Alberta – No set aside for document disclosure complaints – #633

In ENMAX Energy Corporation v. TransAlta Generation Partnership et al, 2022 ABCA 206, the Alberta Court of Appeal (Paperny, Rowbotham, and Strekaf, JJA) upheld the chambers justice’s decision to refuse to set aside an arbitral award (the “Award”) under section 45(1)(f) of the Alberta Arbitration Act, RSA 2000, c A-43 (the “Act“). It agreed that the (“Tribunal”) document disclosure rulings of the arbitral tribunal (“Tribunal”) in relation to a narrow sub-issue did not prevent the Appellants from making their case, nor did it result in manifest unfairness. Among other things, the Court of Appeal found that the Tribunal did not foreclose the possibility of further document production, but that it was the Appellants who opted not to apply for the records whose absence they now complained about. The Court also held that, when viewed in context, the Tribunal relied on other evidence to reach its conclusion and the absence of the records sought by the Appellants did not preclude them from presenting their case.

This case concerns an arbitration between the Respondent, TransAlta Generation Partnership (“TransAlta”), and the Appellants, ENMAX Energy Corporation (“ENMAX”) and the Balancing Pool. TransAlta owns and operates electricity generation units and entered into a Power Purchase Arrangement (“PPA”) to sell electricity to ENMAX. The Balancing Pool is a public body with certain financial obligations under the PPA, and was entitled to participate in any arbitration brought under it.

In March 2013, one of TransAlta’s generation units “tripped” and went offline for 216 days. A dispute arose about who was responsible for the losses incurred while the unit was offline. If the shutdown was caused by a force majeure event, then the Balancing Pool (and not ENMAX) was responsible to make Capacity Payments; but if it was not, then TransAlta was required to pay ENMAX a penalty in the form of an Availability Incentive Payment. However, TransAlta could only rely on force majeure if it operated in accordance with “Good Operating Practice”

Following an arbitration hearing, the Tribunal issued an Award finding that the shutdown was caused by a force majeure event and that TransAlta had acted within Good Operating Practice. The Appellants sought unsuccessfully to appeal (see 2018 ABQB 142) and set aside (2019 ABQB 486) the Award. The Appellants’ set aside application alleged that the Tribunal’s refusal to order disclosure of certain records denied them the opportunity to present their case. The chambers justice disagreed and denied their application.

Thus, the central question on appeal of the set aside application was whether the undisclosed records denied the Appellants the opportunity to present their case or resulted in “manifest unfairness” within the meaning of section 45(1)(f) of the Act.

Standard of review – The Court of Appeal confirmed the following regarding the standard of review:

  • The interpretation of section 45, which incorporates elements of procedural fairness, is reviewable for correctness;
  • The application of the test under section 45 is a matter of mixed fact and law that is accorded deference. The determination of whether the process followed by the Tribunal rises to the level of manifest unfairness is therefore reviewed for palpable and overriding error; and
  • In considering a set aside application, the Court should give deference to the procedural choices of the Tribunal, subject to the principles of fair and equal treatment under section 19 of the Act.

The appeal – At the outset of its analysis, the Court undertook a statutory analysis of the Act. It reiterated the “hands off” approach accorded to arbitrations and affirmed that section 45 “is not a substitute for an appeal or a judicial review and ought not be used to circumvent the statutory limitations on court intervention” (para 37). The test to set aside an award under section 45(1)(f) is high, requiring for instance, “some substantial miscarriage of justice” or conduct that offends “our most basic notions of morality and justice” (para. 55). Regarding the treatment and review of evidentiary issues in an arbitration, the Court summarized the applicable principles:

“[66] First, parties to an arbitration are entitled to a fair hearing, not a perfect hearing. Second, the overall fairness of the proceedings must be considered, not individual rulings. Third, parties must take advantage of and exercise diligence in pursuing issues and cannot later complain of some perceived unfairness resulting from their failure to do so. Fourth, not every refusal to admit relevant evidence is a breach of natural justice. Fifth, the threshold for setting aside an arbitration award on grounds of unfairness has been described in various ways, but the cases make it clear that something of a significant nature is required, or that the excluded evidence was crucial to the case being presented.

