Canada: A Case Of Interest: SCC Rules On Arbitrators' Ability To Award Interest In British Columbia

Commercial arbitration has a long, established history of allowing parties to resolve their disputes on their own terms. Despite this long history, the distinction between the scope of authority of arbitrators and courts is a subject that frequently arises. In British Columbia (Forests) v. Teal Cedar Products Ltd., the Supreme Court of Canada (SCC) considered the distinction between arbitrators and courts with respect to awarding interest. Specifically, the SCC considered whether arbitrators in British Columbia were subject to the same limitations as courts in ordering interest pursuant to B.C.'s Court Order Interest Act.

FACTUAL BACKGROUND

Teal Cedar Products Ltd. (Teal) is a forestry company that held a forest licence issued by the province (Province) to harvest timber in a particular area of B.C., including the right to cut a certain amount of timber known as an allowable annual cut. In 1999, following the creation of a provincial park, Teal's allowable annual cut was reduced by the Province. Teal began legal action against the Province under the Forest Act, claiming compensation for this partial expropriation. The Forest Act provided that if the parties could not agree on an appropriate amount of compensation, the dispute would be resolved by arbitration under the Commercial Arbitration Act (the CAA). The parties were unable to agree and proceeded to arbitration.

At arbitration, the arbitrator awarded Teal over C$6.3-million, including over C$2.2-million in interest compounded annually from the date when the Province reduced the allowable annual cut to the date of the award. On appeal, the judge upheld the arbitrator's award of compound interest. The B.C. Court of Appeal denied the Province's further application for leave to appeal the issue of compound interest. The Province then appealed to the SCC.

ISSUES BEFORE THE SUPREME COURT OF CANADA

The only issue before the SCC was whether the arbitrator had the authority to award compound, as opposed to simple, interest to Teal to compensate the company for the time between the loss of its timber harvesting rights and the time of the arbitration award.

In a unanimous decision, the SCC held that the Province's appeal should be allowed. The SCC concluded that arbitrators operating under section 28 of the CAA cannot award compound interest because section 1 of the Court Order Interest Act requires that a pecuniary court judgment bear simple interest, and only simple interest. While section 28 of the CAA does not expressly deem an arbitrator to be a court, this is a necessary implication of the wording of the CAA which provides that a sum directed to be paid by an arbitration award is "a pecuniary judgment of the court." Given both its ordinary meaning and its legislative history, section 28 of the CAA requires arbitrators to apply the provisions of the Court Order Interest Act and, accordingly, limits the interest on a sum directed to be paid by an award to simple interest.

Rothstein J., writing for the SCC, acknowledged that there is no doubt that compound interest is a more accurate way of compensating parties for the time-value of money. However, the B.C. legislature has not yet amended the Court Order Interest Act, so simple interest remains the rule in B.C.. Rothstein J. specifically noted that this conclusion was based on the specific statutory regime in place in B.C. and may not apply to other Canadian provinces.

IMPLICATIONS OF THE TEAL DECISION BEYOND THE SUBJECT OF INTEREST

In coming to this conclusion, Rothstein J. distinguishes the earlier B.C. Court of Appeal case of Morriss v. British Columbia. Rothstein J. noted that the B.C. Court of Appeal in that case was exercising a court's equitable jurisdiction to award compound interest. Unlike a court, Rothstein J. held that an arbitrator under the BCCAA "does not have jurisdiction to consider equity":

"Morriss is also inapplicable to the case at bar because it concerned the jurisdiction of a court that was relying on equity to award compound interest. In reaching the conclusion that compound interest could be awarded by the court in that case, the B.C. Court of Appeal relied on the equitable jurisdiction of the court, which permitted the award despite the provisions of the COIA. The arbitrator in this case did not have jurisdiction to consider equity. Under the CAA, arbitrators can only consider equitable grounds where the parties specifically agree (s. 23). In this case, the agreement between Teal and the Province did not permit the arbitrator to deal with equitable grounds. As a result, the reasoning adopted by the B.C. Court of Appeal in Morriss, whether right or wrong, is not relevant to the resolution of this appeal."

With this comment, Rothstein J. appears to have waded into an area of considerable controversy with no analysis of the existing case law and no attempt to interpret the meaning of the CAA statutory limitations on the arbitrator applying "equitable principles or good conscience".

In most Canadian jurisdictions such as Ontario and Alberta, arbitrators are given the express authority under the relevant arbitration legislation to decide a dispute in accordance with law "including equity". However, the CAA requires that the arbitrator decide the dispute "by reference to law", with no express inclusion of equity. This language is a reflection of the merger of the common law courts and courts of equity of over a century ago. In Canadian common law jurisdictions, the substantive law applied by the courts includes both common law and equity.

One narrow interpretation of the CAA is that an arbitrator may not consider equity as part of the substantive law applicable to a dispute. It appears that Rothstein J. with his comments is adopting this very narrow interpretation. However, the existing case law in this area has interpreted the CAA to permit arbitrators to make equitable orders such as declarations, injunctions, rectification and specific performance.

Perhaps a better interpretation is that the reference to "law" in the CAA is that it is simply a reference to the substantive law of British Columbia, including both common law and equity. Under this interpretation, the prohibition on deciding an arbitration on "equitable principles" means that an arbitrator must apply the substantive law and not decide simply on the basis of fairness or "good conscience". Despite the absence of any real analysis of this difficult issue, Rothstein J.'s comments may have a significant impact.

CONCLUSION

In light of the above, this recent decision is not only noteworthy for its clarification of the law with respect to interest in arbitral award in B.C., but it may have more important ramifications for commercial parties electing to resolve disputes through arbitration beyond the issue of compound interest. It remains to be seen how other courts will address Rothstein J.'s reasoning on equitable jurisdiction given the existing case law. This is an area that is sure to be the source of further judicial analysis and commentary as commercial parties are increasingly electing to resolve commercial disputes by arbitration.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Events from this Firm
26 Oct 2018, Other, Vancouver, Canada

Cybersecurity, including data privacy and security obligations, has become a critical chapter in every company’s risk management playbook.

30 Oct 2018, Other, Toronto, Canada

Please join us for discussions on recent updates and legal developments in pension and employee benefits as well as employment law issues.

12 Nov 2018, Other, Toronto, Canada

Stories aren’t falsehoods. Stories are the root of all effective human communications: they motivate, animate and clarify. If you aren’t telling stories, you probably aren’t getting your point across.

Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions