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.