Tales from the Public-Private Divide: Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, 2021 SCC 7
The Supreme Court of Canada’s decision in Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, 2021 SCC 7 touches on a couple of issues arising at the intersection between public and private law.
The case was about contractual discretion. M contracted with W to provide waste removal and transportation services. For many years W removed and transported waste to three sites. But M, exercising its discretion under the contract to allocate waste as it saw fit, reallocated the sites. W’s profits plummeted. W referred the matter to arbitration, alleging M had not acted in good faith. The arbitrator found for W: M successfully appealed to the Supreme Court of British Columbia, was again successful before the Court of Appeal and ultimately prevailed at the Supreme Court. Indeed, all nine judges agreed that the appeal should be dismissed, Kasirer J writing the majority reasons, with Brown and Rowe JJ penning concurring reasons (with which Côté J agreed).
For the most part, this was a case about contract law. But, as occasionally happens, administrative law matters appeared at the margins. Two issues are worth exploring.
The first is the standard of review of arbitration decisions. As I discussed in “Unresolved Issues after Vavilov“, this issue was not addressed in Vavilov. However, it has divided courts around the country. The first appellate discussion of the issue came last month in Northland Utilities (NWT) Limited v. Hay River (Town of), 2021 NWTCA 1: the common sense conclusion there was that a statutory “appeal” from an arbitration decision requires the application of the Housen v Nikolaisen framework.
Unfortunately, the majority of the Supreme Court sidestepped the issue in this case, Kasirer J providing the familiar reasons that the point was not fully argued and that the application of correctness or reasonableness would not have made a difference.
By contrast, Brown and Rowe JJ in their concurring reasons addressed the point head on, concluding as follows at paras. 119-120:
There are important differences between commercial arbitration and administrative decision‑making (Sattva, at para. 104). Those differences do not, however, affect the standard of review where the legislature has provided for a statutory right of appeal. Appellate standards of review apply as a matter of statutory interpretation. As this Court explained in Vavilov, “a legislative choice to enact a statutory right of appeal signals an intention to ascribe an appellate role to reviewing courts” (para. 39). This interpretive principle applies in similar manner to statutory rights of appeal from arbitral awards… Factors that justify deference to the arbitrator, notably respect for the parties’ decision in favour of alternative dispute resolution and selection of an appropriate decision‑maker, are not relevant to this interpretive exercise. What matters are the words chosen by the legislature, and giving effect to the intention incorporated within those words. Thus, where a statute provides for an “appeal” from an arbitration award, the standards in Housenapply. To this extent, Vavilov has displaced the reasoning in Sattva and Teal Cedar.Concluding otherwise would undermine the coherence of Vavilov and the principles expressed therein.
This, in my view, must be right. It is a simple solution to a fairly simple problem.
What is more interesting, perhaps, is why the majority did not adopt this simple solution. I suspect that one or more members of the majority were not willing to go down the Brown and Rowe JJ route and that in the interests of (relative) unanimity Kasirer J effected his elegant sidestep. As we will see further below there is a significant administrative law flavour to Kasirer J’s contract law analysis, which might have suggested to some members of the majority that the simple solution here would have been a little too simple.
The absence of any rejoinder from the majority, however, means that Brown and Rowe JJ’s analysis is now going to be the touchstone for future consideration of the standard of review of arbitration decisions by lower courts. Now that it effectively occupies the field, I suspect that provincial courts of appeal will (like the Court of Appeal for the Northwest Territories) apply Brown and Rowe JJ’s analysis.
The second issue relates to judicial oversight of the exercise of contractual discretion. On the one hand, contractual discretion cannot be exercised dishonesty. But in this case there was no dishonesty: at paras. 54-56. Rather, on the other hand, it was about M’s assertion of absolute discretion to reallocate the waste sites, with knock-on consequences for W’s profits (and, W argued, its legitimate contractual expectations). The parties agreed that this power had to be exercised in good faith (at para. 57). For Kasirer J, the content of the duty was as follows:
the duty to exercise contractual discretion in good faith requires the parties to exercise their discretion in a manner consistent with the purposes for which it was granted in the contract, or, in the terminology of the organizing principle in Bhasin, to exercise their discretion reasonably (at para. 63, emphasis added).
Reasonableness here is not, for Kasirer J, to be understood in its administrative law sense (at para. 68).
Nevertheless, administrative law aficionados will perceive many points of similarity between reasonableness in the administrative law sense and reasonableness as articulated by Kasirer J.
First, contractual discretion must be exercised by reference to the purpose for which the discretion was accorded:
The touchstone for measuring whether a party has exercised a discretionary power in good faith is the purpose for which the discretion was created. Where discretion is exercised in a manner consonant with the purpose, that exercise may be characterized as reasonable according to the bargain the parties had chosen to put in place. Perforce, the exercise of power consonant with purpose may be thought of as undertaken fairly and in good faith on the parties’ own terms. As such, barring issues such as unconscionability not raised in this appeal, that exercise is best understood, as a general matter, to be insulated from judicial review as a matter of fairness (at para. 70).
