B.C. – Court outlines reasoning process to be followed by arbitrator in interpreting agreement on re-hearing – #521

In Belmont Properties v. Swan, 2021 BCCA 265, the British Columbia Court of Appeal upheld a decision of the BC Supreme Court setting aside an arbitrator’s decision and remitting the dispute for a new hearing. In doing so, the Court of Appeal provided guidance as to the reasoning process to be followed by the arbitrator in interpreting the agreement at issue on the re-hearing.

The Appellant, Carly Swan, was a tenant of the Respondent, Belmont Properties. The parties’ tenancy agreement contained an addendum that required management approval of additional residents and/or guests:

Any other person[s] taking up residency with tenant[s] at a later date must be approved by management in writing. Such person[s] will then be included on the tenancy agreement. This will increase the rental payment by twenty‑five [$25.00] per month. Any other person[s] is/are guests, and may stay with the tenant(s) for a period of up to two [2] weeks during the calendar year. Any longer period of stay must be permitted in writing by management, only.

Ms. Swan’s mother stayed with her frequently to assist with her disabilities, without the written approval of Belmont. Belmont eventually gave notice to Ms. Swan to end the tenancy on the basis that there had been a failure to comply with a material term of the tenancy agreement; namely, the requirement to obtain management approval for guest stays over two weeks.

Ms. Swan applied to the Residential Tenancy Branch to have the matter arbitrated. Her position was that the addendum restricted guests from staying for more than two consecutive weeks without management approval, and that her mother had not stayed for more than two consecutive weeks. Belmont’s position was that the addendum restricted guests from staying more than a total of 14 days during a calendar year without management approval, and it was not disputed that Ms. Swan’s mother’s stays had exceeded 14 days.

The Residential Tenancy Branch arbitrator found in favour of Ms. Swan. The arbitrator found that the addendum was vague and not material:

“… I do not find sufficient evidence to establish that the Tenant’s mother is staying with the Tenant more than two weeks in a row as stated by the Tenant and supported by the Tenant’s evidence. Therefore, I am not satisfied that the Tenant’s mother has moved in with her. …

As stated in Policy Guideline 8, a material term is one in which the parties agree on the importance and in which even a trivial breach would end the tenancy. However, upon review of the clause in the tenancy agreement addendum, I find the terms to be vague and unclear as to how long a guest may stay in the rental unit before they must be a party to the tenancy agreement. As further evidence as to the vagueness of the term, the parties clearly do not agree on the meaning of the term in the agreement, as evidenced by their conflicting testimony as to the understanding of the term.

I also note that the Tenant signed the tenancy agreement with this addendum at the start of the tenancy which was prior to the current Landlord purchasing the property. Therefore, I find it reasonable that the Tenant may have had a different understanding of the term upon signing the agreement and as possibly discussed with the previous landlord. …

Therefore, due to the disagreement between the parties as to the meaning of the term of the tenancy agreement addendum, and the Tenant’s understanding which may have been clarified upon originally signing the agreement, I am not satisfied that a guest staying more than two weeks total in a year is a material term of the tenancy. …”

Section 44 of the Residential Tenancy Act, S.B.C., c. 78  sets out how tenancies end, including by a landlord’s notice for cause. Under s. 47(1)(h), a landlord may end a tenancy where a tenant fails to comply with a material term of the tenancy agreement. Here, as the arbitrator found that the term at issue was not material, she cancelled Belmont’s notice.

Belmont applied to the Supreme Court of BC for judicial review of the arbitrator’s decision. The chambers judge set aside the arbitrator’s decision on the basis that it was patently unreasonable for the arbitrator to have concluded that the addendum was not material without interpreting it. Instead of interpreting it, the arbitrator concluded that because the parties had different interpretations of the clause, it was vague and uncertain. 

Ms. Swan then appealed to the BC Court of Appeal. The Court of Appeal upheld that chambers judge’s decision, finding the arbitrator’s decision to be patently unreasonable.

It held that the appropriate first step for the arbitrator was to attempt to interpret the addendum, utilizing basic principles of contractual interpretation. The Court held that the arbitrator’s approach was at odds with the basic requirements of contractual interpretation in the following ways:

  • The arbitrator did not examine the tenancy agreement as a whole, giving the words used in the addendum their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time the contract was formed;
  • The arbitrator did not attempt to determine the objective intentions of the parties at the time the contract was formed;
  • The arbitrator impermissibly relied on Ms. Swan’s subjective understanding of the addendum to support the arbitrator’s conclusion that the addendum was vague; and
  • The arbitrator impermissibly considered extrinsic evidence, namely, what the original landlord may have said to Ms. Swan, to determine that the addendum was not a material term. The arbitrator could only consider extrinsic evidence after completing an appropriate contractual interpretation analysis and concluding that the addendum was ambiguous.

The Court indicated that it considered “stepping into the breach to offer an interpretation of the addendum that would save the parties the time and expense of returning to the Residential Tenancy Branch for a rehearing”. However, the Court determined that it was not as well placed as the Residential Tenancy Branch to undertake the necessary contextual analysis, and that the parties should have the opportunity to make full submissions on all relevant issues. Accordingly, the matter was remitted for a rehearing.

Despite determining that it would not be appropriate to offer an interpretation of the addendum, the Court went on to describe the “reasoning process” to be followed by the arbitrator, outlining the logical framework that should apply to the arbitrator’s analysis, but not identifying an ultimate outcome. In particular, the Court identified which aspects of the addendum were in dispute, and what material the arbitrator should consider in attempting to discern the meaning of the clause. With respect to the interpretive process, the Court stated:

[39] The meaning of the second part of the addendum is in dispute. Oral submissions revealed a number of possible interpretations beyond those set out by the parties in their factums. The fact that there is a number of possible interpretations does not necessarily render the second part of the addendum “unclear” and unenforceable…

[40] The arbitrator will have to undertake an interpretive analysis of the second part of the addendum in accordance with the principles outlined above. As noted, this must be a contextual and objective exercise to discern the “true intentions” of Ms. Swan and the original landlord at the time the contract was formed. The arbitrator may not consider the subjective intentions of the parties to the tenancy agreement. Further, the arbitrator may consider extrinsic evidence only in the case of genuine ambiguity.

The Court concluded by making some final comments about the application of these principles and explained the circumstances in which the addendum will be enforceable. As stated above, the matter was then returned to the Residential Tenancy Branch for a rehearing.

Contributor’s Notes:

For those new to arbitration, it should be understood that arbitral awards are not typically subject to “judicial review”. Section 5.1 of the Residential Tenancy Act incorporates the judicial review process set out in the Administrative Tribunals Act, S.B.C. 2004 as if the dispute resolution process were before an administrative tribunal. Further, pursuant to section 58(5) of the Residential Tenancy Act, BC’s domestic Arbitration Act, S.B.C. 2020 explicitly does not apply to these dispute resolution proceedings. In BC, arbitral awards may be appealed on a question of law under section 59 of the Arbitration Act, or an application may be made under section 58 of the Arbitration Act to set the award aside in narrow circumstances. Under the Arbitration Act, the court’s analytical framework is different.

In any event, this decision is an interesting embodiment of the tension between the Court’s desire to guide and assist the arbitrator while respecting the nature of a specialized decision-maker. The guidance provided by the Court is clearly tied to and motivated by the errors in contractual interpretation identified.