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Vavilov: Does it apply to commercial arbitrations?

14 minute read

The Vavilov decision

Canada (Minister of Citizenship and Immigration) v Vavilov, 2019 SCC 65 decided the standard of review by a court in the context of an application for judicial review of an administrative decision. The Supreme Court of Canada set out a revised framework, guided by the principles in Dunsmuir v New Brunswick, 2008 SCC 9. The starting point is a “reasonableness review”, to be derogated from only where required by a clear indication of legislative intent or by the rule of law (constitutional questions, questions of law of central importance to the legal system, and questions related to jurisdictional boundaries between administrative bodies) [para. 69]. The case also discusses statutory appeals of administrative decisions:

  • The legislature may direct a derogation from a “reasonableness review” by providing for a statutory appeal mechanism from an administrative decision maker to a court, thereby signalling the application of appellate standards [para. 33];
  • The applicable appellate standard is to be determined with reference to the nature of the question and the Supreme Court of Canada’s jurisprudence on appellate standards of review.  Questions of law require the standard of correctness, while for questions of fact and mixed questions of fact and law (where the legal principle is not readily extricable), the standard is palpable and overriding error. See Housen v Nickolaisen, 2002 SCC 33 paras. 8, 10, 19, and 26-37 [para. 37];
  • Jurisdictional questions are no longer a distinct category attracting correctness review, except for questions regarding the jurisdictional boundaries between two or more administrative bodies. Members of the public must know where to turn to resolve a dispute so predictability is important [paras. 63 – 65]; and
  • This approach is a departure from the Court’s recent jurisprudence [para. 38], which led the minority to call the majority’s change in approach a disregard for precedent and stare decisis [para. 254].

The question arises as to the whether these principles apply to a court review of an arbitral award.  In particular, does the new Vavilov framework affect the Supreme Court of Canada’s earlier leading decisions with respect to standard of review for court intervention in commercial arbitrations: Sattva Capital v Creston Moly, 2014 SCC 53; and Teal Cedar Products Ltd. v British Columbia, 2017 SCC 32?  Both cases dealt with appeals under the British Columbia domestic arbitration legislation.  These decisions were not cited in Vavilov.

The earlier leading decisions: Sattva and Teal Cedar

Sattva set out the following relevant principles:

  • Appellate review of commercial arbitration awards is different from judicial review of a decision of a statutory tribunal, thus the standard of review framework developed in Dunsmuir is not entirely applicable.  But it is analogous in some respects, therefore, some aspects of the Dunsmuir framework are helpful in determining the standard of review for commercial arbitration awards [paras.  104 - 105];
  • In commercial arbitration, where appeals are restricted to questions of law, the standard of review will presumptively be reasonableness [para. 106]; and
  • It may be possible to identify an extricable question of law from what was initially characterized as a question of mixed fact or law (such as contract interpretation) [para.  53].

Teal Cedar applied Sattva and also stated the following relevant principles:

  • The characterization of a question on review as a question of law versus a question of mixed fact and law has vastly different consequences in appeals from arbitration awards and civil litigation judgments. The identification of a mixed question in an appeal of an arbitration award defeats a court’s appellate review jurisdiction under the Arbitration Act [para. 46];
  • Reasonableness is almost always the applicable standard upon an appellate review of a commercial arbitration award, which achieves arbitration’s policy objectives of efficiency and finality [para. 74]; and
  • The nature of the question under review (law, mixed, or fact) is dispositive of the standard of review in the civil litigation context, but not in the arbitration context, where some questions (constitutional questions, questions of law of central importance to the legal system) attract a correctness standard [para. 75].

The Great Debate: Vavilov versus Sattva and Teal Cedar

Vavilov simply cannot be reconciled with Sattva and Teal Cedar if it applies to arbitral appeals at all.  Vavilov requires an appellate standard of review, while Sattva and Teal Cedar require a reasonableness standard. And whether or what jurisdictional questions attract a correctness standard is now fuzzy. However, the conflict cannot be resolved by limiting the application of Vavilov to the administrative law context on the basis that it did not mention arbitrations (or Sattva and Teal Cedar) and therefore has no application to them.

