Litigation Trends 2021

The end of judicial deference to domestic arbitrators?

Until December 2019, it was well accepted in Canada that, on an appeal from a domestic arbitration decision, courts would “almost always” afford great deference to arbitration awards and only interfere where the award was unreasonable. This principle applied not only to factual determinations and contractual interpretations reached by arbitrators, but also, in most cases, to an arbitrator’s analysis of a pure issue of law. The Supreme Court of Canada solidified this approach in Sattva Capital Corp. v. Creston Moly Corp1 and Teal Cedar Products Ltd. v. British Columbia2.

This changed in December 2019—through a case that did not involve an arbitration—when the Supreme Court revised the framework for determining the standard of review to be applied by courts in reviewing administrative decisions. Canada (Minister of Citizenship and Immigration) v. Vavilov introduced a new rule: when a statute provides for a right of appeal, no judicial deference is owed to the administrative decision-maker’s legal interpretations3.

There is considerable divergence between courts—and even within courts—on whether Vavilov’s analysis should be extended to commercial arbitrations. There are sound competing arguments.

While this new rule has the potential to shake up commercial arbitration in Canada, it remains unclear whether Vavilov applies to the commercial arbitration context. Many domestic arbitration statutes create rights to appeal arbitration awards4. If the principle set out in Vavilov extends to commercial arbitrations, it will result in greater judicial scrutiny of the legal analysis in arbitral awards. This, in turn, may incentivize parties to appeal these awards more frequently, and will inject more uncertainty into the arbitral process—with greater potential for courts to reverse an arbitral award.

There is considerable divergence between courts—and even within courts—on whether Vavilov’s analysis should be extended to commercial arbitrations. There are sound competing arguments.

On the one hand, commercial arbitrations are fundamentally different than administrative decisions. They are creatures of private agreement and aim to give effect to party autonomy5, whereas administrative decision-making finds its authority in public statutes and strives to honour the legislature’s intention6. Vavilov also makes no mention of Sattva or Teal Cedar, making some courts doubt that Vavilov superseded them.

On the other hand, Vavilov is clear that the creation of an “appeal” mechanism indicates legislative desire to subject the decision in question to “appellate oversight”7. While Vavilov does not mention Sattva and Teal Cedar, it did warn that its treatment of appeal rights “departs from the Court’s recent jurisprudence”8.

Cross-country case law review

The question of Vavilov’s application to the review of commercial arbitrations made its way up to the Supreme Court in February 2021 in Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District9. However, the Court’s six-member majority declined to resolve this issue, leaving it for another day10. A three-judge minority in Wastech concluded that while there are important differences between commercial arbitration and administrative decision-making, those differences do not impact the standard of review to be applied by courts where the legislature has provided a statutory right of appeal—in other words, the parties’ wishes cannot override this legislative intent. These three judges concluded that Vavilov displaces the standard of review analysis from Sattva and Teal Cedar—effectively abolishing, without saying so, the longstanding preference of Canadian courts to allow arbitrators significant autonomy to decide disputes without judicial interference11.

There is similar disagreement in courts across the country. To date, no lower court consensus has emerged. The following table maps outcomes in the case law since Vavilov’s release:

 

Judicial Conclusion

Jurisdiction

Vavilov applies to commercial arbitrations12

Vavilov does not apply to commercial arbitrations13

Acknowledged the issue but declined to rule on it14

Supreme Court (6-judge majority)

-

-

1

Supreme Court (3-judge concurrence)

1

-

-

British Columbia

-

1

3

Alberta

1

1

-

Manitoba

2

1

-

Ontario

6

3

3

Northwest Territories

1

-

-

Total

11

6

7

While there are more decisions that conclude that Vavilov does apply to commercial arbitrations, it is notable that six of these cases were insurance disputes decided under an arbitration regime imposed by statute rather than agreed to by the parties, and thus may arguably be confined to that specific context15.

What’s next?

So far, the law on Vavilov’s application to commercial arbitration is all over the map, although the Ontario Court of Appeal recently granted leave to an appeal that may determine the issue in that province16. For the time being, however, it will remain difficult for commercial parties to predict whether, on appeal, a court will apply Vavilov, or stick to the earlier guidance from Sattva and Teal Cedar. The difference in approach could change the result of the appeal process, since under Vavilov, a court has more discretion to overturn an arbitrator’s legal analysis.

Takeaways

Until the issue is resolved by the Supreme Court, parties should consider the following strategies to mitigate the legal uncertainty:

  • Consider creating a private appeal panel. A relatively easy solution is creating a private arbitration appeal mechanism, with no subsequent right of appeal to the courts. This allows parties to steer clear of the legal uncertainty and maintain the speed, predictability and confidentiality of arbitrations without sacrificing a right of appeal.
  • Consider eliminating rights of appeal altogether. If Vavilov applies to commercial arbitration, the losing party in an arbitration may be incentivized to appeal arbitration awards, and the court, now empowered to conduct a close review of the legal analysis in the decision, will have greater latitude to overturn the arbitrator. Another easy way to remove this incentive is to exclude judicial supervision altogether by eliminating any right of appeal.
  • Consider stipulating the standard of review. If parties do not feel comfortable eliminating appeals entirely, another option might be to stipulate in the arbitration agreement that the parties want to preserve the requirement for the appeal court to review the legal analysis within arbitration awards on the more deferential reasonableness standard. This may preserve appeal routes without giving the appeal court an enhanced ability to overturn arbitral awards with whose legal analysis it disagrees. However, the effectiveness of this approach is not settled. If the reasoning of the three minority judges in Wastech becomes law, courts may ignore the parties’ wishes and follow the legislature’s intent to have an “appeal”.

