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Re Corporation Transnacional de Inversiones SA de CV and others v.
SET International SpA and others
(Canada, Ontario) Superior Court of Justice, Lax J.,
22nd September 1999.
ICC Arbitration - application to set
aside Award - application for a re-hearing - UNCITRAL, articles 18 and
34(2) considered - principles to apply in considering such
applications - whether allegation that tribunal wrong in fact or law
provided grounds for setting aside Award or for a rehearing - tribunal
not ordering full disclosure - tribunal not ordering witnesses to give
evidence - whether grounds to set aside award or order re-hearing -
UNCITRAL, article 27 - whether ICC or tribunal should have
discontinued proceedings where party alleged dispute had been settled
- ICC Rules, article 17 - whether arbitration clause could be
incorporated by general words of reference - UNCITRAL, article 7 -
whether party's decision not to participate in arbitration provided
grounds to set aside Award or entitled it to a re-hearing - whether
that party should be given an opportunity to present evidence and
submissions at re-hearing - UNCITRAL, article 25, ICC Rules, article
15.
Facts:
The Respondent an Italian company, and its subsidiary a Netherlands
company, collectively referred to as STET, entered into a share
subscription agreement with COTISA, a Mexican corporation to purchase
an interest in CITEL, another corporation which had an interest in the
Cuban national telephone company. Both COTISA and CITEL were owned
and/or controlled by Mr Javier Garza Caleron (Garza). The subscription
agreement provided for ICC arbitration of disputes in Ontario under
Mexican law. Disputes arose and were referred to arbitration by STET.
In the arbitration STET sought rescission of the subscription
agreement and damages against COTISA and CITEL, as well as Garza and
two other companies owned and/or controlled by him, DOMOS and CINCA
(collectively referred to as "the Applicants"). STET alleged
that agreements subsequently entered into by it with Garza, DOMOS and
CINCA incorporated, by general words of reference, the arbitration
agreement in the share subscription agreement. Garza, DOMOS and CINCA
denied that they were parties to the arbitration agreement, disputed
the tribunal's jurisdiction and did not take part in the proceedings.
During the course of the arbitration, COTSIA applied for the
disclosure by STET of a purchase agreement entered into between STET
and a third party, UTISA, but did not accept the wording of a
confidentiality agreement that the tribunal required COTSIA to sign as
a condition of disclosure. By the time of the hearing the purchase
agreement had only been disclosed in part (in redacted form).
COTISA also encountered difficulties in obtaining evidence from
witnesses in Cuba. Rather than apply for Letters of Request from the
Ontario court, it unsuccessfully sought an order from the tribunal
requiring those witnesses to give evidence.
During the course of the arbitration, STET and COTISA sought to
settle the dispute. COTISA considered that a settlement had been
reached, but this was disputed by STET. COTISA's application to have
the proceedings suspended, pursuant to article 17 of the ICC Rules,
was rejected by the ICC and the tribunal. Following a ruling to this
effect from the tribunal, COTSIA withdrew from the arbitration,
disputing its jurisdiction.
After the hearing, at which the tribunal heard evidence and
submissions from STET, the tribunal held, by two awards, that it had
jurisdiction both in respect of COTISA and CITEL and also in respect
of Garza, DOMOS and CINCA. It also held that the subscription
agreement was rescinded and that the Applicants were jointly and
severally liable to STET in damages of approximately US$305 million
for breach of the subscription agreement.
The Applicants applied to set aside the tribunal's awards pursuant
to UNCITRAL, article 34 or for a re-hearing. The awards were attacked
on the grounds that the tribunal was without jurisdiction in respect
of three of the Applicants, DOMOS, CINCO and Garza, that the
Applicants were denied equality of treatment and the opportunity to
present their case and the awards were in conflict with the public
policy of Ontario. In particular, COTISA contended that the tribunal
denied COTISA both fundamental procedural rights and fundamental
justice in the that (a) it failed to require disclosure of the
purchase agreement between STET and UTISA; (b) it failed to respond to
COTISA's request for assistance in obtaining foreign evidence; (c) it
concluded the hearing without determining if the parties to the
arbitration had settled their dispute and (d) there was no factual or
legal foundation for an award of rescission.
STET applied for an order enforcing the awards.
Held:
The Applicants' application would be dismissed and STET's
application allowed.
Under UNCITRAL, article 34, the Applicants had to onus of providing
that the Awards should be set aside. If they failed to satisfy this
onus, articles 25 and 36 expressly required the court to recognise and
enforce the Awards. Furthermore, the broad deference and respect to be
accorded to the decisions of arbitral tribunals pursuant to UNCITRAL
had been recognised in Ontario and in other Canadian jurisdictions as
well as in the United States and in England and Wales. Academic
commentators had also noted the importance of supporting the
international enforcement structure that had taken over 25 years to
build.
