United Mexican States v. Cargill Inc., 2011 ONCA 622

• Judge: Rosenberg, Moldaver and Feldman, JJ.A.
• Court: Court of Appeal (Ontario)
• Case Date: October 04, 2011
• Jurisdiction: Ontario
• Citations: 2011 ONCA 622;(2011), 284 O.A.C. 123 (CA)

United Mexican States v. Cargill Inc. (2011), 284 O.A.C. 123 (CA)

MLB headnote and full text

Temp. Cite: [2011] O.A.C. TBEd. OC.004

The United Mexican States (applicant/appellant) v. Cargill, Incorporated (respondent/respondent)

(C52737; 2011 ONCA 622)

Indexed As: United Mexican States v. Cargill Inc.

Ontario Court of Appeal

Rosenberg, Moldaver and Feldman, JJ.A.

October 4, 2011.

Summary:

An American company (Cargill) manufactured high fructose corn syrup, a low cost substitute for cane sugar. Cargill sold the syrup to its Mexican subsidiary, who in turn sold it to Mexican companies, particularly the soft drink industry. To protect its refined sugar cane industry, Mexico enacted a number of trade barriers. Cargill was forced to shut down production plants and a distribution centre in the United States (U.S.). Cargill's Mexican subsidiary was forced to close down its distribution centre. Cargill, on behalf of itself and its Mexican subsidiary, submitted an arbitration claim under chapter 11 of the North American Free Trade Agreement (NAFTA), claiming damages for Mexico's violation of various NAFTA articles by enacting the trade barriers. An international arbitral panel ruled that Mexico violated NAFTA. The panel awarded Cargill both "down-stream" losses (direct losses suffered by Cargill's Mexican subsidiary) and "up-stream" losses (the losses suffered in the U.S. by Cargill because it was unable to sell syrup to its Mexican subsidiary). Mexico had unsuccessfully argued that the panel had no jurisdiction to award damages for "up-stream" losses, because those losses were Cargill's U.S. losses as a producer and exporter, not losses suffered by Cargill as an investor in its investment (the Mexican subsidiary). Mexico applied under art. 34(2)(a)(iii) of Model Law to set aside the panel's decision to award damages for "up-stream" losses.

The Ontario Superior Court, in a judgment reported [2010] O.T.C. Uned. 4656, dismissed the application. The court applied a reasonableness standard of review on the issue of jurisdiction to award damages for "up-stream" losses. The panel determined that Cargill's lost profits on sales to its Mexican subsidiary were so associated with its claimed investment in the Mexican subsidiary as to be compensable under NAFTA. Mexico appealed. At issue was (1) the appropriate standard of judicial review of the panel's decision and (2) whether the panel erred in applying that standard of review.

The Ontario Court of Appeal dismissed the appeal. The standard of review on a art. 34(2)(a)(iii) application, which involved determining whether the panel exceeded its jurisdiction by deciding an issue that was not within the submission of the parties under the provisions of Chapter 11, was correctness. The panel correctly identified the jurisdictional limits on its ability to award damages. The panel's decision that damages were available for "up-stream" losses was made within its jurisdiction and was not reviewable. The court was not entitled to review the merits of the decision.

Arbitration - Topic 7919.1

Judicial review (incl. appeals) - Jurisdiction of the courts - International Commercial Arbitration Act awards - [See both International Law - Topic 6022.1 ].

International Law - Topic 6022.1

International relations - Free trade agreements - Arbitration - Judicial review (incl. standard of) - Cargill (U.S. company) manufactured high fructose corn syrup, a low cost substitute for cane sugar, which it sold to its Mexican subsidiary - The subsidiary sold the syrup to Mexican companies - To protect its refined sugar cane industry, Mexico enacted trade barriers - Cargill closed production plants and a distribution centre in the U.S. - The subsidiary closed its distribution centre - Cargill submitted an arbitration claim under chapter 11 of the North American Free Trade Agreement (NAFTA), claiming damages for Mexico's violation of various NAFTA articles by enacting the trade barriers - An international arbitral panel ruled that Mexico violated NAFTA - The panel awarded Cargill both "down-stream" losses (direct losses suffered by Cargill's Mexican subsidiary) and "up-stream" losses (Cargill's U.S. losses suffered due to its inability to sell syrup to its Mexican subsidiary) - Mexico had unsuccessfully argued that the panel had no jurisdiction to award damages for "up-stream" losses, because those losses were Cargill's U.S. losses as a producer and exporter, not losses suffered by Cargill as an investor in its investment (the Mexican subsidiary) - Mexico applied under art. 34(2)(a)(iii) of Model Law to set aside the panel's decision to award damages for "up-stream" losses - The Ontario Superior Court, applying a reasonableness standard of review, dismissed the application - The panel determined that Cargill's lost profits on sales to its Mexican subsidiary were so associated with its claimed investment in the Mexican subsidiary as to be compensable under NAFTA - The Ontario Court of Appeal dismissed Mexico's appeal - The standard of review on a art. 34(2)(a)(iii) application, which involved determining whether the panel exceeded its jurisdiction by deciding an issue that was not within the submission of the parties under the provisions of Chapter 11, was correctness - The panel correctly identified the jurisdictional limits on its ability to award damages - The panel's decision that damages were available for "up-stream" losses was made within its jurisdiction and was not reviewable - The court was not entitled to review the merits of the decision.

