Ontario – courts not bound by arbitration agreement’s stipulated standard of review on appeal – #138

Unlike the parties’ agreement on the applicable law, the seat and the language, the court is not bound by the parties’ agreement on the standard of review for the appeal of an arbitral award. In Northbridge v. Intact Insurance., 2018 ONSC 7131, Mr. Justice James F. Diamond reiterated the decision in The Dominion of Canada General Insurance Company v. Unifund Assurance Company, 2018 ONCA 303 that an appellate standard of review is a legal issue to be determined by the courts and not by the parties themselves. It appears that, in doing so, Diamond J. extended the Court of Appeal’s reasoning by expressly setting aside a stipulation agreed to by the parties in their arbitration agreement, before the dispute arose and before the court proceedings were initiated.

Three (3) insurers – Northbridge General Insurance Corporation (“Northbridge”), Co-Operators General Insurance Company (“Co-Operators”) and Intact Insurance Company (“Intact”) – were involved in a priority dispute to determine which of them was responsible for the payment of an insured’s statutory accident benefits claim.

All three were parties to an agreement which provided for arbitration and in which they stipulated that on an appeal of an arbitral award (a) the standard of review on a question of law would be “correctness” and (b) the standard of review on a question of mixed fact and law would be reasonable.

Priority disputes between insurers are resolved in accordance with the provisions of section 268(2) of the Insurance Act, RSO 1990, c I.8 and section 275(4) requires insurers to arbitrate any unresolved priority disputes under the Arbitration Act, 1991, S.O. 1991, c. 17.

In the priority dispute arbitration involving Co-Operators, Northbridge and Intact, the arbitrator held that Northbridge was the priority insurer. In doing so, the arbitrator dismissed Northbridge’s argument that Northbridge had not received proper notice from Co-Operators under section 268 of the Insurance Act and section 3(1) of the related regulation, Disputes Between Insurers, O Reg 283/95 (“Regulation”).

Northbridge appealed, arguing that the arbitrator had clearly erred in failing to find that Co-Operators was precluded from involving Northbridge due to Co-Operators’ failure to issue the first of two notices under the Regulation. The reasons make no mention of the Arbitration Act.

Diamond J. introduced his analysis by reiterating the approach set by the Ontario Court of Appeal in The Dominion of Canada General Insurance Company v. Unifund Assurance Company, 2018 ONCA 303.  In that case, the Court of Appeal clearly stated that it was not bound by the parties’ own agreement regarding the standard of review.

Though the issue was the interpretation of a regulation, the Court of Appeal in The Dominion of Canada General Insurance Company v. Unifund Assurance Company held that the question in issue fell within the specialized area of the arbitrator’s expertise and merited the deference given by a reasonableness standard. By having applied a correctness standard, the judge in first instance had erroneously substituted his interpretation of the regulation for that of the arbitrator. The Court of Appeal reversed that approach, determining instead that the arbitrator’s decision was reasonable and fell within a range of possible, acceptable outcomes which are defensible in respect of the fact and the law as provided by Dunsmuir v. New Brunswick, [2008] 1 SCR 190, 2008 SCC 9.

The Court of Appeal in The Dominion of Canada General Insurance Company v. Unifund Assurance Company specifically asserted that the parties’ agreement did not bind it:

“[25] The standard of review on the appeal to this court of the appeal court’s determination of the standard of review is correctness: Dr. Q. v. College of Physicians and Surgeons of British Columbia, 2003 SCC 19 (CanLII), [2003] 1 S.C.R. 226, at para. 43. Accordingly, no deference is owed to the appeal judge’s selection of the standard of review.

[26] Nor is this court bound by the parties’ own agreement as to the standard of review. The parties’ arbitration agreement provided for appeals on questions of law on a correctness standard of review and appeals on questions of mixed fact and law on a reasonableness standard of review. The fact that the parties agreed in the past, or agree at the hearing of an appeal, to a standard of review to be applied by a court, is not determinative. The applicable standard of review is a question of law to be decided by the reviewing court: Monsanto Canada Inc. v. Ontario (Superintendent of Financial Services), 2004 SCC 54 (CanLII), [2004] 3 S.C.R. 152, at para. 6; Intact Insurance Company v. Allstate Insurance Company of Canada, 2016 ONCA 609 (CanLII), 131 O.R. (3d) 625, at para. 22.

The two cases cited in that extract address issues related but not identical to the one facing Diamond J. In Monsanto Canada Inc. v. Ontario (Superintendent of Financial Services) at para. 6, the Supreme Court stated that the parties’ own agreement as to the applicable standard was not determinative. The Supreme Court appears to state that a joint approach, perhaps adopted for the purpose of the litigation once commenced, did not pre-empt or prevent the court from making its own determination:

6 The courts below found, and the appellants and respondent agreed, that the appropriate standard of review of the Tribunal’s decision was reasonableness. However, the standard of review is a question of law, and agreement between the parties cannot be determinative of the matter. An evaluation of the four factors comprising the pragmatic and functional approach is required to decide the appropriate level of deference this Court should grant in reviewing the decision.

In Intact Insurance Company v. Allstate Insurance Company of Canada, the Ontario Court of Appeal stated its approach in a manner more familiar in litigation. Instead of stating (a) that the agreement in the arbitration agreement did not bind it or (b) that a joint approach adopted in the litigation did not determine the matter, the Court of Appeal in Intact Insurance Company v. Allstate Insurance Company of Canada appears only to say that it would decide for itself and was not “bound by the parties’ positions”. In the latter case, the “positions” are in the plural and, in the paragraphs preceding it, the Court summarizes competing standards rather than a joint one agreed to in the arbitration agreement or once litigation commenced.

Applying the standard of reasonableness, Diamond J. dismissed Northbridge’s appeal.

[17] While it is possible that I, or another judge of this Court, may have come to a different conclusion, I cannot find that the arbitrator’s decision is unreasonable. I do not find there to be a positive obligation under section 3(1) for Co-Operators to have given a priority dispute notice to every possible insurer that may have priority over Co-Operators.