Canada – Fresh Evidence Test the Same on Set Aside Applications on Fairness Grounds and Judicial Review Applications

This article was first published on the Arbitration Matters blog, here.

In Vento Motorcycles Inc. v United Mexican States, 2021 ONSC 7913, Justice Vermette set out the test for when fresh evidence may be adduced to support a set-aside application on lack of fairness or natural justice grounds. The test is the same as that which applies on a judicial review;  the record is restricted to what was before the decision-maker, except where there are natural justice or fairness issues raised that cannot be proven by reference to the existing record and that could not have been raised before the decision-maker.

The applicant Vento brought an application to set aside an arbitral award made July 6, 2020, following an arbitration administered by the International Centre for Settlement of Investment Disputes (“ICSID”) under the ICSID Rules. The respondent Mexico objected to new evidence filed by Vento in support of the set aside application. It brought a motion for an order striking the “Brown Affidavit” and the “Ortuzar Affidavit”.

Vento was a U.S.-based manufacturer of motorcycles. It brought a claim against Mexico under Chapter 11 of the North American Free Trade Agreement, asserting that Mexico’s denial of NAFTA preferential import tariffs to Vento’s motorcycles exported to Mexico destroyed its business.

A three-person tribunal was constituted on January 19, 2018. On April 2, 2018, the tribunal issued procedural order #1, which provided, among other things, that:

  • evidence was to be provided by way of witness statements, which were to be attached to the parties’ pleadings;
  • there would be two rounds of pleadings, with the following sequence: Vento’s Memorial, Mexico’s Counter Memorial, Vento’s Reply, and Mexico’s Rejoinder; and
  • neither party would be permitted to submit additional or responsive documents after the filing of its respective last written submission, unless the tribunal were to determine that exceptional circumstances existed.

In the period July 2018, to August 2019, the parties exchanged pleadings, with attached documents, legal authorities, and witness statements. Vento’s Reply contained the witness statement of a Mr. Ortuzar. Mexico’s Rejoinder contained the witness statement of a Ms. Martinez, which attached a recording and transcription of a telephone conversation that Ms. Martinez and others had with Mr. Ortuzar. Mexico’s position was that Mr. Ortuzar’s credibility was undermined by the recording.

Vento then filed a request before the tribunal to strike the recording and transcription or, in the alternative, that Mr. Ortuzar be permitted to provide additional evidence. Vento argued that: Mr. Ortuzar did not consent to the recording and didn’t know of it; the recording had not been authenticated; and the recording was incomplete. In addition, it argued that procedural fairness required that Mr. Ortuzar be allowed to address the issues raised in the arbitration in light of the partial recording. In support of its motion to strike, Vento filed a second short witness statement from Mr. Ortuzar, in which he confirmed that the recording had been made without his knowledge and was incomplete and that he hoped to give evidence before the tribunal to “clarify and timely contextualize” his testimony and answer any questions the tribunal might have.

Mexico responded that: the recording was legal and did not violate Mr. Ortuzar’s right to privacy; the recording was authenticated by Ms. Martinez’s witness statement; and the recording was complete. Further, the rules of the arbitration did not permit testimony before the tribunal to provide clarification. Finally, Vento had made the strategic decision to wait until delivering its Reply to submit Mr. Ortuzar’s witness statement, knowing that it would not have the opportunity to provide a rebuttal to anything contained in Mexico’s Rejoinder.

The tribunal denied Vento’s motion to strike or its request for additional evidence from Mr. Ortuzar in its procedural order #7.

The hearing took place from November 18 to 22, 2019. Vento elected not to call Ms. Martinez for cross-examination. Mexico elected not to call Mr. Ortuzar for cross-examination. The tribunal issued its award on July 6, 2020, dismissing all of Vento’s claims.

