Canada is a federal state made up of 10 provinces2 and three territories.3 Its legal system is atypical in that it is bijural. The Canadian provinces and territories, with the exception of Quebec, are governed by the common law tradition, whereas Quebec's private law is of civil tradition.
Until 1986, the common law provinces and territories followed the model of the United Kingdom's Arbitration Act of 1889.4 To this day, the domestic arbitration statutes of Newfoundland, Prince Edward Island and the territories apply that model.5 Subsequently, following the adoption by the United Nations Commission on International Trade Law of the Model Law on International Commercial Arbitration (UNCITRAL Model Law) on 21 June 1985, British Columbia became the first jurisdiction to adopt the UNCITRAL Model Law anywhere in the world.6
Today, the provinces and territories have a separate body of legislation for domestic and international commercial arbitration.7 For example, Ontario enacted the Arbitration Act8 for domestic arbitration cases and the International Commercial Arbitration Act9 for international commercial arbitration cases. The common law provincial laws on international arbitration are based on the UNCITRAL Model Law, with minor differences.10 The province of Quebec, for its part, has not directly adopted the UNCITRAL Model Law, but has implemented its main components for both domestic and international commercial arbitration through the Civil Code of Quebec11 and the Code of Civil Procedure.12
On 22 March 2017, Ontario became the first common law province to incorporate the Model Law as amended by UNCITRAL on 7 July 2006 (2006 Model Law).13 British Columbia followed in May 2018, incorporating the language of the 2006 Model Law directly into the province's International Commercial Arbitration Act.14 In April 2019, the Alberta Law Reform Institute recommended that Alberta modernise its International Commercial Arbitration Act,15 citing the maintenance of the country and the province's reputation as a strong Model Law jurisdiction and the familiarity and ease of the use of a uniform arbitration infrastructure.16
The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) entered into force in Canada on 10 August 1986.17 Since then, every Canadian jurisdiction has incorporated the New York Convention into its legislative corpus through one form or another.18
Provincial legislation varies from province to province on matters such as appeal rights, the consolidation of arbitration proceedings, the control of arbitrators' status19 and power of courts to stay court proceedings in favour of arbitration.20 For instance, in respect of appeal rights, Ontario's Arbitration Act provides an appeal-related provision,21 whereas appeals are not provided for in certain legislation, such as international commercial arbitration statutes incorporating or appending the Model Law.22 Under those statutory regimes, no appeal is available from an arbitrator's award.23 Pursuant to legislation, including British Columbia's International Commercial Arbitration Act24 and Quebec's Code of Civil Procedure,25 the only possible recourse against an arbitration award is an application to set it aside.26 In the province of Quebec, this can be achieved by an application for the annulment of an award, presentable by motion to the court or by opposition to a motion for homologation.27 The aforementioned differences between provinces command vigilance in performing due diligence before choosing to seat an arbitration in Canada.
At the Canadian federal level, in matters of international commercial arbitration, the Commercial Arbitration Act28 (CAA) makes applicable the Commercial Arbitration Code29 '. . . where at least one of the parties to the arbitration is Her Majesty in right of Canada, a departmental corporation or a Crown corporation or in relation to maritime or admiralty matters'.30 The CAA also applies to domestic arbitration where Canada is a party to a dispute.31
This implies that, under the new Agreement between Canada, the United States of America, and the United Mexican States (CUSMA), popularly referred to as USMCA, which will replace the North American Free Trade Agreement (NAFTA), investor–state claims brought against Canada under Paragraph 1 of Annex 14-C of the Canada–United-States–Mexico Agreement Implementation Act, or under Article 14.D.3 of that Agreement,32 are governed by the CAA. This new CUSMA free trade agreement and its effects are discussed further in Section II. It is noteworthy that the country's federal structure is such that investor claims arising out of a provincial measure are to be taken against and defended by Canada.
Provincial and territorial international commercial arbitration legislation also provides recourse to local courts in specific circumstances, for example on applications to stay arbitration proceedings33 or on applications to set aside arbitral awards.34 The local courts in each province and territory with jurisdiction to hear such matters are the superior courts of first instance, such as the Supreme Court of British Columbia35 and the Superior Court of Quebec.36 Similarly, the federal CAA also provides recourse to 'the Federal Court or any superior, county or district court' in certain circumstances.
Several arbitral institutions operate across the country, such as the ADR Chambers, the ADR Institute of Canada, the British Columbia International Commercial Arbitration Centre, and the Canadian Commercial Arbitration Centre. Parties may likewise resort to foreign arbitral institutions (the ICDR, for example, has a separate set of arbitration and mediation rules for Canadian disputes).
ii THE YEAR IN REVIEW
i Developments affecting international arbitration
After years of inter-state negotiations, it took only a couple of hours on 13 March 2020 for Bill C-4, through which CUSMA is implemented into Canadian law, to pass through both Houses of Parliament and obtain Royal Assent. That is not to say that the agreement was ratified in Canada or is enforceable as of yet. For treaties that require implementing legislation to be enforceable, multiple steps need to be completed, including a waiting period before the introduction of the implementing legislation, modification of the relevant affected legislation37 and implementation. It is only when the relevant domestic legislation is adopted that the government will seek the authorisation of the Governor in Council to express consent to be bound by the treaty.38 Due to the covid-19 pandemic, the timeline of CUSMA's ratification by Canada and of its entry into force are uncertain. What is certain, however, is the effect of CUSMA on investment treaty arbitration: once CUSMA comes into effect and three years after the termination of NAFTA, investment treaty dispute resolution as previously known under NAFTA will no longer exist between Canada and the United States.39 This constitutes a radical departure from the spirit of NAFTA – one of the most influential investment treaties – and of its Chapter 11 investor–state dispute settlement process.40
Investors from Canada and Mexico will, however, still have access to investor–state dispute settlement (ISDS) through the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). CUSMA also provides a limited bilateral exception between the United States and Mexico.41 To present a claim under CUSMA, investors must either exhaust local remedies or wait for a period of 30 months after the commencement of local proceedings.42 Moreover, claims must be submitted within a period of four years since knowledge of the breach in question, thus leaving a theoretical window of approximately 12 months to submit a claim.43 Further, claimants have to inform respondents of their intention to submit a claim to arbitration (notice of intent) at least 90 days before submitting any claim to arbitration under Annex 14.D.3.44
On the other hand, Canada's investment dispute resolution legal framework was notably expanded in recent years with the addition of several new binding agreements, namely the Comprehensive Trade and Economic Agreement between Canada and the European Union (CETA), which entered into force on 21 September 2017, the CPTPP, which entered into force on 30 December 2018, the Canada–Kosovo Foreign Investment Promotion and Protection Agreement, which entered into force on 12 December 2019, and the Canada–Moldova Foreign Investment Promotion and Protection Agreement, which entered into force on 23 August 2019.45 There is currently no reason to believe that ISDS will disappear from the Canadian Model bilateral investment treaty (BIT).
