The popularity of non-traditional dispute resolution mechanisms
is on the rise in Alberta. The construction industry is
particularly well-suited to arbitration, where both parties can
benefit from the ability to select an arbitrator with the practical
and technical expertise to quickly resolve a dispute in an informed
and cost-effective manner.
That being said, there are some risks associated with
arbitrating a construction dispute, particularly where the
arbitrator, who may or may not have a legal background, is called
upon to interpret the terms of a contract between the parties. This
can be a complicated exercise, and may involve the application of
abstract legal concepts and/or convoluted rules of interpretation
If an arbitrator errs in any way, s.44 of the Arbitration
Act provides a mechanism whereby a dissatisfied party can
(subject to the unique terms of their arbitration agreement) appeal
the award. However, the Court's ability to ultimately over-rule
an arbitrator's award always depends on whether the appeal is
based on a question of law, of fact, or of mixed law and fact. If
the issue is one of contractual interpretation that's a
question of law, and a judge is empowered to over-rule the
arbitrator's award if any error was made with respect to
Interestingly, the Court of Queen's Bench recently ruled
that an arbitrator's decision on what constitutes a
"fundamental" change to a construction contract shall, in
circumstances analogous to the case discussed below, not be
characterized as a question of law, but instead as a question of
fact, or at best, of mixed law and fact, and as such, shall not be
interfered with absent a "palpable and overriding error."
This is a tighter test, and one that makes it harder for a Court to
over-rule an arbitrator's award.
In Denali Construction Inc. v. Tremore Contracting
Ltd., 2013 ABQB 321, a contractor appealed an arbitrator's
decision to compensate a sub-contractor for additional work
performed over an extended period of time, notwithstanding the fact
that the contract between the parties was a stipulated price
contract and did not contain a term relating to time to
The contractor appealed on the basis that the arbitrator, who
was a professional engineer, erred in law when he characterized the
subcontractor's investment of additional work and time as a
"significant" or "fundamental" change to the
contract between the parties. In particular, the appellant argued
that the arbitrator failed to apply the correct test to the facts
before him, and set too low a standard for the circumstances in
which time and materials could be charged to a stipulated price
The Honourable Madam Justice Veit accepted the arbitrator's
"clear reasons" for reaching the conclusions that he did.
She dismissed the appellant's characterization of the
arbitrator's alleged errors as ones of law, holding instead
that where an arbitrator has to make findings of fact in order to
determine the essential terms of a contract, those findings warrant
This decision hammers home the necessity of carefully selecting
an arbitrator, particularly in situations where the arbitrator will
be asked to decide if additional work constitutes a fundamental
change to a contract between the parties. His or her determination
on that issue will be final, absent a palpable and overriding
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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