B.C. – Court strictly enforces arbitration rules to foreclose leave to appeal award – #843

In Bollhorn v Lakehouse Custom Homes Ltd., 2024 BCCA 192, the Court dismissed an application by the Appellant/Plaintiff Robert Bollhorn for leave to appeal an award of an arbitrator. This outcome resulted from the Court’s application of Rule 27 of the Vancouver International Arbitration Centre (“VanIAC”) Domestic Arbitration Rules (the “Rules”) and Section 59(3) of the Arbitration Act, SBC 2020, c 2. The former operates to foreclose appeals where the award is issued under the Expedited Procedures of the Rules, which the Court found applied to the case. The latter provides that there can be no appeal on a question of law where the arbitration agreement – in this case the parties’ adoption of the Rules – expressly disallows it.

Background – The case arises in the context of a dispute between Mr. Bollhorn and the Defendant/Respondent Lakehouse Custom Homes Ltd. (“Lakehouse”) concerning a contract for the construction and purchase of a house.

Before the completion date, Mr. Bollhorn as purchaser conducted a walk-through inspection of the property to identify and list any deficiencies. He identified several items that were not supplied according to his specifications and were thus “deficient.” When the deficiencies were not corrected to Mr. Bollhorn’s satisfaction, he invoked the arbitration clause included in the contract, which provided:

“Any dispute concerning the identification and pricing of deficiencies, the rectification of the deficiencies, and release of holdback will be settled by arbitration under the British Columbia Arbitration Act at the expense of the Seller.”

Mr. Bollhorn filed his Notice to Arbitrate (the “Notice”) with VanIAC, seeking a determination of the costs to rectify the deficiencies and who would pay them. The Notice cover page referred to the Arbitration Act SBC 2020, c 2 and Rule 5 of  VanIAC’s Domestic Commercial Arbitration Rules of Procedure, which state:

“The parties shall notify [VanIAC] of any agreement to modify the Rules upon commencement of the arbitration or as soon as any such agreement is made thereafter.”

Lakehouse opposed the arbitration on the ground that it was barred by the doctrine of res judicata. It argued that the BC Supreme Court had determined the issue in a prior dispute, which arose when Lakehouse took the position that the contract had ended, something that fell outside of the subject arbitration clause. The Court disagreed and ordered specific performance of the contract. The Court, however, declined to adjust the purchase price resulting from what Mr. Bollhorn alleged were “downgrades” in the building.

The arbitrator agreed with Lakehouse’s position that the summary trial judge in the earlier court proceeding had already determined the “very question” of Mr. Bollhorn’s entitlement to compensation for the deficiencies or “downgrades.” This, the Arbitrator found, satisfied the test for res judicata, thus barring Mr. Bollhorn’s claim to recover the costs to rectify the deficiencies in the arbitration.

The First Leave Application – Mr. Bollhorn sought leave to appeal the Award decision. In that case, which is summarized in “Lacuna” identified in B.C.’s domestic arbitration scheme? – Arbitration Matters Note #811  the Justice directed Mr. Bollhorn’s application for leave to a division of the Court for hearing by a full panel.

The Second Appeal Application

Issue 1: Without consideration of the Expedited Procedures under the VanIAC’s Domestic Arbitration Rules, is it appropriate to grant leave to appeal on whether the arbitrator had erred in concluding that Mr. Bollhorn’s claims for compensation for the deficiencies were res judicata?

The Court was satisfied that Mr. Bollhorn raised a question of law of sufficient importance to grant leave to appeal. The Court referred to Mr. Bollhorn’s arguments:

1. The issue of compensation for the deficiencies was ancillary rather than fundamental to the summary trial judge’s decision. This issue was not raised in Mr Bollhorn’s notice of application for summary trial.

2. The doctrine of “changing situation” should have applied to bar an estoppel. Circumstances evolved from the time of the summary trial, as the arbitration concerned damages arising immediately before the house’s completion date.

3. The issue of res judicata was of high importance to the parties, the public, and the legal profession, justifying the granting of leave to appeal.

The Court was satisfied that but for the VanIAC Expedited Procedures and because of the importance of the issue to the parties and the legal and arbitral profession, it would have granted leave to appeal.

Issue 2: Is Mr. Bollhorn’s proposed appeal barred by R. 27 of VanIAC’s Domestic Arbitration Rules?

The Court next turned to whether Rule 27 barred the proposed appeal. It states:

“For arbitrations brought under an arbitration agreement entered into on or after September 1, 2020 that provide for arbitration under these Rules, the parties expressly agree that there shall be no appeal on a question of law from an Award issued under the Expedited Procedure, unless consented to by both parties.”

