The case involved a dispute about a finder's fee payable in
connection with the acquisition of a mining property in Mexico.
Creston, a company whose shares traded on the TSX Venture Exchange
(TSXV), entered into an agreement to purchase the property on
January 30, 2007 and the next day asked that its shares be cease
traded. It announced that it intended to complete the transaction
on March 26, 2007, at which point its shares began trading again.
The transaction closed on May 17, 2007.
Sattva had introduced Creston to the property in return for a
finder's fee equal to the maximum amount that could be paid
under the TSXV's policies or C$1.5 million. Unless Sattva
elected otherwise, the fee was payable in Creston shares.
The dispute arose when Sattva and Creston could not agree upon
which date should be used to determine the price of the Creston
shares and thus the number of shares payable. Sattva contended that
the proper date was January 31, 2007, the date on which Creston had
asked that trading in its shares be halted. Creston submitted that
the proper date was after the transaction closed in May 2007. The
point was important since the price at which the shares traded
increased significantly after Creston announced its intention to
make the purchase. Based on his interpretation of the agreement
between the parties, the arbitrator held that the price should be
determined as of January 31, 2007, the last day on which the shares
had traded prior to the transaction's announcement.
B.C. COURT OF APPEAL DECISION
Creston appealed the arbitrator's decision under the
provisions of the British Columbia Commercial Arbitration
Act (now the Arbitration Act), which allowed appeals
on questions of law with leave. The case wound its way through the
courts of British Columbia, with the Court of Appeal eventually
granting leave to appeal the decision on the basis that the
arbitrator's interpretation of the agreement involved a
question of law, and then holding that his interpretation created
an "absurd result."
Previous decisions relied on by the Court of Appeal provided
that the ultimate determination of the legal rights and obligations
of the parties under a written contract was a question of law.
The Supreme Court held that this approach should be abandoned.
Contractual interpretation involved mixed questions of fact and law
given that it is an exercise in which the principles of contractual
interpretation are applied to the words of a written contract in
light of the contract's factual matrix. While there may be
situations in which a question of law could be isolated from that
exercise, they will be rare.
Although not necessary for its decision, because it only rarely
had the opportunity to address appeals of arbitral awards, the
Supreme Court went on to consider the standard of review to be used
on appeals from an arbitrator's decision, holding that unless
the question of law involved constitutional questions or questions
of law of central importance to the legal system as a whole and
outside the arbitrator's experience, the standard of review was
"reasonableness" rather than the more stringent
"correctness" standard. In doing so, the Supreme Court
noted the differences between the commercial arbitration process
and the process applicable to statutory tribunals; for example, the
fact that parties engage in arbitration by mutual choice rather
than by way of a statutory process.
The Supreme Court's decision in Sattva will reduce
the avenues for challenging the domestic commercial arbitration
awards by eliminating contractual interpretation challenges from
the ambit of decisions open to appeal. It will also make appeals
that deal with questions of law that much more difficult by
requiring appellants to show that the arbitrator's decision on
the question of law was unreasonable, not just incorrect. In doing
so, the Supreme Court has reinforced the finality of the arbitral
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