Summary of the CIArb - CJCA Webinar on Challenges to Awards for Insufficient Reasons
The webinar, 2021 Trendspotting: The Rise in Challenges to Arbitral Awards, was jointly hosted by the Chartered Institute of Arbitrators (Canada Branch) [“CIArb”] and the Canadian Journal of Commercial Arbitration [“CJCA”].
The event kicked off with Joshua Karton, Associate Professor and the Associate Dean for Graduate Studies and Research at Queen’s University and the managing editor of the CJCA, welcoming everyone to this panel discussion on the rise in challenges to arbitral awards. He thanked both co-organizers, the moderator Anthony Daimsis from the University of Ottawa and speaker Lisa Munro of Lerners LLP and the doyenne of the Arbitration Matters Blog. This webinar grew out of a year-in-review of 2021 Canadian arbitration case law that Munro wrote for the upcoming issue of the CJCA, which you can read here.
One of the trends that Munro spotted in her review is a rise in court challenges of awards and, more specifically, challenges of awards based on an allegation that the reasons given by the arbitrators are in some way insufficient. The numbers bear out that such challenges are on the rise but it is hard to tell how much of a problem this trend really is, what factors or forces are driving it, and most importantly, what the different stakeholders in the commercial arbitration system can do about it.
Karton then introduced the panel members: Ludmila Herbst, QC of Farris LLP in Vancouver, the Honourable Barry Leon, formerly of the Eastern Caribbean Supreme Court and now at Arbitration Place in Toronto, and Myriam Seers of Savoie Laporte, also in Toronto.
1. Summary of the Recent Case Law
Munro began by summarizing what she found in the recent case law involving challenges to arbitral awards for insufficiency of reasons.
Courts’ starting point is often the applicable legislation and the rules the parties have chosen in their arbitration agreement. For example, the Ontario legislation provides that a reasoned award is required but does not specify what “reasoned” actually means.
The losing party often complains in these cases that it cannot understand from the award how the tribunal reached its conclusions. In Marchetti v Lane, 2021 BCSC 1259, the court held that insufficiency of reasons is not, on its own, enough to have an award set aside. There must be some ground in the legislation to which the insufficiency in the reasons speaks which would empower the court to set aside an award or overturn it on appeal.
Unfortunately, the case law isn't always clear about the basis appeals or set-aside orders, in part because there is not a lot of clarity about what the obligation of the arbitrator is with respect to providing reasons, both in terms of the scope of the duty and the nature of the reasons that must be given.
Generally, a party that appeals an award citing insufficiency of the reasons will argue that the arbitrator committed an error of law. In Wang v Takhar, 2019 ONSC 5535, the court held that inadequate reasons may demonstrate an error of law, which would be grounds for an appeal against the award (but not to set aside the award). A court can remit an award back to an arbitrator to supplement or clarify unclear passages in an award. Accordingly, there is a large scope for the court’s ability to correct inadequacies in an arbitrator’s reasoning without overturning the award.
Apart from an appeal, parties may raise similar arguments when seeking an order setting aside the award. A recent case, Alberta Cricket Association v Alberta Cricket Council, 2021 ONSC 8451, is a good example. The award was set aside under section 46 of the Ontario Act for failing to meet the obligation in section 38 to provide written reasons. The Court's analysis was that the arbitrator had failed to follow the procedure required under the Act, so the failure to give reasons was characterized as a procedural violation, justifying set-aside of the award.
Under the domestic Arbitration Act, parties may also challenge awards on the basis that the they were not treated fairly or, more specifically were unable to present their case. Under the Model Law, such a claim may be characterized as an issue of lack of jurisdiction, which is a difficult test to meet. However it may also be raised as a ground for set-aside, in that the arbitrator did not follow the procedure agreed to by the parties. Those are the statutory hooks on which these applications alleging insufficient reasons are generally hung.
Munro speculated about what could be driving this trend. Is there still, particularly in domestic arbitrations, a “litigation mindset” according to which parties just don’t like the idea of the finality of arbitral awards? Is there a sense that the award of an arbitrator is just not as “good” or “legal” as the decision of a judge? Is it that some arbitrators do not understand the nature or extent of their obligation to deliver reasoned awards? From Munro’s review of the case law, there is some of each of these. However, her overwhelming impression was that the driving force is usually the losing party being unhappy with the results and trying to get another kick at the can. A good example is Ecoasis Resort and Golf LLP v Bear Mountain Resort & Spa Ltd, 2021 BCCA 285, where leave to appeal was denied because the court found that the alleged errors of law were not actually reflective of the arbitrators reasoning.
