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Procedural Background
This document is a judgment issued by the Superior Court of Justice of Ontario (Commercial List) concerning an application by the United Mexican States ("Mexico") to set aside an international arbitral award dated June 21, 2024 (ICSID Case No. ARB(AF)/16/3). The underlying arbitration was conducted under Chapter 11 of the North American Free Trade Agreement (NAFTA). In the arbitral proceedings, the Tribunal found Mexico liable for breaching the fair and equitable treatment (FET) standard under NAFTA Article 1105 and ordered it to pay damages exceeding USD 80 million to the respondent investors.
Legal Issues and Parties' Positions
Mexico sought to annul the award pursuant to Articles 34(2)(a)(ii) and (iv) of the UNCITRAL Model Law, as enacted in Ontario's International Commercial Arbitration Act, 2017. Mexico argued that the Tribunal breached principles of procedural fairness and natural justice by denying its requests for the production of certain documents. Mexico contended that this denial prevented it from establishing that the investors operated their casinos illegally, thereby precluding Mexico from fully presenting its "clean hands" defense. Furthermore, Mexico alleged that the Tribunal failed to address its argument that the investors were barred from claiming an FET violation because they had not exhausted local judicial review remedies in Mexican courts.
The respondent investors countered that the Tribunal's document production process, guided by the IBA Rules on the Taking of Evidence, was comprehensive and fair. They emphasized that the Tribunal exercised appropriate discretion in denying overly broad or immaterial requests. Regarding the judicial review argument, the respondents noted that exhaustion of local remedies is not a prerequisite for an FET claim and that the Tribunal had thoroughly addressed the core issues in its extensive merits analysis.
Court's Analysis and Findings
Justice W.D. Black dismissed Mexico's application, emphasizing the high threshold required to set aside an international arbitral award for procedural unfairness. The Court noted that intervention is only warranted when a tribunal's conduct offends basic notions of morality and justice. Reviewing the arbitral record, the Court found that the Tribunal had reasonably exercised its discretion in managing document production, appropriately applying standards of relevance, materiality, and proportionality. The Court observed that the Tribunal had granted a significant portion of Mexico's document requests and that the denial of specific requests did not deprive Mexico of a fair opportunity to present its case.
Addressing the Tribunal's alleged failure to consider the judicial review argument, the Court reaffirmed that arbitral tribunals are not required to explicitly address every argument raised by the parties. The Court found that Mexico had advanced the judicial review argument only fleetingly in its voluminous submissions. Given the Tribunal's detailed 20-page analysis of the FET breach, the Court concluded that the Tribunal had adequately considered the evidentiary record and the parties' material positions.
Decision
The Superior Court of Justice dismissed Mexico's application to set aside the arbitral award in its entirety. The Court directed the respondent investors to file their costs outlines and written submissions within two weeks, with Mexico granted a subsequent period to respond.
