In Desert Properties Inc. v. G&T Martini Holdings Ltd, 2024 BCCA 320, the Court rejected challenges to a liability award and an interest award in disputes stemming from a major property development. The Court dismissed applications for leave to appeal and cross-appeal for failure to demonstrate extricable errors of law in the liability award. The Court also ruled there was insufficient merit in a proposed appeal from a BCSC decision which had declined to set aside the interest award. Both parties have kept the B.C. courts busy with multiple challenges to these arbitral awards, generating three Case Comments in recent months. It can be argued that the Court’s mode of analysing extricable errors of law for the purposes of appeal has changed (perhaps ever so slightly) since its decision in Escape 101 Ventures Inc. v. March of Dimes Canada, 2022 BCCA 294, in which it found that misapprehensions of evidence that go the core of the outcome of a case are extricable errors of law.
Background – G&T Martini Holdings Ltd. (“Martini”) and Desert Properties Ltd. (“Desert”) entered into a series of contracts for the sale and development of a municipal industrial park and commercial centre. One of the contracts, the Restated Subdivision and Servicing Agreement (“RSSA”), included an arbitration agreement directing disputes to a single arbitrator. The parties arbitrated delay and project costs claims and the arbitrator rendered an award (the “Liability Award”) followed by a subsequent award (the “Interest Award”).
The BCCA resolved an initial challenge in favour of Martini, declaring that the time to seek leave to appeal the Liability Award to the BCCA ran from the date the arbitrator issued award corrections: B.C. – Corrected award resets appeal time limits – #822 – Arbitration Matters.
Further court challenges followed.
First, Desert sought leave to the BCCA to appeal findings in the Liability Award that Martini was exempt from municipal levies for certain infrastructure developments.
Second, Martini applied for leave to cross-appeal a finding in the Liability Award that Desert was not responsible for delays in obtaining municipal rezoning and a further finding that Martini had no equitable interest in Desert’s lands.
Third, Martini brought an unsuccessful set-aside application to the BCSC, arguing that the Interest Award was an impermissible variation of the Liability Award: B.C. – Danger of Bifurcated Proceedings – #846. Martini then sought leave to the BCCA and argued that the BCSC erred in dismissing the set-aside application.
Court of Appeal decision – The Court dismissed each leave application.
After setting out the legal framework for appeals for questions of law under s. 59 of the Arbitration Act, S.B.C. 2020, c. 2 (the “Act”), the Court observed that appellate intervention in commercial arbitration in B.C. is narrow:
“[11] As a threshold matter, parties are required to identify an extricable question of law. Importantly, for the purposes of the present applications, this Court has noted that ‘questions of contractual interpretation generally give rise to questions of mixed fact and law and not to extricable errors of law’ Escape 101 Ventures Inc. v. March of Dimes Canada, 2022 BCCA 294 at para. 41, leave to appeal to S.C.C. refused, 2023CanLII 28894….
[12] Before turning to the leave applications, it is useful to keep in mind the context…the arbitration was a fact intensive process involving voluminous evidence and numerous witnesses, both lay and expert. The arbitrator was called upon to make many findings of fact that underpinned his analysis of the claims advanced. Further, the parties chose to submit their disputes to arbitration….”
1. Desert’s Application for Leave to Appeal
Desert argued that the arbitrator had erred in finding that a key provision of the RSSA was ambiguous without first interpreting its text in light of the surrounding circumstances or articulating the perceived ambiguity and Desert’s competing interpretations. Desert also contended that the arbitrator’s decision to rely on a prior draft to resolve the perceived ambiguity was an error, as was his decision to grant relief to non-parties to the contract, i.e., Martini’s affiliates.
The Court reviewed the Liability Award and ruled as follows:
“[28] …it is clear from the arbitrator’s reasons that he considered the relevant provision in issue (Award at para. 197), and the differing interpretations offered by Martini and Desert (Award at paras. 201–207), and concluded that the clause was ambiguous (Award at para. 207). Only after concluding that the clause was ambiguous did the arbitrator consider the parties’ correspondence and previous drafts of the agreement to resolve the ambiguity.
