The Alberta Court of Appeal ("ABCA") recently dismissed an appeal of an Alberta Court of Queen's Bench ("ABQB") decision denying ENMAX Energy Corporation ("ENMAX") and the Balancing Pool's (together the "Appellants") application to set aside an arbitration award granted in an arbitration between them and TransAlta Generation Partnership ("TransAlta" and the "Arbitration"). The dismissal of this appeal came after a nearly six year judicial process challenging the decision from the Arbitration through the Courts. The lengthy litigation process that followed the arbitration in this case was likely something the parties deliberately sought to avoid by subjecting their dispute to arbitration. The decisions granted by the Alberta Courts suggest that there continues to be only a limited ability to avoid the finality of an arbitrator's decision.
The central dispute in two related matters involving TransAlta and the Appellants arose over the proper allocation of losses between the parties following a shutdown of a generation unit owned by TransAlta. TransAlta entered into a Power Purchase Agreement ("PPA") to supply electrical power from Keephills Generating Unit #1 to ENMAX. TransAlta argued that the shut-down of the unit was an event of force majeure, beyond its reasonable control. In the event of a force majeure, TransAlta was relieved from compensating the appellants for the time the unit was offline and the Balancing Pool was correspondingly required to pay costs of generation to TransAlta. The Appellants argued that the shutdown was a foreseeable result of normal operations, in which case TransAlta would have been required to pay compensation to the Appellants. Pursuant to an arbitration clause in the PPA (the "Arbitration Clause"), the dispute proceeded to an arbitration. In 2016, the panel of arbitrators (the "Arbitral Panel") agreed the event was a force majeure and found in favor of TransAlta (the "Award").
Following the outcome in the Arbitration, the Appellants brought an application in the ABQB seeking to both set aside the Award and for leave to appeal the Award. An initial application was heard in late 2017 when TransAlta applied to have the leave request struck from the Appellants' application. Arbitrations are intended to provide for expediency, utilization of expertise, and importantly, finality. As such, the Alberta Arbitration Act (the "Arbitration Act") limits access to the court system, and an appeal from an arbitration award is generally permitted only if the parties' arbitration agreement allows an appeal, or if leave is granted by the court.
The Arbitration Clause provided no right to appeal and so leave was sought. The Appellants unsuccessfully argued before the ABQB that they were entitled to leave to appeal because the Arbitral Panel made an error in law by refusing certain disclosure requests. The ABQB refused to grant leave to appeal and held that without express statutory authority, there were no pre-existing rights to appeal on which the Appellants could rely. The ABQB set out the standard of review of an arbitral decision noting that: "the review looks for whether the impugned arbitral process met the level of fairness required by law." The Court rejected that an error of law, alone, could form the basis of a right to appeal.
After the leave application was denied, the remainder of the Appellants' application, seeking to set aside the Award pursuant to s. 45 of the Arbitration Act, proceeded. Section 45 provides the authority for a court in Alberta to set aside an arbitration award on narrow grounds. The party seeking to overturn the award must show it was treated "manifestly unfairly and unequally" or was "not given the opportunity to present a case or to respond to another party's case." The Appellants relied on both these grounds in the application to set aside. The focus of their unfairness claim was on the disclosure process in the arbitration and they highlighted both the decision of the Arbitral Panel not to order disclosure and the lack of opportunity to make oral argument in support of that disclosure. The application was heard and a decision granted in 2019. As in the earlier leave application, the decision highlighted that the underlying goals of arbitration legislation and the purposes of arbitrations in offering expediency, expertise, and importantly, finality, justified limited access to the courts to set aside the Award. The ABQB rejected the application to set-aside on the ground that there had been no manifest unfairness and that the Appellants had been granted the opportunity to present their case. In 2020, the Appellants sought and were granted leave to appeal the decision of the ABQB dismissing their application to set aside.
The appeal of that decision has now been heard and a decision recently delivered by the Alberta Court of Appeal ("ABCA"). The issue before the ABCA on appeal was defined narrowly as follows:
[D]id the chambers judge err in concluding that the arbitration panel's rulings on document disclosure with respect to one matter did not prevent the appellants from making their case in this multi-party commercial arbitration nor result in manifest unfairness.
