Canada: Why Canadian Courts Hesitate To Recognize "True Questions Of Jurisdiction"

Last Updated: March 27 2019
Article by Marco P. Falco

Canadian Courts have always been reluctant to intervene in arbitral decisions. Judicial intervention in an arbitration, either by way of a review or an appeal from the arbitral award, undermines the efficiency of the arbitration process. If parties could appeal or apply to set aside every arbitral decision with which they disagree, it would be more cost-effective to litigate their dispute in the Courts. For this reason, judges are usually only willing to intervene in an arbitration where the arbitrator's decision raises a "true question of jurisdiction".

The issue of what constitutes a "true question of jurisdiction" has plagued Canadian jurisprudence for some time. As recently as 2018, the Supreme Court of Canada in Canada (Human Rights Commission v. Canada (AG), 2018 SCC 31, noted that "true questions of jurisdiction" have been on "life support" and that the existence of this category of question has "long been doubted".

A recent decision of the Ontario Superior Court, FCA Canada Inc. v. Reid-Lamontagne, 2019 ONSC 364, affirms that Canadian Courts will be unwilling to identify a true question of jurisdiction so as to intervene in an arbitral dispute and impose a less deferential standard of review to the arbitrator's decision.

The Nature of the Dispute in FCA Canada

FCA Canada involved an application to the Superior Court by a car manufacturer (the "Manufacturer") under section 46 of the Ontario Arbitration Act, 1991, S.O. 1991, c.17 to set aside the decision of an arbitrator made pursuant to the Canadian Motor Vehicle Arbitration Plan ("CAMVAP").

CAMVAP is an alternative dispute resolution process in which disputes between automobile owners and manufacturers are resolved through arbitration. The purpose of CAMVAP is to be an "inexpensive, expeditious alternative to the Courts that does not require consumers to have legal counsel".

In this case, the manufacturer moved to set aside the arbitral decision on the basis that the arbitral award dealt with a decision that the Arbitration Agreement did not cover and that was beyond the Arbitration Agreement's scope.

The dispute arose when the applicant, who purchased her vehicle through an authorized dealer of the manufacturer, experienced a number of problems with the vehicle. She commenced an arbitration under the CAMVAP process. The Arbitration Agreement between the parties provided that the parties could arbitrate disputes relating to "[a]llegations of a current defect in vehicle Assembly or Materials specific to Your Vehicle as delivered by the Manufacturer to an Authorized Dealer".

Following several consent awards issued by the arbitrator, the arbitrator ultimately rendered his final decision. In his reasons for decision, the Arbitrator articulated the question he had to decide as follows:

Is there a current defect of assembly / materials present in this Vehicle and if so, what remedy would be appropriate?

After considering all the evidence, the Arbitrator concluded that the applicant consumer "had established on a balance of probabilities, current defects of assembly / materials in this vehicle". He then accepted the recommendations of a report of an independent technical inspector who suggested that the Manufacturer remove and replace the vehicle's starter (the "Arbitral Award").

On its application to the Superior Court to set aside the Arbitral Award, the vehicle Manufacturer argued, amongst other things, that the Arbitral Award engaged a "true question of jurisdiction" justifying judicial intervention and a less deferential standard of review (i.e. correctness).

In particular, the Manufacturer argued that the Arbitrator did not pose the correct question when determining his jurisdiction.

By contrast, the applicant argued that the Arbitral Award did not raise a true question of jurisdiction. Rather, the Arbitrator's inquiry of whether there was a "current defect" with the vehicle was within the scope of the Arbitration Agreement. The Court ultimately accepted the applicant's position on the issue of jurisdiction.

No True Question of Jurisdiction Raised

The Court began its analysis by noting that the circumstances were "rare" in which a "true question of jurisdiction" is raised so as to justify judicial interference with an arbitration award.

Citing a Court of Appeal decision, United Mexican States v. Cargill Inc., 2011 ONCA 622, which dealt with an appeal from an arbitral award under NAFTA, the Court in FCA Canada observed that Courts have been "warned to ensure that they take a narrow view of what constitutes a true question of jurisdiction and to 'resist broadening the scope of the issue to effectively decide the merits of the case'".

The role of the Court in such circumstances is to "identify and narrowly define any true question of jurisdiction". Where a true question of jurisdiction exists, the arbitrator or tribunal has to be correct in assuming jurisdiction to decide the particular question before it. However, the Court, in determining if the arbitrator exceeded the scope of her jurisdiction, must avoid a review of the merits.

In this case, the Court accepted the applicant's argument that no true question of jurisdiction had been raised by the Manufacturer. The Arbitrator was well within his jurisdiction to determine if there was a "current defect" with the vehicle:

[The applicant] argues that in the case at bar, no "true question" of jurisdiction is engaged and the Final Award should not be reviewed on that issue. It is submitted that here the issue before the Arbitrator was whether there was a "Current Defect" and the Arbitration Agreement expressly authorizes the Arbitrator to hear disputes relating to allegations of a "Current Defect"....I agree with this position of the [applicant]. The Arbitrator's interpretation of the Arbitration Agreement or his findings of fact regarding a Current Defect and authorization are not true questions of jurisdiction. The arbitrator's determination of a "dispute" relating to an "alleged" Current Defect was squarely within the parameters of the Arbitration Agreement.

The Court further held that even if the correctness standard of review was engaged because the Manufacturer raised a "true question of jurisdiction", the Arbitrator was correct in assuming jurisdiction in this case.

Why "True Questions of Jurisdiction" Are Narrowly Defined

The lesson of FCA Canada is that Ontario Courts are especially reticent in identifying "true questions of jurisdiction" so as to justify judicial intervention in arbitration awards and apply the less deferential standard of review of correctness.

This reluctance stems from the deference Courts normally grant to alternative dispute resolution mechanisms such as arbitration.

If "true questions of jurisdiction" were defined broadly by the Courts, the efficiencies and costs savings inherent in arbitration would be undermined by the Courts' willingness to interfere in a process originally intended to avoid litigation.

A narrow interpretation of "true questions of jurisdiction" is consistent with the judicial reluctance to become involved in alternative dispute resolution.

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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Marco P. Falco
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