Western Canada Business Litigation Blog

Finally, the Supreme Court of Canada puts some finality into Arbitrations

Posted in Civil Procedure
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Two of the main benefits of private arbitration are said to be speed and finality. However, the long running case of Sattva Capital Corporation v. Creston Moly Corporation has been a prime example of how court intervention into the arbitration process can lead to arbitration being anything but speedy or final. I first blogged about this case on May 9, 2011 when it had been before the British Columbia Supreme Court (“BCSC”) twice and was headed to its second hearing before the British Columbia Court of Appeal (“BCCA”). At that time, more than three years had passed since the arbitrator had supposedly issued a “final decision.”

The dispute was over the valuation of a finder’s fee. The arbitrator found that Creston was obligated to pay Sattva $4,140,000 plus costs in connection with the acquisition of Creston’s molybdenum mining property in Mexico. The dispute was arbitrated under the Arbitration Act (British Columbia).  Section 31 granted what had been thought to be limited appeal rights from an arbitrator’s decision where the appeal was based on a “question of law.” Those appeal rights required that the court first grant “leave” or permission for an appeal to be taken. In this case, the BCSC denied leave, which was overturned by the BCCA who granted leave. It went back to the BCSC which dismissed the appeal, but this decision was also overturned by the BCCA which allowed the appeal and reduced the amount of the finder’s fee. By this point, the parties were still litigating an issue which had been decided by the arbitrator some 5 years earlier.

The Supreme Court of Canada (“SCC”) finally weighed in on August 1, 2014. It allowed the appeal and restored the arbitrator’s decision. In doing so, the Court significantly limited the right to appeal an arbitrator’s decision and clarified the standard to be applied to appeals from trial court decisions involving contractual interpretation.

The SCC found that the construction of the finder’s fee agreement did not constitute a “question of law.” Importantly, the Court held that the historical approach to determining the legal rights and obligations under a written contract as a question of law should be abandoned because contractual interpretation involves issues of mixed fact and law. Contractual interpretation involves the application of principles of law to the words of a written contract considered in light of the factual matrix of the contract. As a result, it is not a question solely of law and no appeal rights under the Arbitration Act arise.

The Court further found that permission to appeal an arbitrator’s decision should only be granted under theArbitration Act where the issue is material (in the sense that a different decision would have affected the outcome) and where the appeal has some possibility of succeeding (a type of preliminary merits test). Courts retain a residual discretion to deny leave even if all the statutory prerequisites are met.  If leave is ultimately granted, the appellate court should almost invariably defer to the arbitrator and only review the decision to determine if it is “reasonable” as opposed to reviewing it to determine if it is “correct.”

All of the Court’s conclusions go to one end – making an arbitrator’s decision final. Going forward, parties should expect that arbitration decisions are final and that the scope of any right of appeal is exceedingly narrow. If parties want broader appeal rights, they should be written into the arbitration agreement at the outset of the relationship.

Furthermore, the Court’s statement that issues of contractual interpretation are mixed fact and law will be meaningful for the standard of appellate review from trial court decisions and will likely make appeals of that kind more difficult. But that is a subject for another blog…