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Thursday Thinkpiece: ALRI on Appealing Arbitration Awards

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ARBITRATION ACT: STAY AND APPEAL ISSUES, FINAL REPORT
Alberta Law Reform Institute
ISBN 978-1-896078-58-8

Excerpt pp. 40-43, 43-45

2. WHEN SHOULD COURT APPEALS BE POSSIBLE?

[124] The decision whether to allow appellate access to the courts has always been a balancing act between competing policy considerations. What are the most prevalent, although sometimes contradictory, opinions about how this balance should be achieved?

[125] It is often asserted that appeals reduce the speed, finality and confidentiality of arbitration.69 Parties can try to use the appeal process simply as leverage for settlement or to delay enforcement of the arbitral award.[70] Whether by agreement or by leave of the court, appeals are “predictably messy, time-consuming and expensive.”[71] Commercial parties in particular are urged to exclude “to the fullest extent”[72] the availability of appeal in their arbitration agreements and to fully embrace arbitral awards as final.

[126] The main justification usually advanced for maintaining an appeal route to the court is to allow better justice to be done between the arbitrating parties. Parties recognize this when their arbitration agreement creates the right to a court appeal, as provided in section 44(1). According to this view, if parties want a court appeal, they should have access to the courts like any other citizen. The contrary view is that such access seems to contradict the parties’ original choice to seek their justice outside the court system. The proponents of this position say that if the parties want the safety net of appeal protection, they could provide in the arbitration agreement for an appeal to another arbitral tribunal. Such private appeals preserve confidentiality and may be faster.[73] A related assertion is that the parties have agreed to pay privately for an arbitration, but the cost of an appeal judge, courtroom and related support is publicly funded. These critics suggest that arbitration parties should, therefore, privately create and pay for their own appeal mechanism if one is needed.

[127] Whether an appeal route exists by agreement or by leave of the court on a question of law, a main form of justice that a court can provide is to correct wrong interpretations of the law by arbitrators. It is often asserted that the advantages of arbitration should not be purchased at the cost of substantive legal accuracy.[74]

[128] Others point out, however, that unlike court decisions, arbitral decisions do not serve as precedents for other arbitrators or for any other decision-makers. If an individual decision is wrong on a point of law, there is often no continuing damage done to the general legal principle because other arbitrators are unlikely to hear of that arbitral decision and are not obliged to follow it even if they do. The assumption that a court appeal is needed to correct and protect the general legal principle may be a misplaced application of concerns more appropriate to the common law system of precedent and stare decisis. As stated by the dissenting commissioner in the Law Reform Commission of British Columbia’s Report on Arbitration:[75]

To men of commerce a mechanism to resolve disputes is a necessary evil en route to accomplishing their own business goals. It is we, the lawyers, who insist on redress for a decision which is wrong in law. It is worth noting that the arbitrators, generally speaking, do not consider themselves bound by other arbitrators’ decisions, even, in some cases, where a similar dispute occurs between the same parties. That, in my view, indicates that the parties they serve are more concerned with resolving a dispute than establishing a body of precedent or arbitral law.

[129] Proponents of this view assert that a wrong legal interpretation in an arbitral decision generally affects only the parties to that arbitration. If the arbitrator misunderstands or misapplies settled law, it is indeed unfortunate for one of those parties. But, on the other hand, they freely bargained and agreed to use an arbitrator to decide their legal rights instead of the judicial process.

[130] However, where an arbitrator is trying to apply law that is already unclear or unsettled, others argue that it is beneficial to be able to appeal that question of law to a court. The court’s ruling on the proper interpretation not only resolves the issue for those parties, but means the law can be correctly applied in other arbitration cases. Some assert that one of the dangers of widespread arbitration in a particular area of legal practice is that development of that body of law can disappear from the general supervision of the courts. Having courts settle legal uncertainty in this situation can result in industry- or class-wide benefits.

[131] A contrary view, however, asks hard questions about these assumptions. No one expects settlement negotiations, private mediation or even judicial mediation to advance or clarify the state of substantive law. Those techniques freely operate in private between the parties without the burden of such expectations. Why shouldn’t arbitration? One legal author has argued that, like other consensual dispute resolution processes, arbitration has the right not to concern itself with the general development of the law:[76]

It is sometimes said that the increasing use of arbitration to settle business disputes hampers the development of the law.

This applies not only to disputes that are resolved by arbitration but to those resolved by other consensual processes, such as negotiation, conciliation and mediation, including judicial mediation.

Much of the development of the law is really a dialogue among different levels of court over time about how particular types of cases should be decided. Arbitration is not part of the court system and arbitrators are not part of that dialogue. Their sole focus is to decide the particular dispute between the parties and, when necessary, to apply the broad principles of the law as they find them.

[B]y choosing arbitration, the parties and their lawyers are giving priority to the decision of the specific case under existing law over the refinement of legal principles over time. Freedom of contract and the consensual basis of arbitration allows them to make that choice.

[132] Taking all these considerations together, is a new balance needed between arbitration and the courts? Modern arbitration is designed to exist outside the court system. Is it time to exclude court appeals and make arbitration a truly self-contained dispute resolution mechanism? On the other hand, if court appeals do serve a necessary function, should they instead be available only where the parties agree? Or should an appeal on a question of law, with leave of the court, continue to be available?