There are even cases where a party challenges an award based on insufficient reasons after parties themselves agreed upon abbreviated reasons. In Nolin v Ramirez, 2020 BCCA 274, the BC Court of Appeal held that the parties’ agreement to accept summary reasons was “penny wise, pound foolish”. No doubt the reason for that comment was that the parties had numerous court proceedings arising out of an arbitration which they had hoped to deal with on an expedited basis. The Nolin case is also interesting for the fact that the arbitrator offered to provide more detailed reasons, but only for an extra fee. Similarly, in Alvarez v Alvarez, 2021 ABQB 717, the parties complained about the brevity of the reasons and the tribunal testified they would have provided a longer, more fully reasoned award if the parties increased their fee.
Munro then addressed the question of what constitutes sufficient reasons. She argued that the scope of the duty to provide a reasoned award is still evolving. Sean Stephenson and Benjamin Jarvis’ article, Reasoning in International Arbitration: The emergent approach in Canada looks at this very issue, which you can read here. Stephenson and Jarvis conclude that Canadian courts employ a purposive analysis, meaning that the court is focused on whether the parties can understand the award that was made and do the reasons permit a court review. The paper concludes that regardless of the ground alleged, courts will not interfere with an award unless the deficiency in the reasons affects the outcome or that the reasons are so muddled it is impossible to ascertain how the outcome was reached.
There is clear support in the case law for the idea that an arbitrator’s reasons do not need to meet the same standard as a judge’s reasons. See, for example, Shahcheraghi v Divangahi, 2021 BCSC 1576, and in lululemon athletica canada inc v Industrial Color Productions Inc, 2021 BCSC 15, both of which essentially say that parties do not expect the same level of reasoning from an arbitrator as they do from a judge. There are reasonable policy justifications for this perspective. Judges are required to issue reasons in part for stare decisis and public policy, whereas in arbitration the award is directed purely at the parties. The lower standard for sufficiency of arbitral reasoning may also be driven by policy considerations which favor arbitration as a speedier process.
A good summary of the principles can be found in Wang v Takar, which describesthe obligation of an arbitrator to explain the “why”, although the arbitrator’s award need not show the “how”. Charlottetown Equities Ltd v Charlottetown Airport Authority Inc, 2020 PESC 41the purpose of the reasons is to provide for a party to have informed grounds for court review. Peralta v Peralta, 2019 ONSC 2854, (unreported, May 7, 2019, Court file no. CV-18-26994), holds that the length or brevity of the reasons is not directly connected to whether they're sufficient or insufficient. In Farmer v Farmer, 2021 ONSC 5913, a party challenged the award after they had requested clarification or correction of the award from the arbitrator. The arbitrator delivered further reasons, which the court found also met the standard of being reasoned. However, the reasons must not be merely an after-the-fact justification of an award originally arrived at on other grounds. They must be truly reasoned.
This review of the 2021 case law raises several interesting questions. Does a reasoned award make it more likely that the tribunal will get it right? By setting out the reasons, does that improve on the thinking process of the arbitrator? Is a reasoned award less likely to face a court challenge, even if the reasoning is problematic? Should courts intervene if the parties have not availed themselves of their rights to seek clarification or correction of the award, as provided in the provincial legislation? In other words, does the failure to seek that clarificatory or corrective relief from the arbitrator constitute a waiver of the party’s right to challenge the award in court for insufficient reasons? Or do parties have a substantive right to a reasoned, satisfactory award? Also, is the required standard of reasoning different in an appeal of an award for a substantive error of law, and in a set-aside application, where procedural issues are more important?
The panel then took up Munro’s questions, in a lively discussion moderated by Daimsis.
2. The Panel Discussion
The panel discussion proceeded as a series of “top tips”, intended to provide practical guidance to counsel who are retained to argue these cases both for and against challenges to awards, for arbitrators who hope to never hear that their award has been set aside on the basis that their reasons are insufficient, and for the judges who hear these cases. Barry Leon suggested using these tips as a checklist or menu of possibilities, as each individual tip may or may not be suitable for a particular transaction or dispute.
