Unintended Consequences? The Vavilov Standard of Review is Applied to Commercial Arbitrations

For many decades, the standard of review of a commercial arbitration decision on appeal to a court has been reasonableness. There are good policy reasons for this. Making arbitral decisions more difficult to reverse on appeal increases certainty for parties who have contracted for arbitration rather than litigation as their preferred method of dispute resolution. It also enhances the viability of arbitration as an alternative forum to the courts, reducing the burden on overstrained judicial resources.

In the recent case of Buffalo Point First Nation v. Cottage Owners Association, 2020 MBQB 20 however, the Manitoba Court of Queen’s Bench concluded that the standard of review for an arbitral decision on an extricable question of law, in the context of Manitoba’s domestic arbitration legislation, is now correctness. This conclusion rests on the recent Supreme Court of Canada decisions in Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65 and Bell Canada v. Canada (Attorney General), 2019 SCC 66, which clarified the standard of review in statutory appeals from administrative tribunals is correctness for any pure legal question. The decision to apply the Vavilov/Bell framework to commercial arbitrations in Buffalo Point is a novel development, which departs from years of settled precedent, including the Supreme Court of Canada’s prior decisions in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 and Teal Cedar Products Ltd. v. British Columbia, 2017 SCC 32.

If Buffalo Point is upheld on appeal or followed by other courts, it could have significant – and perhaps unintended – consequences for the arbitral community going forward. Its impact is likely to be felt more acutely in provincial legislation concerning arbitrations, such as Manitoba’s The Arbitration Act, and not as much in the context of international arbitrations, which in Canada are governed by separate legislation. Legislation in Canada governing international arbitrations, such as Manitoba’s International Commercial Arbitration Act, C.C.S.M. c. C151, expressly incorporates the Model Law On International Commercial Arbitration into Canadian law. Appeals under the Model Law are rare and very narrowly circumscribed, unlike the statutory appeal power on which the Court relied in Buffalo Point.

Background to Buffalo Point

The facts of Buffalo Point concerned a long-standing dispute between a first nation (Buffalo Point) and a cottage association in Manitoba over the terms of an agreement pursuant to which members of the cottage association paid fees to the first nation. The agreement contained a binding arbitration provision for resolving disputes over service fees payable by the cottagers. In 2011, Buffalo Point decided to pursue its inherent right of self-governance and to enact taxation laws pursuant to Manitoba’s First Nations Fiscal and Statistical Management Act, S.C. 2005, c. 9. This decision initiated what would become many years of arbitration. An initial arbitral award was made in 2015. In 2016, after the terms of the initial award could not be implemented (for reasons unrelated to the issues at hand), the arbitrator made a supplementary arbitral award. In 2018, after further litigation and arbitration, the arbitrator made a second supplementary arbitral award.

Buffalo Point sought leave to appeal various points of the second supplementary award to the Manitoba Court of Queen’s Bench. Despite the many points of appeal Buffalo Point raised, the “real” issue before the Court was whether the arbitrator erred in law in concluding he had jurisdiction to make the supplementary and second supplementary arbitral awards.

The arbitration agreement between the parties was silent as to the right of appeal. As a result, section 44(2) of The Arbitration Act governed. Section 44(2) reads:

44(2) If the arbitration agreement (other than a family arbitration agreement) does not provide that the parties may appeal an award to the court on a question of law, a party may appeal an award to the court on a question of law with leave, which the court shall grant only if it is satisfied that

(a) the importance to the parties of the matters at stake in the arbitration justifies an appeal; and

(b) determination of the question of law at issue will significantly affect the rights of the parties.

After setting out the parties’ positions on whether the dispute concerned a question of law, the Court turned to the standard of review. Citing paragraphs 36 and 37 of Vavilov, the Court concluded that section 44(2) of The Arbitration Act amounted to the legislature providing a “statutory appeal mechanism from an administrative decision to a court”, which “signall[ed] the legislature’s intent that appellate standards apply when a court reviews the decision.” As a result, the Court concluded the standard of review of the arbitral award should be the appellate standard of correctness, not the reasonableness standard. The Court then relied on this standard in finding the “arguable case” test for leave to appeal the arbitral award was met, noting that “with the new direction from the Supreme Court, the standard of review is not the more flexible reasonableness standard but rather the question will be considered on the appellate standard of correctness (Vavilov at para. 37)”. Notably, the Buffalo Point Court reached these conclusions despite recognizing that the Vavilov trilogy was released well after oral argument, and neither party had addressed whether it applied.

Why This Case Matters

The Court’s conclusion that the correctness standard applies to appeals of arbitral decisions under The Arbitration Act is a significant departure from past case law holding that arbitration decisions are reviewable on a standard of reasonableness. It is unclear, however, whether this is a development that the Supreme Court of Canada anticipated in Vavilov and Bell. Arbitral “tribunals” are not statutory administrative tribunals as contemplated by the Supreme Court in these new decisions. Instead, arbitral tribunals exist solely as a result of two private parties’ intentions to resolve their disputes outside of the litigation process. Subjecting their decisions to correctness review has the potential to undermine the important benefits of commercial arbitration that have been consistently recognized by the courts. It is therefore questionable whether the Supreme Court intended its analysis on the standard of review in Vavilov and Bell to apply to appeals of commercial arbitration decisions. It remains to be seen whether the Buffalo Point decision will be appealed to the Manitoba Court of Appeal, or whether courts in other provinces will take a different approach to the standard of review for commercial arbitral decisions in the era of Vavilov and Bell.

It is also questionable whether the Court’s analysis in Buffalo Point would apply at all in the context of international arbitrations, which are subject to their own statutory regimes under Canadian law. Manitoba’s International Commercial Arbitration Act and international arbitration legislation enacted in other provinces adopt the Model Law on International Commercial Arbitration as the law of the province in the context of international arbitrations. Appeals are more tightly circumscribed under the Model Law. Indeed, Manitoba’s International Commercial Arbitration Act does not contain any statutory right of appeal, unlike The Arbitration Act; as a result, the Court’s reasoning that correctness applies by virtue of the statutory right of appeal would not apply to that Act.

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