Vavilov Strikes Again: The Debate Over Standards of Review in Commercial Arbitration Reaches Ontario

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Once again, a lower court has applied the Vavilov test when determining the appropriate standard of review of an arbitral decision. The Court’s decision in Freedman v. Freedman Holdings Inc., 2020 ONSC 2692 makes Ontario the third province to weigh in on a debate that has revealed divergent opinions and introduced some uncertainty into the standard of review for arbitral decisions.

Earlier this year, Courts in Manitoba and Alberta released decisions considering whether the Supreme Court of Canada’s decision in Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65 (and its companion, Bell Canada v. Canada (Attorney General), 2019 SCC 66) applied to the standard of review on an appeal of an arbitral decision. However, those courts reached opposite conclusions.

In Buffalo Point First Nation v. Cottage Owners Association, 2020 MBQB 20, the Manitoba Court of Queen’s Bench concluded that, in the wake of Vavilov, the standard of review for an arbitral decision on an extricable question of law is now correctness. Our review and analysis of that decision may be found here. The Buffalo Point Court applied the Vavilov framework without hearing full arguments from the parties about whether those cases applied to commercial arbitrations.

Shortly after the Buffalo Point ruling, the Alberta Court of Queen’s Bench issued a decision to the contrary in Cove Contracting Ltd. v. Condominium Corporation No. 012 5598 (Ravine Park), 2020 ABQB 106, holding that Vavilov did not change the standard of review for appeals of arbitral decisions. As we explained in our analysis of that decision here, the Alberta Court concluded that extricable questions of law should continue to be reviewed on a reasonableness standard unless they raise constitutional issues or issues of central importance to the legal system as a whole that fall outside the adjudicator’s expertise.

In Freedman, the Ontario Superior Court considered the impact of Vavilov on s. 46(1) of Ontario’s Arbitration Act, 1991. Pursuant to s. 46(1), a Court may set aside an arbitral award on various grounds. Although the Court did not cite Vavilov as a conclusive authority on the matter, it reasoned by analogy and applied the Vavilov framework indirectly when concluding that reasonableness is the appropriate standard of review under s. 46(1). This decision adds further uncertainty to the question of whether Vavilov’s framework applies to arbitral awards on appeal or review.

The Ontario Court’s use of the Vavilov criteria in determining the standard of review pursuant to s. 46(1) may also introduce new questions about the potential application of Vavilov in the context of international arbitrations. Unlike Buffalo Point and Cove Contracting, which dealt with appeals of an arbitral decision, the language of s. 46(1) regarding the circumstances in which a Court may “set aside” an arbitral decision is strikingly similar to the language in art. 34 of the UNCITRAL Model Law on International Commercial Arbitration, which is incorporated into provincial legislation governing international arbitrations in Canada. However, parties to international arbitrations may be reassured that Vavilov was applied in this case to find that the standard of review under s. 46(1) is reasonableness, consistent with the standard of review set out by the Supreme Court of Canada for appeals of arbitrations in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53.

Background to Freedman

In this case, Jonathan Freedman, the former CEO and President of the defendants Freedman Holdings Inc. and Equity Management International Limited, brought several claims in arbitration against those companies following his dismissal. At issue were Freedman’s claims of wrongful termination and entitlement to further compensation, as well as counterclaims by the companies for, among other things, an accounting of all expenses Freedman charged to the companies as president and repayment with interest of all amounts improperly charged. The arbitrator found in favour of the defendant companies and dismissed Freedman’s claims. The arbitrator awarded damages and an accounting of expenses and debt owed to the companies by Freedman. Freedman subsequently brought an application in the Ontario Superior Court of Justice to set aside the arbitral award pursuant to various grounds listed in s. 46(1) of the Arbitration Act, 1991.

Before the Court, the respondent companies argued that Freedman’s s. 46(1) application essentially constituted an appeal of the arbitral decision, which was prohibited by the arbitration agreement between the two parties. Freedman argued that seeking to have an arbitral decision “set aside” pursuant to s. 46(1) was not equivalent to an appeal. The Court did not resolve this issue, but rather proceeded directly to the question of the appropriate standard of review on an application under s. 46(1).

The Court observed that there was no statutory provision defining the appropriate standard of review for a s. 46(1) application, and jurisprudence conflicted on the appropriate standard. The Court stated that the Supreme Court of Canada’s comments in Vavilov about the merits of simplifying the standard for judicial review in administrative tribunals were analogous to this context. The Court embraced the similarity between jurisdictional questions (and by extension, questions of procedural fairness) in the administrative review context and the arbitration context. Given the similarity between the two contexts, the Court concluded reasonableness was the appropriate standard of review on applications under s. 46(1).

Why This Case Matters

While other lower courts have considered the impact of Vavilov on the standard of review for appeals of arbitral decisions, Freedman is the first case to extend that analysis to an application to set aside an arbitral award. In this case, the Court appears to have stretched the potential impact of Vavilov outside of the administrative law context; however, the end result (a standard of review of reasonableness) is consistent with what parties to arbitrations have generally come to expect following the Supreme Court’s decision in Sattva.

It remains unclear whether the Supreme Court of Canada intended Vavilov to apply to statutory appeals or reviews of arbitral awards. As discussed in our previous post here, the Supreme Court neither considered nor mentioned the two leading Supreme Court cases on standard of review for appeals from arbitral awards (Teal Cedar Products Ltd. v. British Columbia, 2017 SCC 32 and Creston Moly Corp. v. Sattva Capital Corp., 2014 SCC 53) in the Vavilov decision. That conspicuous absence featured strongly in the Alberta Court’s decision in Cove Contracting to reject the application of the Vavilov framework to appeals of arbitral decisions. Although Freedman applies Vavilov to the arbitration context like the Manitoba Court did in Buffalo Point, the result of the case is consistent with Teal Cedar and Creston Moly: the standard of review on an application to have an arbitral award set aside is reasonableness.

With this decision, lower courts in Canada have now taken three different approaches to the application of the Vavilov framework in the arbitration context:

(1) it does not apply (Cove Contracting - Alberta);

(2) it applies and the standard of review is reasonableness (Freedman - Ontario);

(3) it applies and the standard of review is correctness (Buffalo Point - Manitoba).

Given these divergent cases, it will likely be difficult to predict how courts will determine the standard of review for statutory appeals and applications to set aside arbitral awards until an appellate court has addressed the issue.

Potential Application to the International Context?

In addition to further muddying the waters on the standard of review of domestic arbitrations, Freedman may also introduce uncertainty to the review of international arbitral awards made in Canada.

The decisions in Buffalo Point and Cove Contracting were focused entirely on the standard of review for an appeal of an arbitral award in arbitrations governed by domestic arbitration legislation. That legislation typically offers a broader right of appeal than that available under legislation governing international arbitral awards. The statutory provision at issue in Freedman, however, permits an arbitral award to be set aside on grounds very similar to those enumerated under art. 34 of the UNCITRAL Model Law on International Commercial Arbitration.

It is therefore possible that a court considering an application to set aside an international arbitral award in Canada would follow similar reasoning to that employed by the Court in Freedman. Parties to international arbitrations may be reassured, however, that the result in Freedman aligns with Teal Cedar and Sattva, which established that the standard of review on appeal of any arbitral award (international or domestic) is reasonableness.

arbitration international arbitration commercial arbitration

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