Judicial review of arbitral awards in Canada: recent developments and trends

Vasilis Pappas
Bennett Jones LLP, Calgary/Vancouver
pappasv@bennettjones.com

Artem Barsukov
Bennett Jones LLP, Edmonton​​
barsukova@bennettjones.com

Gannon Beaulne
Bennett Jones LLP, Toronto
beaulneg@bennettjones.com

Introduction

Finality is one of the key advantages of commercial arbitration relative to traditional litigation. Arbitration generally affords very limited grounds to challenge or appeal an arbitral award. By contrast, a court decision may be appealed multiple times, with appellate courts scrutinizing legal issues (as opposed to questions of fact) with little or no deference to the decision-maker in the first instance.

Given the central role of finality in the arbitration process, it should come as little surprise that court cases discussing the standard of review for arbitral awards are closely watched. The last year saw the release of several such decisions in Canada, two of which will be addressed here:  one related to domestic arbitral awards and the other related to international arbitral awards.

First, with respect to domestic arbitral awards, the Supreme Court of Canada released its decision in Wastech Services Ltd v Greater Vancouver Sewerage and Drainage District, 2021 SCC 7 [Wastech], in which it had its first clear opportunity since its 2019 decision in Canada (Minister of Citizenship and Immigration) v Vavilov, 2019 SCC 65 [Vavilov] to affirm the deferential standard of review for domestic arbitral awards articulated in Sattva Capital Corp v Creston Moly Corp 2014 SCC 53 [Sattva] and Teal Cedar Products Ltd v British Columbia, 2017 SCC 32 [Teal Cedar]. The result was mixed, leaving the door open for the application of the more exacting standard of correctness articulated in Vavilov to domestic arbitral awards in Canada.

Second, with respect to international arbitral awards, in United Mexican States v Burr, 2021 ONCA 64 [Burr], the Court of Appeal for Ontario clarified what appeal or challenge rights exist under Ontario’s International Commercial Arbitration Act and the UNCITRAL Model Law when an arbitrator deals with preliminary questions of jurisdiction. In Burr, the Court of Appeal affirmed that a decision on a preliminary question of jurisdiction, even if styled as an “award”, falls under Article 16 of the UNCITRAL Model Law, which provides limited rights of appeal.

This article discusses these cases and resulting developments in the Canadian case law.

Background: Standard of review for domestic arbitral awards in Canada post-Vavilov

Just over two years ago, in Vavilov, the Supreme Court of Canada reinvented the framework governing the review of administrative decisions by Canadian courts, signaling an increased willingness to overturn decisions made by administrative tribunals.

Under the Vavilov approach, when reviewing an administrative decision, courts begin with the presumption that the deferential standard of 'reasonableness' is to apply, as opposed to the non-deferential standard of 'correctness'. That presumption is rebutted, however, if the legislature has indicated that it intends a different standard of review to apply. One of the ways that the legislature can indicate such an intention is by providing for a statutory appeal mechanism.

Even when the reasonableness standard applies, the Vavilov approach leaves courts with leeway to scrutinize the outcome of the decision in light of its underlying rationale 'to ensure that the decision as a whole is transparent, intelligible and justified'. As a result, Vavilov is widely viewed as having opened the door to increased judicial scrutiny of administrative decision-making in Canada.

As a decision focused on administrative law, Vavilov did not address the standard of review applicable to arbitration decisions. In fact, the Supreme Court appeared to carefully avoid that discussion, despite the pleas of at least one intervener to keep the book on that historically vexed subject closed.

The Supreme Court’s reluctance to re-open this issue should hardly come as a surprise, since it was seemingly settled only a few years ago in Sattva and Teal Cedar. In these decisions, the Supreme Court affirmed a narrow scope for appellate review of domestic arbitral awards under certain domestic arbitration legislation, limited to “extricable questions of law” (which sets a high bar). The Supreme Court also articulated a deferential standard of review that would 'almost always' apply.

The Supreme Court’s decisions in Sattva and Teal Cedar were consistent with arbitration’s central aims of finality and efficiency. At the same time, Sattva and Teal Cedar accepted that 'aspects' of the framework developed in the context of administrative law are 'helpful in determining the appropriate standard of review to apply in the case of commercial arbitration awards'. For this reason, perhaps it was inevitable that, once the Supreme Court had revised the administrative law framework in Vavilov, parties dissatisfied with arbitral awards would try to rely on Vavilov to argue that statutory rights of appeal that apply to domestic arbitral awards displace the deferential 'reasonableness' standard of review in favour of the more exacting standard of 'correctness'.

