North American Free Trade Agreement –
International Arbitration – Standard of Judicial
Cargill, Incorporated ("Cargill") is
an American company that produces high fructose corn syrup, a
low-cost alternative to cane sugar, for import to Mexico through
its wholly-owned Mexican subsidiary distributor, Cargill de Mexico
S.A. de C.V. ("CdM"). To protect its cane sugar industry,
Mexico enacted a number of trade barriers that caused CdM and
Cargill to sustain significant losses, including the closure of
CdM's distribution centre in Mexico.
Cargill, on behalf of itself and CdM, submitted a claim to
arbitration against Mexico under Chapter 11 of the North
American Free Trade Agreement
("NAFTA"). In 2009, an expert panel of
arbitrators in Washington D.C. found that Mexico's trade
barriers constituted breaches of NAFTA and that Cargill was
entitled to both "down-stream" damages (direct lost sales
and associated costs suffered by CdM in Mexico) and
"up-stream" damages (lost sales to CdM of products
manufactured by Cargill in the United States).
Mexico did not dispute the finding that it had breached NAFTA or
the award of down-stream damages to CdM. However, it challenged the
jurisdiction of the panel to award up-stream damages to Cargill.
Because the parties had designated Toronto, Ontario as the
"place of arbitration", the Ontario Superior Court of
Justice had jurisdiction to review the award under Ontario's
International Commercial Arbitration Act, which adopted
the UNCITRAL Model Law on International Commercial
Arbitration (the "Model Law").
Article 34(2)(iii) of the Model Law provides authority for a
Superior Court judge to set aside a decision of an international
arbitral tribunal where "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..."
Under Chapter 11 of NAFTA the panel only had jurisdiction to
award damages to Cargill for losses suffered as an
"investor" "by reason of or arising out of"
Mexico's trade barriers. Mexico argued that the panel exceeded
this jurisdiction by awarding damages for losses suffered by
Cargill in its position as producer and exporter.
The panel had directly addressed its jurisdiction on this issue
and concluded that, as Cargill's business model was to produce
the product in the United States for import to Mexico, losses
resulting from Cargill's inability to supply its investment
(CdM) with the product were just as much "investment
losses" as were CdM's "down-stream" losses.
In the Superior Court, Justice Low held the proper standard of
review to be "reasonableness", referring to the
"powerful presumption" that international arbitral
tribunal's act within their jurisdiction and that courts should
interfere sparingly with such decisions out of respect for
international comity and the global marketplace. She went on to
consider the merits of the panel's decision, determining it to
be reasonable and dismissing the appeal.
The Court of Appeal held the proper standard of review to be
"correctness" in that the panel had to be correct in its
determination that it had jurisdiction to make the decision it
made. The Court explained that the powerful presumption that courts
will rarely intervene in international arbitral decisions is
because their intervention is limited to true jurisdictional
The Court found that the panel had correctly identified its
jurisdictional limits under Chapter 11 and the terms of the
submission to arbitration, and had applied the facts within this
framework. Thus, Mexico's dispute was with the merits of the
decision, which the Court declined to review. As such, the Court
dismissed the appeal.
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While that agreement mandated export measures on Canadian softwood lumber exports destined for the United States, it also protected those lumber exports from the potential imposition of onerous import measures by the U.S.
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