The grounds for challenging an award under UNCITRAL derived from
article V of the New York Convention on the Recognition and
Enforcement of Foreign Arbitral Awards (the New York Convention).
Accordingly, authorities relating to article V were applicable to the
corresponding provisions in article 34 and 36 of UNCITRAL. These
authorities accepted that the general rule of interpretation of
article V was that the grounds for refusing enforcement were to be
construed narrowly.
An arbitral award was not invalid because, in the opinion of the
court hearing the application, the tribunal wrongly decided a point of
law or fact. Furthermore, where a tribunal's jurisdiction was called
into question, as here, the Applicant had to overcome "a powerful
presumption" that the tribunal acted within its powers.
The public policy ground for resisting enforcement had also been
construed narrowly. To succeed on this ground, the Awards had to
fundamentally offend the most basic and explicit principles of justice
and fairness in Ontario, or evidence intolerable ignorance or
corruption on the part of the tribunal. The Applicants had to
establish that the Awards were contrary to the essential morality of
the enforcing state, Ontario.
The third prong of COTISA's attack concerned the conduct of the
tribunal. This brought into issue the due process requirements of
UNCITRAL. There did not appear to be a single definition or
explanation of what conduct might be of sufficient character to cause
the court to set aside an award on this ground. But, under UNCITRAL,
the concepts of fairness and natural justice enunciated in article 18
significantly overlapped with the issues of inability to present one's
case and conflict with public policy set out in article 34.
Furthermore, in the Report of the United Nations Commission on
International Trade Law 1985, the term "public policy" used
in UNCITRAL, article 34(2)(b)(ii) had been interpreted to include
procedural as well as substantive justice. Since this did not to
exclude the manner in which an award was arrived at, it seemed that
the grounds for challenging an award under article 18 were the same as
under article 34(2)(b)(ii). Accordingly, to justify setting aside an
award for a violation of article 18, the conduct of the tribunal had
to be sufficiently serious to offend the most basic notions of
morality and justice in the enforcing state. Thus, judicial
intervention for alleged violations of the due process requirements of
UNCITRAL would only be warranted where the tribunal's conduct was so
serious that it could not be condoned under the law of the enforcing
state.
Turning to the complaint about the tribunal's failure to disclose
the purchase agreement entered into by STET, the point was not whether
full disclosure was a fundamental principle of Canadian justice but,
rather, whether the failure to observe this requirement in another
jurisdiction was offensive to its essential morality. This would
depend on whether the failure was serious, such as where a tribunal
deliberately concealed documents from a party or obtained its own
evidence on which it relied, but failed to disclose that evidence to
one or both of the parties. The court did not have power to order
production of documents in the arbitration. Its authority was limited
to a consideration of whether the tribunal acted in a manner as to
deny COTISA equality of treatment or the opportunity to present its
case or whether the Awards, or the manner of arriving at them, were
inconstant with Ontario public policy.
In this case, the tribunal concluded that the purchase agreement
was very material to the question of damages and ordered its
disclosure subject to COTISA signing a confidentiality agreement
prepared by STET. COTISA failed to do so. Instead, more than 6 weeks
after receiving a copy of the proposed confidentially agreement, it
advised that it would be submitting its own form of confidentiality
agreement to the tribunal. Once it did so, it failed to pass a copy to
STET for consideration. Despite this, the tribunal ordered STET to
disclose the terms of the purchase agreement and it did so, four weeks
before the hearing, in redacted form. Because COTISA withdrew at the
beginning of the final hearing before the tribunal it forfeited the
opportunity to cross-examine the STET witnesses about the agreement or
to apply for or obtain a further order from the tribunal for
disclosure of the redacted portions. Given these circumstances, it
could not be said that the Applicants were denied equality of
treatment or that the tribunal acted in a manner inconstant with
Ontario public policy.
As regards the complaint about the tribunal's failure to respond to
COTISA's request for assistance in obtaining foreign evidence, this
was also without merit. When COTISA advised the tribunal that it
wished to introduce evidence from Cuban witnesses, the tribunal
advised that it would approve of any steps required to obtain that
evidence, subject to both parties having the opportunity to question
those witnesses and the evidence being translated into English.
Subsequently, the tribunal issued a timetable for the remainder of the
arbitration including the taking of evidence. COTISA did not comply
with this timetable. Instead, it asked the tribunal to order the Cuban
witnesses to produce their testimony, since they could not leave Cuba
and were unwilling to provide evidence without a formal request made
under the laws of Cuba.
But, contrary to COTISA's submission, the tribunal had no power to
make such an order. Article 27 of UNCITRAL did not authorise the
tribunal to issue Letters of Request to a foreign court. It only
authorised requests for assistance in taking evidence to be made to
the court within the State where the arbitration was being conducted;
in this case, the court of Ontario. Moreover, the inability to produce
one's witnesses before an arbitral tribunal was a risk inherent in
agreeing to arbitrate and was not a basis for setting aside an award.