ii Arbitration developments in local courts
As noted in prior editions of this publication, recent case law has crystalised the general trend affirming Canadian courts' pro-arbitration reputation. This brief Section addresses decisions concerning arbitration clauses, the enforcement of awards, standard form contracts and stays of proceedings in favour of arbitration.
In the Supreme Court of Canada decision International Air Transport Association v. Instrubel, NV,46 with dissenting reasons rendered as recently as 1 May 2020, the majority of the seven judge bench maintained a decision of the Court of Appeal of Quebec regarding provisional measures related to the enforcement of an arbitral award.
Instrubel, a Dutch company, commenced arbitration proceedings under the auspices of the International Court of Arbitration at the International Chamber of Commerce (ICC) against the Ministry of Industry of the Republic of Iraq concerning contracts concluded more than 30 years prior. The arbitral tribunal rendered awards against Iraq in 1996 and 2003. As of 2013, Iraq had still not paid the damages that the 2003 arbitral award had ordered it to pay. As a result, Instrubel considered its recovery of the award to be at risk, and sought to seize, in an amount sufficient to satisfy the partial award and the final award, the aerodrome charges and air navigation charges in the hands of the impleaded party, the International Air Transport Association (IATA), which it held on behalf of the Republic of Iraq through its Iraqi Civil Aviation Authority (ICAA).47
IATA, headquartered in Montreal, collects landing and similar fees as an agent of ICAA and other such entities around the world. Although the sums sought to be seized were held in a Swiss bank account,48 the Court of Appeal of Quebec held that Quebec courts had jurisdiction on the basis of IATA's domicile in Montreal.49 It found that the debt was, for the purposes of private international law, located at the place where it was collectible, that is, at the debtor's domicile or principal place of business.50 The Court relied on the importance of encouraging international trade and avoiding forcing judgment creditors to engage in international 'showmanship' and discovering or guessing where a garnishee may have deposited money in their accounting records, calling it 'a virtually impossible task'.51 The precise location of cash deposits seems to be less important than the location where monetary flows can be stopped.
This case is indicative of the Canadian courts' sensitivity to the dynamics and challenges in the enforcement. Simply put, this decision is likely to make enforcement proceedings of arbitration awards in Canada even more appealing, even for parties and disputes not connected with Canada.
In recent case law, Canadian courts were called upon to rule on the intersection between arbitration clauses and class actions. This area is in constant evolution, and the much-discussed Heller v. Uber Technologies Inc (Heller)52 decision of the Ontario Court of Appeal is in the process of being reviewed by the Supreme Court of Canada, as leave to appeal has been granted. This case refers to a notion that is likely to permeate upcoming matters dealing with requests for stays in proceedings with an arbitration clause in a standard form contract or contract of adhesion: the doctrine of unconscionability.
In the Heller case, the Ontario Court of Appeal set aside a request to stay a proposed class action in favour of international arbitration, overturning the motion judge's decision to stay the class action.53 The appellate court ruled on the arbitration agreement in Uber's contract with their drivers, which included an arbitration clause whereby any dispute would ultimately be referred to arbitration before the ICC in proceedings governed by the law of the Netherlands.54 It found that the context of employment law, at the heart of the dispute, was analogous to consumer law protections against forum selection clauses.55 The Court referred to a leading Supreme Court of Canada decision, Douez v. Facebook, Inc,56 in which the majority found that 'there is no requirement for a party trying to avoid a forum selection clause to prove that his/her claim would fail in that forum'.57 In the end, the Court of Appeal found the arbitration clause to be invalid under Section 7(2) of Ontario's Arbitration Act, and thus the mandatory stay provided for in Section 7(1) of same does not apply.58 The Court also found that it would have reached the same conclusions had it applied the International Commercial Arbitration Act59 instead of the Arbitration Act.60
It also found the arbitration clause to be unconscionable61 under common law, which essentially requires the demonstration of the existence of two elements in the contractual provision: inequality of bargaining power and unfairness. This test was also applied in the aforementioned Douez case both by Abella J in her concurring reasons62 and the dissenting judges.63 The majority did not address the issue.
