When Being Reasonable Is Not Enough
International commercial arbitration is meant to be “final, expeditious, and private” with “very limited judicial oversight” – unless questions of the arbitrator’s jurisdiction arise. In lululemon athletica canada inc. v. Industrial Color Productions Inc., 2021 BCCA 428 (“lululemon”), the British Columbia Court of Appeal (“BCCA”) has essentially said: ‘Arbitrators, you can decide that you can decide things. However, you’d better be correct that you can decide to decide those things.’
lululemon applied to the Supreme Court of British Columbia under s. 34(2)(a)(iv) of the International Commercial Arbitration Act, RSBC 1996, c 233 (“ICAA”) to set aside an arbitral award on the basis that the arbitrator had decided a matter beyond the terms of the submission to arbitration – or, put another way, that the arbitrator had exceeded his jurisdiction. The chambers judge dismissed lululemon’s application, finding that the arbitrator’s determination as to the scope of his jurisdiction was reasonable. The chambers judge determined that the reasonableness standard of review applied; it would best “preserve the autonomy of the forum selected by the parties and…minimize judicial intervention.” lululemon appealed to the BCCA.
One of the bases for lululemon’s challenge was that the chambers judge applied the wrong standard of review to the arbitrator’s determination of his own jurisdiction.
The BCCA confirmed that, on questions of jurisdiction arising on an application to set aside an arbitral award under s. 34(2)(a)(iv) of the ICAA (i.e., on questions of jurisdiction), the arbitrator’s determination must be correct, not merely reasonable.
There are three key takeaways arising out of the BCCA’s decision in this context:
- Reasonableness may not always be the best vehicle to preserve the parties’ choice of forum and minimize judicial intervention
Arbitration is only a useful dispute resolution alternative to litigation if courts respect the parties’ choice of forum and minimally intervene. At first blush, the chambers judge’s rationale that this objective is best served by a reasonableness standard even on questions of jurisdiction may seem appropriate. Given this, it is particularly interesting that the BCCA reasoned that correctness review actually serves to assist these goals. The BCCA echoed concerns raised by the Ontario Court of Appeal in Mexico v. Cargill, Incorporated, 2011 ONCA 622 (“Cargill”), namely that a reasonableness review of arbitrators’ decisions as to their own jurisdiction would “inevitably” draw reviewing courts into an examination of the merits of the dispute. On this point, the Ontario Court of Appeal explained that when a court reviews on a reasonableness standard, it is effectively conducting an in-depth analysis of both the reasoning and the decision of the tribunal. A court must then, on that basis, decide whether the tribunal’s decision is acceptable because it is reasonable, rather than finding that it was made within the jurisdiction of the tribunal. By this rationale, the broader reasonableness standard would not protect parties’ choice of forum and minimize judicial intervention – quite the opposite.
Alive to these considerations, the BCCA explicitly confirmed that Cargill remains the leading case on applications to set aside awards under s. 34(2)(a)(iv) of the ICAA. Arbitrators must correctly determine the scope of their own jurisdiction.
- Administrative law principles may not transfer easily to the arbitration context
In lululemon, the BCCA was clear that, while Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65 (“Vavilov”) may be the leading case on the standard of review in administrative law, administrative law standards should not be used to create a standard of review not set out in the ICAA.
Similarly, in Cargill, the Court noted that directly importing administrative law standards could be problematic. Notwithstanding this, the Court went on to mention that the correctness review applied to true questions of jurisdiction in the (then-current) Dunsmuir analysis, and that this was one reason why it ought to apply to the review of arbitral determinations of jurisdiction.
In this case, the BCCA appears to have definitively divorced the standard of review analysis in arbitration from administrative law, rejecting Vavilov as “not helpful” because it “does not address the field of arbitration.”
- Applications to set aside international arbitral awards on jurisdictional grounds are distinct from appeals of domestic arbitral awards
Determining the applicable standard of review is always a context-specific exercise. Differences in the nature of the challenge to the arbitral award will necessarily impact the level of deference owed to the tribunal. The BCCA made this particularly clear when it reasoned that, like Vavilov, Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 (“Sattva”) was not helpful in determining the question before it. While Sattva establishes that the standard of review on an appeal from a domestic commercial arbitration is generally reasonableness, a different analysis is required on jurisdictional challenges to arbitral awards. On this basis, the BCCA held that the standard of review in the context of an application to set aside domestic or international awards on jurisdictional grounds, post-Sattva, has been (and is) correctness.
Ultimately, while the lululemon decision provides certainty specific to applications to set aside arbitral awards on jurisdictional grounds under British Columbia’s ICAA, it is also consistent with international authority. Courts in Model Law jurisdictions have generally adopted a de novo (i.e., correctness) standard of judicial reconsideration in proceedings under Articles 16(3) and 34(2)(a) of the UNCITRAL Model Law. The BCCA acknowledged that international consistency is desirable, and is even called for in the wording of British Columbia’s ICAA itself. In short, while it will not be sufficient for arbitrators to merely be reasonable in determining the scope of their jurisdiction, at least they know what they are faced with – they must be correct.
Sarah Péloquin is a senior associate in the Disputes Group at the Vancouver office of Borden Ladner Gervais LLP, practicing in the areas of commercial arbitration and litigation.
Kristina Mansveld is an associate in the Disputes Group at the Vancouver office of Borden Ladner Gervais LLP, practicing in the areas of commercial arbitration and litigation.