(1) Tips for Counsel
Tip #1: Myriam Seers’s first tip for parties and their counsel is to include specifications for the award in the arbitration agreement. For example, the agreement could specify that the award need not provide reasons, that reasons need not be provided in respect of all the issues, or that the reasons do not need to exceed a certain number of pages. Setting the standard for reasons proactively rather than fighting about them after the fact could foreclose some of the issues discussed by Munro, or at least mitigate the risk of those issues arising. These specifications can be made in the original arbitration clause or in an agreement amongst the parties after arbitration has been commenced.
Tip #2: Ludmila Herbst added that, in order to limit the likelihood of a challenge to awards on the basis of insufficient reasons, parties should agree in advance that they will not challenge or seek to set aside an award that meets the agreed specifications. Concurrently, they should also agree to waive any statutory right to challenge the award on that basis, to the extent waiver is permissible. For example, British Columbia’s domestic Arbitration Act expressly allows for parties to contract out of appeals, on individual bases or altogether.
Even if a challenge is later brought, the parties will have something in writing to show the court that there was a benchmark set by mutual agreement at the beginning of the process. In the case of a set-aside application, you have a benchmark for the court to see that the process was procedurally fair to the parties according to their own agreement.
Tip #3: Leon’s tip for counsel and parties was simple but very important: if a party is going to challenge a defective award, it must submit the applicable law to the court. Leon explained that one of the problems facing courts in dealing with arbitration-related cases is that judges often do not get the help that they should from counsel. Most judges will not have a background in arbitration, and are not getting the applicable laws set out by the parties. If both the judge and counsel are unfamiliar with arbitration and counsel do not put before the judge the applicable law, you have a recipe for disaster and a ready explanation for the raft of cases that have mucked up the law.
Tip #4: Seers’s fourth tip was a three-for-one special:
Tip 4.1: Ensure that the tribunal has what it needs to write an award that is not defective.
Tip 4.2: If there is a defect in the award, use available corrective measures before seeking set-aside.
Tip 4.3: Contract for broader corrective measures in advance.
If the party considers that the award is defective in that it doesn’t adequately address all of the arguments raised by the parties, or all of the applicable law, or all of the evidence, measures short of a set-aside application may be available. For example, parties can seek correction or clarification from the tribunal on certain types of issues, supplementation of the award to address an oversight by the tribunal, or an additional award for any claim that might not have been dealt with by the tribunal. These rights already exist by virtue of procedural rules and arbitration legislation, and should be resorted to before seeking to appeal or set aside an award.
Parties can act proactively by including in the arbitration clause or in an arbitration agreement at the beginning of the proceeding a broader corrective provision than that which already exists under the statute or applicable rules. For example, the right to request further reasons within a particular time frame (e.g., within 10 days of receiving the award). This type of procedural right could foreclose costly litigation over insufficiency of reasons.
(2) Tips for Arbitrators
Tip #5: Herbst’s first tip for arbitrators was to set out with the parties their expectations for specifications of the award, at an early stage in the proceedings such as at a first case management conference. This tip is related to Seers’s earlier point. If the parties themselves have not already agreed to award specifications that they want the arbitrator to implement, arbitrators should raise the issue. If the parties agree, the arbitrator can embody their agreement in a procedural order that is then enforceable as part of the procedure agreed to by the parties. Like counsel, arbitrators should consider whether there need to be reasons on all issues and aspects of the dispute, and whether a page limit should be set. Individual arbitrators might have a particular view as to what would suit them.
Tip #6: Leon’s next tip for arbitrators concerned scrutiny of the draft award. A tribunal can engage a neutral person to scrutinize a draft award—that is, to review all aspects of the award without participating in the deliberations or drafting of the award. That is, parties can contract into the kind of scrutiny that certain institutions provide. It would have to be a transparent process and the person should be vetted for conflicts in the same way as an arbitral secretary would be. Leon suggested that this procedure may be helpful in a high-stakes case where the cost of award scrutiny is justified; since it would represent an additional expense, it is a question of proportionality for the parties and tribunal to consider. This is an idea that could be raised by the tribunal with the parties at a first case management conference.
Tip #7: Seers’s next tip was to establish a list of issues early in the process and then keep that list up-to-date throughout the proceedings. Arbitrators often do not know the case as well as the parties or their counsel do, so imposing rigour proactively as to what the issues are is key. Tribunals should take steps to ensure that everyone knows what issues need to be decided, and what evidence and submissions are required in respect of each of the issues. Establishing such ground rules for the arbitration can be very effective in ensuring that evidence is marshalled in the most efficient way and that nothing is missed as the process continues. That can be accomplished either in terms of reference agreed at the outset of the proceedings, or in a request to the parties to agree upon a list of issues that is then written into a procedural order, and then amending that list if the issues evolve over the course of the case.
