In lululemon athletica canada inc. v Industrial Color Productions Inc., 2021 BCCA 428, Justice Marchand, for the British Columbia Court of Appeal, dismissed lululemon’s appeal of the chambers judge’s dismissal of its application to set aside the arbitrator’s award made in favour of Industrial Color Productions (“ICP”). The issue was whether the arbitrator had acted outside his jurisdiction in awarding ICP damages that lululemon argued were never claimed in the pleading. Justice Marchand found that the chambers judge had applied the wrong standard of review – the standard of review is correctness and United Mexican States v Cargill, 2011 ONCA 622 remains the leading case on the standard of review for set aside applications on matters of jurisdiction. Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65 and Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 were not helpful in this context. However, Justice Marchand found that the chambers judge’s decision to dismiss the set aside application was correct; the arbitrator did not stray outside the scope of the submission to arbitration when the impugned pleading was read generously.
In 2017, lululemon and ICP entered into a Services Agreement, pursuant to which ICP agreed to provide photography production services to lululemon under various Statements of Work. On May 13, 2019, lululemon gave written notice to ICP purporting to terminate the Services Agreement effective August 1, 2019. When the parties were unable to resolve whether any amounts were owed by lululemon to ICP as a result of the purported termination, ICP commenced an arbitration with the International Centre for Dispute Resolution (ICDR), in accordance with the terms of the Services Agreement, seeking (among other things) a declaration that lululemon was in breach of the parties’ agreement by reason of improper notice of termination. The arbitration proceeded under the British Columbia International Commercial Arbitration Act, RSBC 1996, c. 233 [ICCA] (now repealed).
In his award dated April 15, 2020, the arbitrator found in favour of ICP and awarded it damages of almost $1.5 million. Lululemon applied under s. 34(2)(a)(iv) of the ICCA to set aside the arbitrator’s award on the basis that it, “deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or that it contains decisions on matters beyond the scope of the submission to arbitration”. Lululemon argued that the arbitrator had awarded damages that were never claimed by ICP.
On January 6, 2021, the chambers judge dismissed lululemon’s set aside application and upheld the arbitrator’s award, finding that the arbitrator’s decision was subject to review on a standard of reasonableness and that the arbitrator’s conclusions were reasonable.
Justice Marchand considered the standard of review that applies to applications to set aside arbitral awards under s. 34(2)(a)(iv) of the ICCA. He disagreed with the chambers judge and found that the standard of review is correctness and that United Mexican States v Cargill remains the leading case on the standard of review for set aside applications on questions of jurisdiction:
“[38] The Court concluded that the language of the provision at issue, as well as domestic and international authorities, supported a correctness standard of review: Cargill at paras. 31–36. The Court expressed its concern that adopting the more deferential reasonableness standard of review “would effectively nullify the purpose and intent of the review authority of the court” and inevitably draw the reviewing court into a review of the merits of the dispute: Cargill at paras. 40–51. To address these concerns, the Court held that reviewing courts must be “circumspect in their approach to determining whether an error alleged under art. 34(2)(a)(iii) properly falls within that provision and is a true question of jurisdiction”: Cargill at para. 47”.
Justice Marchand found that this standard preserves the forum selected by the parties and minimizes judicial intervention in the decisions of international tribunals. In addition, Justice Marchand noted that the legislation itself significantly limits the scope of judicial intervention because the ICCA does not permit appeals from or judicial review of arbitral awards. Rather, it restricts judicial intervention to matters specifically identified in the legislation. Further, the language in s. 34 suggests a de novo hearing, rather than deference, which is also consistent with international standards:
“[41] Section 34 provides for an originating application to set aside an award. Under s. 34(2)(a) the applicant must “furnish proof” that one of the grounds for setting aside an award has been established, which includes that the award is outside the boundaries of the arbitration established by the parties. The language of s. 34(2)(a) therefore suggests a de novo hearing before the reviewing judge. Nothing in the language of s. 34(2)(a) suggests a reasonableness analysis or any sort of deference to the arbitrator’s own view of jurisdiction. Similarly, the language in s. 34(2)(b), which requires the court to make findings regarding the grounds identified in that section for setting aside an award, also suggests a de novo hearing.