In another recent Supreme Court of Canada decision, TELUS Communications Inc v. Wellman,64 the highest court in the land addressed more directly this doctrine of unconscionability in a domestic arbitration case, referring to the Heller case. In this case, Telus, a telecommunication company, contended that the class action brought against it for alleged mobile phone service overcharges should be stayed in respect of its business customers.65
Wellman submitted, conversely, that Section 7(5) of the Ontario Arbitration Act66 grants the court discretion to allow all of class members, consumers and business customers alike to pursue their claims together in court, provided it would not be reasonable to separate their claims.67
The majority of the Court remarked that arguments over any potential unfairness resulting from the enforcement of arbitration clauses contained in standard form contracts are better dealt with directly through the doctrine of unconscionability, as was done in the Heller case,68 rather than through Section 7(5) of the Ontario Arbitration Act.69 To put this teaching simply, Section 7(5) of the Arbitration Act, while it could be used to stay a proceeding, is not meant to be 'a legislative override of the parties' freedom to choose arbitration'.70 Although this was a case brought under the domestic arbitration act, the court referred to the Heller case, which, if confirmed by the Supreme Court, will affect international arbitration judicial treatment.
In light of the above, the upcoming Supreme Court decision in Heller, which will likely address the doctrine of unconscionability, will be closely monitored, as it will have a marked impact on various stay of proceedings matters and, more broadly, the validity of arbitration clauses in fields as varied as consumer and employment law.
Notwithstanding the issue of unconscionability, recent Canadian case law has largely followed the well-established courts' general approach as to the enforceability of arbitration provisions. For example, in Belnor Engineering Inc v. Strobic Air Corporation et al,71 the Superior Court of Ontario, subsequent to the Heller case, found that the arbitration clauses in sales agreements were enforceable despite the fact that the clauses 'could have been drafted more clearly',72 as they did not 'set out details with respect to how an arbitrator will be chosen, the venue of the arbitration and other related timelines and procedures for an arbitration'.73 Further, the Court distinguished the case at hand with Heller, finding no ground to the unconscionability argument.74 Thus, the Court refused to stay the proceedings under Sections 6 and 7 of the Ontario Arbitration Act and Article 8 of Schedule 2 to the Ontario International Commercial Arbitration Act, as the clause was neither vague nor unconscionable.75 From this Superior Court decision we stress two principal teachings: the Heller case might be a fact-specific authority rather than a field-impacting reform to the validity and enforceability of arbitration clauses; and the enforceability of arbitration clauses is the rule and not the exception, and when exceptions do exist, they appear to be well circumscribed.
Similarly, we note in conclusion the case of Lakah v. UBS,76 from the Quebec Court of Appeal, which confirms the decision of the first instance, from which we retain two teachings that reaffirm the domestic and international arbitration-friendly trend of Canadian courts:
- the Quebec Superior Court observed that the right to a stay under Article 654 of Quebec's Code of Civil Procedure77 – modelled after Article 36(2) of UNCITRAL Model Law – is not automatic and should only be granted in exceptional circumstances, in that a stay 'impedes one of the key goals of arbitration, which is to avoid protracted litigation'; and
- once a court finds that a temporary stay is exceptionally justified, the party requesting the stay has the burden of resisting suretyship by demonstrating their lack of means to satisfy said order.78
iii Investor–state disputes
In the past year, several long-running arbitrations have been brought to a close.
Mercer International Inc v. Canada79 was previously discussed in the ninth edition of The International Arbitration Review, when the award had not yet become public. Since then, the majority award in the respondent's favour has been revealed. Mercer, a US company, argued that Canada, through the acts of the British Columbia Utilities Commission (BCUC) and BC Hydro, treated it in a discriminatory fashion. The tribunal limited its jurisdiction only to the claimant's claims concerning one measure of the BCUC (Order G-48-09), while holding it was not competent to decide on the investor's other submissions.80 On the merits, all of Mercer's remaining claims (national, most-favoured nation and minimum standard of treatment) were dismissed.
Following the claimant's request pursuant to Article 57 of the ICSID Additional Facility Rules, the tribunal issued a supplementary decision in December 2018. The claimant argued that the tribunal had omitted to decide its claim for damages relating to the BCUC G-48-09 Order.81 The tribunal dismissed the claimant's request.82 Not only did the claimant not contend that there was a separate set of damages arising in relation to that measure, but it expressly stated at the hearing that the tribunal could deal with those damages and damages flowing from a different measure collectively.83 Since the tribunal had dismissed claims as to liability, it followed it had to also dismiss the damages claim.84
In January 2019, the tribunal in Clayton/Bilcon v. Government of Canada ordered the respondent to pay the investors US$7 million with interest,85 an amount significantly lower than the one claimed (US$443,350,772).86 The case concerned the failure of the claimants' project in the Canadian province of Nova Scotia because it was contrary to core community values. As none of the pertinent environmental guidelines required a potential project to comply with such values, the tribunal found that the decision to deny the claimants' requisite permits was arbitrary and discriminatory. The amount awarded was, therefore, meant to compensate for the respondent's breaches of NAFTA Articles 1105 (minimum standard of treatment) and 1102 (national treatment).87
After acknowledging the standard of full reparation, which was first set out in Chorzow, and later upheld in Article 31 of the ILC Articles and numerous NAFTA disputes,88 the tribunal noted a distinction between two aspects of quantum. The first requires an answer to the question of 'whether causation between the unlawful act and the alleged injury has been established'. 89 If it has, the second aspect requires the determination of 'the precise amount of the loss suffered'.90
For the purposes of the first question, the tribunal referred to its conclusions in the award on jurisdiction and liability. Nonetheless, because the parties disagreed 'as to the scope of issues of fact and law that are to be considered res judicata',91 the tribunal saw fit to once again clarify the basis of the respondent's liability in the award on damages. Having done that, it turned to 'the situation that would have prevailed “in all probability” or “with a sufficient degree of certainty”' had there been no breaches of NAFTA.92 The parties concurred that Canada's NAFTA breaches deprived the investors of 'a fair opportunity to have the environmental impact of [the project] assessed in a fair and non-arbitrary manner'. 93 However, they disagreed on 'whether the investors have proven any injury beyond that with the required degree of certainty'.94 The tribunal ruled that they had not.95 Consequently, the claimants were 'only entitled to compensation equivalent to the value of the opportunity to have the environmental impact of the [project] assessed in a fair and non-arbitrary manner'.96
When quantifying the exact value of the opportunity lost, the tribunal considered the amounts the investors had expended (before and during the environmental assessment, as well as immediately after the negative decision), and past transactions made in relation to the site of the project.97 The tribunal concluded that the value was US$7 million.