Since Vavilov, a number of Canadian courts have either applied Vavilov to revisit the standard of review applicable to domestic arbitral awards, or at least signalled their openness to doing so. For instance:

• In Buffalo Point First Nation v Cottage Owners Association, 2020 MBQB 20, the Manitoba Court of Queen’s Bench purported to 'follow the Supreme Court’s dicta' and applied the appellate standard of correctness in the arbitration context.
• In Allstate Insurance Company v Her Majesty the Queen, 2020 ONSC 830 [Allstate Insurance], the Ontario Superior Court of Justice found that “the standard of review in appeals from insurance arbitrations mandated by legislation must be revisited” after Vavilov.
• In Northland Utilities (NWT) Limited v Hay River (Town of), 2021 NWTCA 1 [Northland Utilities], the Court of Appeal for the Northwest Territories decided that Vavilov’s reasoning applies to commercial arbitration, concluding that 'the revised standard of review framework described in Vavilov applies to commercial arbitration decisions reviewed as a result of a right of appeal given by statute'.
• In 719491 Alberta Inc v The Canada Life Assurance Company, 2021 ABQB 226 [719491 Alberta Inc], the Court of Queen’s Bench concluded that 'the standard of review for arbitration appeals has effectively been modified under the Vavilov regime'.

To be clear, this case law mainly concerns domestic arbitral awards in Canada, by virtue of their being subject to statutory appeal rights. International arbitral awards are generally governed by different statutory regimes that incorporate the UNCITRAL Model Law and thus import highly restricted appeal rights. But the effect of Vavilov (and Wastech, discussed below) in the international commercial arbitration context remains unsettled at the appellate level, as the Court of Appeal for British Columbia recently observed in lululemon athletica canada inc v Industrial Color Productions Inc, 2021 BCCA 108 at para 33 [lululemon].

Wastech adds little clarity on the standard of review

In February 2021, the Supreme Court released its decision in Wastech. The main issue was the 'organizing principle' of good faith in contractual relations as it applies to the exercise of contractual discretion by a party to a contract. But Wastech was also the Supreme Court’s first clear opportunity since Vavilov to affirm the deferential standard of review articulated in Sattva and Teal Cedar in the arbitration context. From that perspective, the outcome was mixed.

Wastech was an appeal from an arbitral award under section 31 of British Columbia’s former Arbitration Act, RSBC 1996, c 55. That provision permitted an appeal on a question of law arising out of an arbitral award if the parties agree or, as occurred in Wastech, if the court grants leave to appeal. At issue was whether the standard of review on a section 31 appeal was reasonableness, as decided in Sattva and Teal Cedar (both of which involved section 31).

The six-judge majority of the Supreme Court in Wastech confirmed that Sattva and Teal Cedar hold that the reasonableness standard applies under the relevant provision. The majority also noted that Vavilov set out a revised framework for reviewing administrative decisions, but did not discuss its potential application to arbitral awards. The six judges decided to 'leave for another day consideration of the effect, if any, of Vavilov on the standard of review principles articulated in Sattva and Teal Cedar', because the parties in Wastech had agreed that the standard of review did not affect the outcome.

The majority’s restraint did not satisfy the other three judges, who observed that leaving the issue undecided, as the majority did, will 'invite conflict and confusion'. The three concurring judges acknowledged 'important differences' between administrative and commercial arbitration decision-making, but stated that those differences 'do not … affect the standard of review where the legislature has provided for a statutory right of appeal' because, under Vavilov, '[a]ppellate standards of review apply as a matter of statutory interpretation'.

The concurring judges concluded: '[W]here a statute provides for an "appeal" from an arbitration award, the standards in Housen apply. To this extent, Vavilov has displaced the reasoning in Sattva and Teal Cedar.' [emphasis added].

Thus, the three concurring judges in Wastech concluded that, wherever the relevant statute provides for a right of 'appeal' from an arbitral award, a review of the arbitral award would be subject to the more exacting correctness standard.

The majority came as close as possible to rejecting the concurring judges’ comments on the application of Vavilov to the arbitration context without engaging with the merits of the issue: '[T]he fact that I do not pursue discussion of [the standard of review issue] raised in the opinion of my colleagues should not be understood as my agreeing with their view'. This passage may signal that at least some of the majority judges may hold a different view.

Although it remains to be seen what lower courts will make of this unusual exchange, it is our view that Wastech will likely not reverse the momentum created by cases like Allstate Insurance and Northland Utilities towards applying Vavilov to appeals from domestic arbitral awards. Indeed, in 719491 Alberta Inc, Justice Sullivan cited Wastech and Northland Utilities in concluding that 'the standard of review for arbitration appeals has effectively been modified under the Vavilov regime'.

It is our view that the six-judge majority opinion in Wastech does not support a wholesale displacement of Sattva and Teal Cedar by Vavilov. Nevertheless, it appears that a clear trend is emerging in the Canadian jurisprudence post-Vavilov towards applying the standard of correctness to arbitral awards if the relevant statute provides for a right of 'appeal'.

Appeal rights on preliminary questions of jurisdiction in international arbitration

Meanwhile, in the realm of international commercial arbitration, three days before the Supreme Court released Wastech, the Court of Appeal for Ontario released its decision in United Mexican States v Burr, 2021 ONCA 64, in which it addressed appeal rights arising under Ontario’s International Commercial Arbitration Act, 2017, SO 2017, c 2, Sch 5 in relation to tribunal decisions on issues of jurisdiction.

