In Sun Wave Forest Products Ltd. v Prince Rupert (City), 2019 BCSC 415, Mr. Justice Neill Brown dismissed a challenge to arbitration activity based on the challenger’s allegations that the arbitration stemmed from forgery, fraud and a lack of authority. In lengthy reasons, Brown J. discussed the evidentiary burden required to establish forgery and fraud in civil matters and the role of the indoor management rule in binding negotiations.
In 2005, Sun Wave Forest Products Ltd. (“Sun Wave”) purchased the assets and land of a shuttered pulp mill located within the limits of Prince Rupert, B.C. (the “City”). Following a tax sale prompted by Sun Wave’s default on certain obligations it had undertaken, the City became the owner of the land in 2009. Sun Wave then commenced three (3) court actions against the City in which it challenged the tax sale, sought return of the land and claimed damages and title to the land. Over the course of the litigation, including motions, appeals and a scheduled summary judgment hearing, Sun Wave had retained “a succession of capable counsel”, five (5) different counsel in all, “and was not bereft of able representation in this jurisdiction”.
The dispute before Brown J. stemmed from a settlement Sun Wave and the City had negotiated just prior to a July 24-26, 2013 summary judgment hearing set to deal with “a number of matters”. At that time, Sun Wave and the City negotiated directly between their representatives without the involvement of counsel. Ms. Liu negotiated for Sun Wave and Mr. Long negotiated for the City. Once the terms had been agreed to, the parties then involved their respective counsel to draft a written settlement agreement reflecting the terms. The issue raised later was whether Ms. Liu had sufficient or genuine authority to act on behalf of Sun Wave.
The settlement agreement, signed on August 20, 2013 (“2013 Settlement”), contained the following arbitration agreement.
“25. If the City and Sun Wave are unable to agree on any matter included in this Settlement Agreement, including without limitation the interpretation or performance of this Agreement or the payment of the costs from escrow, either party may give written notice of a referral to an arbitrator, which arbitrator will be [Arbitrator Plant], if he is available to hear the dispute that arises, or if [Arbitrator Plant] is not available, an arbitrator appointed by both the City and Sun Wave or, failing agreement between the Parties, the arbitrator will be appointed by a judge of the Supreme Court of British Columbia. The determination of the arbitrator will be final, conclusive, and binding upon the Parties. Each party will bear their own costs in connection with matters referred to dispute resolution and pay one-half of the fees and expenses of the arbitrator, unless otherwise ordered by the arbitrator. The provisions of this section will be deemed to be a submission to arbitration in accordance with the provisions of the Arbitration Act (British Columbia), as may be amended from time to time.”
Disputes over the 2013 Settlement eventually lead to two (2) arbitrations, the first in 2015 and the second in 2017. The arbitrations were held before the same arbitrator and resulted in two (2) separate determinations:
(i) August 25, 2015 Award – The City alleged that it had incurred costs under the 2013 Settlement and initiated arbitration against Sun Wave for reimbursement. The hearing on that claim was held August 19, 2015 and the arbitrator issued an August 25, 2015 award (“2015 Award”) which, Brown J. notes at para. 96, “both parties signed”.
The City applied to have the 2015 Award recognized. Despite a change of counsel and numerous pre-hearing exchanges between counsel regarding the recognition and enforcement hearing, Sun Wave did not attend the January 25, 2016 hearing. The B.C. Supreme Court issued a February 17, 2016 order granting the City’s application. Sun Wave did not appeal the February 17, 2016 order, apply to have it reconsidered or, for that matter, comply with it.
(ii) December 14, 2017 Reasons for Decision on Jurisdiction Objection – On April 25, 2017, the City initiated a second arbitration against Sun Wave seeking further, new costs that the City alleged it had incurred under the 2013 Settlement. Through new counsel, Sun Wave objected on June 20, 2017 to the arbitrator’s jurisdiction and served a Statement of Issue on July 4, 2017 in which it stated its challenge. Sun Wave argued that: (i) Ms. Liu, who had negotiated the terms for the 2013 Settlement and signed it on Sun Wave’s behalf, had acted without the authorization of the real and sole principal, Mr. Ni; (ii) the 2013 Settlement was void and unenforceable due to fraud and forgery; and, (iii) the arbitrator lacked jurisdiction to proceed with the City’s claim.