Tip #8: Leon’s next tip was to circulate a draft award to the parties. Arbitrators should consider providing in a procedural order for the tribunal to circulate a draft award, on which counsel may provide limited comments, with agreed restrictions on the dissemination of the draft and other ground rules set out in the same procedural order. At a minimum, parties’ counsel may be given the opportunity to check typos, calculations, and characterizations of the undisputed facts. However, such an arrangement could extend to flagging issues not dealt with in the award or in the reasoning.
While this idea is largely foreign to us in Canada, as it is not done in the court system, it is standard practice in other jurisdictions like the British Virgin Islands, so it's a question of legal culture. It may not be something that every lawyer or party is comfortable, with but is worth considering.
Tip #9: Herbst’s next tip for the arbitral tribunal dealt with drafting of awards: don’t reinvent the wheel. There are some great resources, including from CIArb, on how to write an award, what an award should include, and some templates that that can be followed. Knowing that the award is based on a reliable template can give the award extra credence with both parties and courts in terms of showing sufficiency of reasons.
Even for former judges, it may be helpful to undertake arbitration-specific training, not just for case management but also in terms of how to write an award. Concerns specific to the arbitration context mean that awards and judgments differ in both content and format.
Tip #10: Seers’s last tip for arbitrators goes hand in hand with her previous tip to provide for broader corrective measures than those that may be already available under the parties’ agreement or the arbitration law. For example, Seers suggested that the tribunal’s first procedural order or terms of reference could contemplate the possibility of seeking additional reasons or other types of corrective measures that could prevent or narrow the scope of appeal or set-aside applications. This may be tricky for arbitrators to engineer without a prior agreement of the parties. At a minimum, however, nothing prevents the tribunal from suggesting the adoption of corrective measures.
(3) Tips for Judges
Tip #11: Seers’s first tip for judges considering set-aside applications was to be alive to the fact that the grounds for setting aside an arbitral award are drastically different from the grounds for appeal from an award, and from the grounds for setting aside an administrative decision.
It is not uncommon for applications to set aside arbitral awards, ostensibly for insufficiency of reasons, to be no more than a complaint about the outcome. In particular, parties are apt to dress up a merits complaint as a jurisdictional complaint so as to enable set-aside. Judges should be on the alert for parties seeking to effectively appeal an arbitral award under the guise of a set-aside application. They should only set aside an award for jurisdictional error if it is a true jurisdictional error.
Tip #12: Leon’s next tip for judges was the flip side of a point that he raised earlier, which is for judges to insist on getting all the applicable law. As we heard from Munro, a body of law has developed in Canada and in other jurisdictions on the circumstances where an arbitral award may be set aside for inadequate reasons. From Munro’s discussion, we know that awards should not be lightly set aside, and only if they are fundamentally flawed in terms of the applicable ground for appeal or set-aside.
With respect to international arbitrations, since Canada is a Model Law jurisdiction, the court can and should review instructive Model Law decisions from other jurisdictions. This means that the job of a judge, particularly a judge who is unfamiliar with commercial arbitration, is even more challenging then dealing with a purely Canadian dispute. It is therefore all the more important for judges to insist that counsel inform them adequately as to the identity of the applicable law and the standard established in it.
Tip #13: Herbst’s last tip related to the possibility of judges assessing the parties’ conduct before the tribunal when seized of a complaint that the tribunal’s reasons were insufficient. In particular, judges should consider whether, through their conduct or lack of conduct or effort before an arbitral tribunal, parties have waived certain objections to the award. For example, under the Ontario domestic arbitration statute, parties have the right to go back to an arbitrator within a certain time period and get an oversight corrected or request the arbitrator to make an additional award about an issue that had been presented to the arbitrator but omitted from the award. Judges should consider whether, if the party failed to take advantage of that opportunity, they should be permitted to make the same complaint in a court proceeding. Absent an allegation of arbitrator bias or some other justifiable ground for avoiding further arbitral proceedings, parties may be considered to have waived objections that they declined to raise before the tribunal. At minimum, judges might consider whether there should be a “demerit mark” against such parties in the overall balancing of whether reliefs should be granted at the court level.
With this last point, the panel discussion portion of the event ended. Daimsis thanked the panelists and the attendees. The panelists stayed for an informal Q&A.