B.C. – Scope/excess of authority when arbitrator considers variation of award made based upon incorrect facts – #523

In Marchetti v Lane, 2021 BCSC 1259, Justice Tucker dismissed an application brought by the respondent (Lane) to “change or set aside” an arbitral award under s. 19.18 of the Family Law Act, S.B.C. 2011, c. 25. The case has application to commercial arbitration awards and, indeed  Justice Tucker looked to the set aside provisions of the  International Commercial Arbitration Act, R.S.B.C. 1996, c. 233 (“ICAA”) to determine whether the award should be set aside on jurisdictional grounds. Lane argued, among other things, that the arbitrator had acted outside the scope of the submission to arbitration and outside her authority in varying an earlier “final” award. He argued that the arbitrator had previously declined to clarify or correct the initial award, so it was final and binding upon the parties and subject only to the statutory right of appeal. The parties had agreed to have all their issues in dispute resolved by arbitration and the award which was the subject of this application related merely to one issue. After considering s. 34 of the ICAA, Justice Tucker found that the first award had been based upon facts that turned out not to have been correct and was therefore incapable of being implemented.  In varying that award, the arbitrator did not “purport to correct or clarify the award, but determined the application to vary brought before her while her jurisdiction over the matter remained extant under the terms of the submission to arbitration and the applicable statute”.

In these matrimonial proceedings, after the applicant (Marchetti) filed her notice of family claim, and just before the matter was to go to trial, the parties agreed to the terms of a Consent Order dated March 24, 2021.  In it they agreed to remit all of the matters at issue to arbitration.  The parties agreed that the single issue of the choice of school for the parties’ son would be adjudicated on March 24, 2021. The arbitrator released a final award on this issue dated April 27, 2021 (the First Award). Thereafter, the arbitrator made a further award based upon a material change in circumstances (the Second Award).  

Lane brought an application to the British Columbia Supreme Court under s. 19.18(1) of Division 4 of the FLA,to “change or set aside” the Second Award.  It provides as follows:

19.18 (1) On application by a party, the Supreme Court may change or set aside an arbitration award if satisfied that any of the following apply:

(a) there are justifiable doubts as to the arbitrator’s independence or impartiality;

(b) a party was not provided a reasonable opportunity to be heard respecting the award;

(c) the award was obtained by fraud or duress;

(d) the award deals with a dispute not falling within the terms of the arbitration agreement or contains a decision on a matter that is beyond the scope of the arbitration agreement;

(e) the arbitrator acted outside the arbitrator’s authority.

Lane relied upon grounds (b), (d), and (e).

With respect to grounds (d) and (e) – that the arbitrator acted outside her authority or beyond the scope of the submission to arbitration –  Justice Tucker noted that courts have interpreted “exceeding the arbitrator’s powers” as including an error that arises when an arbitrator addresses matters beyond those submitted by agreement. She quoted Voong v. GPUN Broadway Investment Inc.2017 BCSC 1521, for an overview of the law on the point:

[44]      Section 1 of the Arbitration Act defines “arbitral error” to include “an error that is made by an arbitrator in the course of an arbitration and that consists of … (c) exceeding the arbitrator’s powers”.

[45]      An arbitrator’s jurisdiction flows from the parties’ arbitration agreement.  It is generally limited to answering the question submitted by the parties, and any questions necessary to a determination of that question:  Student Assn. of the British Columbia Institute of Technology v. British Columbia Institute of Technology, [1999] B.C.J. No. 554 [(S.C.)] at para. 31; aff’d 2000 BCCA 62 [BCIT].

[46]      The parties to an arbitration agreement are not presumed to have agreed to submit all matters that may arise between them to arbitration:  Cut & Run Holdings Ltd. v. Booze Brothers Holdings Inc., 2005 BCSC 167 at paras. 24–25.  If the arbitrator issues an award that goes beyond the scope of their arbitration agreement, he or she exceeds his or her jurisdiction and commits arbitral error: BC Gas Inc. v. Westcoast Energy Inc., [1990] B.C.J. No. 2924 [(S.C.)] at paras. 22 and 40.

[47]      The question is whether the arbitrator exceeded his powers by issuing an award that went beyond the arbitration agreement.  To answer that question it is necessary to ascertain the scope of the arbitration agreement and then to determine whether the award exceeded that scope.