Apart from the main issues concerning the heads of damages and quantum, the tribunal also made pronouncements on other matters of potential interest: duty to mitigate damages,98 tax gross-up of the amount of damages99 and the distinction between Articles 1116 and 1117 NAFTA.100
Fixing and allocating the costs of arbitration was left to be decided in a separate, final award on costs,101 which may not see the light of day for a while. In April 2019, the investors sought to set aside the award on damages in Ontario.102 As the parties had agreed to suspend the procedural calendar, as well as the running of interest on the award of damages pending the conclusion of the set aside proceedings, all further steps are 'deferred until a Canadian court has dismissed or allowed the application for set aside and there is no further appeal'.103 The Clayton/Bilcon award on jurisdiction and liability raised much concern from ISDS commentators, especially from states wary of the possible regulatory chilling effect of the decision. It remains to be seen whether the relatively minimal amount of damages granted – if upheld – will quell those concerns.
The start of 2020 saw the conclusion of the Mobil Investments saga. The proceedings were the sequel to an earlier arbitration in which Canada was held in breach of Article 1106 NAFTA because the Canada-Newfoundland and Labrador Offshore Petroleum Board (C-NLOPB) applied Guidelines for Research and Development Expenditures to the claimant's project.104 Despite having an award rendered against it, Canada, through C-NLOPB, continued to apply these Guidelines. This triggered a second arbitration in 2015. This time, the proceedings were concluded with a consent award issued pursuant to Article 43(2) of the ICSID Arbitration Rules. In 'consideration for the withdrawal, settlement and waiver of the claims, [Canadian subsidiaries of Mobil Investments Canada] received a credit of C$35 million to apply against [“the obligation under the Guidelines to spend a fixed percentage of revenues on research, development, education and training within the Province”105]'.106
Canada was more fortunate in Global Telecom Holding SAE v. Canada, the state's first-known successful defence of a BIT case.107 The dispute was brought under the Canada–Egypt BIT108 and concerned Global Telecom Holding's (GTH) investment in the Canadian telecommunications market and mobile services, which it provided through Wind Mobile, GTH's joint venture with a Canadian operator. The investor alleged Canada had failed to guarantee the unrestricted transfer of GTH's investment, in addition to breaching fair and equitable treatment (FET), full protection and security (FPS) and national treatment (NT).109 Apart from contesting the merits of the claimant's case, Canada raised a number of jurisdictional objections, in particular that:
- GTH did not qualify as an investor either under Article I(g) of the BIT or under Article 25(2)(b) of the ICSID Convention;
- GTH's claims concerning the transfer framework did not fall within the tribunal's jurisdiction under Article II(4)(b);
- claims were time-barred under Article XIII(3)(d); and
- GTH's NT claims were excluded from dispute resolution under the BIT under Article IV(2)(d).110
The respondent also contested GTH's standing to bring claims relating to the treatment of Wind Mobile.111 Evidently, the claimant argued the exact opposite.112 Although the respondent's jurisdictional objections were dismissed (save for the Article IV(2)(d) objection, upheld by the majority of the tribunal),113 Canada prevailed on the merits.114
According to the tribunal, to qualify as an investor under the BIT, a juridical person had to meet two cumulative conditions: establishment in accordance with the laws of Egypt and permanent residence in the territory of Egypt.115 As the claimant complied with both, the tribunal held it was indeed an investor as defined in the BIT.116
The majority of the tribunal also dismissed Canada's Article II(4)(b) jurisdictional objection.117 This provision excluded the application of the arbitration mechanism set out in Article XIII of the BIT to 'decisions by either Contracting Party not to permit . . . the acquisition of an existing business enterprise or a share of such enterprise by investors . . .'118 Canada contended that decisions made pursuant to the Investment Canada Act (ICA) were not arbitrable.119 In Canada's view, the ICA was triggered when GTH submitted the voting control application.120 GTH objected to the respondent's 'attempt to improperly expand the scope of Article II(4)' by 'import[ing] this domestic law into the BIT'.121 GTH argued that 'a conversion of GTH's non-voting shares into voting shares in order to take control of Wind Mobile' was not an acquisition within the meaning of Article II(4)(b).122 Interpreting this provision in accordance with the general interpretation standard under Article 31(1) of the Vienna Convention on the Law of Treaties, the tribunal's majority sided with the claimant.123
Canada's ratione temporis objection to the tribunal's jurisdiction was likewise deemed unfounded.124 Although the parties made various submissions, for jurisdictional purposes the tribunal only focused on the wording of Article XIII(3)(d).125 The claimant's contentions of composite breach were left for the merits,126 and the respondent's references to past NAFTA precedents were dismissed as inapplicable due to the differences in the relevant terms of that treaty and the BIT in question.127
Article IV(II)(d) is the only objection the tribunal upheld (though Mr Born dissented on this particular issue).128 By virtue of Article IV(II)(d), Canada 'reserve[d] the right to make and maintain exceptions [to NT] in the sectors or matters listed below: social services . . ., services in any other sector', which, according to the respondent, included the telecommunications sector.129 While noting that the annex, containing the exceptions, could have been drafted in clearer terms, the tribunal held it had to 'interpret the text of the BIT as it is, not as it should have been drafted in an ideal situation'.130 In addition, the language used left 'no room for doubt that Canada has the right to make exceptions to its national treatment obligation with respect to “services”'131 and 'no basis . . . to impose an additional procedural requirement that triggers the effectiveness of the exception'.132 According to Mr Born, this interpretation renders 'the vast bulk of Canada's obligation . . . almost entirely without any substance or effect'.133 Following the majority's reasoning would allow the respondent to impose discriminatory measures in 'what appears to encompass some 70 percent of Canada's economy'.134 According to Mr Born, '“reserving a right” is asserting the freedom to exercise (or not to exercise) the reserved right in the future; it is not the present exercise of the right that has been reserved'.135 Even if Article IV(2)(d) had the meaning ascribed to it by the majority, Mr Born disagreed with the majority's 'remarkable' characterisation of telecommunications as services.136 As the respondent had made no submissions on the merits of the claimant's NT claim, GTH was entitled to damages resulting from this breach.137
