Canada: International Commercial Arbitration Awards – No Deference On Questions Of Jurisdiction

Last Updated: October 26 2011
Article by W. Brad Hanna, FCIArb. and Erin Cowling

If you are considering challenging an international commercial arbitration award made against you (or responding to such a challenge) you will want to know about the Ontario Court of Appeal's decision in Mexico v Cargill1 released in October, 2011.

There is generally no appeal from an international commercial arbitral award. However, under UNCITRAL's Model Law on International Commercial Arbitration (the "Model Law") (which is incorporated by reference in the international commercial arbitration legislation of each province), parties may bring an application to set aside an award on certain grounds. One of the more frequently invoked grounds is that the arbitral tribunal made a decision about something that is outside of its jurisdiction (Article 34(2)(a)(iii) of the Model Law).

In Mexico v Cargill, the Ontario Court of Appeal clarified the test for setting aside an international commercial arbitration award on jurisdictional grounds. In short, the standard of review on such challenges is correctness. A reviewing court will only set aside a tribunal's award where the tribunal has incorrectly decided a true question of jurisdiction. More on the case, and its implications, below.

The facts in Mexico v Cargill

Mexico, the second largest per capita consumer of soft drinks in the world, enacted certain trade barriers as an attempt to protect its sugar industry against competition from imported high fructose corn syrup ("HFCS") – a low-cost sugar substitute used in soft drinks. Cargill, Incorporated ("Cargill"), an American producer of HFCS, and its Mexican subsidiary and distributor, commenced an arbitration claiming Mexico's trade barriers breached the North American Free Trade Act ("NAFTA"). The arbitral tribunal agreed that Mexico's trade barriers breached NAFTA and awarded $77m in damages to Cargill. The damages awarded included both " downstream" losses (being direct lost sales suffered by Cargill's Mexican subsidiary) and "upstream" losses (being Cargill's cost of lost sales to its Mexican subsidiary).

Mexico challenged the jurisdiction of the tribunal to award the "upstream damages." Under NAFTA, the tribunal could only award damages to Cargill as an "investor" to compensate for losses suffered in connection with its "investment" in Mexico, which Mexico argued, was Cargill's Mexican subsidiary. Mexico argued that the tribunal did not have jurisdiction to award "upstream" damages, which it characterized as losses Cargill suffered in America as a producer and exporter and not losses suffered as an investor in Mexico.

Given that the arbitration was seated in Toronto, Mexico brought its application to set the award aside in Ontario under the International Commercial Arbitration Act, RSO 1990, c I.9, which incorporates the Model Law. Specifically, Mexico applied under Article 34(2)(a)(iii) of the Model Law, which permits a court to set aside an award that " with a dispute not contemplated by or not falling within the terms of submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration . . . ."

At first instance, the Ontario Superior Court of Justice found that Mexico's objection did not go to the jurisdiction of the tribunal but rather was an attack on the merits of the decision, which was beyond the Court's scope of review under the Model Law, and dismissed its application. In doing so, the Court ruled that the standard of review when considering whether an arbitral tribunal exceeded its jurisdiction is reasonableness, citing numerous Canadian precedents which state that international arbitral tribunals are to be afforded a high degree of deference and that courts should interfere only sparingly or in exceptional cases.

Mexico then appealed to the Ontario Court of Appeal, and lost again. Although the Court of Appeal dismissed Mexico's appeal, it reached a different conclusion than the Superior Court on the proper test to apply when reviewing an arbitral tribunal's decision on its own jurisdiction.

The court of appeal's decision

The Court of Appeal began by observing that it is not helpful to directly apply often inconsistent and ill-defined standards of review from administrative law cases, or from appellate court reviews of trial decisions, when reviewing a jurisdictional challenge under Article 34 of the Model Law. After examining the language of the Model Law itself, several Canadian decisions and the decision of the UK Supreme Court in Dallah v Ministry of Religious Affairs of the Government of Pakistan, the Ontario Court of Appeal ruled that the proper standard of review on an application to set aside under Article 34(2)(a)(iii) of the Model Law is correctness. The arbitral tribunal must be correct in determining that a particular dispute falls within its jurisdiction. The tribunal has no authority to expand its jurisdiction, even if its interpretation of jurisdiction is a reasonable one.

The Court of Appeal recognized that one challenge for a reviewing court is navigating the tension between discouraging court intervention in the arbitral process, on the one hand, and the court's mandate to review awards for jurisdictional excess, on the other. The Court of Appeal also noted that another challenge for the court is to limit its review to determining whether the award exceeds the scope of the tribunal's jurisdiction and to refrain from examining the merits of the award itself.

To manage these challenges, the Court of Appeal provides the following road map for reviewing a jurisdictional attack:

  • The role of the reviewing court is to identify and narrowly define any "true" question of jurisdiction;
  • Where the court is satisfied that there is a true question of jurisdiction, the tribunal must be correct in its assumption of jurisdiction, and it is the reviewing court's job to determine whether the tribunal got it right; and
  • In assessing whether the tribunal exceeded its jurisdiction, the court is to avoid a review of the merits.

The Court of Appeal ultimately decided that the arbitral tribunal correctly identified the jurisdictional limits on its ability to award the "upstream" damages, and dismissed Mexico's appeal.

Other lessons

The Mexico v Cargill case is also of interest for two additional reasons. First, the case will be helpful in investment arbitrations as the Court of Appeal distinctly separated the issues of jurisdiction and merits, which are often confused in investment treaty cases. The decision marks the fifth time that an investment treaty award has been reviewed by a Canadian Court (no other country boasts such a depth of jurisprudence in this area), and this is the fourth time that a challenge to such an award has been dismissed. Second, the Court also provides a helpful in-depth discussion of the Vienna Convention on the Law of Treaties and its application.


1. 2011 ONCA 622

The foregoing provides only an overview. Readers are cautioned against making any decisions based on this material alone. Rather, a qualified lawyer should be consulted.

© Copyright 2011 McMillan LLP

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

W. Brad Hanna, FCIArb.
In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.