B.C. – court determines arbitrator’s key procedural decisions respected procedural fairness – #076

In PHS Community Services Society v. Swait, 2018 BCSC 824,  Madam Justice Neena Sharma analysed three key procedural decisions common to commercial arbitration and considered whether they qualified as breaches of procedural fairness.  Though fact-specific, her analysis of each lends itself as a guide for similar procedural skirmishing in commercial arbitration for both counsel and arbitrators.

Sharma’s reasons stem from an application for judicial review of an arbitrator’s decision which issued under B.C.’s Residential Tenancy Act, S.B.C. 2002, c. 78 (“RTA”).  PHS Community Services Society (“Petitioner”) raised two issues in its judicial review application: patent unreasonableness and procedural fairness.  Petitioner argued, among other things, that the decision on the merits was patently unreasonable and that certain procedural decisions taken by the arbitrator were breaches of procedural fairness.  If the merits decision itself could not be overturned, then Petitioner sought to challenge the process which lead to the merits decision.

This note focuses on Sharma J.’s analysis of the alleged breaches of procedural fairness stemming from three key procedural steps.  Those steps are common to commercial arbitration.  Her analysis can guide the conduct of the latter as well as inform challenges to other instances of arbitration established by statutory schemes.

Sharma J.’s treatment of patent unreasonableness also offers a condensed summary useful to appeals available under certain domestic arbitration acts. This note will look briefly at that treatment of patent unreasonableness before looking at procedural fairness.

Sharma J. noted that when deciding an application for judicial review, the court is not reviewing the decision for error or sitting as an appellate body or conducting a “line-by-line treasure hunt for error”, citing Communications, Energy and Paperworkers Union of Canada, Local 30 v. Irving Pulp & Paper, Ltd., [2013] 2 SCR 458, 2013 SCC 34 para. 54.  Rather, “judicial review is about ensuring tribunal actions stay within their statutory boundaries.”  She referred the reader to Newfoundland and Labrador Nurses’ Union v. Newfoundland and Labrador (Treasury Board), [2011] 3 SCR 708, 2011 SCC 62 which highlighted the need for deference to expertise of specialized decision-makers and cautioned against the courts responding to decisions which may appear “counter-intuitive to a generalist”.  She also distinguished between valid judicial review and invitations to “reweighing of the evidence and re-consideration of the submissions

Petitioner’s application required that Sharma J. determine (a) if and how a housing facility qualifies for exemption from the RTA and (b) whether the housing facility’s policies regarding guest access breach the RTA.

B.C.’s Administrative Tribunals Act, S.B.C. 2004, c. 45 (“ATA”) at section 84.1 provides a robust privative clause for jurisdiction for administrative tribunals “to inquire into, hear and determine all those matters and questions of fact, law and discretion arising or required to be determined in a dispute resolution proceeding” and that such decisions are “final and binding” provided they are within the tribunal’s exclusive jurisdiction.  In the present matter, the arbitrator was exercising validly-delegated authority from the Director authorized to take such decisions under the applicable legislation.

Sharma J. observed that section 58(3) codifies what qualifies as “patently unreasonable” for discretionary decisions.

58(3) For the purposes of subsection (2) (a), a discretionary decision is patently unreasonable if the discretion

 (a) is exercised arbitrarily or in bad faith,

(b) is exercised for an improper purpose,

(c) is based entirely or predominantly on irrelevant factors, or

(d) fails to take statutory requirements into account.

Sharma J. further noted that decisions taken on questions of law are subject to the common law concept of patent unreasonableness.  Referring to Law Society of New Brunswick v. Ryan, [2003] 1 SCR 247, 2003 SCC 20 para. 52 and Speckling v. British Columbia (Workers’ Compensation Board), 2005 BCCA 80 para. 33, Sharma J. identified different phrasings of the what qualifies as “patently unreasonable”.

A patently unreasonable decision has been described as one that is “clearly irrational”, “evidently not in accordance with reason”, “so flawed that no amount of curial deference can justify letting it stand”, “openly, clearly, evidently unreasonable”, and one accorded “the highest level of curial deference”.

Sharma J. added other observations identifying what a patently unreasonable decision is not:

(a) a decision based on insufficient evidence is not patently unreasonable but is if there is no evidence;

(b) a decision maker need not make reference to each item of evidence; and,

(c) a decision inconsistent with a prior decision of the same tribunal does not make that decision patently unreasonable.