[29]… In my view, the arbitrator’s analysis does not give rise to any extricable question of law which can be clearly identified….it is apparent that what Desert takes issue with is the arbitrator’s ultimate interpretation of the clause ‘in the context of the factual matrix’….
[30] Second, Desert argues that the arbitrator erred in law by granting relief to non-parties. As Martini submits, this is not an accurate characterization of the arbitrator’s Award.”
2. Martini’s Application for Leave to Cross-Appeal
The Court dismissed Martini’s application for leave to cross-appeal on the same basis as Desert’s application: failure to disclose extricable questions of law.
Martini first maintained that the arbitrator had failed to assess whether Desert’s delay in achieving rezoning was due to Desert’s lack of diligence or, following the RSSA, for events beyond Desert’s reasonable control. On review of the Liability Award, the Court disagreed, noting at para. 47: “…that the arbitrator’s analysis of the [delay]…periods required him to assess the evidence and make findings of fact. The analysis does not give rise to an extricable question of law.”
Martini also maintained that the arbitrator had misapprehended the evidence and failed to apply the correct legal test and principles in determining that Desert was prevented by impediments outside its reasonable control from obtaining rezoning.
The Court stated as follows:
“[49] Misapprehensions of evidence that go the core of the outcome of a case are extricable errors of law: Escape 101 Ventures at para. 43.
[50] In Escape 101 Ventures, the Court, citing Hayes Forest Services at para. 69, noted that where there is “no evidence to sustain [an arbitrator’s] conclusion or if his conclusion was not reasonably supportable on the available evidence, the judge could have concluded the arbitrator made an error in law” (at para. 73, emphasis added).
[51] Here, however, it was open to the arbitrator on the evidence to conclude that some of the delays were outside of Desert’s reasonable control….
[52] …His conclusion is a matter of contractual interpretation, i.e., mixed fact and law, and therefore does not provide a basis for Martini’s application for leave to cross appeal.”
The Court ruled that a further error of law alleged by Martini—inconsistent findings as to whether Martini had an equitable interest in Desert’s lands—turned on the outcome of the leave application from the decision declining to set aside the Interest Award.
3. Martini’s Application for Leave to Appeal the BCSC refusal to Set Aside the Interest Award
In an application to the BCSC, Martini maintained that the Interest Award should be set aside as the arbitrator improperly revisited and revised findings regarding interest entitlement in the Liability Award. The BCSC denied that the arbitrator had attempted to recast matters already decided and dismissed the set aside application.
Set-aside decisions require leave to appeal under s. 58(6) of the Act. The Court considered criteria from other leave to appeal cases, including whether the appeal was prima facie meritorious, and ruled as follows:
“[70] Respectfully, I am unable to find any merit in [Martini’s] position, even sufficient to meet the relatively low merit threshold under the leave test.
[71] While the judge’s decision on this issue is not entitled to deference, I agree with his analysis….As the judge noted, the arbitrator was clearly alive to the parties’ competing positions….
[72] … In my view, Martini has not identified any error in the judge’s analysis that would warrant appellate intervention. I would add that the judge’s interpretation of s. 58(1)(c) [the set-aside provision], had no real bearing on his decision given his finding that the arbitrator had not decided a matter outside the scope of the arbitration.
[73] Further, I agree with Desert that Martini’s challenge to the arbitrator’s Interest Award is one of substance not jurisdiction. It turned on the arbitrator’s interpretation of s. 25 of the RSSA, something that is not open to challenge under s. 58 of the Act. As the judge observed at para. 37, it might have been the subject of a separate leave application under s. 59, however Martini chose not to pursue that course.”
Contributor’s Notes:
Here are a few take aways.
First, when reviewing court decisions considering arbitral awards, several basic limitations should be kept in mind. Readers of the court decision usually will not have seen the underlying arbitral award, let alone the evidence. Nor will readers commonly have the application materials or responses or have knowledge of the court hearing.
Some readers, however, have more knowledge. At the top are the insiders, the parties who lived through the matters in dispute. There is a second tier of insider: the counsel who argued the merits in arbitration and the arbitrator who reviewed the evidence, heard witness testimony, and made factual findings. On a lower rung are outsiders, including the reviewing court, who is separate from both the underlying dispute and hearings before the arbitrator. The most distant outsiders, those at the bottom of the heap, have only reviewed the court decision.
