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Jura Novit Curia in Canada

Jura Novit Arbiter in Canada

J. Brian Casey[1]

The concept of jura novit curia (the court knows the law) is a civil law doctrine, which in its purest form provides that the parties to a dispute have the obligation to prove the facts of their case, but it is the judge who will decide what law is applicable to those facts. A search of the usual Canadian legal databases turns up no court case in any province ever having dealt with the concept of “jura novit curia”, let alone “jura novit arbiter”. This does not mean, however, that the issue of a tribunal raising new points of law, or requiring other facts, has not been canvassed by the courts. This is done under other names, such as a tribunal raising a point sua sponte, or taking “judicial notice” of either a fact or law.

There are two areas where the courts have occasion to consider the decision of an arbitration tribunal: when deciding to recognize and enforce an award and as supervising court in an application to set aside an award. Within these two scenarios the following are areas in which the concept of jura novit arbiter could arise:

  1. Where the arbitral tribunal has decided the case on a different basis than pleaded by the parties, i.e. a different cause of action;
  2. The arbitral tribunal has decided the case on the basis of the law chosen by the parties, but on a point of law not raised in the pleadings, and
  3. The arbitral tribunal has granted a different remedy than requested.

Recognition and Enforcement

It must first be noted that in Canada the authorities establish that an arbitral award will be enforced regardless of the court’s view that the arbitral tribunal wrongly decided a point of fact or law. Corrections of errors of law are up to the supervising court, provided the applicable domestic legislation has made provision for an appeal. And, where a tribunal’s jurisdiction is called into question, an applicant must overcome a powerful presumption that the arbitral tribunal acted within its powers. Further, particularly with respect to international awards, the grounds for refusing to enforce an award are to be construed narrowly, and the public policy ground for resisting enforcement should apply only where enforcement would violate basic notions of morality and justice in Canada.

As stated in CE International Resources Holdings LLC v. Yeap Soon Sit:

[…] It is well known that a high degree of deference is to be given to decisions of arbitrators in international arbitrations. This is based on “concerns of international comity, respect for the capacities of foreign and transnational tribunals, and sensitivity to the need of the international commercial system for predictability in the resolution of disputes.”[2]

Setting Aside

The federal government and each province have, for the most part, adopted the UNCITRAL Model Law as the basis for uniform legislation of international arbitrations taking place in Canada. As a result, the grounds for invalidity relevant to jura novit arbiter are found in the sections dealing with setting aside an arbitral award under Article 34, which tracks the grounds for refusing enforcement under the New York Convention.[3] Similarly, the grounds for setting aside an award under most domestic arbitration legislation also follows the grounds under the Model Law.

In Bayview Irrigation District #11 v. United Mexican States, the general view respecting applications to set aside international arbitral awards rendered in Canada was stated as follows:

The standard of review of a domestic court of a decision of an international commercial arbitral award is high. In the interest of comity among nations, predictability in decisions and respect for autonomy of the parties’ chosen panel, it is only in exceptional circumstances that an arbitral decision will be set aside. The grounds for refusing enforcement of an arbitral award under Article 5 are to be construed narrowly such that the award is not rendered invalid even where the tribunal wrongly decided a point of fact or law.

While there is great deference shown to arbitral tribunals, the Tribunal has the obligation, pursuant to Articles 18 and 34 of the Model Law, to ensure equal treatment of the parties, that minimum procedural standards are observed and that their decision does not offend public policy.[4]

Grounds for challenge or refusal to enforce

a) The need for a fair hearing

Under Article V(1)(b) of the New York Convention an award may be set aside if “The party against whom the award is invoked was […] unable to present his case.”[5]  This ground is relevant to the concept of jura novit arbiter, as it is fundamental that a party not only have an opportunity to present its case, but to respond to all issues upon which the decision was based. The idea of permitting the concept of jura novit arbiter is highly influenced by the adversarial nature of legal proceedings in Canada, as well as the typical court procedures imported into arbitrations. If a new cause of action or new legal theory is to be raised, whether by the tribunal or a party, it must be done early enough in the proceedings to allow the parties to consider how the new matter will affect the way the case is pleaded, the extent of documents that are to be produced and the testimony of the witnesses. It may be too late to raise new matters for the first time in argument or at the submissions stage of the arbitration. Although it dealt with a court case, the reasoning in TSP-INTL Ltd. v. Mills is apt:

