Canada: Supreme Court Of Canada Limits Appeals Of BC Arbitral Decisions

A recent Supreme Court of Canada decision confirms the limited scope for appeals of an arbitrator's decision pursuant to British Columbia's Arbitration Act (the Arbitration Act), and has implications for all domestic arbitration regimes in Canada that permit appeals on questions of law alone, as opposed to mixed questions of fact and law.

Background

Creston Moly Corporation was obliged to pay a finder's fee to Sattva Capital Corporation of US$1.5 million in shares of Creston under an agreement (the Agreement) to purchase a mining property. According to the Agreement, by default, the finder's fee was to be paid in Creston shares. The number of shares depended on their price, which, according to the Agreement was to be "as calculated on close of business day before the issuance of the press release announcing the acquisition." A disagreement arose between the parties regarding which date should be used to price the Creston shares and the resulting number of shares to which Sattva was entitled.

The parties entered into arbitration pursuant to the Arbitration Act. The arbitrator found in favour of Sattva on a plain reading of the express terms in the Agreement.

Creston was denied leave to appeal by the BC Supreme Court.1 Creston successfully appealed this decision and was granted leave by the BC Court of Appeal to appeal the arbitrator's decision to the BC Supreme Court.2 On appeal, the BC Supreme Court upheld the arbitrator's award.3 The BC Supreme Court decision was appealed by Creston and subsequently overturned by the BC Court of Appeal.4 Sattva went on to successfully appeal the BC Court of Appeal decision to the Supreme Court of Canada,5 which held that the arbitrator's award should be reinstated.

Issues

The Supreme Court's analysis focussed on whether Creston's appeal related to a question of law or a question of mixed fact and law. Under section 31(1) of the Arbitration Act, leave to appeal may be granted for the former but not the latter.  

The Supreme Court determined that construing the finder's fee provision of the Agreement that was critical to resolving the dispute required the arbitrator to have made a determination of mixed fact and law. While the Supreme Court did not exclude the possibility that decisions based on mixed fact and law could give rise to an appeal based on error of law, it cautioned that such circumstances would be rare. The court went on to decide that the arbitrator's decision did not present an extricable question of law because factual issues were central to assessing how the agreement should be interpreted. Accordingly, the court determined the BC Court of Appeal had erred in granting Creston leave to appeal.

Notably, the Supreme Court decision also provides that even if the BC Court of Appeal had correctly found that there was a question of law open to appeal, it should have denied leave to appeal because the leave application failed to meet the requirements under section 31(2) of the Arbitration Act.

Under section 31(2) of the Arbitration Act, a court may grant leave to appeal an arbitral decision if:

  • the importance of the arbitration result justifies judicial intervention and the determination of the point of law may prevent a miscarriage of justice;
  • the point of law is of importance to some class or body of persons of which the applicant is a member; or
  • the point of law is of general public importance.

As the statutory language is permissive, a court retains discretion to deny leave even if an appellant demonstrates the requirements under section 31(2) are met.

According to the Supreme Court, both the miscarriage of justice analysis under section 31(2)(a) and the residual discretion analysis under section 31(2) did not justify granting leave to appeal the arbitrator's decision. The Supreme Court's decision in respect of these components offers guidance on applying the statutory threshold for leave to appeal:

  • Regarding the miscarriage of justice analysis, the Supreme Court held that when a lower court is determining whether the issue raised by an application for leave to appeal has arguable merit, or a reasonable prospect of success, it must do so against the standard of review that would apply to the appeal on its merits. In the case of a commercial arbitral decision, that standard of review is generally reasonableness.6 As such, a court should not grant an application for leave to appeal absent reason to believe that an arbitrator's decision was unreasonable.
  • Regarding the scope of a court's exercise of residual discretion, the Supreme Court identified a non-exhaustive list of factors a court should consider when considering whether to deny an application for leave to appeal that might otherwise have merit: conduct of the parties, existence of alternative remedies, undue delay and the urgent need for a final answer. Having identified these factors, the Supreme Court also cautioned lower courts to carefully consider the issue under appeal and the potential for a miscarriage of justice before rejecting an "otherwise eligible appeal."

Implications

The Supreme Court's decision has implications for all domestic arbitration regimes in Canada that permit appeals on questions of law alone, as opposed to mixed questions of fact and law.  

As long delays are associated with seeking leave to appeal, and any resulting appeal, in the courts, parties who seek to achieve prompt resolution of disputes through arbitration should consider excluding the right to appeal in order to benefit from the finality of the arbitration process.

International arbitration awards are not affected by this decision, as no Canadian jurisdiction permits appeal of such awards, even on a question of law.  International arbitration awards are rather subject to set-aside proceedings on the limited grounds set out in the UNCITRAL Model Law.

Footnotes

1 2009 BCSC 1079

2 2010 BCCA 239

3 2011 BCSC 597

4 2012 BCCA 329

5 2014 SCC 53.

6 Some cases may attract the correctness standard of review, such as constitutional questions or questions of law central to the legal system and outside the adjudicator's expertise.

Norton Rose Fulbright Canada LLP

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