By Stephen L. Drymer and Michael Kotrly
Canada’s bilingual heritage and its legal system, which is rooted in both common and civil law, gives it a unique ability to grapple with the challenges of international commercial arbitration.
Canadian courts generally have a positive attitude towards arbitration, respecting the jurisdiction of arbitrators and following modern, liberal international standards on enforcement of awards. Canada became the first country to adopt the UNCITRAL model law on International Commercial Arbitration (the model law) in 1986 when the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”) also came into force in Canada.
After early experience suggesting an ambivalent approach to arbitration, the Supreme Court of Canada now sets the tone for courts across the country by unambiguously recognizing arbitration as a legitimate and valuable method of dispute resolution. It respects and gives full effect to the intentions of parties who agree to resolve their disputes this way.
Implementation of the model law
The model law has full force in Canada (although, as in most states, the 2006 amendments to it have yet to be adopted). However, in light of Canada’s federal structure and the division of powers between the federal Parliament, on the one hand, and the provincial (and territorial) legislatures, on the other, implementation of the model law required legislation at both levels of government and took various forms. Given that jurisdiction over most arbitration agreements and enforcement matters lies within the provincial sphere, each province has enacted legislation giving effect to the model law, and it is before provincial Superior Courts that most arbitration-related issues are resolved judicially in the first instance.
First adopted by the federal Parliament in 1986 by means of the Commercial Arbitration Act, the model law and the New York Convention were soon rolled into provincial legislation, with the model law often simply incorporated by reference (and attached as a schedule) to it. With the exception of the federal government and Québec, Canadian jurisdictions maintain discrete (albeit similar) legal regimes for domestic and international arbitration.
Arbitration awards, whether domestic or foreign, are not self-enforcing. They must be recognized by court order. Article 36 of the model law sets out the limited grounds for a court to refuse to enforce an award and is fully incorporated in Canadian law. Canadian courts have been consistent in holding that the reasons to review an award pursuant to Article 34 of the model law and to refuse enforcement of an award under Article 36 of the model law are to be narrowly construed. In addition, courts have maintained that there is no scope for review on grounds of error of law or fact, and that there is a powerful presumption that a tribunal acted within its powers. Judges engage sparingly in judicial review of awards.
Canada’s approach to kompetenz-kompetenz
The principle of kompetenz-kompetenz, the ability of the arbitral tribunal to rule on the question of whether it has jurisdiction, is now well established in international arbitration. Following the English case law of the time, Canadian courts of a previous generation were frequently hostile to arbitration, often finding arbitration clauses which purported to oust the courts’ jurisdiction to be void as contrary to public policy. By the early 1980s the Supreme Court began to adopt a more ‘friendly’ view of arbitration, and nowadays courts across the land tend to favour a generous approach to both the arbitrability of claims and the arbitrator’s jurisdiction to make an initial determination on arbitrability.
In Desputeaux v Éditions Chouette (1987) Inc., 2003 SCC 17, the Supreme Court confirmed that arbitration clauses on statutory claims are valid unless the statute in question explicitly states that claims cannot be arbitrated or that the statute’s subject matter is of “public order” and non-arbitrable.
Then in Dell Computer Corp v Union des consommateurs, 2007 SCC 34, the Supreme Court clarified the Canadian approach to the kompetenz-kompetenz principle:
“… in any case involving an arbitration clause, a challenge to the arbitrator’s jurisdiction must be resolved first by the arbitrator. A court should depart from the rule of systematic referral to arbitration only if the challenge to the arbitrator’s jurisdiction is based solely on a question of law. This exception is justified by the courts’ expertise in resolving such questions, by the fact that the court is the forum to which the parties apply first when requesting referral and by the rule that an arbitrator’s decision regarding his or her jurisdiction can be reviewed by a court.”
The approach adopted by the Supreme Court in Desputeaux and Dell reflects a very positive attitude towards arbitration, perceived as a system of justice that runs parallel to – and by no means inferior or subservient to – the system of justice in the courts.
The Supreme Court of Canada recently released what has become a much-debated decision in Seidel v Telus Communications Inc., 2011 SCC 15, a case which (as with Dell) addressed the enforceability of an arbitration clause in the context of consumer protection and the role of the courts (as opposed to the arbitrator) in making that determination. The Court unanimously affirmed the kompetenz-kompetenz principle and stayed the contractual and certain statutory claims alleging unlawful practices in cellular phone billing, which had been brought before the courts, and referred those claims to arbitration. However, by a five-four majority, the Court concluded that the arbitration clause was ineffective with respect to claims arising out of the consumer protection legislation in question. In so concluding, the majority used language that suggests a potential weakening of the Court’s enthusiasm for arbitration as expressed in its earlier jurisprudence.
The consumer legislation at issue provided that any waiver of a person’s rights or protections under the legislation “is void except to the extent that the waiver is expressly permitted by this Act”, and the majority found that the legislation provided for the right to enforce the legislation in court. The majority reasoned that it was open to the legislature to prefer the “vindication” and “denunciation” available through a “well-publicized court action” rather than through “low-profile, private and confidential arbitrations,” and that having done so, a consumer could not then waive the right to go to court. Integral to this decision was the majority’s observation that “private arbitral justice, because of its contractual origins, is necessarily limited.” The dissent opined that “access to justice is fully preserved by arbitration,” and that the arbitration agreement did not constitute an improper waiver of the plaintiff’s rights.
While the decision has resulted in some expression of concern within arbitration circles, other observers counter that the Court’s findings are necessarily limited to the context of consumer claims and to domestic arbitration. It remains to be seen how lower courts will interpret and apply Seidel in areas of the law and to claims which have nothing to do with consumer protection.
The Supreme Court of Canada has held that questions regarding the New York Convention and model law need to be determined with respect to the Convention, not with respect to Canadian law itself, and judges openly refer to and borrow from developments in other countries.
While the Supreme Court continues to attempt to articulate the precise relationship between arbitration and the judicial system, courts nationwide have a positive, liberal and deferential attitude towards international commercial arbitration, in full respect of the spirit of the model law.
Stephen L. Drymer is co-chair of international arbitration at Norton Rose OR LLP and practices at the Montréal office and Michael Kotrly is a lawyer in the Toronto office of Norton Rose OR LLP.