Simon's Legal Resources

International Trade - North American Free Trade Agreement (NAFTA)

. Grace v. United Mexican States

In Grace v. United Mexican States (Ont CA, 2026) the Ontario Court of Appeal granted a motion to quash an appeal under ICAA, 2017 s.11 ["Appeals re jurisdiction"], here where the underlying appeal challenged the arbitrator's jurisdiction:

[1] The moving parties commenced an arbitration with the responding party, the United Mexican States (“Mexico”), to pursue their claims under c. 11 of the North American Free Trade Agreement, 17 December 1992, Can. T.S. 1994 No. 2, 32 I.L.M. 289 in Toronto in 2018. The arbitration proceeded over a four-year period, and in 2024 the tribunal issued an award holding that it had no jurisdiction over the matter.

[2] The moving parties brought an application seeking to have the award set aside on the basis that the tribunal’s jurisdictional analysis was in error and that there was a reasonable apprehension of bias concerning one of the members of the tribunal. The application judge agreed and set aside the award. Mexico appealed from that decision and the moving parties brought this motion seeking to quash the appeal.

[3] The moving parties argue that s. 11 of the International Commercial Arbitration Act, 2017, S.O. 2017, c. 2, Sched. 5 (the “ICAA”) provides that there is no appeal from the decision of the application judge, and as a result this court has no jurisdiction to hear the appeal in respect of the tribunal’s jurisdictional analysis. The moving parties argue, further, that if there is no jurisdiction to hear the appeal of the jurisdictional issues, the remaining bias issue should also be quashed, as it would have no practical effect on the parties.

[4] We agree.

[5] Section 11 of the ICAA provides as follows:

(1) If, pursuant to article 16(2) of the Model Law, an arbitral tribunal rules on a plea that it does not have jurisdiction, any party may apply to the Superior Court of Justice to decide the matter.

(2) The court’s decision under subsection (1) is not subject to appeal.

[6] The language of this provision is clear. No appeal lies from a decision of the Superior Court of Justice on a jurisdictional matter. This is not altered by art. 16(2) of the UNCITRAL Model Law on International Commercial Arbitration (the “Model Law”), incorporated into Ontario law under Schedule 2 of the ICAA.

[7] Mexico argues that s. 11 applies only to preliminary decisions rather than awards and that, because the tribunal issued an award its appeal is not barred. According to Mexico, the only recourse for challenging the award was pursuant to art. 34 of the Model Law, and as a result an appeal lies to this court.

[8] We do not agree.

[9] The tribunal’s award dealt only with jurisdictional and bias issues. It did not evaluate the substantive claims or determine liability or damage issues. It is, in this sense, no different than a decision that declined jurisdiction as a preliminary matter. The decision not to bifurcate the proceedings and address the jurisdictional argument separately does not preclude the operation of s. 11.

. Clayton v. Canada (Attorney General)

In Clayton v. Canada (Attorney General) (Ont CA, 2024) the Ontario Court of Appeal dismisses an appeal from a NAFTA application, here "to set aside an [SS: 'Commercial Arbitration Act'] arbitration award made pursuant to Chapter 11 of the NAFTA":

[2] There is no merit to this appeal. As I will explain, the appellants’ jurisdictional argument is a transparent attempt to circumvent clear limits on the ability of courts to interfere with the decisions of arbitration boards, limits that this court has already explained fully: Mexico v. Cargill, Incorporated, 2011 ONCA 622, 107 O.R. (3d) 528 (C.A) and Alectra Utilities Corporation v. Solar Power Network Inc., 2019 ONCA 254, 145 O.R. (3d) 481 (C.A). The argument that the tribunal’s award violates public policy is a variation on the jurisdictional theme.

....

[5] The appellants sought to develop a quarry in Nova Scotia. Their proposed project required approval from both the federal and provincial Ministers of the Environment. As part of the approval process, a federal-provincial joint review panel (JRP) conducted an environmental assessment. The JRP concluded that the project would cause significant and irreversible changes that would have adverse effects on the “community’s core values” and recommended that approval be denied. The federal and provincial Ministers denied approval subsequently.

[6] The appellants invoked the NAFTA arbitration process. At the first stage of the arbitration, the tribunal held that the respondent breached its obligations under arts. 1102 and 1105 of the NAFTA by conducting a flawed environmental assessment. The respondent’s application to the Federal Court of Canada to set aside this decision was dismissed: Canada (Attorney General) v. Clayton, 2018 FC 436 (CanLII), 2018 F.C. 436, [2018] 4 F.C.R. 394.

[7] The appellants sought redress for the injury caused by the NAFTA breaches in the second stage of the arbitration. Specifically, the appellants sought damages for the profits they say they would have earned had the project gone ahead - US$440 million over a 50-year period.

[8] The tribunal found that the causal link between the NAFTA breach and the injury alleged by the appellants was not established. Although the appellants were deprived of an opportunity to have the environmental impact of their proposed project assessed in a fair and non-arbitrary manner, recommendation of the project was not inevitable had the assessment been conducted properly. The tribunal noted that at the first stage of the arbitration it did not decide what the outcome of a proper environmental assessment should have been, including what mitigation measures should have been prescribed. Various outcomes of a NAFTA-compliant process were reasonably conceivable. For example, the JRP could reasonably have: (1) concluded the project would have serious adverse effects on right whale and lobster habitats not capable of mitigation; (2) concluded the project had serious socio-economic adverse effects not capable of mitigation that could have outweighed the expected positive effects and justified rejection of the project; or (3) recommended approval of the project subject to conditions that would render it economically unviable.

[9] Even if the proposed project had received a positive recommendation from the JRP following a NAFTA-compliant process, ministerial approval could have been denied, or approval could have been granted subject to conditions that rendered the project economically unviable.

[10] Thus, the tribunal concluded that the appellants failed to establish “in all probability” or with a “sufficient degree of certainty”—the standards of proof set out in international law—that they would have obtained the necessary approval for their project and would be operating profitably if the environmental assessment process had operated properly. The appellants failed to establish injury beyond deprivation of the opportunity to have a fair and non-arbitrary environmental assessment, and the tribunal awarded the appellants US$7 million in damages for this loss.

. United Mexican States v. Burr

In United Mexican States v. Burr (Ont CA, 2021) the Court of Appeal considered a rare NAFTA (North American Free Trade Agreement) case [the case is brief, but interesting reading]:

[2] The North American Free Trade Agreement gives investors the right to seek damages for the failure of a party (Canada, Mexico, or the United States of America) to honour a treaty commitment. The moving parties are thirty-nine USA nationals who brought claims individually and on behalf of seven Mexican companies totalling some USD$100 million to compensate for losses allegedly caused by Mexico’s closure of the casinos they had been operating in that country.