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
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