The basis upon which the trial judge found liability was not pleaded nor was it addressed in any way in the evidence. At no time did the plaintiffs move to amend their pleadings, not even after the trial judge sought argument on the alternative theories of liability that she had raised. As a result, the alternative theories of liability were not subjected to the rigors of the adversarial process. In the circumstances of this case, it was no answer that the defendant was afforded the opportunity to make further written submissions addressing the new liability theories addressed by the trial judge. The parties did not frame their lawsuit or conduct of the trial on those bases. The defendant was effectively deprived of knowing the case he had to meet, and of any opportunity to meet that case throughout the trial. The defendant was seriously prejudiced and treated unfairly. The judgment could not stand.[6]

The concept of audi alteram partem is fundamental to the adversarial process in Canada. Canadian courts are rigorous in ensuring the parties have had a fair hearing and that each party has had an opportunity to present its case and defend itself against the case of the other party (or against new matters raised by the tribunal).

For example, in the domestic case of Imperial Equipment Ltd. v. Royal Insurance Co. of Canada, the New Brunswick Court of Appeal concluded that an arbitrator could not take judicial notice of an automobile insurance policy that was neither pleaded or provided as evidence by the parties, as to do so would constitute misconduct which may have caused a miscarriage of justice and a violation of the audi alteram partem rule[7] The Court of Appeal of Québec adopted the same reasoning when it concluded unanimously in 9002-5073 Québec Inc. v. Felix that a tribunal could not take judicial notice of the Consumer Protection Act when it had not been raised by either of the parties.[8] The Court based its reasoning on the audi alteram partem principle, and highlighted that the Canadian justice system is fundamentally an adversarial process.

With respect to cases where a different remedy was imposed, the case of Dreyfus v. Tusculum[9] is instructive. In that case the Court of Appeal of Québec had to deal with an arbitration where the tribunal had imposed a remedy that was never submitted and was never raised by the parties or by the tribunal during the proceedings. In its decision, the tribunal  applied the doctrine of frustration and had, priopro motu, fashioned a valuation and buyout remedy. Dreyfus, the respondent in the arbitration argued that the tribunal, by granting relief on claims not made by either of the parties, had infringed the audi alteram partem rule. The Court concurred and concluded that the tribunal violated Article 946.4(3) of the Civil Code of Procedure of Québec,[10] which is modeled on Article 34(2)(a)(ii) of the Model Law and Article V(1)(b) of the New York Convention.

b) Procedural irregularity

Article V(1)(d) of the New York Convention provides as a ground for refusing enforcement or recognition that, “the […] Arbitral procedure was not in accordance with the agreement of the parties […]”.[11] The Model Law has a similar provision. As stated above, Canadian courts show significant deference to arbitral awards made outside of Canada. It is doubtful that any of the listed areas of jura novit arbiter would ground a defence based on procedural irregularity, unless the irregularity could also be characterized as a denial of a fair hearing or a denial of natural justice. The Canadian courts are sensitive to allegations of procedural irregularity being used as a means to re-litigate the case.

In Popack v. Lipszyc, the Ontario Court of Appeal stated:

The Canadian cases reveal an approach that looks both to the extent that the breach undermines the fairness or the appearance of the fairness of the arbitration and the effect of the breach on the award itself: see Rhéaume, at paras. 50-61; The United Mexican States v. Metalclad Corporation, 2001 BCSC 664 (CanLII), 14 B.L.R. (3d) 285, at paras. 127-29. In Rhéaume, at para. 61, after reviewing the Canadian case law, the court observed:

[I]t would be wholly inconsistent with the intention of the legislature and the current jurisprudential trend to treat every breach of the applicable procedure, however minor and however inconsequential, as requiring a court to refuse to homologate an award or to annul it if so requested. A court called upon to adjudicate such a proceeding must balance the nature of the breach in the context of the arbitral process that was engaged, determine whether the breach is of such a nature to undermine the integrity of the process, and assess the extent to which the breach had any bearing on the award itself.[12]

While the cases referred to by the Ontario Court of Appeal deal with setting aside an award made in Canada, the reasoning applies with as much, if not more force when a Canadian court is called on to enforce a foreign award. Interestingly, procedural irregularity is not a ground for setting aside a domestic award under most domestic legislation, presumably on the reasoning that such irregularity is caught by the “fair hearing” ground.