International Law - Topic 6022.1

International relations - Free trade agreements - Arbitration - Judicial review (incl. standard of) - An international arbitration panel ruled that Mexico breached the North American Free Trade Agreement by imposing trade barriers - Mexico sought judicial review under the International Commercial Arbitration Act, which included UNCITRAL Model Law on International Commercial Arbitration (Model Law) as a Schedule - Article 34(2)(a)(iii) of the Model Law provided that an arbitral award could be set aside on the grounds that "the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration" - The Ontario Court of Appeal held that art. 34 limited judicial review to an exhaustive list "relating to procedure, jurisdiction and public policy" - The reviewing court was not permitted to review the merits of the panel's decision - Respecting judicial review on jurisdictional grounds (art. 34(2)(a)(iii)), the standard of review was correctness - The court stated that "it is important, however, to remember that the fact that the standard of review on jurisdictional questions is correctness does not give the courts a broad scope for intervention in the decisions of international arbitral tribunals. To the contrary, courts are expected to intervene only in rare circumstances where there is a true question of jurisdiction. ... courts are to be circumspect in their approach to determining whether an error alleged under Article 34(2)(a)(iii) properly falls within that provision and is a true question of jurisdiction. They are obliged to take a narrow view of the extent of any such question. And when they do identify such an issue, they are to carefully limit the issue they address to ensure that they do not, advertently or inadvertently, stray into the merits of the question that was decided by the tribunal. ... the inquiry under Article 34(2)(a)(iii) is restricted to whether the tribunal dealt with a matter beyond the submission to arbitration, not how the tribunal decided issues within its jurisdiction." - See paragraphs 27 to 47, 66.

Cases Noticed:

Quintette Coal Ltd. v. Nippon Steel Corp. (1990), 50 B.C.L.R.(2d) 207 (C.A.), refd to. [para. 19].

United Mexican States v. Karpa (2005), 193 O.A.C. 216; 74 O.R.(3d) 180 (C.A.), refd to. [para. 19].

Corporacion Transnacional de Inversiones S.A. de C.V. et al. v. Stet International S.p.A. et al. (2000), 136 O.A.C. 113; 49 O.R.(3d) 414 (C.A.), leave to appeal refused (2001), 271 N.R. 394; 149 O.A.C. 398 (S.C.C.), refd to. [para. 19].

Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth Inc. (1985), 473 U.S. 614, refd to. [para. 19].

New Brunswick (Board of Management) v. Dunsmuir, [2008] 1 S.C.R. 190; 372 N.R. 1; 329 N.B.R.(2d) 1; 844 A.P.R. 1, refd to. [para. 24].

Canada (Attorney General) v. S.D. Myers Inc., [2004] 3 F.C.R. 368; 244 F.T.R. 161 (F.C.), refd to. [para. 33].

Bayview Irrigation District No. 11 et al. v. United Mexican States, [2008] O.T.C. Uned. 941 (Sup. Ct.), refd to. [para. 33].

Corporacion Transnacional de Inversiones S.A. de C.V. et al. v. Stet International S.p.A. et al. (1999), 104 O.T.C. 1; 45 O.R.(3d) 183 (Sup. Ct.), refd to. [para. 33].

United Mexican States v. Metalclad Corp. et al., [2001] B.C.T.C. 664; 89 B.C.L.R.(3d) 359 (S.C.), refd to. [para. 35].

Dallah Real Estate and Tourism Holding Co. v. Pakistan (Minister of Religious Affairs), [2011] 1 A.C. 763 (S.C.), refd to. [para. 36].

Statutes Noticed:

International Commercial Arbitration Act, R.S.O. 1990, c. I-9, Schedule, art. 34(2) [para. 14].

UNCITRAL Model Law on International Commercial Arbitration - see International Commercial Arbitration Act.

Counsel:

Patrick G. Foy, Q.C., and Robert J.C. Deane, for the appellant;

John Terry, for the respondent, with the assistance of Jeffrey W. Sarles of the Illinois bar;

Barry A. Leon and Daniel A. Taylor, for the intervenor, ADR Chambers;

Malcolm N. Ruby, for the intervenor, United States of America;

Roger Flaim, for the intervenor, Attorney General of Canada.

This appeal was heard on March 14-15, 2011, before Rosenberg, Moldaver and Feldman, JJ.A., of the Ontario Court of Appeal.

The judgment of the Court of Appeal was delivered by Feldman, J.A., and released on October 4, 2011.