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The Downfall of Deference?

In Canada, deference to arbitrators on appeal was seemingly well established, but recent developments suggest Canada may be undergoing an abrupt course reversal. Many arbitration agreements preclude appeal rights, favouring finality in arbitration, but where appeals are allowed, they have traditionally been reviewed for reasonableness, not correctness. That deferential approach is consistent with international practice on arbitral appeals, but Canada’s Supreme Court appears to have taken a step back from international norms in the recent Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, 2021 SCC 7 decision.

In 2014, the Supreme Court of Canada, in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, established that the standard of review for arbitration awards was reasonableness, except in rare matters of true jurisdiction. The Supreme Court subsequently affirmed that standard in Teal Cedar Products Ltd. v. British Columbia, 2017 SCC 32 and Attorney General of Quebec v. Ronald Guérin, 2017 2 SCR 3.

In an abrupt reversal to the consistent, historical trajectory of law in this area, Justices Browne and Rowe, in a concurring opinion in Wastech, suggested that arbitral appeals should be subject to the same correctness standard of review as administrative tribunals, as recently determined in the Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65.

In Wastech, the Court dealt with an appeal from an arbitral award, in which Wastech disputed an arbitrator’s ruling
that Metro Vancouver had breached its duty of good faith. The arbitrator found that Metro Vancouver exercised

its contractually afforded discretion in a manner that deprived Wastech the chance to earn the intended benefit of the contract, which was to meet  certain target profit ratios throughout the course of the contract. 

The Supreme Court dismissed the appeal, but the majority of the court refrained from clarifying the applicable standard of review for arbitral awards. In their concurring minority decision, Justices Brown and Rowe held that the correct framework for reviewing arbitral awards was the standard of correctness, as outlined in Vavilov.

The seismic shift in the standard of review created by Vavilov was expressed well by the minority concurring opinion in that case:[1]

Presented with an opportunity to steady the ship, the majority instead dramatically reverses course — away from this generation’s deferential approach and back towards a prior generation’s more intrusive one. Rather than confirming a meaningful presumption of deference for administrative decision-makers, as our common law has increasingly done for decades, the majority’s reasons strip away deference from hundreds of administrative actors subject to statutory rights of appeal; rather than following the consistent path of this Court’s jurisprudence in understanding legislative intent as being the intention to leave legal questions within their mandate to specialized decision-makers with expertise, the majority removes expertise from the equation entirely and reformulates legislative intent as an overriding intention to provide — or not provide — appeal routes; and rather than clarifying the role of reasons and how to review them, the majority revives the kind of search for errors that dominated the pre-C.U.P.E. era. In other words, instead of reforming this generation’s evolutionary approach to administrative law, the majority reverses it, taking it back to the formalistic judge-centred approach this Court has spent decades dismantling.

Thus, the concurring opinion in Wastech represents a similarly significant change to the standard of review of arbitral awards, based on a prior administrative law case that never even mentions arbitration awards. As Justices Abella and Karakatsanis put it in Vavilov, the “reasons are an encomium for correctness and a eulogy for deference.”

Does the minority decision in Wastech represent the same for arbitral appeals?

In Sattva, the Supreme Court of Canada dealt with an appeal under the Arbitration Act[2] of British Columbia and clarified that, aside from limited exceptions, questions of law are to be reviewed on a standard of reasonableness:[3]

In the context of commercial arbitration, where appeals are restricted to questions of law, the standard of review will be reasonableness unless the question is one that would attract the correctness standard, such as constitutional questions or questions of law of central importance to the legal system as a whole and outside the adjudicator’s expertise.

The reasonableness standard was traditionally applied to administrative rulings, and the court in Sattva found arbitration was sufficiently analogous to apply a reasonableness standard.

In Teal Cedar Products Ltd. v. British Columbia, 2017 SCC 32, the Supreme Court reversed a decision of the BC Court of Appeal that found that questions of law, such as statutory interpretation, necessarily attract a correctness standard of review. Instead, the Supreme Court found that the reasonableness standard applied even to arbitrator’s decisions in matters of law, affirming deference to privately appointed decision makers.

There has always been a nexus between administrative tribunals and arbitration, and their treatments have often gone together by review courts. But, in 2019, the Supreme Court of Canada released a trio of decisions dealing with the judicial review of administrative decision-makers that seemed to reverse the trend toward deference in administrative appeals.