The arbitral tribunal in Burr was constituted in 2017 under NAFTA, after 39 American claimants sought about $100 million USD from Mexico for losses allegedly caused by Mexico’s decision to close a number of casinos that the claimants operated in Mexico. The tribunal bifurcated the proceedings into the jurisdiction and merits/damages phases. After a hearing on jurisdiction, the tribunal issued what it called a 'Partial Award', finding it had jurisdiction over all but one claim.

Mexico applied to the Ontario Superior Court of Justice to set aside the Partial Award under section 11 of Ontario’s International Commercial Arbitration Act and Articles 16 and 34 of the UNCITRAL Model Law which has the force of law in Ontario. The court dismissed the application, finding that Mexico had 'not discharged its burden of proof of establishing that the Tribunal was incorrect in its conclusion'.

Mexico then appealed to the Court of Appeal, but the claimants moved to quash the appeal. The case at the Court of Appeal level focused on an apparent tension between Article 16 and Article 34 of the UNCITRAL Model Law. In particular:

• Article 16 provides that, if 'the arbitral tribunal rules as a preliminary question that it has jurisdiction', rather than ruling 'in an award on the merits', any party can 'request' that the Ontario Superior Court of Justice 'decide the matter', with the resulting decision of the Superior Court being 'subject to no appeal'.
• Article 34 provides that '[r]ecourse to a court against an arbitral award may be made only by an application for setting aside', and appeals from decisions of the court applying Article 34 are allowed. 

Mexico argued that, because the tribunal’s decision on jurisdiction was called a 'Partial Award', it could 'ride both horses' (ie avail itself of both Article 16 and Article 34 of the UNCITRAL Model Law), and that it was therefore entitled to appeal the decision of the Ontario Superior Court of Justice under Article 34. The issue before the Court of Appeal was which Article of the UNCITRAL Model Law governed.

The Court of Appeal determined that the tribunal’s decision, though styled as a 'Partial Award', fell under Article 16, and the parties were bound by the restriction on appeals under Article 16. The Court of Appeal reached this conclusion for four reasons:

1. the tribunal had bifurcated the proceedings, and considered itself to be addressing a preliminary question of jurisdiction;
2. the tribunal decided no substantive issues in the Partial Award, and only began considering the merits after releasing its preliminary decision on jurisdiction;
3. Mexico itself argued the Superior Court application based on Article 16, mentioning Article 34 only in passing; and
4. the application judge’s reasons did not turn on the substance of Article 34.

The Court of Appeal did not go so far as to find that Articles 16 and 34 are mutually exclusive, leaving the question of whether a party can 'ride both horses' for another time. However, the decision in Burr suggests that, in determining whether Article 34 and its appeal rights are engaged, a significant factor will be the extent to which the submissions at the application stage (here, before the Ontario Superior Court of Justice) focused on Article 34 as opposed to Article 16.

Conclusions 

Questions about when courts will step in to review arbitral awards and the standard of review they will apply in doing so continue to attract judicial commentary across Canada. On the standard of review, the Supreme Court of Canada’s reworking of the standard of review in the administrative law context in Vavilov has created uncertainty about the applicability of the deferential standard of review articulated under Sattva and Teal Cedar to arbitral awards. The Wastech decision did little to dispel that uncertainty, with the six-judge majority leaving the effect of Vavilov on Sattva and Teal Cedar to a future case, and leaving the concurring judges’ views on Vavilov substantively unanswered.

Uncertainty about the applicable standard of review should mainly affect domestic arbitrations, which are subject to appeal rights prescribed under provincial statutes. International arbitrations are governed by different statutory regimes in Canada, which significantly restrict parties’ rights to challenge an arbitral award and which do not provide for rights of 'appeal'. It remains to be seen, however, whether the impact of Vavilov and Wastech might still percolate into the international arbitration realm. The remarks of the Court of Appeal for British Columbia in lululemon suggest that this is a live issue.

The Burr decision clarifies that an arbitrator’s decision on a preliminary question of jurisdiction is subject to the restriction on appeals from application decisions under Article 16 of the UNCITRAL Model Law, but left to another case whether a party can rely on both Article 16 and Article 34 simultaneously. The decision also suggests that the extent to which a party relied on a particular Article at the application stage may be relevant to the question of which Article of the UNCITRAL Model Law applies.

In sum, post-Vavilov, there remains considerable uncertainty about the standard of review applicable to arbitral awards in Canada. Arbitration lawyers and their clients should think proactively about how to manage this uncertainty before appeal-related issues arise. For instance, parties may wish to explore adding an express clause to an arbitration agreement stating that the parties agree there shall be no appeal from the arbitral tribunal’s decision on both preliminary and substantive issues. Arbitrators and counsel should also be clear about whether tribunals are ruling on preliminary questions of jurisdiction, because the nature of the decision may constrain or expand the parties’ appeal or challenge rights.