At paras 60-86, Sharma J. applied the above criteria to the decision challenged by Petitioner and concluded that the decision was not patently unreasonable.

For alleged breaches of procedural fairness, Petitioner identified three specific decisions in the arbitration which it claimed undermined the result.

[87] The petitioner argues that if this Court does not find the Decision patently unreasonable, the Decision should be quashed on the basis that the petitioner was not afforded procedural fairness with regard to three decisions of the arbitrator: (i) refusal of adjournment at May 2, 2017 hearing; (ii) failure to grant extension of time to file evidence; and, (iii) failure to consider sur-reply. The petitioner also argues that if impugned actions did not raise procedural fairness issues, the decisions were discretionary and patently unreasonable. I assess the petitioner’s alternate claims simultaneous with its arguments about fairness.

Sharma J. dealt with each in turn. Each decision is fact-specific and resists being condensed.  Readers are encouraged to read Sharma J.’s treatment of each in order to view how such alleged breaches are considered by a court.  Sharma J.’s handling of each of the key procedural decisions can assist both counsel and arbitrators in deciding how to approach the same decisions if and when they occur in their own arbitrations.  Below are some excerpts of Sharma J.’s handling of each which help anticipate other courts’ handling of such decisions:

(i) refusal of adjournment – paras 89-97:

[94] I do not agree with the petitioner’s position. As noted above, the underlying facts with regard to the stated need for the adjournment were not in dispute. It is clear that the arbitrator took into account all of the submissions made by both parties. The arbitrator also considered the factors set out in the applicable Rules of Procedure, while acknowledging that he could not be fettered by the Rules. The petitioner described its own behaviour as “not diligent”. There is no material difference between the natural and ordinary meaning of “not diligent” and “neglect”. The arbitrator cannot be patently unreasonable or unfair when the ruling was based on the petitioner’s description of its own conduct.”     …

[96] As to whether the failure to grant a full adjournment was, in all the circumstances, fair, I am satisfied that it was. The stated prejudice to the petitioner was a lack of time to consult counsel and prepare material. The petitioner was given additional time (until May 10, 2017) to submit evidence and make submissions in writing after the hearing. Thus, the arbitrator directly addressed the alleged defect in fairness and provided the petitioner a remedy. Furthermore, even in professional disciplinary matters, fairness does not create an unassailable right to counsel that will always require an adjournment: Macdonald v. Institute of Chartered Accountants of British Columbia, 2010 BCCA 492 (CanLII) paras. 49-51.

(ii) failure to grant extension of time – paras 98-110:

[105] The petitioner submits that it had inadequate time to respond to the applicants’ affidavits, although it did not point to any facts in those affidavits, which it disputed. It disputed what inferences could be drawn from that evidence, or whether the evidence was relevant, but the petitioner was able to make those submissions without needing further evidence. For example, many affiants stated their subjective belief that they had a month-to-month tenancy agreement with the petitioner, and that they considered the petitioner to be their landlord. Thus, the tenants probably had a subjective belief that the Act applied, but that is not material to the proper interpretation of the Act. Nor is it evidence that the petitioner could rebut with further evidence; there was no suggestion the petitioner was challenging the credibility of the applicants.

(iii) failure to consider sur-reply – paras 111-130:

[115] The petitioner has referred to no case law, rule or authority to support the submission that the failure to allow a sur-reply breaches procedural fairness.  Of course, each case is dependant (sic) upon its particular facts. Stated broadly, the right of reply is restricted to address issues that a claimant did not have opportunity to address, or could not reasonably have anticipated. Thus, sur-reply, broadly understood, is further restricted to new issues or unanticipated evidence or issues raised in the reply.

 [116] I do not find the applicants’ reply raised new arguments or issues justifying a sur-reply. The sur-reply addressed issues that the petitioner already addressed in its response to the applicants, including the significance of terms in the Operator Agreement and the specifics of the additional services available to Facility residents (specifically the Home Support services). Those are not new issues and do not trigger a right of sur-reply.

Sharma J. concluded that the arbitrator appointed under the statute did not breach procedural fairness and, to the extent that the procedural issues were discretionary ones, they were not patently unreasonable.