Relatedly, Rule 24(a) of the Rules provides that the Expedited Procedures will apply where the value of the dispute is equivalent to or less than $250,000. Parties may also opt out of the Expedited Procedures in whole or in part.

The arbitration agreement fell within the  Rule. The Court described the operation of Rule 27 as “obscure at best” and that parties might easily overlook the provision. The Court nonetheless found that in having sought and obtained an award from an arbitrator in circumstances that fall within Expedited Procedures, Mr. Bollhorn was barred from seeking an appeal on a question of law:

“[54]…In my view, however, the unambiguous requirement in R. 24 that the Expedited Procedures be given precedence where the value of the dispute is equal to or less than $250,000 means that the appeal procedures in Part D have no application. R. 27 must, in other words, apply to prohibit appeals to a court of law under s. 59 of the Arbitration Act rather than to appeals to the appeal tribunal under the VanIAC Rules.”

The Court heard submissions from the intervenor VanIAC on this topic, which emphasized the twin goals of party autonomy and the facilitation of access to justice underlying the Rules generally and the Expedited Procedures in particular.

Regarding access to justice, VanIAC submitted that the objective of the Expedited Procedures is to promote the efficient resolution of disputes by reducing legal and arbitration fees. Finality is promoted by eliminating the possibility of appeals on questions of law. The Court described this submission as “ironic,” although agreed that the expense of litigation may make arbitration attractive.

The Court, nonetheless, agreed that having sought an award falling within the Expedited Rules, Mr. Bullhorn could not pursue an appeal. Rule 27 is unambiguous in its effect. As the Court noted at para. 62:

“…[T]here is in my view no lack of clarity as to its effect: under R. 27, there ‘shall be no appeal on a question of law’ from an award issued under the Expedited Procedures unless both parties consent.

Contributor’s Note:

There are at least two aspects of this decision worth comment.

The first concerns the Court’s comments on Rule 27, which it described as “obscure at best.” The Court noted that Mr. Bollhorn did not make any submissions on the Rule’s effect on his appeal rights when he signed the contract. The Court, likewise, noted that parties considering to arbitrate a dispute at the VanIAC may overlook the effect of Rule 27and recommended that VanIAC draw this provision to parties’ attention.

The Court’s comment, however, may presume that the Expedited Rules apply by default to domestic arbitrations below $250,000 in BC, and that the arbitration clause in the contract abrogated Mr. Bollhorn’s right of appeal from the outset. 

That, however, is not the case. While Section 22 of the previous Act,  Arbitration Act, RSBC 1996, c 55 provided that the Rules of VanIAC’s predecessor, the British Columbia International Commercial Arbitration Centre applied to domestic arbitrations unless the parties provided otherwise, the current legislation removed that provision. The Arbitration Act SBC 2020, c 2  specifically vests in VanIAC several powers (i.e. appointing arbitrators, ordering the release of an award, etc.), but is silent about how this may be done. This only underscores that the Expedited Rules do not apply by default. They are chosen by the parties.

Thus, while arbitral institutions such as VanIAC will want to strive for user-friendliness, in that parties will wish to adopt their applicable rules and have them administer their disputes, it is less clear what obligations they have to, in the Court’s words, “take steps to draw attention to the Rule more effectively.” In my view, this concern is misplaced. The courts should not be stepping in to try to protect disputing parties from their choices. Rather, the function of the Court in these cases is to respect party autonomy and hold the parties to their bargain.

Secondly, although accepting VanIAC’s submission that the Expedited Procedures might be attractive to litigants, the Court also characterized the submission as “ironic” because parties were deprived of the right to appeal. The modern trend in civil litigation has been consistent with VanIAC’s position. For example, in Hryniak v Mauldin, 2014 SCC 7, the Supreme Court of Canada recognized that most Canadians could not afford the costs of a traditional trial. This caused some to “simply give up on justice.” Accordingly, as the Court explained, at para. 2  a “culture shift” in civil litigation was required and that:

“[t]he balance between procedure and access struck by our justice system must come to reflect modern reality and recognize that new models of adjudication can be fair and just.”

This culture shift to streamline procedures to resolve cases more efficiently, expeditiously, and inexpensively necessarily has required that courts abandon, where appropriate, aspects of a trial that were once viewed as sacrosanct, such as live witness testimony and extensive cross-examination. Arbitration is already there. As with limiting appeal rights, the aim of these changes is to reduce costs to litigants and improve access to justice.