Ontario – on appeal, court raises legislation neither party pleaded in arbitration, reversing arbitrator’s definition of key term – #502

On an appeal of an arbitration award, Mr. Justice Frederick L. Myers in Her Majesty the Queen in Right of Ontario (Minister of Government and Consumer Services) v. Royal & Sun Alliance Insurance Company of Canada, 2021 ONSC 3922 raised the application of the Legislation Act, 2006, SO 2006, c 21, Sch F which neither party had argued in the arbitration and, having invited and heard argument, held that it governed and served to reverse the interpretation of a key term in the arbitration. Myers J. also noted that he followed Ontario precedent that Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65 applied to appeals in statutory arbitrations but he limited the scope of that precedent, adding that it “cannot to be taken as standing for a broader proposition that Vavilov applies generally to all appeals from commercial arbitrations in Ontario”.

Her Majesty the Queen in Right of Ontario (Minister of Government and Consumer Services) (“Appellant”) and Royal & Sun Alliance Insurance Company of Canada (“RSA”) disputed liability for payment of statutory accident benefits (“SABs”) owing to a car accident victim under Ontario’s Insurance Act, RSO 1990, c I.8. On November 29, 2014, a taxi hit a pedestrian but did not remain at the location.  The victim reported the incident to the taxi company (“Taxi Company”) with reference to a specific taxi number but the Taxi Company’s evidence demonstrated that the particular taxi number was not near that scene on that day.  Until the insurer of that taxi had been identified, the Insurance Act stipulated that Ontario’s Motor Vehicle Accident Claims Fund (“Fund”) paid the SABs.

The taxi alleged to be involved in the accident reportedly carried the Taxi Company’s brand and was one on the taxis it dispatched.  Myers J. noted that Taxi Company “does not own the 850 cabs that it dispatches”.  The claim for the SABs asserted the Taxi Company’s vicarious liability for its dispatched taxi.

Following an arbitration, the arbitrator determined that Taxi Company’s insurance policy did not qualify as motor vehicle liability policy under the Insurance Act as defined at section 1 of that statute and did not include the schedule for SABs under section 268(1) of the Insurance Act.

The Fund appealed, arguing that the arbitrator erred in law by determining that insurers under such policies as the one held by Taxi Company were not required to pay SABs.  Myers J. dismissed the appeal.

(i) standard of review (paras 9-15) – Myers J. briefly addressed the applicable standard of review.

Myers J. recorded that neither party argued whether Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65 and Housen v. Nikolaisen, 2002 SCC 33 (CanLII), [2002] 2 SCR 235displacedTeal Cedar Products Ltd. v. British Columbia, 2017 SCC 32 (CanLII), [2017] 1 SCR 688 and “other cases that apply a reasonableness standard to appeals of commercial awards”.  Having noted the absence of submissions, Myers J. stated that “I will not deal with the issue”.

Myers J. promptly noted that a prior decision, Allstate Insurance Company v. Her Majesty the Queen, 2020 ONSC 830, held that Vavilov did apply to the “precise” same circumstances as those before him, namely a statutory appeal of an arbitration mandated by legislation.  (For the earlier Arbitration Matters note on , see “Ontario – Vavilov standard applies to statutory insurance arbitration but not private commercial arbitration – #298”. Madam Justice Breese Davies held that Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65 altered judicial intervention on appeals from insurance arbitration mandated by legislation.  Davies J. held that legislation which includes a statutory appeal mechanism signals legislative intent that courts are to perform an appellate function in respect of the administrative decision and apply appellate standards of review. Davies J. distinguished between appeals of statutory arbitrations and private commercial arbitrations, the latter being seen as autonomous, self-contained process in which courts should “generally” not intervene.)

Referring to Duggan v. Durham Region Non-Profit Housing Corporation, 2020 ONCA 788 paras 62-63, Myers J. observed that “I am required to follow my colleague’s decision unless there is a change in the circumstances or evidence that “fundamentally shifts the parameters of the debate””.

Those paragraphs in Duggan v. Duggan v. Durham Region Non-Profit Housing Corporation state the following on stare decisis:

[62] I would also reject any applicability of the [Carter v. Canada (Attorney General), 2015 SCC 5 (CanLII), [2015] 1 SCR 331] decision on stare decisis to this case. In Carter, at para. 44, the Supreme Court discussed two circumstances where a court would not be bound by stare decisis: where a new legal issue is raised or “where there is a change in the circumstances or evidence that ‘fundamentally shifts the parameters of the debate.’” In this case, the [Bondy-Rafael v. Potrebic, 2015 ONSC 3655] decision interpreting the same rule was decided after the [Hryniak v. Mauldin, 2014 SCC 7 (CanLII), [2014] 1 SCR 87] case in the Supreme Court. There was no basis for the courts below to ignore the doctrine of stare decisis.

