In Burwell v. Wozniak, 2024 ONSC 1234, the Court grappled with the appropriate standard of review to apply to arbitral awards. The heart of the underlying dispute was whether the appellant Burwell’s promise of shares in his company was sufficient to establish an estoppel against him in favour of his former partner, Wozniak. This case is noteworthy because most cases since Vavilov have not weighed in on the issue and have simply said that, regardless of the standard of review, the appellant does not meet it.
The case arises from an acrimonious separation. Following the termination of their personal relationship, Wozniak claimed a 50% interest in Burwell’s personal shares and those held by the Burwell Family Trust. Woziniak’s claim hinged on an email from Burwell promising her shares in Fusebill Inc., the company he co-founded, should they reconcile.
Burwell and Wozniak separated in 2014. Over seven years later, as the sale of Fusebill approached, Wozniak claimed a 50% interest in Burwell’s personal and family trust shares, which he contested. To allow the sale to proceed without affecting her claim, they agreed to an interim arrangement involving mediation and, if necessary, arbitration. When mediation failed, they moved to arbitration to resolve Wozniak’s claim based on trust principles and proprietary estoppel.
On January 1, 2022, the arbitrator found that the email was a valid declaration of trust. This entitled Wozniak to 50% of the proceeds from the sale of Fusebill shares held by Burwell and the family trust.
Burwell appealed. In Burwell v. Wozniak, 2023 ONSC 1685, previously covered in Arbitration Matters in Ontario – Arbitrator erred by allowing surrounding circumstances to overwhelm written agreement – #733, the Court ruled that the arbitrator had erred by allowing the email to override the Burwell Family Trust terms, concluding it did not create a valid trust. The Court remitted the issue of proprietary estoppel back to the arbitrator.
On August 30, 2023, the arbitrator held that proprietary estoppel could apply beyond interests in land. Despite ambiguities in the email, the arbitrator found that it showed Burwell intended for Wozniak to have 50% of the Fusebill shares. Consequently, the arbitrator awarded her 50% of the proceeds of sale of the shares held by Burwell and the family trust.
Burwell appealed the arbitrator’s decision, which required the Court to address four issues.
Issue 1: Should Leave to Appeal be Granted?
In their arbitration agreement, the parties had agreed that they could appeal a question of law with leave, and questions of fact or mixed fact and law as of right. The applicant appealed the application of proprietary estoppel to the facts of the case, but since the parties disputed its applicability as a matter of law, Burwell needed leave to appeal this legal question.
The court will grant leave to appeal under section 45(1) of the Arbitration Act, 1991, SO 1991, c 17 if it is satisfied that the importance of the matters at stake justifies an appeal and that determining the question of law will significantly affect the parties’ rights. The first criterion is met if the award significantly affects a party’s financial position, and the second is met if correcting the errors would decisively alter the outcome.
Wozniak accepted that Burwell met the element for the test for leave under s. 45(1). The arbitrator’s award of approximately $1.5 million significantly affected Burwell’s financial position, and correcting the alleged errors would entirely defeat her claim.
Issue 2: What is the appropriate standard of review?
The parties disagreed over whether an appellate standard of review or reasonableness review should apply. The Supreme Court of Canada in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 held that appeals from arbitral awards on questions of law should generally be reviewed for reasonableness. The Court reaffirmed this holding in Teal Cedar Products Ltd. v. British Columbia, 2017 SCC 32.
However, the Supreme Court if Canada’s decision in Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65, which revised the standard of review for administrative law decisions introduced the application of appellate standards of review to statutory appeals of administrative tribunal decisions. This decision, however, did not directly address arbitration, leaving ambiguity over whether Sattva‘s reasonableness review still applies to arbitral awards.
There is, so far, little consensus among Canadian courts on this issue. Some have applied the correctness standard to questions of law to questions decided by arbitrators, citing Vavilov. Others have continued to apply the reasonableness standard from Sattva.
The Court here determined that the appellate review standard of review applied because:
“[41] In my view, Sattva and Teal Cedar are no longer binding since there has been a significant development in the law since they were released: Canada (Attorney General) v. Bedford, 2013 SCC 72, [2013] 3 S.C.R 1101, at para. 42; Carter v. Canada (Attorney General), 2015 SCC 5, [2015] 1 S.C.R. 331, at para. 44. Specifically, the standard of review framework on which Sattva was built has changed. Sattva expressly borrowed from the Supreme Court’s judicial review framework developed in Dunsmuir v. New Brunswick, 2008 SCC 9, [2008] 1 S.C.R. 190: Sattva, at paras. 104-106. But Vavilov reconsidered the court’s Dunsmuir framework. Vavilov sought to simplify and bring coherence to the standard of review jurisprudence. It also put judicial review on a firmer theoretical footing by respecting legislative intention.”
This standard of review analysis starts with the presumption that reasonableness is the default standard unless the legislature specifies otherwise or provides a statutory appeal mechanism. In such cases, appellate standards of review apply, reflecting the legislature’s intent for appellate oversight.
In the context of arbitration, this principle still holds. Endorsing Brown and Rowe JJ.’s (Côté J. concurring) minority opinion in Wastech Services, the Court noted that the differences between arbitration and administrative decision-making do not alter the need to respect legislative intent. The appellate standard of review should apply as a matter of statutory interpretation, focusing on the legislature’s wording and intent. However, the majority in Wastech left this issue for another day, which is why there has been debate in the lower courts.
The Court found that applying appellate standards of review also aligns with the Arbitration Act, 1991, which provides for a right of “appeal” of an arbitral award in its provisions. This term, the Court noted, should be interpreted consistently across different legal contexts, including arbitration. This is consistent with the minority decision in Wastech.
Issue 3: Did the arbitrator err in law in extending proprietary estoppel beyond interests in land?
This is one of the few cases in which a court has found an extricable error of law. The Court found that the arbitrator erred in extending proprietary estoppel to shares. The Supreme Court of Canada in Cowper‑Smith v. Morgan, 2017 SCC 61 outlined the elements of proprietary estoppel. Although the Court acknowledged academic criticism and broader applications in English law, it did not decide on extending it beyond land. The Court further noted that Ontario’s Court of Appeal has consistently required an interest in land for proprietary estoppel.
The Court held that the arbitrator’s decision to extend proprietary estoppel beyond interests in land was not permissible for two key reasons.
First, according to Section 31 of the Arbitration Act, 1991, arbitral tribunals are required to resolve disputes in accordance with the law, including equity. This provision empowers arbitrators to apply legal and equitable principles and to grant remedies like specific performance and injunctions. However, it also constrains them to adhere to existing legal principles and prevents them from creating new law. This means that arbitrators must apply the law as it stands and cannot deviate from established legal doctrines.
Second, the arbitration agreement in this case specified that the dispute would be governed by the laws of Ontario and Canada. This is crucial because it reflected the parties’ consent to be bound by specific legal frameworks. By deviating from Ontario law, the arbitrator undermined the parties’ agreement. Section 32(1) of the Arbitration Act, 1991, reinforces this by stating that arbitrators must apply the rules of law designated by the parties.
Ultimately, arbitrators, like Courts, must still identify and apply the correct legal principles. They cannot extend legal principles in entirely new directions. In this case, the arbitrator’s decision to apply the principle of proprietary estoppel to shares represented a major expansion of the doctrine and a significant departure from established Ontario precedent. Such a change is within the purview of appellate courts and requires careful deliberation and compelling reasons, which the arbitrator was not authorized to undertake.
Issue 4: Did the arbitrator err in finding a clear and unequivocal promise?
The applicants also argued that while the arbitrator identified the correct legal test for proprietary estoppel, the arbitrator failed to apply it properly. This constituted an error of law.
The arbitrator failed to apply the requirement for a clear and unambiguous promise. The email in question contained internal inconsistencies and contradictions, which undermined its clarity. Moreover, the promises in the email were contingent on the execution of a family trust agreement, which the arbitrator overlooked.
The Court granted Burwell’s appeal and set aside the arbitrator’s decision. Wozniak’s claim was dismissed without remitting the matter back to the arbitrator.
Contributor’s Note
This case presents a welcome addition to the evolving jurisprudence on the standard of review applied to arbitration awards.
Much of the intellectual ballast in the debate has been supplied by James Plotkin, applicants’ counsel (and Arbitration Matters contributor). For example, in Inspired by Vavilov, Made for Arbitration: Why the Appellate Standard of Review Framework Should Apply to Appeals from Arbitral Awards, which James co-authored with Mark Mancini, the authors anticipated several rationales for an appellate standard of review that predate even Brown and Rowe JJ.’s concurring opinion in Wastech.
The authors contend that Vavilov’s rationale for appellate review should also apply to appeals from arbitral awards, most importantly as it respects party autonomy. They also carefully critique the view that because Sattva is an “arbitration decision”, it should apply over Vavilov.
Firstly, the authors highlight that the Sattva decision directly draws from the administrative law framework in that it relies on Dunsmuir v. New Brunswick, 2008 SCC 9 to apply a reasonableness standard of review to appeals from arbitral awards on questions of law. This reasonableness standard of review of in arbitral awards mirrors the one described in Dunsmuir and subsequent cases.
Secondly, if Vavilov modifies Dunsmuir and the understanding of when the appellate standard applies, by this logic Plotkin and Mancini assert that it modifies Sattva as well, which means that the appellate standard of review should apply to arbitral awards.
Finally, even if Vavilov does not “overrule” Sattva, they argue that principles in Vavilov concerning consistent legislative intent where rights to appeal are found in statutes, should apply to appeals under the Arbitration Act 1991. The rationale for using the appellate standard of review in Vavilov aligns with the principles underpinning arbitration law in Canada, namely party autonomy.
The present case aligns with these arguments, notably its adoption of Brown and Rowe JJ.’s reasons in Wastech at paras. 119 – 120 that differences between arbitration and administrative decision-making “do not… affect the standard of review where the legislature has provided for a statutory right of appeal. Appellate standards of review apply as a matter of statutory interpretation.”
The case also effectively parries the policy rationale that parties to arbitration agreements have contracted for finality and not the perceived intrusiveness of appellate review by the Courts. The Court’s succinct response is that where parties have agreed to an appeal to a superior court, applying an appellate standard of review is consistent with party autonomy.
This logic is persuasive. However, many parties to arbitration agreements no doubt contemplated that they were submitting to a more deferential standard of review at the time they contracted. And this is one of the reasons there has been such debate in the case law. The upshot of this is that counsel drafting arbitration clauses will want to carefully consider limiting recourse to courts, depending on the goals of their clients.