Vento then applied to the court for an order setting aside the award on the following grounds: it was prevented from presenting its case and treated unequally by being prevented from presenting Mr. Ortuzar’s evidence on the recording; it was prevented from presenting its case and treated unfairly because the tribunal accepted the recording into evidence, and the arbitral procedure was not in accordance with the parties’ agreement that allowed for additional evidence in “exceptional circumstances”. Vento relied upon Model Law Art. 34(2)(ii) and (iv) [inability to present its case, procedure not in accordance with parties’ agreement] and Art. 18 [parties to be treated equally and each party to have full opportunity to present its case]. Vento’s set aside application before Justice Vermette was supported by the Brown Affidavit (which contained an expert opinion that the recording was altered) and the Ortuzar Affidavit (which set out the testimony he would have given about the recording had he been allowed to do so).

On the standard of review – Justice Vermette noted that the standard of review depended upon the specific Model Law grounds on which the set aside application was based. She citedin support Consolidated Contractors Group S.A.L (Offshore) v Ambatovy Minerals S.A., 2017 ONCA 939 at paras. 23-24; application for leave to appeal dismissed 2018 CanLII 99661 (S.C.C.):

“[28] The parties in this case agree on the standard to be applied under article 34(2)(a)(ii) of the Model Law. To justify setting aside an award under that provision 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 Tribunal’s conduct is so serious that it cannot be condoned under Ontario law. See Consolidated Contractors at para. 65.”

On the admission of fresh evidence on the set aside application – Justice Vemette found that this was a case of first instance; there were no other cases on point.

Mexico argued that the admissibility of fresh evidence is to be governed by the principles in Palmer v The Queen, [1908] 1 S.C.R. 759, which considered the admission of fresh evidence on appeals. It found that the evidence: generally must not be admitted if by due diligence it could have been adduced at trial; it is relevant; it is credible; and had it been adduced at trial it could reasonably be expected to have affected the result. In support of its position, Mexico relied upon Justice Penny’s decision in The Russian Federation v Luxtona Limited, 2019 ONSC 7558, in which Justice Penny declined to admit fresh evidence on an application to set aside the tribunal’s preliminary jurisdiction award under Model Law Art. 34 and 16. However, as Justice Vermette noted:

“[32] Justice Penny’s decision was reversed by the Divisional Court: 2021 ONSC 4604. The Divisional Court held that the Model Law prescribes a de novo hearing with respect to jurisdictional issues and that, as a result, the parties are entitled as of right to adduce new evidence relevant to the jurisdictional issue: see para. 38. 

[33] Neither Justice Penny nor the Divisional Court expressed any views with respect to the test applicable to the admissibility of fresh evidence on applications to set aside arbitral awards on grounds other than jurisdiction. Further, I note the following: (a) while Justice Penny states that the Palmer test has been applied in the context of applications for judicial review, the recent case law discussed below shows that the Palmer test does not apply in that context; and (b) Justice Penny’s main concerns appeared to be with respect to order, finality and the integrity of the adjudicative process, and he recognized that the Palmer test could be adapted and modified where necessary in order to accommodate different applications and circumstances.

Vento argued that the test for the admission of fresh evidence that goes to procedural fairness is that test that applies in a juridical review application because the court’s role is akin to that in an application for judicial review on fairness grounds, and not akin to an appeal to an appellate court from a trial judge’s decision. Generally, on an application for judicial review, the record is restricted to what was before the decision-maker, except where there are natural justice or fairness issues raised that cannot be proven by reference to the existing record and that could not have been raised before the decision-maker. Vento relied upon the following cases: Durham Regional Police Service v. The Ontario Civilian Police Commission, 2021 ONSC 2065Scott v. Toronto (City), 2021 ONSC 858;  Bernard v. Canada Revenue Agency, 2015 FCA 263; and Nation Rise Wind Farm v. Ontario, 2020 ONSC 1153. Therefore, it argued, fresh evidence that goes to fairness issues is admissible.

Justice Vermette accepted Vento’s test and agreed that procedural fairness grounds for a set aside application are “conceptually distinct” from jurisdictional grounds (para. 42):

“[43] The review of the case law above shows that the two competing tests are, in the end, very similar, and that the policy concerns referred to by Justice Penny in Russian Federation regarding order, finality and the integrity of the decision-making process underlie both the Palmer test and the test applicable to the admission of fresh evidence on an applicable for judicial review.

