This article was
originally published in the Winter 2007 edition (Volume 21, Number 1) of
News and Notes, the newsletter for The Institute for Transnational
Arbitration. Reprinted with permission of The Institute for Transnational
Arbitration.
Canada, like much of the rest of the world, continues to
experience a growth in arbitration as a means of resolving
international commercial disputes. Arbitration presents an
attractive alternative to protracted litigation. Its benefits include
efficiency not only in getting disputes resolved, but also
in the enforcement of arbitral awards under the New York
Convention. The efficiency associated with arbitration
typically permits only limited oral and documentary discovery.
This is in contrast to the common-law approach in
Canada where a broad discovery process is valued as a path
to uncovering the truth. Consequently, Canadian arbitration
proceedings may well have to address the tension between
circumscribed discovery (which is the norm in international
commercial arbitration) and broad discovery (which is
the norm in traditional commercial litigation). Two recent
Canadian decisions highlight this tension.
In Jardine Lloyd Thompson Canada Inc. v. Western Oil Sands
Inc., [2005] A.J. No. 943, the Alberta Court of Queen's Bench
held that an arbitral tribunal could not order non-parties to
produce documents or submit to pre-hearing discovery. On
appeal, in Jardine Lloyd Thompson Canada Inc. v. Western Oil
Sands Inc., [2006] A.J. No. 32, the Alberta Court of Appeal
disagreed and allowed for broader discovery. These decisions
reveal contrasting judicial perspectives on the appropriate
scope of discovery in international commercial arbitration.
They also address the issue of judicial intervention during
the course of arbitration proceedings. Both decisions are
discussed below.
Scope of Discovery in International Commercial Arbitration
Although parties can agree otherwise, the scope of discovery
in international commercial arbitration is typically limited.
With respect to the discovery of documents, for example, it
has been noted that:
There is no practice of automatic discovery in
international commercial arbitration. The usual
practice is to limit document production as much
as possible to those documents that are strictly
relevant to the issues in dispute and necessary for
the proper resolution of those issues. (A. Redfern
et al., Law and Practice of International Commercial
Arbitration, 4th ed., London: Sweet & Maxwell,
2004 at p. 299, emphasis in original.)
By contrast, the general common-law practice in Canada is
to allow broad discovery. Typically, any document or question
related to a matter in dispute must be produced or answered.
Where a question involving the scope of discovery arises in
an international arbitration proceeding in Canada, a court
may be called upon to intervene. The extent of judicial intervention
in arbitral proceedings is not yet clearly defined in
Canada. In Quintette Coal Ltd. v. Nippon Steel Corp., [1990]
B.C.J. No. 2241 (“Quintette”), the British Columbia Court
of Appeal referred to a “world-wide trend toward restricting
judicial control over international commercial arbitration
awards”. The court identified the trend in international
arbitration of giving greater emphasis to party autonomy and
limiting judicial intervention.
Where a Canadian court is asked to intervene in matters
during the course of an arbitration, it will be guided by the
UNCITRAL Model Law on International Commercial
Arbitration (the “Model Law”), which has been adopted in
all Canadian common-law jurisdictions. Article 27 of the
Model Law states:
The arbitral tribunal or a party with the approval
of the arbitral tribunal may request from a competent
court of this State assistance in taking
evidence. The court may execute the request
within its competence and according to its rules
on taking evidence.
A request for assistance will arise naturally in the context of
discovery.
The Jardine Decisions
The Jardine decisions address the scope of discovery and
judicial intervention in international arbitration proceedings
in Canada. The setting for Jardine was an international
commercial arbitration held in Calgary, Alberta, Canada
between an owner of oil sands rights and a number of insurers.
The dispute related to losses incurred in the construction
of an oil sands project. The total value of the claim was in
excess of $200 million. With respect to discovery, the parties
had agreed that examinations would be available along the
lines provided by the Alberta Rules of Court. These Rules
allow for broad oral and documentary discovery.
The central issue in Jardine involved two orders of the
arbitral tribunal. One order directed document disclosure of
a party to the arbitration, and the other compelled attendance
for oral examinations of former and present employees of a
non-party to the arbitration. The arbitral tribunal granted
leave for assistance to be sought from the court to compel
the discovery of the non-party. Concurrently, the non-party
asked the court to declare that the tribunal had no jurisdiction
to make either order.
Decision of First Instance in Jardine
The Alberta Court of Queen's Bench began its analysis with
a review of a number of general principles applicable to international
commercial arbitration. These informed the court's
analysis of the appropriate scope of discovery in the
arbitration.
The court observed that international commercial disputes
are being increasingly referred to arbitration rather than
litigation. This is being done in the interests of efficiency
and out of the parties' desire to choose both the tribunal that
will resolve their dispute and the rules that the tribunal will
apply in doing so. The court noted that the scope of discovery
allowed in international arbitration proceedings constitutes
an attempt to reconcile two competing interests, that of
justice and fairness on the one hand, and finality and
efficiency on the other. These competing interests are amplified by the very different approaches taken with respect
to discovery in common law and civil law jurisdictions.
The court found that the rules of international arbitration,
including the Model Law, are an attempt to reconcile these
different approaches.
Against this backdrop, the court considered the tribunal's
ability to order the discovery of a non-party to the arbitration.
The court accepted that Article 19 of the Model Law (which,
in the absence of agreement by the parties, allows a tribunal
to conduct an arbitration as it considers appropriate) has been
interpreted as providing a tribunal with broad discretion to
determine its own procedure. This was particularly so when,
as in this case, both parties were from the same common-law
system. The court did not, however, accept the argument that
Article 27 of the Model Law allowed the tribunal to seek an
order compelling discovery of non-parties.