Can a tribunal put in place a procedure that deviates from the adversarial regime found in court litigation? In the 9002-5073 Québec inc. v. Felix case referred to above, the Court of Appeal of Quebec considered that the Consumer Protection Act must be raised by the parties before a tribunal could take judicial notice of it. The Court referred to the fact that the Canadian justice system is built on adversarial principles to justify its reasoning. It should be noted that Book VII of the Québec Code of Civil Procedure, which sets out the rules relating to the conduct of arbitration, specifically provides that the procedure must be based on the adversarial principle.[13]  Specifically, Article 632 of the Code of Civil Procedure provides:

Arbitrators conduct the arbitration according to the procedure they determine; they are required, however, to see that the adversarial principle and the principle of proportionality are observed. [14]

The concept that each party bears the burden of proving its own allegations is not specifically set out in the Model Law,[15] but is part of the general adversarial regime extant in Canada, including in Québec.[16] The extent to which the adversarial process is incorporated into an arbitration and the question of whether this prohibits a tribunal raising new issues is untested. It must also be recalled that Article 19(2) of the Model Law provides that failing an agreement by the parties, the arbitral tribunal may, subject to the provisions of the Model Law, conduct the arbitration in such manner as it considers appropriate. The extent to which this provision overrides the strict application of the adversarial process is not yet explored in Canada.

c) Excess of jurisdiction

Article V(1)(c) provides that a ground for refusing recognition and enforcement is that “the award […] contains decisions on matters beyond the scope of the submission to arbitration […]”[17]The Model Law has a similar provision respecting setting aside of an award, as do most of the domestic arbitration acts.

In Canada, the jurisdiction of the arbitrator will be given a wide interpretation. In the Supreme Court of Canada case Desputeaux v. Éditions Chouette (1987) inc., the arbitrator had to determine the payment of royalties.[18] In deciding the matter, he determined that he needed to make findings regarding who owned the copyright to the material. The respondent challenged the arbitrator’s decision on the grounds he had no jurisdiction to determine the ownership of the copyright and the status of the parties as co-authors, as this was not an issue before him. In dismissing this argument, Mr. Justice Lebel noted[19]:

The arbitrator’s mandate must not be interpreted restrictively by limiting it to what is expressly set out in the arbitration agreement. The mandate also includes everything that is closely connected with that agreement, or, in other words, questions that have [TRANSLATION] “a connection with the question to be disposed of by the arbitrators with the dispute submitted to them” (S. Thuilleaux, L’arbitrage commercial au Québec: droit interne — droit international privé (1991), at p. 115). Since the 1986 arbitration reforms, the scope of arbitration agreements has been interpreted liberally (N. N. Antaki, Le règlement amiable des litiges (1998), at p. 103; Guns N’Roses Missouri Storm Inc. v. Productions Musicales Donald K. Donald Inc., 1994 CanLII 5694 (QC CA), [1994] R.J.Q. 1183 (C.A.), at pp. 1185‑86, per Rothman J.A.).

Presuming the parties have a broad arbitration agreement that provides for all disputes to be settled by arbitration, can it be said the parties by their pleadings have restricted the legal grounds upon which the arbitral tribunal must decide the case? For example, where the Claimant has claimed a breach of contract, but the facts as pleaded clearly show there is an issue regarding breach of fiduciary duty, can it be said the Tribunal has no jurisdiction to raise this?

The legislation in Canada makes it a requirement that the tribunal decide the dispute in accordance with the “rules of law” chosen by the parties. If the arbitration agreement provides that the dispute is to be decided under the “law of Ontario”, does the arbitral tribunal have the right or the duty to raise all aspects of Ontario law that may be implicated from the facts pleaded? The English case of Zermalt Holdings SA v. Nu Life Upholstery Repairs Ltd., provides some guidance. In that case Justice Bingham stated:

If an arbitrator is impressed by a point that has never been raised by either side then it is his duty to put it to them so that they have an opportunity to comment. If he feels that the proper approach is one that has not been explored or advanced in evidence or submission, then again it is his duty to give the parties a chance to comment. If he is to any extent relying on his own personal experience in a specific way, then that again is something that he should mention so that it can be explore […][20]

The difficulty is that the cases in Canada confuse the issue of audi alteram partem with issues of jurisdiction. There is no reported case in Canada where the tribunal has satisfied the audi alteram partem rule and the court has set aside an award on the grounds that raising new issues of fact or law was beyond the jurisdiction of the tribunal.

Assuming the issue was raised by the tribunal in a timely manner, it is doubtful an award would be set aside or refused enforcement based on excess of jurisdiction unless the issue was clearly outside of the arbitration agreement, which will be interpreted broadly. Timely notice of the issue is key.