 [67] In summary, the grounds to set aside an arbitration award should be construed in accordance with the purposes of the Act; that is, narrowly and only to ensure the proceedings are not fundamentally or fatally flawed. The Act was intended to circumscribe appellate review and there is no exception for procedural rulings that do not lead to a fundamentally flawed process. Setting aside an arbitration award because a party was “treated manifestly unfairly and unequally” or not given an opportunity to present its case or respond to the other party’s case requires a determination as to whether the errors alleged challenge the fundamental validity of the process. It must go to the heart of the process and effectively undermine its fairness or have the effect of preventing the party from putting forward its case. Where the exclusion of evidence is said to be at the root of an unfairness, that evidence must be crucial to the party’s case. If the alleged unfairness does not impact the proceedings in a meaningful way, it cannot rise to the level necessary to set aside the arbitration award under section 45(1)(f).”

The Court then turned its attention to the facts of the set aside application, which centred on a diagnostic test known as the TVA test. TransAlta relied on the TVA test to decide to replace the Bar T5 in the generator and issue a notice of force majeure. However, TransAlta also relied on other information, such as the recommendations of its external consultants. The Tribunal had to consider whether the decision to replace the Bar T5 was reasonable and within Good Operating Practice.

The Appellants attacked TransAlta’s reliance on the TVA test. ENMAX alleged that the TVA test was not widely recognized within the North American utility industry as a reliable primary diagnostic test, and the Balancing Pool took issue with the reliability of the TVA test result itself. During the course of the arbitration, the appellants requested TransAlta’s fleet-wide records relating to the TVA tests (not just the records pertaining to the relevant unit), presumably to show the unreliability of the TVA tests and TransAlta’s knowledge of it.

After carefully considering the procedural history of the arbitration, the Court held that although ENMAX had initially requested for TransAlta to provide its fleet-wide TVA testing records, it did not apply to the Tribunal for those records but instead chose to try to resolve its document request by negotiation with TranAlta. The Court found that the Tribunal had left the door open to decide the issue if the negotiations proved unsuccessful; it did not deny ENMAX’s request or foreclose the possibility of further production (para. 159-160). ENMAX did not make a further application for those records, nor did either Appellant cross-examine the key witness on this issue—a decision the Court found to be tactical. Notably, the Court observed that it is not unusual for the relevance of documents to become more significant as the proceedings unfold and that it is incumbent upon the parties to reassert the materiality of records as it becomes more obvious (para. 163).

Finally, the Court also considered the entire context of the arbitration and found that this was a minor sub-issue in the arbitration. It was one of 18 findings by the Tribunal that there was no good reason to exclude the TVA testing. Further, TransAlta had also relied on other reasons to replace the Bar T5. In totality, the Court found that the document disclosure complaints did not deprive the Appellants of the opportunity to present their case or respond to TransAlta’s case. The Court dismissed their appeal.

Contributor’s Note:

This is an important case, setting out the Alberta Court of Appeal’s most recent statement on when procedural breaches can cause the resultant award to be set aside. In providing a comprehensive overview of the law on this point, the Court’s answer remains: only in the most egregious cases (para. 52).

In coming to this answer, the Court made three interesting observations. First, given the focus on more efficacious and economical arbitration procedures, it noted that perhaps less robust or less rigorous procedures than those found in civil litigation are acceptable in arbitrations (para. 40). Second, while acknowledging the differences between the domestic and international Arbitration Acts, the Court held that international arbitration decisions constitute helpful guidance in determining what treatment rises to the level of “manifest unfairness” to justify setting aside an award (para. 43 and 53, 55). Third, the Court considered the “reliance and request” approach to document production that is common in arbitrations (i.e. whereby a party first produces documents it intends to rely upon, followed by a procedure whereby the other party can request other relevant and material records—usually by way of a “Redfern schedule”). The Court disagreed with the chambers justice’s criticism of this approach as being “unfortunate” and his suggestion that such an approach constitutes a lower standard of production (137-139) than court litigation. Indeed, it is the nature of this type of production that often makes arbitrations more efficient—not because the level of disclosure is somehow “lower”, but because it is more targeted.