Decisions on Arbitral Jurisdiction Reaffirm Canada’s Pro-Arbitration Stance
Craig Ferris and Scott Lucyk of Lawson Lundell LLP examine key appeal decisions and points of law regarding the arbitration of disputes in Canada.
Scott Lucyk
This article reviews two appeal decisions that not only reaffirm, but also refine, Canada’s arbitration-friendly stance. These decisions address:
- whether set-aside applications challenging an arbitral tribunal’s jurisdictional decision are de novo hearings; and
- when the court will refer jurisdictional questions to arbitration in cases where the parties have taken steps in related court proceedings.
Ontario Court of Appeal Holds That Jurisdictional Set-Aside Applications Are De Novo Hearings, but Cautions Against Seeking “Two Evidential Bites of the Cherry”
In Russian Federation v Luxtona Limited, 2023 ONCA 393, the Ontario Court of Appeal confirmed that applications to set aside the jurisdiction are de novo hearings and that parties may submit fresh evidence.
The appeal was grounded in a contractual dispute and related arbitration between the Russian Federation (“Russia”) and a corporation, Luxtona Limited (“Luxtona”). As the legal place or “seat” of the arbitration was Toronto, the Ontario courts had jurisdiction to address Russia’s application to set aside the arbitral tribunal’s jurisdictional decision.
In the set-aside application, Russia sought to file fresh evidence that had not been presented to the arbitral tribunal when making its jurisdictional decision. At first instance, the Superior Court of Ontario held that fresh evidence could not be filed. The Divisional Court overturned this decision, holding that jurisdictional set-aside applications are hearings de novo. Luxtona was granted leave to appeal.
On appeal, Luxtona argued that the competence-competence principle, which allows an arbitral tribunal to rule on its own jurisdiction, requires that parties have a strong incentive for putting as much of their evidence before the tribunal as possible. In rejecting this argument, the Court of Appeal held that the principle is best understood as a rule of chronological priority and does not empower the arbitrators to be the “sole judge of their jurisdiction”.
Although the appeal was dismissed, the Court of Appeal cautioned that parties should not interpret the decision as granting permission to obtain “two bites of the evidential cherry”. The failure to adduce evidence before the tribunal may be relevant to the weight assigned to it by the reviewing court.
Federal Court of Appeal Clarifies Test Applicable to Staying Court Action in Favour of Arbitration
In General Entertainment and Music Inc v Gold Line Telemanagement Inc, 2023 FCA 148, the Federal Court of Appeal confirmed that courts will stay a court action in favour of an applicable arbitration agreement, unless a challenge to the arbitrator’s jurisdiction concerns a question of law alone or, in exceptional cases, where only a superficial review of the evidence is needed.
The decision involved a content acquisition and licensing agreement that provided for disputes to be resolved by arbitration in Bermuda. The plaintiff, General Entertainment and Music Inc (GEM), brought a related action against Gold Line Telemanagement Inc (“Gold Line”) in the Federal Court of Canada for copyright and trade mark infringement.
“…Canadian courts will favour arbitration where parties have agreed to arbitrate their disputes.”
Gold Line commenced arbitration in Bermuda and sought a stay of the court action before the Federal Court of Canada. Initially, the Case Management Judge dismissed Gold Line’s motion to stay the court action. That ruling was later overturned by the Federal Court of Canada. GEM appealed the decision.
On appeal, GEM argued that Gold Line had not applied for a stay before taking steps to defend the claim in the Federal Court proceedings. As such, GEM sought to rely on the prerequisites for a stay identified by the Supreme Court of Canada in Peace River Hydro Partners v Petrowest Corp, 2022 SCC 41, which included a requirement that the party applying for a stay does so before taking any “steps” in the court proceedings.
The Federal Court of Appeal disagreed with GEM, and confirmed that questions of fact, or of mixed fact and law, related to the jurisdiction of an arbitrator must first be referred to the arbitrator. The Federal Court of Appeal concluded that the Convention on the Recognition and Enforcement of Foreign Arbitral Awards does not require parties to apply for a stay before filing a defence or counterclaim, and that there was no relevant statutory provision containing such a requirement. The appeal was dismissed.
This decision reinforces that Canadian courts will favour arbitration where parties have agreed to arbitrate their disputes. Additionally, it confirms that a party is not prevented, except by statutory requirement, from seeking a stay solely because they took steps in the court proceeding.
Lawson Lundell LLP