Finally, the tribunal held that the claimant had standing under Article XIII(1) of the BIT.138 The respondent submitted that GTH and Wind Mobile could not 'be equated with one another, following the principle of international law [set forth by the ICJ in Barcelona Traction] that an enterprise and its shareholders have separate legal personality'.139 The claimant countered with another 'well-recognized principle of international investment law' according to which the 'bundle of rights and legitimate expectations that comes with owning shares of a company like Wind Mobile are protected under the BIT'.140 The tribunal held that 'GTH's indirect shareholding in Wind Mobile and the debt owed to it by Wind Mobile [were] qualifying investments that [were] protected by the BIT'.141 Furthermore, as GTH brought a claim in respect of its own loss as an investor in Wind Mobile (and not 'on behalf of Wind Mobile or for damages incurred by Wind Mobile'), the tribunal held that the claimant was not required to comply with the terms of Article XIII(12) of the BIT.142 While underscoring the continued relevance of Barcelona Traction, the tribunal distinguished that case, which 'was essentially about diplomatic protection', from the arbitration at bar, which was 'predicated primarily on the terms of the BIT'.143 The broad definition of a qualifying investment, which included an 'indirect holding of shares and claims to money', led the tribunal to dismiss this jurisdictional objection of the respondent.144
On the merits, the tribunal dismissed all of GTH's claims.145 In relation to the FET, the tribunal found no representation, made by Canada, 'that could give rise to a legitimate expectation of GTH that it is assured of being permitted to transfer its spectrum licenses to [another mobile operator] after the expiry of the five-year restriction on transfers'.146 Furthermore, Canada's actions were not arbitrary in the sense espoused by the Crystallex v. Venezuela147 and EDF v. Romania148 tribunals.149 Finally, Canada's actions did not amount to a 'composite/cumulative breach', as the claimant failed to demonstrate that the respondent's various acts converged toward the same result.150
With respect to the FPS, the parties agreed that it was a standard independent of the FET151 and that it covered the host state's obligation to provide physical protection to the investor, its investments and the investor's returns.152 The parties, however, disagreed on whether the obligation to afford FPS also encompassed commercial and legal protection.153 Although the tribunal agreed with the claimant that 'investors [were] entitled to the full extent of the unqualified assurance of FPS,'154 it found no merit in its FPS claim. The claimant's FPS claim was based on the same facts as its FET claim,155 which the tribunal had previously dismissed. While the tribunal considered each of the claimant's allegations in the specific context of the FPS,156 it found 'no basis in the evidential record . . . to determine that Canada has failed to exercise “due diligence” with respect to the protection of GTH's investment'.157
Finally, the tribunal also disagreed with the claimant's contention that 'Canada hampered its ability to freely dispose of the return of the sale of its investment in Wind Mobile'.158 The gist of the claimant's argument was that Canada violated Article IX(1) when it 'blocked GTH's ability to transfer its investment to a [dominant wireless service provider in the Canadian market] after the expiration of the five-year transfer restriction'.159 Relying on the ordinary meaning of the terms used and the purpose of free transfer provisions, the respondent challenged the claimant's expansive reading of the provision, saying that it was 'limited to guaranteeing the free transfer of funds between Canada and Egypt', and did not apply to the sale of assets within Canada.160 The tribunal noted that the claimant's interpretation of the term transfer in Article IX of the BIT was, indeed, misconceived.161
The award may rightfully be considered as a significant victory for Canada, as GTH had claimed damages of over US$1 billion for each breach found.162
A few NAFTA cases that were commenced fairly recently against Canada are likely to remain on the horizon for the foreseeable future. These include claims brought by Tennant Energy, LLC (a PCA-administered energy dispute);163 Westmoreland Coal Company (a mining dispute conducted under the UNCITRAL Rules);164 Resolute Forest Products Inc (a manufacturing dispute under the 1976 UNCITRAL Rules);165 and Einarrson (an oil and gas matter).166 Further developments are also expected in the long-running UNCITRAL Lone Pine v. Canada case,167 following the passing of the tribunal president, Mr Veeder.
Several cases not involving a Canadian party are likewise noteworthy. The B-Mex v. United Mexican States168 dispute, a Toronto-seated ICSID arbitration under NAFTA, concerns claims by US companies that invested in the gaming industry in Mexico. In July 2019, the tribunal issued a partial award, upholding its jurisdiction (although Professor Vinuesa partially dissented)169 and ordering the respondent to compensate a portion of the claimants' legal costs (US$1,399,362.40 out of the US$8,453,600.11 requested). Noting that it had 'wide discretion under the Additional Facility Rules', the tribunal refrained from awarding the claimants the entire amount claimed for the following reasons: the performance of the claimants' legal counsel did not warrant legal costs that are 'more than 580% of the respondent's legal costs'; some of those costs were avoidable; and the respondent's objections were not frivolous and entirely unsuccessful.170 The hearing on the merits is provisionally set to take place in November 2021.171
Another interesting development concerns one of the former Yukos shareholders. In Russian Federation v. Luxtona Limited,172 the Ontario Superior Court demonstrated the Canadian judiciary's pro-arbitration attitude in the context of set aside proceedings under Articles 16 and 34 of the Model Law.173 The Court disallowed Russia's attempt to file new evidence on Russian law as of right. The Court rather held that a party wishing to introduce new evidence had to show that 'the evidence (i) could not have been obtained using reasonable diligence, (ii) would probably have an important influence on the case, (iii) was apparently credible, and (iv) must be such that if believed it could reasonably, when taken with the other evidence adduced at the hearing, be expected to have affected the result'.174
iii OUTLOOK AND CONCLUSIONS
If past practice is any indication of future trends, commercial arbitration is likely to continue to flourish in Canada, given the judiciary's pro-arbitration stance. Furthermore, in the age of a pandemic that has paralysed courts across the globe, users' preference for arbitration may increase, as arbitration is generally better suited to adapt swiftly to new normalities than traditional court litigation.