The Court made broad statements of principle and policy. Many of the same policy reasons to employ a presumptive “reasonableness review” standard in judicial review proceedings in administrative law also apply to arbitrations:

  • Arbitration legislation delegates to arbitrators what would otherwise be judicial functions;
  • Arbitrators are expressly expected to function with minimal judicial interference; and
  • Arbitrations serve access to justice goals by providing an alternative to the courts which may be more efficient and less costly.

Sattva calls them analogous. This would suggest that a presumptive “reasonableness review” standard should also apply to court reviews of arbitral awards. Sattva and Teal Cedar clearly state that appellate review of arbitral awards will almost always invoke the reasonableness standard of review.  But Vavilov states that the legislature may derogate from a “reasonableness review standard” by providing for a statutory appeal mechanism, which thereby invokes the statutory appeal standard of review. Further, in Vavilov, the Court said that it must be presumed that legislatures intended that the word “appeal” would be interpreted consistently so that the same procedure would be used in all legal contexts. There is nothing in Vavilov which expressly limits these principles to the administrative law context.  However, both these points run contrary to Sattva and Teal Cedar, which were statutory appeals to which the “reasonableness review” standard was applied.

In Vavilov the Court acknowledged that its analysis was a departure from its recent jurisprudence and that earlier case law would have to be revisited.  There is, therefore, good reason to argue that Vavilov has overturned Sattva and Teal Cedar insofar as those set out the standard of review with respect to appeals of arbitral awards.

An added complication

Under both the domestic and international arbitration acts in Ontario, court intervention in decisions made by arbitral tribunals is expressly limited, however, there are provisions for both “appeals” and court reviews in limited circumstances, which may now attract different standards of review than Sattva and Teal Cedar provide. Under Ontario’s domestic Arbitration Act, S.O. 1991, c. 17, an appeal of an award may be made to the Court on a question of law (with leave if the arbitration agreement does not provide for a right of appeal and without leave if it does) and, if the arbitration agreement so provides, on a question of fact or mixed fact and law [s. 45].  Other provisions allow court review that is not an appeal: see ss. 13(6); 17(8); and 46 (set aside).  Similarly, under the Ontario International Commercial Arbitration Act, 2017, S.O. 2017, c. 2, Schedule 5, there is a right of appeal only on a ruling of the tribunal with respect to its own jurisdiction [s. 11(1) and Sch. 2, Model Law, Art. 16(3)]. Other provisions allow for court review that is not an appeal: see Model Law, Art. 13(3); 14(1); and 34(2) (set aside).  Courts pre-Vavilov have held that the standards of review for these various court interventions were different.

Conflicting court decisions considering Vavilov

Not surprisingly, the court decisions to date which apply Vavilov to the appeal and court review context to determine standard of review of arbitral awards are conflicting.