[63] The doctrine of stare decisis makes an important contribution to the cost-effective and efficient management of litigation by ensuring that a legal issue, including the interpretation of a legislative provision, regulation or rule, once decided, is not relitigated in the next case. In my view, the courts below erred in law by failing to treat the Bondy-Rafael case as binding”.

Having confirmed his adherence to stare decisis, Myers J. nonetheless added that he agreed with the reasoning in Ontario First Nations (2008) Limited Partnership v. Ontario Lottery and Gaming Corporation, 2020 ONSC 1516 para. 67 that Allstate Insurance Company v. Her Majesty the Queen “was expressly limited to statutory arbitrations and cannot to be taken as standing for a broader proposition that Vavilov applies generally to all appeals from commercial arbitrations in Ontario”.

[67] Ontario relies upon the decision of Davies J. in the case of Allstate Insurance Company v. Her Majesty the Queen, 2020 ONSC 830 (“Allstate”), in support of its position that the Vavilov case has changed the standard of review that is to be applied on an appeal from a commercial arbitration decision. In Allstate, Davies J. was dealing with an appeal from an insurance arbitration that was statutorily mandated. That is not the case on this appeal which arises because of the parties’ agreement to an appeal from the arbitration decision in the GRSFA. The decision in Allstate does not stand for the broad proposition advanced by Ontario that Vavilov has changed the standard of review that is to be applied generally to appeals from commercial arbitration decisions because the decision in Allstate only applies to statutorily mandated appeals from arbitration decisions”.

(For the earlier Arbitration Matters note on Ontario First Nations (2008) Limited Partnership v. Ontario Lottery And Gaming Corporation, 2020 ONSC 1516, see “Ontario – Vavilov does not overrule Teal Cedar or Sattva Capital – #302”. Mr. Justice Glenn A. Hainey held that Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65 does not refer to either Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 (CanLII), [2014] 2 SCR 633 or Teal Cedar Products Ltd. v. British Columbia, 2017 SCC 32 (CanLII), [2017] 1 SCR 688 and that it is not reasonable to conclude that the Supreme Court meant to overrule its own decisions without making any reference to them or to the area of law to which they relate.)

Though not mentioned by Myers J. in his reference to para. 67, Ontario First Nations (2008) Limited Partnership v. Ontario Lottery and Gaming Corporation also included the following comments at paras 71-71 as lead up to the conclusion that a change to the judicial review of administrative decisions is not an automatic change to the standard of review for arbitration awards:

[71] The Supreme Court of Canada’s comprehensive decision in Vavilov does not refer to the court’s previous decisions in either [Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 (CanLII), [2014] 2 SCR 633] or [Teal Cedar Products Ltd. v. British Columbia, 2017 SCC 32 (CanLII), [2017] 1 SCR 688]. It is not reasonable to conclude that the Supreme Court meant to overrule these important decisions without making any reference to them or to the area of law to which they relate.

[72] Further, as a matter of legal principle it is appropriate that Vavilov does not apply to commercial arbitrations. The administrative law standard of review established in Vavilov derives from constitutional considerations that justify deference by the judiciary to the legislature. This principle does not apply to commercial arbitrations. The standard of review for commercial arbitrations is guided by commercial considerations about respect for the decision-makers chosen by the parties.  As a result, deference is justified by the parties’ contractual intent. It is for this reason that Rothstein J. identified the key differences between administrative decisions and arbitral awards in Sattva and concluded that the judicial review framework for administrative decisions is not applicable in the commercial arbitration context”. 

Myers J. closed with a reference to the recent Supreme Court of Canada comments in Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, 2021 SCC 7 para. 46. “The Supreme Court of Canada has recognized that the question of whether the highly deferential reasonableness standard of review applicable to appeals from commercial arbitration decisions should remain applicable despite Vavilov is an important issue that has yet to be resolved”. 

