British Columbia Arbitrator Prevented From Awarding Compound Interest on Expropriation Award

Following a commercial arbitration, the province of British Columbia was ordered to pay Teal Cedar Products Ltd. ("TCP") compensation for partially expropriating TCP's forestry licence.  However, in an application that went all the way to the Supreme Court of Canada, the province was relieved from paying compound interest on the arbitration award.

TCP held the licence to harvest a certain amount of timber in the province known as an "allowable annual cut".  The province reduced TCP's allowable annual cut to create a park.  TCP sued the province under the British Columbia Forest Act claiming compensation for partial expropriation of its timber licence.  The parties could not agree as to the appropriate compensation and the dispute was resolved through arbitration under BC's Commercial Arbitration Act.  The arbitrator awarded TCP over $6.3 million including over $2.2 million in interest compounded annually from the date the province reduced the allowable annual cut to the date of the award.  A BC superior court judge upheld the arbitrator's award and the BC Court of Appeal denied the province's application for leave to appeal the issue. 

On the province's further appeal to the Supreme Court of Canada, the court held that arbitrators operating under section 28 of the BC Commercial Arbitration Act ("CAA") could not award compound interest because the BC  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 the necessary implication stating 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.  

The court held that there is no doubt that compound interest is a more accurate way of compensating parties for the "time-value of money".  However, the BC legislature has not yet amended the Court Order Interest Act to remove the prohibition of interest on interest, so simple interest remains the rule in BC courts. 

Arbitrators cannot include compound interest in the award itself.  If they could, there would be double recovery since section 28 of the CAA would then operate to add interest on top of an award that already included interest.

While courts presume that legislatures intend to provide full compensation for expropriations, that presumption can be rebutted by statutory provisions that demonstrate legislative intention to the contrary.  Section 28 of the CAA limits the interest on a sum directly to be paid by an award to simply interest.  

Finally, the arbitrator did not have jurisdiction to consider equitable grounds for awarding compound interest.  Under section 23 of the CAA, an arbitrator could only consider equitable grounds where the parties specifically agree, and in this case TCP and the province did not agree.

Regards,

Blair