Myriam’s 2021 Top Pick: B.C. – lululemon athletica inc. v. Industrial Color Productions Inc. – #571

Famed Canadian athletic wear company lululemon athletica generated a noteworthy court decision this year, which has nothing to do with the controversy surrounding the sartorial choices it has made in designing Team Canada’s (very red!) uniform for the Beijing Olympics. Rather, the case adds to the significant number of decisions rendered of late in which the courts have grappled with their role – and the tests they must apply – when an application to set aside an international arbitral award comes before them under the UNCITRAL Model Law on International Commercial Arbitration (for a deep dive on this topic, see Lisa’s top pick, Russian Federation v. Luxtona Limited).

The decision is lululemon athletica inc. v. Industrial Color Productions Inc., 2021 BCCA 228, authored by Justice Marchand for the British Columbia Court of Appeal (lest our readers accuse of overlooking typos, we thought it wise to specify that “lululemon” is intentionally styled in lowercase by the company). It stands for this basic proposition: on an application to set aside an international arbitral award pursuant to Article 34(2) of the Model Law, the applicable standard of review is correctness and the Court hears the matter “de novo”.

Justice Marchand began by reaffirming that the Ontario Court of Appeal’s decision in United Mexican States v. Cargill, 2011 ONCA 622, “remains the leading case on the standard of review for applications to set aside awards under s. 34(2)(a)(iv)” of the British Columbia International Commercial Arbitration Act (which corresponds to Article 34(2)(a)(iii) the Model Law, “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 […]”).

Analyzing the language of section 34, Justice Marchand found that the Court hears the set-aside application on a “de novo” basis:  

“[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.”

Citing the Ontario Superior Court of Justice (Divisional Court)’s decision in Russian Federation v. Luxtona Limited, 2021 ONSC 4604, Justice Marchand also highlighted that international consistency in interpreting the Model Law is “not only desirable, but called for” by section 6 of the BC International Commercial Arbitration Act. He then cited authorities from the United Kingdom, United States, Ireland, New Zealand and Hong Kong – as had the Divisional Court in Luxtona – in finding 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).”

He rejected arguments that the Supreme Court of Canada’s decisions in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53and Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65have any application to applications to set aside international arbitral awards under the Model Law: “[f]inally, respectfully, Sattva and Vavilov are not helpful.Sattva establishes that the standard of review on an appeal from a domestic commercial arbitration award is generally reasonableness, but does not address applications to set aside either domestic or international arbitral awards. Vavilov is about the standard of review in administrative law and does not address the field of arbitration. Justice Marchand cited the decision of Justice Tysoe (as he then was) in United Mexican States v. Metalclad, 2001 BCSC 664, which held that administrative law standards should not be used to “create a standard of review not provided for” in the International Commercial Arbitration Act.

Thus, the Court of Appeal found that the Chambers’ judge erred in applying a reasonableness standard of review. It nevertheless dismissed the appeal because the ground for set- side (an allegation that the award was beyond the scope of the submission to arbitration) was not made out.

This decision is my top pick for 2021 because, together with Luxtona, it reaffirms Cargill in holding that courts must apply a correctness standard when determining whether an arbitral tribunal had jurisdiction to render the award it made. The decision dispels any confusion (at least in B.C.!) that may have existed as to whether Sattva or Vavilov should apply in this context. 

In other words, no deference is owed to an arbitral tribunal whose jurisdiction is being challenged, on the question of its jurisdiction. The competence-competence principle means that the arbitral tribunal must be the first to decide the jurisdictional question, but that decision (about jurisdiction) is subject to review by courts on a correctness standard and hearing the matter de novo. This is in stark contrast to merits questions decided by an international arbitral tribunal acting within its jurisdiction, which are not subject to any review at all under the Model Law.

For earlier Case Notes on the cases referred to above, see: