B.C. – Arbitrator’s findings binding in subsequent court proceeding – #727

In his judgment from the trial in Betts v. Zienowicz, 2023 BCSC 328, Justice Macintosh considered, as a preliminary matter, the admissibility of findings of fact made in an earlier arbitration between the same individual parties and regarding the same issues. As no appeal had been taken from the Arbitrator’s award and given the deference owed to arbitral findings, Justice Macintosh adopted the facts as found by the Arbitrator in considering the issues before him.  He then went on to find in favour of the plaintiffs, as had the Arbitrator.

The named defendants in this action were two individuals (brothers) and a number of their corporate entities. In June 2019, the plaintiff shareholders sued the two individual defendants and certain corporate entities for breach of a Shareholders Agreement, which set out the relationship between them for a venture in which they intended to grow and sell cannabis. The plaintiffs alleged oppression and, in particular, exclusion from the cannabis business.  Justice Macintosh stayed that claim on the basis that the arbitration clause in the Shareholders Agreement required that the dispute be heard by arbitration.  The plaintiffs then commenced an arbitration in August, 2019, in respect of which the Arbitrator issued an award on August 11, 2020 (the “Award”), ruling in favour of the plaintiffs on most issues.

In the arbitration, the defendants produced documents which identified additional entities that the defendants had incorporated and which were previously unknown to the plaintiffs.  The defendants, however, refused to add those entities as parties to the arbitration proceedings.  This forced the plaintiffs back into court where, on a motion before Justice Mazawa, they were permitted to commence a new action involving the same issues, naming the original defendants and the newly identified corporate entities (the “Mazawa Order”). That new action was commenced in November 2020. 

In addition, the Award was not appealed and was entered in the court as part of the Mazawa Order pursuant to s. 29 of the former Arbitration Act, R.S.B.C. 1996, c. 55, s. 29(1). At the relevant time, s. 29 provided that, “with leave of the court, an award may be enforced in the same manner as a judgment or order of the court to the same effect and judgment may be entered in the terms of the award.” 

Though the effect of the Mazawa Order was to both enter the Award and permit the commencement of an action involving the same parties (with some additional parties) and the same issues, it does not appear that there was any order made governing the interaction or relationship between the arbitration and the Award on one hand, and the new action on the other.  At trial, the plaintiffs asked that Justice Macintosh accept the findings of fact of the Arbitrator for the purpose of his decision.

In finding that he was prepared to rely on the findings of the Arbitrator, Justice Macintosh noted the significance of the leave provision in s. 29. Citing Bekar v. TD Evergreen, 2006 BCCA 266 at para 38, he observed that the court exercises a supervisory power to determine whether an award should be enforced.  In this case, in enforcing the Award, Justice Mazawa also had regard for s. 30(3) (except pursuant the appeal right under s. 31, the court is not to set aside or remit an award on the grounds of errors of fact or law on the face of the award).  These provisions reflect that “findings of fact are to be left alone except in exceptional circumstances…” No such circumstances were found to be present.

Justice Macintosh further noted the public policy requirement, set out in decisions like Teal Cedar Products Ltd. v. British Columbia, 2017 SCC 32, to defer to decisions made in commercial arbitration, which arises in part out of recognition of the contractual autonomy of the parties (see also:  La Compagnie D’assurance-Vie Manufactures v. B.C. Gas Inc., 1998 CanLii 3913 (BCSC) at para 7.) He found that deference dictates that, where there has been no appeal, it is “necessary to accept the facts as found by the Arbitrator, when the same parties and essentially the same issues were before him” (para 14).  Having done so and in consideration of the evidence before him, he concluded that the plaintiffs were entitled to damages. 

The damages awarded included punitive damages and special costs.  Special costs were warranted because, despite not appealing the Award, the defendants ran the same defences that had been rejected in the arbitration, thereby wasting both the plaintiffs’ time and money, and the court’s time and public resources.  

Contributor’s Notes:

This case raises a number of interesting issues about related court and arbitral proceedings. 

First, the fact that commercial arbitration is a contractual process does, from time to time, give rise to problems where additional parties are necessary participants in the arbitration process but are not parties to the underlying contract or the arbitration agreement. In the absence of seeing the arbitration clause and procedural orders, it is difficult to know whether there was any attempt (beyond seeking consent) to add the corporate entities to the arbitration, or any argument as to whether that could have been done. Here, it appears that it was believed that there was no ability to add them absent consent. This resulted in two full adjudications instead of one, and a complete waste of time and resources for the plaintiffs, who were put to the obligation of proving their case at arbitration and again at trial. 

Second, what is particularly interesting is that ultimately, while the additional corporate entities were named as parties in the action (as a result of the Mazawa Order), Justice Macintosh stated in the first paragraph of the decision that the plaintiffs “now sue only” the individual defendants. His order expressly states that it is enforceable against the individual defendants. In those circumstances, it is not clear why the trial was even necessary; there was already an enforceable arbitral award against those two individuals. Giving effect to the Award, as made possible through s. 29, ought to have eliminated the need for this trial.  Second, given that the arbitration and the trial involved the same parties and the same issues, it is curious that there was no argument that issue estoppel or res judicata applied. While the court’s analysis is another in a helpful line of decisions signaling significant deference to arbitration findings, query whether there existed other methods to achieve the same result.