Commercial Litigation and Dispute Resolution Blog

For several decades in Canada, the court has applied the deferential standard of “reasonableness” when reviewing arbitral awards - subject to a narrow set of exceptions.

When applying the reasonableness standard, a reviewing court will show deference to the reasons of the decision-maker and uphold the award so long as the award falls within a “range of reasonable outcomes”. In contrast, the “correctness” standard of review provides no deference to a decision-maker, and a court may overturn an arbitral award if the arbitrator did not reach what that court views as the only “right” answer.

The deferential approach of Canadian courts has limited their intervention in the arbitral process, while also reflecting the pro-arbitration stance adopted by legislatures across the country.

However, comments of the Supreme Court of Canada (“SCC”) in Canada (Minister of Citizenship and Immigration) v. Vavilov (“Vavilov”) re-opened questions about the applicable standard of review of arbitral awards and the deference Canadian courts show to an arbitrator’s decision.

In this article, we examine the divergent decisions following Vavilov, the SCC’s failure to resolve this issue in Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District (“Wastech”), and where we stand now on the standard of review for arbitral awards.

Vavilov: The Seeds of Confusion

In Vavilov, the SCC established that reasonableness is the presumed standard applicable in all cases involving the judicial review of administrative law decisions.

The SCC also reversed decades of precedent and held that where legislation provides for a statutory right of appeal from an administrative decision, the appellate standards of review will apply (not the presumed reasonableness standard).

The appellate standards of review means that where legislation explicitly provides for an “appeal” of an administrative decision, one of the following two standards of review will apply:

• questions of law will be reviewed on a correctness standard; and
• questions of fact, or of mixed fact and law, will be reviewed on the most deferential standard of “palpable and overriding” error.^[1]

However, the SCC did not expressly confirm whether this same framework also applies in the arbitration context where legislation provides for an “appeal” of an arbitral award.

For example, B.C.’s domestic Arbitration Act (the “Arbitration Act”) provides that, under certain circumstances, a party may “appeal” an arbitral award to the Court of Appeal (the “BCCA”) on any question of law.^[2] On such an appeal, based on the legislation and applicable precedent, the BCCA must determine which standard of review to apply in deciding whether to overturn the arbitrator’s decision.

The holding in Vavilov that the appellate standards of review apply where there is a “statutory right of appeal” resulted in diverging decisions across Canada.^[3]

In particular, the courts have diverged on the question of whether Vavilov overturned the SCC’s decisions in Sattva^[4] and Teal Cedar^[5] (which authoritatively established that the standard of review on appeals of arbitral awards is reasonableness), and whether an arbitral award should be reviewed on an appellate standard if the applicable legislation expressly provides for an “appeal”.^[6]

Wastech: A Missed Opportunity

Many members of the arbitration bar anticipated that the SCC would resolve this issue in Wastech, which was heard December 6, 2019 and released February 5, 2021.^[7]

Unfortunately, the majority in Wastech sidestepped the question of whether Vavilov applies in the commercial arbitration context. In particular, the majority held that the arbitrator’s award would have been overturned by the court on either standard and left the question of the appropriate standard of review for another day.^[8]

The minority in Wastech admonished their colleagues for failing to provide clear guidance, acknowledging the conflicting authorities released since Vavilov.^[9]

In their dissenting reasons on this issue, the Wastech minority commented that the differences between arbitration and administrative law decisions do not affect the standard of review and reiterated that where the legislation provides for a statutory right of appeal, the appellate standards of review will apply in accordance with Vavilov.^[10]

To date, the only appellate judgment to address this issue has been the decision of the Northwest Territories Court of Appeal (“NWTCA”), Northland Utilities (NWT) Limited v Hay River (Town of) (“Northland”). This decision was released in January 2021, which was after Vavilov and before Wastech.

In Northland, the NWTCA determined that the new framework set out in Vavilov applies to appeals of commercial arbitration awards where a statutory appeal mechanism exists.^[11] However, the specific statutory provision at issue in that case provides for an “appeal” from an arbitral award “where it is agreed by the terms of a submission”. In short, the NWTCA did not consider the applicable standard where the legislation provides an appeal as of right or with leave of the court, as is found in British Columbia and other jurisdictions.

So, where does this leave us?

In British Columbia, two decisions have commented on how Vavilov may apply in the commercial arbitration context, but significant issues remain unresolved.