(For the earlier Arbitration Matters note on that Supreme Court of Canada decision see “Supreme Court – for those SCC justices willing to consider it, Vavilov applies to private commercial arbitration where legislation provides for appeal – #420”. The Supreme Court offered to clarify a contracting party’s duty to exercise in good faith a discretion granted to it by contract and recognized in Bhasin v. Hrynew, 2014 SCC 71.  In dismissing the appeal from Greater Vancouver Sewerage and Drainage District v. Wastech Services Ltd., the Supreme Court upheld a decision in first instance to set aside a private, commercial arbitration award.  The appeal presented an opportunity for the Supreme Court to consider the effect, if any, of Canada (Minister of Citizenship and Immigration) v. Vavilov on the standard of review principles applicable to appeals of commercial arbitration awards set out in Sattva Capital Corp. v. Creston Moly Corp. and Teal Cedar Products Ltd. v. British Columbia.)

Myers J. qualified the scope of his comments, adding that “I am not to be taken to be deciding anything except that I must follow my colleague’s decision on the standard of review on arbitration appeals involving the SABs under the Insurance Act that both parties before me accepted as controlling”.

(ii) court raises legislation not argued by either party (paras 23-31) – Myers J. next determined whether the arbitrator erred in her appreciation of the word “person” and whether it included the Taxi Company as a corporation.  The arbitrator decided that the word “person” in the definition of “motor vehicle liability policy” did not include a corporation and included only natural persons.  The result of that reasoning was that Taxi Company’s policy did not entail application of the SABs in the Insurance Act.

Myers J. disagreed, holding that her interpretation of the word “person” qualified as an error of law.  In his sole footnote, inserted at that point in his reasoning, Myers J. at footnote 1 included the following comment: “Even if a reasonableness standard of review applied, I would not find this decision within the reasonable range of interpretations available. It was reached without reference to the definition of the word “person” in the Legislation Act, 2006 as discussed below”.  He also referred to Vavilov paras 115-124.

[25] The Arbitrator accepted that the word “person” is used throughout the statute and includes corporations. Insurance companies could not be licensed in Ontario otherwise. However, the Arbitrator reasoned that since the word “person” is not defined in the statute, its meaning depended on the particular usage”.

Myers J. excerpted the arbitrator’s reasoning but commented that “I do not understand the Arbitrator’s logic”.  He identified the components of the arbitrator’s reasoning but found them unpersuasive. “Neither of these issues provides a logical basis to find that of the 1,121 times the word “person” is used in the Insurance Act, in this one instance, the Legislature intended to exclude corporations”.

Myers J. then commented on the absence of a definition of “person” in the Insurance Act but that the Legislation Act, 2006, SO 2006, c 21, Sch F did define “person”.  The latter statute stipulated that its definition applied to every act and regulation.

Myers J. then noted that the parties had not argued the Legislation Act or that definition when they appeared before the arbitrator. 

[29] Of greatest significance, the word “person” is a defined term. It is not defined in the Insurance Act. It is defined in the Legislation Act, 2006, SO 2006, c 21, Sch F.  Section 87 of that statute defines the word “person” in every act and regulation to include a corporation.

[30] Neither counsel below brought this definition to the attention of the Arbitrator. I raised it with counsel and offered to receive supplementary written submissions on it. Counsel for RSA argues that under s. 47 of the Legislation Act, 2006, the definition in s. 87 can be displaced if the contrary intention appears or if the definition would give the word a meaning that is inconsistent with its context. He submits that this is what the Arbitrator held.

[31] I agree that the Arbitrator held that finding the word “person” in subsection (b) of the definition of “motor vehicle liability policy” is inconsistent with its context. But, as I discuss above, I am unable to accept that premise. The definition in the Legislation Act, 2006 therefore governs”.

(iii) question of mixed fact and law (paras 32-37) – Myers J. advanced further with the appeal raised against the award and determined that the arbitrator had made a determination of fact, not reviewable on appeal unless it was a palpable and overriding error, that the dispatched taxis were not driven on behalf of the Taxi Company.  As such, the issue involved a question of mixed fact and law.

[37] The issue then is one of law or mixed fact and law. I see no error, let alone a palpable or overriding error, in the Arbitrator’s decision that there was no evidence that [Taxi Company branded taxis] are driven by employees, agents, or on behalf of [Taxi Company]. This is not a question that turns on the identification of any individual driver. It is simply a recognition that an SPF 6 CGL endorsement insurance is not a species of motor vehicle liability policy that are intended to carry SABs under the statutory scheme”.

Despite disagreement with the arbitrator’s determination of the legislation on either a standard of correctness or reasonable, Myers J. dismissed the appeal as the issue also involved a question of fact and therefore a question of mixed fact and law in which he saw no error.

urbitral notes – First, Myers J. held that (i) the standard of review was correctness and (ii) the parties had disputed the meaning of “person” before the arbitration but neither party had argued the application of the Legislation Act in the arbitration. On appeal, Myers J. then invited submissions and heard counsel on the application of the Legislation Act. Having done so, Myers J. concluded that legislation pleaded by neither party applied and that it reversed the conclusion made by the arbitrator on the definition of “person”.

