To a certain degree, contract disputes are inevitable during the
life of an organization. What effect does a particular clause have?
Who is responsible if something goes wrong? How much money is owed?
The answers to these questions may seem obvious to both parties
when the contract is drafted, but that can change over time and
with certain events. This is where commercial arbitration comes
Commercial arbitration is meant to provide disputing parties
with a relatively quick and inexpensive way to resolve a
disagreement. This is why most contracts will include a clause
sending any dispute to binding arbitration. However, a problem
arises when the unsuccessful party disagrees with the
arbitrator's decision and tries to appeal it to the courts.
This is where the law has now changed. On August 1, 2014, the
Supreme Court of Canada dealt with the appeal of a commercial
arbitration decision involving the interpretation of a
"finder's fee" clause. In this case, Sattva Capital
Corp v Creston Moly Corp, the Supreme Court made two significant
changes to the law.1
APPEALS ARE NOW LIMITED
The Supreme Court found that appeals of commercial arbitration
decisions should rarely be heard. The Court explained that appeals
should generally be reserved for legal issues with a broad impact.
Though contract interpretation was traditionally seen as more of a
legal question, the Court moved away from this approach.
Instead, the Court emphasized that contract interpretation
should be seen as largely fact-based, focusing on the specific
circumstances of the parties and their intentions. This is
especially the case in the commercial context, where the parties
are usually more sophisticated. This makes appeals rarer because
factual determinations by an arbitrator are given a high level of
deference by appellate courts.
The effects of this decision will vary between provinces. For
example, in British Columbia, a commercial arbitration decision can
only be appealed on a legal question.2 In Ontario,
however, it depends on the contract itself – parties can
decide to restrict appeals to legal questions or open it up more
WHEN HEARD, APPEALS ARE NOW HARDER TO WIN
In cases where a court hears an appeal of a commercial
arbitration decision, it is now less likely to be overturned.
Before the Sattva decision, courts would put themselves into the
shoes of the arbitrator and determine what decision should have
been made. Now, courts will review the decision to see whether it
falls within a range of reasonable and acceptable outcomes. This
means that even if the appellate court would have decided
differently in the arbitrator's shoes, it can only overturn the
decision if it was an unreasonable one.
RECOMMENDATIONS FOR ORGANIZATIONS
With a greater focus on the factual circumstances surrounding
contracts and the limited right to appeal an arbitrator's
decision, there are two prudent steps that can be taken to plan
1. Seek Legal Advice When Drafting Contracts
– Though this may seem counterintuitive when we just
explained that contracts are less of a legal issue and more of a
factual one, it is now even more important to seek legal advice
when drafting contracts. Lawyers can assist in ensuring that
contracts are clear and unambiguous. This will make it more likely
that a dispute will be either prevented, or resolved in your favour
if the issue proceeds to arbitration.
2. Pick Your Arbitrator Carefully – When
bringing a dispute to arbitration, it is now very important to
recognize that the arbitration is likely the only chance to be
heard. Arbitrations are unique in that the parties get to select
who hears the case, so take extra care when picking the arbitrator,
as he or she will likely have the last word on the dispute.
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