The Alberta Court of Appeal affirms high threshold for setting aside arbitral awards on the basis of procedural unfairness

In a decision issued on June 9, 2022, the Alberta Court of Appeal (“ABCA”) affirmed an Alberta Court of Queen’s Bench (“ABQB”) decision that refused to set aside an arbitral award on the basis of manifest unfairness under Section 45 of the Alberta Arbitration Act, RSA 2000, c A-43 (the “Act”).  More specifically, the ABCA in ENMAX Corporation v TransAlta Generation Partnership, 2022 ABCA 206[1] (“ENMAX”) was tasked with considering what constitutes “manifestly unfair treatment” or the deprivation of an “opportunity to present a case” by an arbitration panel that may warrant setting aside an arbitral award.

Background

The Appellant, ENMAX Energy Corporation (“ENMAX”), is party to a Power Purchase Arrangement (“PPA”) with the Respondent, TransAlta Generation Partnership (“TransAlta”), under which TransAlta supplies electrical power from its Keephills Generating Unit #1 (the “Unit”) to ENMAX, as purchaser. The Balancing Pool is a statutory body with financial obligations under the PPA and a right to participate in proceedings as between the parties to the PPA.  The PPA contains a binding arbitration clause.

In March of 2013, the Unit tripped and went off-line for 216 days, giving rise to a dispute between the parties as to whether that event constituted a force majeure under the PPA, which would dictate the relative financial burdens of the trip as between the parties. The dispute was referred to an arbitration panel as required by the PPA.

The Arbitral panel found in favor of TransAlta and concluded that the Unit shut-down was a force majeure event under the PPA (the “Award”). ENMAX and the Balancing Pool applied to ABQB in an attempt to overturn the Award on two bases. First, they sought leave to appeal the Award on questions/errors of law under Section 44(2) of the Act.  Second, they applied to set aside the Award on the basis that the panel treated them manifestly unfairly and/or denied them a fair opportunity to present their case, pursuant to Section 45(1)(f) of the Act.  With respect to the latter ground, ENMAX argued that the panel’s refusal to order certain document disclosure, coupled with its reliance on the absence of those undisclosed records to support its conclusion, resulted in manifest unfairness and prevented them from fully presenting their case, thereby warranting setting aside the Award.

The ABQB denied leave to appeal and declined to set aside the Award on the bases of unfairness or an inability to present the case. However, ENMAX and the Balancing Pool were granted permission to appeal the ABQB decision to the ABCA on the sole issue of whether the ABQB Justice erred in refusing to set aside the Award on the basis of Section 45(1)(f) of the Act.

Thus, the central question before the ABCA in ENMAX was whether the arbitration panel’s decision to deny disclosure of the impugned records to the Appellants resulted in the denial of an opportunity to present their case or manifest unfairness within the meaning of Section 45(1)(f) of the Act.  Ultimately, the ABCA dismissed the appeal and upheld the Award.

Governing principles for applications to set aside

The ABCA made clear that the proper approach to applications to set aside arbitral awards under Section 45 of the Act must always consider the context of arbitration and the legislature’s intention that Courts take a “hands off” role in such proceedings. Arbitrations are intended to be a more expeditious, economical and private alternative to court proceedings, and are viewed as an autonomous and sufficient process by which parties have consciously and mutually agreed to have their disputes resolved (as opposed to by the Courts).  Under the Act, arbitral panels have wide discretion and flexibility when it comes to setting procedures and taking evidence.  The purpose of the Act is to “promote adherence to arbitration agreements” and “lend credibility” to this alternate process.[2] As such, judicial non-intervention in arbitrations and awards is the “starting point”, and should only occur in very narrow, prescribed circumstances, in accordance with this important legislative purpose.[3]

According to the ABCA, the list of grounds for setting aside an arbitral award under Section 45 confirm that awards are only to be set aside where there is some “fundamental flaw in the establishment or conduct of the arbitration or its process”. Even if one of the grounds under Section 45(1) is established, Courts maintain discretion as to whether to set aside the award or render one of the alternate remedies (such as remission back to the tribunal).  The ABCA also cautioned that the remedy of setting aside an arbitral award must not be a “substitute for” an appeal or judicial review of the award, or used to circumvent the limitations on judicial intervention.

The test for “manifest unfairness”

Against this backdrop, the ABCA turned to its interpretation of Section 45(1)(f) in particular, which permits a Court to set aside an award where “the applicant was treated manifestly unfairly and unequally, was not given an opportunity to present a case or to respond to another party’s case, or was not given proper notice of the arbitration or of the appointment of an arbitrator”.

With respect to challenges to an award on the bases of natural justice or procedural fairness concerns, the ABCA held that consideration of the purpose of the Act, the nature of arbitrations, the specific use of the word “manifestly” in the section, and the provisions of the Act as a whole, suggest that “procedures which are more efficacious and economical and perhaps less robust than those present in civil litigation are acceptable” in the arbitral context.[4] The ABCA instructed Courts to give deference to procedural choices of arbitral panels when considering applications to set aside on the basis of unfairness. Ultimately, the ABCA endorsed an overall approach to applications to set aside on the basis of procedural unfairness that “balance[s] the nature of the breach in the context of the arbitral process, determine[s] whether the breaches are of such a nature as to undermine the integrity of the process, and assess[es] the extent to which the breach had any bearing on the award itself.[5]

