Background
Mexico issued gambling permits to the respondents authorizing operation of casinos in Mexico. Approximately ten months later, Mexico revoked the permits and shut down the casinos following a change in political leadership, despite an outstanding injunction. The respondents initiated NAFTA arbitration alleging violation of Article 1105 (fair and equitable treatment). An arbitral tribunal, after nine years of heavily contested litigation, extensive discovery covering thousands of exhibits, nine days of hearings with 20+ witnesses, and 1,500+ pages of written submissions, concluded that Mexico had breached its obligations and ordered damages exceeding $80 million.
Mexico appealed to the Superior Court of Justice seeking to set aside the arbitral award on grounds of procedural unfairness and denial of a full opportunity to present its case. Justice William Black dismissed the application in October 2025. Mexico appealed to the Court of Appeal for Ontario.
The Court’s Holding
The Court of Appeal unanimously dismissed Mexico’s appeal and upheld the arbitral award. The court held that the application judge applied the correct standard of review: intervention is warranted only when a tribunal’s conduct is “so serious that it cannot be condoned” and offends “our most basic notions of morality and justice.” The tribunal’s decision was not characterized by procedural unfairness of the exceptional nature required to justify court intervention.
The tribunal found that Mexico had revoked the permits and terminated the casinos’ operations “for no discernible reason” other than political change, constituting an “extraordinary change of heart” from its express 2012 position that the respondents’ operations complied with applicable law. The tribunal determined that Mexico had ample opportunity to preserve the operations but instead chose termination without identifying any public or regulatory concern. The Court of Appeal found this factual and legal analysis supported by the extensive record and did not warrant interference.
Mexico’s specific contentions about documentary production and judicial review issues were dismissed as “selectively ‘cherry picking’ aspects of the evidence” while ignoring context and process. These arguments occupied only three paragraphs of Mexico’s hundreds of pages of written submissions and one sentence of its opening statement, revealing their inconsequential importance to the tribunal’s decision.
Key Takeaways
- Courts will not set aside international arbitral awards absent proof of serious procedural unfairness that offends fundamental notions of morality and justice—mere disagreement with factual findings or legal conclusions is insufficient.
- A state’s change in government does not justify retroactively revoking business permits affecting foreign investors absent identification of legitimate public or regulatory concerns.
- NAFTA’s fair and equitable treatment obligation protects investors from arbitrary and unexplained revocation of operating licenses, particularly when preceded by express assurances of compliance with law.
- Where parties have enjoyed extensive due process—years of litigation, full documentary discovery, multiple days of hearings, numerous witnesses, and substantial opportunity for written submissions—claims of procedural denial lack credibility.
Why It Matters
This decision reinforces the enforceability of international arbitral awards and strengthens investor protections under NAFTA. By upholding the tribunal’s award despite Mexico’s sovereign status, the court signals that states cannot escape investment treaty obligations through political transitions or unilateral permit revocation. The decision demonstrates judicial deference to arbitral processes where due process has been scrupulously observed, protecting the legitimacy and predictability of international commercial arbitration.
For multinational investors and their counsel, the ruling confirms that NAFTA fair and equitable treatment protections against arbitrary permit revocation are enforceable in Canadian courts, even against sovereign states. The substantial damages award—together with the court’s dismissal of Mexico’s procedural objections—underscores the real financial exposure states face when they terminate investor licenses without transparent, regulatory justification.