1. This appeal is grounded in a contractual dispute between a country, the Russian Federation (“Russia”), and a corporation, Luxtona Limited (“Luxtona”), incorporated in Cyprus. The dispute arose from a contested arbitral decision on jurisdiction that went in favour of Luxtona. The arbitration was “seated” in Toronto so Ontario courts became involved in the appeals that arose from the initial decision of the arbitral tribunal.
2. A procedural issue arose almost immediately in the Canadian courts: could Russia file fresh evidence on its appeal of the arbitral tribunal's decision on jurisdiction? Justice Dunphy, a Commercial List judge of the Superior Court, said “Yes”.
3. After Justice Dunphy made this ruling, he left the Commercial List and assumed other judicial duties. Justice Penny was assigned the case. The parties asked Justice Penny to decide additional evidentiary issues respecting the new evidence adduced by Russia. During that inquiry, Justice Penny raised questions about the legal basis for filing the new evidence in the first place.
4. Justice Penny determined that, as the application judge, he was not bound by Justice Dunphy's prior interlocutory ruling. He concluded that Russia was not entitled as of right to file evidence on the application and could only do so if it could meet the stringent test for admission of fresh evidence on appeal, set out in Palmer v. The Queen, 1979 8 (SCC),  1 S.C.R. 759, or bring itself within one of the exceptions to the principle that review of an arbitral decision is based on the record before the tribunal.
5. Russia appealed Justice Penny's interlocutory decision declining to admit its proposed fresh evidence to the Divisional Court.
6. The Divisional Court panel identified the issues: 1) whether Justice Penny erred in revisiting an issue previously decided by Justice Dunphy; and 2) if not, whether Justice Penny erred in finding that Russia is not entitled to adduce evidence that was not before the arbitral tribunal.
7. The Divisional Court agreed with Justice Penny on the first issue, holding that he had jurisdiction to revisit Justice Dunphy's interlocutory ruling.
8. The Divisional Court disagreed with Justice Penny on the second issue. It held that jurisdictional set-aside applications are hearings de novo and, therefore, the parties can, as of right, introduce evidence that was not before the tribunal.
9. Luxtona sought and was granted leave to appeal the Divisional Court's decision.
Yukos, Arbitration, Energy Charter Treaty