When Will Ontario Courts Set Aside An International Arbitral Award? Lessons From Burr And Grace

Ontario courts continue to emphasize that challenges to international arbitral awards face a high bar. Recent decisions demonstrate that while courts will not permit parties to re-litigate the merits of an arbitration through a set-aside application, they remain willing to scrutinize challenges involving jurisdictional issues or concerns about the integrity of the arbitral process.

Two recent Ontario decisions, Mexico v. BurrandGrace v. Mexico, involving treaty claims against the United Mexican States (“Mexico”), illustrate how Ontario courts are exercising their supervisory role under the International Commercial Arbitration Act, 2017, which implements the 2006 UNCITRAL Model Law.

While the outcomes in the cases differed—in Burr, the Court of Appeal upheld a lower court decision refusing set-aside, while in Grace the Superior Court set aside the underlying award—together the decisions provide practical guidance on the narrow circumstances in which Ontario courts will intervene in international arbitral awards.

Mexico v. Burr: No Set Aside for Alleged Procedural Unfairness

In Mexico v. Burr, the Court of Appeal for Ontario dismissed Mexico’s appeal from a decision refusing to set aside a NAFTA award worth more than US$80 million. As discussed in our earlier commentary, the Ontario Superior Court affirmed the high standard for setting aside international arbitral awards and confirmed that parties are entitled to a fair hearing, not a perfect hearing. Mexico argued that it had been denied a fair opportunity to present its case and that the arbitral process was procedurally unfair.

The Superior Court rejected those arguments and the Court of Appeal concurred with its approach. Emphasizing the exceptional nature of judicial intervention in international arbitration, it found that the arbitration had involved years of litigation, extensive documentary production, numerous witnesses, and substantial written submissions.

The Court agreed that Mexico’s complaints amounted largely to a disagreement with routine procedural rulings and did not come close to the type of fundamental unfairness required to justify setting aside an international arbitral award.

The decision reinforces Ontario’s stance that while parties are certainly entitled to a fair hearing, attempts to repackage substantive disagreements as procedural fairness concerns are unlikely to succeed.

Grace v. Mexico: Courts Will Closely Scrutinize True Jurisdictional Questions

By contrast, in Grace et al. v. The United Mexican States, the Ontario Superior Court set aside the award of a NAFTA tribunal after concluding that it had incorrectly declined jurisdiction and that one arbitrator gave rise to a reasonable apprehension of bias.

The arbitral tribunal had found that certain claimants were barred from bringing claims because they were dual nationals of Mexico and the United States, and that the remaining claimants’ losses were “indirect losses” falling outside NAFTA Article 1116.

Justice Dietrich disagreed on both issues.

Applying Ontario authorities on jurisdictional review, such as Mexico v. Cargill, 2011 ONCA 622 and Russian Federation v. Luxtona Limited,  2023 ONCA 393, the Court held that the tribunal had improperly imported restrictions into the treaty that were not supported by its text or by any sufficiently clear and agreed state practice under international law.

Accordingly, it determined that Articles 16.2 and 34(2) of the Model Law were engaged to merit setting aside the award.

The Court also found a reasonable apprehension of bias where one arbitrator accepted a counsel mandate in a separate investor-state arbitration involving potentially overlapping issues while deliberations in the Grace arbitration were ongoing and had failed to disclose that engagement.

The court emphasized that the test is objective, asking whether a fair-minded and informed observer would see justifiable doubts as to the arbitrator’s impartiality. It held that the arbitrator had a duty to disclose the new engagement when it arose.

The failure to disclose mattered because it deprived the parties of the opportunity to inquire further and consider a recusal application. In those circumstances, the court concluded that a fair-minded and informed observer would find a reasonable apprehension of bias.

Takeaways

Read together, Burr and Grace demonstrate that Ontario courts will be reluctant to interfere where a party seeks to re-litigate substantive issues through procedural complaints.

However, where a challenge raises genuine jurisdictional questions or concerns about the integrity of the arbitral process, the courts will engage closely with the issues and, where appropriate, intervene.

These decisions underscore Ontario’s reputation as a sophisticated arbitration seat—one that respects arbitral finality while remaining committed to enforcing the limits and safeguards embedded in the Model Law.