The decision in Consolidated v. Ambatov

In Consolidated v. Ambatov [21] the trial judge recognized that in international arbitration, additional areas of law, or the basis upon which a decision is reached may include matters not initially raised by the parties. This is not objectionable so long as the parties have had the full opportunity to deal with the issue. Justice Penny stated[22]:

A party might be said to have been “unable” to present his or her case when:

(a)        the award is based on a theory of liability that either or both of the parties were not given an opportunity to address, or based on a theory of the case not argued for by either of the parties;

[…]

CCG relies on a number of domestic law decisions concerning the scope of a judge’s duty not to stray from the submissions of the parties. Unlike domestic litigation, however, it is well established in international arbitration that the fact that arbitrators may have based their decision on allegations or arguments which were not put forward by the parties does not amount to a failure to comply with their brief […]

The circumstances contemplated by Article 34(2)(a)(ii) of the Model Law are described by Mustill and Boyd, “The Law and Practice of Commercial Arbitration in England” (2nd) Butterworth’s 1989, at 550 as “such a mishandling of the arbitration as to likely amount to some substantial miscarriage of justice.”

The court then went on to find that each issue complained of by the respondent had been raised during the arbitration and the parties were given the opportunity to make submissions. Further there was ample evidence upon which the tribunal could have reached its conclusion.

It must also be remembered that the court maintains a discretion to not set an award aside even if it appears one of the grounds for setting aside has been met. This is summarized in the Consolidated v. Ambatov decision as follows:

The governing case in Ontario is the decision of the Court of Appeal for Ontario in Popack v. Lipszyc, 2016 ONCA 857 (CanLII). The court found that there was no “bright line rule” in the cases addressing the nature of the discretion in Article 34(2). The scope of the discretion is significantly affected by the specific ground upon which the award could be set aside. For example, the court thought it was self-evident that if a party established that there was no valid arbitration agreement, a judge would have considerably less discretion to uphold the award than if the error lay in the tribunal’s failure to comply with a specific procedural provision in the course of an otherwise proper arbitration

It would be inconsistent with the intention of the legislature and the current jurisprudential trend in favour of maintaining arbitral awards to treat every breach of applicable procedure, however minor or inconsequential, as requiring the court to refuse to set aside an award if so requested. It is necessary to balance the nature of the breach in the context of the arbitral process, determine whether the breaches are of such a nature as to undermine the integrity of the process and assess the extent to which the breach had any bearing on the award itself.

[…]

In Popack, the Court of Appeal ultimately approved four factors considered by the application judge (whom they upheld) in deciding to exercise her discretion and not set the award aside even though there had been a breach of natural justice contrary to Ontario public policy. These were:

(1)        the nature of the ground upon which the award might be set aside (jurisdiction, procedural fairness, public policy etc.);

(2)        the seriousness of the breach;

(3)        the potential impact of that breach on the result; and

(4)        potential prejudice flowing from the need to redo the arbitration if the award is set aside.[23]

In the international arbitration context, courts have been warned to limit themselves in the strictest terms to intervene only rarely in decisions made by consensual, expert international arbitration tribunals. Courts must be circumspect in their approach to determining whether a jurisdictional error is a “true” question of jurisdiction. And, when it does identify such an issue, the court must ensure that it does not, advertently or inadvertently, stray into the merits of the question that was decided by the tribunal.[24]

Conclusion

While no Canadian court has directly dealt with the concept of jura novit arbiter, an analysis of the case law demonstrates that Canadian courts are very deferential to arbitral tribunals when it comes to procedure. The cases we do have, where new matters have been introduced by the tribunal, confuse or combine the failure to give the parties adequate notice with the issue of excess of jurisdiction. The cases where judges have exceeded their mandate are, as stated in the Consolidated v. Ambatov case are of little or no assistance. If an issue is identified by the tribunal at the first procedural conference or shortly thereafter, then within the adversarial process the parties have the opportunity to adduce evidence, present additional witnesses and conduct examinations of a witness at a hearing in a manner that provides for full procedural fairness.

While requiring some “crystal ball gazing,” given the dearth of cases in Canada, it would be expected that a Canadian court would likely rule as follows with regard to jura novit arbiter:

  1. Assuming the audi alteram partem principle has been met, where the arbitral tribunal has decided the case on a different basis (new cause of action) than pleaded by the parties, the court will enforce the award, if it is a foreign award and will be reluctant to set aside an international award made in Canada. The court may be more prepared to set the award aside if it is a domestic award;
  2. The court will not interfere with an award where the arbitral tribunal has decided the case on the basis of the law chosen by the parties, but on a point of law not raised in the pleadings, so long as the parties had a full opportunity to deal with the point, and
  3. Presuming adequate notice, an award ordering a remedy different from what was asked for should be held to be valid, so long as it still falls within a legal remedy available based on the facts and the applicable law.

