The doctrines of res judicata and issue estoppel can, as a matter of law, apply to subsequent arbitration proceedings, the Alberta Court of Appeal recently held in Enmax Energy Corporation v TransAlta Generation Partnership, 2015 ABCA 383 [Enmax Energy].
In Enmax Energy, TransAlta Generation Partnership and Enmax Energy Corporation were parties to a power purchase arrangement (the “Arrangement”). The Arrangement provided for “final, binding and non-appealable” arbitration of disputes. Under this provision, the parties were involved in a prior arbitration as a result of updates made by Statistics Canada to certain indices TransAlta used in its billings to Enmax. That arbitration determined that the updated indices were to be applied on a go-forward basis and not linked to the previous indices (or, if linking was required, it was already provided for in the updated indices).
Subsequently, another dispute arose between the parties concerning other Statistics Canada indices that were updated in 2010 and used to calculate present-values for certain rate calculations. TransAlta asserted that the relevant provisions of the Arrangement had already been considered in the context of substantially similar facts in the first arbitration, and that the first arbitration gave rise to res judicata and issue estoppel. Res judicata (and issue estoppel, a type of res judicata) prevent parties from relitigating an issue previously decided in litigation between the same parties.
The Arrangement provided for the commencement of litigation regarding any question of law, which enabled the issue to come before the court. At first instance, a chambers judge held that “res judicatadoes not apply to private arbitrations”. However, he ruled that an arbitration panel could admit the prior arbitration decision as evidence, after determining its relevance and admissibility, and assess its weight.
On appeal, the Court of Appeal reversed the decision and held that, as a matter of law, res judicata and issue estoppel can apply to arbitration awards.
The Court first noted that section 37 of Alberta’s Arbitration Act provides that an award binds the parties unless set aside or varied, and also noted that the Arrangement provided that an arbitration decision is “final, binding and non-appealable”. The Court further found that “there is ample authority for the proposition that the doctrine of res judicata and issue estoppel apply to arbitration proceedings”, and canvassed BC, Manitoba and Ontario case law in support. The Court held that potentially contrary Supreme Court of Canada authority did not apply, and found support for its view by more recent Supreme Court of Canada authority considering the rationale for the doctrines.
In response to arguments made by Enmax, the Court indicated that allowing reliance on res judicata and issue estoppel would not permit parties to “cherry pick” prior arbitration decisions while disregarding others, since either party can plead issue estoppel, and both parties are bound only where the tests are met. Further, arguing prior arbitral decisions have “precedential weight” is “well established” and either party can put such precedents before an arbitration panel. Such decisions, however, are “authorities” rather than “evidence”, contrary to the decision of the chambers judge. While the doctrine of staredecisis – or the “rule that lower courts are bound by the decisions of higher courts” – does not apply to arbitrations, there is still merit in having “like cases decided in a like manner”.
Although the chambers judge had stated that “panels do not have to apply the law or find facts based on evidence”, the Court of Appeal disagreed, holding that arbitration panels are bound by the law unless the parties expressly agree otherwise. The Court also found that applying issue estoppel did not require fact finding or determining questions of mixed fact and law so as to exceed the Court’s jurisdiction, and referred the scope of any issue estoppel on the facts of the case to the arbitration panel.
Enmax Energy provides clarification and appellate support for applying res judicata and issue estoppel to arbitrations. In ongoing contractual relationships, parties should carefully consider the effect of asserted legal positions and resulting decisions in arbitration proceedings. Enmax Energy also clarifies the role that other arbitral decisions, beyond those that raise issues of res judicata, may play in arbitration.