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[43] Further, international consistency is not only desirable, but called for by s. 6 of the ICAA: The Russian Federation v. Luxtona Limited,2021 ONSC 4604 at para. 10. While the chambers judge cited Born at 1198 for the broad proposition that a common international approach has not developed with respect to the standard of judicial review of jurisdictional rulings by arbitral tribunals under the UNCITRAL Model Law, he appears to have overlooked the author’s conclusion at 1199 that “courts in Model Law jurisdictions have generally adopted a de novo [i.e., correctness] standard of judicial reconsideration in proceedings under Articles 16(3) and 34(2)(a)”. This latter conclusion is well supported by the authorities: see Cargill; Dallah Real Estate and Tourism Holding Company v. The Ministry of Religious Affairs, Government of Pakistan, [2010] UKSC 46; China Minmetals Materials Import and Export Co., Ltd. v. Chi Mei Corporation, 334 F.3d 274 (3d Cir. 2003) at 289; John G Burns Limited v. Grange Construction & Roofing Company Limited, [2013] IEHC 284 at para. 24; Downer Construction (New Zealand) Limited v. Silverfield Developments Limited(26 October 2004), Auckland CIV 2004‑404‑4488 (NZHC) at para. 56; S. Co. v. B. Co., [2014] 6 HKC 421 at paras. 28–29, 38”.
Finally, Justice Marchand found that Vavilov and Sattva were not helpful in this context.
Sattva established that the standard of review on an appeal from a domestic commercial arbitration was reasonableness. It did not address the standard of review on set aside applications on jurisdictional grounds, which Justice Marchand held was to be decided on a standard of correctness post-Sattva. See e.g., DNM Systems Ltd. v. Lock‑Block Canada Ltd., 2015 BCSC 2014 at para. 86 (in the domestic context); Canada (Attorney General) v. Clayton, 2018 FC 436 at paras. 73–82 (in the international context).
Vavilov is the leading case on the standard of review in administrative law and does not address arbitration:
“[46]…..In the United Mexican States v. Metalclad Corporation, 2001 BCSC 664, Justice Tysoe, as he then was, distinguished the approach to judicial review for domestic tribunals established by statute from that for the international arbitration of private disputes. Metalclad continues to stand for the proposition that administrative law standards should not be used “to create a standard of review not provided for in the [ICAA]”: at para. 54.”
In this case, the chambers judge applied the incorrect standard of review but was correct in dismissing lululemon’s application to set aside the award. Therefore, Justice Marchand dismissed lululemon’s appeal.
Editor’s note:
First, this case provides some helpful clarity, albeit in obiter dictum – at least in British Columbia – on the appropriate standard of review on appeals of commercial arbitration awards as distinguished from set aside applications and on the application of Vavilov and Sattva post-Vavlilov.
Second, for a previous Case Note summarizing the chambers judge’s decision see: B.C. –commercial dispute “foundationally different” from investor-state claim – #409. Justice Marchand also reviewed the three main reasons given by the chambers judge for (incorrectly) adopting a reasonableness standard:
“[28] First, the judge cited Quintette Coal Ltd. v. Nippon Steel Corporation (1991), 50 B.C.L.R. (2d) 207 at 217, 1991 CanLII 5708 (C.A.), leave to appeal ref’d 50 B.C.L.R. (2d) xxvii (S.C.C.), for the proposition that the standard of review to apply to international arbitral awards should seek “to preserve the autonomy of the forum selected by the parties and to minimize judicial intervention”. In the judge’s view, the standard of reasonableness, and not correctness, would generally best serve these objectives.
[29] Second, “[a]s a matter of statutory interpretation,” the judge relied on the arbitrator’s jurisdiction to rule on his own jurisdiction under s. 16 of the ICAA to buttress his conclusion that reasonableness is generally the appropriate standard of review.
[30] Third, the judge held that a reasonableness standard of review “aligns with the general framework set forth in Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65 for the judicial review of a decision of a statutory tribunal and the general framework for domestic commercial arbitration: see Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 at paras. 104–106.”
[31] The judge then addressed the decision of United Mexican States v. Cargill, Inc., 2011 ONCA 622 at paras. 42–48, leave to appeal ref’d [2011] S.C.C.A. No. 528, which lululemon had identified as the leading case on the standard of review. In Cargill, the Court of Appeal for Ontario concluded at para. 42 that “the standard of review of the award the court is to apply is correctness, in the sense that the [arbitral] tribunal had to be correct in its determination that it had the ability to make the decision it made.”
[32] The judge distinguished Cargill on the basis that it was “foundationally different” from the dispute before him because it involved a damages claim against a country under NAFTA. The judge reasoned that “[a] case involving international multilateral trade agreement or treaty interpretation principles may be an exception” to his conclusion that a reasonableness standard of review was generally appropriate.
[33] Finally, the judge cited Gary B. Born, International Commercial Arbitration, 3rd ed. (Alphen aan den Rijn, The Netherlands: Kluwer Law International B.V., 2020) at 1198 for the proposition that “a common international approach has yet to develop with respect to the standard of judicial review of jurisdictional rulings by arbitral tribunals under the UNCITRAL Model Law.”