The Importance of the Standard of Review in Judicial Appeals of Arbitration Awards

In 2017, the Supreme Court of Canada issued two separate decisions regarding appeals of arbitration awards: Attorney General of Quebec v. Ronald Guérin, [2017]  2 SCR 3 (“Guérin”) and Teal Cedar v. British Columbia, [2017] 1 SCR 688 (“Teal Cedar”).

Both cases dealt with the basic starting question for appeals – what is the standard of review that the appellate court must apply?

Teal Cedar

Teal Cedar involved a dispute regarding compensation payable by the Province of British Columbia to Teal Cedar for reducing access to certain roads and bridges it was using to harvest timber.  According to the B.C. Forestry Revitalization Act, the dispute had to be submitted to arbitration, at which Teal Cedar was successful.

The prevailing law on appellate review of an arbitration award is a three-part analysis[1]:

• Jurisdiction: whether the appellate court has jurisdiction to review the alleged error.
• Standard of review: whether the standard for the review is reasonableness or correctness.
• Review: whether the arbitration award withstands scrutiny under that standard of review.

On the issue of jurisdiction, the Supreme Court reaffirmed the principle that statutory limitations on the scope of appellate review of arbitration awards are absolute.  Given that section 31 of the B.C. Arbitration Act limits the jurisdiction for appeal reviews solely to questions of law, the Supreme Court held that any questions on appeal that are not questions of law were not within the Court’s jurisdiction to review.

The courts have generally found that legislative or contractual arbitration provisions that broadly exclude the jurisdiction of civil courts for all questions will, for policy reasons, not actually be held to do so. However, more precise exclusions of court jurisdiction for certain questions, such as precluding review for all questions except questions of law, will be held to completely preclude any judicial appeal for all but those questions.

Appeal restrictions limiting court review to only questions of law exists in the following provincial arbitration legislation: Alberta Arbitration Act, section 8; Saskatchewan Arbitration Act, section 9(2); Manitoba Arbitration Act, section 8; Ontario Arbitration Act, section 8; New Brunswick Arbitration Act, section 8; and Nova Scotia Commercial Arbitration Act, section 10.

Determination of the applicable standard of review is accomplished by establishing legislative intent; in other words, by reviewing the text of the statute that grants the arbitrator his or her authority.[2]  The reasonableness standard of review is by far the most common standard of review used by courts to review arbitration decisions. It is defined as requiring the arbitrator’s decision to “fall within the range of possible, acceptable outcomes which are defensible in respect of the facts and law.”[3] The reasonableness standard, as compared to the correctness standard, typically results in courts giving greater deference to arbitration awards as the arbitrator’s findings are only required to be “possible” and “acceptable” as opposed to “correct”. Based on this deferential standard of review, the Supreme Court in Teal Cedar upheld the arbitrator’s decision.

A question of law is one of three categories of questions on appeals from decisions of lower courts in Canada. The category in which a particular issue falls will generally determine whether the issue can be reviewed by the Court and what standard of review will be used:

• Questions of law: These are questions about what the correct legal test is and include questions of statutory interpretation.
• Questions of fact: These are questions about what actually took place between the parties.
• Mixed questions of law and fact: These are questions about whether the facts satisfy the legal tests and include questions of contractual interpretation.  A mixed question can be found to have an “extricable question of law,” such as a situation in which a legal test was erroneously applied during the course of interpreting the fact.  However, case law is clear that courts are to be cautious in identifying such questions. which should be narrowly defined.

In Teal Cedar, the Supreme Court disposed of two of the three questions on appeal on the basis that they were questions of mixed fact and law and, therefore, not reviewable.  Despite being invited by the Attorney General of British Columbia to find that the standard of correctness applied to the remaining question of law, the Supreme Court found that reasonableness was the appropriate standard of review even for those questions that the courts had specifically been authorized to review by legislation. Teal Cedar was, therefore, successful in having the Supreme Court reinstate the arbitrator’s decision.

Guérin

Guérin involved a dispute regarding recognition of certain medical laboratories under a specialized collective bargaining scheme for medical specialists established pursuant to the Health Insurance Act of Quebec (the “Act”).  Under the Act, a collective bargaining agreement (the “Agreement”) had been entered into between Quebec and the Federation of Medical Specialists (“Federation”).  It set out conditions and eligibility for remuneration of all health care professionals in the province.  The defendant Dr. Guérin represented various radiology laboratories that wanted retroactive payment of a digitization fee under the Agreement.  Dr. Guerin submitted the dispute to arbitration under the Act.

The arbitrator in Guérin found the following: (i) Dr. Guérin’s complaint did not give rise to an arbitrable dispute under the Act or the Agreement; (ii) only the Federation had standing to submit such a dispute on behalf of the laboratories; and (iii) an individual health care professional had no role in the negotiation of remuneration and criteria for remuneration under the Agreement and, as such, could not dispute the rules negotiated by Quebec and the Federation by way of arbitration.  This decision was submitted to the courts for judicial review.

Though many provinces have Arbitration Acts of general application, these acts can be supplemented or limited by arbitration provisions in other statutes. Such provisions are commonly inserted in statutes creating public authorities, especially to resolve labour issues.  In this case, the arbitration provision was found in section 54 of the Act, which read:

54. A dispute resulting from the interpretation or application of an agreement is submitted to a council of arbitration, to the exclusion of any court of civil jurisdiction.

The composition of the council of arbitration and the appointment of its members may be determined in an agreement. If the composition and appointment are not so determined, they are determined by the Minister of Labour after consultation with the bodies representing professionals in the field of health.

