Canada: The Appeal In Teal: Challenging Commercial Arbitration Awards In Canada

Last Updated: February 27 2017
Article by Andrew D. Little

How final is a final award in a commercial arbitration? The scope of appeal rights against commercial arbitration awards is again before the Supreme Court of Canada. Will this be the last word on the subject?

In 2014, the Supreme Court decided a case that made commercial arbitration awards harder to appeal, and those appeals harder to win—at least when the parties are private commercial entities who voluntarily agreed to arbitrate their dispute, and the dispute turned on the interpretation of their contract.

The Court's pending decision in Teal Cedar Products v. British Columbia will decide whether the same principles apply when one party is a government, provincial legislation requires the dispute to be arbitrated, and the merits of the case turn on the interpretation of a statute.

At stake are millions of dollars from the public purse in the specific case, and whether the Court will apply its 2014 ruling or alter it for the different circumstances. Also at stake is whether future arbitration appeals will argue about what standard of appellate review should apply to arbitration awards in each case.

This is not just a concern for arbitrating parties, litigation lawyers and judges. The scope of possible appeals to court affects whether to select arbitration in the first place, and how to draft arbitration clauses.

Limited Appeal Rights

Commercial arbitration awards are often hard to challenge in Canadian courts. In international commercial arbitrations seated in Canada and under federal legislation, there are no statutory appeal rights and limited other ways to challenge an award in court. For arbitrations under provincial legislation, appeal rights may be agreed; if not, appeals are usually limited to one or more "questions of law" and then only with permission of the court on a formal application.1

The Supreme Court's decision in Sattva Capital v. Crestor Moly (2014)2 decided that when private commercial entities arbitrate the interpretation of their contract, only unreasonable interpretations will be reversed by a court on appeal. That assumes a case even gets there: the Court also effectively narrowed the path to court by concluding that the interpretation of a contract is usually not a pure "question of law". Rather, most contract interpretation questions are questions of mixed law and fact.

In short, those who choose private dispute resolution now have limited recourse to publicly-funded courts. Finality of commercial arbitration awards carried the day in Sattva.

When Should Courts Intervene?

Sattva raised a policy problem on the role of Canadian courts: do courts correct errors of law in a commercial arbitration award, like in an appeal from a lower court decision? Or is an appeal of an award more like an administrative law review, in which the court defers to a tribunal's decision and only intervenes if the legal interpretation is unreasonable?

The Court found in Sattva that an appeal of an arbitral award is analogous to a court's review of an administrative decision, and applied a reasonableness standard of review.

The Supreme Court is in the midst of a running debate about the applicable standard of review (or deference) by courts under all sorts of legislation, from different kinds of administrative tribunals and decision-makers. Generally, courts will defer to decisions made by a specialized tribunal within its area of expertise, or when it interprets its "home" statute, and if the legislature has included a privative clause in the statute. But courts will intervene to reverse an incorrectly-decided constitutional question or legal question of general importance to the legal system, and when the legislature has expressly provided for a full right of appeal in the statute (the presumption of deference is rebutted by the language of the statute).3

In practice there is considerable nuance to the legal arguments about what standard of review should apply to different kinds of legal questions and to decisions of different tribunals. Recent Supreme Court cases indicate that individual members of the Court itself sometimes have divergent views in the same case.4

The Appeal in Teal

Enter Teal, which was argued at the Supreme Court in late 2016. It involves an arbitration of a commercial dispute about the compensation for harvesting rights that were taken by a British Columbia statute, the Forestry Revitalization Act. The parties chose their own arbitrator, a retired judge. The statute described the arbitrator's mandate but not the method for valuing the rights. The Province could have, but did not, pass regulations on the proper valuation method. So the arbitrator had to decide.

The B.C. Court of Appeal concluded that the arbitrator was both wrong and unreasonable in his interpretation of the Forestry Revitalization Act. That court distinguished the Supreme Court's 2014 decision in Sattva, noting that the arbitrator had no specialized expertise, the parties had not agreed to arbitration (it was required by statute) and that the arbitrator was not interpreting his "home" statute. As well, he was interpreting the statute in the very first case of its kind.

Finality Matters

Looking beyond the facts and particular forestry legislation in Teal, it may seem an attractive option for the Supreme Court simply to apply its decision in Sattva for predictability and consistency reasons. One rule is better than multiple rules. The Court could also make clear that the interpretation of a statute is usually a question of law reviewed on a correctness standard. That would address the public interest in ensuring the correct and consistent interpretation of a statute enacted by the legislature. But that would also imply that parties may be forced to arbitrate under a statute, and also be exposed to the extra cost and delay of an appeal by the government if it alleges that the arbitrator misinterpreted a statute.

As in appeals from tribunals in other contexts, the legislature may clearly and expressly state its intentions as to the scope of appeals of arbitral awards. There are also core underlying arbitration principles, including the finality of arbitral awards. Finality was raised by Chief Justice McLachlin at the Supreme Court's oral hearing in Teal.

Finality is embedded in most Canadian commercial arbitration legislation. Canadian statutes based on the UNCITRAL Model Law establish a limited role for the courts, including limited grounds to challenge awards by appeal or to apply to set aside awards. Similarly, finality is a principle supporting limits on courts' ability to decline to enforce foreign awards due to the adoption of the New York Convention under provincial international commercial arbitration laws. There is no review of a foreign award on the merits, or for an error of law.

Finality at the arbitration stage may support commercial parties' contractual choices, such as requiring specific expertise as a prerequisite for an arbitrator. Other important interests such as efficiency and speed are supported by targeted court appeals that are faster and less expensive. A narrow appeal may also have the salutary effect of supporting other objectives of commercial arbitration, such as maintaining the confidentiality of business records and testimony.

Whether the Supreme Court applies its ruling in Sattva or modifies it for the different context, it should establish a predictable approach that minimizes future litigation on the proper standard of review. Doing so would enable appellate courts to decide arbitration cases that turn on the merits of the substantive questions of law, not the process used to get to court. Perhaps it would also be the final word on the finality of commercial arbitration awards.

Footnotes

1. See Arbitration Act, 1991 (Ontario), s. 45; Arbitration Act (Alberta), s. 44; Arbitration Act (British Columbia), s. 31.

2. Sattva Capital Corp. v. Creston Moly Corp., [2014] 2 SCR 633.

3. The correctness standard applies to constitutional questions and questions of central importance to the legal system as a whole and outside the adjudicator's expertise:  Sattva, at para 106. The presumption of deference to the Tribunal's interpretation of its home statute was rebutted by statutory language in Tervita v. Canada (Commissioner of Competition), [2015] 1 SCR 161 (majority, on appeal from the Competition Tribunal). In arbitration matters, certain questions of jurisdiction attract a non-deferential (correctness) standard of review: see Mexico v. Cargill, Inc. (2011), 107 OR (3d) 528 (CA).

4. See for example, Edmonton (City) v. Edmonton East (Capilano) Shopping Centres Ltd., 2016 SCC 47; Wilson v. Atomic Energy of Canada Ltd., 2016 SCC 29; Mouvement laïque québécois v. Saguenay (Ville), 2015 2 SCR 3.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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