This certainly strikes a chord: one of the basic principles of judicial review of administrative action is that powers must be exercised for proper purposes. Even the last sentence, about judicial review not being available for “fairness”, is consistent with basic administrative law principles (see also at paras. 73-74); indeed, Kasirer J describes it as a “deferential approach” (at para. 74). The principle also includes a prohibition on using contractual powers arbitrarily or capriciously (at para. 87).
Kasirer J goes on to describe improper purpose as the principle:
…that constrains contractual discretion and, accordingly, fixes the proper limits for judicial review of the exercise of the power. Importantly, it is not what a court sees as fair according to its view of what is the proper exercise of the discretion. Instead, drawing on the purpose set by the parties, the measure of fairness is what is reasonable according to the parties’ own bargain. Where the exercise of the discretionary power falls outside of the range of choices connected to its underlying purpose — outside the purpose for which the agreement the parties themselves crafted provides discretion — it is thus contrary to the requirements of good faith (at para. 71).
Here we can perceive another idea central to contemporary administrative law: that of a range of outcomes in a given case which varies in a “context-specific” fashion (at para. 76):
For contracts that grant discretionary power in which the matter to be decided is readily susceptible of objective measurement — e.g., matters relating to “operative fitness, structural completion, mechanical utility or marketability” — the range of reasonable outcomes will be relatively smaller (Greenberg, at p. 762). For contracts that grant discretionary power “in which the matter to be decided or approved is not readily susceptible [to] objective measurement — [including] matters involving taste, sensibility, personal compatibility or judgment of the party” exercising the discretionary power — the range of reasonable outcomes will be relatively larger (Greenberg, at p. 761) (at para. 77).
These are, to say the least, striking similarities (which may explain why Brown and Rowe JJ felt moved to write concurring reasons: they disagreed with this precise point, at paras. 130-132). Indeed, it would have been harder for Kasirer J to go much further. Vavilovian reasonableness review emphasizes the importance of reasons, but of course in the setting of commercial contracts reasons are quite unlikely to be given. Importing full-fledged administrative law reasonableness review would, accordingly, be unrealistic. Put another way, Kasirer J went about as far as one could realistically go in using administrative law principles to inform the content of reasonableness in the exercise of contractual discretion.
In this case, the exercise of discretion was reasonable having regard to the purposes of the discretion:
In this context, the purposes of giving Metro discretion to determine waste allocation in its “absolute discretion” were clearly to allow it the flexibility necessary to maximize efficiency and minimize costs of the operation. Granting such discretion, as opposed to fixing certain waste volumes, serves the overall objective of allowing the parties to adapt to changing circumstances over the life of the Contract so as to ensure this operational efficiency. Further, the fact that this discretion exists alongside a detailed framework to adjust payments towards the goal of a negotiated level of profitability, contradicts the idea that the parties intended this discretion be exercised so as to provide Wastech with a certain level of profit. Those incentives are already carefully created elsewhere in the Contract. Reading these clauses in context, then, the purposes for granting Metro “absolute discretion” was to allow it to structure the disposal of waste for which it had contracted Wastech in an efficient and cost-effective manner given the operational variability the parties foresaw (at para. 99).
In terms of potential for future applications of administrative law principles in the exercise of private law powers, notice that Kasirer J saw reasonableness here as a “general doctrine of contract law” (at para. 91; Brown and Rowe JJ demurred, at para. 131). It is not simply an implied term.
But this means that there may be circumstances in which requirements of reasonableness (and procedural fairness) can be implied into the exercise of contractual powers. This was how the UK Supreme Court justified injecting public law principles into exercises of contractual discretion in Braganza Shipping. Australian courts have also implied reasonableness and procedural fairness administrative-law-style into contractual arrangements under which adjudication takes place (see e.g. Australian Football League & Carlton Football Club Ltd 2 VR 546). And where there has been an adjudication, with reasons, Vavilovian reasonableness review can be applied more or less in its ordinary form. So this chapter is not yet closed.
Furthermore, the courts can oversee (in an ordinary action rather than in an application for judicial review (and, conceivably, in the exercise of their equitable jurisdiction) the accurate and procedurally fair implementation of a private body’s by-laws. In Aga v. Ethiopian Orthodox Tewahedo Church of Canada, 2020 ONCA 10, the Ontario Court of Appeal held that when a voluntary association has a written constitution and by-laws, these “constitute a contract setting out the rights and obligations of members and the organization” (at para. 40), which includes an obligation of procedural fairness (at para. 41). The Supreme Court heard the Aga appeal in December. Whatever it decides there, I anticipate that there will be further tales to be told from the frontiers of the public-private divide.
For further insta-analysis of this important decision, see Brandon Kain et al.
This content has been updated on February 6, 2021 at 14:30.