The majority of the Supreme Court held that the reasonableness standard applies when an arbitrator is determining whether a matter is arbitrable by interpreting and applying its enabling legislation and related documents, which, in this case, was the Act and the Agreement.  It was, therefore, reasonable for the arbitrator to conclude that he did not have jurisdiction to deal with the issue of criteria for remuneration since the Agreement exclusively reserved this authority for Quebec and the Federation.  Dr. Guérin’s standing was also held not to be a true question of jurisdiction as the issue of standing was clearly dealt with in the Agreement itself, which reserved for the Federation the right to submit this dispute to arbitration.

Two Supreme Court justices agreed that the arbitrator did not have jurisdiction but came to this conclusion by applying the correctness standard for “true questions of jurisdiction.” A true questions of jurisdiction is a narrow exception to the general review standard of reasonableness for all decisions submitted to an arbitrator.  It is noteworthy that the Supreme Court of Canada has not found a true question of jurisdiction for over a decade.  The majority of the Court questioned its very existence in Alberta (Information and Privacy Commissioner) v. Alberta Teachers’ Association[4] and more recently in Pipelines Ltd. v. Alberta (Utilities Commission).[5] The majority of the Supreme Court disagreed that there was such a question here.

Application of Teal Cedar and Guérin by Lower Courts

Given that the decisions of the Supreme Court in both Teal Cedar and Guérin were not unanimous, review of subsequent cases sheds light on how courts across Canada have applied these findings to judicial review of arbitration awards.

In 2018, the Court of Appeal for Ontario issued its decision in The Dominion of Canada General Insurance Company v. Unifund Assurance Company, 2018 ONCA 303.  This decision is noteworthy in its rigid application of Teal Cedar, stating that the standard of reasonableness will generally apply to questions of law.  Despite the fact that both parties in this case specifically agreed in their arbitration agreement that the appropriate standard of review would be correctness, the Court of Appeal unanimously held the appropriate standard of review on all appeals from decisions of arbitrators to be reasonableness.  The reasoning given by the Court was that the arbitrator was a specialized decision-maker engaged in the interpretation of a local statute and, as such, was entitled to deference by the courts.

Also in 2018, the Court of Appeal for Ontario issued its decision in PQ Licensing S.A. v. LPQ Central Canada Inc., 2018 ONCA 331.  The Court again cited Teal Cedar in finding that the standard of review of a decision of an arbitrator is “almost always” reasonableness, even when the appeal involves questions of law.  The reasoning given by the Court is that while the nature of the question (whether legal, factual or mixed) is dispositive of the standard of review in appeals from civil litigation decisions, it is not dispositive in the context of commercial arbitral awards by specialized arbitrators.

In Elsner v. British Columbia (Police Complain Commissioner), 2018 BCCA 147, the British Columbia Court of Appeal was also faced with categorizing a dispute as a question of jurisdiction (subject to the correctness standard) or as a question of statutory interpretation (subject to the reasonableness standard).  The facts of this case led the Court to find that the defendant was asserting jurisdiction based on a particular provision of the B.C. Police Act.  The Court, therefore, found that that the central issue at hand constituted statutory interpretation pursuant to Guérin and applied the “general rule” that the tribunal’s interpretation of its home statute would be reviewed on the reasonableness standard.

In Extreme Excavating & Backhoe Services Ltd. v. Scott, 2018 ABQB 102, the Alberta Court of Queen’s Bench relied not only on the findings of Teal Cedar (in terms of only permitting appeals of questions of law), but it also agreed that the preferred standard of review of an arbitrator’s decision in commercial arbitrations is reasonableness (subject to the exceptions detailed above).  With respect to the exception where the correctness standard is applied to questions of law of central importance to the legal system and outside the adjudicator’s expertise, the Court went one step further and held that where the arbitrator is chosen by the parties to adjudicate the matters at issue, his/her expertise is presumed.  Therefore, those issues cannot be said to be outside his expertise.

Takeaways

The takeaway principles of these cases can be summarized as follows:

• Standard of review of arbitration decisions is driven by statutory interpretation.
• The reasonableness standard is almost always applied in commercial arbitrations because it “dovetails” with the key policy objectives of commercial arbitration: efficiency and finality. The only noted exception is where the question of law is constitutional or of central importance to the legal system as a whole and is outside the arbitrator’s expertise.
• The reasonableness standard, as compared to the correctness standard, typically results in situations where the courts give greater deference to arbitration awards as the arbitrator’s findings are only required to be “possible” and “acceptable” as opposed to “correct”.
• True questions of jurisdiction inviting a standard of review of correctness are very rare. However, they are still recognized as being a part of Canadian law by some judges, including Supreme Court of Canada judges.

These cases serve to highlight the importance of being successful at the arbitration level given the difficulty in winning an appeal of arbitration decisions in the courts.  The policy reasons for statutes permitting arbitration as an alternate form of dispute resolution are well-accepted: namely, “to limit Court intervention and to promote arbitral autonomy.”[6]  As such, judicial deference to arbitral decisions has been specifically enshrined and repeatedly upheld by the courts.  Factors relating to this success, therefore, include not only the strength of your arguments, merits of your case, and the expertise of your counsel, but also proper care in choosing the appropriate arbitrator and in drafting the scope of your arbitration agreement or arbitration clause.

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[1] As established in Sattva Capital Corp. v. Creston Moly Corp., [2014] 2 SCR 633.

[2] Dunsmuir v. New Brunswick, 2008 SCC 9 at para. 30.

[3] Ibid, at para. 47.

[4] Alberta (Information and Privacy Commissioner) v. Alberta Teachers’ Association, 2011 SCC 61 at para 33-34.

[5] ATCO Gas and Pipelines Ltd. v. Alberta (Utilities Commission), 2015 SCC 45 at para 27.

[6] Babcock and Wilcock Canada Ltd v Agrium Inc., 2005 ABCA 82 at para. 10.