In its recent decision in Vancouver School District No. 39 v. Kingsgate Property Ltd., the British Columbia Court of Appeal (BCCA) clarified that the appellate standards of review, including correctness for questions of law, apply to appeals of arbitral awards.
Prior to the Supreme Court of Canada’s 2019 decision in Canada (Minister of Citizenship and Immigration) v. Vavilov (Vavilov), the reasonableness standard of review applied to appeals of arbitral awards. This standard of review is a deferential standard. An internal inconsistency, failure to articulate reasoning, or a conclusion that is irreconcilable with evidence or law is required before a decision would be considered “unreasonable.”
In Vavilov, the Supreme Court departed from the existing reasonableness standard for statutory appeals, ruling that the appellate standards of review for appeals of court decisions — correctness for questions of law and palpable and overriding error for questions of fact or of mixed fact and law — apply to statutory appeals. While stated in the context of an administrative decision, the Supreme Court has since described this direction as “categorical.”
Accordingly, since Vavilov, whether the decision applies to statutory appeals of arbitral awards has been actively debated among practitioners and courts across the country. At least for now, that question has been answered in the affirmative in British Columbia.
Background
In the 1970s, Vancouver’s Board of Education of School District 39 (VSB) entered into a long-term lease with Royal Oak Holdings Ltd. (Royal Oak) that contemplated several renewal terms. The lease set out a formula for determining the basic rent for each renewal term, including a provision providing that in the event of a disagreement the basic rent would be determined by arbitration and the property would be valued as “if vacant and ready for immediate development to [its] highest and best lawful use by a person or persons ready, willing and able to purchase and develop the SAID LANDS for that immediate use.”
In 2005, Royal Oak assigned its rights under the lease to Kingsgate Property Ltd. (Kingsgate Property). In 2021, Kingsgate Property initiated arbitration to determine the basic rent for the 2017–2027 renewal term. In its 2022 award (2022 Award), the arbitral panel (the Panel) departed from an earlier arbitral award (the 1999 Award). Rather than interpreting “immediate” as “most immediate” and “lawful use” as the use that was immediately available for development under existing zoning without the need for discretionary approval, the Panel valued the property at its “highest and best lawful use” where a “lawful use” was any use permitted under the existing zoning, including uses that required discretionary approval. This resulted in a substantial rental increase for Kingsgate Property.
Kingsgate Property then appealed to the British Columbia Supreme Court (BCSC). The BCSC concluded that the 2022 Award was both unreasonable and incorrect because it did not fall within a range of outcomes that were justified, transparent, intelligible and defensible, and the Panel’s interpretation of the 1999 Award was not consistent with the language of the 1999 Award read as a whole. In addition, the BCSC held that the Panel erred by declining to apply issue estoppel, as the relevant provisions of the lease had already been interpreted in the 1999 Award. Ultimately, the BCSC allowed the appeal, undertaking its own calculation of the basic rent on the basis of the 1999 Award.
The Appeal: Clarifying the Standard of Review
VSB appealed, arguing, among other grounds, that the BCSC failed to identify the appropriate standard of review. The BCCA split on the outcome of the appeal itself, but unanimously agreed on the standard of review applicable to statutory appeals of arbitral awards, holding that the reasonableness standard of review was “impliedly” overturned by Vavilov and the appellate standards of review now apply to appeals of arbitral awards.
In coming to this conclusion, Justice Wilcock (dissenting but not as to the standard of review) reasoned that it was difficult to discern a good reason for adopting differing standards of review for administrative and arbitral decisions, emphasizing the Court’s clarification in Vavilov that what is relevant in determining the applicable standard of review is (i) the nature and extent of a decision-maker’s delegated authority, and (ii) the statutory appeal mechanism afforded to litigants — not a decision-maker’s expertise.
The majority ultimately applied a correctness standard of review, holding that the Panel erred by (i) conducting a fresh interpretation of the lease renewal term unconstrained by the findings of the 1999 Award, and (ii) considering irrelevant factors in determining not to apply issue estoppel. Accordingly, it dismissed the appeal.
Key Takeaways
The decision in Vancouver School District No. 39 v. Kingsgate Property Ltd. clarifies the appropriate standard of review for appeals of arbitral awards in British Columbia, confirming that the appellate standards of review apply.
The BCCA’s direction may have a significant impact on the number of successful appeals from arbitral awards in the years to come. British Columbia’s domestic Arbitration Act, for example, limits appeals of arbitral awards to questions of law. Applying the appellate standards of review, those questions of law will now be reviewed on a standard of correctness, meaning that an appellate court is free to replace the opinion of the arbitrator or tribunal with its own. This is a far cry from the deferential standard of reasonableness that previously applied to most appeals on a question of law.
For more information, please contact the authors or any member of our Arbitration group
