One of the benefits of commercial arbitration is
finality. Parties to a commercial arbitration agreement have the ability
to contract out of any appeal. The giving up of appeal rights is
one of the most significant factors that a party should consider when entering
into an arbitration agreement. Many provincial arbitration
acts provide that a party to an arbitration agreement may appeal the decision
of the arbitrator on a question of law only and that leave to appeal must be
granted. This supervisory role of the courts was recently tested in a
case – Sattva Capital Corp. v. Creston Moly Corp. 2014 S.C.C. 53 – that
went all the way to the Supreme Court of Canada.
In this case, Creston was obliged to pay a finder’s fee to
Sattva as a result of Sattva introducing Creston to an opportunity to acquire a
molybdenum mining property in Mexico. According to the agreement, the
finder’s fee of US$1.5 million would be paid in Creston shares. The
dispute between the parties concerned which date should be used to determine
the price of the Creston shares and thus the number of shares to which Sattva was
entitled. Sattva argued that the share price was dictated by the
market price definition in the agreement, i.e. the price of the shares “as
calculated on close of business day before the issuance of the press release
announcing the acquisition”. Creston claimed that the agreement's “maximum
amount” proviso meant that Sattva would receive shares on the date the fee was
payable.
The difference in interpretation amounted to approximately 9
million shares.
The parties entered into arbitration pursuant to the British
Columbia Arbitration Act (“Act”). The arbitrator found in
favour of Sattva. Creston sought leave to appeal the arbitrator’s
decision pursuant to the appeal provisions of the Act. Leave was
denied by the BC Supreme Court. Creston successfully appealed that decision and was granted leave to appeal the arbitrator’s decision by the BC
Court of Appeal.
A BC Supreme Court judge heard the appeal and upheld the
arbitrator’s decision. Creston again appealed that decision to the BC
Court of Appeal which once again overturned the motion judge and found in favour of
Creston. Sattva appealed that decision and the Court of Appeal’s decision to grant leave
to the Supreme Court of Canada.
The Supreme Court of Canada overturned both decisions of the
BC Court of Appeal and restored the arbitrator’s award.
Questions Answered By The Court
In reaching its decision the Supreme Court asked: when is
contractual interpretation to be treated as a question of mixed fact and law
and when should it be treated as a question of law?; How is the balance between reviewability and finality of
commercial arbitration awards under the Act to be determined?; and Can findings made by a court granting leave to appeal with
respect to the merits of an appeal bind the court that ultimately decides the
appeal?
In answering these questions, the Supreme Court overturned its historical approach to contractual interpretation.
The Court held that appeals from commercial arbitration
decisions are narrowly circumscribed. Under the relevant
section of the Act, appeals are limited to questions of law, and leave to
appeal is required if the parties do not consent to the appeal. The
court may grant leave if it determines
that the result is important to the parties and the determination of the point
of law may prevent a miscarriage of justice.
The Supreme Court held that the BC Court of Appeal had erred
in finding that the construction of the finder’s fee agreement constituted a
question of law. The issue raised a question of mixed fact and law and
therefore the Court of Appeal erred in granting leave to appeal.
In reaching its decision, the Supreme Court said that the historical approach to contractual interpretation, according to
which determining the legal rights and obligations of the parties under a
written contract was considered a question of law should be
abandoned. It held that contractual interpretation involves issues of mixed fact
and law because it is an exercise in which the principles of
interpretation are applied to the words of the written contract, considered in
light of the factual matrix of the contact.
While it may be possible to identify an "extricable" question of law
from the exercise, such circumstances will be rare. The goal of contractual interpretation, which is to ascertain the objective
intentions of the parties, is inherently fact specific. Accordingly,
courts should be cautious in identifying “extricable” questions of law in
disputes over contractual interpretation.
Legal errors made in the course of contractual interpretation
include the application of an incorrect principle, the failure to consider a
required element of a legal test, or the failure to consider a relevant
factor. In this case, Creston’s application for leave to appeal did not
raise a question of law.
That finding in and of itself was sufficient to
dispose of the appeal. However, the Supreme Court continued with its
analysis.
The Court also held that:
a) In order to rise to the level of a miscarriage of justice
for the purposes of the Act, an alleged legal error must pertain to a material
issue in the dispute, which, if decided differently, would affect the result of
the case. According to this standard, a determination of a point of law
“may prevent a miscarriage of justice” only where the appeal itself has some
possibility of succeeding. An appeal with no chance of success will not
meet the threshold of “may prevent a miscarriage of justice” because there
would be no chance that the outcome of the appeal would cause change in the
final result of the case.
b) At the leave stage, it
was not appropriate to consider the full merits of the case and make a final
determination regarding whether an error of law was made. However,
preliminary consideration of a question of law by the court granting leave is necessary
to determine whether the appeal has the potential to succeed and thus to change
the result in the case. The Court held that the appropriate threshold for
assessing the legal question is whether it has “arguable merit” meaning that
the issue raised by the applicant cannot be dismissed by a preliminary
examination of the question of law.
Assessing whether the issue raised by an application for
leave to appeal has arguable merit must be done in light of the standard of
review in which the merits of the appeal will be judged. The leave
court’s assessment of the standard of review is only preliminary and does not
bind the court which considers the merits of the appeal.
c) The words “may grant leave” in the Act, confer on the court
a residual discretion to deny leave even where the requirements of the Act are
met. However courts should exercise such discretion with caution.
d) Appellate review of commercial
arbitration awards is different from judicial review of a decision of a statutory
tribunal, thus the standard of review framework developed for judicial review
by the court in the case of Dunsmuir v. New Brunswick, 2008 S.C.C. 9 is
not entirely applicable to the commercial arbitration context.
However, because judicial review is analogous in some respects to
arbitral appeals, aspects of the Dunsmuir framework are helpful in
determining the appropriate standard of review to apply in the case of
commercial arbitration.
In the context of commercial arbitration, where appeals are
restricted to questions of law, the standard of review will be reasonableness
unless the question is one that would attract the correctness standard, such as
constitutional questions or questions of law of central importance to the legal
system as a whole and outside the adjudicator’s expertise. The question
at issue here did not fall into one of those categories and therefore the
standard of review in this case was reasonableness.
In this case, the arbitrator’s reasoning met the reasonable
threshold of justifiability, transparency and intelligibility.
e) A court considering whether leave should
be granted is not adjudicating the merits of the case. It decides only
whether the matter warrants granting leave, not whether the appeal will be
successful, even where the determination of whether to grant leave involves a
preliminary consideration of law at issue. For this reason, comments by a
leave court regarding the merits cannot bind or limit the powers of the court
hearing the actual appeal.
Regards,
Blair
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