In the area of investor–state disputes, change is imminent. Not only will investors have to adjust to the phasing out of NAFTA's dispute resolution mechanism in the near future, they will also have to embrace a somewhat different way of settling their differences through an investment court (e.g., such as the one envisaged in the CETA). Furthermore, the recent decision of the vast majority of EU Member States to terminate intra-EU BITs might cause a rise in claims brought by Canadian investors, whether under CETA or one of the numerous BITs and free trade agreements Canada is currently party to.
1 James A Woods is the founder of, and Eric Bédard is a senior associate, Dina Prokić is an associate and Charbel G Abi-Saad is an articling student at, Woods LLP.
2 Alberta, British Columbia, Manitoba, Ontario, New Brunswick, Newfoundland and Labrador, Nova Scotia, Prince Edward Island, Quebec and Saskatchewan.
3 The Northwest Territories, Nunavut and Yukon.
4 J Kenneth McEwan and Ludmila B Herbst, Commercial Arbitration in Canada – A Guide to Domestic and International Arbitration, Canada Law Book, Thomson Reuters, 2018, Toronto, pages 1–9.
6 ibid., pages 1–11.
7 All provinces have enacted their own International Commercial Arbitration Act except Quebec, whose civil codes have specific provisions pertaining to arbitration and international commercial arbitration.
8 Arbitration Act, 1991, SO 1991, c. 17.
9 International Commercial Arbitration Act, R.S.O. 1990, c. I-9.
10 Lawrence E Thacker, 'Arbitration procedures and practice in Canada: overview', Practical Law, Thomson Reuters, 2013, https://ca.practicallaw.thomsonreuters.com/0-502-1672?transitionType=Default&contextData=(sc.Default)&firstpage=true&bhcp=1.
11 Civil Code of Quebec, S.Q. 1991, c. 64, Articles 2638-2643, 3121, 3133, 3148 and 3168. Desputeaux v. Éditions Chouette (1987) inc, 2003 SCC 17, para. 40: 'The Civil Code [of Quebec] excludes from arbitration only “[d]isputes over the status and capacity of persons, family members or other matters of public order” (art. 2639 C.C.Q.)'.
12 Code of Civil Procedure, CQLR, c C-25.01 at Articles 649-651. In international context, the UNCITRAL Model Law is nevertheless given considerable interpretative weight (see Dell Computer Corp v. Union des consommateurs, 2007 SCC 34 and Article 649(1) of the Code of Civil Procedure ). In pure domestic cases, the UNCITRAL Model Law can also be looked at to interpret the Code of Civil Procedure (Coderre v. Coderre, 2008 QCCA 888).
13 Section 5(1) and also appended as Schedule 2 of the Act. For more detail, see the ninth edition of this publication.
14 As also evidenced by the International Commercial Arbitration Act, RSBC 1996, c 233, Section 6(1)(b)(iii).
15 International Commercial Arbitration Act, RSA 2000, c I-5. See Alberta Law Reform Institute, Uniform International Commercial Arbitration, Alberta Law Reform Institute, 2019 CanLIIDocs 3718, http://www.canlii.org/t/spkk, page 18.
16 ibid., page 20.
17 J Kenneth McEwan and Ludmila B Herbst, Commercial Arbitration in Canada – A Guide to Domestic and International Arbitration, Canada Law Book, Thomson Reuters, 2018, Toronto, pages 1–7.
18 ibid., pages 1–8.
19 Only in the case of the provinces of Quebec and British Columbia is the lack of an agreement between the parties to exclude judicial intervention a relevant condition for a judge to consider in the matter of controlling the status of an arbitrator. For more details, see Frédéric Bachand, L'intervention du juge canadien avant et durant un arbitrage commercial international, Éditions Yvon Blais, 2005, pages 330–3.
20 Lawrence E Thacker, 'Arbitration procedures and practice in Canada: overview', Practical Law, Thomson Reuters, 2013, https://ca.practicallaw.thomsonreuters.com/0-502-1672?transitionType=Default&contextData=(sc.Default)&firstpage=true&bhcp=1.
21 Arbitration Act, 1991, SO 1991, c. 17, Section 45. Section 45(1), pertaining to the only appeals category that does not require an express stipulation in the arbitration agreement, which provides that:
(1) If the arbitration agreement does not deal with appeals on questions of law, a party may appeal an award to the court on a question of law with leave, which the court shall grant only if it is satisfied that,
(a) the importance to the parties of the matters at stake in the arbitration justifies an appeal; and
(b) determination of the question of law at issue will significantly affect the rights of the parties.
22 J Kenneth McEwan and Ludmila B Herbst, Commercial Arbitration in Canada – A Guide to Domestic and International Arbitration, Canada Law Book, Thomson Reuters, 2018, Toronto, pages 10–17.
23 ibid. See also ENMAX Energy Corporation v. TransAlta Generation Partnership (2018), 21 C.P.C. (8th) 371 (Alta. Q.B.), para. 34.
