ONTARIO – International arbitral award not set aside as due process and procedural standards met. Merely disagreeing with the outcome does not give rise to a review under the guise of Article 34(2)(a)(ii) of the UNCITRAL Model Law as adopted in the Ontario International Commercial Arbitration Act.

Nelson v. The Government of the United Mexican States
2022 ONSC 1193 February 16, 2022
Superior Court of Justice (Commercial List) ( Penny J., )

This case was an application under Article 34(2)(a)(ii) of the UNICITRAL Model Law to set aside an international arbitral award on the basis that the applicant was unable to present his case. The UNCITRAL Model Law has been adopted by section 6(2), International Commercial Arbitration Act, (“ICCA”) 2017, S.O. 2017 c.2.

The Applicant claimed that he was denied natural justice and procedural fairness because a) the award is based on a theory not pleaded or argued by the parties and b) the tribunal failed to take into consideration the applicant’s expert evidence. (para.2).

Nelson initiated an arbitration under NAFTA against Mexico in 2016 alleging that Mexico’s Federal Institute of Telecommunications regulatory changes to interconnection rates in 2014 violated Article 1110 of NAFTA and that Tele Fácil has been denied fair and equitable treatment. Nelson was an investor in Tele Fácil.

The threshold question was whether the Applicant lost interconnection rights as a result of Mexico’s regulatory changes or actions. Nelson argued his rights were established by Tele Fácil’s acceptance of TelMex’s August 2013 offer of interconnection rates and interconnection of TelMex and Tele Fácil’s customers.

NAFTA’s arbitral award held that there was no interconnection agreement between Tele Fácil and TelMex as Tel Fácil did not accept the August 2013 offer and instead made a counteroffer. The Tribunal held that as there was no agreement there were no rights to be determined in an earlier proceeding and if there was an agreement the parties did not raise any rate dispute in the earlier proceedings.

There was a long procedural history between Tele Fácil Mexico, a Mexican telecommunications network company and TelMex, Mexico’s largest telcom provider, regarding contract negotiations which would provide Tele Fácil interconnection rights with TelMex to enable Tele Fácil’s customers to communicate with customers of other carriers.

The disputes between Tele Fácil and TelMex related to an interconnection offer and interconnection rates and rights. When Tele Fácil realized that regulatory changes to interconnection rates were not in its favour it responded in July 2014 to an offer made by TelMex in August 2013. The legal proceedings between the two companies are described in detail in the case. (paras.7-19)

In 2016 Nelson initiated a NAFTA arbitration against Mexico. Nelson argued that Mexico’s regulatory changes expropriated Tele Fácil’s interconnection rights which violated Article 1110 of NAFTA and that Tele Fácil had been denied fair and equitable treatment by Mexico contrary to Article 1105. (para.19)

The Tribunal dismissed Nelson’s claim and declared that TelMex did not violate NAFTA on the basis that there was no binding agreement between Tele Fácil and TelMex. (para. 23) The Tribunal concluded that as there was no interconnection agreement and Tele Fácil had “no rights under the Interconnection Agreement that could have been determined by Resolution 381.”(para.27) Even if there was a valid and binding interconnection agreement between Tele Fácil and TelMex, the Mexican Regulator only had authority to resolve disagreements regarding interconnection conditions that could not be agreed upon. Tele Fácil, did not submit any rate disagreement for resolution to IFT. (para.28)

Penny J. held that the standard of review to set aside an award under Article 34(2)(a)(ii) of the Model Law (as adopted in the ICCA), is “whether the tribunal’s conduct is sufficiently serious to offend our most basic notions of morality and justice” and “that it cannot be condoned under the law of the enforcing state.” (para.33)

Relying upon Consolidated Contractors S.A.L. (Offshore) v. Ambatovy Minerals S.A. 2017 ONCA 939 at para.65, Justice Penny held that disagreeing with the outcome does not give rise to a review of the award under the guise of Article 34(2)(a)(ii).(para.35). There was no failure of fairness or natural justice because the central issue namely whether an offer made by Tele Facil was accepted was addressed by both parties and the Tribunal concluded there was no agreement. (para.48)

Referring to Oil Basins Ltd v. BHP Billiton LTD & Ors, [2007] VSCA 255, an Australian case where an international arbitral decision was set aside because of the Tribunal’s failure to deal with extensive expert evidence and its “failure to condescend to any analysis of the competing evidence and the reasons for rejecting it. “, Justice Penny held that the Tribunal did not fail to consider relevant evidence. (para.51).

The Tribunal had set out in great detail the arguments of the parties and what they were based upon and why arguments were accepted or rejected an argument. Penny J. held that there was no doubt that the Tribunal considered the applicant’s evidence and why it decided the case the way it did. (para.58).