Manitoba Court finds a party’s bad faith is no basis for an arbitral tribunal to exceed its jurisdiction and rewrite a settlement agreement.

Facts

Buffalo Point First Nation leased land to individuals represented by the Buffalo Point Cottage Owners Association (the Association). The leases were for the development of cottages on the land, into which the cottagers invested substantial sums of money in reliance on their long-term leases. The dispute between the parties arose when Buffalo Point unilaterally changed the agreed service fee structure to a tax mechanism, which was more costly to the cottagers. In 2015, the parties reached a settlement that dispensed with the main arbitration and all related litigation. Under the settlement:

  1. An agreement providing for binding mediation of disputes over annual fees charged by Buffalo Point was terminated.
  2. Buffalo Point was to enact a Taxpayer Representation Council Law, including a provision requiring the parties to submit to binding mediation for the settlement of disputes over Buffalo Point’s budget expenditures.
  3. The Arbitrator would retain jurisdiction to implement the settlement in the event of any remaining remedial issues or for any necessary clarification.

The parties subsequently disagreed about how to give effect to the Taxpayer Representation Council Law. The Taxpayer Representation Council Law was submitted to Buffalo Point’s Tax Commission for approval, as required by the First Nations Fiscal Management Act. The Commission refused to approve the Taxpayer Representation Council Law with the binding mediation mechanism called for by the settlement agreement.

The matter was heard by the Arbitrator who, among other things, amended the settlement agreement to remove binding mediation and replace it with “expedited advisory mediation.” In their reasons, the Arbitrator commented that the “good faith” performance of the settlement agreement was at stake. In the Arbitrator’s view, Buffalo Point was obligated to act in good faith in the realization of the settlement agreement.

Buffalo Point appealed the Arbitrator’s decision on the ground that it was beyond the Arbitrator’s jurisdiction under the settlement agreement.

Decision

Applying a standard of correctness for these questions of law, the Manitoba Court of King’s Bench held that the Arbitrator exceeded their jurisdiction by substantially amending the settlement agreement rather than interpreting it or making an order that could be considered either remedial or a clarification under the settlement agreement.

Analysis

The Court dealt with two key issues: the applicable standard of review, and the scope of the Arbitrator’s jurisdiction to make revisions to the settlement agreement.

The substantive issue before the Court was, in the first place, a matter of construing the settlement agreement – particularly the provision which granted the Arbitrator jurisdiction over matters related to the agreement itself. Although the traditional Sattva framework required a reasonableness standard of review for arbitral awards, the Court held that the Vavilov framework demanded a standard of correctness.

The question of the Arbitrator’s jurisdiction was characterized as a question of law, despite the fact that the scope of that jurisdiction was a question of contractual interpretation. It is unclear from the Court’s reasons whether it relied on this characterization in applying the Vavilov framework and applying a standard of correctness. This is consistent with the majority of lower court decisions, and the only intermediate appellate court decisions, addressing the issue. The Supreme Court of Canada has yet to weigh in (although three concurring justices have signalled their view that Vavilov overtakes Sattva such that the appellate standard of review applies to appeals from arbitral awards).

The Court found that the Arbitrator’s changes to the settlement agreement amounted to a significant rewrite of the settlement agreement by introducing new concepts alien to the negotiated bargain. The Court disagreed that the case of Churchill Falls (Labrador) Corp v Hydro-Québec, 2018 SCC 46, which recognized that Quebec courts have sometimes required contracting partners to make slight changes to their contracts, afforded the Arbitrator jurisdiction to substantively modify the settlement agreement on the grounds of good faith:

With respect, I disagree that the effect of Churchill Falls is to open the door for an arbitrator to rewrite the key provisions of the Settlement based on his finding Buffalo Point was not acting in good faith. The Arbitrator’s reservation of jurisdiction remains the key starting and controlling source of his power.

Putting aside the scope of the dicta in Churchill Falls and its relevance outside of Quebec, the Court was mindful that the Arbitrator’s jurisdiction was expressly limited by the arbitration agreement contained in the settlement agreement. Making amendments to the settlement agreement (even if otherwise legitimate) fell outside the Arbitrator’s limited jurisdiction to deal with any remaining remedial issues or provide clarification of the terms of the settlement agreement.

Buffalo Point First Nation et al v Cottage Owners Association, 2023 MBKB 141