Construction contracts often call for disputes to be “finally resolved” by way of arbitration. The choice makes sense: parties can select their own decision-maker, exert some control over the process, keep their dispute out of the public record, and manage costs by precluding appeals.
But over the years, particularly in British Columbia, the perceived advantages of resolving disputes by arbitration – including the objectives of a cost-effective and final resolution – have become somewhat elusive. Courts have been more willing to entertain appeals of arbitral awards, and parties who thought their dispute would end after arbitration have been swept into protracted, and often expensive, litigation.
In Sattva Capital Corp. v. Creston Moly Corp., the Supreme Court of Canada (SCC) has gone a great distance towards ensuring that domestic commercial arbitrations are indeed in line with parties’ expectations and that appropriate deference is paid to the arbitrator’s decision.
The dispute in Sattva was relatively straightforward, involving the interpretation of a finder’s fee agreement. Sattva was entitled to a finder’s fee to be paid in shares of the defendant, Creston Moly. The parties agreed that the finder’s fee was $1.5 million, but disagreed about the date to be used to determine the share price.
The agreement between the parties contained an arbitration clause and the matter was submitted to binding arbitration. In 2008, the arbitrator found in favour of Sattva and awarded approximately $4 million in damages.
The ensuing years provide an unfortunate example of how an arbitrated dispute can turn into something much different than expected. Creston sought leave to appeal the arbitrator’s award to the Supreme Court of British Columbia (BCSC). The BCSC denied leave to appeal, and Creston appealed that decision to the British Columbia Court of Appeal (BCCA). The BCCA granted leave to appeal, sending the dispute back to the BCSC for a hearing on the merits. After that hearing, the BCSC upheld the arbitrator’s award. Creston appealed that decision to the BCCA, which allowed the appeal and reduced the award. Sattva then appealed to the SCC. After several years and numerous court hearings, the parties had a final decision: the SCC allowed Sattva’s appeal and reinstated the original arbitral award.
How does Sattva help those involved in construction disputes in British Columbia?
In British Columbia, appeals of domestic commercial arbitrations are governed by section 31 of the Arbitration Act. A party may only appeal to the court if the parties consent or the court grants leave, and only on a “question of law” arising out of the arbitral award.
As the SCC notes in Sattva, matters of contractual interpretation (a frequent subject of construction disputes) were historically considered questions of law:
… This rule originated in England at a time when there were frequent civil jury trial and widespread illiteracy. Under those circumstances, the interpretation of written documents had to be considered questions of law because only judges could be assured to be literate and therefore capable of reading the contract….
While circumstances have long since changed, courts have been somewhat divided on whether contractual interpretation raises questions of law. The underlying decisions in Sattva illustrate this division well.
The SCC in Sattva held that a decision-maker tasked with interpreting a contract “…must read the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract.” The central role of the surrounding circumstances, or “factual matrix”, means that matters of contractual interpretation will almost always be considered questions of mixed fact and law, not questions of law.
Although unnecessary for disposing of the appeal, the SCC also took the opportunity to establish additional principles relevant to arbitral appeals. Of particular note is that if an appeal of an arbitral award proceeds (i.e. if a question of law can be extricated), the court will generally be required to show greater deference to the arbitrator’s decision by reviewing it on a standard of reasonableness, not correctness.
Sattva is expected to have a significant impact on appeals of arbitral awards in British Columbia, including those in the construction context, and courts in British Columbia are already taking note. Appeals will be harder to bring, and, in those cases where leave to appeal is granted, reviewing courts will be required to show greater deference to the arbitrator’s decision. This should be welcome news for those involved in existing construction disputes, or entering new contracts that will compel arbitration. In both cases, your dispute just might be resolved in the manner you expected.
Aidan Cameron is a partner in the Vancouver office of McCarthy Tetrault LLP. She represents clients in all manner of construction disputes, commercial lease disputes and other real estate related litigation. Her partners, Herman Van Ommen, Q.C. and Michael Feder, were counsel for Sattva Capital Corp. in the underlying arbitration/British Columbia courts, and at the Supreme Court of Canada, respectively.
