Canada: Ontario Court Provides A Helpful Primer On Judicial Intervention In Arbitration Awards In Canada

In FCA Canada Inc. v. Reid-Lamontagne, 2019 ONSC 364, Justice Spies of the Ontario Superior Court of Justice provided a helpful overview of the current state of the law in Canada with respect to three core aspects of judicial intervention in an arbitration award: (1) when to challenge the arbitrator's jurisdiction; (2) the standard of review on questions of jurisdiction; and (3) the setting aside of final arbitration awards generally.

While the Court's reasons were issued in the context of an arbitration that proceeded under a domestic arbitration act,¹ the principles highlighted by the Court remain relevant to the enforcement, consideration, and setting aside of international arbitration awards in Canadian courts. Indeed, the Court relied directly on Canadian cases considering international arbitration awards in giving its reasons.

Background and Decision

The case concerned an application by FCA to set aside an award of an arbitrator under an arbitration agreement designed to resolve disputes between consumers and major automotive vehicle manufacturers. The controlling arbitration agreement dictated that the decision of the arbitrator was final and binding on both parties, subject to the "very limited rights" for court review under applicable provincial legislation.²

The issues before the court concerned: (a) a preliminary issue relating to whether FCA, as the applicant, was estopped from challenging the jurisdiction of the arbitrator for failing to object to jurisdiction in the arbitration proceedings; (b) whether the arbitrator had jurisdiction to make certain findings in his award; and (c) whether the arbitrator's final award was unreasonable such that it should be set aside.³

The Court made it abundantly clear that in Canadian courts, "arbitrators must be afforded significant deference and that judicial intervention in arbitrations must be very narrow" – "This is not an appeal".⁴ Ultimately, the Court found that the applicant was estopped from challenging jurisdiction after the merits of the arbitration had been resolved, that the arbitrator did not exceed his jurisdiction in rendering his award, and that the final award was reasonable and should not be set aside.

Takeaways

By way of either express statements, or remarks from which general tenets can be inferred, the Court provided a helpful summary of the various applicable principles when assessing jurisdiction and attempts to set aside an arbitration award by application in Canadian courts.

(1) Jurisdictional Challenges

Absent legislation or an agreement indicating the contrary, it is typically permitted, and indeed commonplace, that arbitrators may rule on their own jurisdiction to conduct the arbitration at issue.⁵

Similarly, absent legislation or an agreement indicating the contrary, should a party wish to challenge an arbitrator's jurisdiction, whatever the grounds, it is generally advisable that it be challenged at the front end of the proceedings, ideally well before they are initiated, but at latest, at the start of the hearings. Should a party sleep on its rights to challenge jurisdiction as a preliminary issue, it may very well be estopped from raising the issue in any further forum for review. As the Court reiterated in this case, parties should be prevented from "seeking the benefit of arbitration and proceeding without objection and then attempting to contest the jurisdiction of the arbitrator once the result is known".⁶

Moreover, failure to challenge jurisdiction as a preliminary issue generally results in the issue, or those related to it, being submitted to the arbitrator on the merits – at which point it is too late to challenge the issue on a preliminary basis.⁷

(2) Standard of Review for Questions of Jurisdiction

In order to determine whether the arbitrator operated within his jurisdiction, the Court first had to determine the standard of review to be applied to that question. In United Mexican States v. Cargill Inc., 2011 ONCA 622, which considered an appeal by Mexico from the dismissal of its application to set aside an arbitration award made under Chapter 11 of the North American Free Trade Agreement, the Ontario Court of Appeal advised that the standard of review is correctness, "in the sense that the tribunal had to be correct in its determination that it had the ability to make the decision it made".⁸ But in such analyses, courts should intervene only "in rare circumstances where there is a true question of jurisdiction", for which a "narrow view" should be taken.⁹

In Cargill, the Ontario Court of Appeal summarized the approach to be taken when assessing a true question of jurisdiction by asking three questions, while ensuring no review on the merits is done:

a) What was the issue that the tribunal decided? 

b) Was that issue within the submission to arbitration? 