In any case, it was open to COTISA to ask the tribunal to request the
assistance of the Ontario court, or to do so itself. It failed to take
either of these steps. The Applicants' contention that the tribunal
concluded the hearing without determining if the parties to the
arbitration had settled their dispute would also be rejected. Between
the initial and final hearing the parties were involved in settlement
negotiations in Italy. COTISA considered that these negotiations had
resulted in a concluded agreement and wrote to the tribunal and to the
ICC stating that a settlement had been reached and requesting that
proceedings be suspended in accordance with article 17 of the ICC
Rules. STET wrote advising that settlement had not been reached and
requesting that the arbitration proceed. The ICC advised the parties
that a withdrawal could not be entertained at the request of one party
and that, in consequence, COTISA's request could not be granted.
When the hearing commenced, the tribunal invited representations
from both parties on the settlement question. COTISA stated that a
settlement had been reached under provisions in the Italian Civil Code
and asked the tribunal to terminate the proceedings under article 17
of the ICC Rules. STET disputed this. The tribunal concluded that it
did not have jurisdiction to consider whether a settlement had been
concluded, this being a matter for the Italian court. It stated that,
in the absence of a formal and mutual notice of settlement
communicated by the parties to the ICC, it would continue with the
arbitration. Thus, the tribunal did not abdicate its responsibility to
the ICC. Rather, it properly exercised its jurisdiction and correctly
answered the only question it was asked to determine, whether the
proceedings should be terminated under article 17 of the ICC Rules.
Neither did the fact that COTISA withdrew from the proceedings at this
stage prevent the tribunal continuing with the hearing, since this was
provided for in article 25(c) of UNCITRAL and article 15(2) of the ICC
Rules.
As for the Applicants' contention that the tribunal was wrong to
award recession, this was no more than a presentation to the court of
evidence and arguments that COTISA could have presented to the
tribunal, but didn't. In effect, it was seeking to appeal the Awards
on their merits under the guise of alleged breaches of articles 18 and
34(2)(b)(ii) of UNCITRAL. But when a party refused to participate in
an arbitration it was deemed to have deliberately forfeited the
opportunity to be heard. Under article 34(4) of UNCITRAL, the court
could "where appropriate" suspend setting aside proceedings
so as to give the tribunal an opportunity to resume the arbitral
proceedings or take such other action as would, in the tribunal's
opinion, eliminate the grounds for the setting aside proceedings. But
COTISA had not offered a credible explanation of why it could not have
presented the material it now wished to rely on in the arbitration. In
consequence, it would be inappropriate to exercise this discretion. As
for COTISA's contention that the Awards were legally or factually
wrong, this did not provide a basis for setting them aside. In any
case, one of the members of the tribunal was an expert in Mexican law
and the tribunal had evaluated each head of damages claimed and
rendered a unanimous decision in favour of STET based on the available
evidence and the applicable law. To suggest that this was a
fundamental denial of justice under article 34(2)(b)(ii) was wrong.
The purpose of article 18 of UNCITRAL was to protect a party from
egregious and injudicious conduct by a tribunal. It was not intended
to protect a party from its own failures or strategic choices. It was
COTISA that had deprived itself of the rights it now asserted were
denied to it by the tribunal. This could not and did not amount to a
lack of opportunity to present its case or to be treated with
equality. The purpose of article 34(2)(b)(ii) was to guard against the
enforcement of morally repugnant awards, or awards that were arrived
at in a manner contrary to Ontario notions of morality and justice.
Neither was the case here.
As for tribunal's decision that it had jurisdiction over DOMOS,
CINCO and Garza, while UNCITRAL did contemplate that a court could
review for jurisdictional error, the Applicants had to overcome a
"powerful presumption" that that the tribunal had acted
within its powers. In this case, the tribunal had correctly determined
the jurisdictional question since, by amendments to the subscription
agreement, DOMOS, CINCO and Garza had bound themselves to the
arbitration agreement. Both the Mexican Commercial Code and article
7(2) of UNCITRAL contemplated that parities might enter into a valid
arbitration agreement by entering into a contract that incorporated,
by reference, another document that provided for arbitration. There
was no need to specifically refer to the arbitration clause contained
therein. Consequently, an agreement that incorporated by reference
another document containing an arbitration clause, although not
specifically referring to that clause, could constitute a valid
arbitration agreement under UNCITRAL. This is what happened in this
case and DOMOS, CIONCO and Garza were proper parties to the
arbitration.
For the Applicants: Mr B Tait QC, Mr H Underwood, Mr T Sutton.
For the Respondents: Mr W Horton and W Hanna.
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