Poor application tends toward the rule of law

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A panoptic legal system, one dominated by the rule of law, is fallible in the measure that its adherents believe that law can be pervasive. Any rule of law is self-fulfilling: ‘the rule of law requires the creation and maintenance of an actual order of positive laws which preserves and embodies the more general principle of normative order’ (Re Manitoba Language Rights, [1985] 1 SCR 721, para. 60). A tension exists between the governed’s activities and governors’ attempts to impose order, and that tendency toward disorder–what Mikhail Bakhtin described in another context as centrifugal and centripetal forces.

The Northwest Territory Court of Appeal recently contributed to this linguistic push-and-pull in Northland Utilities (NWT) Limited v Hay River (Town of) (2021 NWTCA 1). The case has been ably summarized; it speaks to a centralizing desire that, left unchecked, undermines private arbitration and effaces the division between government power and private agreements.

This note criticizes the court’s application of Vavilov tout court. Vavilov lays down a useful statement about appellate courts’ jurisdictions when they are granted a statutory appeal. That case does not pretend to make private-law rules, and courts must be wary of mistaking application for analogy.

The case applies the rule of law

The Supreme Court and the Court of Appeal in Northland had to determine the standard of review for arbitral decisions which came before it as statutory appeals. These appeals are legitimized under the various Canadian Arbitration Acts; they must be authorized by the parties to arbitration. The question in Northland related principally to interpreting the words ‘an appeal lies to a judge’ (RSNWT 1988, c A-5, s. 27). The requirement that the parties authorize the appeal in their submission to arbitration changes the judicial inquiry. The right to appeal is authorized by contract and vests by operation of statute. Would an administrative, or public, law standard of review apply to these words? Or would the parties’ choice to create an appeal grant the courts appellate jurisdiction?

The case arose out of a dispute between the utility hired to create and sustain an electrical grid for the municipality. The municipality had the option to purchase the system. The arbitrator was appointed after the parties failed to agree to a price. He decided the issue after reviewing the parties’ positions: he created a ‘fair and just remedy’. Northland took exception to this exercise of discretion: it appealed to the Supreme Court of the Northwest Territories pursuant to the Arbitration Act. Its counsel pled Vavilov to disturb the arbitrator’s decision, for it contended that the arbitrator was held to a standard of correctness.

The threshold issue—and that with which we are presently concerned—was whether the public law rules in Vavilov applied to private arbitrators enabled by the Arbitration Act. The Court of Appeal found that Vavilov did apply, for the legislature’s decision to provide a statutory right to appeal administrative decisions was equivalent to an appeal from an arbitrator’s decision:

We therefore conclude that the revised standard of review framework described in Vavilov applies to commercial arbitration decisions reviewed as a result of a right of appeal given by statute. As noted, this does not mean that all issues under appeal pursuant to the Arbitration Act are to be automatically reviewed on a standard of correctness. As this legislation does not limit the right of appeal to questions of law, an appellate standard of review is to be applied to all issues raised, including not only questions of law reviewed for correctness, but questions of fact or of mixed fact and law which will continue to be reviewed on a standard of palpable and overriding error.

Para. 44, emphasis original.

This reasoning arrives at a proper result: finality in commercial arbitration is essential to its practise (viz. para. 43); the court gives too much weight to the analogy between public and private situations. Government decisions are centrifugal. They impose an outcome based on Royal or legislative norms. Arbitration instead springs from the parties’ desire for finality, which benefits the parties and, perhaps, a community. The Northland court instead viewed arbitration as yet another branch of the law because it is enabled by a law:

It is difficult to follow the argument that the reliability of Canada as a forum for resolution of local and global business disputes, would be rendered less grounded in the rule of law in a rules-based system of law by employing an appellate review standard. The Dunsmuir standard requiring deference to arbitrator’s decisions, no matter the basis upon which they were determined, resulted in greater uncertainty than an appellate standard of review. In other words, commercial attractiveness may be enhanced, rather than reduced, by allowing appeals based on an arbitrator’s errors on questions of law.