In lululemon athletica Canada inc. v. Industrial Color Productions Inc. (“lululemon”) ^[12], released January 6, 2021, Mr. Justice Funt concluded that the reasonableness standard was the appropriate standard to be applied on applications to set aside arbitral awards under the International Commercial Arbitration Act (the “ICAA”). In that case, lululemon athletica argued that the applicable standard of review was correctness and relied on authority of the Ontario Court of Appeal decided prior to Vavilov.^[13] Justice Funt rejected this approach and held that reasonableness is the appropriate standard for applications to set aside arbitral awards on a jurisdictional basis under the ICAA.^[14]

Justice Funt noted that in the international arbitration context, the standard of reasonableness will generally best serve “to preserve the autonomy of the forum selected by the parties and to minimize judicial intervention.” He also held that the reasonableness standard “aligns with the general framework” for judicial review of an administrative decision set out in Vavilov, as well as the general framework for domestic commercial arbitration expressed in Sattva.^[15]

The lululemon decision is under appeal to the BCCA, and the court may take the opportunity to address the appropriate standard of review.^[16]

In a domestic arbitration case, Nolin v. Ramirez, the BCCA considered whether Vavilov had changed the standard of review for arbitral awards under the former version of the domestic Arbitration Act. The BCCA noted that the issue was percolating in courts across the country, but that, at that time, no appellate court had considered the issue (the decision predates Northland).^[17]

In her reasons for the BCCA, Madam Justice Bennett noted that if the statutory appeal mechanism contemplated in Vavilov captures appeals under s. 31 of the former Arbitration Act, the standard of review is palpable and overriding error for questions of mixed fact and law where the legal principle is not readily extricable. The Court also noted if Vavilov does not apply, the standard of review is reasonableness and that under the reasonableness standard, the result would be the same in the case under consideration. ^[18]

Like the majority of the SCC in Wastech, the BCCA in Nolin v. Ramirez left the determination of the “obviously complex question” of the appropriate standard of review of arbitration decisions to another day.

Arbitration in Canada and the Broader Outlook

The uncertainty regarding the standard of review for arbitral awards in Canada has an impact beyond the legal community.

Business people depend on arbitration to provide efficient resolutions to their disputes. In addition, Canada is more likely to be made the seat of international arbitrations where the parties have certainty of the applicable legal framework.

Given these broader considerations, we expect that appellate courts will attempt to resolve the confusion caused by Vavilov, as the minority in Wastech sought to do.

For now, the business community and counsel will have to navigate the divergent decisions across Canada.

_{[1] Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65 at para. 37.}

_{[2] Arbitration Act, SBC 2020, c. 2, s. 59(2).}

_{[3] Ontario First Nations (2008) Limited Partnership v. Ontario Lottery And Gaming Corporation, 2020 ONSC 1516, at paras. 62‑75; Cove Contracting Ltd. v. Condominium Corporation No 012 5598 (Ravine Park), 2020 ABQB 106, 10 Alta. L.R. (7th) 178, at paras. 3‑12; Allstate Insurance Co. v. Ontario (Minister of Finance), 2020 ONSC 830, 149 O.R. (3d) 761, at paras. 12‑19; Buffalo Point First Nation v. Cottage Owners Association, 2020 MBQB 20 at paras. 46‑48; and Clark v. Unterschultz, 2020 ABQB 338, 41 R.F.L. (8th) 28, at paras. 55‑56.}

_{[4] Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53.}

_{[5] Teal Cedar Products Ltd. v. British Columbia 2017 SCC 32.}

_{[6] There is no indication in that Vavilov has displaced the “egregious conduct” or similar tests, which a court may apply where a party seeks to set aside an arbitral award on the basis of procedural unfairness, as seen in Ontario and Alberta. See, for example, Fuego Digital Media Inc. v. DAC Group (Holdings) Limited, 2018 ONSC 2897 at paras. 20, 21 and 23; Ryan v. Cacioppo, 2008 CanLII 61245 (ON SC) at paras. 16-18. See also Arbitration Act, RSA 2000, c A-43 at s. 45(1)(f).}

_{[7] Wastech Service Ltd. v. Greater Vancouver Sewerage and Drainage District, 2021 SCC 7.}

_{[8] Wastech at para. 46.}

_{[9] Wastech, para. 118.}

_{[10] Wastech at para. 119, citing Vavilov at paras. 39 and 40.}

_{[11] Northland Utilities (NWT) Limited v Hay River (Town of), 2021 NWTCA 1 at paras. 37 and 38.}

_{[12] lululemon athletica Canada inc. v. Industrial Color Productions Inc., 2021 BCSC 15 at paras. 20 and 47.}

_{[13] United Mexican States v. Cargill Inc., 2011 ONCA 622 at paras. 42-48, leave ref’s, [2011] S.C.C.A. No. 528.}

_{[14] lululemon athletica Canada Inc. v. Industrial Color Productions Inc., 2021 BCSC 15 at paras. 20 and 47.}

_{[15] Lululemon, para. 22.}

_{[16] lululemon athletica Canada Inc. v. Industrial Color Productions Inc., 2021 BCCA 108 at para. 33.}

_{[17] Nolin v. Ramirez, 2020 BCCA 274 at paras. 33-36.}

_{[18] Nolin v. Ramirez, supra, at paras. 37 and 39, citing Housen v. Nikolaisen, 2002 SCC 33 at paras. 26–37 and McMillan v. McMillan, 2015 BCSC 2177, aff’d 2016 BCCA 441}