Appeal of a Commercial Arbitration Award

Businessmen often choose to arbitrate disputes because arbitration is a private, timely and cost effective way to resolve disputes. Very often parties accept the arbitrator’s decision (the “award”) in commercial arbitration and carry out the obligations ordered by the arbitrator. This is not always the case, and a party may apply to court to enforce the award as a court order if the losing party does not comply with the award voluntarily.

Business disputes often involve written contracts and a party may not agree with an arbitrator’s decision about the interpretation of the contract. Often the award is important to the parties. In British Columbia, the Arbitration Act is designed to ensure the finality of commercial arbitration awards subject to very limited rights of review or appeal.

An unhappy party may seek a court order setting aside the award based on arbitral error – s. 30 of the Arbitration Act. This is a very limited type of remedy limited to situations where there is (a) corrupt or fraudulent conduct; (b) bias; (c) where the arbitrator has exceeded his powers; (d) or failed to observe the rules of natural justice. I will address that remedy in another article.

In most cases there will be no arbitral error, but a party unhappy with an award may seek to appeal the award. For commercial arbitrations appeals are limited to questions of law and not mixed law or facts.

Both parties can consent to an appeal, but this is unlikely. In most cases, an appellant will have to apply to the court under s. 31 (2) of the Arbitration Act for leave to appeal , first convincing a judge that leave should be granted and then if granted persuade the court of the merits of its appeal argument. Many cases are dismissed as the points raised do not meet the test for leave to appeal an award.

The court may grant leave in circumstances where:

the importance of the result of the arbitration to the parties justifies the intervention of the court and the determination of the point of law may prevent a miscarriage of justice,
the point of law is of importance to some class or body of persons of which the applicant is a member, or
the point of law is of general or public importance.

The granting of leave under s. 31 (2) of the Arbitration Act is discretionary. This means even if all the criteria are established the court may not give leave. If leave is granted the court can attach conditions it considers just. If a judge grants the appeal the court can confirm, amend or set aside an award. It can also remit the matter to the arbitrator along with its opinion on the point of law.

The Supreme Court of Canada in Sattva Capital Corp. v. Creston Moly Corp, [2015] 2 SCR 633, recently held that the interpretation of a contract is generally not purely an issue of law and therefore there is no right to appeal the arbitrator’s interpretation of a term of a contract. This case involved the payment of a finder’s fee in relation to purchasing a mining property. The finder, Sattva, was entitled to a fee paid in shares of Creston unless Sattva wanted to be paid in a combination of shares and cash (which it did not). The parties differed on the date that should be used to price the shares and this impacted on the number of shares Sattva was entitled to receive. The arbitrator determined the case in favour of Sattva, finding that it was entitled to shares based on a halt trading date before the announcement of the acquisition of the mining property. Creston’s shares went from $.15 to $.70 per share when trading resumed following the announcement. Creston sought an award based on the value of the shares at the time it actually transferred the shares to Sattva. Sattva would have been entitled to about 9 million fewer shares had the price been based on Creston’s argument for a later date. The difference between the calculations was substantial. On Creston’s calculation the finder’s fee was US$1.5 million; on Sattva’s calculation the amount was US$8 million. The agreement also contained a clause setting out the maximum amount that could be paid according the policy of the TSX Venture Exchange – in this case $US1.5 million. Creston’s argument was that the arbitrator erred in interpreting the contract and ignored the $1.5 million cap on the finder’s fee.

This was a contract between very sophisticated parties, both of whom appreciated that the value of shares could rise or fall and Sattva took the risk that payment in shares could be less valuable than payment in cash.

The Supreme Court of Canada dealt with a number of important points and I am only writing about the first point – the Court had to first address whether the question raised on appeal – an alleged error that the contract limited the maximum finder’s fee to the value of $1.5 million was a question of law. The Court said that historically contract interpretation was considered a question of law. Contracts are not interpreted in a vacuum but the words are interpreted in light of the surrounding facts – the factual matrix. The goal of determining the parties’ intent is fact driven. Therefore the question of contract interpretation is usually a question of mixed fact and law. The Court went on to say that the purpose of appellate courts was a limited one – limited to ensuring the consistency of the application of law. The court said that obligations arising from a contract in most cases are of limited interest – only to the contracting parties. The court considered the limited nature of an appeal under the Arbitration Act and the trend of anyone unhappy with an award to pull out alleged errors and characterize them as errors of law and the legislature did not intend arbitration awards to be widely appealed.

Questions which could attract a successful review might include – where the arbitrator applied an incorrect principle, failed to consider a required element of a legal test, or failed to consider a relevant factor.

The Supreme Court clarified that the standard which applies to reviewing commercial arbitration awards is one of “reasonableness”, unless the question was one that would attract the “correctness standard” such as a question of constitutional law or questions of law of central importance to the legal system; these are points where arbitrators have no special expertise in comparison with judges.

The Court stated that the main question in granting leave to appeal – whether the result could justify the court’s interference to prevent a possible miscarriage of justice – was whether there was arguable merit, but the question had to be assessed in the context of whether the arbitrator’s decision on the point of law was reasonable, not whether the arbitrator’s decision was correct.

Creative counsel for a losing party will attempt to extract questions of law in an effort to entice a reviewing court to interfere with the award. This has to be set against the context of the business use of arbitration. Arbitration is intended to be alternative to protracted and expensive law suits and result in a final decision and not be just a step in the litigation process. The short of it is, however, the appeal of an arbitration award is difficult. My review of the 2016 B.C. court decisions shows that few commercial arbitration matters were appealed and even fewer of those appeals succeeded. In commercial arbitration the parties can agree to exclude a court review of an arbitrator’s award, but they cannot agree to exclude a review based on arbitral error.

This article relates to appeals of commercial arbitration matters – not labour or family arbitrations as these involve different tests.

This article is prepared by Paul Love, Arbitrator & Mediator.

January 8, 2017