The End of Judicial Deference to Domestic Arbitrators?

The end of judicial deference to domestic arbitrators?

Alex Bogach & Julie Lowenstein

December 16, 2021

The following post is a republication of an article in Torys’ Report: Litigation Trends 2021. The CJCA thanks the authors for permitting it to be reposted on our blog.

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 Corp[1] and Teal Cedar Products Ltd. v. British Columbia.[2]

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 interpretations.[3]

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 awards.[4] 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 autonomy,[5] whereas administrative decision-making finds its authority in public statutes and strives to honour the legislature’s intention.[6] 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 District.[9] However, the Court’s six-member majority declined to resolve this issue, leaving it for another day.[10] 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 interference.[11]

 

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 arbitrations [12]	Vavilov does not apply to commercial arbitrations [13]	Acknowledged the issue but declined to rule on it [14]
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 context.[15]

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 province.[16] 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.