Partial Award").

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