B.C. – arbitral termination order is not a final award and non-parties cannot maintain earlier stay of litigation – #064

In Tresoro Mining Corporation v. Mercer Gold Corp. (B.C.), 2018 BCCA 160, the B.C. Court of Appeal determined that an arbitration tribunal’s order to terminate arbitration for non-payment of the tribunal’s fees is not a final award and does not determine the merits of the dispute.  That order cannot be used by non-parties to the arbitration to preserve an earlier stay of court litigation benefiting them. The Court determined that it would be an injustice to maintain a stay of litigation and allowed the litigation can proceed against the non-parties.

Despite the style of cause, Mercer Gold Corp. (B.C.) (“Mercer B.C.”) is the Appellant, and Tresoro Mining Corporation, formerly known as Mercer Gold Corporation (Nevada) and Uranium International Corp. (“Tresoro”) is the Respondent.

The case facts resist summary beyond the already-dense outline set out by the Court of Appeal in its ‘Overview’ and ‘Background’, paras 1-25.  The procedural histories for both the court and arbitration venues are not only complex but tightly entwined.

For a sampling of the procedural history involving the parties see: Mercer Gold Corporation (Nevada) v. Mercer Gold Corp. (B.C.), 2011 BCSC 1664 ; Mercer Gold Corporation (Nevada) v. Mercer Gold Corp. (B.C.), 2012 BCSC 322Tresoro Mining Corporation v. Mercer Gold Corp. (B.C.), 2015 BCSC 1822; and, Tresoro Mining Corporation v. Mercer Gold Corp. (B.C.), 2017 BCSC 825. The Court of Appeal dealt with an appeal from the latter, 2017 decision.

This note makes no attempt to further distill the facts as presented in the Court of Appeal’s reasons, conceding that a sketch of the appellate parties, their contract and their procedural paths to the 2018 appeal will have to do.  That said, the sketch ought to allow readers to appreciate the solution set out by the Court and anticipate its application in other situations.

Mercer B.C. and Tresoro entered into, among others, a contract called a Secondary Option Agreement (“SOA”) relating to the exploration and development of gold on land located in Columbia.  The SOA contained an arbitration clause.  A fuller excerpt of the clause 16, absent clause 16.2, appears in Mercer Gold Corporation (Nevada) v. Mercer Gold Corp. (B.C.), 2011 BCSC 1664 at para. 26.  While clause 16.3 mentions B.C.’s Arbitration Act, RSBC 1996, c 55 (“Arbitration Act”) and stipulates that the hearing will be located in Vancouver B.C., there appears to be no express mention of an administering arbitral institution.  That said, the Court of Appeal at para. 28 states that Tresoro filed a September 21, 2011 notice of arbitration with the British Columbia International Commercial Arbitration Centre (“BCICAC”).   Noting that the BCICAC has its own procedural rules applicable to arbitrations it administers, the Court excerpted Rules 28(3), 31(3) and 34(3).

Rule 28(3) – If the claimant fails to comply with a requirement under these Rules or fails to comply with an order of the arbitration tribunal, the tribunal may issue an order for the termination of the arbitration. The tribunal must provide the claimant with not less than 14 days notice of its intention to terminate the arbitration and determine that the claimant has not provided sufficient cause for being in breach of the Rules or the order of the tribunal.

 Rule 31(3) – If the required deposits [against costs] are not made, the arbitration tribunal may order the suspension or termination of the proceeding.

 Rule 34(3) – The arbitration tribunal may order the termination of the arbitration where it finds that the proceedings have become unnecessary or impossible.

Appellant raised four (4) issues, as identified at para. 26 of the Court of Appeal’s reasons but this note focuses on the first and last:

(a) did the judge err in law by finding that the arbitration tribunal’s termination award qualified as a final award dismissing all of the outstanding issues in the litigation for want of prosecution;

(b) can non-parties to an arbitration agreement, involved in related court litigation in which a stay order issued earlier, benefit from a permanent stay order when the arbitration eventually terminates without a final award on the merits.

The Court noted that a termination order is a procedural step in the arbitration process and is not a determination of the merits.  The termination order issued because Mercer BC decided not to pay its share of the arbitration fees.  The Court further noted that Tresoro could have paid Mercer BC’s share but was not obliged to and elected not to do so.

The Court also held that a termination order did not qualify as an “award” under section 1 of the Arbitration Act.  The termination order was not “the decision of an arbitrator on the dispute that was submitted to the arbitrator and includes (a) an interim award, (b) the reasons for the decision, and (c) any amendments made to the award under this Act”.  All it did was bring the arbitration to an end, without dealing with substantive issues.

Arbitration tribunals do not in B.C. under its legislation have inherent authority to terminate arbitration for want of prosecution.  In Premium Brands Operating GP Inc. v. Turner Distribution Systems Ltd., 2011 BCCA 75 at paras 4 and 45, the B.C. Court of Appeal reasoned that “impossible” in Rule 34(3) meant that the arbitrator can terminate if the arbitration could not be conducted in compliance with the requirements of natural justice.  As a result, given that the termination order was not a final award, the claims against the non-parties to the arbitration clause, who had until then benefited from a stay of the court litigation by Mercer BC against them, remained outstanding.

The Court then evaluated what the arbitration tribunal had been expected to do when the stay of litigation first issued in 2011.  Returning to the lengthy prior 2011 and 2012 decisions, the Court determined that the arbitration tribunal had had the mission to decide which issues were within the scope of its jurisdiction but not to affect Mercer BC’s right to pursue its claims in court against the non-parties to the SOA arbitration clause.

On the second issue, the Court held that the judge erred in law when he exercised his discretion to dismiss Mercer BC’s application to lift the stay against the non-parties. Doing so permanently foreclosed Mercer BC from pursuing its claims in court against them.  The judge was motivated by his finding that Mercer BC could not rely on its inability to carry out its part of the arbitration clause and thwart Tresoro’s ability to enforce the undertaking to arbitrate.  The Court distinguished case law relied on by the judge, noting that in the present situation the result was to enforce the arbitration undertaking in favour of individuals who had never signed on to the undertaking.

[45] The distinguishing feature in this instance is that Mr. Pierce and the individual defendants were never parties to the agreement containing the arbitration clause. In refusing to lift the December 5, 2011 stay order, in the face of material changes to the circumstances in which it was granted, the judge effectively gave Mr. Pierce and the other individual defendants (i) the benefit of the arbitration clause in an agreement to which they were not parties, and (ii) a permanent stay order of the outstanding claims against them when the arbitration tribunal could not have granted them that or any remedy as they were not parties to the agreement.

Despite a deferential standard being owed by an appeal court to discretionary decisions, the Court reiterated that it could still intervene “where it is manifest from the judge’s reasons that the court misdirected itself or came to a decision based on an error of law or an error in principle, failed to give any or sufficient weight to all relevant considerations, or where the decision is so clearly wrong as to amount to an injustice”.

The Court concluded that the judge’s decision was an injustice by foreclosing Mercer BC from resolving its claims against the non-parties to the arbitration on the basis that the termination order was a final award.

The Court allowed the appeal and lifted the stay issued in 2011.