c) Is there anything in the arbitration agreement, properly interpreted, that precluded the tribunal from making the award?¹⁰

The Ontario Court of Appeal reaffirmed these principles in Cargill when it considered the grounds for judicial intervention in international arbitration awards under the United Nations Commission on International Trade Law (UNCITRAL) Model Law, in Consolidated Contractors Group S.A.L. (Offshore) v. Ambatovy Minerals S.A.,  2017 ONCA 939.¹¹

Indeed, as the Court pointed out with reference to Supreme Court of Canada precedent, it may be queried whether a "true question of jurisdiction" even exists; if they do, they are "confined to instances where the decision maker must determine whether it has the authority to 'enter into the inquiry before it' and that in this sense 'true' questions of jurisdiction involve a far narrower meaning of 'jurisdiction' than the one ordinarily employed".¹²

In this case, no such true question of jurisdiction was triggered, such that a correctness standard did not apply. Even if it did exist, the Court found the arbitrator was correct in his assumption of jurisdiction.¹³

(3) Setting Aside a Final Award

Finally, and perhaps most importantly, given the Court's refusal to apply a correctness standard to its review of the arbitrator's final award, the award was reviewed on the standard of reasonableness. The Court echoed precedent to remark that "if the arbitrator asked the correct questions a reasonableness standard applies in assessing whether the arbitrator's award should be set aside".¹⁴ The question before the Court was, "not whether it would have reached the same decision as the Arbitrator. The fact that an alternative interpretation may exist does not make the Final Award unreasonable."¹⁵

In this vein, the reviewing Court will not intervene where an applicant is seeking to re-cast the facts on review.¹⁶ When assessing reasonableness of the award, it is typical for the court to consider the award, the facts, the evidence, the applicable arbitration agreement, and the ordinary meaning of the terms therein.¹⁷ Indeed, as the Court confirmed, when a reasonableness standard is employed, if the award is "justifiable, transparent and intelligible", it will likely be maintained as reasonable by the reviewing court, as it was in this case.¹⁸

Conclusion

Ultimately, the Court's relatively short decision provides an excellent roadmap for parties considering judicial intervention following the issuance of an arbitration award where issues of unreasonableness or jurisdiction arise.

Footnotes/

1 The application to set aside the award proceeded under s. 46 of the Ontario Arbitration Act, 1991, S.O. 1991, c. 17, s. 4(1), which provides this Court may set aside the award if it deals with a dispute that the applicable arbitration agreement does not cover, or contains a decision on a matter that is beyond the scope of the arbitration agreement.

2 FCA Canada Inc. v. Reid-Lamontagne, 2019 ONSC 364 at paras. 1-2 [FCA].

3 FCA at para. 33.

4 See FCA at para. 32.

5 See FCA at para. 36.

6 See FCA at paras. 37-40, citing Piazza Family Trust v. Veillette, 2011 ONSC 2820 (Div. Ct.) at paras. 70-71.

7 See FCA at para. 42, citing Nasjjec Investments Ltd. v. Nuyork Investments Ltd., 2015 ONSC 4978 at para. 152

8 See FCA at paras. 45-47, citing United Mexican States v. Cargill Inc., 2011 ONCA 622 at para. 42 [Cargill].

9 Cargill at paras. 44-45.

10 Cargill at paras. 52-53.

11 See FCA at para. 48, citing Consolidated Contractors Group S.A.L. (Offshore) v. Ambatovy Minerals S.A., 2017 ONCA 939.

12 See FCA at para. 48, citing Canada (Human Rights Commission) v. Canada (Attorney General), 2018 SCC 31 at para. 31.

13 See FCA at paras. 51-52.

14 FCA at para. 57, citing Smyth v. Perth & Smith Falls District Hospital, 2008 ONCA 794.

15 at para. 59.

16 See FCA at para. 62.

17 See FCA at para. 64.

18 See FCA at para. 72, citing Dunsmuir v. New Brunswick, 2008 SCC 9 at para. 47, and Creston Moly Corp. v. Sattva Capital Corp., 2014 SCC 53 at para. 119.

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