Supreme Court makes it harder to appeal arbitration awards

By Mark Bourrie June 26, 201726 June 2017

Supreme Court makes it harder to appeal arbitration awards

The Supreme Court of Canada has made it even tougher to go to court to overturn decisions made by arbitrators.

It has ruled that the courts, when reviewing an arbitrator’s interpretation of statute, should use the reasonableness standard and tease out questions of law from issues of fact.

In its ruling last week in Teal Cedar Products Ltd v British Columbia, the Supreme Court overturned a British Columbia Court of Appeal decision that had allowed judicial review of an arbitrator’s decision in a dispute between a forestry company and the province. It re-affirmed its 2014 Sattva decision and tightened the standard of review.

By doing so, the court further limited the rights by parties to seek judicial review of arbitration decisions.

Arbitration clauses are increasingly being written into consumer contracts, agreements between large companies, and between governments and private companies. In this case, the parties were governed by arbitration rules written into a piece of provincial legislation, B.C.’s Revitalization Act.

Even if a court hears a dispute over an arbitration decision, it would determine the case on reasonableness, which means the decisions of arbitrators on issues of law get greater deference.

“It would be an error to claim that all statutory interpretation by an arbitrator demands correctness review simply because it engages a legal question,” Justice Denis Gascon wrote in a 5-4 decision.

“In contrast, where the decision under review is, for example, a civil litigation judgment, the nature of the question is dispositive of the standard of review, with factual and mixed questions being reviewed for palpable and overriding error and legal questions — including extricable questions of law — being reviewed for correctness. It is therefore critical to bear these distinctions in mind when determining the appropriate standard of review in any given case.”

The case was decided under British Columbia’s Arbitration Act, which is similar to legislation of other provinces and the federal government that deal with domestic and international commercial arbitration.

After initial skepticism of arbitration, Canadian courts have come to accept arbitration clauses in contracts and legislation. They now defer to arbitrators in commercial disputes in the same way they defer to tribunals in administrative law: in both case, appeals can usually be made to courts only under questions of law.

This acceptance of arbitration took hold as courts sought to reduce the burden on civil courts through the use of alternative dispute resolution systems. Drafters of arbitration laws have tried to ensure the finality of arbitration decisions by including clauses that limit appeals to questions of law.

In the 2014 case of Sattva Capital v. Crestor Moly, the Supreme Court further restricted access to courts by parties in arbitration cases by saying arbitration awards are final unless there is a pure question of law that is in dispute. It did not say whether that issue should be determined in standards of review of correctness – which would have allowed more cases to be reviewed by judges – or reasonableness, which gives greater deference to arbitrators.

Teal affirmed Sattva and took it further by saying arbitrators’ awards should only be reviewed on questions of law and appeals on mixed questions of fact and law should not be heard. Even contract language is considered a mixed question of fact and law, the top court found in Thursday’s decision, and only the law elements have any change of judicial review.

“A narrow scope for extricable questions of law is consistent with finality in commercial arbitration, and, more broadly, with deference to factual findings,”

The Supreme Courts also reaffirmed Sattva by saying lower 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 one that alleges a legal test applied to an arbitration decision, when applied, would have resulted in in a different outcome.

In effect, the court warned counsel not to try to slip arguments of facts into disputes over law and try to pass them off as mixed questions of fact and law to qualify the issues for judicial interpretation. The ruling points out the difference between the standard of review in legal cases and those of arbitration cases.

“The characterization of a question on review as a mixed question rather than as a legal question has vastly different consequences in appeals from arbitration awards and civil litigation judgements,” the Court found.

“The identification of a mixed question when appealing an arbitration award defeats a court’s appellate review jurisdiction… In contrast, the identification of a mixed question when appealing a civil litigation judgement merely raises the standard of review.”

Questions of mixed law and fact can be reviewed by courts only when the underlying legal test has been altered.

Teal was a dispute over the amount of compensation British Columbia owed to Teal after restricting the logging company’s access to improvements the company made on roads and bridges that it built to harvest timber.

British Columbia’s Forestry Revitalization Act required the company and the province to settle the dispute by arbitration.

At the Court of Appeal, British Columbia argued the arbitrator, a retired judge, was incorrect and unreasonable in his interpretation of the Forestry Revitalization Act and had no expertise in aspects of the dispute that he was adjudicating. The Court of Appeal agreed.

The Supreme Court, however, deferred to the arbitrator on both the method he used to calculate losses to the forestry company, and on the question of contractual interpretation, which, it found, was a mixed question of fact and law.

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