Para. 42, emphasis original. Tweet

Where a statutory appeal exists from an arbitrator’s decision, the court viewed that appellate mechanism as a controlling legal force–and indeed it is, for the legislator contemplated the appellate standard of review when granting a right of appeal (para. 39). The court’s imposition of the rule of law apparently accords with the appellate standard. It in fact undermines the purpose of commercial arbitration.

Commentary: the rule of law is a stranglehold

Directly applying the Supreme Court’s reasoning from Vavilov confuses the court’s meaning because it blends the public concerns with which Vavilov dealt with the commercial arbitrator’s private jurisdiction. That latter jurisdiction ideally operates to exclude the courts (arbitration is not, as some lawyers contend, merely another step in the judicial process). 

The legislature’s use of the word ‘appeal’ immediately invokes the appellate standard of review to reinforce this exclusion. Contesting an arbitrator’s decision before the courts requires deference, which is guaranteed through the appellate standard. This reading was acknowledged by the Supreme Court in a myriad of cases (Vavilov, paras. 36-52 reviews cases in which a statutory appeal was recognized and given effect in public law). Appeals in private law 

One can detect patent unreasonableness in using the impeached case to deliver a point: the Supreme Court’s use of case law to effect statutory appeals is useful when made by analogy. Its direct application in the realm of private arbitral law, however, undermines the legislature’s institutional design choices. 

Commercial arbitration’s history diverges so markedly from the state’s control because it is centripetal, borne of medieval mercantile legal disputes and a need to keep the piece when the King’s justice was beyond most litigants’ reach. 

The King’s justice is, similarly, beyond most litigants’ reach today. The pace of communication and the speed with which money changes hands makes judicial remedies unwieldy. Arbitration, however, lets disputants join their issue on their terms, with their agreements in mind. In so doing, the arbitrator becomes a vessel for the parties’ will, not a creature of statute. The decision to arbitrate binds the parties, not the Arbitration Act’s stipulations, most of which can be set aside by mutual consent.

The marked difference between judicial and arbitral authority influences the interpretation of a statutory right to appeal. Vavilov assists courts with a general principle: Parliament is sovereign (Reference re Pan‑Canadian Securities Regulation, 2018 SCC 48, paras. 54-67). Clear legislative direction must be honoured. Vavilov does not, however, speak directly to the law of private arbitration.

The distinction nitpicks. It departs from what many consider to be a uniform system of law, or a rule of law. Arbitration now accomplishes what courts can but rarely provide: a solution tailored to parties’ realities. It is, in a labour context, valued for keeping industrial peace (Dunsmuir, 2008 SCC 9, para. 156). Commercial arbitration has similar value.

Regularity in this context takes on a different meaning. The application of the rule is potentially irregular because it can extend debate, thus lessening the certainty of arbitration. The legislature’s inclusion of an appellate standard of review for arbitral decisions that may be reviewed is meant to make appeals difficult. The award’s finality ends argument. Vavilov provides some insight, but its focus on public and administrative law gives it uneasy application to a private-law context. A straight appeal does not imply public law norms; the arbitrator is instead the trier of fact and law who, much like any judge, is held to the appellate standard of review.

Conclusion

Courts are picking arbitration apart based on differing perceptions of its relevance and utility. In Northland, the Northwest Territories Court of Appeal took a centralizing approach to define its and the lower court’s appellate jurisdiction. In so doing, it applied public law rules to perceive arbitration as an activity enabled by statute. The older view is that arbitration is recognized by statute; the parties enable the jurisdiction. Though the court correctly interpreted the legislature’s expression, its direct application of Vavilov instead of reasoning by analogy confuses arbitration’s underlying authorities. In so doing, the court contributed to a dangerous centralization of arbitral practise. That desire for order is laudable, but the freedom to contract that founds arbitral jurisdiction is the first principle from which a court should reason.