This separation should affect the approach of a court reviewing an arbitration award, particularly when review of questions of fact and mixed fact and law are prohibited.
On a leave to appeal application under the Act, the reviewing court (i.e. the BCCA) may often have only the arbitral award, the parties’ arbitration agreement and a few key documents. This is by design: the arbitrator is the master of the facts. The Supreme Court of Canada explained as follows in its landmark, unanimous decision in Sattva Capital Corp. v. Creston Moly Corp. 2014 SCC 53:
“[104] Appellate review of commercial arbitration awards takes place under a tightly defined regime specifically tailored to the objectives of commercial arbitrations and is different from judicial review of a decision of a statutory tribunal….For example, the [BC Arbitration Act] forbids review of an arbitrator’s factual findings. In the context of commercial arbitration, such a provision is absolute.”
Some courts take this statement at face value. For instance, the Ontario Court of Appeal has strongly cautioned against attempts to extricate questions of law from what are questions of mixed fact and law or simply questions of fact: Tall Ships Development Inc. v. Brockville (City), 2022 ONCA 861. See Ontario – Set-aside application can’t bootstrap appeal– #707 – Arbitration Matters.
Other courts maintain that if there is no evidence to sustain an arbitrator’s conclusion or if a conclusion is not reasonably supportable on the available evidence, an error of law may be found permitting the court to intervene. On this view, the arbitrator’s factual findings may be reviewed by the court and, indeed, changed if evidence was misapprehended. See Escape 101 Ventures Inc. v. March of Dimes Canada, 2021 BCCA 313 and Escape 101 Ventures Inc. v. March of Dimes Canada, 2022 BCCA 294. This approach is controversial and difficult to reconcile with Sattva and B.C.’s absolute prohibition of review of the factual findings of an arbitrator on appeal. In B.C., arbitration appeals on questions of fact or mixed fact are not permitted, not even with party agreement. By contrast, Ontario’s Arbitration Act, 1991, S.O. 1991, c. 17, contains no such absolute prohibition and a court may review an arbitrator’s factual findings if the parties agree.
Note, however, on a set-aside application, there may be a need to delve more deeply into evidence before the arbitrator. Depending on the set-aside allegations, it may be necessary to lead evidence beyond the arbitration or arbitration award: for instance, to establish an allegation of arbitral fraud or corruption. This is one reason the Act sends appeals and set aside applications to different courts. Sensibly enough, appeals are heard by the BCCA. By contrast, as set-aside applications are heard by the BCSC, a court well-accustomed to making findings of fact.
The disconnect between the BCCA and ONCA on how deep the reviewing court may delve to uncover alleged errors is well canvassed in B.C. – Material misapprehension of evidence is an extricable error of law – #662 – Arbitration Matters and Arbitration Appeals on Questions of Law in Canada: Stop Extricating the Inextricable! (2023) 3 Canadian Journal of Commercial Arbitration No. 2, 138-166.
Is the subject decision a gentle step away from March of Dimes, returning to the narrow, less intrusive approach of Sattva and Tall Ships? Perhaps, fingers crossed.
The Court cites March of Dimes and notes that a misapprehension of evidence occurs where a conclusion was not reasonably supportable on the available evidence. However, it is does not appear that the Court employs this approach.
There is no apparent review and revaluation of underlying evidence. The Court does not step behind the arbitral award. Instead—correctly it is submitted—the Court considers allegations that evidence was misapprehended by groundings its review of the alleged questions of law in the awards themselves. And on review of the awards, the Court found that the arbitrator had carried out a detailed review of the evidence and competing arguments and deferred to his factual assessments. In support this approach, the Court could have noted a 2020 post-Sattva codification in s. 28(1) of the Act, confirming the supremacy of an arbitrator’s fact-finding authority: “An arbitral tribunal may decide all evidentiary matters, including the admissibility, relevance, materiality and weight of any evidence, and may draw such inferences as the circumstances justify.”