24 Section 34(1).
25 Articles 649-655.
26 J Kenneth McEwan and Ludmila B Herbst, Commercial Arbitration in Canada – A Guide to Domestic and International Arbitration, Canada Law Book, Thomson Reuters, 2018, Toronto, pages 10–17.
27 Code of Civil Procedure, CQLR, c C-25.01, Articles 649-645. See also J Kenneth McEwan and Ludmila B Herbst, Commercial Arbitration in Canada – A Guide to Domestic and International Arbitration, Canada Law Book, Thomson Reuters, 2018, Toronto, pages 10–17.
28 RSC 1985, c 17 (2nd Supp).
29 Desputeaux v. Éditions Chouette (1987) inc, 2003 SCC 17, para. 40: '. . . the Commercial Arbitration Code, . . . is based on the model law adopted by the United Nations Commission on International Trade Law on June 21, 1985'.
30 Commercial Arbitration Act, RSC 1985, c 17 (2nd Supp), Section 5(2).
31 J Kenneth McEwan and Ludmila B Herbst, Commercial Arbitration in Canada – A Guide to Domestic and International Arbitration, Canada Law Book, Thomson Reuters, 2018, Toronto, pages 1–12.
32 An Act to implement the Agreement between Canada, the United States of America and the United Mexican States (Bill C-4), Article 137. This Article repealing the former Article 5(4)(a) of the Commercial Arbitration Act, which provided that the expression commercial arbitration in the CAA includes 'a claim under Article 1116 or 1117 of the Agreement, as defined in subSection 2(1) of the North American Free Trade Agreement Implementation Act'.
33 See for example International Commercial Arbitration Act, RSO 1990, c I.9, Section 7(1)(c).
34 See for example International Commercial Arbitration Act, RSBC 1996, c 233, Section 34.
35 See for example ibid., Sections 13(4)(5)(6), 14(2)(3), and 35(1).
36 Under Quebec law, depending on factors such as the amount claimed, the Quebec court cnr have exclusive jurisdiction over arbitration matters that involve less than C$85,000 in terms of the amount claimed. See Code of Civil Procedure, CQLR, c C-25.01, Articles 33 and 39.
37 See Bill C-4, Part 2.
39 Annex 14-C-3.
40 Canada's withdrawal can be explained in part by the number of cases brought against Canada under NAFTA's ISDS being higher than those against the United States or against Mexico (48 per cent of the 85 known NAFTA claims were made by foreign investors against Canada), and the significant financial costs. Of the cases settled as of 2018, Canada had to pay C$219 million in damages and settlements, and the legal costs amounted to C$95 million. For more detail, see Scott Sinclair, Canada's Track Record Under NAFTA Chapter 11 – North American investor–state Disputes to January 2018, Canadian Centre for Policy Alternatives, pages 1–5. The fact that Canadian investors have never successfully resorted to this protection against measures taken by the US might also have been weighed in the decision.
41 Annex 14-D.
42 Article 14.D.5-1(b).
43 Article 14.D.5-1(c).
44 Article 14.D.3-2.
45 Government of Canada, Trade and investment agreements, Government of Canada, 2020, https://www.international.gc.ca/trade-commerce/trade-agreements-accords-commerciaux/agr-acc/index.aspx?lang=eng.
46 2019 SCC 61.
47 ibid., para. 34.
48 Instrubel v. Republic of Iraq, 2019 QCCA 78, paras. 29-30.
49 ibid., para. 42.
51 ibid., para. 50. This conclusion is based in part on the following legal observation: 'In order to be traceable, funds must be identified and not merely quantified . . . If funds cannot be quantified and identified (i.e. traced), there can be no claim to ownership at Common Law and I would hazard to say in Civil Law.' ibid., para. 37.
52 2019 ONCA 1.
53 ibid., para. 75.
54 ibid., para. 11.
55 ibid., para. 71, the Court of Appeal writing:
I would add that, for the purposes of this analysis, I do not see any reasonable distinction to be drawn between consumers, on the one hand, and individuals such as the appellant, on the other. . . . the drivers are individuals who are at the mercy of the terms, conditions and rates of service set by Uber, just as are consumers. If they wish to avail themselves of Uber's services, they have only one choice and that is to click “I agree” with the terms of the contractual relationship that are presented to them.
56 2017 SCC 33.
57 ibid., para. 67.
58 Heller v. Uber Technologies Inc, 2019 ONCA 1, para 51.
59 2017, S.O. 2017, c. 2, Sched. 5.
60 Heller v. Uber Technologies Inc, 2019 ONCA 1, para. 21.
61 ibid., para. 60. In Ontario, the existing case law refers to a four-elements test:
1. a grossly unfair and improvident transaction;
2. a victim's lack of independent legal advice or other suitable advice;
3. an overwhelming imbalance in bargaining power caused by the victim's ignorance of business, illiteracy, ignorance of the language of the bargain, blindness, deafness, illness, senility, or similar disability; and
4. the other party's knowingly taking advantage of this vulnerability.
62 Douez v. Facebook, Inc, 2017 SCC 33, para. 115.
63 ibid., para. 145.
64 2019 SCC 19.
65 ibid., paras. 4–7.
66 Section 7(5) of the Arbitration Act provides:
Agreement covering part of dispute
(5) The court may stay the proceeding with respect to the matters dealt with in the arbitration agreement and allow it to continue with respect to other matters if it finds that,
(a) the agreement deals with only some of the matters in respect of which the proceeding was commenced; and
(b) it is reasonable to separate the matters dealt with in the agreement from the other matters.
67 ibid., para. 6.
68 ibid., para. 85.
69 ibid., para. 8.
71 2019 ONSC 664.
72 ibid., para. 22.
73 ibid., para. 27.
