Review of arbitrators' decisions on jurisdiction an emerging issue, says lawyer

How courts review an arbitrator’s decisions on its jurisdiction is an emerging issue in commercial arbitration, says Laurent Crépeau, a lawyer with DS Avocats in Montreal, with differing approaches across the country and upcoming rulings that should help illuminate this evolving area of law.

Early in the proceedings, an arbitrator or arbitral tribunal will determine whether they have jurisdiction to rule on the dispute. The arbitration law principle of competence-competence gives the arbitrator the authority to decide whether the parties have agreed to submit the matter to arbitration rather than the courts.

“In Canada, this principle is interpreted in order to give arbitrators the preeminent right to rule on their jurisdiction,” says Crépeau. “Meaning that, in principle, if parties that are subject to an arbitration agreement submit their dispute to a court, the court has to refer them to arbitration so that the arbitral tribunal can determine whether or not they can adjudicate on their dispute.”

Once an arbitral tribunal has ruled on their jurisdiction, arbitration statutes in Canada allow parties to challenge that decision before a superior court which can “decide the matter" of the tribunal's jurisdiction.

The words “decide the matter” are important, and interpretations differ, says Crépeau. To some, they mean that a court should review the arbitrator’s ruling under the standard of reasonableness, paying deference to the arbitrator's reasoning. To others, the words direct the court to hear the matter de novo or anew, which can entail a rehearing of all the evidence and an opportunity for the parties to submit new evidence.

This question is among the most controversial aspects of the new development, he says, because if a superior court can hear new evidence and new arguments, lawyers will have “more tools in the toolbox” to challenge the jurisdictional decision.

There is wider agreement on giving deference to an arbitrator’s decision on the dispute’s merits but less agreement on whether that deference should extend to the preliminary issue of jurisdiction, says Crépeau.

There have been a few significant rulings developing the issue.

In Sattva Capital Corp. v Creston Moly Corp., 2014 SCC 53, the Supreme Court of Canada looked at the standard of review applicable to reviews of an arbitrator’s decision. The court favoured a deferential approach, finding a reasonableness standard that should apply rather than a correctness standard.

Crépeau notes that, while it was an SCC decision, Sattva originated from BC, deals with BC law, and BC has its statutory framework, which allows appeals on questions of law. For other jurisdictions, while not binding, the decision is persuasive, and other decisions have “had to deal with the weight of Sattva,” he says.

Another BC ruling, lululemon athletica canada inc. v. Industrial Color Productions Inc., 2021 BCCA 428, distinguished Sattva in the context of arbitration decisions on jurisdiction reconsidered by courts, says Crépeau. In lululemon, the clothing brand applied to set aside the arbitrator’s decision, arguing it had ruled on matters outside the scope of the arbitration. The chambers judge dismissed lululemon’s application, reviewing the arbitrator’s decision on the reasonableness standard. But the BC Court of Appeal disagreed on the standard of review while agreeing with the result the chambers judge arrived at in dismissing the set-aside application. The appellate court found that correctness should be the standard of review for set-aside applications on jurisdictional issues.

The overall tendency in Canada is toward a non-deferential, de novo approach to reviews of arbitration decisions on jurisdiction, says Crépeau. On the de novo approach, the debate is whether the court reconsidering the decision can hear new evidence, whether it can hear new arguments, and how this all fits with Sattva, he says.

“This is an emerging issue,” says Crépeau. “The state of the law is different across provinces, and we are awaiting decisions from the Ontario Court of Appeal in some cases that should provide greater guidance. But at the same time, that is not necessarily to say that once we have those decisions from the Ontario Court of Appeal, that the state of the law will be exactly the same in Canada, across provinces. The debate will continue.

“It will be interesting to see, in coming years, where all of this goes, whether uniformity can be reached or whether we’ll have small differences across provinces in the way that jurisdictional decisions of arbitral tribunals are reviewed by courts.”