Deference Across the Public-Private Divide

Public lawyers may sometimes tend to think that deference is a phenomenon unique to cases involving judicial review of government action. A moment’s reflection should be enough to dispel that notion. For example, judges in civil trials regularly defer to expert witnesses (negligence being a particular case in point) and boards of directors; and appellate judges defer to trial judges on questions of fact and mixed questions of law and fact. Last week, the Supreme Court of Canada endorsed a deferential approach to arbitral interpretation of contracts: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53.

The dispute that went to arbitration concerned the payment of a finder’s fee to S. There were competing interpretations as to the date at which the payment should be calculated. Because the payment was to be made in shares, the bottom-line impact was significant. Several million dollars turned on the interpretation of the contract.

An arbitrator found in favour of S. In British Columbia arbitral decisions are appealable only on questions of law and, then, only with leave: Arbitration Act, s. 31. For a unanimous Court, Rothstein J. held that the interpretation of the contract was not a question of law. Some highlights:

[50] …Contractual interpretation involves issues of mixed fact and law as it is an exercise in which the principles of contractual interpretation are applied to the words of the written contract, considered in light of the factual matrix…
[52] [D]eference to fact-finders promote[s] the goals of limiting the number, length, and cost of appeals, and of promoting the autonomy and integrity of trial proceedings. These principles also weigh in favour of deference to first instance decision-makers on points of contractual interpretation. The legal obligations arising from a contract are, in most cases, limited to the interest of the particular parties. Given that our legal system leaves broad scope to tribunals of first instance to resolve issues of limited application, this supports treating contractual interpretation as a question of mixed fact and law…
[55] As mentioned above, the goal of contractual interpretation, to ascertain the objective intentions of the parties, is inherently fact specific. The close relationship between the selection and application of principles of contractual interpretation and the construction ultimately given to the instrument means that the circumstances in which a question of law can be extricated from the interpretation process will be rare. In the absence of a legal error of the type described above, no appeal lies under the AA from an arbitrator’s interpretation of a contract.

Rothstein J. cautioned against readily extracting a “question of law” from this contextual task. The British Columbia Court of Appeal went too far, in his view, in specifying a failure to construe the whole agreement as the relevant question of law for the purpose of granting leave.

In the alternative, Rothstein J. held, the arbitrator’s interpretation of the contract was (a) entitled to deference and (b) reasonable. He drew an analogy to administrative law:

[104] Appellate review of commercial arbitration awards takes place under a tightly defined regime specifically tailored to the objectives of commercial arbitrations and is different from judicial review of a decision of a statutory tribunal. For example, for the most part, parties engage in arbitration by mutual choice, not by way of a statutory process. Additionally, unlike statutory tribunals, the parties to the arbitration select the number and identity of the arbitrators. These differences mean that the judicial review framework developed in Dunsmuir v. New Brunswick, 2008 SCC 9 (CanLII), 2008 SCC 9, [2008] 1 S.C.R. 190, and the cases that followed it is not entirely applicable to the commercial arbitration context. For example, the AA forbids review of an arbitrator’s factual findings. In the context of commercial arbitration, such a provision is absolute. Under the Dunsmuir judicial review framework, a privative clause does not prevent a court from reviewing a decision, it simply signals deference (Dunsmuir, at para. 31).

[105] Nevertheless, judicial review of administrative tribunal decisions and appeals of arbitration awards are analogous in some respects. Both involve a court reviewing the decision of a non-judicial decision-maker. Additionally, as expertise is a factor in judicial review, it is a factor in commercial arbitrations: where parties choose their own decision-maker, it may be presumed that such decision-makers are chosen either based on their expertise in the area which is the subject of dispute or are otherwise qualified in a manner that is acceptable to the parties. For these reasons, aspects of the Dunsmuir framework are helpful in determining the appropriate standard of review to apply in the case of commercial arbitration awards.

[106] Dunsmuir and the post-Dunsmuir jurisprudence confirm that it will often be possible to determine the standard of review by focusing on the nature of the question at issue (see for example Alberta (Information and Privacy Commissioner) v. Alberta Teachers’ Association, 2011 SCC 61 (CanLII), 2011 SCC 61, [2011] 3 S.C.R. 654, at para. 44). In the context of commercial arbitration, where appeals are restricted to questions of law, the standard of review will be reasonableness unless the question is one that would attract the correctness standard, such as constitutional questions or questions of law of central importance to the legal system as a whole and outside the adjudicator’s expertise (Alberta Teachers’ Association, at para. 30). The question at issue here, whether the arbitrator interpreted the Agreement as a whole, does not fall into one of those categories. The relevant portions of the Dunsmuir analysis point to a standard of review of reasonableness in this case.

Here, the interpretation was reasonable (at paras. 107-119). Rothstein J. relied heavily on the first-instance judge’s reasoning, which “[a]lthough” (or perhaps “because”!) it applied correctness review, “amply demonstrate[d] the reasonableness” of the arbitrator’s decision (at para. 107).

I noted the similarities between contractual and statutory interpretation not so long ago. And Canada’s doctrine of deference in administrative law has its roots in labour arbitration. So perhaps this conclusion is not surprising — although it may make parties think longer and harder about proceeding to arbitration of commercial disputes.

This content has been updated on August 6, 2014 at 10:23.