The dearth of cases in Canada may well be the result of arbitrators, trained as litigators and judges are loath to interfere with the manner in which counsel deal with a case. In The Vimeira [1984] 2Lloyds Rep 66 (CA), Ackner LJ, after finding it appropriate for an arbitrator to raise an issue that he or she feels is important, added the caveat that it should only be done where the arbitrator feels the parties have “overlooked” the point. Where experienced counsel are retained, he was of the view the arbitrator should not presume the point was overlooked, as it may well have been tactically avoided.

While this reasoning appears at first blush to dodge the issue, or hopelessly confuse it, it does reflect the reality in Canada. Where experienced counsel have carefully pleaded and shaped the case, arbitrators are, and should be, reluctant to raise what they consider an “important” point, unless there is some reason to believe the point has been overlooked. This reluctance is simply good practice, notwithstanding the arbitrators have the power to raise new issues should they be compelled to do so.

[1] With special thanks to Shunghyo Kim for her research.

[2]   CE Int’l Res. Holdings LLC v. Yeap, 2013BCSC,, CanLII 1804, para.19 (Feb. 5, 2013, Can. B.C. S.C.).

[3]   See Model Law, supra note 2, at art. 34.

[4]   Bayview Irrigation Dist. #11 v. United Mexican States, 2008 CanLII 22120, paras. 13-14 (May 5, 2008, Can. Ont. S.C.).

[5]   See New York Convention, supra note 1, at art. V(1)(b).

[6]   TSP-INTL Ltd. v. Mills, [2006] 81 O.R. 3d 266, (2006, Can. Ont. C.A.).

[7]   Imperial Equip Ltd. v. Royal Ins. Co. of Canada, 129 D.L.R. 3d 643 (Can. N.B. C.A.).

[8]   9002-5073 Québec inc. c. Felix, 2013 QCCA CanLII 2048 (Nov. 11, 2013, Can. Que. C.A.).

[9]   Louis Dreyfus, s.a.s. (SA Louis Dreyfus & Cie) c. Holding Tusculum, b.v., 2008 QCCS CanLII 5903 (Dec. 8, 2008, Can. Que.S.C.) [hereinafter Louis Dreyfus].

[10] Québec Code of Civil Procedure, R.S.Q., c C-25, art. 946.4(3) (Can. Que.)

[11] See New York Convention, supra note 1, at art. V(1)(d).

[12] Popack v. Lipszyc, 129 O.R. 3d 321, para. 31 (2016, Can. Ont. C.A.)

[13] Québec Code of Civil Procedure, R.S.Q., c C-25.01 (Can. Que.).

[14] Id. at art. 632. It should be noted that art. 6 of the Code of Civil Procedure specifies that parties who agree to resort to a private dispute prevention and resolution process, together with the third person involved in the process, if any, determine the procedure applicable to the process they have selected. It is when the procedure that the parties have determined must be supplemented that the rules of Book VII applies.

[15] See Model Law, supra note 2.

[16] Québec Civil Code, supra note 3, at art. 2803

[17] See New York Convention, supra note 1, at art. V(1)(c).

[18] Desputeaux v. Éditions Chouette (1987) inc., 2003 SCC 17, [2003] 1 S.C.R. 178 (2003, Can.) [hereinafter Desputeaux].

[19] Id. at para 35.

[20] Zermalt Holdings S.A. v. Nu-Life Upholstery Repairs Ltd., [1985] 2 EGLR 14 at 15 (Eng.)

[21] Consol. v. Ambatov, 2016 ONSC CanLII 7171, (Nov. 28, 2016, Can. Ont. S. C.).

[22] Id. at paras. 57, 62-63.

[23] Consol. v. Ambatov, 2016 ONSC CanLII 7171 at paras. 153-154, 158 (citing United Mexican States v. Cargill, [2011]107 OR (3d) and Popack v. Lipszyc, [2016] 129 O.R. 3d 321) (Nov. 28, 2016, Can. Ont. S. C.).

[24] Consol. v. Ambatov, 2016 ONSC CanLII 7171 at para 34. (Nov. 28, 2016, Can. Ont. S. C.).

J Brian CaseyJura Novit Curia in Canada

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