Arbitrators are not entitled to engage in their own research or raise issues or arguments not presented to the parties for challenge and answer.  The court’s post-award review introduced an argument neither party made in arbitration and which, having been added, determined the correctness of a determination.

In Tall Ships Landing Devt. Inc. v. City of Brockville, 2019 ONSC 6597, Madam Justice Sally Gomery held that deference for arbitrators and their discretion over procedural matters do not displace the imperatives of fairness and reliability which underpin arbitration.  Despite a standard of reasonableness applicable to commercial arbitration awards, reliance on a legal theory not advanced or argued by the parties is an error of law and leads to conclusions outside the arbitrator’s mandate.  (See the earlier Arbitration Matters note “Ontario – reliance on theories not pleaded/argued are errors and have ripple effects throughout award – #274”.)

Gomery J. reiterated principles stated in earlier case law which held that reliance on a theory not pleaded or argued was neither reasonable nor fair.  See Rodaro v. Royal Bank of Canada, 2002 CanLII 41834 (ON CA) para. 61 and Moore v. Sweet, 2017 ONCA 182 para. 46. Doing so qualifies as an error of law justifying the court’s intervention under section 45(2) of the Arbitration Act, 1991, SO 1991, c 17 and a party’s procedural rights giving rise to the court’s intervention under section 46(1).

When an award is subject to a standard of correctness and an issue involves the application and interpretation of a statute, is it a breach of natural justice for arbitrators to conduct their own research in order to pre-empt a post-award reversal by the court on a standard of correctness regarding legislation neither party pleaded?  Could a party which itself chose to omit to plead or failed to plead key legislation then fault the arbitrator for not having independently raised it?

When the courts reverse on the issue of natural justice regarding reliance on a theory not pleaded, the courts do not consider whether the arbitrator’s answer was correct or not.  Rather, the court’s focus is on the process itself and the result attained in the arbitration does not shield the breach of natural justice. Arriving at the right result by the wrong path is not an exception to the natural justice.

Second, see also Dhanji v. The Owners, Strata Plan LMS 2472, 2021 BCSC 284:

[36] This is not a case of the Member simply having taken a different path of reasoning than the parties, or making a finding of fact or drawing an inference different than what the parties had argued in favour of. In Tall Ships Landing Devt. Inc. v. City of Brockville, 2019 ONSC 6597, Madam Justice Gomery explained why adjudicators are not free to decide a case solely on the basis of a legal issue that was not identified by the parties and not argued:

[34] Judges and arbitrators sometimes cite cases and authority that the parties did not refer to in argument. They may realize, during deliberations, that the parties have not addressed a particular point. This is not a problem if the point is uncontroversial or minor, and it can be resolved on the evidence as presented. It is however problematic if it is the lynchpin for the disposition of a party’s argument or gives rise to a defence that was never pleaded or argued.

[37] The introduction of a novel theory of liability via reasons for judgment is “fundamentally unfair” to the parties; Rodaro v. Royal Bank of Canada (2002), 2002 CanLII 41834 (ON CA), 59 O.R. (3d) 74 (ONCA), at para. 61; Moore v. Sweet, 2017 ONCA 182, 134 O.R. (3d) 721, at para. 29. But, as Doherty J.A. observed at paras. 62-63 of Rodaro, fairness is not the only reason why a judge must decide lawsuits within the boundaries of the pleadings. A decision based on a theory not advanced by the parties is also inherently unreliable:

We rely on the adversarial process to get at the truth. That process assumes that the truth best emerges after a full and vigorous competition amongst the various opposing parties. A theory of liability that emerges for the first time in the reasons for judgment is never tested in the crucible of the adversarial process.

[37] In creating an issue where none had existed, the Member arrogated to himself the framing of the dispute. That was a matter for the parties, not the Member. His reasoning, and the basis on which he ultimately made his order, were fundamentally different than the issues he was responsible for adjudicating. To have decided the parties’ dispute on a matter of interpretation on which the parties had not joined issue, and to have given a ruling on the interpretation of the Strata Bylaws that neither party sought, without having forewarned the parties of the Member’s views and giving them the opportunity to make submissions, was a breach of the principles of natural justice, and manifestly unfair”.

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