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The Supreme Court of Canada Declines to Clean up Confusion on the Standard of Review of Arbitral Decisions

Fasken
Reading Time 6 minute read
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Arbitration Bulletin

Introduction

The standards of review for courts on appeal or review of lower court and administrative decision-makers have been the subject of a huge amount of commentary and controversy. In Vavilov v. The Queen, the Supreme Court recently sought to clarify the standard of review in administrative law cases. There have been other decisions concerning the standard of review concerning appeals from arbitration awards on questions of law and decisions that determined what constitutes a question of law in proceedings concerning the interpretation of a contract.
 
These issues may now be breaking in a different direction. Three of the nine judges in the recent decision of Wastech v. Metro Vancouver, in an appeal where the arbitration award had been set aside, would have found that the review of a question of law in an arbitral decision should be reviewed on the basis of correctness and not reasonableness.
 
This suggests that further decisions may—or may not—clarify this important question.

Arbitration Awards Entitled to Deference on Questions of Law? 

Although the Arbitration Act, SBC 2020, c.2, s.59, gives a right to seek leave to appeal on any question of law, the issues of what is a question of law and the proper standard of review of a question of law have both proved vexing.
 
Arbitrators very commonly are required to determine the meaning of contractual terms. So, the question of whether this raises an issue of law or not is critical.  
 
This question appeared to be resolved in 2014. In Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, the Court ruled that contractual interpretation was no longer a question of law. Since contractual interpretation involves issues of mixed fact and law it is an exercise of interpreting the words in their factual context. Parties may identify an “extricable” legal error from a judge’s contractual interpretation, though these would be admittedly rare. The Court further ruled that any issue of law should be reviewed on a reasonableness standard. This reasonableness standard had at that point been typically applied to decisions of administrative tribunals. The Court ruled that the arbitral context was sufficiently similar to import that standard of review. In 2017, the Supreme Court in Teal Cedar Products Ltd. v. British Columbia, 2017 SCC 32 applied and affirmed the approach in Sattva. As a result of these decisions, arbitral appeals became arguably more difficult to mount: see e.g. Richmont Mines Inc. v. Teck Resources Limited, 2018 BCCA 452.

Vavilov Was Interpreted as Revisiting this Question 

Whatever confidence in the new legal tests related to appeals from arbitral awards was achieved by Sattva and Teal was indirectly shaken in 2019 in the Supreme Court of Canada’s comprehensive reformulation of administrative law standard of review principles in Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65 and its companion case, Bell Canada v. Canada (Attorney General), 2019 SCC 66. While Vavilov confirmed that the standard of review for administrative decision makers is to be presumptively reasonableness, one of the limited exceptions to that rule identified by the SCC was where the legislature provides for a statutory right of appeal. In that case, the majority in Vavilov held that the word “appeal” carries with it the legislative intention that the challenge to the decision-maker should follow the appellate standards of review, not the administrative ones. The appellate standards of review require that questions of law be approached on a non-deferential, correctness standard while factual and mixed fact and law questions are approached on a deferential, palpable and overriding error standard.
 
Vavilov also discounted the idea that a deferential standard of review of reasonableness was justified on the basis of the expertise of an administrative decision-maker. This reasoning had been particularly important in Sattva, which justified deference in part on the basis that parties often chose subject matter experts to arbitrate their dispute.
 
Vavilov did not directly address appeals from arbitral awards, thereby creating a stir within the arbitration community: what now?
 
A number of trial courts grappled with this question. Some held that Sattva was still good law and the standard of review on appeal from an arbitral award on a question of law was reasonableness: Ontario First Nations (2008) Limited Partnership v. Ontario Lottery And Gaming Corporation, 2020 ONSC 1516; Cove Contracting Ltd. v. Condominium Corporation No 012 5598 (Ravine Park), 2020 ABQB 106; Allstate Insurance Co. v. Ontario (Minister of Finance), 2020 ONSC 830. Others found the logic of Vavilov compelling: Buffalo Point First Nation v. Cottage Owners Association, 2020 MBQB 20; Northland Utilities (NWT) Limited v. Hay River (Town of), 2021 NWTCA 1; Clark v. Unterschultz, 2020 ABQB 338. Other courts, most notably in BC, declined to answer the question: Nolin v. Ramirez, 2020 BCCA 274; Allard v. The University of British Columbia, 2021 BCSC 60. There was an apparent conflict in the law.

The Supreme Court Declines

Wastech was an appeal from an arbitral award, thereby presenting the Supreme Court of Canada with an opportunity to, once more, address the question of the appropriate standard of review. At issue was an arbitrator’s finding that Metro Vancouver had breached the duty of good faith in the contract by exercising its discretion in a manner that deprived Wastech the opportunity to meet certain profit targets in a calendar year. This finding was appealed, and leave was granted in an earlier decision, with two questions of law posed to the trial court regarding the duty of good faith in the contract. The appeal was allowed at the Supreme Court of British Columbia and the Court of Appeal. The Supreme Court of Canada dismissed the appeal. However, one issue on which the majority and a three judge minority diverged was on whether to answer the burning question of how to reconcile Sattva and Vavilov.
 
The majority declined to address the matter. It was not directly at issue. Three judges, Brown, Rowe, and Cote JJ., concluded that this matter needed resolution. For the three judges, Vavilov had indeed changed the law related to statutory appeals from arbitral awards. They reasoned that, while there are differences between arbitration and administrative decisions, the legislature’s decision to provide for statutory rights of appeal must mean that appellate standards of review apply as a matter of statutory interpretation. Further, the minority held, the interpretive exercise mandating effect be given to the legislative decision to provide for appeal is unaffected by arguments in favour of deference to arbitrators, including the parties’ autonomy in selecting a decision-maker. When the legislature says “appeal”, it means to appeal, which includes the appellate standards of review. Finding otherwise would undermine the decision in Vavilov.

Conclusion

For now, uncertainty remains as to the applicable standard of review on a statutory appeal of an arbitral decision on a question of law. Three judges of the Supreme Court of Canada might be enough to create momentum in favour of applying Vavilov. Unsuccessful parties may be advised to pursue a question of law and give a court the opportunity to decide their case on a correctness standard.
 
For many parties, the appeal of arbitrations is the promise of an earlier and final private resolution. For those seeking certainty British Columbia’s new Arbitration Act in s. 59 allows parties to provide in their arbitration agreement that the parties may not appeal any question of law arising out of the arbitral award. Rather than awaiting the final word from the courts, parties may want to more closely consider whether they can control appeal rights in their contracts.

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