Manitoba – Awards set aside after arbitrator re-wrote parties’ bargain – #790

In Buffalo Point First Nation and Buffalo Point Development Corp Ltd v Buffalo Point Cottage Owners Association, Inc, 2023 MBKB 141, the Court confirmed its earlier decision on the motion for leave to appeal, in which it held that the correctness standard of appeal in Canada (Minister of Citizenship and Immigration) v Vavilov, 2019 SCC 65 (“Vavilov”) applies to review of private arbitration awards appealed under provincial arbitration legislation. The Court held that the arbitrator had erred because he exceeded the jurisdiction granted to him under the parties’ agreement. First, the arbitrator exceeded the jurisdiction to “implement” or “clarify” a Consent Award which the parties had entered into following an earlier dispute. Second, the arbitrator’s award constituted a significant rewrite of the bargain (…) by introducing new concepts alien to the negotiated bargain”. 

BackgroundThe underlying dispute dealt with leasing agreements between a First Nation acting through its property development corporation (“Buffalo Point”) and an association of cottage owners (“Association”), and in particular, Buffalo Point’s unilateral amendment to those agreements to include a costly tax mechanism in 2011, after federal legislation aimed at providing greater autonomy of First Nations was enacted. 

Since that time, the parties had been involved in a long-running dispute including law suits, mediation, and arbitration. The parties reached a settlement in 2015, which provided for “binding mediation” of all proposed expenditures in Buffalo Point’s annual budgets (“2015 Settlement”). The 2015 Settlement was adopted in a Consent Award rendered by the arbitrator in 2015 (“Consent Award”).  

Per the 2015 Settlement, Buffalo Point was to enact a Taxpayer Representation to Council Law (“Taxpayer Law”) and submit it to the Taxpayer Commission under the First Nations Fiscal Management Act, SC 2005, c.9 (“FMA”). The Taxpayer Law included the following paragraph from the 2015 Settlement:

Where the taxpayer association has a concern respecting proposed expenditures in the annual budget and has been unable to resolve the concern utilizing the procedures in this Law, the Association may refer the matter to binding expedited mediation on the grounds that the proposed expenditures are clearly excessive or clearly unnecessary for the provision of local services as those services for public purposes are defined in the Standards for First Nation Expenditure Laws.”

Buffalo Point duly submitted the Taxpayer Law for approval, but in December 2015, the Taxpayer Commission refused to approve the binding mediation mechanism that was critical to the 2015 Settlement and Consent Award, on the basis that it conflicted with the FMA. Effectively, because of the Taxpayer Commission’s refusal, the parties no longer had a mechanism to resolve disputes over budget expenditures, which was critical to the 2015 Settlement.

The Consent Award also provided that the arbitrator would have jurisdiction over any future disputes relating to the implementation of the 2015 Settlement or the Consent Award: 

“(…) to implement this settlement and the Consent Award in the event of any remaining remedial issues between the parties or any necessity for Clarification of the Consent Award”.

The Consent Award was enforced as a judgment in Court, but the parties could not reconcile the critical issue of binding mediation with the Taxpayer Commission’s refusal, and so further disputes arose.

The supplementary arbitration awards – The Association initiated recourse to the arbitrator on two occasions regarding the implementation of the Consent Award, both relating to the refusal by Buffalo Point’s Taxpayer Commission to approve the binding mediation process for expenditures. Instead of directly challenging the Tax Commission’s decision to refuse the binding mediation process, the Association requested that the arbitrator order a solution which would mimic the binding mediation mechanism set out in the Consent Award that could be submitted to and approved by the Tax Commission. This gave rise to two further awards, namely a “Supplementary Award” and a “Second Supplementary Award”.

The Supplementary Award ordered Buffalo Point to use “best efforts” to secure the Tax Commission’s approval of the Taxpayer Law, including by making “non-substantive” amendments to the Taxpayer Law contemplated in the Consent Award and to enact a Delegation Law (a process allowing the Buffalo Point council to delegate its powers to another person or body), if necessary, as set out in the FMA. 

Through the Second Supplementary Award, the arbitrator effectively amended and replaced the binding mediation mechanism set out in the Consent Award with a provision for advisory mediation and enforcement through another mechanism.

Buffalo Point appealed the supplementary awards, raising two issues of law described below.

Standard of Review on appeal – In the January 2020 leave decision (2020 MBQB 20), the Court held that the standard of correctness (rather than reasonableness) applied. This decision was based on the Supreme Court of Canada’s decision in Canada (Minister of Citizenship and Immigration) v Vavilov, 2019 SCC 65. The application of the standard of review set out in Vavilov to arbitration awards rendered in private consensual arbitration (that is, not an arbitration mandated by statute), has given rise to jurisprudential controversy (see: “Alberta & Manitoba – courts take different paths to different outcomes following same S.C.C. case” –#276).