[44] While the differences between the two tests are minor, I am of the view that the test applicable on an application for judicial review is the most appropriate one to apply in this case, i.e. an application to set aside an international arbitral award on procedural fairness grounds. Given the very limited grounds on which an international arbitral award can be set aside, I agree with Vento that an application to set aside such an award is much closer in nature to an application for judicial review than to an appeal. This is particularly the case when the application to set aside is based on procedural fairness, which is a common ground in applications for judicial review, but not in appeals. Further, as noted by Justice Stratas in Bernard[Bernard v. Canada Revenue Agency, 2015 FCA 263at para. 27, the exception applicable to the admissibility of fresh evidence relevant to procedural fairness on an application for judicial review is structured so as not to interfere with the role of the administrative decision-maker as the merits-decider. This is consistent with the high degree of deference owed to international arbitral tribunals and the very strict limits imposed on judicial intervention.

Therefore, Justice Vermette concluded that reasonable diligence of the proposed fresh evidence was required and neither the Brown Affidavit nor the Ortuzar Affidavit, met the test. Vento had failed to adduce the Brown Affidavit when it brought its motion before the tribunal to strike the recording and it chose not to cross-examine Ms. Martinez at the hearing. Further, there was nothing new in the Ortuzar Affidavit that was not already in the record before the tribunal. It was not necessary to supplement the record to argue the procedural fairness ground on the set aside application. Further, the tribunal already considered the issue and rejected Vento’s complaint. She struck the Brown Affidavit and the Ortuzar Affidavit.

Editor’s note:

This can be considered a companion case to Russian Federation v Luxtona2021 ONSC 4604 and lululemon athletica canada inc. v Industrial Color Productions Inc., 2021 BCCA 108, which also consider the record that can be put before the court when a party challenges an arbitral award. The following principles can be distilled from these cases:

1) On an application to the court to “decide the matter” of the tribunal’s preliminary jurisdiction determination pursuant to Art 16(3) of the Model Law, the court decides the question of consent to arbitration (jurisdiction) for itself, on a de novo basis, and fresh evidence may be adduced (Russian Federation v Luxtona). For earlier Case Notes on the Luxtona case see: Ontario – arbitral tribunal’s evidentiary record on jurisdiction challenge is not ignored but also does not confine court – #060Ontario – court revisits/reverses prior decision which allowed new evidence on post-award jurisdictional challenge – #272Ontario – Court application under Model Law Art. 16(3) to “decide the matter” of the tribunal’s jurisdiction is a hearing de novo and not a “review” of the tribunal’s decision – #513Lisa’s 2021 Top Pick: Ontario – Russian Federation v Luxtona Limited (Part 1) – #564, and Lisa’s 2021 Top Pick: Ontario – Russian Federation v Luxtona Limited (Part 2) – #568.

2) The same is true for a set aside application on jurisdictional grounds brought under Art. 34 of the Model Law (lululemon athletica canada inc. v Industrial Color Productions Inc., 2021 BCCA 428). It is heard on a de novo basis. For earlier Case Notes on the lululemon case see: B.C. – commercial dispute “foundationally different” from investor-state claim – #409B.C. – stay of execution’s “low threshold” for merits met by appeal offering opportunity to consider Mexico v. Cargill – #447BC – correctness standard of review applies on set aside applications on jurisdiction grounds – #555, and Myriam’s 2021 Top Pick: B.C. – lululemon athletica inc. v. Industrial Color Productions Inc. – #571.

3)  On a set aside application on procedural fairness or natural justice grounds, new evidence that was not before the tribunal is admissible only if it meets the test for new evidence on a judicial review application, ie that the evidence could not have been obtained earlier through reasonable diligence. Evidence to explain procedure and provide background information is admissible (Vento Motorcycles Inc. v United Mexican States, 2021 ONSC 7913).

author

Lisa C. Munro

Lisa Munro is a partner at Lerners LLP, whose practice is limited to work as an arbitrator in domestic and international commercial arbitrations (both ad hoc and under institutional rules). She brings to this role more than 25 years of experience as counsel in commercial/business litigation and both international and…

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