In Benkie v. Nichol, 2023 MBKB 82, the Court dismissed an appeal of an arbitral award rendered in a family law dispute. The appeal record contained significant “gaps,” because evidence that was received before the arbitrator, and was considered by her in arriving at her award, was not before the appeal court. This important evidence included a transcript of the cross-examinations of witnesses at the hearing. There was no recording made of the hearing, which was what the parties agreed to as the process. This lack of information was “highly consequential to the disposition of the appeal’. The Court did not accept the wife’s argument that the Arbitrator erred in making a finding that was not supported by the evidence because the record did not contain all the evidence. The issues this case raises is relevant to commercial arbitration
The underlying dispute – The parties were involved in litigation to determine issues related to their family law dispute. In 2021, they agreed to pursue an alternative dispute resolution process instead. Both parties were represented by legal counsel and agreed to specifics of this “out of court” process, including that it was to be conducted initially as a mediation and later as an arbitration.
The salient terms of what was an evolving process were contained in three documents: an Agreement dated October 15, 2021; an Addendum to that Agreement dated April 19, 2022; and correspondence given to them by the Arbitrator (in particular, a letter dated June 1, 2022). Through those documents, the parties agreed to a number of matters with respect to the conduct of the arbitration, including most significantly:
- the parties’ agreement permitted an appeal of the Arbitrator’s Award on a question of law, a question of fact, or a question of mixed fact and law;
- “Arbitration Briefs” were to be filed by both parties, “which shall contain the evidence and argument in support of their position”; and
- “Cross-examinations on materials contained with the Arbitration Briefs and/or Questions and/or Answers on Interrogatories, and final argument” were to take place at the hearing before the Arbitrator.
The Arbitrator issued her Award on October 14, 2022, favour of the husband.
The appeal – The wife appealed the Award on the basis that the Arbitrator had made two appealable errors: First, “the finding in the Award that the sum of ‘$84,473.47 in cash retained its excluded status under]The Family Property Act] FPA accounting was a mistake in law under the provisions of the [FPA], and should be reversed” (“Error #1”). Second, “the statement that ‘it is agreed that since June 1, 2022, [one of the children] has resided primarily with [the husband] who acknowledges that a flexible schedule with maximal contact with both parents is in [child’s] best interest’ is a mistake in fact, and does not take into account the fact that the [wife] was only temporarily out of her residence, and that it was stated that [child] would resume residing with each of the parties, on a shared parenting schedule forthwith (and in fact that this is what has occurred since at least October 1, 2022)” (“Error #2”).
The parties filed an Appeal Record, which contained everything that was before the Arbitrator, with certain discrete exceptions or “gaps” that the Court found were “highly consequential to the disposition of this appeal.” There was evidence received by the Arbitrator at the hearing, and considered by her in arriving at her Award, that was not in the Record. The Court noted that:
“…Important evidence includes the questions asked by counsel (and, I gather, by the Arbitrator as well) of the parties, and the answers given by each, in cross-examination at the hearing. None of that evidence, in the usual form of transcripts is available because there was no recording made at the hearing, or of the distinct cross-examinations. That reflects what the parties agreed to, as regards process.”
The Court noted that the potential magnitude of the problems and challenges created by an incomplete record were subject to comment by a prior court in, Christie Building Holding Company, Limited v. Shelter Canadian Properties Limited, 2021 MBQB 77 (“Christie #1”). The Court held that in this appeal, “this deprivation of evidence adversely affects the court’s ability to properly adjudicate the appeal.”
The Court turned to address each of the two alleged errors and held that “an over-arching factor which effectively determines disposition of the case is the state of the Record.”
Error #1 -The parties disagreed as to the applicable standard of review on appeal where a question of law is raised: correctness or reasonableness? The Court recognized that there are differing opinions among courts and judges in Canada concerning the proper standard of in the context of appeals from arbitral awards and whether the standard of review framework reformulated in Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65, applies to appeals of commercial arbitration awards. However, the Court held that it did not have to weigh in on this issue, as no error of law was raised. The Arbitrator’s holding involved applying a legal standard to a set of facts and was thus an alleged error of mixed fact and law, attracting the standard of review of ‘palpable and overriding error.’
The Court then considered whether it could determine if a palpable and overriding error was made, but held that its “ability to do so is compromised by what is missing from the Record.” The issue was whether the husband’s inheritance of money about one year before separation constituted exempt assets under the FPA. The Court found that the Arbitrator had cited the proper authorities, and correctly and stated and applied the law in finding that the co-mingling or mixing of those exempt assets with a family asset did not necessarily destroy their exempt status. The Court did not accept the wife’s argument that there was no evidentiary basis for the Arbitrator’s finding, as it did not have all of the evidence that was available to the Arbitrator and thus did not have a “complete picture.” The Court found that the “parties before me freely, and with the benefit of legal advice from their counsel, agreed to pursue arbitration and, critically, agreed as to how that arbitration would be conducted. Now the petitioner must accept the consequences of that agreement.”
Error #2 -The wife argued that there was “no evidence” before the Arbitrator to support the discrete factual finding now challenged, which in turn had an impact on the allocation of parenting time going forward and the calculation of support payable. The Court held that the same challenges presented as with Error #1. The “paucity of proof cannot be established, when we do not have or know all of the evidence.”
The appeal was dismissed.
Contributor’s Notes:
First, this case is a reminder that parties are stuck with the process to which they have agreed – the good, the bad and the ugly. As explained by the Court in Christie #1 and cited by the Court in this case, “[procedural] decisions have consequences, unintended or not, to the scope of any future appeal proceedings” (The Christie #1 case was the subject to a prior Case Note: Manitoba – applicant for leave to appeal cannot revisit procedural decisions creating limited evidentiary record – #467).
Second, this was not a case involving commercially sophisticated corporations with experience arbitrating and litigating matters. It involved two individuals in a family dispute. However, that did not change the Court’s approach. These two parties were represented by counsel and agreed on how their arbitration would be conducted. They were responsible for the consequences that flowed from those decisions. Query whether the Court’s outlook would have changed if one or both of the parties were self-represented, although it is not clear how a court in that situation would begin to address those evidentiary holes short of ordering a new arbitration.
Nevertheless, this decision is consistent with Canadian courts’ general mindset that parties will be stuck with the procedural decisions they have made in their arbitrations. As parties’ agreements on arbitral procedure are largely determined by their counsel’s advice, it is incumbent on us as counsel to ensure we turn our minds upfront to these procedural issues (and the implications that follow). Parties must understand that decisions intended to save money or expedite the process may affect substantive legal rights. (See other Case Notes that have also addressed this issue: B.C. -court qualifies parties’ agreement to require only summary reasons as “penny-wise and pound foolish” -#381; Ontario – Arbitrator’s notes not a substitute for transcript – #627; Alberta – Award was “abbreviated” to save time and costs – #544).