…….

4. RECOMMENDATIONS FOR REFORM

[136] ALRI fully supports the continued presence of section 44(1) in the Alberta Act so that parties can, by agreement, appeal to the Court of Queen’s Bench on whatever basis they decide. This promotes the principle of party control over the arbitral process.

[137] For all the reasons stated in Chapter 2, ALRI believes that the concurrent principle of restricted court intervention should be reaffirmed and strengthened in the Alberta Act. The uniform Canadian model followed by various provincial statutes generally allows an appeal on a question of law with leave of the court. However, there are exceptions. Nova Scotia’s legislation allows appeals only by agreement of the parties. There is no appeal by leave of the court.[77] Quebec’s arbitration legislation, which applies both to non-international and international arbitration, has no appeal provisions.[78]

[138] ALRI recommends that section 44(2) be repealed, such that the only appeal route to the courts will be by agreement of the parties. ALRI considered an alternative method of enhancing party control in this area by retaining section 44(2) but removing section 3’s prohibition on parties contracting out of such appeals. A joint submission from two respondents advocated this approach. Respecting contractually-agreed privative clauses which block court appeals would make an arbitral award truly final and binding, they said. This is true, but ALRI prefers the more direct approach of simply statutorily removing appeals by leave of the court on a question of law. This is the best way of affirming the fundamental principles of party control and restriction of court intervention.

[139] It is important to remember that, even if section 44(2) is repealed and the parties choose not to agree to an appeal under section 44(1), a party can still apply to court in appropriate circumstances to set aside an arbitral award under section 45 of the Alberta Act. This statutory procedure is the equivalent of judicial review and addresses fundamental issues relating to jurisdiction, procedural fairness and fraud. So judicial intervention would remain available to protect parties in those critical situations. Under section 3 of the Alberta Act, parties cannot agree to vary or exclude that protection.

[140] ALRI wrestled with the concern that repealing section 44(2) will adversely affect parties who are disadvantaged by a weaker bargaining position. Some consumer and family law parties cannot negotiate their arbitration agreements from a truly level playing field due to power imbalances. Since their agreements are unlikely to contain an agreed court appeal, removing section 44(2) will prevent any access by leave of the court, no matter how difficult that leave may be to obtain in most circumstances anyway.

[141] ALRI believes this concern is best addressed as was done previously in Chapter 3. ALRI does not propose creating different appeal models in the Alberta Act for different types of parties, an option discussed in the ALRI RFD (Report for Discussion).[79] Where special treatment or protection is warranted for certain types of parties or situations, those provisions should be contained in specialized legislation dealing with that legal area, not in a general statute like the Alberta Act which is designed to apply by default. Enacting such special protection would require an in-depth project and extensive consultation in its own right, exceeding the narrow and specific boundaries of this project.

_________________________

70 Dispute Resolution, note 14 at 653, n 4.

71 Douglas F Harrison, “Drafting the Arbitration Clause: Ensuring an Effective and Predictable Process” in Osgoode Hall Law School of York University, Negotiating and Drafting Arbitration Clauses in Commercial Agreements (Toronto: Emond Montgomery Publications, 1997) at Tab 7, at 3.

72 Richard B Potter, “The Pizza Pizza Quartet: Four Pizzas with Extra ADR and Hold the Appeals!” (1996) 23 BLR (2d) 277 at 283.

73 Randy Pepper, “Ten tips to reduce time and costs in arbitration”, The Lawyers Weekly (17 June 2011) 10, at 12.

74 Commercial Arbitration in Canada at para 10:10.

75 Law Reform Commission of British Columbia, Report on Arbitration, Report 55 (1982) at 88.

76 William Horton, “Arbitration and the development of the law”, The Lawyers Weekly (14 September 2012) 12, at 12-13.

77 Nova Scotia Act, note 21, s 48.

78 arts 940, 940.6, 947 CCP.

79 See ALRI RFD at 40.

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Comments

  1. The main reason that the appeal (by leave) on questions of law is in the Uniform (and Ontario, and Alberta) Arbitration Act is that the Act requires the arbitrator to decide the dispute according to law. The parties can choose which law (except in family law disputes in Ontario), but it has to be law. This provision is meaningless unless there is recourse where the arbitrator fails to do so.

    However, the Uniform Law Conference is now in the early stages of reviewing the Uniform Arbitration Act. It would be possible for the working group, and the Conference, to revisit this principle. It could decide that if the parties really cared about the ‘decide according to law’ rule, they could agree on a right of appeal. Or maybe the Act should not require the arbitrator to follow the law at all, if the parties don’t care.

    In fact the current Act allows the parties to agree that the arbitrator may decide on the basis of what is fair to the parties (the technical international term being ‘ex aequo et bono’). One imagines that a party to an award made on that basis, under such an agreement, would not readily be given leave to appeal.

    The Uniform Arbitration Act was a policy statement for the late 1980s that arbitration had matured enough to keep the courts from interfering as much as they had tended to do. Perhaps it would be a policy statement for our own day to dissociate arbitrations another step from the court system, and the automatic application of ‘the law’.

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