[48]      As noted, the scope of an arbitration agreement is determined by an analysis of the nature of the disagreement, the words of the arbitration clause, and the terms of the contract as a whole in their factual context: St. Pierre [v. Chriscan Enterprises Ltd.2011 BCCA 97] at para. 21.

[54]      … , the question I must answer is not whether the arbitrator erred in construing the scope of the arbitration agreement. Rather, the question is whether his award exceeded the scope of the arbitration agreement, properly construed. [Emphasis added.]

Justice Tucker then looked to the B.C. International Commercial Arbitration Act for guidance because there was no case law dealing with this issue under s. 19.18(d) of the FLA or the mirror provision in the new British Columbia Arbitration Act S.B.C. 2020 c. 2 (s. 58(1)(c)).  Section 34(2)(a)(iv) of the International Commercial Arbitration Act, R.S.B.C. 1996, c. 233 [ICA], provides that recourse to a court against an arbitral award may be made only by an application for setting aside in accordance with subsections (2) and (3). Section (2)(a)(iv) states that an arbitral award may be set aside by the Supreme Court only if the party making the application furnishes proof that, “the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside, or …” [Emphasis added.]

Justice Tucker then found that the First Award was made based upon facts that turned out not to be true (the school which the arbitrator ordered the son to attend would not accept his enrollment), which made the First Award “incapable of being implemented”. She found that this gave rise to a jurisdictional issue:

[60]      Jurisdictional issues can arise where an initial arbitral award turns out to have been made based on inaccurate or incomplete facts.  In Ford Motor Company of Canada Limited v. Sherriff2012 BCSC 891, an arbitrator purported to correct an initial award by issuing supplemental reasons that were based on new evidence.  The supplemental reasons, which changed the intent of the initial award, were found to amount to an arbitral error.  In Westnav Container Services v. Freeport Properties Ltd., 2010 BCCA 33, an arbitrator purported to clarify an initial award by giving supplemental reasons that reached the same outcome but based on different evidence.  The supplemental reasons were found to amount to an alternative finding rather than a clarification, and thus an arbitral error was found. 

This disposed of Lane’s argument that because the first award could have been corrected, clarified or appealed, it could not be revisited and determined anew.  In this case, the arbitrator did not purport to correct or clarify the First Award. Rather, she determined an application to vary brought before her while her jurisdiction over the matter remained extant under the terms of the submission to arbitration and the relevant legislation, which specifically permitted an order to be varied based upon a material change in circumstances.  (See s. 47 of the FLA.)

Justice Tucker dismissed Lane’s application.

Editor’s notes:

First, Lane also argued that the arbitrator had failed to provide him with a reasonable opportunity to be heard in that:

(a)  The Respondent was not provided a reasonable opportunity to be heard respecting the ruling.

(b)  He was not provided with an opportunity to express his opposition to the hearing being held.

(c)  The rules and process for the hearing were determined by the Arbitrator based on oral and written submissions by the Claimant with no opportunity for the Respondent to provide his input.

(d)  The Claimant and the Arbitrator were both aware that as of April 9, 2021, the Respondent was no longer represented by counsel.

(e)  The Respondent was provided with 3 business days to prepare a written submission in response to the Claimant’s Notice of Application and he was provided with no more than 15 minutes to make an oral submission.

Justice Tucker found that the ground found in s. 19.18(1)(b) raised by Lane – party denied an opportunity to be heard –  was nothing more than an expression of an arbitrator’s obligation to comply with requirements of natural justice. She found that the standard of review was “fairness”. Here, Justice Tucker found that the arbitrator had followed the applicable rules of procedure and that Lane had responded to Marchetti’s application within the time frame required, requested no extension of time, and raised no objection during the hearing that he had not had an opportunity to respond.  As a self-represented party, Lane was not entitled to special procedural accommodations during the arbitration, but was entitled to a fair and reasonable opportunity to make submissions, which he received: “The extent to which he might have made better use of his opportunity does not raise an issue of natural justice, but rather is a matter of advocacy.”

These findings on this issue have equal application in the commercial arbitration context.

Second, for a recent interesting Case Note on the subject of the application of the International Commercial Arbitration Act in other contexts see B.C. – court enforces parties’ choice to apply International Commercial Arbitration Act to employment disputes – #465.