According to the court, authority for any order of a tribunal
must be found in Alberta's international commercial
arbitration legislation (of which the Model Law forms part).
The court found that nothing in this legislation allows an
arbitral tribunal to compel discovery of non-parties.
The words “taking evidence” in Article 27 do not extend to
providing assistance in compelling discovery of a non-party.
The court concluded as follows at para. 73:
An arbitration panel is not competent to adopt
the rules and procedures of this Court so as to
constitute itself a parallel court, even if the
parties to the arbitration agreement agree,
insofar as non-parties are concerned. Its powers
are sourced by the fundamental nature of an
arbitration and by the International Commercial
Arbitration Act and the Model Law. The limits
on its power include not ordering non-parties to
abide by its orders for pre-hearing discovery or
document production.
The court thus held that the tribunal had no jurisdiction
to order a non-party to abide by its orders for pre-hearing
discovery or document production. Further, the court held
that, where judicial assistance is sought in the taking of evidence,
the court should not look at the merits of an arbitral
order, but should limit itself to determining whether the
tribunal had the authority or jurisdiction to make the order in
the first place. This is to show an arbitral tribunal the degree
of deference and respect that is consistent with the principles
of international commercial arbitration.
Appellate Decision in Jardine
The decision of first instance in Jardine was overturned by
the Alberta Court of Appeal in a sharply contrasting judgment.
The Court of Appeal affirmed that an arbitral tribunal
derives its jurisdiction from the arbitration agreement and
from the applicable legislation, which includes the Model
Law in Alberta. In this case, the parties had not agreed to any
limitations either on the scope of examinations for discovery
or the persons subject to examination. Rather, the parties
had agreed that examinations for discovery would be available
along the lines provided by the Alberta Rules of Court, which
contemplate discovery of non-parties.
With respect to the Model Law, the main issue was the
interpretation of Article 27. The Court of Appeal found that
the lower court's interpretation of Article 27 was unduly restrictive.
In its view, the phrase “assistance in taking evidence” includes
discovery evidence and is not restricted to evidence at a hearing.
The ordinary and plain meaning of “evidence” includes evidence
gathered by way of discovery. Thus, the court held that Article 27
of the Model Law allows a court to grant assistance in the taking
of discovery evidence.
According to the Court of Appeal, Article 19 of the Model Law
allows an arbitral tribunal to order pre-hearing discovery. This
is expressly set out in the Analytical Commentary to Article 19.
Further, Article 19 is silent on confining discovery to the parties
themselves. In the court's view, no persuasive reason existed for
why non-parties should not be subject to having their evidence
taken in accordance with the local rules of court. The Court of
Appeal characterized the purpose of Article 27 as follows at para.
41:
The obvious purpose of Article 27 is to facilitate the
tribunal in its search for the truth. I do not conceive
that a tribunal has any less desire for, or need for, the
truth to reach a fair and proper result than does a court
of law.
Thus, the Court of Appeal concluded that it was possible for the
tribunal in question to compel the discovery of non-parties.
The court clarified, however, that the tribunal must first be
satisfied that the evidence being sought from the non-party must
be useful for the purposes of the arbitration. The court is not
obliged to grant its assistance. Rather, the court will have to be
persuaded that the request is reasonable and in accordance with
its practice.
In the result, the appeal was allowed and the matter remitted to
the court below for the orders compelling the discovery of the
non-party to be granted.
Discussion of Jardine Decisions
The appellate decision in Jardine is in clear contrast to the
approach taken by the lower court. It expands the scope of discovery
by allowing an arbitral tribunal, with court assistance, to
order discovery of non-parties. This seems to be at odds with the
prevailing view of a more limited discovery process in international
commercial arbitration.
However, at the same time, the Court of Appeal's decision has
the effect of increasing the procedural tools available to an international
arbitral tribunal. Whereas the lower court precludes
the tribunal's ability to seek court assistance in aid of discovering
non-parties to an arbitration, the Court of Appeal leaves this
avenue open. In so doing, it provides international arbitration
tribunals with an additional means to gather evidence.
Still, it is evident that the Court of Appeal's decision gives less
deference to orders of an international arbitral tribunal. The Court
of Appeal held that before judicial assistance will be granted for
the taking of evidence, there will be a review of the tribunal's
jurisdiction to grant the order made as well as a further review of
the merits (reasonableness) of the tribunal's request for assistance.
This is in marked contrast to the view at first instance that a court
ought not to look behind an order made within the tribunal's
jurisdiction, even if the court would have decided differently. The
view at first instance accords with the more accepted approach, as
set out in Quintette, that prescribes more limited judicial intervention
in international commercial arbitration.
Ultimately underlying the Court of Appeal's decision is the
traditional common-law fixation with uncovering the truth. Such
an approach is more consistent with litigation in common-law
jurisdictions than it is with international commercial arbitration,
where the goal is efficient and fair dispute resolution rather than
an uncompromising search for the truth.
Conclusion
The two Jardine decisions highlight the tension in Canada
between broad and limited discovery in international commercial
arbitration. The Alberta Court of Appeal resolved this tension in
favour of broad discovery and truth-finding. This choice may be
undesirable for some. Seeking court assistance to enforce discovery
of non-parties is likely to add delays, costs and complexity to
a process that was intended to avoid these very hurdles. One way
to avoid such a result would be for parties to specifically exclude
discovery of non-parties in their arbitration agreement. Defining
the scope of discovery by reference to local rules of court (which
in Canadian common-law jurisdictions will invariably allow for
broad discovery) should also be avoided.
Bennett Jones