The Russia Federation v. Luxtona Limited

At a glance

Parties

The Russian Federation (applicant; respondent in the arbitration) v. Luxtona Limited (respondent; claimant in the arbitration)

Case no.

Ontario Superior Court of Justice, Court File No. CV-17-11772-CL; 2019 ONSC 7558

Court

Ontario Superior Court of Justice (Commercial List), Penny J.

Underlying award(s)

Interim award on jurisdiction of 22 March 2017 (arbitration under Article 26 of the Energy Charter Treaty, seated in Toronto)

Forum and rules

Set-aside application under Articles 16(3) and 34(2) of the UNCITRAL Model Law, as enacted by Ontario's International Commercial Arbitration Act, 2017

Treaty

Energy Charter Treaty (provisional application under Article 45(1))

Sector

Energy (Yukos shareholding)

Outcome

Interlocutory ruling: Russia may not file new evidence as of right in its challenge to the interim award on jurisdiction. Under a later addendum, Russia may still seek leave under the R. v. Palmer test.

Amount

Claimed in the arbitration: approximately USD 701 million. Costs submissions before the tribunal were about $7 million (Luxtona) and about $8 million (Russia).

The dispute

Luxtona Limited, a former shareholder of Yukos, claimed approximately USD 701 million from Russia for alleged breaches of the Energy Charter Treaty. Russia signed the Treaty but never ratified it. Under Article 45(1), Russia agreed to apply the Treaty provisionally only "to the extent that" this was "not inconsistent with" its Constitution, laws and regulations. Russia argued that arbitration under Article 26 is inconsistent with Russian law. The tribunal, seated in Toronto, rejected that objection and a denial-of-benefits objection in an interim award of 22 March 2017. Russia applied to the Ontario court to set the interim award aside. In support, it filed new expert reports on Russian law, from Professors Avtonomov and Marochkin, and documents that had not been before the tribunal. Luxtona objected that this evidence was inadmissible.

Key holdings

1. The judge assigned to hear the application has authority to reconsider an earlier interlocutory ruling on admissibility made by another judge (Dunphy J.). A hearing judge should not decide a case on evidence he believes was wrongly admitted. ¶¶ 11–16
2. Under United Mexican States v. Cargill, a challenge to jurisdiction under Articles 16 and 34 of the Model Law is a review for correctness, without deference. But the standard of review is a separate question from the format of the review. A correctness standard does not mean that fresh evidence may be filed as of right. ¶¶ 30–38, 57–59
3. The court declined to follow the London Commercial Court cases under s. 67 of the UK Arbitration Act, which treat a jurisdictional challenge as a trial de novo. The UK Act differs materially from the Model Law, and that approach is inconsistent with Cargill, which binds the court. ¶¶ 40–59
4. Allowing new evidence at will would undermine competence-competence. Russia's new expert evidence was prepared with hindsight and is aimed at showing why the tribunal's reasons were wrong. Parties must have strong incentives to put all their evidence before the tribunal. ¶¶ 60–62
5. Fresh evidence may not be introduced as of right in an application to set aside an award on jurisdiction. The party must show that: (1) the evidence could not have been obtained with reasonable diligence; (2) it would probably have an important influence on the case; (3) it is apparently credible; and (4) if believed, it could reasonably be expected to have affected the result. ¶¶ 65–69
6. Addendum of 20 December 2019: paragraph 70 and the statement in footnote 1 that Russia conceded it could not meet the Palmer test are struck out. They resulted from a miscommunication. The parties had agreed that Russia could seek leave to introduce some of the evidence under the Palmer test, and a further motion for leave was scheduled. Addendum ¶¶ 1–5

Procedural history

1. October 2014Russia filed its Memorial on jurisdiction in the arbitration. Luxtona's Counter-Memorial followed in February 2015.
2. January 2016Five-day hearing on jurisdiction in London, with one fact witness and four expert witnesses.
3. 22 March 2017The tribunal's 146-page interim award unanimously dismissed Russia's first two jurisdictional objections and deferred the third (whether Luxtona made a qualifying investment).
4. April 2017Russia applied to the Ontario Superior Court of Justice under Articles 16 and 34 of the Model Law to set aside the interim award.
5. Dunphy J. held that Russia could file new evidence as of right. The application was later reassigned to Penny J., who directed that the issue be re-argued.
6. 23 October 2019Re-argument of the admissibility of Russia's new evidence before Penny J.
7. 13 December 2019Endorsement: new evidence is not admissible as of right; a Palmer-type test applies.
8. 20 December 2019Addendum struck out paragraph 70 and part of footnote 1, and recorded that Russia may move for leave to adduce the evidence under the Palmer test. The published documents do not show the outcome of that motion or of the set-aside application.

Tribunal, counsel and experts

For the claimant

Gibson, Dunn & Crutcher LLP · Lincoln Caylor · Ranjan K. Agarwal · S. Bandali

For the respondent

Debevoise & Plimpton LLP · John Terry · Miriam Seers · Emily Sherkey

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Keywords

• Yukos
• Energy Charter Treaty
• provisional application
• Article 45(1) ECT
• set-aside
• UNCITRAL Model Law Article 16(3)
• Article 34
• jurisdictional challenge
• fresh evidence
• R. v. Palmer
• Ladd v. Marshall
• competence-competence
• standard of review
• Cargill
• trial de novo
• Section 67 Arbitration Act 1996
• Russian law
• Toronto seat

Summary generated with AI from the published documents — refer to the award for the authoritative text.