Canada: Appealing Arbitration Awards: Why The Courts' Role Is Limited

Last Updated: August 16 2017
Article by Marco P. Falco

When parties arbitrate a dispute, as opposed to pursuing litigation in the Courts, there is an understanding that the arbitration should bring the matter to an end. A recent decision of the Supreme Court of Canada, Teal Cedar Products Ltd. v. British Columbia, 2017 SCC 32, reaffirms the very limited circumstances in which Courts will entertain an appeal from an arbitral award.

The Teal decision limits the Courts' appellate jurisdiction. Moreover, where that narrow jurisdiction exists, Teal emphasizes that the appellate Court should show the arbitrator deference.

Teal involved a claim for compensation by a forestry company which possessed licenses to harvest Crown timber in British Columbia. The province reduced, amongst other things, the company's access to roads and bridges which the company relied on to harvest the timber. Accordingly, the company claimed compensation for this reduction and the claim was sent to compulsory arbitration under the British Columbia Forestry Revitalization Act.

The arbitrator who heard the dispute had many issues to resolve. For the most part, the forestry company won the dispute.

First, there was an issue of statutory interpretation. The arbitrator had to decide on a valuation method that was consistent with the compensation provisions under the Forestry Revitalization Act (the "Statutory Interpretation Issue"). Ultimately, the arbitrator selected a "depreciation replacement costs method" as the proper methodology for awarding compensation.

Second, the arbitrator had to rule on a question of contractual interpretation. The issue on appeal was whether the arbitrator let the factual matrix, i.e. the circumstances surrounding the making of an amended settlement agreement between the parties, overwhelm the words of the agreement when he interpreted it. At issue was whether the arbitrator allocated too much weight to his consideration of the factual matrix and whether the arbitrator's interpretation was isolated from the words of the contract (the "Contractual Interpretation Issues").

Third, there was an issue of "statutory application". The question was whether the arbitrator erred in denying compensation to the forestry company with regard to improvements associated with one of its licenses because the company never "lost access to those improvements, in contrast with other licences where the company did lose access". This issue, according to the Supreme Court of Canada, involved "the application of a specific valuation methodology to the intricate facts before the arbitrator" (the "Statutory Application Issue").

Under the British Columbia Arbitration Act, R.S.B.C. 1996, c.55, a Court hearing an appeal from an arbitral award is limited to hearing "questions of law" only. As the Supreme Court of Canada held in Teal, "statutory limitations on the scope of appellate review of arbitration awards are 'absolute' ", meaning that if any of the above issues is not a question of law, the Courts have no jurisdiction to consider them on appeal.

What is a "Question of Law"?

Given the limited appellate jurisdiction of the Court under the British Columbia Arbitration Act, the Court had to decide which of the issues above amounted to "questions of law".

The Court classified three types of "questions" that are possible on appeal—legal, factual or mixed.

A legal question is a question "about what the correct legal test is". Factual questions are questions about "what actually took place between the parties".

Mixed questions of fact and law are questions about "whether the facts satisfy the legal tests". In other words, mixed questions "involved applying a legal standard to a set of facts". However, with respect to mixed questions, where a court applies a legal test to a set of facts and the legal test may have been altered by the Court, then a pure question of law arises. For instance, where a party alleges that an arbitrator failed to consider a required element of a legal test, the arbitrator "deleted" an element of the legal test and therefore altered it. This amounts to a "legal question" or "question of law".

When considering the three classifications of "questions" available on appeal, the Court should be reluctant to identify "extricable questions of law" from mixed questions in order to gain jurisdiction on appeal.

In other words, Courts should be hesitant to identify pure questions of law in an arbitral decision as this would undermine the policy goal of limited appellate intervention in arbitral awards:

...A narrow scope for extricable questions of law is consistent with finality in commercial arbitration and, more broadly, with deference to factual findings. Courts must be vigilant in distinguishing between a party alleging that a legal test may have been altered in the course of its application (an extricable question of law...), and a party alleging that a legal test, which was unaltered, should have, when applied, resulted in a different outcome (a mixed question).

In Teal, the Statutory Interpretation Issue, i.e. which methods of valuation were acceptable under the Forestry Revitalization Act, was a "matter of statutory interpretation" and therefore a question of law, amenable to appellate review by the Courts.

With respect to the Contractual Interpretation issues, the issue of whether the arbitrator gave excessive weight to the factual matrix when interpreting a settlement between the parties was a question of mixed fact and law that fell outside the Court's appellate jurisdiction. The arbitrator was required to weigh the factual matrix with the words of the settlement contract.

However, the issue of whether the arbitrator's interpretation of the factual matrix was isolated from the words of the contract raised a question of law, but the matter was not reviewable on appeal because the argument lacked merit, i.e. the Court held that the arbitrator's interpretation of the factual matrix "was clearly anchored in the words of the contract".

As for the Statutory Application Issue, i.e. whether the arbitrator erred in denying compensation to the forestry company relating to the improvements associated with one its licences because it never lost access to those improvements, this question involved the application of a valuation method to the facts before the arbitrator. This was a mixed question beyond the scope of appellate review.

On the basis of these classifications, the Court held that the only reviewable issue on appeal was the Statutory Interpretation Issue as a pure question of law.

Deference to the Arbitrator's Ruling

The Court began its analysis of the Statutory Interpretation Issue by holding that the standard of review of an award under the Arbitration Act is "almost always" the deferential standard of reasonableness.

Citing its previous decision in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, the Court noted that deference to a commercial arbitration award was consistent with the two policy goals of efficiency and finality in commercial arbitration.

That is, in commercial arbitration, where appeals are limited to questions of law, the standard of review will be reasonableness "unless the question is one that would attract [the less deferential standard of correctness]". In Sattva, the Court identified the "rare circumstances" in which the correctness standard of review would apply to an arbitral award, i.e. where there is a constitutional question or a question of law "of central importance to the legal system as a whole and outside the adjudicator's expertise".

Moreover, the Court noted that the nature of the question, i.e. legal, factual or mixed, was not dispositive of the standard of review. The Court held:

...it would be an error to claim that all statutory interpretation by an arbitrator demands correctness review simply because it engages a legal question. While statutory interpretation is a legal question...the mere presence of a legal question does not, on its own, preclude the application of a reasonableness review in a commercial arbitration context...

In Teal, none of the rare circumstances which would attract the correctness standard of review applied.

The Statutory Interpretation Issue was subject to reasonableness review. This deferential standard of review was supported by the fact that the parties had selected the arbitrator to adjudicate the issue of determining the appropriate valuation method. That is, the parties "had complete control over the choice of their arbitrator" and the arbitrator considered the very issue he was meant to address.

The Limited Role of Courts in Arbitral Appeals

By restricting the jurisdiction of the appellate Court in the way it classifies "questions of law" and by reaffirming that reasonableness is "almost always" the standard of review applicable to arbitral awards, the Supreme Court of Canada in Teal has carved out a narrow role for appellate Courts in reviewing an arbitrator's decision.

The primary policy goals of arbitration, namely efficiency and finality, are paramount. Whether the parties have chosen to arbitrate, or are required to do by statute, appellate Courts have a limited role in subjecting the arbitral award to further scrutiny. While Teal does not eliminate appellate review of arbitration, it signals an overall reluctance to question the decision of an arbitrator absent a pure legal error.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Marco P. Falco
Similar Articles
Relevancy Powered by MondaqAI
Lerners
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Lerners
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions