Alberta – court distinguishes between error of law and excess of jurisdiction in review of arbitral appeal tribunal award – #007

Faced with a rare opportunity to review an arbitral appeal tribunal’s award, Alberta’s Court of Queen’s Bench in SMART Technologies ULC v. Electroboard Solutions Pty Ltd, 2017 ABQB 559 identified and applied the strict limits of judicial oversight reserved for reviewing international commercial arbitral awards.  Obliged to choose between compelling arguments made by both parties on the applicable standard, the court delivered articulate distinctions about the respective and differing jurisdictions of arbitral appeal tribunals and the courts. 

Mr. Justice J.T. McCarthy best summed up the case in the opening paragraph to his September 15, 2017 reasons for judgment:  

[1] Arbitration is considered an alternative form of dispute resolution for parties who wish a speedier resolution to an issue, often at less cost, and in a more flexible and private forum than a court. The parties in this case contracted to submit their disputes to arbitration and followed through with that promise when a dispute arose. The dispute was resolved by an arbitrator in favour of SMART Technologies. Electroboard Solutions then appealed the decision to a three-member Appeal Tribunal, who found in its favour. SMART Technologies now applies to this Court to set aside the Appeal Tribunal’s decision. Under the applicable law, there are limits on this Court when reviewing arbitration proceedings. The question is whether those limits restrict the Court in this case or whether a type of error occurred which permits intervention. 

The peculiar facts of the court decision involved a review of an arbitral appeal tribunal’s majority award overturning a sole arbitrator’s awards.  The history of the prior arbitration proceedings, complete with Summary Judgment Award, partial Final Award and Final Award, Appeal Tribunal’s Award, is set out at paragraphs of 30-66 of McCarthy J.’s reasons.  

The parties’ contract submitted their disputes to arbitration administered by the American Arbitration Association, in accordance with the International Centre for Dispute Resolution (ICDR)’s International Arbitration Rules.  McCarthy J. also noted that the “agreements specified that secondary to the ICDR Rules, the arbitration and agreements would be governed by the laws of the Province of Alberta and the federal laws of Canada.” 

The parties also agreed to submit their arbitration proceedings to an arbitral appeal panel:  

10.1.6 All arbitration awards shall be final and binding, and enforcement of the award shall not be subject to appeal except as expressly provided in this agreement. If the award exceeds $750,000 US… a party … may notify the AAA of an intention to appeal to a second arbitral tribunal of three arbitrators, constituted in the same manner as the initial tribunal. The appeal tribunal shall not modify or replace the initial award except for clear errors of law or clear and convincing factual errors. The award of the appeal tribunal shall be final and binding, and enforcement of the tribunal’s award shall not be subject to appeal or further review. 

With several million dollars in dispute, both by way of principal claim and by counterclaim, the parties proceeded to arbitration before a sole arbitrator.  The latter issued an initial, Summary Judgment Award in favour of SMART on certain issues and a later, second Partial Award in favour of SMART on other remaining issues and dismissing Electroboard’s amended counterclaim.  

Electroboard appealed to the three member Appeal Tribunal.  By a 2:1 majority, the Appeal Tribunal reversed and found in favour of Electroboard.  SMART then applied to Alberta’s Court of Queen’s Bench to set aside the Appeal Tribunal’s Award while Electroboard applied to recognize and enforce the Appeal Tribunal’s Award.  Before the Court of Queen’s Bench, both parties accepted that the applicable arbitration statute was Alberta’s International Commercial Arbitration Act, RSA 2000, c I-5 (“ICAA”), and the accompanying Schedule 2 to the ICAA, the UNCITRAL Model Law on International Commercial Arbitration. () 

The parties’ positions differed starkly: 

SMART argued that the majority of the Appeal Tribunal failed to stay within its jurisdiction by not deciding the appeal on the basis of the agreed upon standard of clear errors of law or clear and convincing factual errors.  The Appeal Tribunal’s dissent allowed SMART to argue that, despite invoking those agreed upon standards, the majority had actually decided the case on the basis of ex aequo et bono.  SMART provided a point by point review of what it alleged was the majority’s disregard of the law. 

Electroboard argued that the majority had decided the appeal within the terms and scope of the parties’ agreement to arbitrate and well within its jurisdiction.  It alleged that SMART was merely trying to re-litigate the merits.  Elecctroboard submitted that the review under ICAA’s article 34(2)(a)(iii) is to be narrowly construed and does not include errors of law or fact.  It argued that the issue of jurisdiction went to whether the Appeal Tribunal had the authority to hear and determine the appeal and not the manner in which it did so.  

Both positions, at least as summarized by McCarthy J., were presented in a reasonable manner.  Neither appeared to present its case in the unhelpful format of less-talented parties which can sometimes place a rough mix of horse feathers and hen’s teeth before the court.  Neither derided the other’s arguments as an unfounded peril or attempted to present its case as a rare opportunity to re-affirm core legal principles.  Rather, each simply measured the issue with the one stick which best suited its position and interests.  McCarthy J. deftly handled both arguments and, having to choose one, retained Electroboard’s presentation. 

McCarthy J. did note the wording of the strong dissent, excerpting it in part, but was not ultimately swayed by it.  He reviewed the case law and, as both parties agreed, held that there is a high onus to set aside an arbitral award.  He found that the legislation and case law provide no basis to set aside an international commercial arbitration award merely because it is factually or legally wrong.  Relying heavily on Mexico v. Cargill, Incorporated, 2011 ONCA 622,  McCarthy J. held that “courts should take a narrow view of what constitutes a question of jurisdiction and resist broadening the scope of the issues to effectively decide the merits of the case” and that this approach applied a fortiori for international commercial arbitration awards.   

McCarthy J. expressly relied on Cargill’s caution that “the inquiry under Article 34(2)(a)(iii) is restricted to whether the tribunal dealt with a matter beyond the submission to arbitration, not how the tribunal decided issues within its jurisdiction.”  In his reasons, McCarthy J. did pause to express “some sympathy for SMART’s position” and “some hesitation regarding the Majority’s approach to appellate review”. 

[85I have some sympathy for SMART’s position, as it appears the Majority of the Appeal Tribunal did not follow the typical approach in appellate review, at least in courts, of focusing their discussion on a review of the findings of fact and the application of the law to those facts in the court below. In particular, the Majority gave little deference to some of the Arbitrator’s findings of fact, stating that deference was not owed on the Summary Judgment Award because the Arbitrator decided the matter on the Record and did not observe witnesses or decide credibility on the basis of in-person observations. However, the Majority did not acknowledge that deference should apply to some findings of fact and the credibility assessments considering that the Arbitrator heard a 5-day oral hearing for the Partial Final Award. Instead, the Majority declared no deference arose for the Partial Final Award because there were clear and convincing factual errors. This is not convincing on its own.  

[86However, the Majority clearly set out the standard of review in pages 18 to 21 of its decision, quoting both the applicable AAA Optional Appellate Arbitration Rules provision and referring to Clause 10.1.6. The Majority was therefore clearly aware of the standards of review that applied on appeal.  

[87I also find the Majority in fact applied the standards of review to the Arbitrator’s Awards. 

He nonetheless rejected SMART’s position, holding that the majority did not decide the matter ex aequo et bono. Even if the Appeal Tribunal’s standard of review was improperly applied, a failure to apply the appropriate standard of review is an error of law and not an error of jurisdiction.  

The reasons for judgment provide a rare analysis of the tensions created by court review of an arbitral appeal tribunal award which reverses an initial award.  The court decided the case by finding support in the case law that when an arbitral tribunal, even an appeal one, improperly applies a standard of review, that may be an error of law but not jurisdiction.