Appeals

  1. Buffalo Point First Nation et al. v Cottage Owners Association, 2020 MBQB 20.  This was a motion for leave to appeal two arbitral awards under the Manitoba Arbitration Act, C.C.S.M. c. A120, which allows appeals on questions of law alone. The arbitration agreement was silent on appeal rights.  The court found that, under Vavilov,the appellate standard of review applied, “not the reasonableness standard normally associated with judicial review”.
  2.  Allstate Insurance Company v Her Majesty the Queen, 2020 ONSC 830. This was an appeal of the decision of an arbitrator appointed pursuant to the Ontario Insurance Act to resolve a priority dispute by arbitration under the Ontario Arbitration Act, 1991, between an insurer and the Motor Vehicle Accident Claims Fund. The appeal was brought under s. 45 of the Act.  The arbitration agreement provided that any party may appeal the arbitrator’s decision on a point of law or mixed law and fact, without leave of the Court. The appellate judge found that the fact that the legislation allows parties to agree on the scope of the appeal from an arbitral award does not change the fact that this appeal arose out of a statutory appeal mechanism, which signalled the legislative intention that the court perform an appellate function.  Therefore, Vavilov required application of the appellate standard of review.  This represents a change from the reasonable standard of review previously applied in insurance arbitration appeals. In obiter and citing Sattva,   the judge distinguished the rationale for the former reasonableness standard in statutory insurance arbitrations from that in private commercial arbitrations, where there was the “added rationale that the parties to the arbitration expressly elect to have their dispute resolved by an arbitrator, not the courts” and “in that context, arbitration is seen as an autonomous, self-contained process in which the courts generally should not intervene. This rationale does not apply to insurance arbitrations where regulation mandates the parties to resolve any dispute through arbitration”.
  3. Cove Contracting Ltd. v Condominium Corporation No. 012 5598 o/a Ravine Park, 2020 ABQB 106. This was an appeal from an arbitral award in a commercial arbitration under the Alberta Arbitration Act, RSA 2000 c. A-43.  The appeal judge found that Vavilov did not change the standard of review on commercial arbitration appeals; the standard of review is reasonableness.  This is so for two reasons: firstly, Vavilov dealt with judicial review of administrative bodies; and secondly, the Supreme Court of Canada made no reference to Sattva and Teal Cedar, which established reasonableness as the standard of review on commercial arbitration appeals. In other words, the use of the word “appeal” in the statute did not imply that the appellate standard of review should apply.
  4. Ontario First Nations (2008) Limited Partnership v Ontario Lottery and Gaming Corporation, 2020 ONSC 1516.   This was an appeal of an arbitral award following an arbitration conducted under the Ontario Arbitration Act, 1991.   The appeal judge decided that the appeal was brought pursuant to the arbitration clause in the contract between the parties (which allowed appeals on questions of law, or questions of mixed facts and law), and not pursuant to the s. 45 statutory right of appeal (which allows appeals of questions of law, of fact, or of mixed facts and law if the arbitration agreement so provides). Because the arbitration agreement so provided, this appeal was not statutorily mandated.  Allstate is distinguishable because it involved an appeal from an insurance arbitration that was statutorily mandated.  Because the Supreme Court in Vavilov did not refer to either Sattva or Teal Cedar, it is not reasonable to conclude that it meant to overrule them without any reference to them or to the area of commercial arbitration.  The case decided the administrative law standard of review only.  As a matter of legal principle, it is appropriate that Vavilov does not apply to commercial arbitrations. The administrative law standard of review derives from constitutional considerations that justify deference by the judiciary to the Legislature.  This principle does not apply to commercial arbitrations. The standard of review for commercial arbitrations is guided by commercial considerations about respect for the decision-makers chosen by the parties.  As a result, deference is justified by the parties’ contractual intent. In summary, Vavilov does not apply to commercial arbitrations. The standard of review for commercial arbitrations is reasonableness. This was also the conclusion reached in Cove Contracting.

Other court reviews

Freedman v Freedman Holdings Inc., 2020 ONSC 2692. This was an application to set aside an arbitral award under s. 46(1) of the Ontario Arbitration Act, 1991, on grounds including that the dispute did not fall within the parties’ arbitration agreement (jurisdiction) and that the applicant was denied procedural fairness. The parties’ agreement prohibited an appeal. The Court found that there is conflicting jurisprudence as to what is the appropriate standard of review under s. 46(1). It noted that the arbitrator in this case was not appointed by legislation but instead by the parties’ agreement and that an application under s. 46(1) is not a judicial review application, but that there were similarities on challenges to jurisdiction, which justify the Vavilov approach to standard of review. Further, the arbitrator had the authority granted to him by the parties and also had statutory powers under the Act, which are not dissimilar to some of the statutory powers granted to administrative law decision makers. Using a standard of correctness on s. 46(1) applications reinforces parties’ incentive to bring such applications despite having contracted that the arbitral awards are to be final.  Therefore, a standard of reasonableness respects the legislature’s prohibition against contracting out of s. 46(1) and also provides some control on the use of such applications.

This analysis is a departure from the pre-Vavilov case law following United Mexican States v Cargill, Incorporated, 2011 ONCA 622, which held that set aside applications under both the domestic and international Acts on matters of “true questions of jurisdiction” require a correctness standard.  The concept of a true question of jurisdiction was abandoned in Vavilov.

Conclusion: Confusion

This blog attempts to simplify Vavilov to answer the question of how Vavilov has the potential to affect commercial arbitration appeals and court reviews.  In doing so, it glosses over important nuances, which will (and have already) been analyzed by academics.  But it shows that Vavilov, in enunciating broad principles which appear to transcend the administrative law context, has not succeeded in its objective to provide clarity, simplicity, and predictability in this area of the law.

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Lisa C. Munro, Q.Arb

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