Commercial Litigation and Dispute Resolution Blog

On June 22, 2017, the Supreme Court of Canada (the "SCC") delivered its decision in Teal Cedar Products Ltd. v. British Columbia, 2017 SCC 32 [“Teal Cedar”]. The decision affirms the SCC's prior ruling that narrowly construes the types of issues which are questions of law for the purpose of an appeal to a court from an arbitration ruling in British Columbia, and mandates a high degree of deference to the decisions of arbitrators. This case provides clarity on the statutory role of commercial arbitrators in British Columbia, and serves as a reminder that arbitration of disputes under contract or statute almost completely ousts the jurisdiction of courts, subject to narrow exceptions.

Sattva

In Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 [Sattva][1], a dispute arising from a finder's fee agreement was submitted to arbitration under the Arbitration Act. Sattva introduced Creston to an opportunity to acquire a mine. The parties entered into a finder's fee agreement that required Creston to pay Sattva a certain amount of shares valued at a maximum amount of US$1.5 million. The parties disagreed on the appropriate date for valuation of the shares. The arbitrator found in favour of Sattva, resulting in a payment of shares valued around $8 million.

After a long series of appeals, the British Columbia Court of Appeal ultimately overturned the arbitrator’s decision as “incorrect”. The SCC overturned this decision.

Rothstein J., writing for the SCC, abandoned the historical approach which labelled contract interpretation as a question of law.  He found that contract interpretation requires examination of the factual matrix in which the contract was made to determine the intention of the parties. By its nature, this analysis is one of mixed fact and law. As such, the arbitrator's decision could not have been appealed under section 31 of the Arbitration Act which limits appeals to pure questions of law. Furthermore, an arbitrator’s decision will generally be reviewable on a  reasonableness, not correctness, standard.

The key to Sattva is the policy rationale for commercial arbitration; efficiency and finality.

Teal Cedar

In Teal Cedar, a forestry company with operations in British Columbia commenced arbitration under the Forestry Revitalization Act, SBC 2003, c 17 (the "FRA"),because compensation owing to it due to the Province of British Columbia’s ("BC") decision to reduce its allowable harvest and deleted certain areas from its land base. The arbitrator reached a decision on valuation method and entitlement to compensation. Both parties appealed the decision.

As in Sattva, the British Columbia Court of Appeal reversed the arbitrator’s decision.  The SCC, again, allowed the appeal and reinstated the arbitrator’s decision.

Gascon J. confirmed that, generally, issues of contractual interpretation are questions of mixed fact and law and are not reviewable under section 31 of the Arbitration Act. Statutory interpretation issues, such as which methods of valuation are permissible under the FRA, are reviewable questions of law; however, the question of which method is preferable is linked to the evidentiary record at the arbitration hearing, where various experts opined on the virtues of conflicting valuation ideologies, and is an unreviewable question of mixed fact and law. The correct application of valuation method to the facts in issue is similarly a question of mixed fact and law.

As such, the only reviewable question was which valuation methods are permissible under the FRA. The SCC corrected the Court of Appeal's implicit finding that questions of law necessarily attract a correctness standard of review. The policy goals of arbitration, finality and efficiency, suggest that in most cases, review will be on a standard of reasonableness.

Gascon J. found no reason to depart from the presumed reasonableness standard: the question was not one of central importance to the legal system, a constitutional question, or one outside the arbitrator's expertise. On this latter point, Gascon J. presumed expertise as the parties chose the arbitrator to adjudicate that very dispute. In this case, the arbitrator's interpretation was defensible, and therefore upheld as reasonable.

Discussion

Teal Cedar cements the Sattva approach to review of commercial arbitration decisions in British Columbia such that appeal rights are very limited as there will rarely be pure questions of law.  The SCC also confirmed that the standard of review of commercial arbitration decisions is "almost always reasonableness’.

In Teal Cedar, the SCC has sent a strong message that courts will respect the decision of parties to resolve disputes through arbitration, and will rarely permit a party to circumvent that procedure, even where arbitration is required by statute. Parties to arbitration are well advised to put their best foot forward at arbitration - in British Columbia, there may be no second chance.

With thanks to articling student Jim Boyle for his assistance.

[1] Read our earlier blog post about this topic: Finally, the Supreme Court of Canada puts some finality into Arbitrations