British Columbia Supreme Court set aside an award due to the failure to provide adequate reasons, on the basis that it did not meet standards of natural justice.

Facts

Sound Contracting Ltd. (“Sound”) conducted work for the City of Campbell River (the “City”) in 1998 and 1999 and commenced arbitration in 2001 to recover amounts owing. Sound received a favourable award from the tribunal, but it was set aside on appeal in 2002, with the dispute remitted back to arbitration. For reasons that were beyond the scope of this decision, it took over a decade for the matter to be brought for re-arbitration.

The City moved to dismiss the matter for delay. The City argued that Sound had begun a new arbitration proceeding in 2014, when Sound’s principal submitted a notice of arbitration to the Vancouver International Commercial Arbitration Centre, and that Sound had therefore exhausted the limitation period for events that occurred in the late 1990s. Sound’s position was that the notice was merely a continuation of the proceeding commenced in 2001 and therefore was within the limitation period. The new arbitrator agreed with the City that the 2014 arbitration was a new proceeding and was out of time.

However, in issuing his award, the arbitrator gave very little reasoning for this conclusion. He simply “accepted” the City’s argument that this was a new arbitration because a new notice to arbitrate had been filed in 2014, and concluded that there “can be no doubt” he had been appointed as arbitrator for a new proceeding.

Sound brought an appeal to dismiss this partial award on the ground that the arbitrator failed in his duty under the principles of natural justice to sufficiently explain his reasons for determining that Sound’s claim was time-barred.

Decision

The Court allowed the appeal and remitted the matter back to the arbitrator. The Court found that the principles of natural justice require that an arbitrator provide sufficient reasons to enable a losing party to understand why they lost, and for a court to conduct a meaningful review in any subsequent appeal or challenge.

Arbitrators have an obligation to meaningfully engage with the central issues raised by the parties. The arbitrator dismissed the entire claim based on timing without considering its merits, which indicated that the question of whether the matter had been brought within the limitation period was clearly central to the dispute.

However, the arbitrator’s reasons were circular and unresponsive to Sound’s arguments as to why the new notice of arbitration was within the limitation period. While arbitrators do not have to present their “full syllogistic reasoning” in reaching a decision, it should be clear what premises they were relying on and there should be some reference to a rule or principle of law.

Analysis

While arbitration is an alternative to litigation, it still requires that the principles of procedural fairness (or “natural justice”) be upheld. Indeed, these principles are fundamental, cannot be derogated from, and are enshrined in arbitration legislation across Canada (and elsewhere around the world).

Parties choose arbitration to avoid some of the costs and delays associated with litigation, so court oversight is only required where there have been serious errors by arbitrators. When the parties do not have the ability to understand the basis of a decision and, in turn, potentially challenge a decision because of a lack of reasons, it makes any arbitral decision unfair (regardless of whether the decision itself was correct).

This decision applied previous arbitration legislation in British Columbia (the Arbitration Act, RSBC 1996, c 55), under which the definition of arbitral error specifically included “failure to observe the rules of natural justice.” The new legislation (Arbitration Act, SBC 2020, c 2) does not invoke “natural justice” or “procedural fairness” per se, although it does require a tribunal to treat each party “fairly” (at section 21).

Instead, the new Arbitration Act codifies the requirement expressly, requiring at section 48 that an arbitral tribunal provide reasons for its award unless the parties agree otherwise. This mirrors the requirement for reasons in the UNCITRAL Model Law (at section 31(2)), which is also reflected in other Canadian arbitration legislation (e.g., section 38(1) of the Ontario Arbitration Act, 1991, SO 1991, c 17).

The degree to which an arbitrator must explain their analysis and provide adequate reasoning in a particular case is likely to be difficult to define and fact-dependent. Certainly, due to the very limited grounds to appeal or challenge an award, the standard is different than that of court judgments.

However, unless the parties have agreed to dispense with reasons, there is still an obligation on an arbitrator or tribunal to provide some explanation for its decision—at least, this decision suggests, enough to enable a party to understand the basis of the decision and for the court to perform its supervisory jurisdiction.

Sound Contracting Ltd v. Campbell River (City), 2024 BCSC 933