The Court reviewed jurisprudence on the issue rendered since the leave decision. It observed that the issue of the correctness standard to private arbitration has “vexed numerous courts who have answered with mixed conclusions” (para 29). 

In the result the Court decided that the standard of correctness applied:

“[36] …[N]one of the core advantages of arbitration – – expediency, efficiency, simplicity, privacy, and finality – – are seriously compromised or inconsistent with a legislated default standard of review of correctness where the parties have not otherwise addressed appeals or judicial review in their arbitration agreement. Properly and carefully identifying issues for appeal from a private arbitration award, as explained in Sattva (see i.e. paras. 43 and 44) and Teal Cedar (see i.e. para. 47), should effectively winnow out the chaff from the grain, so-to-speak, and stymie opening floodgates of appellate litigation for commercial arbitration awards.”

In coming to this decision, the Court referred to the case of Northland Utilities (NWT) Limited v Hay River (Town of), 2021 NWTCA 1, which it described as “the only appellate decision directly addressing the standard of review in an appeal from a non-statutorily mandated arbitration since Vavilov”. The Court also relied on the minority position in Wastech Services Ltd v Greater Vancouver Sewerage and Drainage District, 2021 SCC 7 (at paras 117-122).

Merits of the appeal – Buffalo Point raised two issues on appeal, which the Court characterized as issues of law and summarized as follows:

“[24] The points of law to be determined on appeal are whether the Arbitrator erred in amending the Settlement (including the Taxpayer Law), by ordering, in place of binding mediation in the Taxpayer Law:

i. Buffalo Point to pass a Delegation Law, if necessary; or

ii. advisory mediation with enforcement through a debt mechanism.”

With respect to the first point, the Court found that the Delegation Law – which Buffalo Point was ordered to enact if necessary to obtain the Tax Commission’s approval of the Taxpayer Law – was “in sum and substance materially different than the agreed binding mediation attempted to be enacted through the Taxpayer Law”. Therefore, in ordering Buffalo Point to enact the Delegation Law, the arbitrator exceeded the jurisdiction to “implement” or “clarify” the Consent Award, conferred on him by the parties.

With respect to the second point, the Court held that the arbitrator’s amendment to the binding mediation process amounted to “a significant rewrite of the bargain (…) by introducing new concepts alien to the negotiated bargain”. Consequently, the Second Supplementary Award “exceeded the reservation of jurisdiction authority the parties granted to the Arbitrator (…)” (para 64). 

Applying the correctness standard of review, the Court held that the arbitrator had erred on both issues. Consequently, both the Supplementary Award and Second Supplementary Award were set aside.

Contributor’s Notes:

This case is notable in a few respects. 

First, the Court referred, on more than one occasion, to the protracted legal saga between the parties. In this same vein, the Court acknowledged that the arbitrator’s supplementary awards, notably the Second Supplementary Award, appeared to be fashioned with the intention of finding a solution that would put an end to the dispute where the arbitrator found Buffalo Point had not negotiated in good faith. However, the Court found that the Supreme Court of Canada’s decision in Churchill Falls (Labrador) Corp.  v. Hydro-Quebec, 2018 SCC 46, does not leave the door open for an arbitrator to rewrite key provisions of a settlement based on failure to negotiate in good faith (para 67).

Second, this case confirms that lower courts continue to grapple with the applicability of the correctness standard of review to appeals of private arbitration awards. Prior to Vavilov the Supreme Cout of Canada in Sattva Capital Corp v Creston Moly Corp, 2014 SCC 53 (“Sattva”) found that a reasonableness standard should apply to the review of commercial arbitral decisions. In this case, the Court essentially found that Vavilov displaced the Supreme Court’s decision in Sattva, where an appeal lies based on statute. The only appellate decision on this question is Northland Utilities (NWT) Limited v Hay River (Town of), 2021 NWTCA 1, and lower courts have often avoided the issue by finding that the result would be the same regardless of the standard applied. (See previous Arbitration Matters posts Manitoba – Vavilov inapplicable to arbitration appeals – #709; Alberta – Alberta never bound by Sattva and Teal Cedar – #705; Alberta & Manitoba – courts take different paths to different outcomes following same S.C.C. case –#276.) It will be interesting to see whether (or when!) appellate courts will step in to provide further guidance on the issue. 

Third, on the facts of this case, the Court applied the correctness standard to the appeal of an issue that was ultimately cast as a jurisdictional issue. While this was characterized as an issue of law, arbitral jurisdiction in this case arose from the interpretation of the parties’ arbitration agreement. It is unclear from the Court’s decision whether the parties raised a jurisdictional argument before the arbitrator. It is also unclear whether the characterization of the issue as jurisdictional in nature influenced the Court’s application of the correctness standard. In any event, it might be noted that the jurisdictional issue ultimately arises from an exercise of contractual interpretation, which can be treated in many contexts (including in a jurisdictional challenge to an arbitrator or in a commercial dispute) as a question of fact or mixed fact and law.