74 ibid., para. 35. The Court summarized Heller in this manner at para. 34: 'the Heller case where inequality of bargaining power or practical inaccessibility of arbitration would create an unfairness if this action is stayed in favour of arbitration'.
75 ibid., para. 36.
76 2019 QCCA 1869.
77 Article 654 of the Code of Civil Procedure provides:
654. The court may stay its decision in respect of the recognition and enforcement of an arbitration award if an application for the annulment or suspension of the award is pending before the competent authority of the place where or under whose law the arbitration award was made.
If the court stays its decision, it may, on the request of the party applying for recognition and enforcement of the award, order the other party to provide a suretyship.
78 Lakah v. UBS, 2019 QCCA 1869, para. 5.
79 Mercer International Inc v. Canada, ICSID case No. ARB(AF)/12/3, award (6 March 2018).
80 ibid., paras. 8.2-8.3.
81 Mercer International Inc v. Canada, ICSID case No. ARB(AF)/12/3, supplementary decision (10 December 2018), para. 5,
82 ibid., para. 26.
83 ibid., paras. 19-21.
84 ibid., para. 24.
85 Clayton/Bilcon v. The Government of Canada, PCA case No. 2009-04, award on damages (10 January 2019), para. 400.
86 ibid., para. 87.
87 ibid., para. 93.
88 ibid., para. 108.
89 ibid., para. 112.
90 ibid., para. 112.
91 ibid., para. 116.
92 ibid., para. 133.
93 ibid., para. 133.
94 ibid., para. 133.
95 ibid., paras. 168, 175.
96 ibid., para. 176.
97 ibid., paras. 281, 289.
98 ibid., paras. 195, 207, 211, 215, 218.
99 ibid., paras. 311–315.
100 ibid., para. 389.
101 ibid., para. 399.
102 Clayton/Bilcon v. The Government of Canada, PCA case No. 2009-04, procedural order No. 27 regarding interest on the award on damages and the calendar for costs submissions (8 May 2019), para. 5.
103 ibid., para. 7.
104 Mobil Investments Canada Incand Murphy Oil Corp v. Government of Canada, ICSID case No. ARB(AF)/07/4, award (20 February 2015).
105 Mobil Investments Canada inc v. Government of Canada, ICSID case No. ARB/15/6, award (4 February 2020), para. 20.
106 ibid., para. 6.
107 Cosmo Sanderson, 'Canada defeats first BIT claim', Global Arbitration Review (1 April 2020): https://globalarbitrationreview.com/Article/1224929/canada-defeats-first-bit-claim.
108 Agreement between the Government of Canada and the Government of the Arab Republic of Egypt for the Promotion and Protection of Investments, entered into force on 11 March 1997.
109 Global Telecom Holding SA v. Government of Canada, ICSID case No. ARB/16/16, award (27 March 2020), para. 202.
110 ibid., paras. 206, 225.
111 ibid., para. 206.
112 ibid., para. 208.
113 ibid., para. 447.
114 ibid., para. 731.
115 ibid., para. 285.
116 ibid., para. 299.
117 ibid., para. 325.
118 ibid., para. 303.
119 ibid., para. 306.
120 ibid., para. 307.
121 ibid., para. 319.
122 ibid., para. 315.
123 ibid., para. 336.
124 ibid., para. 412.
125 ibid., para. 406.
126 ibid., para. 406.
127 ibid., para. 410.
128 ibid., para. 447.
129 ibid., paras. 340–341.
130 ibid., paras. 373, 374.
131 ibid., para. 367.
132 ibid., para. 368.
133 Dissenting opinion of Mr Gary Born (27 March 2020), para. 16.
134 ibid., para. 38.
135 ibid., para. 20.
136 ibid., para. 50 et seq.
137 ibid., para. 11.
138 Global Telecom Holding SA v. Government of Canada, ICSID case No. ARB/16/16, award (27 March 2020), para. 446.
139 ibid., para. 416.
140 ibid., para. 431.
141 ibid., para. 442.
142 ibid., para. 443.
143 ibid., para. 445.
145 ibid., para. 731.
146 ibid., para. 555.
147 'A measure is for instance arbitrary if it is not based on legal standards but on excess of discretion, prejudice or personal preference, and taken for reasons that are different from those put forward by the decision maker.'
148 A measure is arbitrary if it 'inflicts damage on the investor without serving any apparent legitimate purpose.'
149 ibid., para. 561.
150 ibid., para. 642.
151 ibid., para. 662.
152 ibid., para. 663.
154 ibid., para. 666.
155 ibid., para. 675.
156 ibid., para. 678.
157 ibid., para. 677.
158 ibid., para. 707.
159 ibid., para. 693.
160 ibid., paras. 694-696.
161 ibid., paras. 702., 706.
162 ibid., para. 203.
163 Tennant Energy, LLC v. Government of Canada, PCA case No. 2018-54.
164 Westmoreland Coal Company v. Government of Canada, UNCITRAL.
165 Resolute Forest Products Inc v. Government of Canada, PCA case No. 2016-13.
166 Theodore David Einarsson, Harold Paul Einarrson and Russell John Einarsson v. Government of Canada.
167 Lone Pine Resources Inc v. Government of Canada, ICSID case No. UNCT/15/2.
168 B-Mex, LLC v. United Mexican States, ICSID case No. ARB(AF)/16/3, partial award (19 July 2019).
169 B-Mex, LLC v. United Mexican States, ICSID case No. ARB(AF)/16/3, Partial Dissenting Opinion of Arbitrator Raul E. Vinuesa (6 July 2019), para. 151.
170 ibid., paras. 270–271.
171 B-Mex, LLC v. United Mexican States, ICSID case No. ARB(AF)/16/3, Procedural Order No. 8 (2 October 2019).
172 2019 ONSC 7558.
173 ibid., para. 38.
174 ibid., para. 69.