In Vavilov, the Court clarified the law applicable to the judicial review of administrative decisions and confirmed that, subject to limited exceptions, the standard of review analysis first begins with a presumption of reasonableness, which can be rebutted in two instances.

  1.  First, where the legislature intends that a different standard should apply. In these cases, for example where a legislature has provided a statutory appeal mechanism, the Court reasoned that the word “appeal” is an intent by the legislature to subject the administrative regime to appellate oversight thereby subjecting administrative decisions to increased scrutiny. According to the Court, that would militate in favour of a correctness standard. Vavilov established that questions of law in such cases were subject to a correctness standard while questions of fact and mixed fact and law are to be approached on a reasonableness standard.
  2. Second, where the rule of law requires that the standard of correctness to be applied. For example, certain categories of legal questions, like constitutional questions, general questions of law of central importance to the legal system as a whole and questions related to the jurisdictional boundaries between two or more administrative bodies. Beyond these limited exceptions, there would rarely be situations where the correctness standard of review should be implemented.

Vavilov was also notable for holding that the expertise of a decision maker was not a relevant consideration in determining the applicable standard of review, a shift from Sattva and Dunsmuir v. New Brunswick, 2008 SCC 9. Significantly, though, the Court in Vavilov did not consider the commercial arbitration context. In fact, Vavilov never mentions arbitration, and many practitioners assumed that the shift in the standard of review was limited to administrative decisions, though decisions in lower courts reflected confusion and uncertainty.  Subsequent arbitral appeal decisions also broke in different directions; some followed Vavilov[4] and others followed Sattva and Teal.[5]

The Supreme Court’s decision in Vavilov represented a significant departure from its own precedents. Justices Abella and Karatsanis, for the minority in that decision, found the majority’s disregard for precedent and stare decisis to have “the greatest potential to undermine both the integrity of the Court’s decisions, and public confidence in the stability of the law.”[6] In Wastech, Justices Browne and Rowe extended the application of Vavilov to arbitral awards on the basis that where a legislature provides a statutory right of appeal, their intention is to provide for increased scrutiny of  first instance decisions.

Justices Brown and Rowe’s concurring decision seems overly focused on statutory interpretation, without sufficient regard for the unique differences between commercial arbitration and administrative decision-making – factors justifying deference under Sattva and Teal.

Perhaps most obvious is that in the arbitration context, parties have affirmatively chosen to remove their disputes from the public justice system, in favour of private, specialized decision makers. Reviewing arbitral awards for correctness undermines the right of individuals to contract out of that system. Maintaining some limited right to appeal in arbitration agreements, was previously seen as a final, but highly limited, check against abuse or egregious mistakes. That may no longer be so.

Additionally, the statute being construed was not recently changed, requiring a fresh interpretation of the legislature’s intent. Had British Columbia, in this case, or any other jurisdiction desired to modify their Arbitration Acts to address the standard of review issue in the face of the clear trajectory of appeals in Canada, they could have done so.

Finally, in Ontario, Justices Browne and Rowe’s decision creates a fundamental inconsistency between domestic arbitrations under the Arbitration Act, 1991,[7] and international arbitrations under the International Commercial Arbitration Act, 2017[8] (“ICAA). The domestic Act allows for appeals, with leave, while there are no appeals as of right under the ICAA. In principle, the Browne and Rowe approach would result in arbitral appeals under the domestic Act being reviewed for correctness, while those under the ICAA are reviewed for reasonableness. There is no sensible justification for this distinction.

Since Sattva and Teal, there is nothing to suggest that Canada’s commercial arbitration community wants or needs an increased level of judicial oversight and scrutiny. Wastech may well undermine the finality of future arbitration decisions.

Ultimately, the minority decision in Wastech is not binding on lower courts, so its impact is uncertain at this time. Still, for those parties seeking finality in their arbitration disputes, it would be prudent to circumscribe any rights of appeal in future arbitration agreements.

[1]      Vavilov, at para. 199.

[2]      SBC 2020, c  2.

[3]      Sattva, at para. 106.

[6]      2019 SCC 65, at para. 254.

[7]      S.O. 1991, c. 17.

[8]      S.O. 2017, c. 2, Sched. 5.