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BINDING ARBITRATION - Submission to arbitration - Arbitrators - Powers and duties - Jurisdiction – Appeals - Deference to expertise of arbitrators - Jurisdiction of court to review

Thursday, June 22, 2017 @ 2:51 PM  

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Appeal by Teal Cedar Products Ltd. (Teal) from a judgment of the British Columbia Court of Appeal confirming a judgment setting aside the decision of the British Columbia Supreme Court which partially upheld an arbitrator’s decision. The province of British Columbia and Teal were unable to settle how much compensation the province owed to Teal for reducing the latter’s access to certain improvements on Crown land which it used to harvest timber. Consequently, their dispute was submitted to arbitration as required by the Forestry Revitalization Act (Act). In order to determine the proper valuation method for Improvements Compensation, the arbitrator chose the Depreciation Replacement Cost Method because it was the only valuation methodology that determined Improvements Compensation separately from harvesting rights compensation, in keeping with their separate treatment in the act. The arbitrator held that Teal was entitled to interest on the Improvements Compensation, despite the No Interest Clause contained in the Settlement Framework Agreement, in light of the factual matrix of the parties’ failed settlement negotiations. The British Columbia Supreme Court essentially confirmed the arbitrator’s decision, only remitting the issue of Improvements Compensation for one of Teal’s timber supply areas, that of Lillooet. The British Columbia Court of Appeal ruled that the arbitrator’s award was, in this respect, both incorrect and unreasonable because it provided a “substantial publicly financed windfall” divorced from Teal’s actual financial loss. On the Interest Issue, the Court of Appeal opined that the arbitrator had made a legal error that gave the courts jurisdiction because he let the factual matrix overwhelm the Settlement Framework Agreement, despite the latter’s clear wording. The decision of the Court of Appeal on remand was silent in respect of the Lillooet Issue. The appeal involved two key interpretation issues, namely whether the arbitrator erred in law by: (1) interpreting the Depreciation Replacement Cost Method as being consistent with the act (the Valuation Issue); and (2) interpreting the Amended Settlement Framework Agreement as including interest in the province’s Improvements Compensation payment to Teal (the Interest Issue). This appeal also involved a statutory application issue, namely whether the arbitrator erred in law by denying Improvements Compensation to Teal when he applied his chosen methodology to the Lillooet Licence (the Lillooet Issue).

HELD: Appeal allowed in part. The Arbitration Act limited appellate review of arbitration awards to questions of law. A question of statutory interpretation was normally characterized as a legal question, while contractual interpretation generally remained a mixed question. In this case, the courts had partial jurisdiction over the Valuation Issue, but lacked jurisdiction over the Interest and Lillooet Issues. With respect to the Interest Issue, the arbitrator interpreted the Amended Agreement in light of the factual matrix of the parties’ settlement negotiations. That was the correct legal test. While remaining alive to the province’s submission that the No Interest Clause, in isolation, precluded interest payments, the arbitrator weighed the parties’ intentions. He was best situated to weigh the factual matrix in his interpretation of the Amended Agreement. The fact that he could have placed significant weight on that evidence in interpreting the agreement did not engage a legal question conferring jurisdiction on the courts under the Arbitration Act. The courts similarly lacked jurisdiction over the Lillooet Issue because it did not raise a question of law. The arbitrator reasoned that the Depreciation Replacement Cost Method, when applied, involved a preliminary assessment of some loss of access to improvements, in fact, before determining the value associated with that loss, in law. This was a mixed question beyond the courts’ jurisdiction. In this case, courts only had jurisdiction over the question of whether the arbitrator’s valuation method for Improvements Compensation was consistent with the act. In a commercial arbitration context, in which, from a policy perspective, the deliberate aim was to maximize efficiency and finality, the reasonableness standard of review was applicable. The arbitrator’s determination that the Depreciation Replacement Cost Method was consistent with the Act was reasonable. The valuation method needed not be coterminous with the value of Teal’s actual financial loss because the compensation provision entitled Teal to “compensation . . . in an amount equal to the value of improvements made to Crown land.” The arbitrator’s initial ruling was restored.

Teal Cedar Products Ltd. v. British Columbia, [2017] S.C.J. No. 32, Supreme Court of Canada, B. McLachlin C.J. and R.S. Abella, M.J. Moldaver, A. Karakatsanis, R. Wagner, C. Gascon, S. Côté, R. Brown and M. Rowe JJ., June 22, 2017. Digest No. TLD-June192017012SCC