The authors would like to thank David Outerbridge, litigation partner at Torys, for providing comments on a draft and William Mazurek, articling student at Torys, for providing research assistance.

  1. Sattva Capital Corp. v. Creston Moly Corp, 2014 SCC 53.
  2. Teal Cedar Products Ltd. v. British Columbia, 2017 SCC 32.
  3. Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65.
  4. For instance, see Arbitration Act, 1991, S.O. 1991, c. 17, s. 45. Other provincial arbitration statutes, with the exception of Québec and Newfoundland and Labrador, contain equivalent provisions.
  5. See TELUS Communications Inc. v. Wellman, para. 52.
  6. Dunsmuir v. New Brunswick, 2008 SCC 9, para. 27.
  7. Vavilov, 2019 SCC 65, para. 36.
  8. Vavilov, 2019 SCC 65, paras. 38, 143.
  9. Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, 2021 SCC 7.
  10. Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, 2021 SCC 7, para. 46.
  11. Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, 2021 SCC 7, para. 117.
  12. Buffalo Point First Nation et al v Cottage Owners Association, 2020 MBQB 20; Allstate Insurance Company v Her Majesty the Queen, 2020 ONSC 830; The Economical Insurance Group v Desjardins Insurance, 2020 ONSC 1363; Freedman v. Freedman Holdings Inc, 2020 ONSC 2692; Allstate Insurance Company of Canada v The Wawanesa Mutual Insurance Company, 2020 ONSC 6275; Intact v. Dominion and Wawanesa, 2020 ONSC 7982; Northland Utilities (NWT) Limited v Hay River (Town of), 2021 NWTCA 1; Wastech Services Ltd v Greater Vancouver Sewerage and Drainage District, 2021 SCC 7 (Concurrence); Broadband Communications North Inc v 6901001 Manitoba Ltd, 2021 MBQB 25; 719491 Alberta Inc v The Canada Life Assurance Company, 2021 ABQB 226; Wawanesa Mutual Insurance Company v. Unica Insurance Inc., 2021 ONSC 4266.
  13. Cove Contracting Ltd v Condominium Corporation No 0125598 (Ravine Park), 2020 ABQB 106; Ontario First Nations (2008) Limited Partnership v. Ontario Lottery And Gaming Corporation, 2020 ONSC 1516; Parc-IX Limited v The Manufacturer's Life Insurance Company, 2021 ONSC 1252; Bergmanis v. Diamond, 2021 ONSC 2375; Christie Building Holding Company, Limited v Shelter Canadian Properties Limited, 2021 MBQB 77; Spirit Bay Developments Limited Partnership v. Scala Developments Consultants Ltd. 2021 BCSC 1415.
  14. Nolin v. Ramirez2020 BCCA 274; Allard v The University of British Columbia, 2021 BCSC 60; Wastech Services Ltd v Greater Vancouver Sewerage and Drainage District, 2021 SCC 7 (Majority); Her Majesty the Queen in Right of Ontario (Minister of Government and Consumer Services) v. Royal & Sun Alliance Insurance Company of Canada, 2021 ONSC 3922; Ontario First Nations (2008) Limited Partnership v. Ontario Lottery and Gaming Corporation, 2021 ONCA 592; Leeds Standard Condo Corporation No. 41 v. Fuller et al., 2021 ONSC 4370; Hotel Georgia Development Ltd. v. The Owners, Strata Plan EPS849, 2021 BCSC 1236.
  15. Allstate Insurance Company v Her Majesty the Queen, 2020 ONSC 830; The Economical Insurance Group v Desjardins Insurance, 2020 ONSC 1363; Allstate Insurance Company of Canada v The Wawanesa Mutual Insurance Company, 2020 ONSC 6275; Intact v. Dominion and Wawanesa, 2020 ONSC 7982; 719491 Alberta Inc v The Canada Life Assurance Company, 2021 ABQB 226; Wawanesa Mutual Insurance Company v. Unica Insurance Inc., 2021 ONSC 4266.
  16. Tall Ships Landing Devt. Inc. v. City of Brockville2019 ONSC 6597, leave to appeal to Ont. C.A. granted, M51065 (July 22, 2021). See Footnote 4 in Ontario First Nations (2008) Limited Partnership v. Ontario Lottery and Gaming Corporation, 2021 ONCA 592, para. 38.

 To discuss these issues, please contact the author(s).

This publication is a general discussion of certain legal and related developments and should not be relied upon as legal advice. If you require legal advice, we would be pleased to discuss the issues in this publication with you, in the context of your particular circumstances.

For permission to republish this or any other publication, contact Janelle Weed.

© 2022 by Torys LLP.

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