The City contested Sun Wave’s stated challenge. After Sun Wave and the City exchanged affidavits in November 2017, the arbitrator issued his December 14, 2017 Reasons for Decision on Jurisdiction Objection (“2017 Decision”) dismissing Sun Wave’s challenge.
Sun Wave applied to the Supreme Court to for leave to appeal the 2017 Decision on a question of law under section 31(1)(b) of the Arbitration Act, RSBC 1996, c 55. Brown J. noted that section 31(1)(b) of the Arbitration Act required that there be an “award” before one could apply for leave from the court. The City did not challenge Sun Wave’s characterization of the 2017 Decision as an award, given that the 2017 Decision “include[s] reasons in a final determination on the issues”. Brown J. agreed, thereby permitting Sun Wave to apply to the court for leave.
Brown J. observed that the hearing before him occurred almost five (5) years after the 2013 Settlement, three (3) years after the 2015 Award and almost 2 ½ years after the court upheld the 2017 Decision. Brown J.’s reasons span 95 pages and 400+ paragraphs, prefaced by a table of contents taking up three (3) pages by itself.
Brown J. examines the many legal and factual issues submitted by each party in response to Sun Wave’s attempt to appeal the 2017 Decision. The full list of those issues appear in the table of contents.
Brown J.’s reasoning and the facts he and the parties identify as relevant should be of particular interest to arbitration practitioners involved in international commercial dispute resolution. Those practitioners often assist their clients to conduct dispute resolution, pursue negotiation and enter settlements without always engaging directly with the most senior representatives of the adverse party. The practitioners and their clients must collect reliable representations made to them by the adverse party that the individual presented to engage in the dispute/negotiation/settlement exchanges has binding authority. Those representations can be reinforced by the presence of respected counsel appearing on the behalf of the adverse party alongside with the selected individual.
A few of the key issues are worth flagging:
(a) Forgery – Sun Wave alleged forgery of the principal’s signature on a document entitled “General Signing Authority”. Brown J. noted that, given the seriousness of the allegations, the burden remained on a balance of probabilities but still required that the person alleging forgery prove the elements of its allegations.
“ Sun Wave submits the signature on the General Signing Authority is a forgery. Further on this track, counsel for Sun Wave submits Mr. Ni was very clear in his evidence that he did not sign the General Signing Authority and that is not his signature. Sun Wave submitted the City’s response that the signature of Mr. Ni on the General Signing Authority appears to be the same as his signature in the affidavit sworn in 2017, has no evidentiary basis. Counsel further submitted a close inspection of the signatures indicated even a layperson could see they look different though, it is clear, he submitted, that the person assigned the General Authority was attempting to replicate the signature of Mr. Ni. I note both assertions are speculative. No expert opinions were provided and the evidence on this subject basically rests on Mr. Ni’s say so.”
In addition to having to prove an intentional and knowing act, see para. 345, Sun Wave failed to provide expert testimony to corroborate that individual’s affirmation that the signatures appearing in the documentation were not those of the principal, Mr. Ni, or subpoena Ms. Liu to provide testimony on the circumstances of the signature. See paras 317-320 and, in particular, National Bank of Greece (Canada) v. Efstatheu,  O.J. No. 5158 at para. 21 (S.C.J.), cited at para. 349.
“ In my view, from reading Arbitrator Plant’s decision as it relates to the allegations of fraud and forgery, he reasonably weighed the evidence and scrutinized it carefully and logically. In the case at bar, the fact remains that Mr. Ni advanced serious allegations with no collateral or secondary evidence to corroborate it, apart from his simply having said so.”
See also paras 48, 73, 253, 332-333 and 349-353 and 354.
The issue of forgery raised a question of fact and not law.
“ … The Arbitrator heard the evidence and that is not for this Court to deal with.”
“ … I cannot reverse Arbitrator Plant’s findings of fact on the question of whether Ms. Liu forged a document.”
In addition to the level and nature of proof, Brown J. also commented on timing and when Sun Wave first put the City on notice that Sun Wave challenged the signature of the principal, Mr. Ni.
“ The City maintains that Mr. Ni’s signature on the General Signing Authority appears to be the same as his signature in the affidavit he swore in 2017. I will not comment on that. Neither party submitted expert opinion on that question. Mr. Ni now denies having signed the General Signing Authority. He maintains it is a forgery. He took the position it was a forgery for the first time on June 20, 2017, at which time counsel raised the preliminary objection in response to the City’s request for the second arbitration. The City had not been put on notice that the General Signing Authority was a forgery.”
The City also submitted that forgery of the 2013 Settlement was never an issue. See paras 194, 275 and 315.
(b) Questions of fact – Brown J. determined that two (2) of the key errors Sun Wave alleged the arbitrator made were actually questions of fact: the source of Ms. Liu’s apparent or alleged authority and whether the 2013 Settlement is an act of fraud. Brown J. held that the arbitrator had determined both questions against Sun Wave. Because both were question of fact, reconsidering them was beyond his jurisdiction when asked to grant leave to appeal on a question of law.
“ I must be mindful that it is an error to characterize a question as a question of law where the decision is inextricably linked to the evidentiary record before the arbitrator: [Teal Cedar Products Ltd. v. British Columbia,  1 SCR 688, 2017 SCC 32] at paras. 51-52.
 Some consideration of the evidentiary record, and mindfulness of the findings of fact made by the Arbitrator is necessary to ensure a question of fact is not misleadingly transfigured into a question of law; to provide some context and a sense of the litigation history. These may also bear on the court’s exercise of discretion with respect to granting leave to appeal, or not.”
Brown J. conclude that “[i]t is reasonable to characterize the petition at bar as a collateral attack on all of the foregoing”, being a reference at para. 312 to a list of procedural steps taken after and consequences of the 2013 Settlement.
“ The City submits the issue of whether the General Signing Authority is a forgery is one of fact or, at best, a question of mixed fact and law, one which requires a factual enquiry and an assessment of the factual matrix. I agree. The City accordingly submits that the question falls outside the jurisdiction of the Court. Considering the principles applicable to the granting of the leave to appeal, in my view, that is logically correct.”
Brown J. at para. 390 reiterated his opinion that Sun Wave’s petition was a collateral attack.
(c) Indoor management rule – The indoor management rule allows a party to contract with a corporation without being required to inquire into the internal management arrangements or allow that party to be affected by irregularities of which it has no notice.
“ I agree with the City, considering that it is not disputed that the Arbitrator correctly defined the Indoor Management Rule, and considering the findings of Arbitrator Plant’s rejection of the fraud and forgery allegations, his Decision effectively does not raise a question of law on the Indoor Management Rule; and Sun Wave’s assertion that fraud or forgery limits the application of the Indoor Management Rule does not apply to the facts at bar.
 The City’s tenable position is that the facts at bar constituted the precise reason for the Indoor Management Rule: to protect those who contract with corporations from those who would later deny the authority of the representatives for the purpose of avoiding their contracted obligations. I do not see an error by Arbitrator Plant with respect to his findings on applicability of the Indoor Management Rule.”
Brown J.’s reasons list many facts which appear to tug in either direction when determining if it was or was not reasonable for the City to rely on Ms. Liu having ostensible authority to bind Sun Wave. Both party’s noted that Ms. Liu often mentioned the need to have “principals in China” give or confirm instructions. See Sun Wave’s summary at para. 152 of the key facts which it submits supported its argument, as well as paras 64-71. See the City’s list of similar facts at paras 165, 284, 339-340 and 366. The lists should help identify gaps and opportunities for arbitration practitioners looking to confirm or disprove ostensible authority.
Brown J. concluded that the arbitrator’s 2017 Decision was “justified, transparent, intelligible, and defensible” and dismissed Sun Wave’s application for leave to appeal on a question of law.