After canvassing jurisprudence concerning both domestic and international arbitrations, the ABCA concluded that the threshold for setting aside an award on the basis of “manifest unfairness” is high. In other words: “not every potential unfairness in an arbitration proceeding or decision will permit the Court to set aside an arbitration award”.[6]  The high threshold to set aside an award on the basis of procedural unfairness is reflected in the myriad ways in which courts have described treatment that rises to the level of “manifest unfairness” in the past, which includes:

• A procedural breach that “affects the integrity of the process as a whole”;[7]
• A procedural breach that is “sufficiently egregious to offend basic notions of morality and justice”;[8]
• Conduct that “amounts to some substantial miscarriage of justice”;[9]
• Conduct that is “egregious and injudicious”;[10] and
• A “breach of natural justice [that] has surpassed the boundaries of legitimate expectation of propriety, culminating in actual prejudice to a party.”[11]

With respect to allegations of manifest unfairness based on denial of document disclosure, the ABCA clarified that “the rejection of relevant evidence does not automatically give rise to a breach of natural justice”.[12] The excluded evidence must be crucial to the party’s case, material to the conclusions reached by the panel, and its exclusion must “go to the heart of the process and effectively undermine its fairness.”[13]

In summary, the ABCA distilled the following five principles applicable to a Court’s consideration of whether an arbitral award ought to be aside on the basis of manifest unfairness:

1. Parties to an arbitration are entitled to a fair hearing, not a perfect hearing.
2. The overall fairness of the proceedings must be considered, not individual rulings.
3. Parties must take advantage of and exercise diligence in pursuing issues and cannot later complain of some perceived unfairness resulting from their failure to do so.
4. Not every refusal to admit relevant evidence is a breach of natural justice.
5. The threshold for setting aside an arbitration award based on grounds of unfairness has been described in various ways, but the cases make it clear that something of a significant nature is required, or that the excluded evidence was crucial to the case being presented.[14]

Outcome of the Appeal

The ABCA disagreed with the Appellants’ assertion that the panel refused to order production of the impugned records. Rather, the ABCA found that the Appellants had failed to make a further application for production of the additional records (as the panel’s procedural orders clearly contemplated and allowed for), and made a tactical decision not to pursue cross-examination of the TransAlta witness on the subject of these documents. As the arbitral panel never foreclosed the production of the impugned records, there was no manifest unfairness in the evidentiary process. In any event, the ABCA found that the impugned evidence was not particularly material or significant to the outcome.  Accordingly, ENMAX and the Balancing Pool’s appeal on the issue of whether the Award should be set aside under Section 45(1)(f) was dismissed and the Award upheld.

Takeaways

Binding arbitration agreements are becoming increasingly common in commercial contracts. Parties should be alive to the advantages, disadvantages and implications of selecting private arbitrations over court proceedings to resolve their disputes. Namely, parties to arbitrations should not necessarily expect the same robust procedural protections and evidentiary processes as found in judicial proceedings, however, there may be other benefits of arbitration that outweigh these considerations. Moreover, parties should be aware that final, binding arbitral awards will not lightly be set aside by Courts, which generally take a “hands off” rather than “supervisory” role over arbitral proceedings. Manifest unfairness that warrants setting aside an award requires finding some fundamental flaw that cuts to the integrity of the arbitral process.

Miller Thomson LLP is here to help with all of your business needs. The Commercial Litigation Group at Miller Thomson LLP specializes in commercial arbitration.  If you have questions about the ENMAX decision or any other matter, please contact a member of our team.

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[1] ENMAX Corporation v TransAlta Generation Partnership, 2022 ABCA 206 [ENMAX].

[2] ENMAX, supra note 1 at para 29, citing EPCOR Power LP v Petrobank Energy and Resources Ltd, 2010 ABCA 378 at para 16 [EPCOR].

[3] EPCOR, supra note 2 at para 18, quoted in ENMAX, supra note 1 at para 31.

[4] ENMAX, supra note 1 at para 40.

[5] Rhéaume c Société d’investissements l’Excellence inc, 2010 QCCA 2269 at para 61 [Rhéaume], quoted in ENMAX, supra note 1 at para 56.

[6] Mitchell v Mitchell, 2019 ABQB 420 at para 18, quoted in ENMAX, supra note 1 at para 44.

[7]Rhéaume, supra note 5 at para 63, quoted in ENMAX, supra note 1 at para 29.

[8]Fuego Digital Media Inc v DAC Group (Holdings) Limited, 2018 ONSC 2897 at para 23, citing Consolidated Contractors Group SAL (Offshore) v Ambatovy Minerals SA, 2017 ONCA 939 at para 65, quoted in ENMAX, supra note 1 at para 52.

[9]Corporacion Transnacional de Inversiones, S.A. de C.V. v STET International, S.p.A., 45 OR (3d) 183 at para 31, 91 ACWS (3d) 520 (Ontario Superior Court of Justice [Commercial List]) [Corporacion Transnacional], citing Sir Michael J. Mustill & Stewart Crauford Boyd, The Law and Practice of Commercial Arbitration in England, 2nd ed (London: Butterworths, 1989) at 550, footnote 4, quoted in ENMAX, supra note 1 at para 55.

[10]Corporacion Transnacional, supra note 9 at para 73, quoted in ENMAX, supra note 1 at para 55.

[11]Soh Beng Tee & Co Pte Ltd v Fairmount Development Pte Ltd, [2007] SGCA 28 at para 98 (Singapore Court of Appeal), quoted in ENMAX, supra note 1 at para 58.

[12] ENMAX, supra note 1 at para 62.

[13] ENMAX, supra note 1 at paras 64, 67.

[14] ENMAX, supra note 1 at para 66.