As they had in the ABQB, the Appellants argued before the ABCA that a decision made by the Arbitral Panel not to direct disclosure of certain records created manifest unfairness. Particularly, TransAlta, in support of its force majeure argument, relied in the mediation on results from the Tennessee Valley Authority test ("TVA Test"). The Appellants challenged the validity of the TVA Test and sought disclosure by TransAlta of evidence of its past uses of that TVA Test. In response to that argument, the ABCA highlighted the purposes of arbitration that were framing its decision making: "arbitration is intended to be timelier and more private, allow for specialized expertise, and offer finality." The ABCA noted that the purpose of the Arbitration Act is to promote adherence to agreements, expediency, fairness, and to lend credibility to the arbitration process. As such, the term "manifestly" in s. 45 was found to connote a requirement for clear and obvious unfairness or unequal treatment in the arbitration process in order to set aside an award.
In reviewing an Ontario decision, the ABCA identified the types of serious breaches that would be required to justify setting aside an arbitrator's award including that it offends our "most basic notions of morality and justice" or reflects "egregious and injudicious conduct" by the arbitrator. Additionally, in reading s. 45 in the context of the entire statute, the ABCA found that the Arbitration Act imposed an obligation on arbitration panels to observe principles of natural justice, which includes treating parties fairly and giving them an opportunity to present their case. However, the Court held that the language of the Arbitration Act still provided for disclosure procedures less robust than those required in civil litigation. Ultimately, the Arbitral Panel relied on the TVA Test evidence produced to determine the cause of the trip. However, in the view of the ABCA, TransAlta's reliance on this TVA Test to prove the cause of the trip did not mean it was materially unfair that the Arbitral Panel did not order disclosure of additional TVA Test evidence.
The ABCA accepted the Arbitral Panel's adoption of the "reliance and request" disclosure method whereby parties disclose only the records on which they intended to rely, and the opposing party may request production of additional documents relevant and material to the arbitration outcome. While the Court commented that its application might have been 'unfortunate' in this case, it made note that the reliance request method is commonly used in arbitrations and is not inherently unfair given that the Arbitration Act grants an arbitration panel the discretion to determine its own procedures. The ABCA agreed that the Arbitral Panel's disclosure procedural orders issued in response to the Appellants' document requests were not rulings that the documents were irrelevant and therefore, denied. It was significant to the ABCA in determining that the Appellant had not been prevented from presenting their case that while their document requests were not granted, the possibility of future production, if relevance was revealed through the proceeding, remained. The option to revisit disclosure was available to, but not acted upon by the Appellants.
Following a thorough review of domestic and international arbitration case law on the issue, the ABCA articulated the following core principles in relation to natural justice, fairness, and the exclusion of evidence in arbitrations:
- Parties to an arbitration are entitled to a fair, and not perfect, hearing;
- The overall fairness of the proceedings must be considered, not just individual rulings;
- Parties must exercise diligence in pursuing issues and cannot complain later of procedural unfairness if those complaints were not brought up during the hearing;
- Not every refusal to admit relevant evidence is a breach of natural justice; and
- The threshold for setting aside an arbitration award based on unfairness must be significant such that the excluded evidence was crucial to the case being presented.
The ABCA ultimately disagreed with the Appellants and dismissed their application to set aside the Arbitral Award but the irony that the decision of deference came after nearly six years of litigation is hard to miss. Avoiding a long protracted appeal process after an arbitration is generally the goal of parties selecting arbitration. It is clear not every procedural unfairness will justify judicial intervention. If parties to an arbitration wish to rely on a lack of disclosure to set aside an arbitrator's decision they will be tasked with showing they availed themselves of every opportunity to secure disclosure, that the disclosure was essential to their case and that the entirety of the process did not provide for other means by which they could make their case.
Hopefully the clarity offered by the Court in this decision will result in more, not less, finality in arbitrations. The debate that arose in this dispute about the necessary scope of disclosure and fairness suggests careful attention to the details of disclosure scope and process to arrive at a higher level of consent in advance of an arbitration may help avoid later claims of unfairness. For arbitrators, maintaining a willingness to readdress relevance issues as a matter progresses may also assist in shielding their decisions from judicial intervention.
Should you have any questions about this article or any other commercial litigation matter, you can contact the authors or a member of our Commercial Litigation Group.